This is the transcript for episode 268 of the Community Broadband Bits Podcast. Jon Chambers of Conexon once again joins the show. This time Jon dives into the details of the Connect America Fund program and discusses the upcoming Connect America Fund auction. Listen to this episode here.
Jon Chambers: Rural Americans, have the same aspirations, the same needs, the same uses of the Internet as everyone else. It shouldn't surprise anyone when I say, rural Arkansans, rural Missourians subscribe to gigabit services too. It does surprise people. It surprises people at the FCC, it surprises policy makers. Doesn't surprise people who live and work and spend their lives in rural America.
Lisa Gonzalez: This is episode 268 of The Community Broadband Bits Podcast from The Institute For Local Self-Reliance, I'm Lisa Gonzalez. As the question of how best to bring high quality Internet access to rural America becomes more pressing, rural cooperatives are rapidly taking a leading role. This week's guest, Jon Chambers, works with electric cooperatives that decide they want to offer high speed connectivity. Jon spent time working for the FCC and has a special understanding of how the agency approaches review and funding for telecommunications. In this conversation, he and Christopher talk about the Connect America Fund. Learn more about Jon's firm, visit their website at conexon.us. Now, here's Christopher and Jon Chambers from Conexon.
Christopher Mitchell: Welcome to another edition of The Community Broadband Bits Podcast. I'm Chris Mitchell at The Institute For Local Self-Reliance. Today, I'm once again with Jon Chambers, a partner at Conexon. Welcome back to the show Jon.
Jon Chambers: Thank you Chris. Thanks for inviting me.
Christopher Mitchell: You've been on the show multiple times recently, talking about how rural electric cooperatives can basically solve this problem for all of rural America. Do you want to briefly remind us what Conexon is?
Jon Chambers: Conexon is a consulting firm that was started by my partner, Randy Klindt, who conceived of, designed and oversaw the construction of the very first fiber-to-the-home network built on an electric cooperative infrastructure to 100% of the membership without any federal support, without any state support, without any grants, without any government loans. Today, that project, which is Co-Mo Connect in Central Missouri, makes available to all of its members gigabit, 100 megabit per second service, fiber-to-the-home service. Randy took that design and he has applied it to other cooperatives. He and I work together exclusively with electric cooperatives, replicating the Co-Mo success anywhere there's a cooperative that's interested in serving its members with broadband Internet service.
Christopher Mitchell: Today we're going to be talking more about a important FCC program, the Connect America Fund, which you and I have both been very critical of in its initial stages, the first two phases. But we're coming to one of the most important phases, where finally some money will be available to non-incumbent carriers, and how important it is to get this right. Maybe you can start by letting us know, what's at stake with the next round of the Connect America Fund approach?
Jon Chambers: This is a critical stage in the evolution of the Connect America Fund. The amount of money that the FCC has put in this budget, and this is a budget for an auction of funds for those to bid for and provide broadband service. The total budget is relatively small, it's less than 5% of the amount of money that the FCC spends on rural broadband programs. That is to say, every year the FCC administers over four and a half billion dollars of programs for rural broadband, the Connect America Fund auction will be a program of $198 million a year over 10 years. The size of it aside, it's important for a couple of reasons. One is, the FCC has set out bidding tiers, service levels, that far exceed the levels that the FCC has required of the telephone companies in the other Connect America Fund programs. In the other programs, the FCC has required 10 megabits per second down and one megabit per second upload speeds, and in some cases 25/3, but the vast majority of the money today that the FCC spends goes to a service that the FCC itself doesn't consider to be broadband, 10/1 speeds. In this auction, the FCC has setup a structure where a bidder can bid to deliver gigabit service or 100 megabit per second service or 25 or 10. The importance of that to my way of thinking is, to the extent the FCC sees that there are bidders for gigabit service that can bid on that service, that's within the same budget, that it provided in fact far less of a budget than it provided to the telephone companies. I would hope that that proves something to the policy makers. The second important point about an auction is that the auction will be open to all types of companies using all types of technologies. There too, this is an evolution in the FCC's approach, even though the 1996 Telecom Act permitted multiple providers of service in rural areas able to receive universal service support, still today nearly all of the funding goes to the same incumbent telephone companies that have been receiving funding for decades. Again, even though it's less than 5% of the total budget, there's an opportunity for those who are not incumbents, who are not incumbent telephone companies to bid for, to deliver service and if nothing else, to make a point that there are other types of companies, for me especially the companies that we work with, rural electric cooperatives that can demonstrate to the FCC, demonstrate to the public, demonstrate that they're capable of building, operating, maintaining fiber networks and delivering broadband service and voice services to their subscribers.
