Friday, April 29, 2011

FCC's Second USF Workshop Tackles Broadband Technologies, Phase 1 CAF and the Dreaded Reverse Auctions

On April 27, 2011, the FCC conducted the second workshop on Universal Service Fund reform, focusing on broadband technologies and capabilities; the implications of different broadband technologies for achieving USF objectives; and finally--the controversial and all-around bad idea of reverse auctions for Phase 1 Connect America Fund (billed as "technology-neutral competitive bidding"). Like the first workshop on ICC reform, this gathering of experts from across the industry was high-tension and low- consensus; but also like the previous workshop, it was very interesting to hear from a wide range of stakeholders about these critical issues. FCC Chairman Genachowski opened the workshop with a familiar message about USF reform--the same message he has been repeating since the NPRM was released: USF is broken, it was designed for a 20th century voice telephony network, it is insufficient for the 21st century broadband era, and reforming the broken USF system is vital for the economy and industry. Genachowski added that of the many promising broadband technologies that exist today, all will play an important role in the goal of achieving universal broadband in America. Sharon Gillett, Chief of the Wireline Competition Bureau commented that if the different broadband technologies were children, she would "love them all equally...But they are not all the same...Each has a unique developmental path." I was actually pretty excited to hear from the diverse broadband technology stakeholders about the capabilities, costs and limitations of different broadband technologies--I enjoy (and understand) engineering topics a lot more when they are put into policy perspectives and debates. However, I was most excited/anxious to hear the panel on Phase 1 CAF and reverse auctions. Without further delay, here is my commentary on the topics discussed in the three panels.

Panel #1: Broadband Technology Capabilities Today and in the Future
Panelists: Steve Rosenberg (Moderator), Ralph Brown (CableLabs), Ken Ko (ADTRAN), Paul Mankiewich (Juniper Networks- Mobility), Mark Dankberg (Viasat, Inc.), Matt Larsen (Vistabeam), Jim Stegeman (CostQuest)
This panel kicked off with each participant describing the broadband technologies and capabilities of their respective companies--including fixed wireless, fiber, DSL, cable, mobile wireless and satellite. The panelists discussed their companys' various speed and capacity accomplishments as well as the challenges to deploy these technologies in accordance with the USF Reform NPRM and the National Broadband Plan. I believe there is plenty of room in the market for each technology, and each has specific advantages and merits--except perhaps for satellite broadband. I was not convinced by the Viasat participant's argument that satellite broadband is a competitive player in the overall broadband market. I see satellite broadband as a last resort solution, for people who really have no other viable choice. I would imagine that some of the other panelists are trying to find ways to make sure that rural customers do not have to be forced to deal with the slow speeds and high costs of satellite. I have it on good authority that some former satellite customers in rural Iowa were beyond thrilled when a certain Iowa RLEC began offering FTTH in their areas. These customers had been paying upwards of $700 per month for extremely slow and unreliable satellite service, so even an "expensive" FTTH connection was a dream come true, particularly for the high bandwidth users. Anyway, the panelists were asked to discuss issues related to capacity, such as meeting demand for essential applications and whether downlink/uplink symmetry will be an important characteristic in the near future. There was a near consensus that video is definitely the essential application of the moment, and Matt Larsen from Vistabeam (a rural fixed wireless service provider in western Nebraska and eastern Wyoming) commented that his network capacity was maxed out on Christmas day last year when everyone was playing with their new gadgets and downloading video. Clearly, ensuring ample capacity at all times is not only a necessity, it is at times becoming a luxury as well. I know many RLECs are extremely concerned about the substantial and growing chunk of capacity that Netflix downloads take from the network on a daily basis. The other point that I found particularly interesting was about the growing demand for cloud computing services, and how this demand will impact the demand for greater (and more symmetrical) uplink speeds from both business and residential consumers. The panelist from CableLabs added that although it is very difficult to make accurate predictions about how traffic and capacity demands will evolve in the future, it is important to build networks that are very flexible and engineered for future growth. My concern is that if USF support is only going to initially be targeted to networks with 4/1 Mbps, the networks will not be engineered for growth nor will they be forward-looking, which will result in swift obsolescence and high costs down the road. Keeping with the 4/1 Mbps topic, the panel was asked about customers who choose to adopt low speeds, and how that might change in the future. I thought the Viasat panelist had an interesting answer. He said that consumers use different algorithms to determine which service to pick--some want the fastest broadband regardless of cost, some want the cheapest broadband regardless of speed, some care about the overall value, and some care about bundled service offerings. I think a very important point, one that was actually made in AT&T's comments, is that the FCC should take a "holistic" approach, rather than focusing on the "definition of broadband in a vacuum." In other words, the 4/1 Mbps broadband definition is completely meaningless to some consumers but very meaningful to others--the true definition of broadband is actually in the eye of the beholder. The panelists mostly agreed that 4/1 Mbps is a good, but modest, starting point. The panelist from Juniper Networks argued that if the target is too big, it will simply take too long to achieve; and 4/1 is very conservative, but there are vast areas to cover with an impending need to be fast with deployment. The panelist from Vistabeam argued that the FCC should not over-subsidize providers to deploy higher speeds than 4/1, because broadband is a necessity and not a luxury--in this particular situation it is more important to be fiscally prudent than try to achieve the end-game goal of FTTH for everyone.  Personally, my favorite argument was from the economist on the panel (Jim Stegeman from CostQuest)--he said that FTTH is surprisingly cheap to deploy and it has basically unlimited bandwidth, which makes FTTH the most economically attractive option. I completely agree with this panelist and wished more people would understand that FTTH is not actually that expensive--it is just stigmatized as expensive, and the ultimate payoffs in capacity are well worth the investment. Interestingly, the panelist from the satellite provider actually commented that 4/1 Mbps should not be a "sentence" for rural people, rather the broadband speed definition should present an exciting "opportunity" in rural areas--I completely agree that 4/1 Mbps essentially sentences people in rural unserved areas to be second class citizens in the broadband world.  The final point that I felt was especially interesting, by Ken Ko of ADTRAN, was about the duality of the broadband ecosystem: on one hand, customers need mobility but mobility always has limitations; so customers also need a fixed broadband connection. Fixed and mobile broadband will continue to be compliments, not substitutes, therefore the FCC should encourage deployment and adoption of both fixed and mobile broadband. I definitely think that each of the technologies--except satellite for the most part--have unique merits and fit different market niches, and there is a role for each technology in achieving the goals of the National Broadband Plan. However, the FCC should pay attention to the point that customers need access to both fixed and mobile broadband networks. And, rural people are not second class citizens--I just had to throw that in once again.

Panel #2: Implications of Technology Capabilities for Achieving Universal Service Policy Objectives
Panelists: Carol Mattey (Moderator), Mark Cooper (Consumer Federation of America), Andrew Newell (Viaero Wireless), Dave Bickett (Park Region Mutual Telephone/Otter Tail Telecom/Valley Telephone), Phil Jones (Washington Utilities and Transportation Commission), David Russell (Calix), Christopher McLean (Rural Utilities Service)
This panel revolved around the perpetual debate of wireless vs. wireline, and which one is better to meet the goal of deploying broadband to the country's unserved areas. The moderator insisted the panelist operate under the premise that the new USF ecosystem will have finite (capped at 2010 levels) resources and should be distributed in a technology neutral manner. A lot of people, myself included, have difficulty with the proposal that USF be capped at 2010 levels--from an economic standpoint it is an outlandish request. Would you tell your employees that they could not receive a raise for 10 years and expect them to stay at your company? Is there any other industry that operates under the assumption that costs will not increase in 10 years, and if they do--thats just too bad? Anyway, the panelists were not allowed to digress about the size of the fund, which totally killed some of the potential controversy that would have ensued in this discussion. The panel was asked to weigh in on how higher broadband speeds will be achieved without actually increasing the size of the fund, and Dave Bickett (the panelist from an RLEC and rural CLEC in rural Minnesota) responded that consumers are constantly expecting and requiring higher speeds, so it is important that the restricted USF does not hinder the ability of networks to grow in order to meet these demands. Two panelists (Andrew Newell of Viaero Wireless and Mark Cooper, who I may not always agree with but have seen at conferences before and I really enjoy hearing his arguments--he is a very engaging and passionate speaker) were insistent that wireless is the best solution, as it makes the most economic sense and it is "infinitely more valuable" to consumers. Next, the panel was asked to discuss the opportunity for synergies between wireless and wireline--afterall, you cannot even have wireless service without a wireline backbone! It is so unfortunate how few people realize this.... Anyway, Dave Bickett explained that his rural customers have a specific need for both mobile and fixed broadband, but fixed broadband is really the necessary and valuable service. David Russell of Calix added that Verizon does not even allow wireline carriers to serve LTE towers unless they have a fiber connection, which I found to be really interesting. He also added that many people will not buy homes unless there is an adequate broadband connection--and wireless does not count. Later in the discussion, Dave Bickett argued that fiber is actually cheaper to deploy in extremely rural, long loop areas than copper. He added that his company deploys fixed wireless in order to help push fiber further out and offer customers a quality interim broadband technology until fiber is fully deployed--I happen to think this is a really smart strategy, where a small rural carrier can leverage fixed wireless on a temporary basis in order to serve more/new customers until FTTH is fully deployed. Bickett also discussed the broadband adoption challenges that his provider faces--he admitted there is only about a 45% adoption in his service areas. He is striving to overcome the adoption challenge by educating his communities about the value of broadband, and he has developed a creative solution with the city to market the town as a broadband-ready area perfect for telework. He has even invited representatives from Microsoft and Blue Cross to talk to members of this community, which has been hit particularly hard by the recession. As a result, the community is seeing new jobs and the provider is gaining customers and helping to increase broadband adoption. It is definitely important for rural providers to address the adoption issue--it is an unfortunate fact that broadband adoption is typically 10% lower in rural areas for a variety of reasons. By increasing adoption, the provider increases revenue, and then has a greater chance of securing loans from RUS and lenders like CoBank, and can therefore continue deploying and upgrading high bandwidth networks. Many USF issues are very circular when you look at the big picture. In the final comments of the discussion, the RUS panelist added that RUS tries to make the best possible long term investments, which facilitate "graceful upgrades" when consumer demands change in the future and funding recipients must upgrade or face competitive annihilation. Finally, Mark Cooper compared the challenge at hand to the rural electrification challenge from the 1930s. He pointed to the success of the cooperative business model in rural areas in delivering electricity to nearly 70% of the country's landmass, and how this monumental challenge was addressed with a really pragmatic solution. Overall, I enjoyed this panel and leaned some interesting facts and anecdotes about both fiber and wireless. I agree with some of the panelists that both fiber and wireless are the critical technologies to meet the goal of deploying broadband to unserved rural areas, and I agree that these two services are highly complimentary both from a consumer perspective and from a provider perspective. I really wished there was more cooperation between service providers with different technologies, especially in rural areas. The challenges will not be overcome with constant infighting and bickering about which technology is better.

