Universal broadband service is hard. The cost to bring universal broadband service to Minnesota has been estimated at $1-3 billion dollars. That estimate comes from a few years ago – but for now I think that’s the best – albeit gaping – budget we have and it is primarily to serve high cost, low ROI areas – remote places with low population density and sometimes added challenges like communities built on granite or in the woods. It’s difficult for commercial broadband providers to serve those areas and make a profit. It’s difficult for government to serve those areas because their primary focus is not broadband service. Government will benefit when those people are connected – they will be able to provide services more efficiently (healthcare and education for example) and broadband provides greater economic opportunities for a home and/or business. Commercial providers have the know-how; government has the motivation.
So who is (or should be) responsible for universal broadband service? The mantra has been public private partnership.
Where public private partnership has worked, it’s worked well to serve rural areas – but most of the success we’ve had in Minnesota has been from cooperatives and small independent companies. Small folks who are nimble enough to take advantage of ARRA funding and/or Border to Border Grants. Nimble folks will continue to flourish wherever opportunity arises – be that grants or a community willing to help make a business plan work.
Public private partnerships to serve rural areas seems less successful with big providers who have billions of dollars invested in infrastructure – equipment and wires but I also staff, political relationships and previous funding channels from the FCC through earlier iterations of the universal service funds. Government funding has subsidized some of that infrastructure so I think they feel invested too.
I get it – it’s hard to be nimble with that kind of baggage. Maybe it’s time to assess what each side has to offer and what each side really needs moving forward.
Is it really about the money for larger providers?
US Telecom (“the nation’s leading trade association representing broadband service providers and suppliers”), seemingly spearheaded by AT&T, blames the FCC for not budgeting/allocating enough money to subsidize universal service…
The Federal Communications Commission wants to get broadband deployed in extremely rural areas but not pay for it, AT&T said in a blog criticizing the commission for refusing USTelecom’ s request to end service obligations if funding isn’t available. In December, the commission granted some parts of USTelecom’ s 2014 forbearance petition but denied relief in places where price cap carriers receive no support. “In explaining this denial, the FCC sounds an awful lot like a kid explaining why he shoveled only part of the sidewalk,” AT&T said.
The 1996 Telecommunications Act requires the FCC to make sure there is enough universal service funding any mandated obligations. Citing FCC Commission Ajit Pai, AT&T pointed out that not only has the commission “shirked this responsibility,” there is more than $1 billion gap between the cost of serving these areas and the expected revenues from doing so. “If the FCC doesn’t want to fund universal service obligations in these areas, it should just get rid of them, as USTelecom asked it to do,” the blog said.
But digging into the Petition from US Telecom (and by digging I really mean sifting some of the topsoil!) , many of the complaints from US Telecom are about outdated regulations – there are sections on long distance! (My kids don’t even know what long distance is!) Money has a way of making everything easier but maybe it’s not about the money. Maybe it’s about cost reduction through streamlining of processes and telecom regulation overhaul. (After getting into the fiber business, Google maintained that it wasn’t money that drew them to a town – it was accommodation. They chose communities that make things easy.)
There’s a healthy tension here – big providers want things to be easier and government wants universal service. And there’s a third player – the nimble providers – where do they fit in? Maybe there are some natural sweet spots that could be explored if we look beyond the customer-vendor relationship to a new kind of public private partnership.
Who controls it?
Another place where there may be tension is ownership. West Virginia is experiencing that with their recent plans for an open access network. According to the Charleston Gazette Mail, West Virginia is looking into investing in public broadband infrastructure…
“The intent of the bill is to build the fastest, most affordable fiber-optic network in the United States,” he said. “This is how we diversify our economy. This is how you get away from extraction [industries]. This is how West Virginia becomes competitive in the 21st Century.”
Not everyone is a fan…
Frontier Communications and the union that represents the company’s workers are opposing proposed legislation that would create a publicly funded $72 million high-speed Internet network in West Virginia.
A Frontier executive and union boss said Friday there’s no guarantee that Internet companies will sign up to use the network and serve customers. That scenario could leave taxpayers on the hook, they said.
State Sen. Chris Walters, R-Putnam, plans to introduce the broadband project bill during the upcoming legislative session that starts Wednesday.
Frontier is not interested in taking advantage of the service, although the article notes that there is at least one other provider who is and they expect others to follow. Frontier is happy to partner with the FCC to achieve a common goal of increased broadband for rural America…
Frontier Communications says that the company has accepted $283 million in rural deployment broadband subsidies from the Federal Government. In a news release, Frontier says that the money, which is coming via the FCC’s Connect America Fund (CAF) Phase II, will be used to deliver broadband to an additional 650,000 high-cost rural locations throughout its 28-state service area. …
“CAF Phase II is a critical next step in delivering broadband service – and the major economic benefits associated with it – to rural America,” said Frontier CFO Dan McCarthy. “We have reviewed the FCC’s CAF Phase II rules and offers and look forward to partnering with the FCC to achieve our common goal of increased broadband access for rural America.”
… but uninterested in partnering with the West Virginia with the same goal. (Frontier and West Virginia do have history of issues.) It seems like there ought to be a way to collaborate so that they can build upon each other’s work. The traditional customer-vendor relationship doesn’t seem to be working any better with government as vendor. According to Broadband Now, West Virginia is ranked 45th for “most connected state – Only 57 percent of the state has access to broadband. They need a solution.
