Why legacy telcos, cablecos are incorrect in arguing government-built fiber telecom infrastructure is "unfair competition"

The primary public policy argument advanced by the legacy incumbent telephone and cable companies in support of state laws proscribing or prohibiting the public sector from building or subsidizing community owned fiber to the premise (FTTP) Internet telecommunications infrastructure is that doing so represents unfair competition against them.

It’s a fallacious argument because the incumbents and communities aren’t in the same business – a basic prerequisite for market competition.

The incumbents are in the business of packaging and selling discrete bits of Internet bandwidth. They sell it by throughput speed with speed tiered pricing for wired premise service and by volume – the gigabit -- for mobile (and inappropriately for premise) wireless services. The faster the connection and the more bandwidth consumed, the higher the price. Naturally, the incumbents segment their service territories and product offerings to generate the highest possible profit for that bandwidth. After all, they owe it to their shareholders.

State and local governments on the other hand aren’t in the bandwidth business or selling it to generate maximum profit. They are in the infrastructure business – planning, constructing and financing it to support public objectives such as economic development and enhancing the delivery of public services. In the 20th century, they did that by building roads and highways. In the 21st, they do it by building FTTP infrastructure.

California unlikely to subsidize community fiber Internet infrastructure over near term

The California Public Utilities Commission’s (CPUC) construction subsidy fund for Internet infrastructure won’t likely help offset the cost of building community owned fiber to the premise networks.

The CPUC’s California Advanced Services Fund (CASF) limits grant and loan subsidies to infrastructure projects that would serve either an “unserved area,” defined in CPUC Decision 12-02-015 as not served by any form of wireline or wireless facilities-based broadband such that Internet connectivity is available only through dial-up service or an “underserved” area defined as an “where broadband is available, but no facilities-based provider offers service meeting the benchmark speeds of at least three megabits per second (mbps) download and at least one mbps upload.” The CPUC retroactively revised the definition in 2012 resolutions T-17362 and T-17369 as areas “where broadband is available, but no wireline or wireless facilities-based provider offers service at advertised speeds of at least 6 mbps download and 1.5 mbps upload.”

Under either definition, both fixed and mobile wireless providers could block CASF funding of a community fiber project. And under the definition adopted in the 2012 resolutions, they wouldn’t even have to actually provide service to an area. They could merely claim they advertised service there at the specified 6/1.5 Mbs speeds.

Senate Bill 740, legislation re-authorizing the CASF that’s making its way to the desk of Gov. Jerry Brown incorporates by reference the definitions of unserved and undeserved areas in Decision 12-02-015.

The bill would also give incumbent wireline providers that have not built out their networks to serve all premises effective veto power over any community-based project to reach underserved households -- typically those in areas out of reach of DSL or cable Internet service or having access to slow DSL in areas where aging, poor quality copper cable plant (illustrated in the photo below) cannot support higher speeds. The bill bars funding of these projects “until after any existing facilities-based provider has an opportunity to demonstrate to the commission that it will, within a reasonable timeframe, upgrade existing service.” 

"Reasonable timeframe" isn’t defined in the bill and thus would likely be defined by incumbent telcos that told regulators and consumers since the early 2000s that they were building out their DSL service to reach them. (They’re still waiting more than a decade later, providing an operative definition of what's reasonable). The bill would also give incumbent telcos and cablecos the ability to stymie community fiber projects built by local governments simply by applying for CASF funding.

The 2 key inaction risks facing community fiber projects

Creative risk taking is essential to success in any goal where the stakes are high. Thoughtless risks are destructive, of course, but perhaps even more wasteful is thoughtless caution which prompts inaction and promotes failure to seize opportunity.

  -- Gary Ryan Blair 

Communities contemplating fiber Internet infrastructure projects should keep in mind that there are risks -- negative impacts -- associated both with taking action as well as not taking action.  The latter risk -- termed inaction risk -- is perhaps one of the most threatening and pervasive risks.  For some regions and communities, that risk is being left permanently off the modern Internet grid and unable to realize the benefits it offers for government, public safety, health and education, economic development and transportation demand mitigation. 

Milo Medin, Google's vice president of access services, laid out two major underlying rationales explaining why communities needlessly run the risk of inaction in his address to the 2013 Broadband Communities Summit. 

1.  The unswerving belief despite more than a decade of market failure that incumbent legacy telephone and cable companies will upgrade and build out their infrastructures to serve all premises.  Here's what Medin had to say on that point:

Part of the reason the U.S. is falling behind is that most cities haven’t been intentional about their broadband infrastructure. Cities know they have to make sure the water system works and scales to support growth, the roads are maintained and built, garbage is collected properly. But often, they think broadband is something that the phone company or the cable company will take care of for them and they can ignore it, or that the FCC will make sure the appropriate incentives are put into place to drive competition and upgrades. Depending on those processes is how we got into the situation we’re in today.