Panel #3: Phase 1 of the Connect America Fund--Targeting Support for Unserved Areas Through Technology-Neutral Competitive Bidding
Panelists: Joseph Cavender (Moderator), Grant Spellmeyer (US Cellular), Jason Hendricks (RT Communications), Maggie McCready (Verizon), Ross Lieberman (American Cable Association), Jose Jimenez (Cox Communications), Greg Rosston (Stanford Institute for Economic Policy Research)
The final panel of the day was all about making competitive bidding--AKA reverse auctions--work under the goals of CAF. This was arguably the most controversial panel of the day, with some of the most heated and exciting debates as the panelists were either fiercely anti-reverse auctions or fiercely pro-reverse auctions. As someone who is fiercely anti-reverse auction, I was interested in hearing how "my side" responded to the reverse auction proposal. I hoped they had plenty of ammunition in the form of well thought-out arguments and legalese, and I was ultimately very happy with the panelist from US Cellular and the panelist from RT Communications, an RLEC in Wyoming and Montana. Grant Spellmeyer from US Cellular argued that a single winner reverse auction is contradictory to the 1996 Act, and since USF sits in Title II, the FCC needs to limit eligibility to only Title II carriers. If an auction determines a single winner only, significant government oversight will be required. Taking the pro-reverse auction perspective, the panelist from Verizon argued that reverse auctions are very effective and produce very efficient outcomes. My question is this: how do you know? Reverse auctions have not been used in the US to deliver broadband to unserved areas, and reverse auctions have failed spectacularly in other countries where they have been applied in a similar manner as the FCC proposes. I honestly believe that Verizon supports reverse auctions because Verizon knows they will win most of the auctions. When your perspective is from the apex of the auction kingdom, you will agree with anything that will further your reign over the industry. Jason Hendricks from RT Communications added that reverse auctions will threaten existing investments, reduce the ability for rural carriers to pay back loans, and rely on the broadband map which is unreasonably inaccurate and will at best always be out of date. He argued that reverse auctions should start off as a pilot program in price cap areas. The panel addressed the scale of the bidding area, which has also been a contentions component of reverse auctions. Not surprisingly, there was very little consensus about the ideal size of a bidding block. It was even suggested that auction participants can bid on blocks or tracks that are not even located in the same state--such as a few census blocks in Texas and a few census blocks in Washington and a few in North Carolina--all in the same bid. Clearly, this idea proposes some significant challenges for RLECs and could effectively push an RLEC out of the game unless the blocks are contiguous and relevant to their current market. RLECs are also concerned about "cherry picking," where the larger carriers can single out specific census blocks that might be the easiest or cheapest to serve--which would artificially drive down the bidding price without actually addressing the real problem of serving high cost unserved areas. The panelist from US Cellular was especially concerned that a single winner would essentially become a government selected monopoly provider, and this would significantly harm future competition. Additionally, how would the FCC ensure that the winner actually follows through with providing service to the most costly and difficult unserved areas? This brings up an interesting debate about unserved areas and how the USF reforms will play out in the near future--how do you address currently unserved areas that will be served in the next year (areas where a service provider is already planning deployment, which is NOT included on the broadband map as it should be)? Will a single auction mechanism satisfy funding needs for soon-to-be-served areas and areas that probably won't get service for many years? The panelist from Verizon argued that focusing heavily on the provider who gets the money is not meeting the actual objective of USF--to provide service in unserved areas. She asked: Who cares which provider wins the auction so long as broadband is deployed quickly and efficiently? Well, small companies care if Verizon suddenly takes all of the USF money available for broadband but continues to ignore the deeply rural areas. I imagine their customers care as well. Clearly, it will be challenging for the FCC to determine the appropriate conditions for the auction winners--I did not pay particularly close attention to this topic when I was reading comments, but auction conditions will obviously play a significant role in who ultimately participates in the auctions. The FCC must take caution to not impose conditions that actually end up shaping the outcome to favor one class of carriers or one type of technology--this would be extremely contradictory to the goals of USF. The conditions, the bidding area size, and the definition of unserved areas for the purpose of bidding must all be crafted carefully and based on input from all potential participants. Overall, I am not even slightly more convinced that reverse auctions are a good idea and I am even more concerned about how they will effect RLECs if they become the standard for distributing USF funds for broadband.

"Who says talking about universal service isn't fun?" I didn't catch who said that--I think it was the moderator--but at least I was laughing by the end of the workshop.

I learned a lot from this workshop and I am really grateful to the FCC for putting these summits together and making sure the public is able to watch them--I hope that the public is actually taking advantage of these resources to learn about the issues in the telecommunications industry. I'm really looking forward to the next workshop which takes place in my (near) home city of Omaha, Nebraska. I'm actually in Omaha now, I guess I was a couple weeks early with my visit.

After my final exams are finished next week, I will be taking a closer look at the Rural Association Plan, and I will start my International Telecom Policy Spotlight by focusing on--you guessed it--the failure of reverse auctions in other countries.

Cassandra Heyne

To read my review of the previous FCC Workshop on intercarrier compensation, click here.
To read my summaries of the USF Reform comments, click here for the RLEC perspective and here for the price cap perspective. 

Sunday, April 24, 2011

USF Reform Comments Showdown: In This Corner, Price Cap Carriers Want to Have it All

Comments on USF Reform and the Connect America Fund were due April 18, 2011, commencing the second round of comments in this proceeding (following April 1st's ICC comments). For your reference, the following comment summaries are in response to:

In the Matter of:
Connect America Fund (WC DN 10-90)
A National Broadband Plan For Our Future (GN DN 09-51)
Establishing Just and Reasonable Rates for Local Exchange Carriers (WC DN 07-135)
High-Cost Universal Service Support (WC DN 05-337)
Developing a Unified Intercarrier Compensation Regime (CC DN 01-92)
Federal-State Joint Board on Universal Service (CC DN 96-45)
Lifeline and Link-up (WC DN 03-109)
I realize that I said I wasn't going to resume my USF comment summaries until after May 2, but I miraculously finished my rural smart grid synergies paper way ahead of schedule--so I figured I should squeeze in some price cap comments while I have some unexpected free time. Since most of the large carriers submitted rather long comments (as usual), I'm focusing on specific arguments that are either attacks on rural telecom providers or particularly worrisome. Onward with comments from Windstream, AT&T and Verizon..

