Historic Investment in California Broadband - Episode 462 of the Community Broadband Bits Podcast

Ernesto Falcon: A supervisor from a county took a photo of these two Latino girls in Taco Bell, I believe, doing homework on the street. That was the only way they could access the Internet. It was in Salinas, California, a big city. I think that hit home for a lot of legislators, the idea that children are forced to go to the streets to do homework right now, because of just the inequities that exist within the system.

Ry Marcattilio-McCracken: Welcome to Episode 462 of the Community Broadband Bits podcast. This is Ry Marcattilio-McCracken here, at the Institute for Local Self-Reliance. Today, Christopher talks with Ernesto Falcon, Senior Legislative Counsel for the Electronic Frontier Foundation, and his colleague, Hayley Tsukayama, a legislative activist for the nonprofit. They join us to talk about California's recent landmark announcement that it is devoting $7 billion to expand broadband access in the state over the next few years. Ernesto and Hayley help Chris unpack how the funds will be used, from the $4 billion earmarked for a statewide middle-mile open access network, designed to increase competition and expand access to areas that are unserved or underserved by existing providers, to the $500 million public financing program to assist local governments, tribes and non-profits financing new community-owned fiber networks.

Ry Marcattilio-McCracken: During the course of the conversation, Ernesto emphasizes the fact that there will always be zero-profit Internet access needs that will never be met by private entities, and that facilitating publicly-owned networks offers a commitment to reaching those households. Both share how the pandemic has activated citizens and local officials in the state, and how, with leadership by the EFF, they now stand poised to see historic progress in bringing fast, affordable Internet access to many more families in the near term. Now here's Christopher, talking with Ernesto and Hayley.

Christopher Mitchell: Welcome to another episode of the Community Broadband Bits podcast. I'm Christopher Mitchell, at the Institute for Local Self-Reliance in St. Paul, Minnesota. Today I'm bringing back one of my favorite guests, someone that can talk about all kinds of broadband technology and video games and lots of other stuff, Ernesto Falcon, Senior Legislative Counsel at the Electronic Frontier Foundation, EFF. Welcome to the show.

2:35

Ernesto Falcon: Hey, thanks for having me.

Christopher Mitchell: Ernesto, I'm really glad to have you back, and we're going to talk a lot about California, but you know what? I just suddenly had this idea. What if I just blindside you with a question, which is do you think, over the course of this summer, we're going to get great broadband news out of the federal government? You're tracking this. You're pushing hard for smart investments in the infrastructure bill, President Biden's jobs plan. What are you thinking we're going to see?

Ernesto Falcon: I think the way Congress is working right now is we should hope and expect some serious decisions made, at least for one of the two halves of the legislative process. The House of Representatives traditionally acts first when it comes to spending matters, as it originated there. Provided that the advocacy and the effort is effective and we can deliver on the Clyburn/Klobuchar bill, which is the big broadband infrastructure bill out there, I expect the House will act this summer. I think the real fight, the fight for every single vote, will matter for all 50 states in the United States Senate, not just for the summer, but probably leading maybe even as far as the end of the year.

Christopher Mitchell: Excellent. You as Senior Legislative Counsel, just so people have a sense, I feel like you're tracking D.C., you're tracking California, and then you dabble a little bit in other states, too.

Ernesto Falcon: That's right. That's right.

Christopher Mitchell: California, though, is where it's happening. Is there any state that's as exciting as California right now?

Ernesto Falcon: I'm born and raised in California, so maybe I'm just being selfish here, but no. I think we're the fifth-largest economy. There's always a sentiment in California political spaces to lead the nation rather than follow the nation, and we have another opportunity to do that. We are blessed with a combination of a surplus of state money, even after the pandemic, because we were conservative about how much money the state would receive in tax receipts and operated that way last year. Things actually are looking good. Things are recovering.

Ernesto Falcon: With all this extra money combined with the federal rescue package, the federal rescue plan that came out in March, the governor of the state can set a budget that actually addresses not just one set of needs, but practically all the needs all in one go, to the tune of tens of billions of dollars, and broadband is one of those needs. The pandemic has made clear. At every single school district, they know they have a third or more of students that just didn't have access. It didn't matter if you were in a big city or a rural county, rural governments. It was the same everywhere, even in my hometown. They had to spend tens of millions of dollars renting out inferior hotspots, and they're sick of that.

