MoffettNathanson says CenturyLink might as well keep residential customers

There’s a lot to unpack here. Back in May, CenturyLink said they were looking at their options for their consumer/residential service…

Could the CenturyLink consumer business be sold or spun off? CenturyLink CEO Jeff Storey said yesterday that CenturyLink has enlisted advisors to assist the company in a strategic review of the company’s consumer business. Although he emphasized that it is “really early in the process,” he noted on the company’s first-quarter earnings call that the company is “very open” in the options it would consider.

“Let me be clear, we’re early in what I expect to be a lengthy and complex process,” said Story, according to a SeekingAlpha transcript of the earnings call.

At that time, Storey elaborated:  “During our review, we will not modify our normal operations or our investment patterns. I can’t predict the outcome or the timing of this work or if any transactions will come from it at all. Our focus, though, is value maximization for shareholders. If there are better paths to create more value with these assets, we will pursue them.”

He added, though, that the company is doing a good job of growing broadband where it invests in improving the customer experience and profitably expanding the network.

The company’s consumer revenues were $1.4 billion in the first quarter of 2019. The consumer business saw a 1.3% year-over-year and a 2.7% increase over the previous quarter in broadband revenues. While the company lost subscribers purchasing speeds below 20 Mbps, it gained subscribers purchasing higher-speed services.

I’ve added the emphasis. Interesting that CEO Storey  revealed  that  while CenturyLink “grow[s] broadband” where they invest,  decisions about where to invest are driven by a focus on maximizing shareholder value, not community benefit.  Because they are a business, profitability, not community needs, drives CenturyLink’s investment decisions.

Fast forward a month and it looks like the analysis is in

CenturyLink wouldn’t gain much by spinning off its consumer business, argued telecom financial analysts MoffettNathanson in a research note issued today. The cost of a CenturyLink consumer spinoff would leave the company with little in the way of financial benefits, the analysts said.

Telecompetitor goes into detail…

Spinning off the CenturyLink consumer business would generate what the researchers refer to as “dis-synergies” that would result from the difficult task of dividing a network and other operations that serve both the consumer and business sides of the house. These dis-synergies would “simplistically imply roughly $300 million to $600 million in value destruction from separating the businesses,” the researchers argue.

Another concern about a spinoff is whether it would receive necessary approvals from state public utility commissions.

The analysts also question how much upside there is for CenturyLink’s consumer business. They argue, for example, that the company’s opportunity to provide connectivity for small cells is limited because small cells will be deployed only in densely populated areas and CenturyLink is the incumbent local carrier in only two of the nation’s 50 most densely populated cities.

Again, the emphasis is mine. The worry about value destruction is real for any business; you don’t want to lose value. BUT the worry for communities is that this isn’t really a rousing rationale for investing in upgrading  residential service, rather a recognition that the cost of disaggregating business customers is just too high.

Also of note in the analysis is recognition that small cell technology (necessary for 5G) will only be deployed in densely populated areas. This is not new news, but does reinforce the fact that 5G is not coming to  rural areas anytime soon.

Finally…

Not all of MoffettNathanson’s analysis of CenturyLink opportunities is so downbeat, however.  For example, the researchers see the recent news about FCC plans for a replacement for the Connect America Fund, due to expire in just a couple of years, as a positive, as CenturyLink was one of the largest recipients of CAF funding.

The “potential upside risk is what keeps us on the sidelines,” the researchers wrote.

The upshot is that MoffettNathanson sees CenturyLink’s consumer business remaining within the merged company, where it would be better off anyway.

Again, emphasis is mine. I have heard  industry insiders question the wisdom of CenturyLink accepting CAF funding. The main problem is that they didn’t receive enough funding to adequately cover upgrades to areas where the potential for ROI is slow or uncertain. And the required buildout speeds aren’t fast enough to satisfy all customers. It’s a lose-lose situation.

To create a win-win for both providers and communities, federal funding must be adequate to incent providers to invest in networks that meet consumer needs. The current CAF II requirements of a 10/1 network don’t meet community needs: economic development is in the upload speed. Minnesota state speed goals of 100 Mbps down and 20 Mbps up by 2026 seem much closer aligned to the community needs than the 10/1 speeds currently required by the Connect America Fund (CAFII).

