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Stop the Cap! Files Recommendations for New Sanctions Against Charter/Spectrum in N.Y.

Stop the Cap! today filed recommendations with the New York State Department of Public Service suggesting Charter Communications face additional sanctions in New York State if it is found once again to have missed its rural broadband buildout commitment, agreed to as a condition of its merger with Time Warner Cable.

New York’s Public Service Commission has accused Charter/Spectrum of using invalid or unqualified addresses to pad the number of new passings the company is required to achieve each quarter in its latest agreement with the Commission. As a result, the PSC is considering imposing a $1 million penalty and New York City officials are considering franchise revocation proceedings.

“In upstate New York we are focused on rural broadband and our recommended sanctions seek relief for the 75,638 homes and businesses that are going to be saddled with satellite internet access as the state’s rural broadband expansion program winds down,” said Stop the Cap! founder and director Phillip M. Dampier. “We believe Charter should be compelled to make good on disqualified addresses by expanding service to an equal number of customers that are currently assigned to get HughesNet satellite internet instead of true broadband service.”

Under Stop the Cap!’s proposal, Charter would be given a list of all census blocks assigned to satellite service and be required to buildout to many of those homes and businesses, particularly those  just 1-2 miles away from existing Charter infrastructure.

“Some western New Yorkers are livid because Gov. Andrew Cuomo repeatedly promised to ‘fulfill a goal of providing access to high-speed internet to every New Yorker in every corner of this state,’ and offering them satellite internet service breaks that promise,” Dampier said.

The New York State Broadband Program Office’s last round of awards failed to attract bids from providers for the 75,000+ affected homes and businesses. Because the awards program requires providers to pay a significant portion of expansion expenses, with the rest subsidized by the state, these rural addresses were effectively orphaned.

“It appears the state is giving HughesNet $15,426,269 of taxpayer funds to allow the governor to declare ‘rural broadband victory’ — money Hughes will use to discount satellite dish equipment and installation expenses — something it already does out of its own pocket in its marketing campaigns,” Dampier said.

Hughes will charge grant-funded users no more than $60 per month for the next five years, and no more than $49 for installation. But HughesNet’s website shows new customers are given installation for free, and without more information it is hard to discern what each customer will get for around $60 a month. The website shows a satellite plan costing $49.99 a month that includes just 10 GB of usage per month, with a 24-month commitment. A 20 GB plan costs $69.99 a month with the same commitment. Customers also have to pay $449.98 to own the necessary equipment or a one time fee of $99 + $14.99/mo to lease it.

“Satellite internet is not broadband and while it is a useful tool for those living in extremely rural areas, it should not be the only answer for a customer who has neighbors with Spectrum cable service just a mile or two down the road,” Dampier added. “We feel Charter could be an important partner in achieving 100% coverage in New York, if they are compelled to act.”

Stop the Cap! is also recommending a statewide audit of the “new passings” Charter is claiming towards its rural broadband expansion commitments. The group also wants the state to spend the proceeds of the proposed $1 million fine towards further broadband expansion for would-be satellite customers.

“There is no reason to believe Charter is only counting unqualified addresses downstate, so there needs to be a statewide audit,” said Dampier. “The governor made an important commitment to rural New Yorkers and we want to see him keep it to as many people as possible, with Charter picking up more of the costs. It is the least they could do after paying their CEO Thomas Rutledge $98 million after successfully completing the merger deal.”

Submission Follows:

April 5, 2018

Hon. Kathleen H. Burgess
Secretary, Public Service Commission
Three Empire State Plaza
Albany, NY 12223-1350

Dear Ms. Burgess,

In reference to the proceeding 15-M-0388 and 18-M-0178, in which the Commission proposes to disqualify more than 14,000 New York addresses shown as “newly passed with broadband services,” we offer our views about Charter Communications’ buildout performance and make recommendations about possible additional penalties and sanctions that should be considered by the Commission if Charter Communications is found to be in violation of its agreements.

Need for Statewide Audit

If Charter Communications is found to be in violation of its commitment and agreed-upon timetable to expand broadband to 145,000 new homes and businesses, there is no reason to believe addresses miscounted in New York City represent an isolated incident. Indeed, the Commission has already seen fit to impose sanctions against Charter Communications for missing its buildout commitments, and should the Commission now find Charter to be out of compliance once again, it appears the Commission’s earlier threats of forfeiture were not compelling enough to ensure future compliance.

