Tag Archives: rural broadband

Comcast games expiring VoIP regulation ban to win CPUC permission to cherry pick suburbs

by Steve Blum • , , , ,

Tesoro viejo 25aug2019

Comcast’s sideways pleading for permission to compete against a subsidised rural telephone company demonstrates why it was wise to allow California’s ban on voice over Internet protocol (VoIP) service regulation to expire. And why Comcast, along with Charter Communications, AT&T and Frontier Communications, handed so much cash offered highly intellectual arguments to California legislators in their failed (so far) attempt to extend the ban.

Ponderosa Telephone Company offers service in the foothills and the Sierra generally north and east of Fresno. It’s one of 13 small telephone companies that serve rural California, and that depend on state and federal universal service subsidies to survive. As Fresno grows, suburban development is creeping into Ponderosa’s service territory. Tesoro Viejo is one such subdivision under construction along State Route 41, just beyond Fresno’s current development limit.

Comcast offers cable television and Internet service in Tesoro Viejo – households and disposable income are now dense enough to meet its return-on-investment objectives in an area it previously ignored. To offer phone service, though, it needs to connect its currently unregulated VoIP facilities to the traditional public telephone network. Comcast wants to do that via a legally isolated subsidiary that was specifically created to operate in that regulated environment, without creating any regulatory inconvenience for the rest of the company.

But that legally isolated subsidiary needs permission to set up shop in Ponderosa’s territory. The California Public Utilities Commission generally doesn’t allow competitors to cherry pick rural phone companies’ most lucrative customers, because it’s worried that doing so would result in ever increasing public subsidies to deliver retail service to poorer and more isolated people that don’t interest the likes of Comcast.

Nevertheless, Comcast asked for special permission to enter Ponderosa’s territory, and the CPUC is considering it. In support, Comcast is now citing the still current ban on VoIP regulation by the CPUC (it doesn’t expire until January) and disingenuously arguing that its regulated subsidiary only provides wholesale phone service, which doesn’t compete against Ponderosa’s retail offerings. The fact that its retail VoIP subsidiary would use that wholesale service to wholeheartedly compete against Ponderosa is irrelevant, Comcast’s argument goes, because it’s unregulated. At least for the present.

The CPUC has an inquiry under way that, eventually, could decide how it will protect, or not, California’s small telephone companies: should it allow competition, and the consumer benefits it brings, in affluent exurbs while spending more subsidy dollars to maintain service in communities with fewer people with less money to spend, or continue to try to maintain economic feasibility and baseline service availability, and minimise public subsidies by fencing off rural service territories?

It’s an important and timely question, not least because the telecoms industry is in the middle of a major, analog-to-digital shift. It’s the sort of technological revolution that only comes along every century or so. The answer should not come in bits and pieces, as major incumbents like Comcast (and AT&T, Charter and the rest) try to game the system with political and legal maneuvers based on irrelevant technological distinctions between otherwise identical services, and with falsehoods and evasions regarding their true intentions.

Faster broadband gains subscribers but slow service loses them, CenturyLink says

by Steve Blum • , , ,

Centurylink building

CenturyLink confirmed earlier this month that faster broadband service is the pathway to keeping subscribers on board, and gaining new ones.

In the company’s presentation outlining its second quarter 2019 financial results, it noted that it lost a total of 56,000 consumer-grade broadband customers. However, when that top level figure is broken out by speed, the company gained 48,000 subscribers at the 100 Mbps download speed level or better. The negative subscriber numbers were all at lower speeds: a net loss of 26,000 subscribers who were taking service at speeds levels of from 20 Mbps to less than 100 Mbps, and a loss of 78,000 subscribers who were buying service slower than 20 Mbps.

CenturyLink’s gains in the 100 Mbps or better category are accelerating. According to the Seeking Alpha transcript of CenturyLink’s second quarter conference call with analysts, chief financial officer Neel Dev said “growth in our greater than 100 meg subs is up more than 100% on a year over year basis”.

Fiber build outs are the key to CenturyLink’s future success, according to CEO Jeff Storey. Fiber is “highly flexible and increasing speeds, it is secure and really is the basis for all the other competing technologies”, he said. “We take fiber all the way to the customer, and customers always want fiber when they can get it”.

