With subsidies in sight, telcos reduce investment. There's no firm data, but the net result of the $7B broadband stimulus may have been fewer unserved homes connected. Since 2009, carrier investment in broadband in rural areas has gone down drastically. Ajit Pai is moving forcefully on his plan to promote rural broadband, for which I applaud him.
Takeaway: Pai wants to spend $billions to bring broadband to the unserved. Under current plans, most of the money is likely to go where telcos would build without a subsidy, buy obsolete technology, or give the telcos two or three times what the job should cost. Any spending on wireless except where towers or backhaul is unavailable should be assumed wasteful until proven otherwise. Realistic costs need to be developed and subsidies allocated on that basis.
Pai is putting $4.5B on the table this week to bring 4G wireless to those they project won't be served without it. I believe Pai is honorable but is being misled by staffers and lobbyists. He proudly signed his name to a statement below that the $200M he approved for New York State would go to "the deployment of broadband infrastructure to unserved areas of rural New York." (Emphasis added.) Most of that money will not go to unserved areas.
Some grants are going to politically connected groups. I've read the rules and the approved proposals. The amounts look excessive based on the limited public details, the expected response if the bidders knew they would have few rivals and inadequate oversight. At first look, the bids show a pattern that a statistician would find suggests a breakdown in the program. (Unconfirmed, but worth a look by Jerry Ellig, the new Chief Economist.)
Jonathan Adelstein, then Rural Utilities Administrator, provided insight into the problems here from his negotiations with Qwest. I had said to him, "25% subsidies would be enough to tip the needle on many lines." If you assume the telcos had built only those with sufficient return, there would be many lines not far from that cutoff point. Even a 25% subsidy would be enough in those cases. (Actually, companies like Qwest, Century, and Frontier didn't build in many places even where the numbers worked because of capex restraints.)
Adelstein knew that as well as I did, but believed his job was to spend the stimulus money despite few proposals to actually reached the unserved. To get Qwest into the program, he offered a 50% subsidy. Qwest refused, demanding 75%. That was probably twice the amount necessary and Adelstein rightly refused. They knew the government had few ways to reach those unserved without paying whatever the telcos demanded.
A few years later, Qwest is part of Centurylink. Many of those lines are now upgrading under CAF with what amounts to a greater than 100% subsidy.
Ellig has looked at government efficiency, including writing Government Performance and Results: An Evaluation of GPRA’s First Decade. His work on the possible harms of regulation has already been accepted by Chairman Pai, including his opposition to Net Neutrality. His time at the FCC would be much more productively spent looking at the massive waste in the broadband and universal service programs, including how microeconomics can ferret out likely problems. There are several still at the FCC with relevant experience in the empirical economics required here as well as several who worked on the broadband plan who would be great to bring back.
The waste under Democrats Strickling, Genachowski, and Wheeler was a high proportion of the over $10B spent hoping to extend broadband. After 8 years and massive spending, not even 2M of the "unserved" ~6M homes have been reached with landlines or comparable wireless. That's fewer than would likely have been reached without any government spending, based on the company plans from 2007-2008. He needs to dig into the details of what he's proposing. Nearly all cells with decent backhaul will be upgraded to 4G; Verizon and AT&T have already reached 98% of homes. Government money should go to building towers and backhaul where that's missing, not filling in network holes the carriers would likely cover.
Pai is counting on "Reverse Auctions" to keep costs reasonable. Greg Rosston and Scott Wallsten have long recommended auctions, once bringing together a petition of prominent economists. If I remember right, Nobel Laureate Ken Arrow was one of the signatories. Their contentions make sense if there are a sufficient number of entities with the necessary resources to bid. Does Pai have reason to believe sufficient bidders are likely?
Auctions do not work well if there is only one seriously interested bidder. In many extreme rural areas, only the local telco has the ability to deliver broadband at a reasonable cost. You need to have affordable backhaul and a local staff for repairs. Because the "unserved" are in very small clusters, often less than 100 homes, it's usually impractical for a new entrant to bring in a backhaul connection.