Stop the Cap is concerned that Charter’s counting of invalid or disqualified addresses towards its 145,000 new passings commitment may not be limited to the New York City area.

In Erie County, Charter claims to have completed 4,357 passings, including the City of Buffalo, the Towns of Angola, Eden, Grand Island, and the Village of Williamsville.[1] In Monroe County, Charter claims to have built out service for approximately 3,395 passings, including the City of Rochester, and the Towns of Perinton, Greece, Webster, Gates, and Henrietta. These are remarkable numbers in counties that have shown almost no population growth[2] or dramatic upswing in new major new housing developments.[3] As a result, we urge the Commission to carefully audit Charter’s buildout reports for possible evidence that, like in New York City, there may be a number of unqualified or invalid addresses in upstate New York as well. In fact, the Commission should, at the least, undertake random audits of each report claiming new passings to verify compliance.

Proposed Sanction: Charter should prioritize “make-up” buildouts to reach New York addresses currently assigned by the New York Broadband Program Office to Hughes Network Systems, LLC for satellite-delivered internet access.

Despite efforts by Gov. Andrew Cuomo and the “New NY Broadband Program (NNYBP),” the state’s Broadband Program Office (BPO) has identified at least 75,638 New York locations[4] that will be offered substandard satellite internet access from Hughes Network Systems, LLC.[5] This option is considered a last resort for addresses Charter and other providers have refused to service, despite the potential of funding available during Round III of the NNYBP awards.

Hughes cannot guarantee access to 25 Mbps service 24 hours a day across its New York footprint[6], meaning these locations will not be guaranteed broadband service.[7] The company has also confirmed it will impose a low data usage cap that, when exceeded, reduces broadband speed to well below anything approximating true broadband service.[8]

The decision to supply satellite service instead of wireline internet access may permanently leave these residents and businesses disadvantaged with inferior internet access, with little incentive or a compelling business case for other companies to buildout to these locations, especially after Hughes receives a state subsidy to reduce its service and installation expenses.

While satellite access may indeed be the best available, last resort service for some extremely rural and inaccessible locations in isolated parts of New York, there are many examples of residents living in census block areas now assigned to Hughes Network Systems that are very close to existing Charter service areas.

One example is Mr. Matt Stern, [redacted], Middleport, N.Y.[9] His Niagara County census block has been identified in Round III of the NNYBP expansion program as 360630240013000. That census block has been assigned by the BPO to receive Hughes’ satellite service because Verizon does not offer DSL at his address and Charter did not bid to serve Mr. Stern’s immediate neighborhood because he lives 1.3 miles away from existing Charter facilities. As a result, Mr. Stern is exploring selling his home and moving out of state because his school age children lack internet access.

Should the Commission find it reasonable to strike more than 14,000 addresses from Charter’s latest buildout list, we respectfully recommend the Commission sanction Charter by requiring it to make up the disqualified addresses starting with locations like Mr. Stern’s, currently assigned to get satellite internet service.

Although costlier than counting business parks or new housing projects as new passings that Charter would have likely serviced with or without its commitment to New York State, this sanction will deliver real benefits to many location-disadvantaged rural New York residents and businesses tantalizingly close to existing wired broadband networks, but unlikely to get true broadband service any other way. The Commission can develop a formula to identify addresses in census blocks that are located within a reasonable distance (perhaps 1-2 miles) of existing Charter facilities to keep expansion costs reasonable.

Sanction Proposal: A portion or all of the forfeiture penalties collected as a result of Charter’s alleged missed targets should be devoted to a further expansion of wireline broadband service to areas currently assigned to Hughes Network Systems, LLC.