The final line in the industry analysts’ research note reminds us that this is a look from and for the company of CenturyLink – not for the communities they serve…

The upshot is that MoffettNathanson sees CenturyLink’s consumer business remaining within the merged company, where it would be better off anyway.

Blandin released a report in 2017  that points out that industry ROI and community ROI are different. Households with broadband realize $1850 in economic benefits per year. So, the communities need better broadband. The gap is between that community need and the business needs of the provider to deliver profits to their shareholders.

FCC authorizes $166.8 million in funding over the next decade; $3.3+ million for MN Projects

The FCC reports

The FCC today authorized $166.8 million in funding over
the next decade to expand broadband to 60,850 unserved rural homes and businesses in 22 states, representing the second wave of support from last year’s successful Connect America Fund Phase II auction. Providers will begin receiving funding this month.

Here are the projects authorized in Minnesota…

Minnesota: Paul Bunyan Rural Telephone Cooperative
Minimum Speed: 1 Gbps/500 Mbps
Locations: 315
Support /10 Years: $1,313,543

Minnesota Garden Valley Telephone Company
Minimum Speed: 1 Gbps/500 Mbps
Locations: 95
Support /10 Years: $880,346

Minnesota West Central Telephone Association
Minimum Speed: 1 Gbps/500 Mbps
Locations: 532
Support /10 Years: $611,934

Minnesota Interstate Telecommunications Cooperative
Minimum Speed: 1 Gbps/500 Mbps
Locations: 209
Support /10 Years: $552,330

 

FCC Proposes Capping Fund Used to Close the Digital Divide

The Benton Foundation reports…

On Friday, May 31, the Federal Communications Commission launched a proceeding to seek comment on establishing an overall cap on the Universal Service Fund (USF). USF programs provide subsidies that make telecommunications and broadband services more available and affordable for millions of Americans. The Notice of Proposed Rulemaking (NPRM) asks a lot of questions about how an overall cap to the fund would work. But does this NPRM actually move the U.S. nearer to closing the digital divide?

They look at the various USF programs…

  1. Connect America Fund (formerly known as High-Cost Support) — The largest of the four programs, CAF provides subsidies to telecommunications companies to expand connectivity infrastructure (wired and wireless, telephony and broadband) in unserved or underserved areas.
  2. Schools and Libraries (E-Rate) Program — Provides discounts to schools and libraries to ensure affordable access to high-speed broadband and voice services.
  3. Rural Health Care Program — Allows rural health care providers to pay rates for broadband services similar to those of their urban counterparts, making telehealth services affordable.
  4. Low-Income (Lifeline) Program — Assists people with lower-incomes to make monthly telephone (wireline or wireless) and broadband charges more affordable. The Lifeline program is the only USF program that lacks a self-enforcing cap, but it is under its own “soft cap” limit.

The article goes into great (and interesting!) detail about the hows and whys the programs might change. What gets to the point to those who are counting on government partnership to get better broadband might be most interested in their concerns…

1. Pits Programs Against Each Other

2. Mapping, Not Capping

3. At Odds with FCC’s Statutory Duty

And their conclusion…

The adoption of the NPRM — on a 3-2 party-line vote — now means the FCC will take public comment (technically, after the NPRM is published in the Federal Register) for three months before, theoretically, considering this input and moving to a final vote.

The Benton Foundation released a press release after the NPRM was released last week. Being late on a Friday afternoon, you will hopefully excuse us for being a bit blunt: “The FCC once again proves that Friday is ‘take out the trash day’ in our national capital; its latest proposal is pure garbage.”

You can follow along with the debate around USF daily by subscribing to Headlines — the only free, reliable, and non-partisan daily digest that curates and distributes news related to universal broadband.

The FCC may need to look at the value of the investments they are making but it seems that how much is spent is not the greatest issue. It seems like they need to look at the long term impact of the speed requirements they are currently making in rural broadband deployment. Providers are getting funded to upgrade or expand to 10 Mbps down and 1 up. That is not future proof, or even future likely development.

I have three daughters in Minnesota and Winnipeg. I don’t save money buying their spring jackets for winter because they are cheaper. I make sure we buy good winter coats they can wear for several years.