2. The misguided belief that wireless services have obsoleted fiber networks. Medin explains:

Some argue that fiber networks are not really needed because of wireless network growth. As an engineer, quite honestly, this kind of talk makes my brain hurt. Wireless network growth is driven by fiber. All those base stations that smartphones connect to are increasingly connected by fiber because, as speeds go up, fiber is required to carry that kind of traffic. Copper just won’t do for modern wireless networks.

Cisco and others expect wireless data to grow by a factor of 50 in the next few years, and you’re not going to be able to solve that kind of growth by throwing more spectrum at it. You’re going to have to reduce the size of the cells, shrinking them, reducing the number of users that are being served by a given base station. And that means a lot more cell sites and a lot more fiber to feed those cell sites. In the limit, the future of mobile is going to look a lot like Wi-Fi: tons of small cell sites connected by a wireline network, connected by fiber – and that’s just physics, folks.

The full Broadband Communities article excerpting Medin's speech can be viewed here and here (pdf). 

The 3 big U.S. Internet infrastructure policy choices

The United States now has three major policy options on the build out of Internet infrastructure to serve all American homes, businesses and institutions:

1. Continuation of the status quo of investor-owned Internet infrastructure and associated private market failure that will leave significant numbers of premises lacking affordable Internet access over the long term and potentially permanently.
   
2. A well funded federal aid program including technical assistance grants for community fiber to the premise network construction projects, funded by existing programs such as the U.S. Department of Agriculture's Rural Utilities Service, a program jointly administered by multiple agencies or by a newly created, dedicated agency.  In addition, federal preemption of state laws barring local governments from constructing, owning or operating Internet infrastructure.
   
3. De-privatization of all Internet infrastructure (either immediately or over a period of years) combined with a fast track federal construction project to build out fiber to serve all U.S. premises, similar to the 1950s interstate highway project.

Please add your comments.  Which do you favor and why?

Verizon Hopes to Nudge Some From Wired to Wireless - NYTimes.com

Verizon Hopes to Nudge Some From Wired to Wireless - NYTimes.com

This story illustrates why communities must build their own fiber networks.  The incumbents like Verizon aren't going to do the job.  As the story notes, that leaves residents and business owners with lousy options:  poor voice quality over garbled wireless premises phone service that can go out in a prolonged power failure and data capped satellite Internet service.

California lawmakers revise legislation governing Internet infrastructure subsidy program

California lawmakers are scaling back a previously proposed increased appropriation for the state’s broadband infrastructure grant and loan subsidy program. As amended this week, SB 740 would also redefine the policy goal of California Public Utilities Commission’s California Advanced Service Fund (CASF) to fund projects to ensure broadband access to at least 98 percent of California households by 2016. SB 740 would also prioritize funding for those areas of the Golden State deemed to be “unserved.” The CPUC has defined this to mean “an area that is not served by any form of wireline or wireless facilities-based broadband, such that Internet connectivity is available only through dial-up service or no broadband service can be identified.”

From a practical perspective, this means only modest wireless Internet infrastructure projects will be subsidized by the CASF since unserved areas per the CPUC’s definition are likely to be very thinly populated. These will also likely be very low budget projects per the CPUC’s decision to require project sponsors kick in 30 percent of the project costs for unserved areas.

The CPUC has also written the CASF rules to discourage community fiber builds by allowing projects in “underserved areas” only if the area has no wireline or wireless service offered at advertised speeds of at least 6 mbps download and 1.5 mbps up. That means an area that is only partially served by an existing wireline providers could not be overbuilt to fill in the coverage gaps. Under the rule, such project would also not qualify since wireless providers could merely advertise service at the minimum speeds, further slicing and dicing a potential fiber service area such to render the project ineligible under the rules. On top of that, the rules require community fiber project sponsors to kick in 40 percent of the project costs – an onerous burden for newly formed entities.

The upshot is California policymakers will end up going through the motions and the CASF monies left largely unspent as sizable areas of the state unserved by the incumbent telephone and cable companies are consigned to technologically substandard, low value Internet service options.

Deterrence: AT&T launches pyrrhic war of mutually assured diminished returns against Google

On the heels of Google's announcement it will build fiber to the premise (FTTP) Internet infrastructure serving the Austin, Texas area, AT&T announced it will build its own 1 gigabit FTTP infrastructure to match Google's.

The announcement amounts to a declaration of pyrrhic war by Ma Bell, designed to impose diminished returns on Google since the economics of competing fiber infrastructures could drive down take rates and ARPU for each player. AT&T is sending a message of deterrence to anyone that dares to invade its sovereign service territory with FTTP infrastructure faces mutually assured prolonged ROI and potential losses.

Meanwhile, as Ma Bell and the Googlers engage in a war of attrition in a select few metro battlefields, much of the United States can and should pursue a more peaceful and sane alternative in municipal and cooperatively constructed and owned open access FTTP infrastructure. 

