Satellite Subsidies Will Widen Digital Divide in Rural America

The federal government is about to spend more than $120 million on subsidies that, rather than improving rural connectivity, will make tens of thousands of families worse off.

These funds are part of a 2018 federal program intended to expand rural broadband access called the Connect America Fund phase II (CAF II) reverse auction. The program, in which Internet access providers competed for subsidies, will distribute nearly $1.5 billion over the next 10 years to connect unserved rural residents. But in some communities, the auction may do more to widen the digital divide than diminish it.

While some winning bidders committed to building out high-speed fiber optic networks, satellite company Viasat will rake in more than $120 million in subsidies to continue providing inadequate geostationary satellite connectivity to rural households that are clamoring for something better. Not only does satellite Internet access offer slower speeds, greater latency, and less reliability for a higher cost compared to other technologies, but Viasat’s subsidies are making those areas ineligible for future broadband funds, deterring other providers from building truly high-quality networks. Instead of bridging the digital divide, the process will relegate certain communities to satellite Internet access while others receive ultra-fast fiber and do nothing more than deepen the fissure.

Mo’ Money . . .

The Connect America Fund (CAF) is a multi-phase subsidy program that supports improved connectivity in rural, high-cost areas as part of the Federal Communications Commission's (FCC’s) Universal Service Fund. The most recent phase of the program, the CAF phase II reverse auction, auctioned off regions to providers using a complicated formula that prioritized bids for low subsidy amounts and high-quality service.

Previous rounds of CAF mainly subsidized the large incumbents, such as AT&T and CenturyLink, but for the reverse auction, the FCC opened participation to other entities, including non-traditional providers like electric cooperatives. Eligible areas included rural locations where the incumbents had previously refused subsidies (and the accompanying commitment to expand Internet access).

Viasat was one of the largest winners in the CAF II reverse auction nationally. The satellite provider will receive a total of approximately $122.5 million over 10 years ($12.3 million annually) for nearly 200,000 locations across 20 states, as shown in the map below. Only three other auction participants, out of more than 100, won greater amounts of funding. In return for the financial support, Viasat must offer speeds of at least 25 Megabits per second (Mbps) upload and 3 Mbps download to all of the funded locations, but that access will also be saddled with high latency. Unlike other auction winners, Viasat doesn’t have to build a new network to receive CAF II subsidies — it already offers service to practically the entire country.

The locations where Viasat won CAF funding cover a wide range of communities, from remote mountain towns to exurbs within commuting distance of major metros. In some instances, Viasat’s CAF-funded areas are even adjacent to communities where the winning bidders will deploy gigabit fiber networks.

Review a table here that breaks down Viasat's CAF II subsidy amounts at the state level and the population covered.

 
. . . Mo’ Problems

Communities where the FCC is subsidizing fiber networks will enjoy great advances in local connectivity, but areas where Viasat is the winning bidder will see limited improvement or even diminished service. Satellite Internet access is much slower than fiber or cable connectivity and often comes with restrictive data caps. Also, satellite connectivity is less reliable than wireline technology and is susceptible to interruptions in access caused by weather. Our fact sheet further explains why satellite Internet access is not true broadband.

Perhaps one of the hardest to reconcile problems with geostationary satellite Internet access is the latency, or lag time, that naturally results from sending signals thousands of miles into outer space and back again.1 High latency with applications like Voice over IP (VoIP) or video conferencing can annoy users or even make the technology unusable. “That’s very frustrating as a consumer when your entry level price point is $120 a month,” pointed out Nick Green, executive director of the intergovernmental Grant County Digital Network Coalition in Oregon. The FCC acknowledged this shortcoming when designing the CAF II reverse auction, placing satellite providers into a special high latency tier.

logo-viasat.png For these reasons, the vast majority of people only subscribe to satellite Internet access if they have no other option available. For example, even though Viasat services are available to approximately 122 million U.S. households, only about 586,000 residences and businesses subscribe to its fixed Internet access, the company reported.