Comments of Windstream Communications, Inc: 
"Price Cap Areas First" and 4 Mbps/768Kbps
Windstream starts out by boasting that "over the next two years, Windstream will mount one of the industry's most aggressive campaigns to improve rural broadband access" (Windstream, 2011, pg. 2). However, the company is very concerned about making sure that price cap carriers are able to access funding for the most uneconomic areas--"the balance of Windstream's unserved areas, however, are expected to remain unserved until the Universal Service Fund is reformed" (pg. 2). Windstream argues that areas served by small rural telecom providers have access to state-of-the-art broadband, while areas served by price cap carriers go without--because USF is directed, presumably unfairly, at the small carriers. Is it bad that rural customers served by small rural providers have great broadband? Apparently so, at least if you are a Windstream customer. Windstream believes that the current USF system has created a rural-rural divide, and "CAF needs to fully replace this broken funding regime with a program that responds directly to the cost of deploying and sustaining networks in all high-cost areas, rather than the size or business model of the companies serving those areas" (pg. 8). Windstream discusses the challenge of providing broadband to households that are not quite high-cost but not quite low-cost either--they support one-time targeted funding for these semi-uneconomic areas coupled with a minimum private investment requirement. Windstream proposes a "Price Cap Carriers First" plan, which includes combining High Cost Loop funding with the High Cost Model method, then redistributing funds based on wire-center costs. They argue for a capped fund and distribution through competitive bidding. Although the semi-uneconomic areas should only receive one-time support, price cap carriers should receive ongoing support to one provider per area--Windstream is clearly hoping to become that one provider in many rural areas. The other point I found alarming was that Windstream supports the 4 Mbps downstream speed target, but believes the upstream target should be reduced to 768 Kbps. Windstream argues that 4Mbps/768Kbps is more than sufficient for basic Internet applications (since all most people do is check their e-mail anyway), and it will help increase fiber deployment in second- and middle-mile transport--which they believe is more important than deploying high-speed fiber in the last mile. Windstream adds that 768 Kbps upstream is much cheaper than 1 Mbps, and the additional 232 Kbps "is arguably not worth the incremental additional deployment costs and added strain on the universal service fund" (pg. 18). Furthermore, Windstream references a paper by former FCC chief technologist (and my former professor) Dale Hatfield, to support its argument that 4Mbps/768Kbps is sufficient: "fiber optic cable is often regarded as being 'future proof,' and policy makers should focus on the immediate need to bring fiber significantly closer to the customer" (pg. 17). I do not take that statement as meaning that high-speed fiber should stop at the second-mile, but Windstream apparently does not want to commit to bringing fiber to the home at this time, at least until the price cap carriers are securely the sole recipients of USF. The most alarming comment by Windstream was: "The Universal Service Fund cannot continue to bear the strain of expansion of Fiber to the Home that is being deployed in some high-cost areas served by small rate-of-return carriers" (pg. 34). Ouch! Lastly, Windstream is in favor of eliminating all legacy high-cost support for CETCs in order to free up funds and limit the overall size of the fund, because funding competitive providers "has imposed irrational burdens on the consumers who contribute to the Universal Service Fund" (pg. 27).

Comments of AT&T: 
Sweeping Reforms for a "Relic of a Bygone Era"
AT&T opens with some real fighting words directed at the FCC, indirectly at RLECs. With a harsh tone and a hint of irony, AT&T insists: "The existing universal service and intercarrier compensation regime is teetering on the brink of collapse. Adopted in an era of local exchange monopolies, that regime is no longer adequate to the task of rationally promoting universal service even on the legacy [PSTN]. And it is utterly incapable of advancing universal service on the all-IP communications network of the future...The Commission's existing policies are actively hindering broadband investment and adoption in high-cost areas, denying millions of Americans the benefits of next generation technology" (AT&T, 2011, pg. 1). I actually laughed out loud while I was reading the introduction, because AT&T talks about how outdated and inefficient the current USF system is because it was designed for a monopoly-dominated industry, which is not what the industry is today. Really? Because last I checked, AT&T seems to be trying really hard to return the industry to its former AT&T-dominated glory. Regardless, AT&T wants sweeping reforms to abolish "monopoly-era perspective regulations" (pg. 3). New reforms should include market-based approaches and a procurement model, whereby providers are only subject to explicitly agreed upon service obligations, are not compelled to provide broadband but can on their own accord in exchange for universal service support, and this model would create certainty and encourage participation. The new-era USF should eliminate legacy COLR obligations because they are legal obstacles to the transition to an IP-based industry, and they inefficiently maintain both circuit and packet switched networks. New-era USF funding should be targeted specifically to uneconomic areas, and the FCC should adopt a hard deadline of January 1, 2017 for "all legacy high-cost funding and all state and federal legacy service obligations should be terminated, and only the broadband support mechanism should remain" (pg. 6). AT&T wants the FCC to adopt final rules for CAF now, in order to reduce regulatory uncertainty. Ironically, AT&T refers to a comment by CoBank (a primary lender for RLECs), possibly taken out of context: "Lenders don't lend against hypothetical costs and they don't get repaid in hypothetical dollars" (pg. 85, footnote 177). I do agree with AT&T's definition of broadband--they argue that the definition should be based on what consumers actually use now and in the near future, "rather than focusing on the definition of 'broadband' in a vacuum" (pg. 88). I think this is a really good idea, because imposing a static speed limit on the definition of broadband is going to cause the FCC more problems down the road than they are capable of dealing with, and it will pose significant harms to consumers. Unfortunately, AT&T adds that if the FCC does not take a "holistic" approach to the definition of broadband, 3Mbps/768Kbps is probably the best speed-based definition because it is cheaper than 4/1 Mbps and will "ensure faster and more efficient deployment to households in high-cost areas" (pg 94). The bulk of AT&T's comments were in response to the ICC component of the NPRM--which should have been submitted separately on April 1. However, nobody tells AT&T what to do, right? It is really scary to think about how AT&T basically wants the FCC to "eradicate" the entire current USF system, good parts and all (although AT&T doesn't think there are any good parts, clearly), and start over based on their recommendations--will AT&T's lobbying prowess and be enough to overshadow the united RLECs proposals, like the Rural Association Plan? I'm well aware that there will have to be some compromises in this rulemaking and the RLECs will need to make some sacrifices, but I'm really hoping that for once AT&T is not the sole winner of the USF battle.

Comments of Verizon and Verizon Wireless:  
Cap & Reduce USF, Eliminate Rate-of-Return
Verizon's comments are not quite as garish as AT&T's, but they are not without a plethora of dramatic accusations and insults to rate of return RLECs. Verizon argues that the current USF system "discourages carriers from updating their business models for the broadband era in order to hold on to legacy universal service and access subsidies" (Verizon and Verizon Wireless, 2011, pg. 2). This is a direct attack on rate-of-return carriers, which Verizon argues should be forcibly transitioned to price cap regulation. Verizon argues that no carrier deserves the privilege of a guaranteed 11.25% rate of return, and rate of return "rewards inefficiency, insulates carriers from competition, and gives these providers a disincentive to innovate," and "no carrier should be forever insulated from the effects of competition or relieved of the need to pursue innovation" (pg. 53-54). First, we saw in the Iowa Telecom Association comments that 85% of Iowa's nearly 150 rate of return carriers recovered below the 11.25% threshold, and 41% actually earned a negative rate of return. Second, I would like to see proof of one rate of return RLEC who is not concerned about, and is insulated from, competition--this is a ridiculous argument. Competition in the broadband era comes from many sources--including wireless, satellite and VoIP, and I don't think there is a single small rural carrier who isn't sufficiently freaked out about competition for their small number of customers. When you only have 2,000 customers, the impact of losing just one to a competitor is catastrophic. Finally, I would also like to see proof of the rate of return RLEC who does not feel pressure to innovate. In the broadband era, it is innovate or die. Time and again I have heard these accusations against rate of return carriers, yet I rarely see any solid evidence of the claims that rate of return carriers are inefficient and avoid modernizing their networks. As a result of competition, resisting innovation is business suicide. I'm sure there may be a few rate of return carriers who are guilty of inefficiently using universal service support, but it is certainly not the majority, nor should the majority suffer from the bad actions of the few. Anyway, back to Verizon: they argue that the high cost fund should be capped at the 2010 level of $4.3 billion, AND the FCC should "establish an expectation that funding decreases over time as broadband is deployed into unserved areas and technology drives greater efficiencies" (pg. 55). Verizon believes the fund will be reduced over time if the FCC adopts competitive bidding (which will reward carriers who can build broadband for the lowest cost--resulting in an unfair advantage to the largest companies with the greatest economies of scale, and resulting in very low quality broadband networks), targeted support to unserved areas, and only supporting one provider per area. Together, these actions will help the FCC "impose the kind of market discipline on the system that will shrink the fund over time" (pg. 58).

Well, there you have it--the perspective from the large carriers. It is about as diametrically opposite from the RLECs and rural carriers as it can be, further evidence that the USF reform NPRM has initiated an extremely bitter fight where it is almost guaranteed that nobody is going to rise from the rubble completely unharmed. Exactly who will be harmed remains to be seen, and I sincerely hope that the lobbying power and deep pockets of AT&T and Verizon is not a persuasive factor in decisions that will impact the entire country and telecommunications industry for years to come.

For my next installments, I will take a close look at the Rural Association Plan and the FCC's April 27 USF Reform Workshop (which I will unfortunately miss as I will be on a plane while it is happening). If you are just tuning in, you can read my summaries of the rural carriers here, and my summaries if the ICC reform comments here.

Hope everyone had a nice weekend, and don't forget to FOLLOW RURAL TELECOMMENTARY ON TWITTER!

Cassandra Heyne

Wednesday, April 20, 2011

Rural TeleCommentary is Looking Forward to Summer, New Features Coming Soon!

As much as I want to continue reading and writing about the USF comments, I have to take a short break from blogging for the next 2 weeks in order to focus on my studies and travel to Omaha for the Berkshire Hathaway 2011 Annual Meeting. However, I will be back with a vengeance come May 2 or so, and I will definitely resume summarizing the USF comments from the price cap carriers as well as take a closer look at the Rural Association Plan proposed by NTCA, OPASTCO, WTA, etc. I believe the FCC is also holding a USF workshop soon like the one they had for ICC, which I will certainly watch and report on once I have some time.