Still, CenturyLink is losing consumer broadband customers overall, nearly as rapidly as Frontier Communications, which lost high and low speed customers alike last quarter. Both companies took hits on Wall Street after second quarter results were announced, continuing a trend that began a year ago for CenturyLink – it’s lost about half its share value since then. Frontier, on the other hand, lost nearly half its already depleted market value following its second quarter conference call – dropping from $1.23 a share to a low of 68 cents, before starting to climb back a week ago. Yesterday Frontier closed at 84 cents a share, less than 30% of what it was worth at the end of April, and still in penny stock range.

With Frontier in free fall, California needs a Plan B

Frontier stock chart 8aug2019

Frontier Communications’ strategy of upgrading fiber speeds for high income, urban customers, and letting poor, rural ones rely on slow, wireless broadband systems didn’t seem to make an impression on Wall Street. The company’s stock price lost nearly 25% of its already diminished value after the release of second quarter 2019 results on Tuesday.

Even before this latest crash, a study by the California Public Utilities Commission concluded that Frontier is sinking in California, and it’s time to start thinking about what happens next…

While Frontier’s priorities are in maintaining and growing its [legacy telephone] properties, the company’s financial resources have become so deteriorated as to threaten its ongoing ability to pursue these priorities going forward. Frontier’s common stock price has dropped by around 98% since its high in February 2015, and as of April 10, 2019 its market cap was at $261.2- million – notably, Frontier has invested more than that in California alone over the first 21 months of its ownership. The parent company’s earnings have been consistently negative since the second quarter of 2016. Its annual debt service payments are now consuming more than one- fifth of its total operating revenues, making prospects for raising additional debt or equity financing extremely challenging. It is now abundantly clear that Frontier’s decision to purchase Verizon California in 2015 was both ill-timed and ill-conceived…

The Commission should establish a process to proactively examine the alternatives that would be available to maintain adequate service to Frontier California customers in the event that the parent company no longer has the financial resources to provide safe and reliable services in California.

That warning was published last month, and relied on data that was current as of April 2019. At the end of that month, Frontier’s share price was $2.85, which was about 2% of its 2015 high of $125.70 (after factoring in a reverse split). Yesterday it closed in penny stock territory at 93¢, less than 1% of its peak value and less than a third of its April high.

Two million Californian homes look to Frontier for telephone and broadband service, and many of them have no other option, as the CPUC report notes. The time for being proactive is running out.

Frontier CEO confirms affluent, urban communities to get 1,000X better broadband than poor, rural ones

Frontier 2q2019 broadband results

On Tuesday, Frontier Communications’ CEO confirmed the findings of a California Public Utilities Commission study that concluded that Frontier (as well as AT&T) is “disinvesting in infrastructure overall”, and the disinvestment is “most pronounced in the more rural and low-income service areas”. The company released its financial results for the second quarter of this year on Tuesday, announcing a $5.3 billion loss for the three months and 71,000 fewer broadband subscribers.

Most of the lost accounts – 46,000 – were DSL customers, served, at least in California, via decaying copper networks Frontier acquired from Verizon. Much of that territory is rural, and falls under the federal Connect America Fund subsidy program. Frontier affirmed it is switching to low capacity fixed wireless broadband systems in CAF territories, which in theory will deliver the 10 Mbps download and 1 Mbps upload speeds (actually, 8 Mbps down/800 Kbps up, 80% of the time) that the program requires.

That’s in contrast to the 10 Gbps upgrades that Frontier announced it was making in high capacity, fiber-to-the-home (FTTH) systems formerly owned by Verizon, which are predominantly in more affluent urban and suburban communities. This thousand-fold disparity between Frontier’s rural and urban infrastructure is a deliberate strategy, according to the Seeking Alpha transcript of CEO Dan Murphy’s conference call with Wall Street analysts…

Our objective continues to be to optimize our business, leveraging our best assets for future growth, while managing the elements of our business in secular decline by executing on cost efficiency programs and selective capital investment.

“Best assets” = FTTH to people with money to spend; “elements…in secular decline” = copper systems where household incomes are low. Murphy was straightforward with the analysts, not just because that’s what they wanted to hear but also because there are criminal penalties for lying to Wall Street.