Drawing $1,000,000 from the letter of credit to penalize Charter Communications for missed targets will, by itself, not bring broadband service to areas that were originally promised true broadband service by Gov. Andrew Cuomo’s NY Broadband Program.[10]

Instead, 75,638 homes and businesses will be offered satellite service that cannot guarantee to consistently meet the FCC’s definition of broadband: 25 Mbps download and 3 Mbps upload speed. In contrast, wireline providers like Charter Communications have committed to offer 100 Mbps service with the option of gigabit speed by the end of 2018.[11]

These locations assigned satellite service attracted no bidders in the final round of the NNYBP awards. Therefore, there is little chance a wireline provider will extend service to these locations without additional subsidies.

By allocating some or all of the proceeds from fines or forfeitures to an additional buildout subsidy program limited to locations currently assigned to satellite internet service, the costs to wire at least some of these census blocks could be more tolerable to wireline providers around the state.

The shared goal by all concerned is to bring 21st century broadband internet access to every New York home and business. It is our view that Charter’s alleged failure to meet its obligations to New York after getting approval of its multi-billion dollar merger with Time Warner Cable, offers a unique opportunity to compel Charter to share a small amount of the company’s overall revenue towards resolving the urban-rural broadband divide, while at the same time gaining new customers and additional revenue as a result of these service expansions.

Yours very truly,

Phillip M. Dampier
Director

[1]15-M-0388 – Charter’s Build-Out Report – January 8, 2018
[2] New York Counties Population Measurements (https://bit.ly/2Emx4dS)
[3] Year 2017: https://www.census.gov/construction/bps/txt/t3yu201712.txt; Year 2016: https://www.census.gov/construction/bps/txt/tb3u2016.txt
[4] http://stopthecap.com/wp-content/uploads/2018/04/phase_3_awarded_census_blocks_3.xlsx
[5] https://nysbroadband.ny.gov/new-ny-broadband-program/phase-3-awards
[6] “Stated speeds and uninterrupted use of service are not guaranteed. Actual speeds will likely be lower than the maximum speeds during peak hours.” Part 1.1 HughesNet Subscriber Agreement: http://legal.hughesnet.com/SubAgree-03-16-17.cfm
[7] http://www.adirondackdailyenterprise.com/news/local-news/2018/03/hopeful-skeptical-about-broadband/
[8] http://www.lockportjournal.com/news/local_news/frustration-continues-with-broadband-build-out/article_855e3058-fa8e-5b01-94e5-8c3bce287004.html
[9] ibid.
[10] https://www.governor.ny.gov/news/governor-cuomo-announces-next-step-implementation-500-million-new-ny-broadband-program
[11]15-M-0388 – Charter’s Build-Out Report – January 8, 2018

42% of Frontier’s Customers in Nevada are “Very Dissatisfied” With Their DSL Service

Bad results for Frontier DSL in Nevada. (Source: Elko Residential Broadband Survey)

Bad results for Frontier DSL in Nevada. (Source: Elko Residential Broadband Survey)

Only six Frontier Communications customers surveyed in Elko, Nev. gave the phone company an “A” for its DSL service, while 42% flunked Frontier for what they considered unacceptable internet service.

The Elko Broadband Action Team has surveyed residential and business customers about broadband performance and found widespread dissatisfaction with Frontier Communications over slow connections and service interruptions.

“I’m pretty disappointed in them,” said Elko councilman John Patrick Rice.

Businesses and residential customers were in close agreement with each other rating Frontier’s service, with nearly 87% complaining they endure buffering delays or slowdowns, especially when watching streaming video. When browsing web pages, nearly three-quarters of surveyed customers still found service lacking.

Among the complaints (Res)-Residential (Bus)-Business:

  • Service interruptions: 74.43% (Res)/79.69% (Bus)
  • Too slow/not receiving advertised speed: 72.16% (Res)/65.75% (Bus)
  • Price: 63.64% (Res)/37.5% (Bus)
  • Customer Service: 38.07% (Res)/45.31% (Bus)

The Nevada Attorney General’s Bureau of Consumer Protection received a steady stream of complaints about Frontier’s DSL service in the state over the past year.

Answering the survey question, “would you be interested in faster download and upload speeds at prices that are somewhat comparable to what you are paying now?” 97.87 percent of residential respondents said yes.

Frontier representatives responded to the survey results at a March 27 Elko City Council meeting.

“Frontier did recognize it could improve upstream and downstream flow and educated the council and the public on some of the issues,” Elko assistant city manager Scott Wilkinson said.