The telcos know this and like Qwest are finding ways to collect excess subsidies.
Ellig has the skills and resources to identify where the lack of bidders are likely driving up the subsidy demanded. Julie Knapp and Walter Johnston at the FCC OET keep a very low profile but are deeply informed on what's happening in the industry. Michael Ha is close to key 5G engineers and can provide perspective on how the gigabit+ technology should influence policy. Between Ellig's theory and others practical information, they should be able to project whether most existing towers will be upgraded.
Today's GIg LTE has 100x the capacity of most 3G cells and the new equipment is remarkably inexpensive. Almost all cable nodes were upgraded to DOCSIS 3.0 because of low equipment prices, I expect similar on the remaining cell towers.
Avoiding overspending requires a judgment on what would be reached otherwise and how much things should cost. The Broadband Plan worked on similar problems in 2010. They performed dozens of interviews with experts in the field to estimate standard costs given different densities and topographies. (I was one, and know several practicing network engineers who gave them the straight dope.) The numbers weren't perfect - the larger firms I'm pretty sure had noticeably lower costs - but were a good starting point. These professional estimates often were 50%-70% lower than the costs reimbursed by the stimulus.
These professional estimates often were 50%-70% lower than the costs I found reimbursed by the stimulus. In some cases, the high costs were appropriate, including some rough terrain in Alaska
In 2009, the U.S. committed to a $7B Broadband Stimulus, dedicated to reaching the unserved. (Those without any choice but satellite and its latency challenges.) Both George Bush in 2004 and Barack Obama in 2008 had promised to bring affordable broadband to all Americans. The clamor to reach these last few million was so loud, telcos became confident the government would pay for it if they just stopped their own investment. They aren't stupid and refused to spend their own money. Before 2009 and the expected huge stimulus program, most telcos expanded their networks each year, based on available capital funds
For example, the FCC under CAF is giving AT&T $hundreds of millions to upgrade existing towers, most of which already have 4G. An AT&T exec in California said communities didn't need to worry about the impact of the CAF-funded project, since it was almost all going to be on existing towers. I don't know what loophole AT&T is using to get the money, but it's a pretty safe guess they would have upgraded most of them without the government paying.
Verizon & AT&T both claim they have 4G to 98% of the country. They are probably fudging the figures a little, but 4G now reaches all but 3-5M of the 110M-126M U.S. households. Let's call it 5M. Probably half the < 5M targeted would soon be served without a subsidy - if the telcos knew no subsidy was likely. Before spending a penny on subsidies, the FCC needs to do a thorough assessment of what would be built without government money.
I remember AT&T/SBC Chairman Ed Whitacre and Verizon President Larry Babbio telling Wall Street "These are our plans for the next few years and we'll continue building after that." Whitacre in the 1999 Project Pronto announcement said 80% by a promised date and "all our customers" after that. I confirmed that with him in 2003. At the same time, Babbio told Wall Street they would go to over 90%. Both all but froze their buildouts soon after Obama was elected and proposed the stimulus.
Some other economic analyses that could save money:
Prices of equipment and services across different school districts in USAC funding. There is essentially no oversight of whether the districts are paying too much and many are. USAC audits concentrate on whether the paperwork is correct rather than whether the amount is prudent. (My source on this is a few years old and it could be outdated. He was a senior USAC official, citing directions from the FCC Chair.) Are districts with 90% reimbursement more careless than others getting only 20%?
Financial incentives of the USAC Board and management to control costs. 16 of the 19 members of the board "supervising" USAC represent entities getting subsidies. A former member told me the result was the Board was a total rubber stamp. He said he resigned because the board did so little the meetings were totally boring. Would board members whose primary goal is to avoid waste reduce spending? Would putting the management contract out to bid save money? Does NECA or its senior executives have financial ties with Solix, its former for-profit subsidiary, that might affect decisions? (Solix works on over $5B of government programs, many involving USAC.)