Christopher Mitchell: These rules are not yet finalized. They'll be finalized in the coming months and then the auction will be next year in theory.
Jon Chambers: That's right. There is currently a public notice that the FCC issued earlier this month. The public notice seeks comment on the final rules the FCC will adopt for the auction. The comment cycle is ongoing, comments are due in September, reply comments in October. All of us expect the FCC will adopt final rules for the auction before the end of the year, which tees up the auction to occur in 2018.
Christopher Mitchell: One of the things that we're really focused on is making sure this auction goes well, that those who bid and win do a good job, because that will influence how future funds are spent by the FCC.
Jon Chambers: Yes. I think that's the critical point and why I'm so pleased that you invited me to talk with you today. Success in this auction could well influence future funding by the FCC, future decisions by the FCC about how best to spend the public's money, the levels of service that carriers are capable of providing in rural areas. We know from our experience, where coops are providing gigabit and hundred megabit per second symmetrical services, we know what rural Americans adopt when those services are made available to them. In markets where we have clients offering service we find upwards of 40% of rural Americans subscribe to gigabit service. I know that the FCC and the leadership of the FCC has made comments in the past about how rural Americans don't need those kinds of services, but I would hope that one of the things this auction can demonstrate is that there are companies capable of providing that service, demonstrate that rural Americans will subscribe to those services. Perhaps, if all goes really well, the FCC will recognize that they ought to follow more of what consumers want than their own notions of what's sufficient for some Americans as compared to what other Americans subscribe to. Rural Americans have the same aspirations, the same needs, the same uses of the Internet as everyone else. It shouldn't surprise anyone when I say, rural Arkansans, rural Missourians subscribe to gigabit services too. It does surprise people. It surprises people at the FCC, it surprises policy makers. I'll tell you who it doesn't surprise, doesn't surprise the people who live and work and spend their lives in rural America.
Christopher Mitchell: We want to make sure that these rules are set to prevent fraud basically, whether it's intentional or perhaps one might say unintentional, in the sense that making sure that the FCC has crystal clear rules to make sure those who bid have the ability to actually deliver what they're promising, rather than speculating. I think some will view this, they'll be frustrated and angry even at some of the things we're going to talk about in terms of the rules we'd like to see. But I want to make sure people understand where you're coming from, this isn't hypothetical for you, you've seen this already happen in the rural broadband experiments. You are very familiar with the history of fraud in these FCC programs. I'm hoping you can tell us a little bit about the experience from the rural broadband experiments, and how I think a program that you helped to design, you might be frustrated with some of the people who won some bids and did not deliver.
