A Bill Sitting on Governor Brown’s Desk Could Determine the Future of Broadband in Rural Humboldt and Beyond
Ryan Burns1 / Today 2 @ 2:33 p.m. / Government3, Technology4
A Bill Sitting on Governor Brown’s Desk Could Determine the Future of Broadband in Rural Humboldt and Beyond
Wikimedia Commons5. Many households here in the remote, far-northern corner of California lag way behind our urban counterparts when it comes to broadband internet speeds. With virtually every aspect of our modern economy now dependent on the web, this speed gap represents a real disadvantage for those with slow service.
Depending on whom you ask, a new bill coauthored by North Coast Assemblymember Jim Wood — AB 1665, aka the “Internet For All” bill 6— would either help to bridge that digital divide, or it would doom many local residents to slow service for years to come while giving major telecom companies a monopoly on broadband improvement projects. On his website, Wood boasts that the bill7 “will provide $300 million in grant funds to build broadband infrastructure,” and he says priority will be given to rural areas like ours, where the internet is accessible only through dial-up, if it’s accessible at all. But local broadband advocates say the bill is seriously flawed. They argue that, if signed into law by Governor Jerry Brown, AB 1665 would effectively create a $300 million “slush fund” for major telecom companies like AT&T without requiring them to provide true high-speed internet to those in need. Sean McLaughlin, executive director of Access Humboldt, said lobbying from major telecom companies including AT&T and Frontier “perverted” a simple funding bill “into a thoughtless gift to private interests.”
Regional internet service providers are also crying foul. John Paul, the CEO of Nevada County-based Spiral Internet, said AB 1665 will “actually delay and prevent 21st Century internet infrastructure deployment in rural California.” On its face the bill appears fairly simple. It would extend an existing program from the California Public Utilities Commission (CPUC), a program that has been used to finance broadband infrastructure improvements throughout the state with a pot of money called the California Advanced Services Fund (CASF).
Grants from that fund have had a major impact on broadband route diversity in our region. The fiber optic line installed across the State Route 36 corridor8, for example, was partially financed through a $5.7 million from the CASF. The CPUC also awarded a $6.6 million CASF grant to the Karuk Tribe in 20139 for its broadband project. And back in March, Wood announced that the Digital 299 project had been awarded a whopping $47 million in CASF funds10. These projects were largely facilitated through an initiative called Redwood Coast Connect11, a long-standing and ongoing effort involving a variety of member organizations, all working to close the technology gap in our region. The CASF has been a boon to those efforts.
“Our area has probably been one of the most successful in the state in using this fund,” said Connie Stewart, a key player in Redwood Coast Connect and executive director of the California Center for Rural Policy12 at Humboldt State University. First authorized in 2007, the CASF has been renewed and rejiggered several times over the years, with tweaks to extend deadlines, modify application rules and add more money to the fund. The goal: broadband access to at least 98 percent of California households. In the early days of the fund, major telecom companies like AT&T and Verizon showed little interest in taking advantage of it, so local broadband activists like Stewart courted smaller organizations to be grant applicants, including IP Networks (for the State Route 36 fiber), Vallejo-based Inyo Networks (for the Digital 299 project) and the Karuk and Yurok tribes (for their own fiber line). Which brings us to the first of two major flaws broadband advocates see in AB 1665: They say it will effectively block these smaller businesses from winning CASF grants while handing regional monopolies to the likes of AT&T and Frontier. The reason involves a Federal Communications Commission program called the Connect America Fund (CAF), which is sort of like the national version of the CASF.
Both AT&T and Frontier have accepted grants during the second phase of CAF funding (CAF II) for broadband deployment in various census blocks in our region. Now, thanks to major telecom companies’ lobbying efforts, AB 1665 includes a provision that prohibits CASF grants from going to projects in those same census blocks — that is, unless AT&T or Frontier voluntarily tell the state before July 1, 2020, that they’ve finished their CAF deployment there. Stewart said those companies have no incentive to do so. AT&T, she said, has 300,000 customers eligible for upgrades, but the company only needs to improve broadband for about half of them (151,000) to meet its obligations under the CAF II grant. And it doesn’t have to tell the state which half it plans to help. “So unless they voluntarily tell us they’re not going in” somewhere, she said, “no one can compete with them” — at least not until 2020 or later. McLaughlin said this amounts to giving the major telecoms the right of first refusal.
“They took a program designed to fill the gaps left by the major players … and diverted it to the companies that left us in the lurch in the first place,” he said. Michael Ort is the CEO of Inyo Networks, the company behind the Digital 299 project, and he, too, is baffled by this provision, which he believes will prevent smaller companies like his from completing exactly this type of project in the future. “One has to wonder why the authors of this bill would not want all resources brought to bear on solving the digital divide,” Ort said. The other major complaint about the bill regards the way it defines broadband. How fast does your internet need to be for it to be considered broadband? ‘It’s not about watching Netflix. It’s about the fundamental capability of human beings interacting in the cyber world.’