Javier Mendoza, director of public relations for Frontier’s West region, explained much of the area Frontier services in Nevada is very rural, so customers are “located many miles from the core Frontier network facilities used to provide broadband service, which makes it technologically and economically challenging to provide faster internet speeds. However, Frontier is continually evaluating and working to improve its network and has and will continue to undertake various initiatives at a customer and community level to enhance its internet services.”

Mendoza said Frontier was currently testing fixed wireless internet service to serve rural areas, but had few details about the service or when it might be available.

Frontier also noted internet traffic was up 25% in the Elko area, primarily as a result of video streaming, social media, and cloud services.

But Councilmen Reece Keener complained Frontier was underinvesting in its network, meaning the company is not well-equipped to deal with increases in demand, something Mendoza denied.

“Several areas of the network providing internet service to Elko have been and continue to be upgraded, providing enhanced service reliability, and ultimately will enable new and upgraded services,” Mendoza said.

It can’t come soon enough for students of Great Basin College, where those taking online courses using Frontier DSL have problems uploading their assignments, claimed Rice, who taught online classes at the college.

“We can get the classes out to the students, but the challenge is for students to get assignments back to the college,” Rice said in a phone interview with the Elko Daily Free Press.

Frontier also claimed improved service performance so far in 2018, up from the fourth quarter of 2017. The company claimed 98.3% of service orders met performance goals, up from 94.37% and  commitments met scored at 92 percent, up from 89.98 percent. Trouble tickets declined from 1,712 to 1,244 across Nevada, the company also claimed.

FCC Looks to Press More Spectrum Into Service for 5G Wireless

The Federal Communications Commission is pushing hard to free up additional spectrum in some unlikely extremely high frequency ranges — some at 95 GHz or higher, for the next generation of wireless services.

Just a year ago in 2017, the FCC wrapped up its latest spectrum auction for the higher end of the UHF TV band, to be repurposed for mobile service use. But now the agency is seeking to find and reassign underused spectrum in much higher frequency bands that could be used for services like 5G wireless, machine-to-machine communications, intelligent road and vehicle networks, and other uses yet to be invented or envisioned.

FCC Commissioner Jessica Rosenworcel made it clear that smart spectrum allocation was critical for next generation wireless services.

“The point is the list is long — and we are looking at midband and millimeter wave to power the 5G future,” Rosenworcel said. “The propagation challenges are real, but so is the potential for capacity with network densification. Of course, what we need to do next is get these airwaves to market and unconditionally hold an auction this year.”

The FCC is contemplating auctions covering these frequencies in 2018:

3.5 GHz

Widely expected to draw the most interest, the Citizens Broadband Radio Service band was originally intended primarily for unlicensed users, but the wireless industry has lobbied heavily to get much of this spectrum reassigned for traditional long-term licensed use. Although very high frequency, the 3550-3700 MHz “innovation band” will have plenty of wide range of frequencies open for wireless data and mobile services. The wireless industry wants to deploy LTE service on this band, but they will likely compete with cable operators that are seeking their own stake of frequencies to launch their own wireless services.

This band will likely support last mile wireless connections at gigabit speed, fixed wireless broadband, and even in-home Wi-Fi that is significantly better than what you have now.

Because the band is so attractive, several different users are competing over who will be portioned what spectrum. The cable and phone companies want more for themselves, but other users, including consumers, want to reserve enough spectrum for unlicensed applications. The concern is deep pocketed companies may crowd out innovators and start-ups.

3.7 to 4.2 GHz

Some consumers may have accessed services on these frequencies without ever realizing it. This is the home of the “C-Band,” recognizable to any home satellite dishowner of the 1980s and 1990s. This range of frequencies is set aside for line-of-sight, very low powered satellite television — the kind that used to require a 10-12 foot wide satellite dish in the backyard to receive. FCC Chairman Ajit Pai wants to open the band up to be shared with 5G wireless broadband, which has caused considerable controversy among satellite users who fear devastating interference.

