WHYDOM

Posted by Barlow Keener

Universal Service Reform has been in the FCC “reform hopper” for more than 10 years.  Commissioner McDowell correctly labeled the USF program “antiquated, arcane, inefficient and just downright broken.” Fixing USF is anything but easy because while you can move USF money from one bucket to another, lowering the fee will take away government subsidies from ILECs and wireless companies receiving the subsidies.  Chairman Genachowski is rightly pushing and attempting to go where no Chairman has gone before, actually accomplishing USF reform.  On June 14, 2010, the Chairman announced the creation of the “Universal Service Working Group” that will provide a comprehensive, collaborative approach.  Sharon Gillett, Chief of the Wireline Competition Bureau, will lead the effort.  This announcement followed the March 16, 2010 National Broadband Plan that included a large section on USF reform and the FCC’s Joint Statement on the same day that USF reform was required and that USF funding should support broadband growth.  On April 21, 2010, the Commission released a Notice of Proposed Rulemaking (NPRM) opening a new docket for comprehensive USF reform.

After the announcements, Congress jumped into the fray.  There is a lot of money at stake, $8.7 billion every year.  On June 24, 2010, the Senate Commerce, Science, and Transportation Committee held a full committee hearing on USF reform.  The hearing was attended by three Commissioners.  The hearing was partially a forum for debating about the proposed Third Way and partially for getting commitments that USF reform would not result in harm to rural carriers.

The agreed consensus by Commissioners Copps, Clyburn, and Baker was the goal of delivering broadband to rural areas.  A large part of the hearings involved a back and forth on the Third Way being an acceptable mechanism for giving the FCC the legal authority to use USF High Cost Program ($4.6b) to support rural broadband.  Senator Ensign (R) emphasized that certain telecom companies’ internet businesses should be subject to “light touch” regulation (which is probably a reference to having no net neutrality obligations).  He argued that if “light touch” regulation was reversed, carriers would not invest in the rural areas.  Commissioner Copps said we have had 10 years of one regulatory question mark after the other but investment proceeded none the less. There was no mention of the ARRA NTIA’s $7.2 billion that is being targeted to solving rural broadband.  Also, there was no mention of the enormous amount of USF subsidies being paid to the largest wireline and wireless carriers.

What makes the USF 13.6% fee and $8.7b annual subsidy so controversial? The main issue, alluded to indirectly by almost everyone at the hearing, is the basic “taxation” conundrum.  If USF funding is decreased, then ILECs relying on USF will lose subsidies and could go out of business.  Also, in order to justify USF, the calculation of costs submitted by the ILECs to support the USF subsidy is so arcane and out of touch with reality that a Google cognitive computing engineer would struggle over how it is being calculated.  Straightening out the cost methodology will mean that some ILECs will receive less.  The USF dilemma is politically no different than those who attempt to decrease military spending, Medicare, welfare, or unemployment compensation.  If CABS is decreased, rural ILECs will suffer.  If USF is decreased, there will not be enough funds to subsidize the three largest ILECs and most of the wireless carriers.  Also, if USF is decreased, there will not be sufficient funds, from the point of view of some analysts at the FCC, to reach the last 250,000 homes without broadband.  A recent FCC study determined the average cost to reach the outlier homes would be around $60,000 per home.  While bringing broadband to rural towns is a goal that will serve the U.S. economy, reaching every outlier home may not be in our nation’s best interest.

                                                                  Nipton, CA (pop. 24) Served with DSL

Posted by Barlow Keener

The Comcast net neutrality order was rejected and returned to the FCC by the D.C. Court of Appeals in April 2010.  The order, as we all know, focuses on the FCC’s attempted regulation of a cable company’s Internet network management practice.  Comcast and cable providers were pleased with the outcome as these providers know just how difficult it is to manage the data passing through their routers and switches.  Fred Goldstein at Ionary.com has an excellent discussion on the Internet management issues (Layer 3) faced by the cable industry.  Regulating the flow of Internet data is regulating content.  However, regulating the competitive rights relating to the last mile wire, the wire which you can see on the pole outside your house and known as the "transmission" facility, is the job of the FCC.  The court told the FCC that it had no "express" statutory authority to regulate the Internet but that the FCC did have statutory authority to regulate the transmission facility.

Unlike the cable industry, the FCC and network neutrality advocates were not so happy with the court’s decision.  Susan Crawford argued in a NYT Op-Ed  that the FCC "can regain its authority to pursue both network neutrality and widespread access to broadband by formally relabeling Internet access services as “telecommunications services,” rather than “information services,” as they are called now."   However, Tim Wu and Susan Crawford subsequently proposed in a recent letter that the FCC reclassify "the transmission portion of high-speed Internet access" and "simply state that transport services should be subject to non-discrimination and interconnection requirements."  As explained below, the requirement that transmission facilities be sold on a wholesale basis to ISPs should be restored but limited to the "last mile." The monopoly power of the transmission facility is primarily in the last mile to the consumer’s home.  Limitations on the wholesale requirements of the transmission facility should be limited in a similar fashion to how DSL line sharing of the copper loop was limited (Sec 251) or ISP use of aggregated DSL (Sec. 202).   Of course, providing a  wholesale service of last mile GPON fiber at Layer 1/2 using would be difficult but far from impossible.  