-Mike Ort, CEO of Inyo Networks
Back in 2015, the FCC changed its own definition13, raising the minimum download speed to 25 Mbps and the minimum upload speed to 3 Mbps. But the agency then had trouble getting applicants for CAF II broadband improvement projects. Stewart said AT&T approached the FCC with a proposition.
“They said, ‘OK, FCC, if we can agree that we only have to meet a feed of 10 Mbps up and 1 Mbps down, we will take this money,” Stewart said. “So the FCC cut a deal with the devil.”
Unlike the previous FCC threshold speeds of 25/3, which requires digging trenches to install fiber optic lines, 10/1 service can be delivered wirelessly, which is much cheaper and easier. It just so happened that AT&T had recently acquired DirecTV, and DirectTV’s satellite service can deliver 10/1.
In August of 2015, AT&T accepted $427 million CAF II funding14 in exchange for providing 10/1 service to 2.2 million rural locations across 18 states, thus greatly expanding its DirecTV customer base. Verizon, meanwhile, sold all of its wireline facilities in California, Florida and Texas to Frontier. Cut back to AB 1665: AT&T and Frontier lobbied Wood and the other co-authors, urging them to accept this lower standard for broadband speeds. And, indeed, in its final form the bill defines broadband speeds as just 10 Mbps upload and 1 Mbps down. Its threshold for deeming a household “unserved” by broadband is even lower — 6 Mbps up and 1 Mbps down. Under that definition, AT&T and Frontier would only have to provide broadband service to 223 households in our three-county region to meet the 98 percent coverage goal established by the state. (They’re probably all scattered in rural Trinity County, Stewart said.) And the companies wouldn’t have to do any service upgrades in Mendocino and Sonoma Counties. That’s according to an analysis by the Senate Energy, Utilities and Communications Committee15. Ort equated this to claiming victory by moving the goalposts. He and other broadband advocates say the difference between 6/1 or 10/1 speeds and true 25/3 broadband is huge and can impact a lot more than streaming television.
“We’re right on the cusp of an enormous expansion of computing power,” Ort said. Those without sufficient broadband speeds will be left behind. “It’s not about watching Netflix,” Ort said. “It’s about the fundamental capability of human beings interacting in the cyber world.” Stewart agreed. “With 10/1 speeds you’re not doing economic development,” she said. “You’re not an architect; you’re not running a website business or a doctor’s office; your kids are not taking the competency test; your hotel is not offering open wireless to guests … .” The list goes on.
And it’s not just local advocates who say the bill should be rejected. The Central Coast Broadband Consortium, which covers Monterey, Santa Cruz and San Benito counties, sent Gov. Brown a letter urging him to veto the legislation.
“The $300 million that AB 1665 puts into the California Advanced Services Fund would be effectively reserved for AT&T and Frontier Communications,” their letter states. It goes on to say that money would merely “subsidize minimal upgrades that don’t meet California’s current broadband standard, upgrades that they would otherwise be obligated to finance themselves.” The Central Coast Broadband Consortium concludes that the bill would serve to “codify California’s digital divide” and “lock rural areas into 1990s technology for generations to come.”
The Outpost reached out to Wood for a response to these criticisms. Here is the statement forwarded by his office: “I continue to lack a clear understanding of some of the concerns I have heard and read about AB 1665,” said Assemblymember Jim Wood (D-Healdsburg), a co-author of the bill. “We worked with a broad group of stakeholders, intentionally, to assure that such a significant program would reach the Governor’s desk with a lot of support. After 9 months of meetings and negotiations and after final amendments were made to the bill, we received support from the California Emerging Technology Fund (CETF), which works closely with the regional consortia. “I have been consistent in my goal of providing priority to totally unserved areas to get broadband access, and when you have limited dollars and limited a limited timeframe, the author and co-authors believed this bill, in its final form, was the best approach. I have also continued to say that half the battle was getting the CASF program renewed and the other half will be to watch carefully how the PUC administers it. If they are not responding as the group of legislators intended, we will intervene. I respectfully disagree with some of the groups that that this is a giveaway to the large telecoms that will install low-speed infrastructure.” Senator Mike McGuire, meanwhile, was one of just a handful of state legislators to vote “no” on the bill, and local broadband advocates have given him kudos for that.
“I know this has been a challenging issue for all involved,” McGuire told the Outpost in a written statement. “That said, every broadband expert on the North Coast had significant concerns about the bill because they believe it is a bad deal for our communities. We will continue to push hard – with all involved – to strengthen broadband connectivity in every corner of our big and beautiful district.”