There are proposals and counter proposals from the satellite industry and wireless companies over how to manage sharing this band. Most are coalescing around the idea of sequestering 100 MHz of spectrum at the low-end of the band and using 3700-3800 MHz for high-speed wireless broadband. Some want satellite operators to clear out of this section of frequencies voluntarily, others propose compensation similar to what was given to television stations to relocate their channel positions. Google is pushing for a plan that would offer mobile 5G service in large urban areas and 25 Mbps – 1 Gbps fixed wireless broadband in rural and residential areas.

But satellite companies and many satellite users are fearful of the impact of interference. Because satellite signals use very low power transponders on the satellite, ground based wireless broadband interference could wipe out satellite reception.

Tom Taggart, who owns several radio stations in West Virginia, says sharing spectrum was tried before and did not work well.

“This band, years ago, was shared with AT&T and other telcos for point-to-point long-distance links. Fixed, licensed paths that could be plotted and protected against for satellite installations,” Taggart told Radio World. “Our studios are 1,500 feet from an old MCI tower, at one time we had a metal screen behind our satellite dish to protect against ‘back-scatter’ from a path aimed away from us. Still, we had to convince MCI to shut down one channel so we could pick up a program from Premiere [a radio network distributing programming on satellite].”

Some industry plans propose registering C-Band satellite dishes, at a cost of $600-$1,600 per site, which would allegedly protect them from interference by requiring wireless broadband services to steer clear of the area.

“But I am not even sure what kind of broadband services are proposed,” Taggart said. “One might assume these would be omnidirectional sites, like a typical cell site. Even with some clever computer-engineered directional patterns, reflections off hillsides, billboards, buildings would be enough to overwhelm the tiny satellite signal. However, other articles described these services as ‘mobile.’ Even if my dish is registered, how can I resolve interference problems from a mobile device?”

The debate rages on because the frequencies involved, next to the even more popular CBRS band, are highly coveted.

4.9 GHz

After the events of 9/11 in 2001, the FCC has prioritized public safety communications, in hopes of improving the interoperability of different first responders’ portable radios. At that time, fire agencies could not easily talk to police, ambulance crews, or in some cases other fire crews arriving from different departments miles away.

Many agencies contemplating use of this band discovered equipment that supported 4.9 GHz was hard to find and extremely expensive. Most public safety agencies seeking grants or other funding to improve their communications equipment opted to transition to digital P25 networks that operate on much lower frequencies and use equipment that is now widely available and, in comparison, much cheaper. Many agencies are conservative about using new technology as well, concerned a communications failure could cost the life of a fire or police responder. As a result, of the 90,000 organizations certified for licenses in this band, only 3,174 have been granted. That represents a take rate of just 3.5%. The band, as one might expect, is effectively dead in most areas, underutilized in others.

“As the demand for wireless services continues to grow, it is imperative that the FCC takes steps to ensure underutilized spectrum bands are used efficiently,” said FCC Commissioner Mignon Clyburn. “This is as true for spectrum allocated to public safety as it is for the bands used to support commercial wireless broadband services.”

FCC Commissioner Michael O’Rielly is convinced wireless companies like AT&T and Verizon could use the frequencies more efficiently.

“It has been 16 years since the 4.9 GHz band was allocated to the public safety community, and it is still woefully underutilized,” said O’Rielly. “That is not sustainable in an environment in which every megahertz of spectrum, especially below 6 GHz, needs to be fully scrutinized and maximized in quick order. While the Commission’s original allocation was more than likely well-intentioned, it is way past time to take a fresh look at this 50 megahertz of spectrum.”

Although higher than 3.5 GHz, engineers believe there is a very credible case to be made to use the available spectrum for 5G fixed wireless services, delivering broadband at speeds up to 1 GHz from a small cell located nearby. It would have to be. At these frequencies, virtually anything blocking the line-of-sight between the antenna and the user will block the signal as well. With almost no constituency defending the 4.9 GHz turf, it is expected it will be repurposed for wireless broadband in areas where it isn’t in use for public safety communications.

