March 2011 Archives

March 20, 2011 8:59 PM

AT&T/T-Mobile: Good for Broadband Deployment

Earlier today, AT&T announced it was acquiring T-Mobile for $39 billion.  Among the compelling reasons/benefits AT&T cited for the merger (from the AT&T news release):

With this transaction, AT&T commits to a significant expansion of robust 4G LTE (Long Term Evolution) deployment to 95 percent of the U.S. population to reach an additional 46.5 million Americans beyond current plans - including rural communities and small towns.  This helps achieve the Federal Communications Commission (FCC) and President Obama's goals to connect "every part of America to the digital age." T-Mobile USA does not have a clear path to delivering LTE.
As I noted yesterday, I'm out at COMPTEL PLUS, one of the most important trade shows for providers of fiber capacity of the year.  Fiber guys (and gals) like COMPTEL because carriers come ready to write checks.

With this in mind, I have to say that AT&T's statement is not hard to believe.  The show floor opened about an hour and a half ago, and a lot of carriers hadn't yet heard about the deal, but--after taking the temperature based on a quick lap around the floor--the reactions were generally optimistic. 

Here's why: a lot of fiber backhaul providers do business with AT&T, not so many do business with T-Mobile.  Many believe that, if this acquisition turns the CapEx spigots up higher for AT&T, then more capacity will trickle through the supply chain.  The great thing about the wireless supply chain is that for LTE, it will have to be even more dense with high capacity bandwidth.  Bandwidth that then becomes available for other carrier customers, and large enterprise users.  Hopefully, regulators will understand that while spectrum starvation motivated this acquisition, the deal has benefits that can potentially cascade throughout the competitive telecom ecosystem.



March 19, 2011 6:14 AM

Moderating BTOP Grant Recipient Panel at COMPTEL

Woke up quick, at about noon
Just thought I had to get to Comp[Tel] soon . . .


--"Boyz-N-The-Hood", O'Shea Jackson ("Ice Cube"),
Eric Wright ("Eazy E"), Andre Young (Dr. Dre), 1986

I'll be moderating a panel at COMPTEL in Las Vegas on Monday, entitled "And the Winners Are . . . ."  The panel features BTOP awardees, ION Holdings, GWI, and Windstream.

Attendees will not only learn about the projects funded under the federal BTOP/BIP broadband stimulus grants, but will gain some valuable insights into little-discussed entry barriers for shovel-ready projects, and learn about how broadband projects create their own demand (separate and apart from the demand that justified the project).  Think of this last point as the broadband version of Keynes' interpretation of Say's law, that supply creates its own demand.
 
The panelists will be discussing interesting and diverse projects, so each will provide something new for attendees to learn.  For example, we have what I might call an "ultra" wholesale project--completely carrier/user agnostic dark fiber--being implemented by Maine's GWI.  A more traditional, carrier-class, lit fiber wholesale network, primarily in upstate New York, being implemented by ION Holdings, and, finally, last mile broadband projects serving a number of communities in Arkansas, by Windstream.

This is an opportunity to get beyond the D.C. "policy" circles, and find out what's really involved in implementing shovel-ready broadband deployment projects, and what kind of jobs different kinds of broadband deployment--dark and lit fiber (primarily regional and local wholesale transport), and last mile, end-user broadband--can add to a previously-unserved area.  

If you won't be attending, but have some questions you'd like asked, email me and I'll see what I can do.  Alternatively, if you'll be at the show, please attend and introduce yourself.  I'd love to meet you.

March 16, 2011 7:53 PM

The Best Role for States on Broadband and USF Reform

Today is the one year anniversary of the National Broadband Plan.  The Broadband Plan recommends, as a catalyst for broadband deployment, that the FCC undertake long-needed reform of its Universal Service Fund ("USF") and intercarrier compensation regimes.  Last month, the FCC released a Notice of Proposed Rulemaking ("NPRM"), proposing to reform both programs.  Noticeably absent in either the National Broadband Plan or the USF/ICC NPRM is any defined ongoing role for the states in either the national goal of spurring broadband deployment, or under a reformed USF/ICC regime.
 