Relative cost of a mixed constellation of LEO, MEO, and geostationary satellites compared with existing USF programs. Thousands of low and mid earth satellites are being launched, many for communications. Geostationary satellites now provide much more speed and capacity, but their 22,000 mile high orbits add serious latency. LEO and MEO sats don't have the latency problem, but I'm told have important capacity limits. Could a mixed network of satellites provide a functional equivalent of universal service programs at a lower cost?
Professors Noam, Benkler, and Werbach did important work on the spectrum commons and the inefficiencies of monopoly licensed spectrum. Wi-Fi has shown what's possible. There's no single figure for the greater efficiency, with estimates ranging from 2X to 5X. Verizon and Qualcomm have now proven that flexible spectrum usage works in the LAA testing, which means less licensed spectrum is needed. Top engineers including FCC Chief Technologist Henning Schulzrinne believe going forward shared spectrum is the way to go. That means spectrum licensing can be one of the most harmful of FCC regulations. How should the FCC respond to that?
Readers - more suggestions welcome.
STATEMENT OF CHAIRMAN AJIT PAI
Re: Connect America Fund; ETC Annual Reports and Certifications,
WC Docket Nos. 10-90, 14-58. One of the most significant lessons I’ve learned during my time at the Federal Communications Commission is that there is a digital divide in this country—between those who have access to cutting-edge communications services and those who do not. As I stated in my first public remarks as Chairman, I believe one of the FCC’s top priorities going forward should be to close that divide. I am committed to doing what I can to ensure that all Americans benefit from the bounty of the digital age. Today, the FCC begins to deliver on that commitment. In the first week of the newly-constituted Commission, and in our first vote, we adopt measures to aid the deployment of broadband infrastructure to unserved areas of rural New York. Specifically, by granting New York State’s petition for a waiver of the Connect America Phase II auction program rules, we take common-sense, fiscally responsible steps to coordinate funding between the federal Universal Service Fund and the state’s New NY Broadband Program, which aims to “ensur[e that] all New Yorkers have access to high-speed internet.” By helping to provide Internet access to tens of thousands of locations in rural New York, we take the first of many steps toward bringing digital opportunity to all Americans. Essential to this result was close, bipartisan collaboration among many officials at the state and federal level. In particular, I am grateful to New York Governor Andrew Cuomo, Senator Charles Schumer, and Representative Chris Collins for working with me to ensure this federal-state partnership progressed from promise to paper. And I especially appreciate the hard work of the Commission’s staff—specifically, Kris Monteith, Carol Mattey, Ryan Palmer, Alex Minard, Heidi Lankau, and Dana Zelman—and the New York State Broadband Program Office for working together to ensure a brighter future for rural New York.
Today, the FCC begins to deliver on that commitment. In the first week of the newly-constituted Commission, and in our first vote, we adopt measures to aid the deployment of broadband infrastructure to unserved areas of rural New York. Specifically, by granting New York State’s petition for a waiver of the Connect America Phase II auction program rules, we take common-sense, fiscally responsible steps to coordinate funding between the federal Universal Service Fund and the state’s New NY Broadband Program, which aims to “ensure that all New Yorkers have access to high-speed internet.” By helping to provide Internet access to tens of thousands of locations in rural New York, we take the first of many steps toward bringing digital opportunity to all Americans.
Essential to this result was close, bipartisan collaboration among many officials at the state and federal level. In particular, I am grateful to New York Governor Andrew Cuomo, Senator Charles Schumer, and Representative Chris Collins for working with me to ensure this federal-state partnership progressed from promise to paper. And I especially appreciate the hard work of the Commission’s staff—specifically, Kris Monteith, Carol Mattey, Ryan Palmer, Alex Minard, Heidi Lankau, and Dana Zelman—and the New York State Broadband Program Office for working together to ensure a brighter future for rural New York. (Emphasis added)
Bridging the Digital Divide
Last month, I logged a five-state, 18-stop, 1,672-mile road trip from Wisconsin to Wyoming to learn firsthand about the connectivity challenges in that part of the country. And this week, I took a three-state, 8-stop, 800-mile drive through rural West Virginia, Virginia, and Maryland that highlights how the digital divide is hardly confined to the middle of our nation, but is a real and pressing challenge just a short drive from our nation’s capital.