Large WISP bites the dust; Satellites swarm for former customers

Main Street Broadband shuts down | JCFLORIDAN

According its LinkedIn profile, Atlanta-based Main Street Broadband, LLC is a privately held wireless broadband service provider "committed to bringing affordable high speed internet access and digital phone service to the un-served and underserved markets in the southeast" using "the latest in wireless broadband technology for both residential and business services."

The reason for the shutdown of the WISP according to the linked newspaper story is loan funding from the U.S. Department of Agriculture's Rural Utilities Service was terminated.

Fixed wireless premise service like Main Street's plays an important interim role until communities and alternative business models emerge to construct fiber to the premises infrastructure needed for today and tomorrow's Internet protocol-based services.

Now satellite Internet providers are swarming to scoop up the defunct WISP's former customers.  Unfortunately for them, they now like all too many Americans face the lousy choice of sucking a satellite and its punitive bandwidth caps and poor connection quality or turning back the calendar to 1992 and dialugging over obsolete legacy telco copper cable.  But it doesn't have to be that way.  Communities can and should invest the necessary time, money and energy to build their own fiber infrastructure and operate it prudently and sustainably as a community and economic development asset.

Google Unveils Superfast Internet in Kansas City, Mo. - NYTimes.com

Google Unveils Superfast Internet in Kansas City, Mo. - NYTimes.com: Milo Medin, the company’s vice president of access services, said the technology and technical capacity were available to create this product on a global scale, but economics, such as the cost of constructing the fiber network in communities, presented a barrier.

Google's demonstration project does nothing to alter the cost and business model constraints that require communities to build their own fiber networks rather than investor owned providers.  While everything may be up to date in Kansas City, unfortunately for much of the United States it is not when it comes to premises Internet access.

It also starkly illustrates the dismal state of Internet capable premises telecommunications infrastructure in America -- accurately described as "incomplete" by President Barack Obama in his January State of the Union address -- where many must still rely on obsolete dialup modem technology that was state of the art when Obama's predecessor Bill Clinton was starting his first term two decades ago.  One city does not a network make.

Internet Providers Testing Metered Plans for Broadband - NYTimes.com

There’s a clash between what users expect from broadband service and what is actually delivered to them, said Chris Balfe, the president of Glenn Beck’s media company, which created an online TV channel nearly a year ago. He has noticed sluggishness at home when trying to view YouTube videos. “As a broadband video provider it’s frustrating, but as a user it’s absolutely infuriating,” he said.

This New York Times piece makes the case for community owned fiber to avoid incumbent cableco and telco manipulation of their natural duopoly (or monopoly in some cases) to create bandwidth scarcity.  It's important to create a perception of bandwidth scarcity in order to preserve bandwidth rationing and the unit-based billing of their decades-old business models.  Communities can and should disrupt that business model and build their own fiber to the premises networks.  Enough is enough.

Protecting investor-owned Internet providers from market failure is bad public policy

This USA Today profile of Lafayette, Louisiana's municipally-operated fiber to the premise network raises significant policy questions as to the proper role of the private and public sectors in providing premise Internet connectivity. It notes Lafayette like other community fiber projects faced significant resistance from private sector telco and cable providers bent on preserving their territorial hegemony even when their business models don't permit them to upgrade their networks to provide robust Internet connections to homes and businesses. The push back comes in the form of lawsuits, public information (or disinformation campaigns, depending on one's perspective) and state legislation barring local governments from building publicly owned and operated telecommunications infrastructure.

It's understandable the incumbent telco and cable companies would want to protect their service territories from competition given that telecommunications infrastructure -- like roads and highways -- tends to be a naturally monopolistic (or at best, duopolistic) market. That kind of market creates a winner takes all situation in which the winners in turn pick winners (those who are provided good Internet service) and losers (premises deemed too costly to serve and left off the Internet grid). Their problem, however, is the losers are naturally getting restless and petitioning for relief such as recently proposed Colorado legislation designed to lay the groundwork for the state to directly serve areas lacking connectivity.

The incumbent telco and cable companies may wish to rethink their current strategy of locking down failed markets and barring the door to public providers. The courts could well cast a jaundiced eye toward such uncompetitive market conduct and state laws designed to preserve what in many areas of the nation have become telecommunications backwaters due to what President Obama described in his January State of the Union address as "incomplete" Internet infrastructure.

I'm not sure those state laws could survive judicial scrutiny in the federal courts as they effectively create a state sanctioned monopoly in telecommunications. But unlike other nations, the state doesn't actually provide the service. Instead, their function is to protect private investor owned providers from the consequences of market failure. That's poor public policy because it leaves too many effectively disconnected from the Internet and the economic, educational and other benefits it affords.

Incumbent providers may also want to considering partnering with communities instead of fighting them. As the USA Today article notes, businesses approached Lafayette about expanding the network throughout the city as a way of drawing businesses. City leaders asked BellSouth and Cox representatives to partner on the project. But they spurned a private-public partnership that could have allowed them to share in the revenues, instead opting for a short sighted win/lose strategy.