Unlike lying to the CPUC: when seeking approval to take over Verizon’s systems, it claimed it “is strategically focused solely on wireline telecommunications” and “all of Frontier’s capital and human resources are concentrated on wireline communications services”.

FCC approves new broadband subsidy and data collection programs, but each ignores the other

by Steve Blum • , , ,

The Federal Communications Commission will be asking for comments on its plan to spend, at first, $16 billion and eventually $20 billion on rural broadband subsidies, with a minimum speed requirement of 25 Mbps down and 3 Mbps up. It’s also moving ahead with a new broadband availability data collection process, based on electronic map files, rather than spreadsheets. The two initiatives were approved at yesterday’s FCC meeting.

Both democratic commissioners – Jessica Roseworcel and Geoffrey Starks – objected to the republican majority’s blind acceptance of broadband availability data submitted by Internet service providers as a basis for deciding where subsidies should be spent.

Rosenworcel said in a statement that the new subsidy program relies on the same bad data as the old Connect America Fund program…

There’s something fundamentally wrong here. We do not start with maps. We do not start with data. In fact, take a look at the draft rulemaking before us and it barely mentions the fact that we have a separate proceeding we are voting on today involving maps.

In fact, this rulemaking rushes past that effort and simply proposes a successor to our existing Connected America Fund, distributing $16 billion dollars before any new data comes before this agency. Before any new maps are developed. I understand the impulse to move fast. I know that we should be working at warp speed to get modern communications to too many places that have waited too long for digital opportunity. So let’s do it. But let’s commit to doing it right.

This is putting the cart before the horse.

The new availability data collection process should eventually result in more accurate maps, but there’s no firm timeline for it to get underway. Rosenworcel’s objections are a good example of another big problem with it: collecting the data is one thing, but getting agencies to upgrade their systems and their analytical skills to effectively use it is a problem that’s yet to be solved.

FCC’s rural broadband subsidy reboot proposes faster speeds, but performance is still a question

by Steve Blum • , , ,

Paicines pole route

Broadband service at 25 Mbps download and 3 Mbps upload speeds “is not a luxury” reserved for people who live in cities and suburbs, according to a draft FCC notice that kicks off the process of rebooting federal broadband service subsidies for rural communities. In August, the FCC plans to vote on a draft notice of proposed rulemaking that would open the door to comments and proposals – from any interested party – regarding how to spend “at least” $20.4 billion earmarked for the “rural digital opportunity fund”.

It’s a reboot of the FCC’s Connect America Fund (CAF), which mostly gave money to monopoly model telcos, such as AT&T and Frontier Communications, to provide slower service – 10 Mbps down/1 Mbps up – in California and in other states where they thought they could get a sufficient return on investment by providing upgraded rural broadband service. Subsidy rights for the remaining communities they skipped, for one reason or another, were auctioned off last year. The winners were the companies that promised the fastest service for the least subsidy dollars.

That’s a process that the FCC proposes to repeat. Broadband service subsidies would go to the lowest bidder in an eligible community, instead of automatically given to the incumbent telco. The definition of “eligible” would change, too…

Consumers’ demand for faster speeds has grown dramatically—and the market has largely been able to deliver. Speeds of 25/3 Mbps are widely available, and 25/3 Mbps is the Commission’s current benchmark for evaluating whether a fixed service is advanced-telecommunications capable. Thus, the item proposes a 25/3 Mbps service availability threshold as the basis for establishing eligible areas.

Providers would be able to bid at three speeds levels: 25/3 with a 150 monthly gigabyte cap, and 100 Mbps down/20 Mbps up and 1 gigabit down/500 Mbps up with a 2 terabyte cap. That’s similar to how last year’s CAF auction was organised, except that this time around 10/1 service would not be acceptable.

There are a couple of problems with the FCC’s proposal as it stands. The 25/3 minimum is inadequate – research done last year by the Central Coast Broadband Consortium and the Monterey Bay Economic Partnership identified 100/20 as the threshold for acceptable rural (and urban) service.

Another concern is performance. AT&T and Frontier claim to be meeting their build out requirements, but there’s a year to go before the final deadline and they’ve been evasive about details, so we won’t really know until then, at the soonest, if they’re telling the whole truth.