24/28 GHz

Although the 28 GHz band has many licensed users already, the 24 GHz band does not, and the wireless industry is interested in grabbing vast swaths of spectrum in this band for 5G home broadband. Known as “millimeter wave spectrum,” these two bands are expected to be a big part of the 5G fixed wireless services being planned by some carriers. Verizon acquired Straight Path late in 2017, which had collected a large number of licenses for this frequency range. Today, Verizon holds almost 30% of all currently licensed millimeter wave spectrum, an untenable situation if you are AT&T, T-Mobile, or Sprint. T-Mobile has been the most aggressive seeking more spectrum to compete with Verizon in this frequency range, and has purchased almost 1,150 MHz covering Ohio for use with a 5G project the company is working on.

39 GHz

FiberTower, now owned by AT&T

This band might as well be called “the controversial band” because AT&T made moves on these frequencies even before the FCC got around to discussing an auction for this band, likely also to be used for 5G fixed wireless. FiberTower originally held hundreds of licenses for wireless spectrum for several years, but did little with them, leading to suggestions the company was either hoarding the spectrum to resell to someone else or was incapable of deploying a network that used the frequencies. The company declared bankruptcy in 2012, eventually emerging in the spring of 2014 just in time to watch the FCC uphold the decision of its Telecommunications Bureau to cancel 689 of FiberTower’s licenses for failure to use them.

In February 2018, AT&T completed its acquisition of FiberTower for $207 million. According to AllNet Insights & Analytics, AT&T acquired more than 475 of FiberTower’s 39 GHz spectrum licenses, raising eyebrows among shareholders who lost their investments in FiberTower after it declared bankruptcy. Hundreds of the spectrum licenses that came with the AT&T deal were given a value of $0.00, allowing AT&T a sweetheart deal and shareholders hoping to recover more money from the bankruptcy liquidation extremely upset. In fact, had FiberTower remained in bankruptcy, it would eventually have surrendered all of its licenses, which would then be put up for auction by the FCC and would likely command much higher value among bidders. Verizon effectively paid triple the price for what AT&T got for a song in the FiberTower acquisition. Even more remarkable, the FCC approved the acquisition by AT&T despite the obvious fire sale price, and has ignored the consequences of what could come from an AT&T/Verizon duopoly across large swaths of 5G frequencies.

Eshoo

That brought a rebuke from Rep. Anna Eshoo (D-Calif.) who accused both Verizon and AT&T of flipping public property for private gain.

“The FCC’s policies unambiguously required Straight Path and FiberTower to forfeit their unbuilt spectrum licenses,” Eshoo wrote. “But rather than auction the reclaimed spectrum and promote timely deployment, the FCC’s Wireless Telecommunications Bureau reached ‘resolutions’ with Straight Path and FiberTower than allowed them to profit handsomely from their wrongdoing. Following the ‘resolution,’ Straight Path sold its assets to Verizon for nearly $3.1 billion, and FiberTower is estimated to have sold its assets to AT&T for roughly $2 billion.”

In reality, AT&T acquired FiberTower for $207 million — a fraction of the amount of the estimated value of the spectrum Eshoo used in her estimate.

“The Bureau’s decisions also further concentrated critical input resources in the hands of the two dominant wireless incumbents,” Eshoo continued. “The purchasers of the public assets that Straight Path and FiberTower once held, Verizon and AT&T, already control a disproportionate amount of other critical spectrum available for immediate deployment. Up until recently, the industry had an imbalance in favor of these companies in low-band spectrum that lasted for decades. The FCC now risks going down the same wrong path with high-band spectrum should the Commission continue down this course. Allowing Straight Path and FiberTower to ‘flip’ public assets for private gain does nothing for taxpayers, but does much to further entrench the dominant incumbents’ longstanding spectrum advantage over their rivals.”

95+ GHz

The FCC has not regulated frequencies above 95 GHz, but as technology advances, there is growing interest in utilizing spectrum that many believed would be essentially unusable for communications services. Right now, most frequencies in this range are used by environmental satellites and radio astronomy. At these frequencies, signals would be absorbed by the skin and attenuated significantly by things like high humidity’s haze or fog. Still, there are proposals under consideration to open up a small portion of spectrum for unlicensed home users for things like indoor wireless routers.

The key policy priority here will be to protect existing users from any hint of interference. But with vast amounts of unused frequencies in this range, it shouldn’t be difficult to keep competing users apart.

Alabama Passes New Broadband Accessibility Act, $20 Million in Tax Credits for Rural Expansion

Gov. Ivey signs SB149.

