Entries in Broadband Speed (5)

Thursday
Jan122012

For ILEC with 210k-Mile Network, IPTV Just "Another Application"

It appears CenturyLink didn't want to miss making an announcement at last week's Citi Entertainment and Media Conference, going with a "me too" approach to IPTV services. The "announcement" was modest, as CenturyLink revealed that they would be extending their IPTV services to one or two new markets in the former Qwest territory. Currently CenturyLink's Prism IPTV service passes 1m homes in select markets and, as of 3Q11, had 50k subscribers. For a telecom provider as large as CenturyLink, however, those numbers are relatively small—but what's interesting is how CenturyLink executive vp and cfo Stephen Ewing characterized IPTV: as just “another application.”

Ewing said, “The incremental cost of us rolling out IPTV is not significant. Once you get a 20 Mbps service out there to a customer the incremental cost of layering IPTV on top we view it as another application.” These sentiments, of course, square with what we've been saying for a while—that since so many providers spent so much time and money on network build-outs and improvements, this was the year to capitalize on those networks with new services, content, and applications.

But CenturyLink's "announcement" seems pretty modest, and offering IPTV in only two markets seems like a paltry "expansion," considering that the company has 210k miles of fiber. With its acquisitions and its expansive network, rollouts like IPTV appear to be an obvious next step. For now, Ewing said that, “The (IPTV) customer base is still small, but we did increase the customer base 25% during the third quarter.”

CenturyLink's network design also makes IPTV easier to distribute, as all of its video content is put into a head end in Missouri and, from there, distributed to each of the 8 markets currently served with IPTV. Each market also has its own mini-head end for local content, and all content is delivered over CenturyLink's fiber network.

Last fall, the company denied speculation that it would expand its Prism service to former Qwest markets. CenturyLink had just inherited Qwest's 1m DirecTV subscribers and was committed to satellite TV. But now the Louisiana-based ILEC says it's following a two-pronged approach to video services: satellite and IPTV. It's a strategy that allows CenturyLink to hedge its bets, capitalize on the satellite subs it's already inherited, and continue to anticipate consumer trends, as greater numbers of Americans access over-the-top video services like Netflix. Ewing said, “If over the top eventually takes some of the traditional TV market, we think we'll be well positioned with the bandwidth with have to our customers to participate in that.”

What is surprising, however, is that CenturyLink does not seem to have an overarching strategy to build out broadband to former Qwest markets. So far the company has just said, vaguely, that it plans to "expand its broadband footprint." Broadband has been a key component to the ILEC's business strategy for a while now, and in 3Q11, the service provider added 57k high-speed Internet subscribers, versus only 12k in 2Q11. Part of these gains, however, come from Qwest's FTTN initiative, which CenturyLink has continued after the acquisition. By the end of this year, CenturyLink estimates that it will pass 5.4m homes with FTTN.

In FTTN service areas, 75% of customers enjoy 20 Mbps speeds, while the remainder of subscribers have speeds of 10 Mbps or higher. As for CenturyLink's big picture, about 20% of subscribers can get 20 Mbps, over half can get 6 Mbps, and two-thirds can get 6 Mbps or higher. According to Ewing, “The speeds will continue to improve over 2012 and future years as we continue to build out the IPTV footprint and the Fiber to the Node footprint in the Qwest markets primarily,” he said.

Of course, CenturyLink will find itself increasingly in competition with LTE services (which we will look into more next week), but for now Ewing said CenturyLink seemed to have an edge, due to its increasing bandwidth. Ewing said that average customer usage is continuing to rise to about 18 Mbps, double where it was a year ago.

Wednesday
Sep142011

Why Video Cord Cutting is Bad for Telcos—Even Those That Don’t Offer Video

The Need for Speed

USA Today earlier this week published a lengthy, front page story on the video cord cutting trend. The mass-market publication offered readers a lot of data that most of us in the telecom and media industries already know:  cable companies are losing video customers to OTT programming, as consumers increasingly decide they aren’t interested in spending upwards of $100 per month for a massive package of programming. 

Economically squeezed consumers will hang on to their Internet connection and buy a Roku box or some equivalent device in order to stream selected programming to their TVs—often for savings of 80% or more per month.