Last year’s auction winners in California were wireless Internet service providers (WISPs) that made very aggressive coverage and service level promises. Those, too, will have to be verified over the next few years to see if the FCC’s proposed “technology neutral” funding policy produces the desired results.

Experience and expertise give ISPs an edge in hunt for federal rural broadband subsidies

by Steve Blum • , , , ,

Salinas ag tech summit 13jul2018

The federal agriculture department’s ReConnect program is new. It supplements an older program that wasn’t much use in California. We’re hopeful this new version will be better for us. But we won’t know until we see results. Grant money will be awarded on a competitive basis, with the first grant application deadline last month, and windows for grant/loan combinations and pure loans coming up.

On paper, it’s easier for Californian projects to qualify – e.g. projects submitted by private, for profit ISPs, which we have, as opposed to co-ops and similar, which we don’t so much. USDA grant applications are different from what we’re used to with California Advanced Services Fund (CASF) grants. The application requirements tend to be more technical, and the review more objective.

Sometimes that’s good, sometimes not.

When an Internet service provider asks me if they should apply, I have three gating questions:

  • Do you have GAAP compliant financial statements? Not can you put them together if you had to, but could you give those to me right now if I asked?
  • Do you have someone in your organisation with a four-year engineering degree?
  • Have you applied for a federal telecoms grant in the past?

If the answer to all three questions is no, then you’re going to have a harder time meeting the application requirements. The USDA isn’t big on do-overs. They run applications through an initial screening – which is partly automated – and kick out the ones that aren’t up to spec in their judgement.

So the companies and other organisations that have been successful in the past have been the ones that submit financial and technical detail that complies with USDA’s standards. Qualified accountants and engineers have a significant edge. Some organisations have people who perform at that level without the qualifications, but that’s not the way to bet.

Experience also matters. The ones who win grants tend to be the ones who have learned to play the game. The odds of success on your first go-round are lower, but once you climb the learning curve, your chances increase. If you’re looking at this as a one-off opportunity, I wouldn’t be optimistic. But if you look at it as something that you’ll develop as part of your business model for the long term, then I think it’s worth the effort.

100 Mbps broadband means 0.2% to 0.3% lower unemployment, biggest impact in rural communities, study says

by Steve Blum • , , , ,

We can do it

Faster and better broadband service means more jobs and lower unemployment. Rural communities benefit more from gaining access to high quality broadband service than urban and suburban areas. That’s the conclusion of a study by three researchers, Bento Lobo and Rafayet Alam at the University of Tennessee at Chattanooga’s finance and economics department, and Brian Whitacre – at Oklahoma State University’s agricultural economics department.

They compared high speed broadband availability – defined as 100 Mbps download speed or better – to unemployment statistics in Tennessee between 2011 and 2015. They also factored out a potential source of bias: the tendency of Internet service providers to upgrade infrastructure and service in richer communities while redlining poorer ones.

Their results are dramatic…

High broadband speed matters and results in approximately 0.26 percentage points lower unemployment in counties with high speed compared to counties with low speed broadband…Additionally, early adoption of high speed broadband could reduce unemployment rates by an average of 0.16 percentage points per year. The results also show that compared to urban areas, the benefits of better quality broadband are disproportionately greater in rural areas.

From a policy standpoint, our research shows that investments in faster broadband can have significant employment effects, especially in rural areas…While it may make little difference to move from 10 Mbps to 25 Mbps, it could (and our results suggest that it does) make a significant difference to move to 100 Mbps or higher speeds…Our results consistently show that access to faster speed results in a decrease of 0.2 – 0.3 percentage points in unemployment, which can be in the 100s of jobs for some counties.

It’s a landmark study, and deserves to be read in its entirely, not least for the thorough review of past research into the economic benefits of better broadband service. The results also track with research conducted last year by the Monterey Bay Economic Partnership and the Central Coast Broadband Consortium, which found that broadband service at 100 Mbps download and 20 Mbps upload speeds is the minimum necessary for full participation in today’s digital economy.

