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Monday, July 15, 2019

Mystery extension

Huh?  I was just reading the cover letter from one of the Commission's "Streamlined Resolution of Requests Related to Actions by [USAC]" and I noticed this sentence: "If the Bureau has dismissed or denied your appeal and you would like to seek reconsideration of that decision, the deadline to file a petition for reconsideration or application for review by the full Commission is 116 days from the release date."  What?! 116 days?  We were told it was 30 days. The FCC has denied a Request for Reconsideration that was filed 32 days after the decision.

Did the rules change?  What are the rules?  Well the above-mentioned cover letter provides the relevant chapter.  Here we go, 47 CFR § 1.106 (f): "The petition for reconsideration and any supplement thereto shall be filed within 30 days...."  So there, 30 days. 

Can anyone tell me where the 116 days comes from?  That's a really odd number.

Not that I'm complaining.

Wednesday, July 10, 2019

Let's hear from an overbuilder

In a new twist on the overbuilding debate, an Alaskan telecom provider has filed with the FCC asking for changes to E-Rate and Rural Healthcare rules, because they're finding it difficult to compete under the current rules.  The telecom costs in Alaska are thrilling, so I thought I'd see what's up.

This request is kind of the flipside of the Texas Carriers case: this time, the overbuilder is complaining that the owner of existing fiber has an unfair advantage.

Before I get into the particulars, here's an overbuilding success story from an article written the last time Quintillion tried to get the FCC to put the squeeze on GCI:
Crawford cited the Nome School District as an example. The district has five schools, and 700 students, and paid $305,000 per month to GCI for its internet service.
According to Crawford’s letter, the district was able to reduce its bill to $95,000 a month once Quintillion connected to the shore from its subsea fiber optic cable.
A little overbuilding, and the price drops by 69%.  If Commissioner O'Rielly's rules had been enacted before Quintillion laid cable in 2016, then Quintillion would have had to use GCI's infrastructure, and the Nome schools would be paying 3 times as much.  At a cost to the E-Rate of $3 million per year.

Who are Quintillion and GCI?

Quintillion, the complainant: a company that has laid oceanic fiber around the northwest corner of Alaska as part of a plan to build a link from London to Tokyo.  )Seems crazy until you see the map:
OK, it still seems crazy.  I believe the idea is to shave 24 ms off the current 170 ms latency between London and Tokyo; high-speed traders will pay a lot to give their trades that speed boost.)
Here's a map that just shows Quintillion's Alaska network:

GCI: a company that has created a fiber-microwave WAN that covers much of Alaska:

