Doug Dawson

The BEAD Subsidy of Utilities

When internet service providers are asked about the impediments they encounter for building new fiber networks, they almost always list pole issues at or near to the top of the list. Why are poles of such big concern? Building aerial fiber means putting the fiber on poles. Most poles are owned by electric utilities, although some belong to telephone companies or municipalities. Invariably, some poles have to be replaced in order to add a new fiber line. This mostly occurs when there is not enough space for the nationally required distance between wires.

Competition in Multi Dwelling Units

Federal Communications Commission Chairwoman Jessica Rosenworcel announced plans to introduce a Notice of Proposed Rulemaking (NPRM) that would expand customer choice in apartments, condos, public housing, and other multi-tenant buildings. The NPRM would allow tenants to opt out of bulk billing arrangements where landlords build broadband or cable TV into the price of rent.

BEAD Pressure on Broadband Rates

State Broadband Offices and the BEAD grant process have designed grant rules that put pressure on internet service providers to provide inexpensive rural broadband. But in doing so, I’m not sure that they understand the high prices that rural folks are paying for broadband today. In rural areas I've looked at, most households are paying over $100 a month for broadband. There are state BEAD rules that are trying to force rates down to rates between $50 and $75 per month for gigabit speeds. I find several faults with these rate-setting efforts:

Repeating Telecommunications History

I believe we can’t ignore the history of our industry if we want to avoid the worst of it from happening again. There are a variety of factors that led to the rural mess that created the need for BEAD and other broadband grant programs. I think the downward trajectory started with the divestiture of AT&T into AT&T as a long-distance company and large regional telephone companies. The newly-formed company lobbied hard to be able to make profits over and above the low, but steady profits that could be earned by a regulated utility.

Is There Enough BEAD Funding?

There is a tendency to think of high-cost areas—places where it’s expensive to build fiber—as only being in remote places with tough terrain. We’re going to see a lot of other cases of high cost locations that I think are going to surprise State Broadband Grant offices. There are many reasons that drive up the cost of building a landline network. Some places are high-cost by definition. I know of a small town in Arizona that is fifty miles away from the nearest other people.

John Deere and Starlink

In a recent press release, John Deere announced an agreement with Starlink to provide broadband for smart farm equipment in areas where cellular coverage is not strong enough. Anybody familiar with rural America understands that there are gigantic holes in cellular coverage, so this arrangement puts Starlink in a strong position with farmers. The decision means that John Deer will include a Starlink receiver in smart farm equipment along with a 4G LTE receiver.

The Advantages of Equity Funding

A large majority of internet service providers seeking BEAD grants will be financing matching funds using loans. Matching funds are the contributions expected from providers—a 75 percent grant means 25 percent in matching funds. Very few providers carry enough cash on hand to consider using equity to pay for broadband expansion. This contrasts significantly with large telephone and cable companies that will be pursuing BEAD grants, most of whom will finance grants using equity. When it comes to financing using equity vs using loans, equity is the clear winner for the provider.

Danger Of Forcing Low Rates

Some State Broadband Offices are taking a stab at social engineering by trying to force BEAD grant winners to offer low broadband rates. I understand the sentiment behind this because everybody in the industry involved with digital equity issues hears stories about homes that can’t afford broadband even when it is available. I know this feels like a broadband office is doing something good, but there are a number of reasons why this is a terrible idea.

Update on Dish Cellular

I recently checked on the status of Dish, which is trying to become the fourth major cellular company in the country. Dish entered the cellular business in 2020 as a consequence of the merger of Sprint and T-Mobile. Dish was already under pressure at the time from the FCC to use its spectrum portfolio, and the FCC gave Dish until June 2023 to cover 70% of the U.S. population with cellular facilities.

Gaming the BEAD Maps

From all over the country, I’m hearing stories about internet service providers who are gaming the Federal Communications Commission (FCC) broadband maps in order to block areas from being eligible for the BEAD grants. It’s relatively easy for a provider to do this. All that’s needed is to declare the capability to deliver a speed of 100/20 Mbps in the FCC maps. Providers can largely do this with impunity. The archaic FCC rules allow providers to claim ‘up-to’ marketing speeds in the maps.

The Sudden Mad Rush of BEAD

From an internet service provider perspective, the BEAD grant program has progressed at a glacial scale. The BEAD grants were signed into law on November 15, 2021, as part of the Infrastructure Investment and Jobs Act. Folks in the industry assumed that BEAD would follow a timeline similar to the earlier grants that were awarded using federal CARES and ARPA funding, and vendors certainly thought that grant awards would start in 2023 with construction underway by 2024. And then nothing happened. The BEAD process got bogged down in paperwork and bureaucracy.

Wireless Carrier Aggregation

T-Mobile recently announced that it was able to aggregate six channels of spectrum into one bandwidth signal to a customer. The ability to wed channels together was one of the promises of the original 5G specification. The test combined two channels of 2.5 GHz, two channels of PCS spectrum, and two channels of AWS spectrum, creating an effective 245 MHz of aggregated channels. T-Mobile worked with Ericsson and Qualcomm to make this work and was able to create a single 3.6 Gbps connection from a cell tower.

