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Thursday, March 07, 2019

Does the "O" in "O'Rielly" stand for "overbuilding"?

Oh, boy, Commissioner O'Rielly is back on the overbuilding warpath.  In a nutshell, Commissioner O'Rielly feels that the E-Rate should not be funding any special construction costs for wide-area networks where fiber is already available.  He can't see why the E-Rate should be paying to lay new fiber if there is fiber already laid in the area, especially if the existing fiber was also subsidized with federal funds.  So he's written a letter to USAC requesting info on consortium special construction projects.

Before I get to the letter, I'll give my response to that idea.  Mostly, I agree.  The E-Rate should not pay for new networks where a network exists UNLESS -- and this is where I differ with the Commissioner -- it's cheaper.  I don't think the E-Rate program should be paying extra to avoid special construction.  I think that's wasteful.  Current rules only allow special construction if the applicant can demonstrate that it's cheaper than the other alternatives.  So overbuilding only happens when it's the cheapest option available.

I don't think of having E-Rate pay for a fiber network where one exists as "overbuilding."  I think of it as "encouraging competition."  But there's no way the E-Rate should pay extra to encourage competition.  The E-Rate should only pay for a second network if it's cheaper than using the existing network.

On to the specifics in the letter.

First, the most important questions: did the Commissioner capitalize the "R" in "E-Rate"?  Yes, consistently.  Huzzah!  Go big "R"!

I don't have the specifics on the case that the Commissioner refers to in the letter, but it strikes me as exactly the kind of project the FCC envisioned when they allowed dark fiber network: a huge rural area with spotty fiber access.

Now I'll take a shot at responding to the Commissioner's questions:
1. Does USAC understand the E-Rate rules to permit funding for special construction projects, whether self-provisioned networks or networks owned by a commercial provider, that would duplicate, in whole or in part, fiber networks that have been built using federal funds? 
Only if it's cheaper.
2. Does USAC understand the E-Rate rules to permit a consortium to receive funding for the construction of a WAN to provide Internet access to the entire consortium, even where existing fiber-based providers are already capable of serving individual consortium members? 
Only if it's cheaper.  And oh yeah, the Commission has wanted to "encourage schools and libraries to aggregate their demand with others to create a consortium with sufficient demand to attract competitors and thereby negotiate lower rates or at least secure efficiencies, particularly in lower density regions" since the Universal Service Order that started it all (see paragraph 476).  I don't believe that consortia lower prices, and I agree that telecommunications purchases that cover a large area often make it impossible for many companies to bid, but I don't make the rules.
3. Since the 2014 E-Rate Orders, how many applicants have requested E-Rate funding for special construction of consortium-wide WANs, and how much funding was requested by these applicants? 
State-wide networks had better batten down the hatches, because I think they're about to get hit with Hurricane Michael.
4. How many requests for consortium-wide WAN projects have received funding commitments, and what is the total amount of funding committed for such requests? 
The number won't be big: only 362 consortia filed a Form 470 this year (out of 16,976 applicants filing).
a. How many of those WAN projects would result in overbuilding another provider’s network, in whole or in part? 
OK, what do you mean by "overbuild"?  If a service provider leases existing dark fiber to use as part of the network, does that count as overbuilding?  For example, if Service Provider A fiber running between 2 towns, and Service Provider B leases a few pair from Service Provider B and then lays fiber from A's network to the schools in those towns, and connects that WANlet to a bigger WAN, did B "overbuild" A?  What if Service Provider A has existing fiber running past 2 of the 5 schools in a district, would a new WAN from Service Provider B that connects all 5 buildings count as "overbuilding"?
b. How many of those WAN projects would result in overbuilding, in whole or in part, providers that receive funds from the High Cost or Rural Health Care programs? 
And how many of those High Cost funding recipients replied to all Forms 470 in their geographic area, as required by the Second Modernization Order (see paragraph 67)? Commissioner O'Rielly didn't ask; in his Dissenting Statement to the Second Modernization Order, he opined that "a new requirement that Connect America Fund recipients participate in the E-rate competitive bidding process ... could have unintended negative consequences for the CAF program."
5. How many consortium-wide WAN projects have been denied on cost-effectiveness grounds? 
Interesting question.  How would USAC determine cost-effectiveness?  It's not like there's a list price for fiber WANs.  They do scrutinize cost in special construction applications much more closely  than other applications, but it's rare that you can do a truly apples-to-apples comparison of the cost to lay fiber, because it depends on so many factors.
6. How many consortium-wide WAN projects are currently awaiting a funding decision by USAC? 
Another interesting question.  I'd be sweating if I had a consortium WAN application sitting in PIA right now.
7. To the extent that USAC has approved funding requests for the construction of consortium-wide WANs that partially or fully overbuild existing fiber providers, and considers such projects, whether self-provisioned or owned by a commercial provider, to be eligible for funding under current E-Rate rules, has USAC alerted the FCC of the overbuilding risk created by such projects? Has USAC alerted the FCC of an apparent gap in current program rules that permits USAC approval of such projects?
"Overbuilding risk"?  What's that?  The risk that service providers with existing fiber will try to gouge applicants by charging more to use their existing fiber than it costs to lay new fiber?  Me, I have no problem with "an apparent gap in current program rules" that allows applicants to save money and lowers costs for the E-Rate fund.  But Commissioner O'Rielly seems to think that the rules need to be changed so that applicants and the E-Rate can pay more for WANs just to prevent any competition to carriers with existing fiber.

And here's my question for Commissioner O'Rielly: Before writing this letter, did you talk to any stakeholders other than service providers with existing fiber?

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