5:18

Ernesto Falcon: There's just a huge upswell and an insurgence of local communities demanding the opportunity to simply solve their own problem, in case there's another pandemic or some national tragedy of sorts that forces us all to shelter in place. The governor has responded with a budget of $7 billion, overwhelmingly focused on public infrastructure and nonprofit infrastructure models, which is huge, a massive departure from repeating the mistake of the past, which is subsidizing the big private players to build out. We're actively fighting for that right now.

Christopher Mitchell: I think when you were last on, I think we talked some about the woeful standards that we saw with the CASF program, which basically is only available for people to get better broadband if they have less than six megabits down and one megabit up. What we're seeing from the new governor's proposal is really, truly revolutionary. It's exciting. There's several different components of it. You want to walk us through what the governor is proposing?

Ernesto Falcon: Yeah, happy to. The problem with the way the state approached broadband in the past was basically looking at the connectivity and the speed metrics and saying, "Okay, how much do we need to spend to give everyone a 10-megabit download connection and a 1-megabit upload connection," which was at the behest of industry, that said you don't really need faster speeds than that.

Christopher Mitchell: Right. I mean, let's just put a fine point on that, because it was AT&T. AT&T made that happen.

Ernesto Falcon: Yeah. It's AT&T, it's Frontier Communications and the cable companies. All of them agreed. All of them were sponsors of this law in 2017 that set this plan of how much money are you allowed to raise from us, in terms of private industry in terms of fees, which is really user fees, not really from them. The price tag of getting 10-1 out there is about $330 million, which we set out to do in 2017. If you check the calendar, right, 2017, we were talking about building out a speed of half the federal standard of broadband, which was two years earlier, 2015, 25-3.

7:23

Ernesto Falcon: They convinced the legislature that that's all people really need. We all know that's just untrue. Anyone who is assessing broadband access and the fact that you always need more tomorrow than you did yesterday because of the evolution of technology, we just knew that was a plan to fail, but they didn't have the influence or the sway, necessarily, in 2017. I think that's changed a lot nowadays, but we've reached now. We've spent all that money. We have lots of people who are underconnected or still unserved, and you have an industry that you plan to spend tiny, incremental amounts of money out there, really just failing. I mean, it's just a categorical market failure across the board.

Ernesto Falcon: The solution, as EFF has articulated, is empower local choice. You need local. The local private or local public options tend to favor these high-capacity, long-term infrastructure investments. You actually need to spend a lot more money than $300 million, because you want something that lasts for decades. We've been fighting that fight since early 2020. We are excited to see. If we didn't have the pandemic, then that wouldn't happen. The knowledge that that is what the future needs to be for everyone I think grew fairly quickly.

Christopher Mitchell: Yes. It seems like there's a whole new group of activated people who are paying attention on broadband now. I mean, it seems like in the past, there was a smaller number of advocates who were going up against companies like AT&T. Now it seems like there's a lot more people who are willing to put some resources into this, which is just what we need, frankly, to get it done right, right?

Ernesto Falcon: Yeah. I think what's most exciting is, you know, years ago, San Francisco invested an awful lot of local leadership resources into contemplating building an open-access fiber network throughout the city. The challenge is that you have elections. You have new leadership that comes in. They inherit this big project idea from the past leadership, and they're like, "Why? That's not what I want to do." Fast forward, I would say today, Mayor London Breed has actually done some pretty phenomenally good work on public housing and fiber into public housing, but it's a smaller version of what was originally planned.

Ernesto Falcon: The city that now is coming into full swing and lots of attention is Los Angeles, and just Los Angeles County. I mean, that's a massive part of this state. It's a massive part of the political center of California, and the number of students, businesses and the whole life there are all in agreement that the infrastructure they have as a city and a community and a county is insufficient for a global community, global city. It is a big change, and then that has brought a whole ton of activism from a whole ton of sources that can do a lot of good, because just the number of elected officials that come from those areas, in terms of Sacramento, is huge. It's practically half the legislature.

10:08

Christopher Mitchell: Now we are joined by Hayley Tsukayama, who is a legislative activist from EFF. Welcome to the show, Hayley.

Hayley Tsukayama: Thank you so much for having me.

Christopher Mitchell: We're really excited to have you on to join us. Appreciate you taking some time. What are you seeing in California that's different this year, that we maybe didn't see in previous years?