The Third Way. Shortly after the appeals court order, FCC Chairman Genachowski responded to the setback. He presented what some may view as a strange but creative regulatory method of addressing the loss which was labeled "The Third Way." Basically, The Third Way attempts to classify "Internet access service" as a regulated activity ("telecommunications") and then use "forbearance" as a legal device to carve out regulation for those matters like the Universal Service Fund. FCC General Counsel Austin Schlick provides a good discussion on what the Third Wave means in this recent BroadbandUS.tv video interview.   Many have warned, including Commissioner Copps with his "forbearance binge" statement, that the reclassification approach to simply to satisfy the D.C. appeals court’s need to tie Title I ancillary regulation to more than statutory "policy" contained in Title II (telecommunications) could lead to more trouble than expected.  

One might question, as we know the FCC has, the appeals court decision.  The Title II section cited by the FCC as "express" authority for network neutrality states that “[i]t is the policy of the United States . . . to promote the continued development of the Internet and other interactive computer services” and “to encourage the development of technologies which maximize user control over what information is received by individuals, families, and schools who use the Internet.”  The lawmaker who drafted the Title II section might disagree with the court and conclude that it was the court making law, not Congress.  If Section 230(b) does not provide the express link to statutory authority and "arguably delegate regulatory authority", then what new legislative language will work? Congress will be careful in the future to not include the word "policy" in the statute.  The FCC’s Brief, contrary to the Court’s decision, spoke to the common sense of the decision maker, stating: “The operative provisions of statutes are those which declare the legislative will.”

Limited Competitors in the Last Mile. Regardless of the legal arguments about ancillary authority being based on more "substantive" terms of Title II, the real substantive issue  behind the network neutrality is the FCC’s responsibility to ensure healthy competitive behaviors by cable and telecommunications providers. The Supreme Court in Trinko   (2004) explained that the FCC, not the courts imposing antitrust law, was responsible for ensuring that the industry is competitively healthy: "When there exists a regulatory structure designed to deter and remedy anticompetitive harm, the additional benefit to competition provided by [non-regulatory] antitrust enforcement will tend to be small, and it will be less plausible that the antitrust laws contemplate such additional scrutiny."   

One of the primary articulated reasons the FCC issued the 2005 network neutrality "policy" was that "consumers are entitled to competition among network providers." Yet the FCC’s contemporaneous policies served to dramatically reduce competition for ISP services. Ensuring competition is similar to the obligation to "remedy anticompetitive harm" which the Supreme Court required of the FCC in Trinko. resulting from the lack of competition by ISPs. Right now, according to the National Broadband Plan there are only one (13% of homes), two (78%), or, if one lives in the right neighborhood, three (4%) wireline  providers of Internet for consumers.  All you have to do is to look up on the pole outside your house to see two sets of cables - one from the cable company and one from your local ILEC.  You are not going to see more "competing" cables appearing on these poles anytime soon (unless a dramatic — or some would describe it as traumatic — regulatory change occurs).  The lack of a healthy number of competitors typical invokes regulation by the government. In Aspen Skiing v. Aspen Highlands, a snow ski company owning the majority of ski resorts in a ski territory was determined by the U.S. Supreme Court  to have abused its monopoly power by not opening up the all-mountain ski tickets to the smaller resort mountain competitor.  Thus, the issue faced by the FCC is basic "monopoly power" law well-defined for other industries that are outside of the FCC’s regulatory arena.  

The History. The 1996 Telecom Act was supposed to increase competition for local telephone service.   Internet at the time used the local telecommunications service through dial-up modems to connect the average consumer to the Internet.  By 1999, cable companies were providing broadband using their cables hanging on the pole outside your home and ILECs were providing DSL over their wires hanging on the pole.   From 2000 to 2004, there were in some areas one or two CLECs using the ILEC "UNE loops" or wires to provide homes with a broadband Internet choice.   In early 2005, the FCC majority decided that competition by only two wireline providers was healthy (not all agreed with this view) and brought an end to DSL line sharing.  Line sharing gave the very few ISPs and CLECs providing service to consumer homes the right to use the same ILEC wire providing telephone service for DSL. The 2005 Supreme Court Brand X decision brought an end to the hope of ISPs that they would be able to use the cable facility to reach consumers. 