With programming costs stubbornly high, it seems unlikely that cable companies will start cutting their prices any time soon, and to date they’ve been loath to create smaller programming packages at lower price points. They prefer instead to add on more bells and whistles, like TV Everywhere, for the same or similar price, than to lower monthly rates. 

As such, the video cord cutting trend is unlikely to wane, and as more and more consumers become aware of the vast price differential between pay TV service and OTT offerings (thanks a lot USA Today!), it may accelerate.

It’s a disturbing trend for the many telcos which have worked hard over the past decade to incorporate a video option into their “Triple Play” bundles.  Among the public telcos at least, video connections have remained the fastest growing segment we track in our quarterly connections charts.  In the first quarter of 2011, the public cablecos were losing video subs at a 3.3% annual pace, but the ILECs grew their video subscribers at a 16% rate. It’s important to note, however, that AT&T and Verizon, with their U-verse and FiOS offerings, were the biggest factors behind that growth trend.  Few of the other public ILECs could boast double-digit growth in video connections that wasn’t driven by an acquisition.

Among non-public ILECs, our annual Phone Lines study showed that out of 307 companies that responded to our survey, 132 offer video services via either cable, IPTV or fiber.  Seven more reported DBS subscribers, presumably through a resale arrangement, but only 78 offered non-cable video service.  Out of those, penetration of access lines was around 25% at the end of last year.  Presumably the local cable company services the remaining television households in the region.

My guess is that the notoriously unpopular cable companies make a relatively easy target for a well-managed telco competitor with a video offering—I would drop Comcast like a hot potato given a more attractive offering (are you listening CenturyLink??). But of course, we also know that it’s tough for an ILEC to actually make money with a video offering—hence the low 25% of non-public (non-cable owning) ILECs in our survey that have tried it.  However, if ILECs don’t come to the table soon with a competitive video offering, more and more customers will cut the video cord—and once their behavior changes, it’s unlikely that those customers will come back to any Pay TV provider, cable or ILEC. Their habits will have changed.

And therein lies one of the problems for telcos, which are still relatively new entrants to the video game. Because before a substantial video base can even be established, I fear that consumer behavior will have shifted—much like the advent of reliable mobile service nationwide has shifted voice communication behavior. These shifts will be driven by both video cord cutting AND the growing availability of high speed wireless connections.

As consumer behavior shifts and the video service is no longer an anchor for the communications service bundle, I believe the most important driver behind the decision to subscribe to a given cable, ILEC or wireless provider will be the SPEED, relative to the COST, of the Internet connection.

And though I’m not holding my breath waiting for CenturyLink to bring an upgraded VDSL2 Internet connection to southern New Mexico, which would likely beat the 15 Mbps speed Comcast currently provides, I’m told that Verizon intends to offer 4G LTE service in my town before the year is out.  If and when that happens, and assuming the speeds are all they’re touted to be, Comcast (and CenturyLink’s opportunity to steal me as a customer) are toast.

Another reason why 4G wireless competition and the video cord cutting trends can’t be ignored is the explosion in use of tablet devices. Apple’s iPad may get most of the headlines, but devices from Motorola, Samsung, HTC and others are also gaining traction quickly, and have already started to displace traditional desktop computers in some cases—and this trend is still on the low end of the proverbial hockey stick growth curve. Tablet devices are fast becoming a disruptive technology, and promise to replace a meaningful number of both computers and television sets in the coming decade.

And while many tablet users today are probably using the WiFi connection on their tablet in conjunction with a home cable or DSL line, it seems likely to me that a reasonably priced 4G option, (which removes the need for all those ugly cords and dust bunny gathering pieces of equipment that need to be rebooted far too often) becomes a very attractive option.

Ultimately, the point is that far too many telcos are behind the curve in terms of the broadband connection they offer. Cable is already faster than DSL, and 4G wireless promises to be as well. So while the arguments go on in D.C. over how to define broadband and how to pay for broadband in rural markets, the big wireless guys are moving in on your turf in all but the most rural markets.  Even long-suffering Clearwire offers better speeds than traditional DSL service.