We might have a homegrown solution to look to in Dakota County – where they have worked with providers and other counties to find ways to cost-effectively expand their fiber networks. The goal is to make the best use of existing conduit and connections, rather than building from scratch…
The County doesn’t necessarily want to get involved with providing broadband services to the end customer – but they are willing to invest and collaborate so that broadband is available.
It’s time to recognize that each partner has different motivations and expectations and leverage those on both side to get the job done. Private business is pretty good at doing this – at least with the two examples given here. Local government may need to reevaluate what they bring to the table – because while private companies can and should be active partners – universal service really is the responsibility of government – because according to the Constitution it’s the role of government (not business) to promote the general welfare. Not that good corporate citizenship isn’t applauded, it’s just not assumed.
As long as there is the belief in silos (wired and wireless) and a bill and keep model, the digital divide between urban/suburban and rural will increase.
There are definitely market driven ways of sharing resources and developing revenue streams from outside the markets to amortize the cost of investment and make up for the shortfall in subsidies.
Thanks for the thoughtful analysis here. It shows the U.S. while having a policy nominally committed to bringing advanced telecommunications services to all Americans (Title II of the Communications Act as amended in 1996), the nation has no real plan of action or timeline to implement that policy.
Due to the high cost of building telecommunications infrastructure, we cannot rely on investor owned providers nor state and local governments to adequately fund it. It should therefore be accomplished with a federal public works project — a national telecommunications infrastructure initiative as I propose in my recent book “Service Unavailable: America’s Telecommunications Infrastructure Crisis.”
@Infostack. The silos to which you refer isn’t a belief system. It’s a business model that builds piecemeal telecommunications infrastructure only where theres’ a rapid ROI. Nothing wrong with that per se, but it isn’t serving the nation’s telecom needs, leaving it with a hodge podge, crazy quilt telecom infrastructure (as shown by “broadband maps”) and enormous gaps and disparities in terms of access and quality.
@EldoTelecom it is a belief in that it is not proven to be sustainable without sometime of government supported monopoly control of a right of way or frequency. From these initial seeds the service providers try to create other areas of monopoly (bundling, or addressing, or content, or technology control) that keep the cost of entry high to new competition. In the process they mistakenly believe that investing capex and opex at every layer generates a positive return. But we have ample evidence that horizontal scaling is far more efficient from cost perspective and generating new areas of demand.
@Infostack. Demand for premise and mobile telecom services is already enormous. It’s not necessary to stimulate demand. What we have is market failure on the supply side that manifests as inadequate infrastructure to serve the demand.
Thanks for kind comments and further discussion. I think it helps demonstrate that there is a real discrepancy in rural and urban markets. What works in urban markets is not working in rural markets. Maybe there is room for national solution that offers some sort of open access model to help defray cost for new and existing providers to enter the markets where ROI can be difficult to justify.
@EldoTelecom it is BOTH a supply and demand issue. Urban FTTH can afford to charge $80/month and get penetration of 30%+ to get 10-15 year paybacks on opex/capex. Similar models might not even work in rural with 100% penetration and 20-30 year paybacks. But the problem is that 30-40% of rural demand simply cannot afford $80/month.
So where will the demand come from? It has to come from the core. And not just USF/CAF subsidies but rather through revenues resulting from market driven forces that the government can mandate and foster; ie interconnection and settlements.
Urban/suburban mobile users transiting to and through those rural markets. From the law of large numbers that will typically be 2-3x of purely local demand over the course of a year. The second source of demand also comes from outside. This is wide area commercial VPNs (B2B and B2C) for specific industry verticals: agriculture, manufacturing, transportation, education and healthcare.
Another is public safety, but if you read the FirstNet RFP this is already going to be a big failure and lost opportunity for wide-scale demand to be used to amortize the cost of rural coverage/access. Given that the government is funding 100% of of FirstNet it can scale sharing into rural markets by mandating sharing to begin with. So even if AT&T or VZW become the prime contractors and service providers the infrastructure is available to other MNOs and iLECs to resell. And that will support the first driver.
Finally, the 3rd area of rural demand is B2C applications in the above verticals. A huge amount of real world or physical or analog costs can be moved to digital networks in rural markets. Tele-education, medicine, work, etc… can all be managed VPN services (wired and wireless) where low-cost, competitive access is purchased by a centralized buyer.
All 3 of these revenue models simply do not exist today, but bring core or centralized demand to the haphazard, every person for themselves, and overpriced access market.
Telecom infrastructure is and should properly be viewed as interstate infrastructure — just as interstate highways were in the 1950s and 1960s. They were not built to serve only urban or rural areas but to connect entire states and states to each other and the nation to the world.
@eldotelecom, you are correct. But all parties in the debate have lost or fail to understand simple “inter-network” or “inter-actor” network effects. Namely without settlements there are no price signals or (dis)incentives.
Where is the analysis that reveals a way to get technology distributed pervasively to the end points; especially where that technology obsoletes quickly and the greater network effect (value) comes from pervasive access and participation in the network.
It doesn’t exist.
If it did, it would reveal how important rural is for urban and vice versa and develop an understanding for sharing or conveying value from the core to the edge and from the top to the bottom. This can be done mostly through competitive market mechanisms guided by an informed, light-touch regulatory hand.
The failure of active government involvement in ex ante price setting that began in 1934 is all too apparent. This process was flawed from the get-go as government is never good at taking on market risk or commercializing technology, and it is too easy for any service provider with a minimal amount of market (monopoly or oligopoly) power to game the process.
This should be obvious to all. And it is not.