Consider this fact: more than 70% of the world’s Internet traffic runs through data centers in Northern Virginia, but you can’t even get 4G LTE wireless service on more than 7,700 road miles in rural parts of the same state. And this is unfortunately common nationwide. If you live in rural America, there’s a better than 1-in-4 chance that you lack access to fixed high-speed broadband at home, compared to a 1-in-50 probability in our cities.
I saw the cost of lack of access at almost every stop during this week’s travels. In Hampshire County, West Virginia, I heard how a resort in the town of Capon Springs that doesn’t have broadband has had trouble attracting guests who prize connectivity. On that same stop, I spoke with the owner of a chocolate store from nearby Kirby who told me that poor or nonexistent Internet access prevents him from serving his customers, maintaining the store’s Facebook page, and growing his business.
But this week’s road trip has left me invigorated, not discouraged. That’s because I also saw firsthand the opportunities that are unlocked when next-generation networks connect rural communities.
For instance, in Wardensville, West Virginia, I heard how broadband has enabled a transcription company that requires massive video downloads to thrive (it’s hired 28 full-time employees and plans to expand to two additional buildings in the near future). And in Staunton, Virginia, I learned how a regional hospital has used connectivity and technology to stabilize stroke patients more quickly and cut the mortality rate from sepsis by 34%. And in Hagerstown, Maryland, I learned how the Washington County school system is incorporating broadband to help children learn, and how the On-Track program (motto: “from cradle to career”) aims to use technology to prepare county residents to enter the digital economy workforce.
With this week’s trip fresh on my mind, I’m pleased to announce that August will be Rural Broadband Month at the FCC. Our agenda for the open meeting on August 3 will feature several items that will help bridge the digital divide.
Leading off will be a Public Notice to initiate the pre-auction process for the Connect America Fund Phase II auction. This auction will award up to $2 billion over the next decade to broadband providers that commit to offer voice and broadband services to fixed locations in unserved high-cost areas in our country. To maximize the value the American people receive for the universal service dollars we spend, this will be the first auction to award ongoing high-cost universal service support through competitive bidding in a multiple-round, reverse auction. With this Public Notice, we are seeking comment on the procedures to be used during this auction. Moving forward now will put us on track to conduct the auction in 2018.
The FCC will also consider taking the next step in implementing Phase II of another key universal service program, the Mobility Fund. In February, the Commission adopted a Mobility Fund framework to allocate up to $4.53 billion over the next decade to advance 4G LTE service, primarily in rural areas that would not be served in the absence of government support. The proposed Order on the August agenda would establish a “challenge process”—that is, a process for resolving disputes over whether areas should be eligible for Mobility Fund subsidies. This measure will allow us to proceed to a reverse auction as soon as possible.
It is critical that we use accurate data to determine which areas will be included in that reverse auction. Many have complained to the FCC that the data that we currently collect through our Form 477 isn’t good enough to serve as the basis for that decision. I agree. Therefore, I am proposing to collect new and more granular data that will serve as the starting point in deciding which areas will be included in the Mobility Fund Phase II auction.
Separately, we need to do a better job collecting data through the FCC’s Form 477. It’s often said that you can’t manage what you can’t measure. Consistent with that dictum, I’m proposing that we improve the data we collect about broadband service in America. Specifically, we will consider changes to the FCC’s Form 477 to improve the value of the data we collect, while also identifying and eliminating unnecessary or overly-burdensome filing requirements.
Increasingly, meeting the connectivity needs of all Americans—no matter where you live—means freeing up spectrum to meet the growing demand for wireless broadband. That’s why, in three weeks, the FCC will vote on starting to explore opportunities for next-generation services—particularly for wireless broadband—in the mid-band spectrum range (3.7 GHz to 24 GHz).