Jon Chambers: I did work at the FCC for a time. I was hired in 2012 and asked by the chairman of the FCC to begin working on the reform of some of the FCC's spending programs. In particular programs that had been beset with fraud. The FCC administers important programs, programs that meet the needs of Americans who would otherwise not have access to telecommunication services. But unfortunately each of the FCC's programs, programs to help people who are deaf, programs to help schools and libraries, programs to help low income Americans, programs to help people in rural and high cost areas, each of those programs has had fraud, hundreds of millions of dollars of fraud. My experience and my review of the programs when I was at the FCC, was that part of what leads to the fraud are the imprecision of the FCC's rules and the willingness of some program participants to take advantage of imprecise rules. In the, you mention the rural broadband experiment, that was an experiment to hold an auction, very similar to the auction that will be held for the Connect America Fund, an experiment to hold an auction and to see what the bidding behavior would be, to see what if you allowed for many different kinds of companies to participate, to see how they would bid. What we found, among other things, is that there were folks willing and capable of bidding and building networks. We found a lot of folks who would bid more for the hope that the money would allow them to build a business. We found bids of, I'll use I guess maybe the most famous example, a person who bid $1. That is $1, not $1 a customer, not $1 for a geographic area, bid $1 in order to get the FCC's imprimatur, that it was an awardee of an FCC program as a marketing tool. We found people who bid and then were unable to fulfill the FCC's requirements, unable to get a letter of credit, unable to provide financial information, unable to get eligible telecommunications carrier status from the states, which is a core requirement in the statute, unable to deliver the services that they bid for. My concern about this auction is that the FCC has yet to take the steps necessary to be clear and precise about what kinds of companies and what kinds of technologies are capable of delivering services in the various tiers the FCC has. The FCC's structure almost invites people to bid for more than they can deliver, because by bidding for the higher tiers, the 100 megabit per second tier or the gigabit tier, that gives you a greater weight in the auction. That gives you an advantage in the auction bidding. And yet, the FCC's ability to monitor, to evaluate, to know for sure whether a bidder is going to be able to deliver the service, to deliver 100 megabit per second service or gigabit service to any one that wishes service in the geographic area they're bidding for, the FCC's abilities are limited. They have limited staff, they have limited technical capability. They will be overwhelmed with the number of bids. So therefore, unless the FCC does something far more than it's suggesting, even in its current rule making, the FCC could be overwhelmed with bidders and their response would be to allow all bidders to participate and they will see what was very much a repeat of the bidding behavior in the last auction of this sort, that is people who bid and then aren't capable of fulfilling their bid. That's worrisome to me and others who work in rural areas, trying to get broadband networks built. Because as I described before, this is the promise, in some areas subsidies are needed. In most of the areas we work you can build a network without any federal support. But when you get down to areas which have two or three homes per mile, it is necessary to get some kind of support, just because the revenue is not there to build, operate, maintain a network. We, those of us who live and work in rural America, all have a stake in this auction getting done right. The FCC, it needs to adopt clear guidance that certain technologies are only capable of certain services, that certain technologies can't bid for more than they're capable of delivering. I know that the FCC desires to be technologically neutral in its approach, but technological neutrality and technological savvy are two different things. There are certain things that can't be delivered by certain technologies. The FCC ought to be clear that if you have a particular capability, a particular approach, you could bid in one tier. If you have other capabilities, you might be able to bid in another tier.
Christopher Mitchell: I think one of the most obvious examples of this would be satellite services. Something that we've increasingly seen the FCC willing to accept as a broadband technology from what we can tell, from for instance maps that they release of who has access to broadband. I think we could quickly dispense with satellite. It should not be one that is considered to be delivering a high quality broadband, whether it's 100 megabits, a gigabit or even if it's 25 megabits. You've noted that there's a technical test that should be a part of this that would disqualify satellite.
Jon Chambers: Satellite and any provider of service has to be able to deliver voice service. That's fundamental to Section 254 of the Communications Act. That is, this is support for telecommunication services, voice services. Broadband is included but it's not separate. That is, the FCC can only provide support to those who are capable of providing high quality voice service. Now, the FCC is adopted a test, at least suggested a test in its rules. If the voice service that you provide, the broadband service you provide has high latency, greater than 100 milliseconds, then the voice service has to be able to be tested and scored under an old and well known type of test called a Mean Opinion Score, which tests voice quality. For one, I am skeptical that satellite voice, which has latency of three quarters of a second, or a second and a half in a double hop voice call, that if you properly conduct a MOS test, that you find the scores that the FCC says are necessary in order to receive support. I would withhold judgment until I saw the tests, how the tests were conducted, what the actual scores were. I think any test of that sort ought to be open for public inspection. It isn't, and currently all the FCC is suggesting that any bidder certify that they have conducted such a test and gotten certain scores. I think for something like voice, which I have young kids they hate to talk on the phone, they may think texting and Snapchat and everything else is more important than voice. But the Communications Act still holds voice at a premium, especially for supported rural areas. You've got to be able to deliver voice. I think that's true for satellite.
