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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.)

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