Choice allowed consumers to switch from an ISP that was doing more or less blocking than acceptable by the consumer.   Without choice, the consumer is stuck with ISP provider number one or provider number two. This would be like consumers being stuck with 2 providers of bread, 2 providers of restaurants, or even 2 mobile providers.  This is not just a matter of the rights of the consumer, it is a basic problem of the lack of competition.  The FCC has no choice but to address the issue of the lack of ISP competition. The question is how to do this in the most effective way possible with the least amount of interference and harm. 

Transmission Facility Open for Competing ISPs. Many appear confused about the transmission facility competitive issue and "Internet access service."   Network neutrality is not a technically workable solution for solving the bottleneck at the transmission level. An ISP should have the right to block for traffic management and to provide its own services as it deems in the best interest of the company and its customers. The FCC proposed in 2009 to issue an order allowing network management issues but such an exception would still allow consumers to bring complaints and require ISPs defend their actions.  Network management is not a black and white "you’ll know it when you see it" issue.  The better and simpler approach would be to  prevent "anticompetitive harm" by opening up the gateway at the lowest and most practical Layer 1 or 2 - the transmission layers, not the Internet Layer 3.  The FCC should keep their hands off the Internet and not have FCC engineers examining packet traffic in routers.  The result could be accomplished by building a regulatory framework that would allow ISPs to purchase limited transport on a wholesale basis for the "last mile" to the home under Section 202.   Consumers would then have a choice of ISPs.  And the local, last mile transmission facilities would be more efficiently deployed with more wholesale buyers reaching more total consumers than the monopoly owner, and, thus providing more revenues to the monopoly owner.

Posted by Barlow Keener

On Friday, July 26, 2009, the NTIA (National Telecommunications and Information Administration) granted a “limited waiver” for the Buy America restriction in the  Recovery Act covering certain types of equipment that may be required for broadband projects.  The NTIA is responsible for overseeing the process of delivering $4.7 billion in stimulus funding for broadband projects and is administrating the broadband grants through the BTOP (Broadband Technology Opportunities Program).   One of the general requirements of the Recovery Act was the “Buy America” provision requiring grant recipients to purchase “manufactured goods” used in the product from approved U.S. vendors.  The Buy America provision gave the agencies broad authority to waive the requirement if certain conditions were met, one of which is if the Buy America requirement is not in the “public interest” in a particular industry.

The Buy America provision was opposed by the two of largest internet and telecommunications equipment vendors, Cisco and Alcatel-Lucent, and supported by the Communications Workers of America (CWA).  See a discussion at in this post.   Bloomberg News reported on the Buy America dispute on June 15, 2009.

The July 26, 2009 NTIA public announcement explained that the limited waiver would be granted based on the “public interest” exception.  The NTIA waiver explained:

[I]t would be difficult, if not impossible, for a BTOP applicant to have certain knowledge of the manufacturing origins of each component of a broadband network and the requirement to do so would be so overwhelmingly burdensome as to deter participation in the program. Requiring a BTOP applicant to request a waiver on a case-by-case basis also would be such an administrative burden on the applicant as to discourage participation in the program and would increase the agency’s time and costs for processing BTOP applications for broadband infrastructure projects.

The NTIA, however, did not grant a complete waiver. The Buy America provision will continue to apply to “fiber optic cables, coaxial cables, cell towers, and other facilities” that are produced in the United States in sufficient quantities to be reasonably available as end products.  The list excluded from the Buy America requirement includes equipment for “Broadband Switching,” “Broadband Routing,” “Broadband Transport,” “Broadband Access” for last mile connections, “Broadband Customer Premises Equipment and End-User Devices,” and “Billing/Operations Systems.” There are many equipment vendors that produce telecom equipment in the United States such as Adtran. These U.S. companies will not now, after the NTIA limited waiver, have an advantage over companies manufacturing their equipment outside the United States.

What is interesting about the NTIA limited waiver is that it did not discuss the Buy America OMB (Office of Management and Budget) guidelines which provided that as long as the equipment was “manufactured” in one of 51 allowed countries, the subcomponents were not subject to the Buy America limitations.   The April 3, 2009 OMB Buy America guidelines stated:

There is no requirement with regard to the origin of components or subcomponents in manufactured goods used in the project, as long as the manufacturing occurs in the United States.  (page 136)

By addressing the Buy America provision, it appears that the NTIA is on schedule to deliver its Notice of Availability of Funds by the end of June (tomorrow).  The Recovery Act schedule, found at Recovery.gov indicates that NTIA stimulus funds will begin stimulating recovery starting in January 2010. Checks for the first round of grant proposals will be issued on December 31, 2009.