Christopher Mitchell: It's important to remember that for a lot of people who may have cellphone reception in their yards, they may not have it in their house. This is still a public safety issue, especially in rural areas. I think it's good to remember, but I'd like to move on to what I think is one of the most important pieces, which is the carrier of last resort. Remembering that this is not the rural broadband experiments program, this is program that is designed to make sure no one is left out. One of the things that you're really pushing for, is for the FCC to certify technologies that would make sure that everyone can receive it, regardless of whether you're on the wrong side of a hill. What's the issue there?
Jon Chambers: This program really is about being the carrier of last resort. While the Communications Act does permit multiple providers in rural areas to receive subsidies, somebody has to be responsible in case there's no one else to provide service. That's the structure of the Communications Act and that's what this funding is really meant to ensure. There are only a couple of types of companies that have been traditional providers of that sort, universal service providers. Those that would be willing and able to provide service to every single person in a geographic area, no matter how far out that last home is, whether it's another mile down the road or a couple of miles down the road. It's been the telephone companies and it's been electric companies, electric coops for the most part. It is not today, at least I'm unaware of any rural area in the country where a fixed wireless provider, a spectrum based provider is the only provider of service, is that carrier of last resort, has been designated as a carrier of last resort by a state commission and has that responsibility. It's possible to build networks so that that last 100 feet, 100 yards is a wireless link. It's often a more expensive network to build than the kind of network that is often built by fixed wireless providers, where they might put radio equipment on a water tower, or on poles, or on buildings in order to provide their service. You've got to be able to get everywhere. You've got to be able to get everywhere regardless of terrain, regardless of foliage, regardless of weather, regardless of anything. The issue I would suggest to the FCC and those who would bid planning to use wireless technology is, you could look at just about any fixed wireless provider's website, look at their terms and conditions, and they all have exceptions. They all will say that you cannot count on being able to get service. Now, that's perfectly fine if you're just a provider of service. There's nothing wrong with that, the WISPs and the others have been a valuable provider of Internet service over the years. But carrier of last resort has other responsibilities, and those responsibilities often imply that there's additional cost to it. That's additional cost and not just to provide some level of service but whatever level of service that you're bidding for in the auction. Again, I look at what companies submit to the FCC in their semi-annual reports, the 477 form reports as to their level of service. We examine markets, we look at competitive markets for everywhere that we're going to business, everywhere that coops are going to do business. There's a lot of disconnect between what people say they can provide and what actually gets provided. Most wireless services that are provided in rural areas are at the one and a half megabit per second, three or five or maybe 10 megabits per second. If that's what people are bidding for, I think that's perfectly fine, as long as they can get everywhere. To the extent folks start bidding at that 25 megabit, 100 megabit, gigabit service tier, I think they're going to have to demonstrate they have the spectrum sufficient to deliver those services, they have plans in place that they can get to every single customer. I think that ought to be examined by the FCC because you don't see any market in the country today where the dominant provider anywhere in the country is a fixed wireless provider or a satellite provider. The country is still served by wire-line networks. Mobile networks are served by wire-line networks. Building fiber deep into networks is the goal of improving Internet service, the goal of improving broadband generally, improving mobile services, getting to 5G, getting to all of the promises of the Internet. You have to build fiber and you have to build fiber deep into networks, close to people's homes, or in what we do, all the way to the home. Anybody that thinks there's a shortcut to it, because they can use spectrum at long distances, or they can use satellites, hasn't yet demonstrated, as far as I know, that they can get everywhere in geographic areas in rural America and deliver those services to every home in rural America, just like telephone coops do, just like electric coops do, just like the traditional carrier of last resort operators have done for decades.