Alabama Governor Kay Ivey last week signed into law SB149, the Alabama Broadband Accessibility Act, authorizing the creation of a broadband accessibility grant program to be administered by the Alabama Department of Economic and Community Affairs. The bill, sponsored by Senator Clay Scofield (R-District 9) and Representative Donnie Chesteen (R-District 87), also creates the Alabama Broadband Accessibility Fund.

According to a press release from the governor’s office, there are more than 842,000 people in Alabama without access to a wired connection capable of 25 Mbps download speeds. Over 1 million people in Alabama have access to only one wired provider and another 276,000 people don’t have any wired internet providers available where they live.

“The internet is vital to economic development, health, education, and to be honest, all areas of our modern life. This common sense legislation will help us attract new broadband to areas that need it most, especially in rural Alabama,” Governor Ivey said. “I congratulate Senator Scofield and Representative Chesteen for a job well done in seeing this bill through the legislature. It is just another step forward as we improve access to high-speed internet sooner rather than later.”

Sen. Scofield

Media reports claimed the new bill would help “thousands” of Alabama’s unconnected to get access to broadband service for the first time. A closer look at the legislation shows an effort to encourage private internet providers in the state to expand their networks in areas they currently consider unprofitable to serve.

At the heart of the new law is up to $20 million in state tax credits for providers willing to expand broadband:

  1. A state income tax credit equal to 10% of the new investment a provider spends to build or upgrade broadband service in a qualified unserved area.
  2. A 10-year exemption from sales tax for any qualified broadband network facilities that are built with new investment, starting the date those upgrades go live.
  3. A sales tax exemption applicable to the purchase of equipment needed for the upgrade.

Rep. Chesteen

There are annual caps on the credits, limiting the amount Alabama is willing to spend on the program:

  1. $750,000 limit per provider if the upgrade provides up to 10/1 Mbps service;
  2. $1,400,000 limit per provider if the upgrade delivers up to 25/3 Mbps service.
  3. $20 million annual cap on program – $18 million designated for rural projects, $2 million for areas that do not receive at least 10/1 Mbps service.

In contrast, New York State’s rural broadband expansion effort paid $209.7 million in the third round of its funding program alone to extend service to an additional 122,285 rural homes, businesses and community institutions. Fairpoint Communications (today doing business as Consolidated Communications) received $3.2 million — more than twice the maximum amount Alabama will pay any one provider — to extend service to just 407 homes in the Capital and mid-Hudson region of the state.

Alabama is also counting on the Trump Administration’s infrastructure improvement spending program that will enable applicants to finance a project by combining loans and grants to provide broadband to eligible rural and tribal areas. But almost all that money will be spent on private providers, and will cover only a small portion of their costs. For a broadband expansion program to be successful, providers will have to determine if the amount of tax credits and exemptions available will allow such projects to pass the critical Return On Investment (ROI) test companies use to decide where to offer service.

Strong Evidence CenturyLink Giving Up on Most Residential Broadband Upgrades

CenturyLink is ready to capitulate in its competitive war with the cable industry, conceding its residential broadband business is a money loser that will no longer get broad-based upgrades and investment under the management of incoming CEO Jeff Storey, who will refocus CenturyLink on its larger business/enterprise customers.

The independent phone company has sent strong signals it is going to focus only on residential customers that are cheapest and easiest to reach, promising to fund broadband urban and suburban upgrades only where costs are low and the chances of a significant return is high. In rural areas, CenturyLink will depend heavily on capital made available by the FCC’s Connect America Fund when choosing areas worthy of upgrades.

“We’ll focus more on return on investment, which includes rural capital from the CAF II program,” said Sunit Patel, CFO of CenturyLink.

Patel, along with CenturyLink’s incoming CEO, originally worked for Level 3 Communications, a business and enterprise internet company acquired by CenturyLink in 2016. Now top Level 3 executives, at the behest of Wall Street and shareholders, are gradually taking over the top management positions of CenturyLink, pushing out current CEO Glen Post III with an early retirement this spring. With Post leaving, there is clear evidence CenturyLink is embarking on a transformation away from low return residential phone and broadband service and towards the kind of high profit business and enterprise connectivity Level 3 has provided for years.