 

Searchable database of 50 federal broadband programs

Great resource from the NTIA

Today, NTIA is announcing a new searchable database of 50 federal broadband programs, spanning a dozen federal agencies with billions of dollars for broadband grants, loans and other resources. The database, created with help of participating federal agencies, fulfills a goal set out in the American Broadband Initiative announced in February to make it easier for community leaders to find federal funding and permitting information.

“Consolidating these critical resources into a one-stop, easy-to-use resource provides an important tool in spurring efforts to expand our nation’s broadband infrastructure projects,” said Diane Rinaldo, Acting Assistant Secretary for Communications and Information.

The federal programs provide funding for state and local governments, schools, libraries, small businesses and other community institutions that are interested in expanding broadband access. Applicants can search for programs by agency, program purpose and eligible recipients. The inventory includes well-known infrastructure efforts at the U.S. Department of Agriculture and the Federal Communications Commission. A number of other programs offer grants and loans for targeted purposes or specific regions of the country.

For instance, the Commerce Department’s Economic Development Administration provides economic development grants that can be used to support broadband infrastructure projects, digital skills training and smart cities development. The agency’s FY2018 funding of $600,000,000 was mainly targeted for weather-related disaster relief but also supported broadband projects. In May, EDA announced it was investing $290,000 to help the Seneca Nation of Indians plan and install broadband fiber throughout the Cattaraugus Territory in Western New York. And in March, U.S. Secretary of Commerce Wilbur Ross announced a $1 million grant to St. Joseph County, Indiana, to expand high-speed broadband infrastructure in a project expected to create 230 jobs and spur $710 million in private investment.

Other programs in the NTIA inventory that recently made broadband grants include:

  • The Appalachian Regional Commission awarded a $40,000 grant to the SEDA-Council of Governments (link is external) last October, a public development organization serving 11 Central Pennsylvania counties, for a feasibility study of broadband access in Northumberland, Union, Lycoming, and Clinton Counties.
  • The Institute for Museum and Library Services (IMLS) provided a nearly $250,000 grant to address Native American digital access in New Mexico and the potential of TV Whitespace (TVWS) networks to improve tribal internet connectivity.

As the U.S. works to fill the gaps in connectivity that persist despite significant investments, NTIA is developing a new mapping platform that paints a more precise picture of the current infrastructure and services that are available around the country. This will help policymakers make better decisions about how broadband funds should be allocated.

NTIA’s most recent Internet Use Survey found that nearly 28 million households did not use the Internet at home, including 5 million living in rural areas. NTIA, the Department of Commerce and the Trump Administration are committed to putting the right tools in the hands of local leaders and service providers, to expanding opportunities so that all Americans benefit from our digital future.

MN House, Senate and Governor Walz agree to a spending deal

The Minneapolis Star Tribune reports…

Gov. Tim Walz and top Democratic and GOP lawmakers arrived at a hard-fought spending deal Sunday without the controversial gas tax hike the governor wanted, but with schools gaining significantly more money than Republicans had sought.

The compromise, ending a weekslong impasse, boosts the general fund overall by 6% but each side had to jettison priorities — Walz is denied much of the new revenue he wanted for road improvements, while a health care tax that Republicans sought to end survives largely intact.

Walz agreed to slightly trim the 2% tax on health care services in Minnesota that was set to expire this year, one of the central sticking points in the negotiations. Under the deal, the tax will be extended at a rate of 1.8%.

“This is a budget that invests in education, health care and community prosperity in a fiscally responsible manner,” Walz said. “Today we prove that divided government can work for the betterment of the people we serve.”

Conference Committee for SF2226 (Omnibus agriculture department, rural development, and housing finance bill), the Omnibus that includes broadband funding is scheduled to meet tonight at 10:30. If I were more certain that it was going to happen or that I could get close parking, I’d attend. As it stands I’m waiting for more news.

Yesterday there was concern about the budget. I’ll keep the info below for archival purposes but given they have agreed on a budget this news is now

The Register Citizen reports…

The Minnesota Senate on Saturday approved a Republican plan for preventing a state government shutdown if the Legislature’s budget stalemate persists, throwing down a challenge to House Democrats and Gov. Tim Walz to either agree or take the blame for a shutdown when the current budget expires June 30.

“Keep Minnesota open,” Senate Republicans shouted at a news conference shortly after the 35-31 party line vote, which came as Monday night’s adjournment deadline loomed ever closer with no deal in sight. That makes a special session almost inevitable, though top legislative leaders and the governor kept searching behind closed doors for a way forward.

