verizon

After campaigning on building a publicly owned fiber-to-the-home network in Seattle, Mayor McGinn has decided to maintain leadership at the Department of Information Technology. Department head Bill Schrier will stay on, continuing his work that lays the groundwork for a community-owned network.

He said he expects the city to apply for federal stimulus money in the first part of the year to move toward that goal. In addition to improving broadband access in homes, the initiative could help Seattle City Light implement smart-grid infrastructure, and improve public safety communications.

Another article further notes their shared ambition:

"Mayor-elect McGinn ran on a platform of bringing fiber to every home and business in Seattle, something I've advocated for several years," Schrier commented.

No post discussing broadband in Seattle is complete without a reference to Glenn Fleishman - who both wrote another story discussing the situation and then patiently responds to many comments in the thread below it. Discussing Tacoma's publicly owned Click! network, he notes that Tacoma's investment benefited everyone:

Click being built actually helped what has become Qwest and Comcast: by creating a market and making it feasible for professionals who need high-speed Internet access in Tacoma to live there, Click spurred the two incumbents to improve their networks, compete, and gain new revenue. Comcast actually thanked Tacoma Power publicly years ago; not sure it would today, but it was seen as a big boost for the viability of competitive broadband.

Photo used under creative commons license from flickr.

Folks who are mostly interested in broadband are probably unfamiliar with video franchising laws. Many people still apparently believe that cable companies are able to get exclusive franchises from the city (granting them a monopoly on providing cable television). However, that is not true and has not been true for many years.

Most cable companies still have a de facto monopoly because it is extremely difficult to overbuild an existing cable company - the incumbent has most of the advantages and building a citywide network is extremely expensive. This is not a naturally competitive market; it is actually a natural monopoly.

However, most people want a choice in providers (something that goes beyond a single cable company and a satellite option or two depending on whether you rent/own and your geographic location. In talking with many local officials and the National Association of Telecommunications Officers and Advisers (NATOA), it seems that almost every local government wants more competition in its community too.

This is where telephone and cable company lobbyists have stepped in - more successfully at the state level than at the federal level. They have convinced legislators that the barrier to more competition is local authority over the franchise (the rules a company agrees to in return for the right to use the community's Right-of-Way in deploying their network). These rules include red-line prohibition (you cannot refuse to serve poor neighborhoods), an affordable "basic" tier of service, local public access channels, broadband connections at public buildings, etc.

Some states have listened to the lobbyists and enacted statewide franchising - where local communities are stripped of the authority to manage their Right-of-Way and companies can offer video services anywhere in the state by getting a state franchise from the state government. Every year, we gather more data that this practice has hurt communities, raised prices, and barely spurred any competition. Most of the competition it is credited with spurring came from Verizon's FiOS deployments, which would have occurred regardless of state-wide franchise enactment.

This touches directly on broadband because the statewide franchises often give greater power to companies like Verizon to cherry-pick who gets next generation broadband. Wealthier neighborhoods will increasingly get access to faster networks as private companies are allowed to cherry pick. This practice not only leaves poorer parts of town behind, it makes them even harder to serve when those areas cannot be balanced with higher-revenue sections producing sections of town (who already have service).

Recently, this issue resurfaced with new evidence that state-wide franchising was little more than a giveaway to private companies who are increasingly profits at the expense of communities who still have no choice in providers.

Both Phillip Dampier at Stop the Cap and Karl Bode at DSLReports have deeply linked posts on this matter that cover Michigan, Tennessee, and Wisconsin. Stop the Cap also delves into how Comcast spends in millions lobbying - you didn't think we get hit for rate increases every year for nothing, did you?

The Detroit Free Press ran Brian Dickerson's "With Regulation like this, who needs Monopoly?"

Now, three years after AT&T's champions in the Legislature crowed that Comcast's reign as the 800-pound. guerrilla of Michigan cable service was over, Comcast remains the state's dominant provider, maintains a de facto wire-line monopoly in most its franchise areas, charges higher rates for basic cable service, and has far fewer legal obligations to the subscribers and communities it serves.

What most of this comes down to is accountability. Local governments are accountable to the citizens. Companies like Comcast and AT&T are accountable to their shareholders. There is no perfect arrangement, but I would err on the side of a network being accountable to the community.

Photo courtesy of photocamp.

In another example of how some private companies continue acting against the public interest, Verizon is again using FiOS as a weapon, threatening not to bring it to a New York town unless the town essentially waives some $12,000 in real estate taxes.