Posted by Barlow Keener

Obama was voted in with lots of talk about reform.  Democrats could not wait to make change.  However, with other priorities like the economy teetering on the edge of the cliff and GM filing for bankruptcy and the $787 billion Recovery Act, more was on the agenda plate that could be handled in one walk through the change buffet.   No doubt, wheeling and dealing at the Senate led to the FCC’s changing of the guard being put on hold by concerned opposition.  Julius Genachowski was designated as the new FCC Chairman as early as January 13, 2009.  Obama officially named Genachowski to the position on March 3, 2009, and submitted the position to the Senate Commerce Committee, Chaired by Jay Rockefeller (D-WV), on March 25, 2009 for approval.  First the hearings were scheduled for after Memorial Day and now they have moved to June 16, tomorrow.  It is possible, some pundits claim, that the hearings may not be concluded until after the August recess.  The stated  reason for the delay is that the Committee is seeking to approve all the candidates — two Democrats  (Mignon Clyburn) and two Republicans (McDowell and, as yet to be nominated, Meredith Attwell Baker, formerly at the NTIA) — at one time.

Certainly, there are some industry leaders that will not be happy with the new chairman.  Politics may seem to be a strange beast but politics are simple at the heart of the matter.   Senators work to serve their supporters and constituents.   It is unusual for a newly nominated chairman from a change of guard political party to wait so long to begin initiating change.  Republican Michael Powell, for example, who was already serving as an FCC commissioner, was nominated for the chairmanship on January 21, 2001 by Bush and within days was serving as Chairman.  

Genachowski has a long history of supporting competition and is a strong backer of network neutrality (See Huffington Post article).  He served as General Counsel at the FCC until 1996 under for former Chairman Reed Hundt.  Hundt as we all know was responsible for architecting and delivering UNE-P, which did not make many of the incumbent local exchange carriers happy and was subsequently removed by the Republican FCC.   It is highly likely, therefore, that Genachowski will bring back support for more “choice” for the consumer and more competition as well as pushing for network neutrality.  There are certain local exchange companies that may not favor such a policies.   Even though almost all carriers have publically spoken in favor the nomination, it is conceivable that some may be working to slow it down.  However, with so much else on Obama’s plate like the Recovery Act and banking reform, moving the nomination quickly through the Senate may be a lower priority.   In the meantime, the hearings will begin and these issues will be explored by the Senators.

Posted by Barlow Keener

The Recovery Act included a “Made in America” requirement for all $787 billion of stimulus funding. Section 1605 of the Act provides that in a “public work” all “manufactured goods used in the project” must be “produced in the United States.” A Federal agency is authorized to waive the requirement if one of three conditions is met: a) Buy America is not in the public interest, b) manufactured goods are not produced in the U.S. in sufficient and reasonably available quantities, or c) the manufactured goods produced in the U.S. will increase the cost of the “overall project”  by more than 25%. If the agency waives the requirement under one of these three  exceptions, then the agency must provide a detailed reason for the waiver in the Federal Register. One additional broad exception is included in Section 1605 which mandates that Buy America be applied “in a manner consistent with the United States obligations under international agreements.”

With respect to the $7.2 billion of broadband Recovery Act funding, the debate about Buy America is increasing in volume. On one side of the debate, the Communications Workers of America (CWA) urged the NTIA to not grant a blanket waiver because jobs are being taken from telecommunications facilities throughout the U.S. including Alcatel-Lucent facilities in Andover, MA and Charlotte, NC. CWA notes that the OMB has issued guidelines interpreting the “international agreement” section of Buy America to include 51 countries with trade agreements. China is not on the list.

Some of the larger equipment vendors which rely considerably on the manufacture of equipment outside the U.S. have urged the NTIA to issue a “blanket waiver.” These companies include Cisco and Alcatel-Lucent which filed ex parte notes documenting their discussions with the NTIA. Alcatel-Lucent explained that because most of the broad funding would be spent on labor in building out fiber facilities, waiving the provision for the equipment such as routers and switches would not significantly hurt U.S. jobs. One good point made by Alcatel-Lucent is that even “innovations as the Apple iPhone and in-home routers like the Linksys WiFi router” would require waivers and that the equipment in Verizon’s FiOS and AT&T’s U-verse services would also require waivers. Cisco argued that the “globalized supply chain of the broadband equipment sector” means that the best equipment would not be available and would “significantly limit product and technology choices and could impair the ability of the programs to succeed.”

Alcatel-Lucent also pointed out that the OMB defined “public building or work” as  “a governmental entity” project. However, the broadband section of the Recovery Act leans heavily in favor of funding projects developed by governmental entities and not “private entities.”  Even for private entities to receive funding the entity must be deemed by rule making to be in the “public interest.”  Thus, the likelihood of a private entity receiving funding on its own without a governmental entity being involved is low.  Nevertheless there is a bright side for companies importing routers and switches into the U.S.  The OMB has decreed that goods made with foreign components are acceptable. OMB explained that there is no requirement regarding the origin of “components or subcomponents” as long as the “manufacturing” occurs in the U.S.