I have some exciting ideas planned for new features on Rural TeleCommentary, including an International Telecom Policy Spotlight. I have been so amazed at all the readers I have been getting from all around the world, I never expected to have such an international audience--it has inspired me to keep learning about international telecom policies. For this feature, I am planning to highlight telecommunications policies in specific countries that are either focused on rural issues or just plain interesting. I think it will be valuable and interesting for my American audience to learn about international telecom policies, and it will be very educational for me to dig deeper into some of the topics I see on the news or have studied in the past. I took an international telecom policy and business class last year and I really loved it--each week we had to pick a country and write about a recent telecom development in that country. I'm already planning to write about the plight of reverse auctions in India and Chile, the European decision on Net Neutrality, and rural broadband initiatives in Sweden, Japan, South Korea and many other countries. If you have any suggestions, please leave a comment or e-mail me! 

I will also continue writing about rural telecom/electric cooperative Smart Grid Business Opportunities, including an overview of the paper that I should be working on right now! Naturally, I will be keeping a close eye on the AT&T-T-Mobile Merger, Net Neutrality, Intercarrier Compensation, and Universal Service Reform so I can bring you the rural telecom industry perspective on these hot issues.

I'm looking forward to an exciting summer for Rural TeleCommentary! I don't think I am taking any classes (I anticipate that this spring is my last semester of classes--ever--unless I decide to take more "for fun"), so aside from working on my thesis project I should have plenty of time to dedicate to this website.

Cassandra Heyne

Monday, April 18, 2011

USF Reform Comments Showdown: In This Corner, Rural Carriers Stand Somewhat United

Comments on USF Reform and the Connect America Fund were due April 18, 2011, commencing the second round of comments in this proceeding (following April 1st's ICC comments). For your reference, the following comment summaries are in response to:

In the Matter of (emphasized comment summaries in green):
Connect America Fund (WC DN 10-90)
A National Broadband Plan For Our Future (GN DN 09-51)
Establishing Just and Reasonable Rates for Local Exchange Carriers (WC DN 07-135)
High-Cost Universal Service Support (WC DN 05-337)
Developing a Unified Intercarrier Compensation Regime (CC DN 01-92)
Federal-State Joint Board on Universal Service (CC DN 96-45)
Lifeline and Link-up (WC DN 03-109)
I have been anxiously awaiting this day since the FCC released this NPRM, and naturally the comments were due on the worst possible week for me to read them, as I am in the midst of final papers and exams. However, I was prepared and cleared my schedule for two full days to read and summarize key comments in this proceeding. I am planning to divide my comment summaries into two appropriate groups of RLECs/rural associations (in this post), and the "other guys" in the following post. You may wonder why I am spending so much time summarizing these comments (without getting paid anyway), and that is indeed a good question. First, I will be doing my master's thesis on USF reform. My working title is "Will RLECs Survive the New Era of USF?" However, I haven't gotten much further than that. I am hoping these comments will inspire me to move forward with my thesis and refine my topic proposal so I can start writing the paper this summer. Second, I believe it is critically important that all stakeholders in the telecom industry gain a better understanding of rural telecom providers. There is not enough information or understanding about the important role of RLECs within the FCC and within the industry at large, so I am hoping to educate at least a few people on the perspective of the rural telecom industry (which is the overall purpose of this blog) Without further adieu,

 Comments of the Iowa Telecommunications Association (ITA):
ITA was dead on point with their argument that although the National Broadband Plan (NBP) in effect has some very important goals, such as ensuring ubiquitous and robust broadband to all Americans, "the devil is in the details," and in this case, the details are extremely detrimental to Iowa's small telecommunications carriers (ITA, 2011, pg. 5).  Iowa telecom providers have made tremendous progress in deploying quality, high speed broadband to extremely rural areas despite the hardships associated with low population density (the average size of an Iowa community is a mere 3,000 people, and Iowa has over 1,000 communities).  ITA argues that the USF Reform NPRM "erroneously assumes that something significant has changed in Iowa," which would make serving these rural communities attractive to larger carriers in the absence of Iowa's RLECs. I loved that ITA included one of my favorite quotes by Edmund Burke, which I commonly utter in reference to the telecommunications industry: "Those who don't know history are destined to repeat it" (ITA, 2011, pg. 2). History shows that large carriers have not been interested in providing service in rural Iowa, where there is very little economic incentive to invest in broadband networks. History shows that Iowa's RLECs have defied the odds to bring state-of-the-art service to their communities. Those who argue that Iowa doesn't actually need over 100 small companies should note that consolidation will not solve critical economic problems of scope and scale, as is perhaps the case in more densely populated areas. ITA argues that reducing or eliminated the High Cost Fund and ICC support will violate Section 254(b) of the Communications Act which mandates a sustainable and predictable funding mechanism. ITA also provided a really excellent argument regarding the state of rate-of-return carriers in Iowa. Critics of rate-of-return often claim that RLECs are sitting on piles of money and inefficiently utilizing federal funding. ITA cites a study conducted by Keisling Associates which concluded that the average rate-of-return for 111 Iowa regulated RLEC's was actually 1.57% in 2009, down from 3.48% in 2008, and significantly lower than the FCC's authorized rate of 11.25%. Furthermore, 41% of the RLECs actually had negative rates of return, and 85% were below the 11.25% threshold. Another study cited in the comments, by Vantage Point Solutions, described the costs of deploying a FTTH broadband network vs. an LTE wireless network in a hypothetical rural community with a population of 952 (pretty normal for Iowa communities). Although the LTE fixed costs would be less FTTH, the FTTH network would support 70Mbps per customer, whereas the LTE network would only support 0.047Mbps per customer. Even more astonishing is that the LTE network would end up costing $95,556 per Mbps versus $103 per Mbps for the FTTH network. If anyone has doubts about the value and efficiency of FTTH, please read this study. I was really pleased with the arguments in the ITA comments--they accurately reflected the dire concerns that Iowa RLECs have with the NPRM, and they provided some really memorable examples of why continued, sustainable and predictable USF is important for both Iowa RLECs and their rural customers.

Comments of CoBank, ACB: 
CoBank, a cooperative bank for rural businesses, is a critical source of private lending for RLECs. There has been considerable concern that lenders like CoBank will freeze funding resources for RLECs as a result of the regulatory uncertainty plaguing the industry. CoBank provides over $3.5B in loans to 200 rural wireless, wireline, cable and Internet providers; as well as other rural agriculture, energy, water and waste disposal businesses. CoBank supports the NBP and transitioning USF to support broadband, but adds that "there is a troublesome tone in the NPRM that suggests the Commission believes that rural carriers that serve high-cost areas are intrinsically wasteful and inefficient" (CoBank, 2011, pg. 3). CoBank does not believe this is a fair assessment of rural telecom providers, and they stress that rural telecom networks require ongoing capital expenditures which may cost up to 10 times more than comparable urban network expenditures. CoBank also argues that the proposed Connect America Fund (CAF) should not be capped, because "ongoing not subside upon completion of the project" (CoBank, 2011, pg. 5). Furthermore, rate-of-return should not be eliminated because the alternative, price-cap or incentive based regulation, is not applicable for companies that service high cost rural areas. According to CoBank, it is a "basic fact of business" that price cap carriers will not invest in rural areas that will not generate sizable profits. CoBank asks the critical question on every rate-of-return carrier's mind: "Why would the Commission dismantle a successful, efficient method of deploying broadband to high-cost areas?" (CoBank, 2011, pg. 6) That is indeed a very good question... Anyway, CoBank suggests that the FCC consider either lowering the 11.25% rate of return, or examining allegations of inefficiency on a case-by-case basis instead of making everyone suffer. I think these are both really interesting suggestions, and I hope to read more about the merits of a case-by-case analysis of inefficient users of USF. I suspect there are far fewer cases than the FCC assumes exist. I though CoBank's comments reflected some of the points that were made at the NTCA Legislative and Policy Conference about the important of rural America to our nation's economy. Rural America provides the bulk of the country's foods, fibers and fuels, and it is absolutely necessary that rural areas have reasonably comparable access to broadband in order to keep pace with urban America--in order to feed and clothe them as well. CoBank will be less inclined to invest in rural telecom providers if there is no guaranteed rate-of-return, where RLECs would be less likely to repay loans. Very scary!