Communities maintain what is called the "right-of-way" - where utility polls are located or conduit is buried underground. Imagine if a cable company had to work out an arrangement with every resident who had a poll in their yard to string cable - what a headache! Instead, companies like Verizon negotiate with the municipal government for access to the right-of-way. In return, communities typically negotiate for things like a franchise fee, often a 3%-5% fee from television revenues that is used to fund local public access channels. The right-of-way is a valuable community asset and the community deserves to benefit from allowing private companies to profit from it.

In this case, Verizon wants to dodge the real estate taxes it owes by taking them out of the franchise fee - which would pass effectively reduce its public interest obligations required by using the rights-of-way. Yet another way in which companies put profits above the community.

Verizon must have some skilled accountants, they never seem to pay taxes. When they sold off their customers in New England to the failing Fairpoint, they also avoided paying taxes on the income from the sale.

After winning the election, the Obama Administration announced that broadband networks would be a priority. True to its word, the stimulus package included $7.2 billion to expand networks throughout the United States. A key question was how that money would be spent: Would the public interest prevail, or would we continue having a handful of private companies maximizing profits at the expense of communities?

Creating the Broadband Stimulus Language

The debate began in Congress as the House and Senate drafted broadband plans as part of the American Recovery and Reinvestment Act

The House language on eligibility for stimulus grants made little distinction between global, private entities and local public or non-profit entities.

the term `eligible entity' means--

(A) a provider of wireless voice service, advanced wireless broadband service, basic broadband service, or advanced broadband service, including a satellite carrier that provides any such service;
(B) a State or unit of local government, or agency or instrumentality thereof, that is or intends to be a provider of any such service; and
(C) any other entity, including construction companies, tower companies, backhaul companies, or other service providers, that the NTIA authorizes by rule to participate in the programs under this section, if such other entity is required to provide access to the supported infrastructure on a neutral, reasonable basis to maximize use;

The Senate language clearly preferred non-profit or public ownership.

To be eligible for a grant under the program an applicant shall—

(A) be a State or political subdivision thereof, a nonprofit foundation, corporation, institution or association, Indian tribe, Native Hawaiian organization, or other non-governmental entity in partnership with a State or political subdivision thereof, Indian tribe, or Native Hawaiian organization if the Assistant Secretary determines the partnership consistent with the purposes this section

The final language, adopted by the Conference Committee and passed by both houses in February was a compromise. It favored a public or non-profit corporation but allowed a private company to be eligible only if the Assistant Secretary of the Department of Commerce found that to be in the public interest. In the final law an eligible entity could be:

(A) a State or political subdivision thereof, the District of Columbia, a territory or possession of the United States, an Indian tribe (as defined in section 4 of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450(b)) or native Hawaiian organization;
(B) a nonprofit—

(i) foundation,
(ii) corporation,
(iii) institution, or
(iv) association; or

(C) any other entity, including a broadband service or infrastructure provider, that the Assistant Secretary finds by rule to be in the public interest. In establishing such rule, the Assistant Secretary shall to the extent practicable promote the purposes of this section in a technologically neutral manner ;(Section 6001(e)(1))

Defining the Broadband Stimulus Rules

On July 2, 2009, the National Telecommunications & Information Administration (NTIA) released the rules for the broadband stimulus program (called the Broadband Technology Opportunities Program or BTOP).¹ While a plain reading of the statute language suggests that NTIA should decide on an individual basis whether a private profit making entity is in the public interest, NTIA instead a priori declared all private companies in the public interest. It simply acted as though the House legislation had prevailed over the Senate. NTIA justified itself by declaring that the Congress intended to “invite a diverse group of applicants to participate.”²

NTIA thereby accomplishes a sleight-of-hand tactic– declaring that it is complying with the original intent of some in Congress rather than complying with the text actually passed by Congress. If Congress had intended all entities to be eligible on an equal footing, it would have adopted the House eligibility language. Congress explicitly did not do this. Rather, it chose a higher bar for private companies. They had to be judged in the public interest.

The NTIA ruling did not explain what it meant by “public interest” (see addendum below for a discussion on what the public interest is not). Nor did it indicate that it would declare ineligible those companies that have violated the public trust previously. Instead, it put global companies driven to maximize profits on a level footing with public and non-profit corporations chartered to maximize benefits to the community.

How The Rules Favor Existing Companies

Making private companies and public, non-profit entities equal in their ability to apply for stimulus funds actually privileges existing large telecommunications firms because they have the resources to push their way to the front of the line – especially with all the paperwork required of applicants.

The declaration that existing telecommunications companies are in the public interest is only one of the ways the NTIA has structured the BTOP to favor existing private providers.