Sticking with wireless, at the August meeting we will also vote on whether to replace a patchwork of service-specific renewal rules for wireless licensees with a consistent set of rules. Uniformity provides certainty and promotes investment. And it’ll help ensure timely construction of wireless networks and intensive, continuous use of spectrum in all areas of the country. We will also tee up whether we should increase build-out obligations for carriers that are seeking to renew wireless licenses so that more of rural America can receive service.
Bridging the digital divide and expanding access to wired and wireless networks will be the central theme of our August meeting, but it won’t be the only focus. We’ll also vote on providing a waiver for a carrier identification requirement for satellite news trucks, and other temporary-fixed satellite earth stations transmitting digital video in order to alleviate the unforeseen, burdensome costs of compliance with respect to old equipment that cannot easily be upgraded. The agenda also includes a Hearing Designation Order and an enforcement item, each of which must remain confidential until the meeting.
In my first remarks to FCC staff as Chairman on January 24, I declared that my highest priority would be making sure every American who wants Internet access can get it. During the almost six months since, we have repeatedly and consistently taken steps in service of this goal. I’m pleased that our August agenda includes yet more measures that will help us bridge the digital divide.
Ready for customers 2019-2021. John Chapman made cable engineering history with the first demonstration of full duplex cable at ANGA COM in Cologne, pictured. The setup doesn't look like much until you realize this is the world's first prototype of a 10 gigabit down, 5 gigabit up, cable system. By using the same spectrum upstream and down, remarkable speeds are possible.
Chapman outlined the path to gigabit cable in 2005. Almost no one believed it possible except for a handful of innovative engineers. His ideas became central to DOCSIS 3.0 and 3.1. Comcast today is offering the gig downstream to millions of customers. If John says FDX gigabit upstream will work, I'm a true believer. (The schedule isn't guaranteed, of course.)
Full duplex communication has a long history, but not at the speeds of today's wireless and modems. Phil Levis & Sachin Katti of Stanford have spun off Kumu Networks, which has ambitious plans for wireless FDX and inspired renewed interest.
FDX for cable is a harder problem. Cable systems are "point to multipoint" - one central unit, the CMTS, attaches to many homes. The challenge with point to multipoint is that an echo canceller can only be used at the CMTS end.
Traditionally, 300-500 homes would be served; today, bandwidth demand is up and 100-200 homes are not uncommon.
Chapman tells me a key innovation making FDX possible for cable is to break down the users to Interference Groups (IG.) Each IG is RF isolated from all other IGs. This allows the CMTS to use specific FDX scheduling techniques to allocate traffic across IGs to accomplish the goal of filling the same spectrum with both upstream and downstream traffic. The CMTS side relies on a new architecture called Remote PHY. As the name suggests, the CMTS PHY is placed into an optical node. This is where the CMTS echo canceller is located. The Cisco designed Echo canceller operates over a band of 576 MHz with a cancellation of about 47 dB. This allows for 4K QAM in the downstream path and 1K QAM in the upstream path.
20 Cisco engineers developed the software to standardize the Remote PHY, which they which they put into an open source consortium called Open RPD, hosted at CableLabs. No royalties are required. ARRIS and Casa have compatible units and interoperability testing will begin soon.
Adding the remote PHY allows moving the network to (nearly) entirely IP, which I've reported is the Comcast goal. That won't be cheap, but I believe the large saving from IP set top boxes offsets much of the investment.
"The standard is almost ready," he tells me. CableLabs, led by Belal Hamzeh, jumped in last year. "Probably chips in 2018, early units in 2019, and ready for volume deployment in 2020."
Altice shocked the industry by deciding to replace a DOCSIS network at Cablevision with fiber to the home. Chapman believes, "D3.1 and FDX combined eliminate the need to deploy FTTH in a plant that already has HFC." Altice's claim they could deploy FTTH without raising capex seems to me wildly implausible, implying a cost per home far lower than I've observed elsewhere.
Jennie does video so we can't wait for the upstream. For more information, see Full Duplex DOCSIS: Near Fiber Optic Capacity with Coax Cable and Lifting the veil on Full Duplex DOCSIS from Cisco.