While Cisco and Alcatel-Lucent have presented persuasive arguments, it will be difficult for the NTIA to issue a blanket waiver in light of the CWA’s more persuasive political argument that the Recovery Act was intended to create jobs in the U.S. not outside the U.S.  Also, the OMB’s inclusion of 51 countries and explanation that “manufactured goods” do not include the origin of components or subcomponents eliminates much of the practical reasons for issuing the blanket waiver.  For example, as long as the chassis is made in the U.S. all the cards that are plugged into the chassis could be made in any country.

Politics and the 9% jobless economy – in some cities even 20% — may rule the day on the Buy America broadband issue.  But we will have to wait and see as the NTIA has yet to issue its guidelines for the first bid.

Posted by Barlow Keener

report to Congress on getting the Recovery Act funding out the door. Without a press release or press conference, NTIA “quietly” (a word GigaOm’s Stacey Higginbotham used) explained to Congress that the first tranche of broadband funding would not be put to work until December 31, 2009. In fact, the report does not address the amending of the dates as a change and did not address the initial dates announced publicly at the  March 10, 2009 open meeting. The NTIA Quarterly Report addressed the date change as follows and even hedged the committed date by using the word “anticipates”:

After its review of the initial grant applications, NTIA anticipates making grant awards beginning in the final quarter of calendar year 2009.

The Obama Administration’s site Recovery.gov contains the specific date, December 31, 2009 as the “Initial Grant Award” date. There is no mention of this date on the NTIA BTOP web site. We all know that “December 31, 2009” means no Recovery Act spending for jobs creation, stimulus or broadband acceleration during 2009.

Telecommunications equipment vendors, internet providers, libraries, municipalities and the unemployed (now at 9%) are waiting for NTIA to release the funds. There has been talk that some telecommunications providers are holding back on spending for new infrastructure until the NTIA and RUS funds are released. Holding back on spending is clearly not helping the U.S. move forward in accelerating broadband penetration or in stimulating the job creation in 2009.

NTIA and RUS are responsible for delivering $4.7 billion and $2.5 billion, respectively, for a total of $7.2 billion. Many have analogized building broadband to the unserved and underserved homes and businesses. 40 million+ homes do not have broadband today. On March 10, 2009, a few weeks after the act was signed on February 17, 2009, the NTIA held an open meeting. During the meeting, the NTIA’s Dr. Bernadette McGuire-Rivera, who has been responsible for the NTIA DTV-to-analog converter box coupon program, announced the tentative dates for the grants proposals and for releasing the funds:

The first grant round, again the notice for that we expect to go out, I’m going to give you ranges of times, between April and June of this year. Second round, from October to December of this year. Third round around April or June in 2010.

It was clear from Dr. McGuire-Rivera’s March 10, 2009 announcement that, although the timing would be tight for turning around grants, getting funding into the hands of responsible grantees to deliver jobs, stimulate local economies, and build broadband infrastructure was more important than inter-agency or federal-state-municipal government wrangling. The March 10, 2009 announcement left the impression that the first round of funding would be announced and delivered by September 30, 2009 (before the submission of the “second round”). The second round of funding would be delivered for new jobs by December 31, 2009.

Transparency has been the key word used to describe the process involved with delivering the funding with no deals made without the public being notified. Transparency promotes integrity in the system and provides for economic predictability and stability for the telecommunications industry. The seven NTIA, RUS, and FCC open meetings held during March were a great start. Delivering bad news for the telecommunications industry that broadband Recovery Act funds would not be  delivered during 2009 through a “quietly” produced Congressional progress report does not build confidence in the process or in the commitment to transparency. Moving the release of funds dates out by four to six months during this economic crisis was not a mere administrative matter for the recipients of the news. The decision making process about changing the dates should have been more transparent. When finally made, the decision should have been clearly announced at press events by the Department of Commerce’s NTIA and explanations for the change should have been provided.

While moving out the funds release dates into 2010 may have benefitted the NTIA and some states and municipalities to plan and put the grants together better than they would have on a fast track, the bottom line is that the Recovery Act broadband funds will not be used to stimulate the economy or the telecommunications industry during 2009.

Posted by Barlow Keener

The American Reinvestment and Recovery Act ("ARRA”) appropriated $7.2 billion for various broadband projects.  The primary goals of the ARRA broadband provisions are 1) to increase broadband penetration for the unserved, both rural and urban, 2) to increase broadband adoption for the “underserved,” and 3) to deliver new jobs.   The USDA’s RUS (Rural Utility Service), under the direction of FCC Commissioner Adelstein, will deliver $2.5 billion to mostly rural areas.  In tandem with the delivery of the Recovery Act funding for broadband, the FCC has been mandated by the 2008 Farm Bill to develop a comprehensive national broadband plan.  It is due in early 2010.   On March 10, 2009, the FCC released an order seeking comments (Docket GN 09-29) for the broadband plan which were due on March 25, 2009.  