Hayley Tsukayama: I'm sure Ernesto's already talked about this a little bit, but I think in a lot of ways, obviously because of the pandemic and the way that it has highlighted the importance of connectivity in a way that has literally brought it home to a lot of people, we're seeing a lot more momentum. I think this is an issue, obviously, that people have been thinking about a lot, but we've definitely been able to talk about before. People understand, but I think it really hit home in a much different way over the past year. Definitely hearing more support, and more of a level of urgency, I think, than we've heard before. To me, that's the biggest differences.

Christopher Mitchell: Excellent. We're hearing that in a lot of different places, I feel like. Let's talk about this money. It seems like the largest chunk is for middle-mile open access, which is exciting, but let's just assume for a second that this is someone's first show. Ernesto, tell us what that means.

Ernesto Falcon: Yeah. I often think it's useful to think of an analogy with the roads and the transit system we live with. If you drive in a car, you drive an interstate or an interconnected network of roads and freeways and other means of travel. Well, the Internet's not any different than that. If you're going to connect to a computer to download information or send information, you're traveling the roads of the Internet wire, or maybe potentially from a wireless connection to a tower, which then connects to a wire.

Ernesto Falcon: What the state is proposing to do, in terms of what's called a middle-mile open-access fiber network, is simply build a 21st-century highway system for the Internet for the entire state, to basically bring the Internet ... and fiber explicitly, in terms of multi-gigabit capacity ... bring it to the front door of every community throughout the state, particularly the rural parts of the state that just lack that capacity. They have limited options of what they can do locally.

12:31

Ernesto Falcon: Then the open-access premise would ensure that any player, whether public or private, that wants to connect with this network to access that capacity is able to. It will be designed in a way that lifts all boats as it travels, ensures the on-ramps and off-ramps are places that promote the most use and value throughout the community and the network.

Christopher Mitchell: This is a network that then will benefit both publicly-owned ISPs as well as privately-owned ISPs, co-ops. Basically, anyone throughout California could benefit from this investment.

Ernesto Falcon: That's absolutely right. Then the thing that is not well understood about fiber at times is it just has such a high trajectory of what it can do in terms of the capacity of the wire. The real expense is just laying the foundation and the rights of way, not necessarily the running of the wire or upgrading the wire. It's just laying it out. If the state was to build a very connected network throughout the entire state that connects all communities, this is an asset that will get better over my life and my kids' life. Then all the benefits of its improvement will be just be accessible by all players along the route.

Christopher Mitchell: Well, the state building it, it seems like maybe it'll avoid some of the challenges that we've heard about regarding some of the environmental assessment that needs to be done often in these projects, and that may actually have prevented some others from building middle-mile over the years.

15:10

Ernesto Falcon: Yeah. I think that's a distinct possibility. I think the intent will be to synergize it with road construction. Every five years the state rebuilds a lot of the roads with transportation funding. If you line up all your projects where you're laying the wire, you reduce the redundancy in terms of all the extra steps you have to do. I do think there's going to be efficiencies that the state will uniquely be able to access that any smaller player ... and quite frankly, most anyone in the private industry is smaller, even the biggest players, because the State of California is the fifth-largest economy in the world. They will just have the advantages of scale and size and reach that I don't think anyone else can really replicate.

Christopher Mitchell: Now, the middle mile is one aspect of it. I'm curious if there's other aspects of it that you find interesting that you'd want to share. The middle mile is certainly the largest part of the budget by the amount allocated, I believe, but what else is happening in this broadband proposal that you think is interesting?

Ernesto Falcon: Yeah. I think the reliance on non-profit and public sector last-mile efforts, and establishing a $500 million account to promote that activity, is a big deal. We often pit all of these players against each other and have this, I would say, race to the bottom of who could do it for the cheapest. That's the wrong question. That's the mistakes that the FCC did recently with the Rural Development Opportunity Fund. Rather than asking what's going to last and promote the most value for an area, it's who can build it for us at the cheapest price or the lowest cost to the government.

Ernesto Falcon: Which subsequently results in a lot of, I think, speculation, as well as efforts to keep others out of the market from building, particularly if I'm an incumbent that values being the slow Internet monopoly in that area. I'm going to say whatever price I want to make sure I keep that revenue stream. I think separating the public model of broadband infrastructure and broadband access from the private model is critical, because there are zero-profit needs out there that will never be met by a private entity, particularly when it comes to low-income access.