Wall Street increasingly sees CenturyLink’s residential business as costing the company a lot of money for network upgrades that simply don’t deliver shareholder expectations of return on that investment, especially as the cable industry continues to aggressively deploy faster speed service to its customers.

In the fourth quarter of 2017, CenturyLink lost another 105,000 broadband subscribers, bringing internet subscriber numbers down to around 5.7 million nationwide. That represents a 4.8% reduction year over year, despite repeated promises of upgrades to stem those customer losses.

Last November, Post blamed those losses on customers served by CenturyLink’s legacy copper/DSL service areas where speeds and performance are lowest.

Soon to be CenturyLink Ex-CEO and President Glen F. Post

“We saw a much higher than expected loss of customers at the 20 Mbps and below speeds in a lot of the markets where we have that,” Post said during a late fall earnings call, according to a Seeking Alpha earnings transcript. “We had a much higher loss there. I think a couple of reasons, first of all, you see cable rolling out more with more aggressive offers, higher speeds and just the demand for bandwidth in those markets.”

Last fall, Post emphasized his broad-based residential and commercial broadband upgrade transformation plan to stop those losses. Post committed CenturyLink would provide 90% of homes with at least 40 Mbps, 70% of homes and businesses with 100 Mbps and over 20% with 1 Gbps or higher no later than 2020.

That was before activist shareholders and Wall Street joined forces to successfully push CenturyLink’s board to replace Post with business-oriented Level 3 CEO Jeff Storey. CenturyLink stock had been down by about one-third of its value over the last nine months, which only aggravated investors to push harder for dramatic management changes at the phone company. Activists argued CenturyLink shouldn’t be devoting much attention to its legacy businesses. In their eyes, only “strategic/success” businesses are worthy of investment, and those include commercial and enterprise broadband, metro ethernet, and cloud/backup services. The revenue eating “legacy” businesses, namely residential landline and DSL service, represent a drain on profits and threaten the company’s shareholder dividend. About two-thirds of CenturyLink customers are commercial enterprises.

(Blue) CenturyLink (Orange) Level 3

On March 6, 2018 the company announced Post’s retirement effective the day of its annual shareholder meeting in May. Post had originally planned to leave at the end of 2018, but some shareholders were unwilling to wait that long.

Strategic changes in CenturyLink’s future were previewed at the Morgan Stanley Technology, Media & Telecom conference earlier this month, where Patel outlined the company’s new vision.

“On the consumer side, the focus will be on enabling higher broadband speeds,” Patel said, but added a caution. “We won’t be spending capital on 5-20 Mbps connections, but rather on 100 Mbps and higher speeds. In urban areas we want to make sure we’re spending the capital where the returns make sense so focusing on multi-dwelling units make more sense in urban areas.”

Since the company is now going to target upgrades only in areas that “make more sense,” Post’s goal of better broadband for all by 2020 seem doomed

Another key piece of evidence is the retirement of CenturyLink executive Duane Ring, who announced he is leaving after 34 years despite a recent promotion. Ring, who led CenturyLink’s 12-state midwest region, was also behind much of CenturyLink’s residential broadband enhancement effort, including the 2005 launch of Prism TV — CenturyLink’s cable-TV alternative, as well as deploying gigabit speed services in several midwestern states. In 2016, he oversaw the deployment of 500 Mbps service for multi-dwelling units in 44 Platteville, Wisc. buildings that included nearly 800 apartments.

Broadband industry analyst Dave Burstein already sees the writing on the wall.

“Their fiber and G.fast plans, modest already, have been cut,” he noted. “They simply aren’t competitive with cable, which by 2020 will have a gigabit to 90% [of customers]. I look at the network and say if they don’t cut the dividend, trouble is near. Depreciation was $3 billion more than capex the last three years. Dividends were higher than income.”

As cable broadband speeds increase and customers defect from CenturyLink, few may choose to come back, making investments in broadband upgrades even more questionable.

“The rumor is they will virtually abandon much of the wireline network,” Burstein noted. “They will temporarily draw cash out to upgrade where they have better prospects,” referring to areas Patel identified as worthy targets for upgrades.

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