Not a lot of info on how the budgets are going…

The top negotiators — Walz, Republican Senate Majority Leader Paul Gazelka and Democratic House Speaker Melissa Hortman — have largely maintained their “cone of silence” since Monday, so it hasn’t been clear what their remaining differences over taxes, spending and policy might be.

The Democrats have little to gain by to accepting the “lights on” proposal at this point, given that Republicans would have few incentives to keep negotiating. But the move scored political points for the GOP.

The wouldn’t be great for broadband…

“What this is, is a new two-year budget for the state of Minnesota,” Bakk said of the bill, which fits on one page. He said the bare bones approach would mean foregoing increased educational opportunities, higher local property taxes, fewer correctional officers in the state’s prisons and no new broadband funding for rural Minnesota.

Sen. Carla Nelson denied that the bill is meant to be the state’s next two-year budget.

“This is the backup plan,” the Rochester Republican said. “This is the Plan B should our leaders come to some sort of stalemate.”

 

A Case for Rural Broadband: $47–$65 billion annually in additional gross benefit

The Benton Foundation does a nice summary of a recent report from the U.S. Department of Agriculture (A Case for Rural Broadband: Insights on Rural Broadband Infrastructure and Next Generation Precision Agriculture Technologies).

The give a high level Return on Investment…

This latest chapter in the Trump Administration’s American Broadband Initiative finds that the deployment of broadband networks and adoption of new agricultural technologies could result in approximately $47–$65 billion annually in additional gross benefit for the U.S. economy.

They also noted…

If broadband infrastructure and digital technologies at scale were available at a level that meets estimated producer demand, the U.S. economy could realize benefits equivalent to nearly 18 percent of total agriculture production. Of that 18 percent, more than one-third is dependent on broadband, equivalent to at least $18 billion in annual economic benefits that only high-speed, reliable Internet can provide.

They talk about farms without…

The report details how unreliable broadband service undermines scaling adoption of precision agriculture:

  • Some farmers dedicate significant time and effort to find workarounds to insufficient Internet service, which takes time away from managing their businesses and serving their customers.
  • Some precision agriculture technologies function with basic Internet connections, so even slow speeds are better than no connections at all. But many require a more reliable and high-speed Internet connection as a minimum requirement.
  • Without access to online learning and peer sharing platforms, farmers are less likely to succeed with technology implementation, having wasted money, time, and effort without realizing complete benefits.

And note next steps for the USDA…

This “coordinated action” must focus on six key priorities:

  1. Tailor deployment of Internet infrastructure to communities.
  2. Incentivize development of innovative technologies and solutions, both for scaling connectivity and improving agricultural production.
  3. Create the conditions that allow, encourage, and reward innovation, including identifying the statutory or regulatory obstacles that hinder new, innovative providers.
  4. Coordinate across public programs to effectively use taxpayer funds and develop new partnerships.
  5. Build capability to scale adoption and realize value.
  6. Clarify and emphasize the importance of rural connectivity to all consumers of agriculture commodities.

FCC says A-CAM funding expected to bring 25/3 Mbps broadband to 11,000 homes

The Brainerd Dispatch reports on impact of FCC funding (A-CAM) on Minnesota…

“Today’s announcement means that many more rural Americans will have access to high-speed broadband service that will enable them to fully participate in the digital economy—entrepreneurship, telemedicine, precision agriculture, online education, and more,” stated FCC Chairman Ajit Pai in a news release Monday, April 29. “This is yet another example of how the FCC is working hard to close the digital divide.”

Pursuant to new rules adopted by the commission last December, a total of 186 companies participating in the FCC’s Alternative Connect America Cost Model program accepted $65.7 million in additional annual support over the next decade. In return, these carriers have committed to deploying 25/3 megabits per second service, relating to internet speed, to 106,365 homes and small businesses that would have otherwise only received slower 10/1 Mbps service.

The boost represents a 31.8% increase in the number of locations that will have faster service available through the Alternative Connect America Cost Model program. Carriers must deploy 25/3 Mbps service to 40% of locations by the end of 2022, and increase deployment by 10% annually until buildout is complete at the end of 2028.

In Minnesota, the additional funding is expected to increase the number of homes receiving 25/3 Mbps service by more than 11,000 homes, or 26.3 percent.