Meanwhile, the USA Today article cited research that claims 13% of adult broadband users who subscribe to a pay TV service expect to cancel within the next six months, and that figure may run as high as 29%, according to a representative from the research firm Diffusion Group. He went on to speculate in the article that when the fast-changing television landscape produces a Net-based programmer to compete with current pay-TV services, “maybe we will start to see more people want to so-call cut the cord."

There are many rural LECs out there who clearly agree with this seemingly bleak outlook—they’ve signed on with either the NetAmerica Alliance or the Verizon LRA program in order to bring a 4G wireless option into their bundle.

But there are many more who haven’t taken action, waiting, it seems, to find out what regulatory relief might allow them to make the needed investment for higher broadband speeds at an acceptable rate of return.  My biggest fear for those, however, is that whatever Washington figures out will be too little, too late…If you’re not providing the fastest Internet connection in your market, or working on a plan to be sure that you do, you’re simply not gonna have a lot of customers a few years from now. 

Tuesday
Sep062011

Building for the Future: Gig.U's Investment in 1GB Networks

Public/Private Partnerships Spur Ultra-High-Speed Internet

When Google (Nasdaq:GOOG) announced in early 2010 that it would build a 1GB fiber network in one lucky city, the company received more than 1,100 applications. Eager citizens and local organizations made the case (sometimes in outlandish ways) for why their cities needed ultra-high-speed networks for their businesses, schools, hospitals, local government, and homes. Elise Kohn, program director for University Community Next Generation Innovation Project (a.k.a., Gig.U), says the Google experiment demonstrated an unprecedented desire for ultra-high-speed networks across the country, making a strong case for why ultra-high-speed networks were essential to U.S. growth. But, as a national investment, who would be willing to pay for such extensive infrastructure? And what sectors would make immediate use of such robust connectivity? According to Kohn and Blair Levin, who is heading up the Gig.U project, research universities and their surrounding communities will be the foundation of the 1GB revolution. These communities conduct top-notch research, scientific innovation, medical advances, and so on, which makes them a vital test-bed for ultra-high-speed capabilities. In short, research universities both “consume and create,” in Kohn's words, and will allow us to see what's capable in the future with 1GB.

“We're not saying everyone in America needs a gig—that's why this is a targeted investment where there's highest demand and highest yield,” Kohn says. At research universities, innovation and development would benefit from faster broadband speeds and even allow new advances in science, engineering, and medicine—key fields to U.S. global competitiveness. “If you look internationally or at what's happening at research universities,” according to Kohn, “there are important reasons that, if you want to be ahead, [1GB] is where it's going.” Not only would an ultra-high-speed network allow for smooth videoconferencing and webcasting, but the improved capabilities and data transfer rates would encourage the development of new applications, research opportunities, and learning tools. As just one example, Kohn sites current innovations in medical technology that, with advanced network capabilities, allow surgeons to practice on life-like 3D projections when training for open-heart surgery.

Kohn also highlights technologies already implemented at Case Western Reserve, a school that she calls “a great champion of Gig.U's plan.” Case Western is one of Gig.U's 30 members and last year set up a pilot program connecting a several block area surrounding campus. The Case Connection Zone now provides 1GB fiber-optic networking to more than 100 homes and has been a test bed for what Gig.U plans to do across the nation. “A number of our members [universities] are very well connected on campus,” Kohn says, “so that's not necessarily where we need to fill a need. But staff, faculty, and researchers go home at night, students live off-campus... and the research and development—the advanced work that they're doing—continues there.”

These dynamic research communities can also attract new businesses to a town or city, according to Lev Gonick, chief information officer at Case Western. Gonick said that within three months of implementing Case Connection Zone, three startups moved to the neighborhood. “Gig.U members came together to address our unique connectivity gap. We intimately understand that for American research institutions to continue to provide leadership in areas important to U.S. competitiveness, we have to act to improve the market opportunity for upgrading the networks in our university communities. We believe a small amount of investment can yield big returns for the American economy and our society,” says Gonick.