Comments of the Rural Cellular Association (RCA):
Ah, reverse auctions...This NPRM leaves no stone unturned in terms of telecom issues that give me panic attacks (reverse auctions, monopolies, big government; for example). RCA's comments are from a perspective that is clearly different from the wireline rural associations, but nonetheless they made some interesting and insightful arguments. Like everyone else, RCA applauds the FCC for taking steps toward modernizing USF and ensuring that all Americans have access to broadband, but RCA questions whether the FCC even has the proper authority to mandate USF support for broadband or to mandate reverse auctions. RCA recommends that the FCC seek the proper authority from Congress before moving forward with CAF and reverse auctions, and Congress "should be the arbiter of whether to undertake a sea-change in the distribution of high-cost USF support" (RCA, 2011, pg. 3). Next, RCA argues that the FCC should adhere to the following principles in any major USF reform: efficiency, sufficiency, competitive and technology neutrality (don't pick winners and losers!), success-based funding, appropriately targeted support, and transition to broadband without a premature death to voice support. RCA also argues for equal treatment of wireless and wireline, and that the FCC should avoid funding only one eligible carrier. Rather, the FCC should consider proposing a single subsidy per customer. RCA is critical of the current high-cost/rate-of-return support mechanism because it encourages over-investment, "while deterring [wireline] from pursuing efficient business operations driven by market forces" (RCA, 2011, pg. 10). RCA argues in favor of a competitive and technology neutral, market-focused, and unbiased forward-looking cost model. Regarding reverse auctions (I saved the best for last, sorry), RCA warns that they have not been authorized by Congress, they will undermine competition, result in "government created monopolies" (I shudder at the thought...). RCA emphasizes that the FCC doesn't even know if reverse auctions will work, and "it would make no sense to base the future of high-cost support on an auction framework before ascertaining whether such an approach is even workable" (RCA, 2011, pg. 18). In what I have studies of reverse auctions in countries like India and Chile, they end up being spectacular failures. I've gotten over the fact that the FCC will probably test drive them with the Mobility Fund, but I agree with RCA's warnings about tying future USF support to an unfounded auction mechanism. Finally, RCA argues that the 4/1 Mbps funding baseline should actually be reduced so that 3G wireless carriers are not excluded. While I vehemently disagree with this argument, RCA points out that 3G is the "technology of choice" for many consumers, and the proposed AT&T-T-Mobile merger will not deliver 4G to the "last 5%" unserved areas--in fact, AT&T has no intention whatsoever of providing 4G to these largely rural areas. Although I am not convinced that 4/1 Mbps is sufficient in any way, this is definitely a persuasive argument in light of the controversies surrounding the merger.

Comments of the Rural Independent Competitive Alliance ("RICA," David Cosson):
So far we have looked at the perspective from Iowa rural ILECs, rural telecom lenders, and rural cellular carriers. Now I bring you the perspective from rural CLECs, as communicated by the RICA. Although some of the issues in RICA's comments are outside my scope of knowledge (such as the Identical Support Rule), this association made a variety of really compelling arguments against reverse auctions. RICA described the benefits that rural CLECs have brought to underserved communities, noting that their contributions to broadband deployment and adoption are often undervalued by the FCC. Additionally, rural CLECs took the 96 Act Challenge to bring competition to areas that have low business case for one carrier, much less two. RICA argues that eliminating the already meager support for rural CLECs would "at best [result in a] slow strangulation, more likely...grave financial distress" for these companies (RICA, 2011, pg. 6-7). According to RICA, the fundamental flaw of the NPRM is that it expects to fund a broadband future with exploding demand based on revenue from a declining voice telephony world of the past--therefore, the entire rationale for capping the CAF is unfounded.  RICA urges the FCC to eliminate the Identical Support Rule, because "it bears no relationship to the cost of providing service," and "there is no real way to demonstrate how the funds are used" (RICA, 2011, pg. 10). Alternatively, the FCC should implement a cost-based model for support. I found RICA's best arguments to be in response to Phase 1 CAF and reverse auctions. First, RICA is concerned that Phase 1 CAF will impede rural CLECs from expanding into nearby unserved areas because the proposed funding is one-time only. In other words, not for rural high cost areas that require ongoing investment. RICA shares my concerns that reverse auctions will result in the lowest quality, lowest level of performance, and lowest level of reliability in networks funded through this mechanism. Ultimately, reverse auctions may significantly increase the rural-rural divide, as rural CLECs will have little incentive to participate. Furthermore, rural CLECs "cannot expect to outbid large carriers with thousands of times their financial resources" (RICA, 2011, pg. 14). Next, RICA argues that an alternative to reverse auctions should recognize other meaningful factors besides the cost to deploy a network, such as "a [carrier's] demonstrated commitment to the area, demonstrated competence in providing quality service, and a credible business plan" (RICA, 2011, pg. 16). I cannot stress how important it is for the FCC to make sure that these factors are somehow embedded in a funding distribution mechanism. Local businesses are favored in small communities, and a company's reputation is important in this case. Next, RICA argues that funding for both fixed and mobile broadband is critical, because both fixed and mobile broadband are critical services for rural consumers. Ensuring funding for both fixed and mobile networks will also go far to ensure reasonably comparable service for rural areas. Finally, RICA adds that the FCC should not impose artificial boundaries such as Census blocks on participants in CAF funding; rather, recipients should decide their own geographic service territories, within reasonable limits. I highly recommend that rural CLECs take a look at these comments to get more clarification than I can provide regarding the identical support arguments, but overall I was very impressed with the arguments set forth in RICA's comments against reverse auctions.

Comments of the Rural Broadband Alliance ("RBA"): "Speed Matters"
Now that I have covered several of the sub-categories of rural telecom stakeholder comments on an "overall arguments" basis, I want to focus on some specific arguments from other participants. First up, the proposed 4/1 Mbps "speed limit" the FCC plans to impose on rural broadband providers and customers. I have been speaking out against the 4/1 Mbps proposal for awhile now, and it was the focus of a large project I did for a class last semester where I deemed this proposal the "fundamental flaw" of the National Broadband Plan and compared the U.S. to several countries that ensure reasonably comparable broadband for all residents--rural and urban alike. The RBA argues that the widespread criticism of rural rate-of-return companies "gold plating" their networks (read: investing in high-speed networks like FTTH) is unfounded, rather these investments were forward-looking and customer focused. According to the RBA, "to call such customer-focused delivery 'gold-plating' is at best, merely insulting, and at worst, misguided and insensitive to the needs of rural customers" (RBA, 2011, pg. 4). Rural telecom providers recognized the growing demand for fast broadband over 10 years ago, and have done nothing but strive to deliver this critical service to rural customers. Although RBA supports the 4/1 Mbps baseline on an initial, interim basis, the association insists that this definition of broadband must evolve and increase quickly. RBA points to the example of Comcast's recent announcement to provide 105 Mbps to more than 40 million homes. With 105 Mbps, a customer can download a 6 GB movie in 8 minutes. The same movie would take 2 hours with a 6 Mbps connection, and over 4 hours with a 1.5-3 Mbps connection. The RBA emphasizes that broadband speed "can mean the difference between life and death" in rural health care centers, and can mean the difference between economic success and failure for rural businesses (RBA, 2011, pg. 5). The 4/1 Mbps broadband definition for rural areas is contrary to the Communications Act of 1934, which is the central argument I made in my paper "Unreasonably Comparable Broadband Service: An Analysis of Leading International Broadband Plans and Accomplishments." The RBA notes that the FCC has a monumental task of not only ensuring that unserved rural areas gain access to broadband, but ensuring that well-served rural areas gain access to reasonably comparable broadband.

 Comments of the Rural Telecommunications Group (Bennet & Bennet): Long Term CAF
I have been interested in reading the responses regarding the long term CAF proposals, because in my opinion this is the most challenging aspect of revamping USF--we have no idea what the future holds in terms of telecommunications. In the 96 Act, the Internet was barely on the radar, and now we suffer the consequences of regulatory shortsightedness. I fear history will be repeated yet again if the Long Term CAF policies are not crafted carefully and with "room to move" when the telecommunications industry produces the next game changer a la the Internet--the Long Term CAF proposals revolve around disseminating all USF funding through CAF and capping CAF at 2010 high-cost levels. Today I received a Twitter comment criticizing ongoing funding for USF recipients, saying "why subsidize dinosaurs?" Not to veer too far off track, but does the age of a company really matter when it comes to distributing funding to a provider who can efficiently and reliably provide high performance broadband in uneconomic rural areas? Anyway, the Rural Telecommunications Group emphasizes the importance of ongoing support for rural wireless, which I also believe should be a fundamental component of Long Term CAF. My concern is that many rural wireless and wireline carriers simply won't make it to the long term visions of CAF if short term funding is capped or limited to one-time investments. RTG points out that business plans are based on the current USF system, and a 5 year phase-out of CETC support would be devastating to small rural wireless carriers: "simply put, in virtually every case, a loss of high-cost support will make running a high-cost, rural mobile network unprofitable, and therefore unsustainable" (RTG, 2011, pg. 11).  RTG argues that the Long Term CAF should be specific, predictable, and sufficient; again ensuring that rural wireless carriers will be able to develop and accomplish goals in their business plans. Furthermore, Long Term CAF must be consistent with Section 254(b), and it should ideally provide support for one wireless and one wireline carrier. I applaud RTG for recognizing the importance of an appropriate long term vision for CAF, for without assurance of ongoing, predictable and sufficient support rural wireless carriers will not be able to continue investing in rural wireless broadband infrastructure.

Edit 4/19/10: Other noteworthy points:
Comments of the Blooston Rural Carriers:
  • "For most price cap carriers their rural service areas are backwaters that are so small relative to their total operations that [the rural areas] have no material significance to their business plans or their financial statements" (Blooston Rural Carriers, 2011, pg. 6)

Comments of John Staurlakis, Inc:
  • "Universal Service is not a box of Kellogg's Corn Flakes--a commodity purchased, placed on a shelf and then consumed at breakfast time. Ongoing operational and maintenance expenses constitute a significant portion of annual costs associated with these rural networks" (JSI Inc., 2011, pg. 2-3).
  • "The financial impact of the Commission's proposed near-term reforms portents severe financial impacts that are certain to have a negative impact on the preservation and advancement of universal service in areas served by rural ILECs" (JSI Inc., 2011, pg. 7).
  • "If the Commission wants to evaluate the best way to deliver universal service to rural areas of the nation, it should not start with the premise that rate-of-return should be abandoned" (emphasis my own, JSI Inc, 2011, pg. 15).