There is an important role for the states in a new, broadband-centric, regulatory system.  But, to get there, the FCC has to put consumers at the forefront, considering that the purposes of its proposed reforms are to make high cost support more efficient, and further extend broadband into high cost areas.  It is possible to accomplish both objectives, while giving the states a meaningful role.
 
The communications visionary (and "patron saint" of Wired Magazine) Marshall McLuhan, observed, "[m]ost of our assumptions have outlived their uselessness."  The assumption that the FCC should distribute money to carriers, based on the carrier's optimal utility, in order to satisfy consumer demand is an assumption that has outlived its uselessness.

How would a better plan work?  First, get rid of the notion that state participation should be accomplished through state regulators.  They, too, are trapped by assumptions that have outlived their uselessness.  And, to be sure, the assumptions underlying the distribution of High Cost subsidies are useless--the FCC makes that case quite persuasively in its NPRM.

Consider this statement of Indiana Commissioner Larry Landis, on reforming the low income fund, "[t]oo little attention has been paid to the financial health of the RLECs (and mid-size companies) and the importance of existing High Cost support." Jt Bd Refferal Order, Sep. Stmt. of Commissioner Larry Landis.  This sentiment is antagonistic to nation's technological goals, and offers no solutions. 

While, concern for the welfare of the rural consumer is important, rural consumers' rights are a part of the law, and not up for debate.  On the other hand, no carrier has a right to be inefficient and still be in business.  So what's the answer?

I outline the long form here:Abstract_Managed Broadband Markets.doc.  The short answer, though, is to involve those parts of the state that are responsible to the NTIA for spending the states' broadband mapping/BTOP money.  Accountability and efficiency are built into their directives, plus they already have to report on their success.  But these state agencies can contribute more.

There are no real "markets" for rural consumers in high cost parts of a state, but the state BTOP point-of-contact is a natural market maker.  These agencies could function in the role of broadband development authorities.  They already know where open access local and backhaul networks exist, and they could work with rural broadband providers (including ILEC, cable, wireless, and satellite providers) to put together efficiently sized demand RFPs and match them with bidding (or reverse-bidding) supply consortia.

But, what about the "financial health" of the rural carrier?  Some, funded with the almost $40 billion or so in High Cost support since 1998 (Jt. Bd. 2010 Monitoring Rept., Chart 3-1) will, no doubt, be efficient parts of any bidding consortium.  If not, why must consumers care?

Much greater sums of competitive fiber investment--arguably more important to the health of a broadband economy--were not protected from market risk.  During the "telecom bust" of the early 2000's, an estimated $2 trillion in stock market wealth was destroyed as a result of over-investment.  Is it foolish to think that RLECs, too, may have "over-invested"?  It would be shocking if they didn't when, since the modern High Cost fund began dispersing subsidies, the "prime rate" for borrowing has been comfortably below the RLECs government-protected rate of return of 11.25%.  Why should the privately-owned, publicly-subsidized, rural LECs fare any differently from their privately-funded brethren?

States have an important role to play in the reform of the USF and stimulating broadband deployment.  However, the FCC should update its assumptions about what state agencies they find most helpful to accomplishing the Commission's goals.  The NTIA points of contact for broadband mapping/grant purposes are ideal.  By playing the intermediary between "suppliers" of high-cap backhaul, and the most efficient aggregations of local demand, the state agencies could--using "real" markets--determine the most efficient way to bring the best broadband/voice service to the most consumers.  

March 11, 2011 12:32 PM

Time to Quit Whipping a Dead Horse?

What we've got here is...failure to communicate. Some men you just can't reach. So you get what we had here last week, which is the way he wants it... well, he gets it. I don't like it any more than you men.  -Rep. Henry Waxman (D-CA) (referring to Communications Subcommittee Chairman Greg Walden's (R-OR) inability to get a major ISP to testify in favor of an anti-net neutrality resolution at Wednesday's hearing).