So Quintillion complains:
  1. GCI gets more than 75% of USF funding awarded in Alaska.
  2. The FCC cut GCI's Rural Healthcare (RHC) funding by 26% in 2017.
  3. Roughly 50% of funded E-Rate Internet commitments in Alaska received only one bid.
  4. GCI’s market dominance resulted, in part, from ... $44 million federal BIP [Broadband Innovations Program] grants.
  5. GCI insists on using its own network, refusing to use Quintillion's.
To which I say:
  1. That is troubling.  Unless, like Commissioner O'Rielly, you believe that since federal funding helped pay for GCI's network, it should be protected from competition.  Me?  I say: "Overbuild, Quintillion, overbuild!"  The consensus up in Alaska is that a monopoly is not a good thing.
  2. I'm too lazy to look into that, but I'll bet that has something to do with RHC rules about the cost of services in rural areas compared to costs in urban areas.  And, of course, it's a result of GCI having infrastructure where no one else does.
  3. That is troubling.  Some might say it is a good sign, that there is no wasteful overbuilding, but me, I think it shows a disturbing lack of competition.
  4. And therefore, according to Commissioner O'Rielly's reasoning, the government's $44 million investment should be protected from any competitor building service to any locations covered by their network.
  5. GCI's cost to use their own existing network is close to $0.  Quintillion, did you offer to let them use your network for close to $0?  Keep lowering your price, and eventually they'll stop refusing.
And what solutions does Quintillion propose?
  1. Make changes to the RHC:
    1. Consider more cost-effective middle-mile and backhaul solutions.
    2. Extend the bid period to 90 days.
    3. If only one bid is received, limit the contract length to one year.
    4. Allow more flexibility on changing service providers for single-bid awards.
    5. Audit single-bid awards.
  2. Make changes to the E-Rate:
    1. Extend the bid period to 90 days from 28 days.
    2. Require single-bid awards to submit cost and rate information that will be made public.
    3. If only one bid is received, limit the contract length to one year.
    4. Audit single-bid awards.  
To which I say:
  1. Not my circus, not my monkeys. 
  2. OK, this is my circus ("my circus" meaning "I belong to this circus," not "this circus belongs to me"):
    1. No.  What will service providers be doing for 90 days?  How many more bids will come in?  I agree with letting service providers have more time in some cases, but not 90 days in all cases; let local officials determine the appropriate amount of time.
    2. That info is on the Form 471, which is public.  And GCI has already made their rates public.  And we're talking about public bids here: file a FOIA request and get the whole bid if you want.  That's 3 ways you already have to get the information for all bids, not just single-bids.
    3. Really?!  You're going to make schools and libraries go through the formality of re-applying and getting a single bid year after year?  In most Internet contracts I've seen, the price drops sharply if you sign up for at least 3 years.  So schools and libraries have to pay more and go through more hassle, just because one of these years, some other company might want to bother bidding?
    4. How about this?  In single-bid situations, we audit all the telecom companies in the state who didn't bid?  Why go after the applicant and the service provider who participated in the competitive bidding process?  Instead, let's investigate service providers who didn't, especially any that have gotten any federal funding.
Why did Quintillion make this filing?  Quintillion is a wholesaler.  They sell middle-mile to service providers.  They brought a fiber connection to five towns in Alaska, but sell only to other telcos, who then sell to consumers (including school districts).  Why are they complaining?  Have they ever participated in a bid?

There are only 3 school districts that Quintillion fiber would serve: Nome, Northwest Arctic Borough (Kotzebue) and North Slope (Port Hope to Prudhoe Bay).  Quintillion already won Nome, but let's see:  Northwest Arctic Borough is in a $6-million-per-year contract with GCI until 2021 (with voluntary extensions through 2023); North Slope is in a $7-million-per-year contract until 2021 (with voluntary extensions through 2031).  OK, I can see why Quintillion wants to give their resellers an opportunity to figure out how they're going to connect the schools to Quintillion's POP in those towns.  But hey, if the resellers start planning now, they won't need 90 days after the Form 470 goes up.  Then in the fall of 2020, let the districts know how much money you can save them, and they'll bail on the contract extensions and you'll win the business for FY 2021-2022.

So what do you think?  Is Quintillion an evil overbuilder, hurting the value of the federal government's investment in GCI's network?  Or are they a competitor prevented from bringing costs down for schools? (And, since the E-Rate is paying 80-90% of the cost, bringing down costs for the federal government.)

Mea culpa

I owe the E-Rate community an apology.  I was reading through an August 2014 post of this blog, and found that I had suggested the following:
You know what we should do for fiber instead of getting into the weeds on which pieces of fiber are eligible and which aren't depending on whether its lit, dark or IRU?  Say this: "Any applicant seeking a dark fiber lease must also request and consider lit fiber proposals."
Did I create the heinous mess of Form 470 drop-downs and evaluation requirements for dark fiber?

Maybe I should watch my mouth.  Yeah, maybe I'll release an NPRM and consider a new rule for not spouting suggestions before considering the evil rules that they could spawn.

Monday, July 01, 2019

Schools should subsidize rural broadband?

As promised, I'm going to take a look at Commissioner O'Rielly's comments about overbuilding from his speech to the Hudson Institute.

First, kudos on "pernicious consequences."  That is just a delightful phrase.

While we're side-tracked onto my preoccupation with language, in the official transcript of the speech, the Commissioner capitalizes the "R" in "E-Rate."  Bravo!