One proposal included in comments filed by OPSACTO (Organization for the Promotion and Advancement of Small Telecommunications Companies) could dramatically increase broadband funding and potentially double the $7.2 billion ARRA subsidy amount for broadband.  OPSACTO proposes that the FCC levy USF fees on “facility-based broadband” services.  Currently, broadband is considered a non-telecommunications, information service and not subject to the 11.6% USF fee.  OPASCTO’s comment reasoned that:

[R]equiring all facilities-based broadband Internet access providers to contribute to the USF would secure the [USF] Fund’s long-term viability while also allowing for accountable, prudent growth in the High-Cost program. Assessing all facilities-based broadband Internet access providers would establish a much larger contribution base than exists today, and one that would experience rapid growth for some time to come.

OPASCTO also recommends that the FCC add broadband to the list of services for which it’s members may use USF subsidies.   Currently, USF subsidies are restricted to ensuring that telecommunication services, with a focus on voice telecommunications but not broadband, are “universally” or “ubiquitously” available to all rural customers no matter the cost.  OPASCTO additionally recommends lifting the cap on the high cost loop support formula to allow the 520 rural OPASCTO ILECs to receive the maximum government subsidies necessary to provide broadband universally to their unserved rural customers.  

In some respects the OPASCTO recommendations make good sense in light of the Obama administration’s goal of delivering broadband to every home as a way to deliver the jobs and education that are becoming available in ever increasing models  using broadband.  JetBlue’s distributed at home call center is a good example.  In 10 short years, we have moved beyond the goal of delivering voice to every home to the goal of ubiquitous broadband.   USF is focused on ensuring ubiquitous telecommunications services which now is only half the need.  The concept of delivering broadband to every home is being analogized to President Eisenhower’s boosting the economy by building the U.S. interstate highway system.  Whether true or not, the general political consensus is that broadband will create a “multiplier” for the underlying investment.  See Paul Budde’s article about the U.S. and Australia’s broadband initiatives and studies supporting the economic multiplier effect.   So, there is some rationale for imposing USF fees on broadband in order to reach the broadband goal. 

According to one estimate, 63% of the U.S. homes, or 73 million, will have broadband by the end of 2009.    That means that approximately 40+ million homes do not have broadband today.    Doing some back of the envelope math, if USF at today’s 11.6% rate is imposed on “facilities-based broadband providers” as recommended by OPASTCO, the government would raise approximately $6 billion in additional funds every year from U.S. homes and businesses.  This is based on the assumption that the average broadband bill is $60 for businesses and homes.  $6 billion in additional USF fees is just about equal to the total Recovery Act allocated for broadband.   Also, the cost of Internet for every business and home would increase in price by 11.6%.  While the USF is a fee and not a tax, it would still be an additional sales tax from the view of the taxpayer.    It could be a political stretch to impose yet an additional fee on an economy already stretching to recover.  Certainly the Republicans would not support such a subsidy as only three members of the Senate and none from the House voted for the ARRA.  Many Democrats may feel the same and the FCC Chairman would not want to be explaining to a Congressional hearing that the FCC had imposed “tax” on broadband without Congressional backing.  This is especially true when the service providers are already receiving $7.2 billion in Recovery Act subsidies from taxpayer money to fund broadband penetration and use.  

There is good merit to opening up the USF subsidies and using them to fund ubiquitous broadband.  Making broadband affordable and meaningful (– can it be used to make a living or deliver an education at home? -) for lower income populations in all geographies, as well as for rural unserved populations, should be a goal of the funding. 

Another positive point that can be deduced from OPASTCO’s filing is that there should be sufficient RUS funding to ensure that all of OPASTCO members’ unserved broadband customers receive broadband service.  OPASTCO members deliver broadband to 88% of their customers “on average.”  Using the “on average” number, around 3 million OPASTCO customers receive broadband leaving 500,000 without broadband which is 1% of the total 40 million unserved homes.   Dividing $2.5 billion of RUS funding by 500,000 customers, and assuming no leveraged using loans or equity, represents around $5000 per unserved OPSACTO customer.   Of course, OPASTCO members will not receive 100% of the RUS funding, but it should be assumed that a large portion of the RUS funding will go OPASTCO’s  members.   $5000 is more than the $4000-$3000 estimated cost of delivering FTTH to rural customers according  to NERA.  

The question is, should USF fees be imposed on broadband Internet service?  What do you think?

