Phillip Dampier on USF Reform: It might have been great, it could have been a lot worse, but ultimately it turned out to be not very good.

Last week, the Federal Communications Commission unveiled their grand plan to reform the Universal Service Fund, a program originally designed to subsidize voice telephone service in rural areas deemed to be unprofitable or ridiculously expensive to serve.  Every American with a phone line pays into the fund through a surcharge found on phone bills. Urban Americans effectively subsidize their rural cousins, but the resulting access to telecommunications services have helped rural economies, important industries, and the jobs they bring in agriculture, cattle, resource extraction, and manufacturing.

The era of the voice landline is increasingly over, however, and the original goals of the USF have “evolved” to fund some not-so-rural projects including cell phone service for schools, wireless broadband in Hollywood, and a whole mess of projects critics call waste, fraud, and abuse.  For the last several years, USF critics have accused the program of straying far from its core mission, especially considering the costs passed on to ratepayers.  What originally began as a 5% USF surcharge is today higher than 15%, funding new projects even as Americans increasingly disconnect their landline service.

For at least a decade, proposals to reform the USF program to bridge the next urban-rural divide, namely broadband, have been available for consideration.  Most have been lobbied right off the table by independent rural phone companies who are at risk of failure without the security of the existing subsidy system.  Proposals that survived that challenge next faced larger phone company lobbyists seeking to protect their share of USF money, or by would-be competitors like the wireless industry or cable operators who have generally been barred from the USF Money Party.

This year, FCC Chairman Julius Genachowski finally achieved a unanimous vote to shift USF funding towards the construction and operation of rural broadband networks.  The need for broadband funding in rural areas is acute.  Most commercial providers will candidly admit they have already wired the areas deemed sufficiently profitable to earn a return on the initial investment required to provide the service.  The areas remaining without service are unlikely to get it anytime soon because they are especially rural, have expensive and difficult climate or terrain challenges to overcome, or endure a high rate of poverty among would-be customers, unable to afford the monthly cost for the service.  Some smaller independent phone companies are attempting to provide the service anyway, but too often the result is exceptionally slow speed service at a very high cost.

The new Connect America Fund will shift $4.5 billion annually towards rural broadband construction projects.  Nearly a billion dollars of that will be reserved in a “mobility fund” designated for mobile broadband networks.

The goal is to bring broadband to seven million additional households out the 18 million currently ignored by phone and cable operators.

The FCC believes AT&T will take a new interest in upgrading its rural landline networks, even as the company continues to lobby for the right to abandon them.

Unfortunately, the FCC has set the bar pretty low in its requirements for USF funding.  The FCC defines the minimum level of “broadband” they expect to result from the program — 4/1Mbps.  That’s DSL speed territory and that is no accident.  The phone companies have advocated a “less is more” strategy in broadband speed for years, arguing they can reach more rural customers if speed requirements are kept as low as possible.  DSL networks are distance sensitive.  The faster the minimum speed, the more investment phone companies need to make to reduce the length of copper wiring between their office and the customer.  Arguing 4Mbps is better than nothing has gotten them a long way in Washington, but it also foreshadows the next digital divide — urban/rural broadband speed disparity.  While large cities enjoy speeds of 50Mbps or more, rural towns will still be coping with speeds “up to” 4Mbps.

The FCC does not seem too worried, relying heavily on a mild incentive program to prod providers to upgrade their DSL service to speeds of 6/1.5Mbps.

The irony of asking AT&T to invest in an aging landline network they are lobbying to win the right to abandon is lost on Washington, and future speed upgrades for rural America from companies like Verizon are in serious doubt when they sell off their rural areas to companies like FairPoint and Frontier and leave town.

Critics of USF reform suggest the program is still stacked in favor of the phone companies, and considering the state of their copper wire networks, would-be competitors are scratching their heads.

The cable industry, in particular, is still peeved by reforms they feel leave them at a disadvantage.  Of course, Washington may simply be recognizing the fact cable companies are the least likely to wire rural America, but when they do, the service that results is often faster than what the phone company offers.  The nation’s biggest cable lobbyist — ironically also the former chairman of the FCC, Michael Powell — still feels a little abused after reading the final proposal.