The quote above is, of course, not the words of Rep. Waxman.  That quote (you may recognize) was spoken by "Captain, Road Prison 36" in the classic movie "Cool Hand Luke."  Although, it sounds like something Rep. Waxman could have said after Wednesday's hearing (if he was a redneck chain gang prison guard from the '60s), what he actually said was this, "[r]epublicans couldn't get a single major broadband provider to testify in support of their resolution."  For the record, the Republicans won the battle, by successfully voting their "net neutrality repeal" resolution out of the Subcommittee on a 15-8 vote, along party lines.

The significance of Wednesday's hearing might be a little deeper than what meets the eye.  Why did Rep. Waxman say that there wasn't a single major broadband provider supporting the Republican repeal resolution?  Well, Jim Cicconi of AT&T said it best in his prepared testimony wherein he explained, including a quote from a previous statement by AT&T's CEO, Randall Stephenson, that the FCC's compromise rules weren't everything that AT&T had hoped for, but the rules provided certainty, and AT&T could live with them.  Reasonable enough, right?  

On the other side of the coin, for Republicans the "theatre" of the hearing has to lose a little more luster when the biggest proponent of net neutrality uses your own tag line against you.  And, that's just what happened Wednesday when S. Derrick Turner of Free Press referred to the Republicans' effort to legislatively overturn the Commission's rules as a "solution in search of a problem."  This is the exact same language with which Republicans criticized the FCC for spending so much time and resources to adopt the unnecessary, and counterproductive, net neutrality rules.

But, changing ownership of a cliché, or catchphrase--while considered clever by the folks at Free Press--essentially means nothing.  After all, it didn't help the opponents of net neutrality rules, so why should this "used and losed" phrase fare any better in the hands of the proponents of net neutrality?  But the real reason why the Republicans should have heeded the "no more hearings" warning in my post after the last set of hearings?
 
The only payoff is for your opponents.  They simply get more undeserved press to rehash stale arguments.  Unfortunately, for Republicans, the juice just isn't worth the squeeze.  Even if Republicans succeed in getting the resolution out of the House, the resolution then has to get past the Senate and garner 60 votes to get past a Presidential veto.  This is a bad bet, no matter how well-intentioned, because it has long odds and a win won't pay big.  What do you win when your natural supporters don't even want you to place the bet?  But, given the greater odds against, the more relevant question for Republicans might be what can you lose?  

As the Republicans are learning, it takes precious time to demagogue this big bowl of nothing.  Perhaps, the Democrats last term might have been better served by focusing attention on more important issues.  Now there are less Democrats.  Do the Republican legislators really want to repeat this mistake?  

March 10, 2011 3:29 PM

Lifeline Reform: The FCC's "Welfare Cadillac" ?

I recently saw an interesting program about the life of American music icon, and champion of the underdog, Johnny Cash.  Johnny Cash met and performed for every President, from Richard Nixon on.  When he agreed to perform requests for President Nixon, Cash felt two of the songs requested (neither of which were his) were unfair to the poor, or to the young (the "hippies"), and he refused to sing them.  The song that was unfair to the poor was called "Welfare Cadillac", and portrayed those on public assistance (which Cash's childhood home was built with) as scammers, based on a few anecdotes of people who had abused the system.
 
For some reason, I thought about this story while reading the FCC's Lifeline/Link Up NPRM, released Monday.  It goes without saying that in any government subsidy program, there are certainly going to be some that will use the plight of the poor as an excuse to rip off the program.  But, these few scammers don't justify the unbecoming way in which the FCC portrays the growth of the fund in order to limit, or reduce, its size--without any regard to what the true size of the fund should be at this moment in time.
 
So, let's look at what's unfair about the NPRM.  First, consider the "panic" about the growth of the low income fund.  While it's true that the low income fund is growing quickly, that fact alone means nothing.  The Commission seems to forget that--if the purpose of the low income fund is to make voice, or broadband, services affordable to America' poor--the fund should be growing as quickly as America's poor.  That's not just a fact, but it's a fact that the FCC ignore, choosing, instead, to demean the purpose of the fund through unfair innuendo.
 