Posted by Barlow Keener

In 2003, President Bush issued an Executive Order entitled “Spectrum Policy for the 21st Century” ordering the Department of Commerce’s NTIA to identify spectrum and propose policies for the spectrum’s more efficient use. The Federal Government Spectrum Task Force was created led by NTIA and consisting of all the departments except for the FCC which was encouraged to provide input but not made a member. In 2008, NTIA released the 248 page “Federal Strategic Spectrum Plan.” The Report in large part focused on proposals of various federal departments to bring efficiencies to the spectrum:

This National Plan will address spectrum requirements for essential Federal missions, including national and homeland security, critical infrastructure, transportation, law enforcement; state, local and tribal public safety spectrum needs; and requirements of non-Federal entities for spectrum to support new services and systems.

The NTIA Federal Strategic Spectrum Plan did not address the politically sensitive items like the White Spaces or other spectrum that may be inefficiently used such as ham radio spectrum or Citizens-Band.

Last week, Senators John Kerry (D-Mass.), Chairman of the Commerce Subcommittee on Communications, Technology, and the Internet, and Olympia Snowe (R-ME), a senior member of the Commerce Committee, proposed the Radio Spectrum Inventory Act that would create a new spectrum plan. The question is what is the purpose of the Act and will the Act be an improvement over the prior NTIA report. Kerry’s team raised an interesting focus of the purpose which cellco’s may respond not be please with. Kerry’s office stated that purpose is to gain “a clear sense of how the spectrum is currently being used.” If the spectrum is not being used, but “warehoused” (the word used by the Kerry spokesperson) such unused “public” assets could lead to use it or lose it requirement. The inventory would be due in 6 months from the date of the act. Kerry emphasized that the public, not the license holders, own the spectrum: “Our public airwaves belong to the American people, and we need to make certain we are putting them to good use in the best interests of those citizens.”

While certainly the Radio Spectrum Inventory Act is a “wait and see” as it is only proposed legislation, Kerry appears to be preparing the ground work for either a new white spaces initiative (possibly CB radio spectrum or Ham Radio spectrum?) or for imposing a use it or lose it requirement for existing but poorly used licensed license spectrum such as 2.3Mhz or 2.5Mhz.

Posted by Barlow Keener

While visiting Denver’s Museum of Nature and Science this week, President Obama signed the historic “American Recovery and Reinvestment Act.” For the telecom industry, as well as other sectors of the economy, the Recovery Act presents the opportunity for obtaining billions of dollars of grants and loans and delivering jobs and hope to the economy.  For the telecom industry, $7.2 billion in grants, loans, and loan guarantees are targeted for broadband projects in the next 22 months. The opportunities are open to all sectors of the industry, not just service providers: equipment vendors, systems integrators, education entities, and wireless and wireline carriers. To complicate matters, governmental entities – towns, municipalities, public safety agencies, and state governments are permitted by the ACT to compete with private industry for the grant money.

The broadband recovery funds will be distributed by two agencies: the Department of Commerce’s National Telecommunications Industry Agency (NTIA) will handle $4.7 billion and the Department of Agriculture’s Rural Utility Service (RUS) will distribute $2.5 billion. There are a few guiding principals for obtaining the winning bids:

1. Jobs: Grant proposals must deliver jobs – the more the better
2. Spend it now: NTIA funds are for capital expenditures only and the funds must be spent by December 2010
3. Shovel Ready: Projects must be “shovel ready” – that is ready to begin work immediately upon the award of the grant. “Shovel ready” may apply to consulting work, as the Business Insider points out with a Merrill Lynch bridge project.

Another key aspect of the Recovery Act is that NTIA has an obligation to “consult” with the states regarding the broadband projects.  State input will frame NTIA’s requests for proposals.

Following President Obama’s commitment for increased transparency in government, the administration should be providing the same information to all applicants large and small by using agency web sites. For example, the Obama administration created a web site for the bill itself located at Recovery.gov. NTIA and RUS will maintain web sites with current information for all participants. The Recovery Act requires Assistant Secretary of Commerce for Communications and Information to create a “Broadband Technology Opportunities Program.” It is assumed that the program will use the processes established by the existing NTIA “Technical  Opportunities Program” (TOP).  Neither NTIA nor the USDA RUS have updated their web sites to explain the process for the Recovery Act. 

The Recovery Act delegates broadband-related spending in three sections. Title II, entitled the “Broadband Technology Opportunities Program,” authorizes the expenditure of $4.7 billion in grants funding to be awarded by Commerce’s NTIA. The purpose of the competitively awarded NTIA grants is to:

Accelerate broadband deployment in unserved and underserved areas and to strategic institutions that are likely to create jobs or provide significant public benefits.

Thus, proposing grants a) that are in tandem with the needs of the state and “strategic institutions” such as hospitals, schools, or public safety and b) that “create jobs” are the keys to winning the funding.

The Recovery Act’s Title IV (Sec. 6001) sets forth the requirements for the NTIA BTOP grants, specifying eligible entities and suggesting that “timing” and “Requests for Proposals”  are to be presented by NTIA to the public.  These RFPs will clearly require input from each state.  At least “one” grant is mandated to be provided in every state. While eligible entities include non-governmental and non-profit entities, the for-profit companies must be found by NTIA’s “rule” to be “in the public interest.”