Back to the pernicious overbuilding.  I've already given my views on overbuilding, but let me take a look at the Commissioner's statements in this speech.

OK, first off, in my-speak (as opposed to "Orwellian-speak"), allowing service from someone other than the incumbent provider doesn't just "promote 'greater competition'"; it "allows competition."  Allowing bids from service providers who do not have existing fiber does not "enable artificial competition"; it creates a level playing field where existing providers must compete for business, instead of being given a monopoly.

Here are the Commissioners objections to allowing competition:
  1. it does not help consumers
  2. it does not promote long-term competition
  3. it undermines private incentives to invest in and upgrade broadband networks
  4. it distorts competitive outcomes
  5. it makes it more expensive to connect Americans living in the most remote areas
 To which I say:
  1. It helps the schools and libraries who are able to get service at a lower cost.
  2. So having two providers with fiber in an area does not promote long-term competition?  Restricting fiber to a single provider is somehow better for competition?  I don't think so.
  3. What incentive does a monopoly have to invest in and upgrade networks?  Meanwhile, a new service provider will have to invest more than an existing provider, so in the big picture, we get more investment when we don't protect the existing provider.
  4. It doesn't "distort" competitive outcomes, it "allows" competitive outcomes.  You can't have a competitive outcome if you restrict the ability of competitors to enter the market.
  5. Connecting private individuals is not the goal or the responsibility of the E-Rate.  The High Cost program needs to take care of that.
"Due to a loophole in the E-Rate rules, school district consortia had manipulated the competitive bidding process to ensure that funding went to build new wide area networks covering entire school regions...."  I have long been saying that consortia do not necessarily lower costs, but calling consortia a "loophole" is ridiculous.  The original FCC Order implementing the Universal Service provisions of the Telecommunication Act of 1996 says, "we should 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." (paragraph 476). More recently, the FCC took steps to favor consortia in the Seventh Report and Order (paragraphs 168-182)

"Given the large geographic scope of the projects and the short window to respond with a bid,small rate-of-return carriers didn’t stand a chance."  Actually, we'll never know if they stood a chance, because they chose not to bid.  They could have banded together and produced a bid.  Or they could have bid on part of the network (which was allowed under the RFP).

"any dollar that a rate-of-return provider loses to an overbuilder will inevitably be recouped from the High Cost program."  Is that how the High Cost program works?  It guarantees revenue?  Is that program under cap?

I've spent a little time trying to understand the rules for rate-of-return carriers, but the resources go from overly simple ("The Rate-of-Return Reform Order released by the FCC at the end of March 2016 aims to bring broadband to the parts of rural America that still lack access.") to opaquely jargon-filled ("Q: If a rate-of-return carrier currently has no broadband-only lines and elects ACAM model-based support, must it refile its Special Access tariff to move the relevant costs into the new service category?  A: Yes, carriers are required to move these costs from the Special Access service category to the new Consumer Broadband-Only Loop category. Rate-of-return carriers then have the option of tariffing a consumer broadband-only loop charge for this service.")

In any case, which fund should support incumbent carriers that cannot compete with competitive carriers?  Seems to me that's the job of the High Cost fund, not the E-Rate. 

So it's possible that an applicant selecting a lower-cost offering from a competitive carrier might force  the High Cost program to pay the (more expensive) incumbent carrier more.  Will the savings to the E-Rate be greater than the cost to the High Cost program?  I'm confident no one can calculate that. 

But in any case, it seems absurd to force schools and libraries to subsidize carriers.  That would be the result if the FCC created rules to protect incumbent carriers' monopolies by forcing E-Rate applicants to use existing networks.

Doff that cap

As promised, here are my thoughts on Commissioner O'Rielly's recent statements concerning the need for an overall cap on the USF.  I've already blogged about budget caps, but I thought I'd look at the reasons the Commissioner gave in his speech for needing a cap.