If you look at Paragraph 27 of the NPRM, the FCC cites some pretty "alarming" growth statistics about the fund, but here is where the NPRM begins to mislead, by exaggerating the "problem."  The paragraph describes the increase in the fund through the years, noting that the fund dispersed an inflation-adjusted $817 million in 2002 (n. 48, p.12).  The fund now stands at an estimated $1.3 billion for 2010. 

The next sentence, though, inflames the fears the FCC seeks to instill in the public, stating that "in the last several years, a number of pre-paid wireless providers have become Lifeline-only ETCs, fiercely competing for the business of low-income customers by marketing 'free' phone service."  The Commission goes on to conclude that, while this "development" has expanded choices for consumers, "it has also led to significant growth in the fund." The paragraph ends with the haunting specter that "[p]re-paid wireless ETCs now account for one third of all Lifeline reimbursements."
 
Now, let's just "unpack" those "facts" and get a little perspective.  The low income fund is supposed to give a monthly, need-based, allowance to low income Americans to help defray the cost of phone service.  Before leaping to its "reefer madness" conclusion, did the FCC ever consider the possibility that--regardless of how, or from whom, eligible consumers are getting their service--the number of poor Americans may have a hand in the fund's growth?
  
In 2002, 34.6 million Americans lived in poverty.  By 2009, more than 9 million more Americans lived in poverty.  Low income fund disbursements in 2009 were $1 billion.  The "average" household in America consists of a little over 2.5 people (based on 2000 Census data at 4).  If we do the math, then we learn that there were about 3.5 million more poor households added between 2002 and 2009.  Keep in mind, also, that the eligibility requirements for Lifeline can be as high as 150% of the Federal Poverty Guidelines (for LIHEAP participation--a Lifeline-qualifying program), so these estimates are the minimum increases in Lifeline-eligible households.
 
What would you expect to happen even if only a third of the new households living in poverty were served by Lifeline?  Well, the fund disbursements would have been slightly less than $1 billion in 2009 (assuming Tribal participation at today's rate)--in other words, about right.  If all of the newly-poor households had participated (and no new ones were added in 2010), the low-income fund would have been well over $1billion in 2009--about what it is expected to be in 2010.  Hmm?  A "fact-driven" explanation for the growth?  That's no way to build panic and urgency. 
 
But wait!  Aren't there still all those blood-sucking, pre-paid wireless, Lifeline-only ETCs?  Well, there are really only two--TracFone Wireless and Virgin Mobile (now owned by Sprint).  What about all the other names listed in n. 50 of the NPRM?  The FCC found that it was in the public interest to allow those companies to provide more service choices for low income Americans, but the FCC has not yet granted these companies the further approvals that would allow them to actually participate in the Lifeline program.
 
Even if the FCC had awarded ETC certification to all those companies, though, what disgrace is that?  The Commission acknowledges that more than a quarter of Americans have "cut the cord" (para 25), so why should it be surprising if a slightly larger number of low income customers have done the same?  The Commission clearly wants more low-income Americans to be able to choose broadband as a means of communication; why not wireless?
 
It's good for the FCC to be concerned that fraud and duplication are limiting the efficiency of the low-income fund, and, I give the Commission credit for proposing a national validation/verification database.  Such an improvement would be a welcome reform to carriers, administrators, and recipients.
 
Nonetheless, the tone of the NPRM, its misleading characterizations of the causes of fund growth, and many of the recommendations it makes (though the FCC concedes Lifeline has helped the poor (para 26)) conveys at best a grudging compliance with the Act's requirement that the USF serve low income Americans.  At worst, though, a reasonable person could be forgiven for considering this NPRM the regulatory successor to "Welfare Cadillac."  It's too bad there's no Johnny Cash on the Commission . . . .