Why ReConnect Now?

The US Department of Agriculture just announced a new round of ReConnect grants. These are grants that can only be used to serve the most rural places in the country, and one of the qualifications is the distance between the grant market and the nearest towns. The homes served by the grants must not have any broadband available at speeds of at least 25/3 Mbps. A grantee must serve every home in a grant area. It’s not going to be easy to find a grant area that is rural and that has no homes where internet service providers claim the capability to deliver speeds of at least 25/3 Mbps.

Is There Pent-up Upload Demand?

It’s easy to understand the growth in download bandwidth due to people streaming higher quality video and similar uses. Why do you think upload broadband usage is growing even faster? According to OpenVault, average upload usage has increased 290% since 2019, while average download usage has increased by 270%. There are some obvious reasons why upload bandwidth usage has been growing. There is now a substantial percentage of people who work from home.

Can Internet Service Providers Absorb the End of ACP?

State broadband offices are asking internet service providers interested in Broadband Equity, Access, and Deployment (BEAD) funding to self-fund a $30 discount for low-income customers after the end of Affordable Connectivity Program. Since this request came from multiple states, I have to imagine the idea came from the National Telecommunications and Information Administration. I can’t think of any better proof that policymakers are out of touch with the reality of rural business plans. Even providers that are successful in rural markets are going to have small margins.

Taxing Broadband

Cities have been petitioning the Federal Communications Commission to ask it to revisit the issue of the ‘mixed-use’ rule that blocks municipalities from assessing franchise fees on broadband revenues. Cities argue that franchise fees are not taxes, and instead are fees that help cities to manage their rights-of-way. The municipal (or state) franchise fee is capped at 5% of retail cable TV revenue, and cable companies typically tack this fee onto every cable bill. The biggest complaint from cities involves what they call cable company arbitrage.

Another BEAD Mapping Mess

The National Telecommunications and Information Administration made a monstrous mess of the Broadband Equity, Access, and Deployment (BEAD) Program maps when they decided to allow licensed fixed wireless to be counted as reliable broadband. This has a huge ramification for the BEAD grants. It has made maps into hodgepodges of served and unserved homes.

Shouldn’t Broadband Mapping Data Belong to the Public?

My biggest pet peeve about the Federal Communications Commission's mapping is that the agency made the decision to give power over the mapping and map challenge process to CostQuest, an outside commercial vendor. The FCC originally awarded CostQuest $44.9 million to create the broadband maps. Many people think that was an exorbitant amount, but if this was the end of the mapping story, fine.

Is it Time for Rate Cuts?

Comcast and Charter broadband customer growth has stagnated, and all of the cable companies are now slowly losing customers. There are a lot of reasons for the stagnation and customer losses. One of the factors that put cable companies at such a competitive disadvantage is broadband prices. The cable companies have been regularly raising rates annually for years to levels that are far higher than all of their competitors.

The End of Rural Landlines?

Patricia Pereira, an 80-year old woman living in Camp Seco, California, is cut off from 911 and other essential services. At the beginning of 2023, Pereira asked AT&T if landline service could be transferred from a neighboring home to hers. Instead of transferring the service, AT&T cut the copper lines dead on both properties. Pereira lives in a dead zone and barely receives cellular signals. This is happening in rural AT&T areas across the country.

Yet Another Challenge to Federal Communications Commission Authority

Federal courts are full of cases that are challenging the authority of federal regulatory agencies, including the case of Securities and Exchange Commission v. Jarkesy, which is pending before the Supreme Court as of January 2024. Hedge fund manager George Jarkesy was accused of committing fraud by misrepresenting himself to investors. The case was heard by an administrative law judge at the Securities and Exchange Commission (SEC), who imposed a fine and penalties, and ordered Jarkesy to disgorge $685,000 in unlawful profits.

Serving the Hard-to-Reach Areas

It’s clear in reading the various proposed Broadband Equity Access and Deployment (BEAD) rules that State Broadband Offices are following the lead of the National Telecommunications and Information Administration (NTIA) and putting a lot of emphasis on making sure that everybody gets served with the grant funding. I’m not sure they understand the costly consequences of this emphasis. There are some passings in this country that are largely unservable.

Dealing With Broadband Outages

It’s always been a hassle when a business loses broadband. But in the last few years, an increasing number of businesses have been telling me that they are practically immobilized when they lose broadband. This is because businesses, especially small and medium businesses, increasingly rely on software in the cloud. So many day-to-day functions, from timekeeping and payroll systems, reservation systems, to online sales portals, now require a broadband connection. This has made businesses become hyper-aware of broadband outages.

Can the Affordable Connectivity Program be Sustainable?

By now, everybody has written about the pending end of the Affordable Connectivity Program (ACP). The White House asked Congress to fund the ACP for a year for over $6 billion, and almost everyone I know is betting against a miracle from Congress. But even if the ACP gets funded somehow, how sustainable is the ACP if Congress has to act every year to renew it? There have been calls for moving the ACP under the Federal Communications Commission’s Universal Service Fund (USF).