In addition, net neutrality obligations are contained in the Recovery Act. Grants provided must be subject to NTIA-determined “non-discrimination and network interconnection obligations” which “at a minimum” must follow the FCC’s non-discrimination policy. Grants may be provided for a wide range of equipment and services including education of broadband subscribers. The Act specifically mandates four categories of expenditures:

• $350 million for the State Broadband Data and Development Grant program for the development of a national broadband inventory map
• $200 million for grants for expanding public computer center capacity
• $250 million for innovative programs to encourage sustainable broadband adoption
• $10 million for audits and oversight of the grants
• $141 million (3% maximum) for administrative costs

Title I of the Recovery Act, entitled “Agriculture, Rural Development, Food and Drug Administration and Related Agencies,” authorizes $2.5 billion in additional loans and loan guarantees (but not grants) for the “Distance Learning, Telemedicine, and Broadband Program.” The $2.5 billion is less than the $2.85 billion requested by the House and more than the $1 billion proposed by the Senate. The loans will be granted and delivered through the RUS loan program. Applicants for the RUS loans are required to be “shovel ready.”  The funds must be used in such a way that 75% “of the area” served that are rural areas without sufficient access to  broadband service that could “facilitate rural economic development.”  Current and prior RUS borrowers will be given priority. It is clear that the agency has broad interpretive authority to determine the identification of these “rural areas.” There are some states that have not been recipients of RUS loans in the past.

Finally, as an added plus for broadband deployment, Title VII of the Recovery Act authorizes the Department of Labor’s Employment Training and Administration, to deliver $250 million in grants for training employees for “high growth and emerging industry sectors.” The Congress’s Conference Report agreement (H 1422) expressly included “training for wireless and broadband deployment” as an eligible activity for high growth training grants. The training grant funds will be provided under the Training and Employment Services’’ for activities under the Workforce Investment Act of 1998.

It is clear that there is a huge amount of funds available for anything related to “broadband.” The next steps for NTIA and RUS are to set up processes for consulting with state governments to determine the scope of the RFPs and to establish deadlines for responding to the RFPs and loan applications.  Stay tuned.

Posted by Barlow Keener

The FCC announced yesterday that it will host a summit on February 25, 2009, for coordinating Next Generation 911 deployment for IP-enabled voice service providers.  The summit is required by the New and Emerging Technologies 911 Improvement Act of 2008 (NET911 Act) which was unanimously passed by Congress last July.  The NET911 Act required the FCC to issue an order within 90 days of the effective date of the law implementing certain 911 requirements for IP-enabled voice service providers and enabling VoIP providers equal access to 911 services.  On October 21, 2008, the FCC timely issued the NET911 order implementing the Act. 

One controversial aspect of the FCC’s Net911 order is that it did not specifically require providers of mobile VoIP to deliver “last known cell” information of the VoIP mobile user.  VoIP mobile users include, for example, those customers with dual mode mobile phones that are able to use the cell phone provider’s spectrum and RAN (Radio Access Network) or a local WiFi access point using VoIP.  The location of the access point is not available but the last know cell tower location could be made available for VoIP 911 purposes.  Chairman Martin strongly believed that last known cell information should have been a requirement while both Commissioners Adelstein and Copps supported the position that more research and industry inquiry was needed to determine if the last known cell information was the best way to deliver mobile VoIP 911 locations. 

The NetAct also required that within 270 days (April 2009) the E-911 Implementation Coordination Office (E9-1-1 ICO) consult with the industry and develop a plan for migrating to a national IP-enabled emergency network and for improving information sharing among emergency response entities.  The E9-1-1 ICO plan must provide, among other items, the following:

1. Identify barriers that must be overcome and funding mechanisms to address those barriers;
2. Identify location technology for nomadic devices and for office buildings and multi-dwelling units;
3. Analyze the experiences of the public safety answering points and related public safety authorities who are conducting trial deployments of IP-enabled emergency networks;
4. Analyze efforts to provide automatic location for E9-1-1 services and provide recommendations on regulatory or legislative changes that are necessary to achieve automatic location for E9-1-1 services.

The FCC Public Safety and Homeland Security Bureau’s February Summit will be held well in advance of the April 2009 date the E9-1-1 ICO is required by the Act to report to Congress.  It appears that the Summit will be an opportunity for the E9-1-1 ICO to coordinate with the FCC PSHS to implement the Act’s requirement to “consult with representatives of the public safety community, groups representing those with disabilities, technology and telecommunications providers, IP-enabled voice service providers, Telecommunications Relay Service providers, and other emergency communications providers.”  The Summit should also be the appropriate public forum to discuss  solution(s) for mobile VoIP 911.