“While we are disappointed in the Commission’s apparent decision to ignore its longstanding principle of competitive neutrality and provide incumbent telephone companies an unwarranted advantage for broadband support,” said National Cable & Telecommunications Association President Michael Powell, “we remain hopeful that the order otherwise reflects the pro-consumer principles of fiscal discipline and technological neutrality that will bring needed accountability and greater efficiency to the existing subsidy system.  We are particularly heartened by the Commission’s efforts to ensure that carriers are fairly compensated for completing VoIP calls.”

Wireless operators are not happy either, because the arcane requirements that come with the USF bureaucracy were written with the phone companies in mind, not them.  Small, family-owned providers find it particularly difficult to do business with the USF, if only because they don’t have the staff or time to navigate through endless documents and forms.  Phone companies do.

Your phone bill is going up.

Many consumer groups are relieved because it could have been much worse.   The FCC could have simply capitulated and adopted the phone companies’ wish-list — the ABC Plan.  Thankfully, they didn’t, but the FCC has naively left the door open to substantial rate increases for consumers by not capping the maximum annual outlay of the fund.  That follows the same recipe that invited higher phone bills and questionable subsidies awarded in an effort to justify the original USF program even after it accomplished most of its goals. Consumers may face initial rate increases of $0.50 almost immediately, and up to $2.50 a month five years from now.

The FCC, unjustifiably optimistic, suspects phone companies and other telecommunications interests won’t gouge customers with higher prices.  They predict rate increases of no more than 10-15 cents a month.  I wouldn’t take that bet and neither will consumer groups.

“We’re going to press the FCC to ensure that these are temporary increases, because history has shown that these types of costs tend to stick around and go on and on and on,” said Parul Desai, policy counsel for Consumers Union.

An even bigger question left unanswered is just how far the FCC will get into the broadband arena when it refuses to take the steps necessary to ensure it has an admission ticket.  The agency has avoided classifying broadband as a telecommunications service, an important distinction that would bolster its authority to oversee the industry.  Without it, some members of Congress, and more importantly the courts, have questioned whether the FCC has any business in the broadband business.  Just one of the many high-powered players in the discussion could test that theory in the courts, and should a judge throw the FCC’s plan out, we’ll be back at square one.

[flv]http://www.phillipdampier.com/video/C-SPAN Tom Tauke from Verizon on Changes to the Universal Service Fund 10-29-11.flv[/flv]

Verizon’s chief lobbyist Tom Tauke spent a half hour last weekend on C-SPAN taking questions about USF reform and the side issues of IP Interconnection and Net Neutrality policies. Tauke supports consolidation of small phone companies into fewer, larger companies.  He also expands on his company’s lawsuit against Net Neutrality, which fortuitously (for Verizon) will he heard by the same D.C. Court of Appeals that threw out the FCC’s fines against Comcast for throttling broadband connections.  Politico’s Kim Hart participates in the questioning, which also covered wireless spectrum issues impacting Verizon Wireless, AT&T’s stumbling merger deal with T-Mobile, and Verizon’s latest lawsuit against the FCC for data roaming notification rules.  (28 minutes)

Fiber optic cable spool

For the most populated provinces in Canada, questions about when fiber-to-the-home service will become a reality are easy to answer:  Never, indefinitely.

Some of Canada’s largest telecommunications providers have their minds made up — fiber isn’t for consumers, it’s for their backbone and business networks.  For citizens of Toronto, Calgary, Montreal, and Vancouver coping with bandwidth shortages, providers have a much better answer: pay more, use less Internet.

Fiber broadband projects in Canada are hard to find, because providers refuse to invest in broadband upgrades to deliver the kinds of speeds and capacity Canadians increasingly demand.  Instead, companies like Bell, Shaw, and Rogers continue to hand out pithy upload speeds, throttled downloads, and often stingy usage caps.  Much of the country still relies on basic DSL service from Bell or Telus, and the most-promoted broadband expansion project in the country — Bell’s Fibe, is phoney baloney because it relies on existing copper telephone wires to deliver the last mile of service to customers.

Much like in the United States, the move to replace outdated copper phone lines and coaxial cable in favor of near-limitless capacity fiber remains stalled in most areas.  The reasons are simple: lack of competition to drive providers to invest in upgrades and the unwillingness to spend $1000 per home to install fiber when a 100GB usage cap and slower speeds will suffice.