Comments of Moss Adams LLP:
  • "Each company [rural providers analyzed on the impacts of the NPRM] is one of the, if not the, largest employers in its rural service territory, providing jobs and financial stability in some of the most rural and economic depressed areas of the country" (Moss Adams LLP, 2011, pg. iv). See Comments of Kalona Cooperative Telephone Company at pg. iv which confirms this argument.
  • "The combined result of all the proposed USF rule changes [on the study sample of 57 study areas] is a reduction in net income of $58,766,146 from $61,262,980 to $2,496,835" (Moss Adams, 2011, pg. 5-7). Furthermore, the combined impact of all the FCC's proposals is a loss of $29,353,172, and "no lender will provide capital in this regulatory environment." 

I will leave you with this final point by Kalona Cooperative Telephone Company as I feel it really brings together all of the issues I have summarized so far, and it drives in the point that these USF reform proposals are a nightmare for the rural telecom industry. It is very important to hear from these small companies to get the full effect of how these proposals will damage rural communities:
"The effects of this proposed plan would leave KCTC no better than bankrupt. In this day and age with the changing technology, KCTC has strived to meet and beat our customers needs for broadband and telephone usage. If the proposed plan is implemented, it would not only be detrimental to KCTC, but the whole Kalona, IA community. No business would be able to thrive in this area without the efforts we put forth each day to keep broadband and communications thriving. KCTC would no doubt have to close its doors leaving a small community without a large employer in town, losing many active leaders in the area, and literally decimating the community" (KCTC, 2011, pg. 13-14).

Later this week (hopefully, depending on how much of my Energy Communications Networks paper I get done in the next few days) I will be taking a look at the "Dark Side" perspective as well-the large price-cap carriers. My work on this proceeding will be an ongoing effort, as I hope USF support for rural carriers will be as well.

My Final Thoughts (For Now):
  • This is the single most important, game-changing telecommunications policy initiative in my lifetime. Coming from a small rural family-owned telecom service provider, the ultimate results of this rulemaking will have a significant impact on my future, one way or the other.
  • Everyone wants the money, and not everyone will get it. 
  • Many of the initiatives in the NPRM are insensitive to, and ignorant of, the contributions that rural carriers have made towards making broadband what it is today--this is very unfortunate, and I'm not sure if there is enough time left to educate the FCC about our contributions. 
  • I love that so many rural telecom providers are vocalizing their objections to the NPRM, I feel strongly that our companies will have an impact--I may be overly optimistic given the political climate of the FCC and the dire warnings indicated in many comments, but we need a dose of optimism right now! These dire warnings may be just the thing we need to get the FCC's attention.
  • Overall, the RLECs are unprecedentedly united on most issues in the NPRM. Small rural wireless carriers diverge on some key issues, but that is to be expected. I know there are often differences in rural telecom regulatory perspectives from state to state and even within states, but this is the one time that differences must be set aside for a untied front against the detrimental proposals in the NPRM.

Thursday, April 14, 2011

FCC Will Examine Telecom Network "R&R" (Reliability and Resiliency), Consider Regulatory Requirements

On April 7, 2011 the FCC released a Notice of Inquiry, initiating "a comprehensive examination" of the reliability and resiliency of our nation's telecommunications infrastructure, yet another inquiry with ties to the 2010 National Broadband Plan (PS DN 11-60; PS DN 10-92; EB DN 06-119). Through this process, the FCC will examine issues about maintaining continuity of telecom service in natural and man-made disasters and the possibility of mandating standards and requirements for network reliability and resiliency. During the UTC Smart Grid Policy Summit this week, the comment was made that it often takes a disaster to get industries (in general) motivated to improve safety, reliability, asset protection, etc. The situation in Japan has clearly influenced the FCC to get a jump start on the examination of telecom network continuity, reliability, redundancy and resiliency in the face of tragedy. I believe this NOI is a timely and necessary effort, but I worry about the implications of mandating technological and regulatory requirements on small telecom providers. I do not recommend that the FCC piles on any specific and potentially very expensive regulations while simultaneously attempting to reign in subsidies. Additionally, it is never a good idea to mandate specific technologies or protocols. By the time regulatory lag is taken into consideration, something that is an emerging technology today might be a faint flicker of light by the time the rules are implemented. Furthermore, mandating technology and protocol standards can impede innovation and pick industry winners to the detriment of other viable solutions.

For rural telecom service providers, ensuring reliability, resiliency, redundancy and network continuity goes beyond disaster preparedness. I see this issue from a business perspective--rural providers can help attract new businesses to rural areas by ensuring their networks meet the highest standards of "R&R." At the NTCA Legislative and Policy conference last month, one of the attendees from Iowa described a very memorable situation that his RLEC faced recently: a major business was interested in coming to his company's service area, but the business had very high requirements for network redundancy. The provider sought support from the FCC, but the FCC basically told them "its not our problem" Well, apparently the FCC is now making it "their problem" to investigate network R&R, continuity and redundancy issues. In addition to needing reliable and resilient networks to attract new businesses--such as industrial, financial, health care and utility companies--to rural areas, rural providers also need to think about their vulnerability to natural and man-made disasters. Unfortunately, rural areas are extremely vulnerable to tornadoes, floods, crippling ice and snow storms, and other disasters that not only make communications especially critical for public safety, but make it especially challenging for small companies to respond to network malfunctions. What happens when service goes down during a tornado, but all of an RLEC's key employees too far away to respond quickly or caught in the destruction themselves? Furthermore, consumers are beginning to rely more and more on Internet applications like Twitter and Facebook to communicate during times of distress--how do RLECs ensure that their customers have multiple avenues of access to emergency responders and their friends and family during a disaster?

I hope that rural providers plan to participate in this NOI and describe the unique challenges their companies face in providing network R&R. The FCC in fact is seeking input on this exact topic: "We are interested in gathering information about any other factors that have an impact on the ability to maintain or restore communications operations, including those which might be unique to specific circumstances. For example, which of these factors might be more significant with respect to smaller carriers, carriers serving rural areas, or those serving tribal lands? Are there sufficient numbers of properly trained technical personnel to deploy over widespread disaster areas, and if not, is this a factor in not being able to maintain or restore operations of communications networks during emergencies? To what extent do these issues apply to communications infrastructure in geographically remote locations? Do communications service providers have contingency plans in place if key personnel are unavailable to respond to a situation, and if so, how are such contingency plans implemented?" (FCC, 2011 pg. 8, para. 20). I believe rural telecom providers have a great opportunity here to tell the FCC exactly how they protect their network assets and ensure service continuity in the face of disaster, as well as communicate what they may need in order to maintain high standards of R&R going forward in the future with exploding data capacity demands and changes in consumer communication trends.

The FCC is curious about whether it would be better to implement mandatory or voluntary requirements for R&R, redundancy and network continuity. As I mentioned above, I don't think required standards or mandatory compliance is a good idea--I never think mandated technologies or burdensome regulatory requirements are a good idea for RLECs. The FCC asks if requiring emergency response plans would be a wise solution, and I think this should be about as far as they should go with requirements. I believe the market should determine which technologies and protocols are best, not the government. I also do not think the FCC would be able to encompass the diverse variety of communications providers and their equally diverse networks, customers, assets and infrastructure under a single set of regulatory or technology requirements. The regulatory lag in determining the best requirements for everyone would be extremely onerous, then there would be the issue of setting a timeline for compliance and enforcing noncompliance--this could all take years--and a major disaster is not going to wait around for regulations to be implemented.

I am very interested to hear from stakeholders on these issues. I will be paying specific attention to responses from both rural telecom providers and utilities, who have a key role in this inquiry if utility and commercial telecom providers have any intention of converging for smart grid deployment. I hope to see a lot of rural telecom providers submitting comments, which are due July 7, 2011.

Speaking of comments, USF reform comments regarding the Connect America Fund are due next week--I will be reading and summarizing as I did with the ICC comments. I hope to have something published by Wednesday, April 20.

Finally, Rural TeleCommentary hit its 1,000th pageview yesterday (with 101 total pageviews yesterday alone)! I am delighted about how well received this blog seems to be--I never expected it would become so popular. I have had readers from over 25 countries around the world--in every continent except Africa and Antarctica, and I'm starting to make headway with getting linked from other prominent websites and blogs. Thank you to all of my readers! I hope you are all finding my articles interesting and useful.