“Over the last few years I’ve talked to hundreds of rural people about their broadband situation and I have never met anybody who liked satellite broadband – not one person,” shared experienced broadband consultant Doug Dawson on his blog, POTs and PANs.

It’s even questionable whether Viasat truly believes it can meet the modest quality standards set by the FCC for auction winners. Soon after the auction ended, Viasat filed a petition for reconsideration with the FCC, seeking permission to conduct call quality testing in-house and only count a certain percentage of tests. Though the FCC rejected those specific requests and allowed only some changes to compliance testing procedures, it raises concerns about the company’s ability to fulfill basic service obligations.2

Satellite “Swiss Cheese” Blocks Fiber Broadband

Bad satellite connectivity could be the new status quo in places where Viasat receives CAF subsidies. Since federal funding programs prioritize unserved areas that aren’t currently receiving subsidies, these communities could be stuck with slow, unreliable satellite for several years at least. For instance, the U.S. Department of Agriculture’s ReConnect grant and loan program — which completed its first round of $600 million last year and is about to open applications for another $550 million — excluded most areas that had already received federal broadband funds. Those areas also won’t be included in the FCC’s upcoming $20.4 billion Rural Digital Opportunity Fund, the successor program to CAF.

On Community Broadband Bits podcast episode 383, president and CEO of Tri-County Electric Cooperative Craig Eccher described how Viasat’s subsidies could affect the Pennsylvania co-op, which also won funding in the CAF II reverse auction:

In the next auction that would come along, if some of those census block groups would come back up, we may want to go after those, but now we won't . . . It's a policy issue that FCC needs to really, really work on.

Grant County, Oregon, is already feeling the impact of Viasat’s subsidies on local broadband efforts. For a recently awarded ReConnect grant, the county and private partner Oregon Telephone Corporation had to carefully design their fiber network around areas that Viasat won in the CAF II auction. “We have really bizzare zones of exclusion,” Green shared. “Some of the area that was auctioned off looks like swiss cheese going through our county.”

The partners’ ReConnect network is allowed to travel through the CAF-funded areas, but they can’t use the grant funds to serve anyone within that territory. Green described how the artificial distinction affects some ranchers and farmers in the county, who will have to pay higher prices for worse service than their neighbors connected to the fiber network:

We have to tell the residents in those areas we can’t use this federal funding to connect you because according to the rules you’re already connected via satellite. And their response is, “Are you kidding? I can see the fiber optic cable running in front of my property.”

“Was the legislative intent to create winners and losers within constituencies?,” Green questioned. “I don’t believe that it was. I believe that it probably reflects the influence of lobbyists.”

Satellite to Nowhere

Subsidizing satellite Internet access will not solve the urban-rural digital divide if communities are stuck relying on slow satellite connections while their neighbors flourish thanks to government subsidized, high-speed fiber connectivity. It simply creates a new divide, and some communities might have been better off without it.

For more on the Connect America Fund, the CAF II reverse auction, and Viasat, listen to episode 321, episode 349, and episode 375 of the Community Broadband Bits podcast.

 

Episode 321: Analyzing the Auction With Jonathan Chambers

Episode 349: FCC Considers Retroactive Rule Change for Viasat

Episode 375: Inside the Connect America Fund with Carol Mattey

 

1. Unlike existing geostationary satellites, new low Earth orbit constellation systems from companies like SpaceX, Telesat, and OneWeb will have much lower latency, nearly on par with today’s cable networks.

2. In addition to the FCC, state utilities commissions are also responsible for ensuring Viasat is able to provide services that meet basic quality standards. All recipients of FCC subsidies, including CAF II auction winners, must first be designated as “eligible telecommunications carriers” by state utilities commissions. However, most states have either deferred the responsibility to the FCC or treated the designation as a rubber stamp because few people pay attention to these proceedings beyond the telecom companies themselves.