Stewart, Ort and others have reached out to Brown’s office urging him to veto the bill, but they say they’re worried that their voices will be drowned out by the major players that helped to draft this legislation.
- ^ Ryan Burns (lostcoastoutpost.com)
- ^ Today is Tuesday, Sept.
- ^ Government (lostcoastoutpost.com)
- ^ Technology (lostcoastoutpost.com)
- ^ Wikimedia Commons (commons.wikimedia.org)
- ^ AB 1665, aka the “Internet For All” bill (leginfo.legislature.ca.gov)
- ^ Wood boasts that the bill (a02.asmdc.org)
- ^ fiber optic line installed across the State Route 36 corridor (lostcoastoutpost.com)
- ^ a $6.6 million CASF grant to the Karuk Tribe in 2013 (lostcoastoutpost.com)
- ^ the Digital 299 project had been awarded a whopping $47 million in CASF funds (lostcoastoutpost.com)
- ^ Redwood Coast Connect (www2.humboldt.edu)
- ^ California Center for Rural Policy (www2.humboldt.edu)
- ^ the FCC changed its own definition (www.theverge.com)
- ^ AT&T accepted $427 million CAF II funding (www.fiercetelecom.com)
- ^ an analysis by the Senate Energy, Utilities and Communications Committee (lostcoastoutpost.com)
Consolidated Communications recently closed its acquisition of FairPoint Communications, and the service provider says that it has not found any initial issues as it started to integrate the company into its fold.
Perhaps not surprisingly, two of the big points of the service side of the FairPoint integration will be to stitch together the fiber networks to address consumer and business market needs.
Bob Udell, CEO of Consolidated Communications, told investors during its second-quarter earnings call that the integration process has begun, with the initial focus on improving customer interactions and increasing broadband speeds.
“We’re excited with the early traction of our integration efforts and there are no surprises,” Udell said during the earnings call, according to an earnings transcript. “We’ve outlined and prioritized projects and begun integration projects with a focus on reducing customer pain points and expanding broadband speeds. Near-term projects are in motion and include connecting our networks and the migration of our financial platform.”1
Udell added that Consolidated will use the same integration playbook the company has used for other large acquisitions like SureWest and Enventis.
“Consolidated has a successful track record of integrating companies having completed three acquisitions in the last five years,” Udell said. “We’re confident in our ability to integrate FairPoint effectively and with no negative customer impact.”
Consolidated has set a goal to reach $55 million in synergies two years after completing the acquisition, and it will be able to utilize $300 million in FairPoint’s federal net operating losses. Udell said that “we are off to a fast start having achieved $15 million in annualized cost savings at close.”
Analysts agree that while Consolidated will be able to achieve its integration goals, it will take a few quarters to see the ultimate outcome.
“While we continue to view the FairPoint deal positively and believe the company will execute well on its integration, it will also take time to fully play out (i.e., revenue synergies) and beyond estimates getting adjusted for the FairPoint deal this quarter, we view meaningful upward estimate revisions as less likely over the next few quarters,” Cowen and Company said in a research note. “As such, we remain comfortable on the sidelines particularly given the continued negative across RLEC industry which we don’t expect to improve in the near-term.”
Enhancing consumer broadband speeds
Consumer broadband is one of the key areas that Consolidated hopes to improve upon in the existing FairPoint service areas by leveraging the existing fiber network the telco built mainly for business and wholesale customers.
FairPoint built out a 22,000-fiber-route-mile network that connected all of its 24-state territory, which Consolidated plans to now use as the foundation for introducing new broadband speeds.
“We’re working quickly on bandwidth upgrades and have the capital allocated within our guidance to quickly connect the fiber network which FairPoint has deployed so well for the carrier and the wholesale customer channel but not leveraged for the residential market,” Udell said.
Today, 60% of FairPoint’s customers can get 15 Mbps speeds, but Udell says Consolidated will be able to rapidly ramp up the number of customers to get even higher speeds. In its legacy markets, Consolidated has continued to increase broadband speeds. The company can deliver 100 Mbps to 42% of its customers, while over 96% can get 20 Mbps.
“While the speed uptake looks incremental when you look back through history, we’ve seen our customers move up market quickly from the 3 meg and 6 meg product into the fastest growing product set of the 20 meg and the 100 meg,” Udell said. “The same logic will apply in the FairPoint property.”
Within its own broadband properties prior to the FairPoint deal, Udell said that “increasing speeds is a key priority for us.”
“We achieved a 15% increase in subscribers to our 20 meg or greater services year-over-year, and we’re well positioned to offer the higher speeds customers demand as we focus investments on network upgrades through the Connect America Fund 2 Program and through our own speed prioritization plan,” Udell said.
While Consolidated itself only added a little over 3,200 broadband subscribers in its existing territories, the service provider gains a total of over 304,193 broadband subscribers from the FairPoint acquisition.