Lobo, B., Alam, R., Whitacre, B. (2019). Broadband Speed and Unemployment Rates: Data and Measurement Issues, Telecommunications Policy, April 2019

Shift California’s broadband subsidies from consumer upgrades to paying incumbents to serve public agencies, CPUC told

by Steve Blum • , , ,

There’s an idea on the table to make it even easier for big, monopoly model broadband service providers to tap into the taxpayer-funded telecoms piggybank created by the California legislature when it approved assembly bill 1665 a couple of years ago. AB 1665 rewrote the rules for the state’s primary broadband infrastructure subsidy program, the California Advanced Services Fund (CASF).

The latest proposal to remake CASF surfaced at a panel discussion organised by the California Public Utilities Commission in Sacramento a couple of weeks ago. One of the panelists, Sunne McPeak, the CEO of AB 1665’s sponsor, the California Emerging Technology Fund (CETF), signaled that she wants to expand CASF to include, among other things, funding “public safety” projects.

On the face of it, that sounds like a wonderful thing, but it would be a radical change for CASF. It means flipping the fund from building infrastructure and increasing broadband availability for everyone to, in effect, subsidising ongoing operating expenses for public agencies. In other words, CASF would be absorbed into the state’s information technology budget, whether or not (likely, not) extra money was put into it.

Even if CASF money was strictly limited to paying for construction costs, it would act as an operating subsidy by offsetting upfront installation charges, which are paid out of public agency budgets, either all at once or over time. It’s a golden opportunity for companies like AT&T that can shift resources and facilities away from less profitable homes and small businesses, and toward more lucrative institutional services in rural areas where they maintain monopoly control.

A remote fire station or a county fairgrounds might get wicked fast broadband service – as it should – but it would be a zero sum game with the local economy ending up on the losing side. The better way to do it is to upgrade rural broadband infrastructure, particularly middle mile fiber, that serves everyone, public safety agencies and ordinary people alike.

It might or might not be too late to roll this gift to major incumbents into a bill during the current legislative session. The workings of the California legislature are more opaque this year, with greater power to decide the fate of bills given to committee chairs who can, and do, collect cash from politically generous cable and telephone companies. It’s possible to slip special benefits into existing bills, or create brand new ones via the gut and amend process, as the legislative session winds down to its September conclusion.

This year, next year or the year after: keep a close watch.

Comcast tells CPUC it must say yes to rural cherrypicking because it can’t say no

by Steve Blum • , , , ,

Paicines pole route

Comcast took its best shot at explaining why it should be allowed to jump the queue and start competing against Ponderosa Telephone before the California Public Utilities Commission decides what the future will be for small, rural telephone companies. The answer: because the developer wants us and the Federal Communications Commission says we can.

The dispute centers on Tesoro Viejo, an upscale master planned community under construction in the foothills of Madera County. Comcast claims the developers offered Tesoro Viejo as a cherry ripe for picking, and it wants to oblige them. There’s nothing preventing Comcast from providing video and broadband service, but if it wants to bundle in telephone service and offer the full triple play, it needs the CPUC’s permission.

That’s because Ponderosa Telephone serves the foothills of Madera and Fresno counties, as well as more remote communities further up in the Sierra Nevada. It’s one of ten small, highly subsidised telephone companies that serve deeply rural areas of California, the edges of which are now right in the path of exurban development. The CPUC protects those rural telcos from competition in an effort to minimise the amount of taxpayer dollars it takes to keep them afloat.

That policy is under review, but Comcast doesn’t want to wait. Ponderosa, on the other hand, doesn’t want to be nibbled to death. It argues that top level policy has to be decided first “because competition raises public policy questions with a collective impact on stakeholders throughout the state”.

It’s a tough question. Comcast is an unlikely champion. It moves quickly to kill potential competition whenever its territory is threatened. But regardless of how disingenuous it’s being, Comcast is correct in saying that more choice brings greater benefits to consumers. Once its process is complete, the CPUC might trim, or even eliminate, the privileges that rural telcos enjoy.

Might.

That’s a decision that needs to be taken deliberately and with the full consequences for all – rural residents, exurban immigrants, California taxpayers – in mind. Doing it reactively in response to rich targets of opportunity is a disservice to everyone.

Collected documents regarding Comcast’s expansion into Ponderosa’s territory are here.