Another is the speed definition NTIA has chosen in its broadband definition. NTIA chose minimum “broadband” speeds reminiscent of those from more than a decade ago rather than the modern speeds common across the networks of our international peers. The minimum download speed of 768kbps and upload of 200kbps is pitiful.³ Moreover, adding insult to injury, the anemic baseline speed is based on advertised rates rather than actual rates, perversely encouraging network owners to overstate their capabilities.

This baseline speed is used as part of a calculus to determine if a community is served, “unserved,” or “underserved.” If fewer than 10% of residents have access to networks that advertise speeds greater than the baseline speed, that area is declared “unserved.” Underserved is a little more complicated in that it must meet one or more of the following criteria:

1. No more than 50% have access to broadband as defined above
2. No provider advertises broadband of at least 3Mbps in the area [at any price – a rather significant loophole]
3. No more than 40% subscribe to broadband

Only unserved and underserved areas need apply for broadband stimulus grants.

Interestingly, though a new network must offer prices at affordable rates as a condition for stimulus funding, a community may be denied money to build a network even if the existing provider is offering services at unreasonable rates.

To prove that a community is un(der)served, an applicant must collect census-block level data. Such data is expensive to collect and generally only maintained by incumbent providers. Further, most states that have invested in official broadband maps only have county level data because private providers have refused to divulge more granular data, even when working with the industry-backed Connected Nation organization.

If an applicant is able to collect that data, NTIA will “verify” that data by asking the existing providers if they want to challenge the application by demonstrating that they have advertised broadband within the defined network footprint. Yes, you’ve read that correctly. The incumbent provider gets a veto over applications. There is no discussion by NTIA of how it will handle abuse of this system or verify challenges. In the meantime, I would not be surprised to see an increase of dishonest advertisements for broadband in rural areas. We already see many fallacious advertisements for DSL that note “where available” to get around the fact that the connections are often slower than advertised based on the distance from the home to the central office.

Though many will argue that we should prioritize networks for those totally lacking access, this is a poor plan to achieve that goal. NTIA has charted a path to bring the slowest networks to people who live in areas that are the most uneconomical to reach. Rather than doing it right the first time (i.e. a strategy that starts with modern speeds and identifies an upgrade path moving forward), NTIA’s path will likely expand 1998-era networks, certainly requiring future appropriations to bring residents to networks with contemporary speeds.

A better way to build useful networks in these areas is to combine rural communities with areas of higher density. That would improve the economics by allowing some areas to subsidize others rather than encouraging the current system where private companies get the high density, richer geographies and the public sector is left trying to build low density, rural networks. NTIA’s rules take an unsustainable approach to building networks in the most rural areas.

The NTIA rules are good for cable companies because nearly every cable network already provides the marginally-faster-than-dialup speeds required to make that community ineligible for BTOP funds. And telcos should be happy because they can prevent competition by running advertisements that overstate their network capabilities. If they want to apply for funds, the approaching-nonexistent speed requirement encourages them to use their deteriorating copper networks rather than invest in the higher capacity fiber lines that are necessary to ensure the U.S. does not continue falling behind our international peers in broadband access.

It is hard to come away from reading NTIA’s rules without a sense that they were written to avoid encouraging any competition in broadband networks.

There is one small ray of sunshine. Congress explicitly required grantees to abide by a number of FCC policies, particularly the non-discrimination rule that prevents your Internet Service Provider from charging you more to access some sites than others (or privileging speeds to some sites at the expense of others) – something companies like AT&T have stated their desire to do. If this decision were left to NTIA, it would probably have declined to require it at the risk of lowering the pool of candidates who want public money to build networks.

After I wrote this, I saw that a number of other groups have sent a letter to NTIA asking for reconsideration of many of the rules I discuss above [pdf].

Addendum on the Public Interest

For an excellent exploration of how some companies act against the public interest, see Free Press' Reply Comments to the FCC regarding the National Broadband Plan [pdf]. In particular, pages 26-29 where Free Press examines Verizon's practice of dumping rural customers onto smaller companies who then go bankrupt.

Additionally, on page 30, Free Press reveals that

In 2008, AT&T used 70 percent of their free cash flow on dividends to shareholders. AT&T is currently “the highest dividend yielding DOW company.” Verizon is not far behind. Furthermore, the four largest broadband providers all increased their dividends since the economic crisis began. In other words, despite soaring revenues and high demand, providers are spending large sums on shareholders, rather than investments that benefit both shareholders and customers in the long-term.

For a more humorous take on how these companies fail the public, I recommend "AT&T Is A Big, Steaming Heap Of Failure."

Offering public money to these companies is not in the public interest.