Capitalizing on metro Ethernet, backhaul
In the business services market segment, Consolidated continued to see strong results from Metro Ethernet sales.
The service provider reported that Metro Ethernet units grew 34% year over year.
As part of evolving its Metro Ethernet portfolio, Consolidated recently achieved MEF 2.0 certification, ensuring its Ethernet platform is interoperable with other carriers.
Similar to AT&T, Consolidated is seeing that business data services are becoming a larger portion of its revenue mix.
“Our business in broadband strategic revenue accounts for 82% of our total revenue,” Udell said. “This shift has occurred over a five-year period with a concentrated focus just as commercial and carrier revenue grew to be the largest component of our overall revenue composition.”
Udell added that “72% of our total revenue will be from business in broadband representing an opportunity to grow the strategic revenue as we have proven our ability to do so in the past,” which “in turn offsets legacy declines.”
By acquiring FairPoint, Consolidated becomes the ninth largest U.S. fiber provider, positioning its business and wholesale services unit to pursue more business and wholesale service opportunities.
A key point of the acquisition is the assets it gained. Consolidated got 22,000 fiber route miles from FairPoint, creating significant scale with a network now extending 36,000 fiber route miles across 24 states and making Consolidated Communications a top 10 fiber-based provider in the United States.
Besides scaling the overall fiber route mile count, Consolidated also grows its on-net fiber building count to 8,800 and fiber-connected towers total to 2,600.
As of the end of the first quarter, FairPoint had 3,000 on-net fiber buildings and has connected its fiber to over 1,300 towers via contracts with wireless carriers since it entered the market in 2011. Having a greater density of fiber will position Consolidated to increase business and wholesale revenues over time.
Consolidated also saw gains in its wholesale segment, in which more of its wireless customers are asking the company to provide more small-cell and dark-fiber products.
By purchasing FairPoint, the service provider now has about 2,600 wireless towers under contract but still faces pricing pressures.
“We are working on a number of FRP’s and see solid opportunities with regional and national service providers,” Udell said. “As we have been reporting for the last few quarters, we continue to experience bandwidth price compression resulting in contract revenue write-downs; however, the positive side of these price changes often brings opportunities to compete for midterm renewals, which allow us to extend contract terms and to secure more sites in the process.”
Here’s a breakdown of Consolidated’s key metrics:
Commercial and carrier: Led by data and transport services sales such as Ethernet and dark fiber, Consolidated reported second-quarter commercial and carrier revenues of $78.6 million, up year over year from $76.5 million.
Consumer: The company said consumer revenue after adjusting for the sale of the Iowa ILEC was down $3.1 million largely due to declining voice services and the expected churn in its low-margin digital TV services as it focuses on its over-the-top strategy in broadband as well. It reported that broadband revenues, which include VoIP, data and video services, were $50.8 million, down year over year from $53.1 million. Voice services declined again to $12.6 million from $14 million due to customer defections to wireless and other IP-based voice service options.
Financials: Total revenue in the second quarter was $170 million, compared to adjusted revenue of $176.4 million in the second quarter of 2016 after excluding $10.5 million of revenue from the equipment sales and service business which the company divested in 2016.
Consolidated noted that commercial and carrier revenue growth of 2.7% partially offset the expected declines in consumer voice, subsidies and access.
- ^ earnings transcript (finance.yahoo.com)
- ^ From AT&T to Zayo: Tracking wireline telecom earnings in Q2 2017 (www.fiercetelecom.com)
Huawei says it will supply elements of its multiple dwelling unit (MDU) technology portfolio to i3 Broadband for the service provider’s recently announced fiber-to-the-home (FTTH) deployment in Champaign-Urbana, IL (see “I3 Broadband expanding fiber-optic network in Champaign-Urbana, IL1“). The systems will help i3 Broadband address MDU broadband demands in light of what Huawei describes as an increase in construction of multifamily residential buildings in the area.
“The goal of i3 Broadband is to reduce cost, create value and continue to offer high-quality internet, HD TV and voice services to residential and business customers,” said Dan Kennedy, i3 Broadband COO. “As i3 Broadband continues to expand its all fiber, ultra-high speed network to more locations within the communities we serve, i3 Broadband is excited to be using Huawei MDU products, as their next-generation solutions will allow i3 Broadband to quickly acquire new MDU customers and speed our market delivery.” Whitaker added that i3 broadband hopes to collaborate with home owner associations in the area to deliver FTTH2 based internet, HDTV, and phone services. Huawei didn’t specify which systems it will supply to i3, but noted that its MDU portfolio includes GPON, NG-PON and D-CCAP technologies that can support gigabit services for MDU broadband.
The fact that its MDU line offers easy, comparatively low-cost upgrade capabilities proved telling in winning the supply contract, Huawei added.