Cassandra Heyne

Edit 4/18/11: I caught this informative blog post by Gabriel Marcos of Global Crossing today which very clearly explains the meaning of "redundancy." Looks like he is doing a series of posts on the meanings of redundancy, resiliency, contingency, and continuity.
Gabriel Marcos (Global Crossing) on the meaning of Redundancy

Tuesday, April 12, 2011

Day 2 of UTC Smart Grid Policy Summit: All About Cybersecurity, Customer Data Protection

April 12, 2011: The sessions in the second day of the Utilities Telecom Council Smart Grid Policy Summit took a hard look at two real hot-button issues of the moment: cybersecurity and customer data protection/privacy. These two issues are troubling and perplexing to many industries besides utilities, and I found it interesting to identify similarities and differences between the utility perspective and what I know about these issues from the telecom perspective. The Smart Grid is presenting some truly monumental challenges to how the utility industry has traditionally dealt with cybersecurity and consumer data protection, and effective solutions will definitely take ongoing discussions and collaboration across the utility and telecom industries, with regulators in both industries, with law enforcement and other government agencies, and with consumers. These two topics are especially interesting because it is very easy for providers and consumers to get wrapped up and carried away in paranoid fantasies about doomsday scenarios of terrorists attacking and crippling the entire utility grid and ex-boy/girlfriends stalking you by accessing your energy usage data from your smart meter (just two of the many doomsday scenarios, use your imagination or read Cyber War for more). In all reality though, these extreme situations can and will happen at some point if the utility industry does not implement measures to protect their critical infrastructure and protect their customer's personal identification information. Let's see what the experts had to say...

Session 1 (Day 2): Cybersecurity Requirements: Does Compliance Really Equal Security?
Panelists: Keith Porterfield (Moderator, Georgia System Operations Corp.), Annabelle Lee (Electric Power Research Institute), Lynne Ellyn (DTE Energy), Chris Villarreal (CA PUC), Anup Goyal (AT&T)
As I mentioned yesterday, I am currently learning about Smart Grid cybersecurity in my Energy Communications class, so I was really excited to hear from industry experts about the current issues and challenges in utility cybersecurity. This panel, which debated if simply complying with cybersecurity requirements actually protects critical infrastructure networks, largely agreed that compliance does not equal adequate security. So, compliance is important: you have to start somewhere, and high level cybersecurity guidelines or requirements are definitely necessary. However, each utility provider must identify its own unique risks and vulnerabilities, then build upon industry-wide compliance requirements to develop a dynamic, tailored end-to-end solution. Utilities need to learn from the lessons of the past--like the infamous Stuxnet worm situation--that attackers can just as easily come from an internal, "under the radar" source as they can swoop in from beyond the balancing authority in the form of a terrorist attack or full scale Cyber War. The new cybersecurity buzz-term is "Advanced Persistent Threats" which is a very realistic description--the threats are indeed highly advanced and constantly evolving. The panelist from DTE (Ellyn, who I found to be extremely interesting throughout the discussion) argued that not only is a focus on just prevention insufficient, but it is probably impossible. Therefore, utilities need to focus on anticipating and detecting threats, and reacting appropriately. Compliance with standards and regulations is not a one-time fix-all, it will be a continuous process. A great comment to illustrate this point was, "hackers do not have a checklist." Utilities cannot just expect to check off compliance measures, sit back, and wait for a disaster to occur (we all know it is not "if," but "when"). Compliance requirements that were implemented today but developed last year are not going to protect utilities (or telecom for that matter) from tomorrow's threats. One issue that is quite specific to the utility industry--that I find particularly interesting--is that much of the utility infrastructure is very old, 30-50 years old in some cases. How do you protect these assets from cyber attacks? How do you make sure analog, previous generation equipment does not create an entry point for attackers? In some cases, is analog infrastructure more secure than the smart grid? If so, will utilities delay or reject grid modernization? These are definitely questions that are troubling the industry right now, and it will be interesting to see the direction that utility providers take to ensure their critical assets are protected. Finally, utilities, regulators and vendors/suppliers need to foster a culture of cybersecurity, where the harsh realities of cyber attack are understood but there are ample incentives and opportunities to develop effective, dynamic solutions.

Session 2 (Day 2): Cybersecurity Overload: Meeting the Challenges of Implementation and Communication
Panelists: Michael Hyland (Moderator, American Public Power Association), Troy West (Cleco Corporation), Robert McClanahan (Arkansas Electric Cooperative), John Roukema (Silicon Valley Power), Tim Roxey (NERC), Paul De Martini (Cisco Systems)
I was extremely engaged in this panel as it addressed telecom cybersecurity issues and included panelists from small electric providers (and a cooperative!). This session addressed the challenge that utilities face in dealing with the impending explosion of "smart" devices and subsequent explosion and imposition of regulatory requirements--I think of this like the explosion of smartphones in the wireless industry and the subsequent explosion of cybersecurity fears. I really enjoyed the panelist from the electric cooperative (McClanahan), who commented that the greatest challenge to utilities besides trying to predict threats is trying to predict what the regulators will do next! Sir, we can relate in the telecom industry, where regulatory uncertainty is especially burdensome for the small providers. Basically, the onslaught of cybersecurity threats is only a fraction of the concerns--timely access to accurate information about threats and ongoing regulatory uncertainty greatly contribute to the overall cybersecurity anxiety attack. Disseminating information about attacks is particularly tricky because there are different security clearance levels for different types of information. One panelist candidly pointed out that some utility companies might not even have someone on staff who can get security clearance. According to Roxey (from NERC, another very engaging panelist), information sharing is extremely important but ultimately very difficult. Regarding telecom's role in utility cybersecurity, it is important to understand that cybersecurity is a threat for everyone. I am interested in learning more about the potential liabilities that a telecom company who provides service to utilities may face in situations where a network is breached resulting in an attack on the grid. I imagine this is partially why many utility providers are reluctant to trust commercial telecom providers--but--telecom providers have their own set of parallel cybersecurity challenges as well, where no telecom provider can safely leave any part of its network vulnerable to attack. There is indeed some fascinating interdependency between telecom and utilities in the cybersecurity arena. My favorite comment from this panel, by McClanahan, was "I don't have warfighters on my staff." In the face of a significant national security cyber threat, what role does a utility have to protect its assets and beyond? Do all utilities need to become national security mercenaries just because they are vulnerable to threats that could trigger a massive attack to the national grid infrastructure? Definitely some good food for thought here... I have no doubt that these are the precise issues that keep many utility managers and regulators awake at night.

Session 3 (Day 2): Managing the Mounds of Data: Get Ready for the New Energy Information Marketplace
Panelists: David Owens (Moderator, Edison Electric Institute), Lillie Coney (Electronic Privacy Information Center), Robin Lunt (NARUC), Mark Carpenter (Oncor), Rona Newmark (EMC Corp.), Kevin Messner (Association of Home Appliance Manufacturers)
I was very impressed by this panel--it ended up being the surprise hit of the summit for me. I am actually planning to continue this topic in a future post, because there is some research that I want to do to become more educated about telecom's Customer Proprietary Network Information ("CPNI") requirements and if they would be a good model for utilities to use going forward. This session was an extremely lively debate about how to ensure privacy and protection for utility customer information. There are increasing concerns that the Smart Grid will enable all kinds of malicious behavior if bad actors get ahold of Personally Indentifiable Information ("PII"). The common stereotype is the stalker who gets his or her hands on smart meter data and can then figure out when his or her prey is at home and what they are doing at every second. Although this scenario is not outside the scope of reality, if a stalker has access to smart meter information then they are probably already breaching the victim's privacy in some other way--smart meter data might not really add anything profound. There are clearly many more concerns in this topic, but the "stalker scenario" is definitely the most colorful and common example of smart meter privacy fears. There were some....*radical*... suggestions thrown around on this panel (that the government should require the equivalent of a "driver's license" for all Internet users, and each state should have its own set of data privacy regulations), and I kept thinking to myself "Isn't there some requirement in telecom that makes customer information protection really simple and straightforward?" Yes- CPNI. For some really rough background information, CPNI requirements were a priority for the FCC since 1998, but became reality after a "pretexting scandal" in 2006. Basically, CPNI requirements:
  • Apply to ALL communications providers
  • Carry serious consequences for noncompliance
  • Serve as a compliance guideline, but encourage providers to tailor additional measures specific to their businesses 
  • Encourage providers to go way above and beyond the minimum requirements to protect customer information
Even with this minimum amount of knowledge about CPNI, I can clearly see that this model might be attractive to utilities, with some tweaks of course. Is there a significant difference--from a consumer perspective--in the information contained on a phone bill (the number of calls made in a day, and to whom the calls were made), versus the information that could be gathered from smart meter data (when the washing machine was used, how long the living room TV was on, etc.)? Both sets of data are "personally identifiable information," and both sets of data can be used both maliciously and profitably by corporations, consumers themselves, and the service provider. There are some interesting implications here in terms of the culture of personal information (people have no problem posting intimate details on Facebook, but if a service provider missuses the same information then all hell breaks loose), and the culture of the utility industry (which has traditionally been a unidirectional service where the relationship between customer and utility goes no further than a commercial exchange of energy for money). I think telecom has a lot of experience in customer information protection, and utility providers and regulators can learn a great deal from the CPNI model. For my new utility readers, I found this sample of a telecom provider's CPNI manual which you may find interesting. 

My Final Thoughts:
I really enjoyed this conference and I met many interesting people, and I hope to attend and participate in future smart grid policy conferences. Coming from the telecom world almost exclusively, I gained a tremendous amount of knowledge about the utilities industry. There are so many topics that I hope to learn more about and monitor as the smart grid modernization efforts progress.  I will definitely continue studying the overlays between telecom and utilities in the Smart Grid arena, and I intend to spend some time in the near future learning more about the utility regulatory process in general.

Many thanks to the Utilities Telecom Council for the wonderful opportunity to attend this conference!