The Toronto Globe & Mail reports that while 30-50 percent of homes in South Korea and Japan have fiber broadband, only 18 percent of Americans and less than 2 percent of Canadians have access to the networks that routinely deliver 100Mbps affordable broadband without rationed broadband usage plans.

In fact, the biggest fiber projects underway in Canada are being built in unexpected places that run contrary to the conventional wisdom that suggest fiber installs only make sense in large, population-dense, urban areas.

Manitoba’s MTS plans to spend $125-million over the next five years to launch its fiber to the home service, FiON.  By the end of 2015, MTS expects to deploy fiber to about 120,000 homes in close to 20 Manitoba communities.  In Saskatchewan, SaskTel is investing $199 million in its network in 2011 and approximately $670 million in a seven-year Next Generation Broadband Access Program (2011 – 2017). This program will deploy Fiber to the Premises (FTTP) and upgrade the broadband network in the nine largest urban centers in the province – Saskatoon, Regina, Moose Jaw, Weyburn, Estevan, Swift Current, Yorkton, North Battleford and Prince Albert.

“Saskatchewan continues to be a growing and dynamic place,” Minister responsible for SaskTel Bill Boyd said. “The deployment of FTTP will create the bandwidth capacity to allow SaskTel to deploy exciting new next generation technologies to better serve the people of Saskatchewan.”

But the largest fiber project of all will serve the unlikely provinces of Atlantic Canada, among the most economically challenged in the country.  Bell Aliant is targeting its FibreOP fiber to the home network to over 600,000 homes by the end of next year.  On that network, Bell Aliant plans to sell speeds up to 170/30Mbps to start.

In comparison, residents in larger provinces are making due with 3-10Mbps DSL service from Bell or Telus, or expensive usage-limited, speed-throttled cable broadband service from companies like Rogers, Shaw, and Videotron.

Bell Canada is trying to convince its customers it has the fiber optic network they want.  Its Fibe Internet service sure sounds like fiber, but the product fails truth-in-advertising because it isn’t an all-fiber-network at all. It’s similar to AT&T’s U-verse — relying on fiber to the neighborhood, using existing copper phone wires to finish the job.  Technically, that isn’t much different from today’s cable systems, which also use fiber to reach into individual neighborhoods.  Traditional coaxial cable handles the signal for the rest of the journey into subscriber homes.

A half-fiber network can do better than none at all.  In Ontario, Bell sells Fibe Internet packages at speeds up to 25Mbps, but even those speeds cannot compare to what true fiber networks can deliver.

Globe & Mail readers seemed to understand today’s broadband realities in the barely competitive broadband market. One reader’s take:

“The problem in Canada (and elsewhere) preventing wide scale deployment of FTTH isn’t the technology, nor the cost. It’s a lack of political vision and will, coupled with incumbent service providers doing whatever they can to hold on to a dysfunctional model that serves their interests at the expense of consumers.”

Another:

“The problem with incumbents is they only think in 2-3 year terms. If they can’t make their money back in that period of time, they’re not interested. Thinking 20, heck even 10 years ahead is not in their vocabulary.”

South Africa’s largest Internet Service Provider, the former state-owned telephone company Telkom, has introduced uncapped broadband service across the country.

Telkom’s Do Uncapped offering removes usage limits after “intensive market research” and “data usage trials” concluded South African consumers absolutely despise usage limits on their Internet access.

In fact, in overwhelming numbers, consumers preferred unlimited access over faster broadband speed packages.  Even throttled “fair use” policies which slightly reduce speeds during peak usage periods are more tolerable than restricted usage allowances, overlimit fees, and punishing “dial-up” speeds when customers exceed their usage limit.

“To feed the hunger for data, Telkom has tailored its Do Uncapped range according to consumer usage patterns derived from findings of the Company’s broadband trials on higher cap trials conducted earlier this year,” the company said in a statement.

Inexpensive, lower speed offerings are available at 384kbps and 1Mbps, but do come with certain daytime speed restrictions, especially on peer to peer traffic.  The premium 4Mbps package is truly unlimited.

South Africa’s challenged telephone network has resulted in relatively low broadband speeds when compared against Asia, North America, and Europe, but the unlimited offerings are being welcomed by Telkom customers across the country.

Because DSL service from the phone company has traditionally been slow and, until recently, expensive, many South Africans rely primarily on wireless mobile services, which can be more reliable in some parts of the country.  Some purchase wireless broadband service from providers like MTN instead of DSL from the phone company.