The Commissioner gives 4 reasons we need a cap:
  1. "to protect the investments of ratepayers who pay for our programs ... especially given the regressive nature of USF fees and their disproportionate burden on lower- and middle-income Americans.... In fact, the lowest-income 10% of households pay 12 times more than the highest-income 10% as a percentage of their income."
  2. "force the FCC to consider the whole USF when increasing program spending."
  3. "an FCC running up against a cap would have greater incentive to eliminate inefficiencies
    that detract from achieving the program’s mission and value."
  4. "a budget would help protect universal service.  ...this NPRM provides plenty for all."
On the first point:
The Commission is already doing a dandy job of protecting ratepayers.  (See the last graph in yesterday's post: the actual fee paid by consumers has been pretty steady for the last 8 years.)

As for the fee being regressive, I have a hard time believing that "the fee is generally spread among consumers on an equal and agnostic basis."  The Contribution Factor (CF) is spread on an equal and agnostic basis, but consumption is not, and the fee is the product of CF and consumer expenditures.  Let's take a look at the data from the Bureau of Labor Statistics, which does an annual survey of consumer expenditures.  I couldn't find exactly the table I needed, but let's look at a table that details 2017 consumer expenditures by quintile.  I pulled out the pertinent data and put it into a smaller table:

Low 20% High 20% Multiple
Income after taxes $11,933 $149,504 12.53
Telephone services $706 $2,036 2.88
% of income 5.92% 1.36% 4.34
That still shows that the fee is regressive, but not as extreme as the Commissioner would like it to be.

How could we make the fee less regressive?  Well, we could seek to aggressively expand the Lifeline program, enrolling some of the 72% of eligible people that don't take advantage of the program, and doubling the amount that each recipient gets from $9.25 to $18.50.  (I know, still not enough to cover the cost of a phone line or an Internet connection, but still, a step in the right direction.)

On the second point:
Why should the voracious appetite of the High Cost Fund mean that America's school children get less?  The overall cap just gives weak-willed commissioners an out: "Well, we don't want to cut any of the programs, but we need to stay within our means, and ____ is crucial to the future of America, so we're forced to cut ____."

On the third point:
What?!  The Commission isn't doing all it can to eliminate inefficiencies?  How would a cap provide greater incentive?  As the Commissioner makes clear, if the cap got uncomfortable, the Commission could simply raise it.

On the fourth point:
If the goal of the NPRM is *not* to provide plenty for all.  It is to restrain all.  This is the worst kind of "budget-cutting"; the current Commissioners can take credit now, and all the pain will be felt by future Commissioners.  If budget caps do not limit expenditures, then they are just window dressing.

I remain unconvinced that we need a cap.

The Commish feels our burden

Commissioner O'Rielly recently gave a speech about Universal Service at the Hudson Institute, and the topics were quite familiar: the contribution factor is too high, we need an overall cap on the Universal Service Fund (USF) budget, and we need to stop overbuilding.  To which I say not really, no and hell no.

This post will just look at the overall burden on ratepayers.

No question, the Contribution Factor keeps going up, but that is not necessarily bad for consumers.  (For those who don't know, the USF is funded by a fee charged to carriers, set as a percentage of interstate revenues; carriers then pass that fee through to customers.)  Here's a graph of the Contribution Factor (CF) over time:

All other things being equal, that graph looks bad for consumers: the CF has more than quadrupled.  But all other things are not equal.  Consumers do not pay the CF; the fee that carriers charge them is the CF times the interstate charges on their bill.  Here is a the Revenue Base, the total of all eligible charges:

What consumers end up paying to carriers, and the carriers pay into the USF, is the CF times the Revenue Base.  Here's how the product of those 2 numbers has varied over the years:

Still not great, but basically, it doubled by 2011, and has been bouncing around the same level for the last 8 years or so.  So when the Commissioner says we need to protect consumers, I say that the Commission is already doing a good job at protecting consumers.  We've been paying about the same amount for the last 8 years.

I'm going to create separate blog posts about the cap and overbuilding.