Cassandra Heyne

Monday, April 11, 2011

Day 1 of UTC Smart Grid Policy Summit: Perspectives from a Utility Newcomer

The Utilities Telecom Council 2011 Smart Grid Policy Summit marked my first public foray on the utilities industry, and I am pleased to report that my interests in the Smart Grid are still very much alive and well. For some personal background, I became interested in the Smart Grid last summer when I was assigned to do some research at my previous job about claims that smart meters were causing harmful interference to wireless devices (security alarms, garage door openers, etc.). This took me on a whirlwind tour of smart meter controversies from the consumer perspective-- EMF safety concerns, personal energy usage information privacy threats, wireless interference in the unlicensed 900 MHz ISM band, fears that aliens would invade homes through smart meters... You get the idea--consumers have some wild imaginations! Anyway, some of my research in this project was focused on using licensed vs. unlicensed airwaves for smart meters, which brought me to my next smart grid project for my Wireless Communications class last fall. In this project, I continued to research issues surrounding private vs. commercial wireless networks and licensed vs. unlicensed spectrum for smart grid and smart meter networks. For the 2011 spring semester, University of Colorado started offering a new class on Energy Communications Networks, which I am now taking and really enjoying. This brings me to my current project, a research paper on the potential for rural electric cooperatives and rural telecom companies to collaborate on smart grid projects (which I have written about here). During my research I came across the UTC Smart Grid Policy Summit, which I noticed was 2 blocks from my house and at my favorite hotel in the city--so I just had to sign up! Anyway, on to the Summit. I was particularly interested in hearing and learning more about the following topics, which were basically all discussed during today's sessions:
  • The licensed vs. unlicensed spectrum debate
  • How to get utilities and telecom providers to collaborate effectively and with mutual trust
  • Mitigating the often unreasonable consumer fears about smart meters to ensure a smooth transition to the utility industry of the future
  • Any issues, challenges and accomplishments specific to rural smart grid deployment--and is this all important from a rural telecom perspective?
I hope my rural telecom industry readers find this information useful and interesting, even if you are not specifically involved in smart grid projects (I predict you will be soon, however, to some extent at least). I am going to do a detailed review of the first two sessions from today as I found them to be particularly relevant to rural telecom providers. 

Keynote Speaker: Joe Rigby, Pepco CEO
The Summit opened with an optimistic yet honest overview of Pepco's smart grid deployment efforts. Rigby emphasized the importance of taking a cautious, staged deployment of smart meter functionalities to prevent widespread misinformation about the transition from the utility of the last 100 years to the utility of the future. Rigby discussed the importance of collaborating with all stakeholders and taking advantage of all channels to engage and educate consumers on the value of the smart grid. So, what is the value of the smart grid anyway? The value proposition must be communicated in a way that engages consumers, and several clear smart grid values include: improved energy reliability, greater consumer understanding of energy usage, seamless integration of renewables and electric vehicles, and reduced operating costs that translate to customer savings. The challenges facing smart grid deployment are also significant: resetting consumer expectations, Cyber Security ("a war that will never be over"), data privacy, meter accuracy, perceived EMF/RF safety concerns, securing sufficient bandwidth for utilities, and forging relationships with new partners, suppliers and competitors. Overall, Rigby's speech was very informative and it set the tone for the day as many of these issues were discussed in greater detail by the panelists in the following sessions.

Session 1: What's Next in Smart Grid Policy: Leaders Forecast the Big Issues Ahead
Panelists: William Moroney (Moderator, UTC), Philip Moeller (FERC), Eddie Lazarus (FCC), Henry Kenchington (US Dept. of Energy), Tony Clark (NARUC and North Dakota PSC)
The purpose of this session was to identify key smart grid policy issues and discuss how policy decisions will impact different aspects of smart grid deployment and implementation.  From my telecom policy background perspective, this session was very valuable to me because I was able to learn about the utility policy process and pending issues directly from utility policymakers. The panelist from the FCC kept me in my comfort zone by discussing the smart grid initiative in the National Broadband Plan and a recent NOI about network reliability (which I plan to read and discuss soon)--adding that utilities have traditionally been reluctant to work with commercial telecom providers due to network reliability issues (a barrier that I hope to see broken by rural electric co-op/rural telecom provider collaboration). The DOE panelist discussed Recovery Act smart grid projects that are underway, saying that these initiatives will hopefully help remove some of the uncertainty about smart grid benefits, costs and risks. The remarks that really stuck with me were from Tony Clark of NARUC and North Dakota PSC (a rural perspective!), who emphasized that all utilities--telecom included--are converging, which will require major educational efforts for both consumers and regulators. He added that cost is the greatest challenge for states, and used the example of USF reform and its potential cost burden to states. The best question asked to the panel was "What problems does the smart grid really solve?" From the consumer perspective, there needs to be a clear answer to this question or consumers will not accept the smart grid. A great example is broadband--millions of Americans still do not adopt broadband even though they have access simply because they do not understand the relevance or value of broadband. Interestingly, the smart grid may actually help some broadband non-adopters to "see the light," and therefore help increase broadband adoption along the road to achieving broader smart grid goals--but it will require concentrated efforts by all smart grid stakeholders to educate consumers. Finally, the panelists discussed how important it is for consumers to educate themselves on the values of the smart grid, which requires specific, tailored information from reliable and trustworthy sources--in voices that are loud and reliable enough to overpower the widespread misinformation about the smart grid.

Session 2: Managing the Technology Mix: Building, Buying or Sharing Smarter Utility Communications Networks
Panelists: Mike Oldak (Moderator, UTC), Karl Nebbia (NTIA), Julius Knapp (FCC), Jeff Nichols (Sempra Energy Utilities), Mark Madden (Alcatel-Lucent), Rilck Noel (Verizon), Narasimha Chari (Tropos Networks)
Due to my past research projects about wireless networks and the smart grid, I was definitely very excited about this panel--and it did not disappoint. Basically, utilities need spectrum. There will be an estimated 1 billion "smart devices" in the near future that are all communicating with each other and the utility--if this doesn't convince you that utilities and telecom are converging, I don't know what will! The obvious question is: where will utilities get this spectrum? Wireless providers, the government and broadcasters are already fighting like rabid dogs over every last megahertz--everyone wants it, everyone has valid reasons to want it, and not everyone will end up with beachfront spectrum property. The FCC panelist added that there are no more "vacant lots," and difficult, comprehensive spectrum management efforts are definitely necessary. Like rural telecom providers, utilities are often disadvantaged in spectrum auctions, and sharing arrangements can be difficult to acquire and negotiate. Rural utilities are especially unlikely to get their own licensed spectrum. The Alcatel-Lucent panelist added that each utility faces specific geographic, demographic and infrastructure needs and challenges. Basically, ensuring that utilities have access to communication network assets will require creativity, imagination, money, and will include some conflict and drama (Rural telcos- how can you turn this into a profitable business opportunity? Think about it!) Some promising opportunities exist in both the TV White Spaces and the 700 MHz Public Safety spectrum, pending regulatory approval. Finally, I was intrigued by the comment that utilities should not "put all their eggs in one basket" in terms of communications networks--they need multiple types of network technologies with different levels of reliability and different options for redundancy. I see some real opportunities for rural telecom providers to step up with their reliable and high quality fiber networks to collaborate with utilities to meet some of these critical communications network needs. Rural electric co-ops probably cannot afford to build entire networks from scratch--with redundancy--in terms of both time and money. Ultimately, there is no single solution that will work everywhere and appeal to all utilities, but communications networks are literally the foundation for which the smart grid will grow and flourish--and they have to come from somewhere.

Lunch with Rep. Rick Boucher, and Afternoon Sessions on Building Customer Acceptance and Interoperability Standards
Following the two fascinating morning sessions was an equally fascinating lunchtime address by former Representative Boucher (D-VA), a true leader and expert on energy and technology. Boucher recalled a story that I either heard or read recently: what would Edison and Bell say if they saw the state of the energy and telecom industry today? Bell's mind would be blown by how telecom has evolved in the last 100 years, but Edison would find the energy industry basically the same as when he left it. Boucher emphasized the many benefits of the smart grid, from demand response to a burgeoning new home appliance market to the impact on the environment. He also highlighted the challenges--financial cost of upgrading the entire utility industry, consumer criticism of smart meters, finding adequate spectrum for networks, and developing interoperability standards. He discussed the controversial debate about the D Block and the potential for using the TV White Spaces in Rural Areas. As Vilsack's speech at the NTCA Legislative and Policy conference was empowering for rural telecom advocates, Boucher's speech was equally empowering for smart grid advocates.

The last two sessions of the day-- Building Consumer Acceptance and Interoperability Standards--were interesting as well and full of lively debate, but as I am pressed for time right now (and exhausted), I will end this post before it gets any longer. Tomorrow will be very exciting for me--most of the sessions are about Cyber Security, a topic that I am studying in my Energy Communications Network class at this very moment. Ever since I read Cyber War by Richard Clarke last summer, I have been pretty obsessed with Cyber Security, so I am sure to find tomorrow's sessions extremely valuable and informative.

One last thing--today was also my first public foray into the wonderful world of Twitter, and it was fun to share my thoughts about the conference via social media. I am still hoping that more of my readers will "follow" @RuralTelComment on Twitter!  

Cassandra Heyne