As a home broadband replacement, wireless mobile broadband has always meant compromising on usage, because most plans are heavily capped and some block access to certain web content.  But MTN is responding to Telkom’s move away from usage caps by removing them from its own wireless network, at least during a promotion.

MTN is kicking off the South African summer with its newest promotion, unlimited speed and uncapped wireless data access on the company’s HSPA+ network, effective Oct. 1.

The limits stay off until the end of summer — Jan 2012.

“We have seen a significant number of our customers taking up latest smartphones, tablet PCs, wireless routers and laptop deals that MTN is offering,” said Serame Taukobong, MTN South Africa Chief Marketing Officer. “This promotion is a response to the increased data appetite that comes with the usage of these devices.”

That’s an attitude foreign to North American mobile operators, who see those devices as enemies of their wireless network (or the basis for future profits).  In South Africa, consumers adopting new wireless devices and increased usage has triggered a marketplace response that eases or ends usage caps.  In North America, the opposite is happening.

MTN has slashed its mobile broadband prices over the course of 2011 for the highest speed, unlimited access package from a budget-busting $248 a month to $111 a month.  A slower speed unlimited package now sells for $37 a month.  That becomes very affordable for Internet users who use their mobile devices exclusively for access.  Even a package selling over $100 a month may be comparably affordable to an American who is required to maintain a home broadband and mobile broadband account.

MTN even allows wireless peer to peer traffic, but the company asks subscribers to be reasonable and not leave it running 24/7.

CenturyLink has unveiled its own discounted Internet access program for the income-challenged, loaded with tricks and traps buried in the fine print.

Dubbed CenturyLink Internet Basics, the 1.5Mbps DSL service is available to those who currently qualify for Lifeline Affordable Telephone Service, a federal program that provides discounts on basic monthly telephone service to eligible low-income consumers.  The service sells for $9.95 a month, before taxes and fees.

But buried in the fine print are a number of surprises that deliver higher prices and some nasty surprises (underlining ours):

• Listed High-speed Internet rate of $9.95/mo. applies for first 12 months of service (after which the rate reverts to $14.95/mo. for the next 48 months of service), and requires a 12-month term agreement or 24-month term agreement (if purchasing Netbook);
• Customer must either lease a modem/router from CenturyLink for an additional monthly charge or purchase a modem/router from CenturyLink for a one-time charge, and a one-time High-Speed Internet activation fee applies;
• A one-time professional installation charge (if selected by customer) and a one-time shipping and handling fee applies to customer’s modem/router;
• Taxes, Fees, and Surcharges – Applicable taxes, fees, and surcharges include a carrier Universal Service charge, carrier cost recovery surcharges, state and local fees that vary by area and certain in-state surcharges. Cost recovery fees are not taxes or government-required charges for use (which means they are little more than bill padding junk fees). Taxes, fees, and surcharges apply based on standard monthly, not promotional, rates;
• The first bill will include charges for the first full month of service billed in advance, prorated charges for service from the date of installation to bill date, and one-time charges and fees described above.
• Netbook purchase must be paid in full to CenturyLink prior to shipment. Shipping and handling fees, and applicable taxes will apply. If customer purchases Netbook as part of the CenturyLink Internet Basic service, all warranty and support for the Netbook and accompanying equipment will be covered by the manufacturer or other identified third party, not CenturyLink.
• No software applications or wireless service are included with the Netbook.
• An early termination fee will apply based on the applicable monthly recurring service fee multiplied by the number of months remaining in the minimum service period, up to $200.

Unlike Comcast, CenturyLink claims it will provide equivalent discounts for faster speeds — an important consideration for those with school-age children at home who may need multimedia capability for research and studies.

CenturyLink also offers a netbook computer for an additional $150, plus shipping and taxes, at the time of enrollment in the program.  The service also includes educational training, a 30-day money back guarantee, Norton Security Suite, and parental controls.

“While the Internet has become part of daily life for most Americans, many still aren’t connected because the cost is beyond their reach. CenturyLink is pleased to introduce this new program that offers affordable High-Speed Internet service and computers to those who need help getting online,” said CenturyLink CEO and President Glen F. Post, III.

That and the fact the company was required to offer discounted Internet service as a condition for the approval of their acquisition of Savvis, a web hosting company, according to Broadband Reports.

