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
ruraltelecommentary@gmail.com

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.