Christopher Mitchell: As we're running out of time here, I think you're going to be putting up a blog post soon on the Conexon website that will have some additional details that I hope people will look at. I also want to remind people that if you've enjoyed listening to this, you should really make sure you're commenting on this proceeding. This is what's going to make a difference. Many of us have commented on the net neutrality rules, we were one of 20 million people contributing. This is something where individual comments will make a big difference because you're not going to see a ton comments on it. So please, take some time to listen to this interview, read the transcript and make some informed comments.
Jon Chambers: I do think there is a resolution to the difficulties the FCC faces, which is to change these programs from a command and control, we give money to a monopolist, we ensure that they're a monopolist over a period of time, a decade or longer. To change that to a consumer-led program, where the consumers decide what service they want, and whoever is capable of providing the service the consumers want, that's the one that gets the subsidy in areas the FCC has deemed necessary. You could run that through the auction. Don't limit whoever can get funding in rural area to a single winner in the auction, you could give the winner a period of time to start building out their network. But if they're not capable, rather than taking the money back, or rather than trying to find somebody else then to come in, or rather than re-auctioning [unintelligible 00:26:21] if you allow any other service provider, if you allow them to compete for the customer and also compete for the subsidy, you would resolve every single issue that I've just raised. To that, I would hope satellite providers would agree with me, fixed wireless providers would agree with me, traditional telephone companies, cable operators, fiber providers, all would agree with me that they ought to let the consumer lead the decisions as to where the public's money flows.
Christopher Mitchell: We might have some listeners who are tearing their hair out, thinking, "But these areas don't have a choice, that's the problem." I wanted to make sure people are aware that you know that. You know that better than most people. Your belief is that when there's more money in those areas, we'll see maybe WISP will get more if satellite companies want to compete for that, they can. But I think fundamentally you believe, and in part because you've talked with so many of these folks, rural electric cooperatives are going to be increasingly going into those areas, and you think that they will inevitably by the best choice.
Jon Chambers: People don't have a choice, not for lack of money that's been spent. Like you said, the FCC spends four and half billion dollars year in and year out on rural America for telecommunication service. The problem is, other providers, competitors, others don't have access to the funding and the funding is necessary in large parts of the country. The problem is the design of the program. The reason there's no choice today for broadband is that the programs have been designed for decades to limit choice to a single provider. If the single provider, not facing competition, has decided to limit the availability, the speeds, there is no choice. It's the design of the program that has led to lack of choice, not the other way around. It's not that, "Oh, there's no choice. How could I think that there would be choice?" People are building today, communities are building fixed wireless, satellite, guys that I work for, electric cooperatives are all building all without access to funding. If you allowed not the funding to go to a single company to make sure that an area was a monopoly, but to make sure that what the consumer shows was how the funding was delivered, then you would unleash the funding to the areas where it was needed. It's an entirely different approach and it isn't one that the FCC is going to adopt because the FCC traditionally follows a certain path. This is a different path entirely.
Christopher Mitchell: I think there's a lot of good points there. Like many listeners, I have no doubt. I'm frustrated to cut it off here but I have to, in part because I have to run and also because we're trying to the podcast to a more reasonable length. But Jon, I have no doubt we'll have you back on. We really appreciate all the time and work that you have shared with us.
Jon Chambers: Thank you Chris.
Lisa Gonzalez: That was Jon Chambers from Conexon and Christopher discussing rural connectivity and the Connect America Fund. We have transcripts for this and other Community Broadband Bits Podcasts available at MuniNetworks.org/broadbandbits. Email us at podcast@MuniNetworks.org with your ideas for the show. Follow Chris on Twitter, his handle is @CommunityNets. Subscribe to this podcast and The Building Local Power and Local Energy Rules Podcasts. You can access them on Apple Podcasts, Stitcher or wherever else you get your podcasts. Thank you to Arne Huseby for the song, Warm Duck Shuffle, licensed through Creative Commons. Thanks for listening to episode 268 of The Community Broadband Bits Podcast.