Like Comcast, participation in the program requires meeting a number of terms and pre-conditions:

While most rural telephone companies are selling customers 1-3Mbps copper-delivered DSL service, Alcatel Lucent has announced the commercial availability of VDSL 2 Vectoring, a new way of delivering up to 100Mbps over the copper wire telephone network most rural North Americans still depend on for telecommunications service.

VDSL2 combines a fiber-copper hybrid network similar to Bell’s Fibe or AT&T’s U-verse, with interference-cancelling technology called “vectoring” to deliver speeds much closer to the 100Mbps theoretical limit of current DSL technology.

“Alcatel-Lucent’s plan to make VDSL2 vectoring commercially available is very timely,” said Rob Gallagher, Principal Analyst, Head of Broadband & TV Research, Informa.  “VDSL2 Vectoring promises to bring speeds of 100Mbps and beyond to advanced copper/fiber hybrid networks and make super fast broadband speeds available to many more people, much faster than many in the industry had thought possible.”

A new way to boost copper speeds even faster.

Different flavors of DSL are currently in use around North America and beyond.  The most basic form, ADSL, also happens to be the most commonplace among phone companies offering basic broadband service.  For customers up to 12,000 feet away from a phone company central office, DSL delivers speeds usually at 1Mbps or faster.  Customers enjoying the fastest speeds must live much closer to the phone company facilities.  The further away you live, the slower your broadband speed.  In rural areas, consumers can live further away than the maximum distance of the central office, which means no DSL service for those subscribers.

A combination of signal loss and interference, called “crosstalk,” from adjacent copper wire pairs are both the enemies of DSL broadband, because they can drastically reduce speeds.

Telephone companies can address this problem by building new satellite central offices located halfway between customers and their primary facilities.  These offices, usually connected by fiber, can successfully reduce the amount of copper wire between the customer and the company, boosting speeds.  Many phone companies also deploy DSL extensions called D-SLAMs, which can be attached to a phone pole or enclosed in a metal box by the roadside.  A fiber cable connects the D-SLAM back to the phone company, while existing copper phone wires go back to individual subscribers.

More modern forms of DSL: ADSL2, ADSL2+, and VDSL, share some of those concepts.  The key is cutting as much copper wire out of the network as possible, replacing it with fiber optic cable which does not suffer signal loss or interference in the same way.

Many European and Pacific broadband networks rely on ADSL2/2+, which can usually deliver reliable speeds in the 20Mbps range.  VDSL networks offer even more bandwidth, and are the basis of U-verse and Fibe, which split up broadband, phone service, and television on the same cable.  When customers demand even faster speeds, phone companies can “bond” several individual DSL connections together to deliver faster speeds.  Some traditional ADSL providers do that today for their customers, especially in areas where low speeds prevail.

An argument the phone company will love.

Alcatel Lucent says VDSL2 with Vectoring is the next best thing to fiber to the home, because it is cheaper to deploy with fewer headaches from local authorities when streets and yards are dug up for fiber cable replacements.  It also meets the growing speed needs of average consumers.  Alcatel Lucent predicts the minimum speed North Americans will need to support the next generation of online video is 50Mbps, more than 10 times the speed phone companies like Verizon, AT&T, Frontier, and CenturyLink provide over their traditional DSL networks, especially in rural and suburban areas.

Vectoring can deliver results for phone companies with aging copper wire infrastructure, more prone to crosstalk and other signal anomalies.  Alcatel Lucent compares vectoring with noise-cancellation headphones.  By sampling the current noise conditions on copper cable networks, vectoring can suppress the impact of the interference, boosting speeds and delivering more reliable results.

With technologies like VDSL2 with Vectoring promising speeds far faster than what rural North Americans currently enjoy, the Federal Communications Commission may want to re-evaluate its national minimum speed standard for broadband — 3-4Mbps — found in its National Broadband Plan.  Alcatel Lucent promises they can do much better.

[flv width=”640″ height=”324″]http://www.phillipdampier.com/video/Alcatel Lucent VDSL2.flv[/flv]

Alcatel Lucent produced this video to promote its new VDSL2 with Vectoring technology.  The video targets cost-conscious phone companies who are being pressured to deliver faster service, but don’t want to spend the money on a fiber to the home network.  (6 minutes)