Christopher Mitchell: Yes. I mean, for me it's fascinating. We're talking about $500 million, and this isn't like, oh, we're going to give $500 million in grants, right? This is a pool of money, that through the magic of modern finance will be actually spent multiple times, right? What is this pool of money actually going to be used for?

Ernesto Falcon: I think the lead public sector entity that is most interested in investing, creating a 30-year, 40-year future plan, are the rural county governments in California. The origin story behind that is Frontier Communications filed bankruptcy. Frontier Communications is the one Internet option for many of these people out there. You had local leaders look at each other and say, "Oh, my God, the one private option that's out here has gone. It's dying. Either we build it ourselves or we're just not going to have Internet access, and not even just basic Internet, just future-forward-oriented Internet access." They have been very clear-eyed and open about the intent of building, similar to what's happening in Utah, where many of them will collaborate to simply just lay the wires, lay the last-mile fiber wires. Make it open so that anyone, private or public, who wants to reuse the wire and lease the wire is able to do so.

17:46

Ernesto Falcon: The size of the number of communities that are willing to band together to do that is a big deal, because you need that kind of scale to make this type of idea work. You can say, "We'll take a 40-year mortgage on it." That's totally legit, because everyone's going to need broadband 40 years from now. It's not going away. It's not a fad, and everyone's going to need more. You have a pretty solid basis of a consistent revenue stream with a very large population in need, given the bankruptcy and exit of the private market in that respect.

Christopher Mitchell: Now, with the actual money, I think these counties, they'll be able to not even necessarily borrow against it, but that's like if they go to a bank or they go to a lender, they're going to borrow money, they're going to issue bonds. However they're going to do it, they tap into this money as a security so that the lender will give them a really good rate, because the State of California is not saying, "We're going to back all of it from everyone," but they're basically saying, "There's a ton of money here if any of them struggle, to help pay that off." Is that right? I mean, I'm a little bit murky on it, honestly. I think I sounded more certain than I really am.

Ernesto Falcon: No, no, no. That's exactly right. I mean, in a concept that more of us are familiar with, if you bought a car or a house, you don't have all that money up front. No one ever ... I mean, there are people that do, I suppose, right?

Christopher Mitchell: I don't know.

Ernesto Falcon: The average human doesn't have all the money up front to pay 100% of the cost for a car or a house. You get a financial vehicle, some sort of financial mechanism to be lent the money up front and then pay it back in increments over time. What the State of California and what these rural governments are hoping to do with this account is the state will essentially back the mortgage for fiber networks in rural counties for about 10% of it. The value of that is it gives the cities and the townships in these rural counties the confidence of the State of California backing them. They can go to the lenders, the banks and the bond market, I suppose, to say, "Hey, look. We've got substantial backing from a major economy. They will back this play. In exchange, you'll get cheap money, cheap debt."

20:06

Ernesto Falcon: Because of the longevity of fiber as an asset, some people predict as far as 70 years, it will be useful, absent any natural disaster or some artificial means of cutting it short. You have an asset that will outlast that loan and last years later. Then upgrading from there is a fraction of what the actual costs are from that point forward, so it's a smart investment. This already happens in Europe. You have pension funds that loan long-term, low-interest money for open-access fiber throughout the Eurozone, because it's just a safe place to bet money. You know people are going to need it, and you know people are going to keep using it for decades on out.

Christopher Mitchell: I want to move on to how we made this happen, which I think EFF deserves a lot of credit for, because we started off talking about how AT&T and others drive the boat in Sacramento. Hayley, I'm curious. What is different this year? Or are we just Charlie, assuming Lucy's not going to pull the football away this time?

Hayley Tsukayama: Well, I mean, I am always hesitant to do any crystal ball reading ever when politicians are involved, but I think there are a couple of things that came together this year. I mean, one is of course that Ernesto and others in this really broad coalition that we've built have been doing a lot of work leading up to this point, right? We saw a version of this bill last year. Obviously there's been a huge coalition of people working on these issues in California for many years. Part of it is that momentum coming together.

Hayley Tsukayama: We have a good author, who is willing both to put in the work to understand the issue and to really make a good case to their colleagues. Often when we're looking at running bills, it's hard to find a good author who is willing to stick with you the whole way, and willing to not only stand up to special interests, but also to work with colleagues and stakeholders and look for solutions that are helpful for the bill and helpful to move the bill forward, but that don't gut it completely. I think I also want to give a lot of credit to our author there, to Senator Lena Gonzalez.

22:28

Hayley Tsukayama: Again, as I said earlier, especially with the pandemic, a lot of these wheels were in motion before we all ended up working from home. I personally work from my bedroom closet. We found ourselves in unusual situations. As people had to work from home, as they had to give their kids remote learning from home, they really found that their Internet connections, which maybe they complained about them every once in a while, but it wasn't such a big deal in their lives or it wasn't top of mind, suddenly became their only tether to the outside world, their only tether to anything normal, and I think have been talking to their lawmakers about that.

Hayley Tsukayama: Lawmakers themselves have seen that. They've heard that from the schools in their districts. They've heard that. I think, finally, this is a year when all of that conversation that we've been having for years really made sense in a way for people, where they said, "Okay, actually the way that this market is working right now is not working for us. You all have been coming into our office for years saying we have to do X, Y and Z. Okay, come and tell me again." I think that that's a lot of what we're seeing this year.

Christopher Mitchell: Ernesto, is there anything else that you would add onto that? I'm just thinking about specifically, it seems like healthcare is somewhat new to this, at least in an organized fashion, which seems to be very much tied into, as Hayley's brought up, the pandemic being so influential.

Ernesto Falcon: Yeah. I mean, the thing about politics is you have these grant system issues and infirmities that are in the billions range of the solution and the problem. I often find the most traction in solving these problems comes from just the most individual human stories that come up. For net neutrality, for example, because that was a law we passed in 2018, it was a small number of firefighters in Santa Clara having their service throttled by Verizon was the thing that just decimated them in Sacramento. It didn't matter how big the lobby was when they saw it. Even many of the Republicans joined the Democrats there, which is kind of unheard of in some of these issues.

Ernesto Falcon: It just took a single story. In broadband access, I would say the one that stands out in my mind is when a supervisor from a county took a photo of these two Latino girls in Taco Bell, I believe, doing homework on the street. That was the only way they could access the Internet. It was in Salinas, California, a big city, comparatively, to most U.S. cities. I think that hit home for a lot of legislators, the idea that children are forced to go to the streets to do homework right now, because of just the inequities that exist within the system.

25:21

Ernesto Falcon: I think that has given many people in the political space ... despite the money, because there's an awful lot of money from the incumbents that are handed to these folks ... but it doesn't matter unless they do something about that. The industry just doesn't know how to solve that, because it means cutting into the profits in some way.

Christopher Mitchell: What's coming next that we have to keep an eye on?

Ernesto Falcon: We've got the fight that's happening now. We've got an action alert. If you go to eff.org ... and Hayley, correct me if I'm wrong on the actual location. People can go to our website right now, and if you're in California, you can send a letter or an email to your legislators to ask them to support the governor's proposal to spent $7 billion, most of it on public infrastructure for broadband. Over the summer, we will fight over the details with cable on the other side, for the most part, I would say.

Christopher Mitchell: Hayley, what are you looking forward to over the summer?

Hayley Tsukayama: For me, it's fun and about the game, right, in the California legislature. We've made it through one house, and now we've got to go and do some of this again in the other house. I always look forward to picking up new allies along the way, right? I think, especially with an issue as important and as relatable as this one, that there are always more groups that we could be reaching out to. I really enjoy having those conversations and getting more people on board as we move through the next half.

Christopher Mitchell: Great. Thank you both so much for your work and for coming on.

Ernesto Falcon: Hey, thanks for having us.

Hayley Tsukayama: Thank you.

Ry Marcattilio-McCracken: That was Christopher, talking with Ernesto Falcon and Hayley Tsukayama. We have transcripts for this and other podcasts available at muninetworks.org/broadbandbits. Email us at podcasts@muninetworks.org with your ideas for the show. Follow Chris on Twitter. His handle is @communitynets. Follow muninetworks.org stories on Twitter. The handle is @muninetworks. Subscribe to this and other podcasts from ILSR, including Building Local Power, Local Energy Rules, and the Composting for Community podcast.

Ry Marcattilio-McCracken: You can access them anywhere you get your podcasts. You can catch the latest important research from all of our initiatives if you subscribe to our monthly newsletter at ilsr.org. While you're there, please take a moment to donate. Your support in any amount keeps us going. Thank you to Arne Huseby for the song Warm Duck Shuffle, licensed through Creative Commons. This was Episode 462 of the Community Broadband Bits podcast. Thanks for listening.