And Gig.U agrees with Gonick's more national focus. Its entire leadership team has direct experience with America's broadband needs (and lack) from working in various capacities at the FCC. Levin served as director of the FCC's National Broadband Plan, where he asserted that broadband was essential to American growth and competitiveness and that ultra-high-speed would be key to cutting edge research and development. Kohn says the National Broadband Plan also revealed that ultra-high-speed was not something the federal government would be able to invest in, at least in the short term. So early this year, Levin contacted CIOs at several universities to get the conversation going, and at the end of July Gig.U's project was announced publicly.

Gig.U's member universities come from nearly every region of the country—from the deserts of Arizona and New Mexico to the mountains of Colorado, and from the heartland states of Nebraska and Illinois, to coastal communities in Maine, Florida, and Hawaii. Most importantly, the research universities of Gig.U represent midsized communities which could potentially benefit from advanced connectivity, according to Kohn. “The universities in Gig.U have strong relationships with the communities around them,” Kohn says, “so we're allowing the universities to do the outreach to communities and surrounding areas [to explain the Gig.U initiative].”

Karl Kowalski, chief information technology officer for the University of Alaska System, says he thinks Gig.U's public/private partnership will bring value for the community surrounding University of Alaska. “While much has been done to connect the University of Alaska Fairbanks to major research networks,” he says, “our communities, our partners and our state could advance this research through innovative testbeds and community involvement if ultra-high speed networks were available to all.”

At West Virginia University, another of Gig.U's member companies, Chief Information Officer Rehan Khan says that the group is looking for proposals in order "to deploy networks not in decades but rather within the next several years." The school, along with Gig.U's other members, hopes that new networks will spur local economies and job opportunities in their regions. Jay Cole, WVU chief of staff who initiated the University’s involvement in Gig.U said, "It is the general population we are seeking to serve and encourage to use University innovation to create new jobs and improve the economy."

On Aug. 18, Gig.U issued a Request for Information in the form of an open letter, saying the group will “consider ways in which multiple Project communities can work together... to improve the private sector business case for next-generation networks.” Kohn says the group has sought input from a variety of communications providers—from national providers like AT&T (NYSE:T), Comcast (Nasdaq:CMCSA), Frontier (NYSE:FTR), Windstream (Nasdaq:WIN), and Verizon (NYSE:VZ), to regional providers like Blackfoot Telecommunications Group in Montana and Smithville Communications in Indiana. “We are doing direct outreach to them,” Kohn says, “and they are also coming to member companies and expressing interest. We've also talked with Google, Lucent (NYSE:ALU), Cisco (Nasdaq:CSCO), and anyone involved in the ecosystem. If providers in the vicinity of one of our members have an idea for how to meet the needs of that community, together, they should definitely respond. It's a learning exercise.” The Request for Information period will end in November.

It's still hard to tell what Gig.U will look like when implemented, but Kohn says much of that will depend on the specific needs and the network configuration of each member university and its community. The group is not seeking federal funding, however, and new network build outs would be funded by Gig.U members as well as private-sector companies and non-profits who join the project.

When asked about the precariousness of a “build-it-and-they-will-come” approach, Kohn said that scenario isn't really a concern in Gig.U's case. “Research universities and the communities around them already have a history of development, and this really creates a cycle of opportunity.” Kohn says this is not unlike the progression to high-speed from dial-up, in the way that high-speed has become a new standard, while creating new applications and advancements. “The risk/return profile for a private company to help build out these networks is better because of the universities,” according to Kohn. “They're more tech-savvy communities. Give them access now and they'll understand what they can do, and with those advances, more and more will start to need it."

Thursday
Jun162011

USF Reform - Their Two Cents: Hargray Telephone Company

Hargray Proposes Broadband Incentive Plan as an Alternative to FCC’s NPRM

On June 9 and 10, 2011, representatives of Hargray Telephone Company (“Hargray”) met with members of the FCC to discuss their alternative plan for USF Reform, the Broadband Incentive Plan (“BIP”). Hargray outlined the BIP in an ex parte filing and in reply comments filed on May 23 in the USF Reform proceeding. The BIP proposes to consolidate high-cost USF support and freeze per-line subsidies at 2011 levels, then tie future support to the number of telephone and broadband lines with a weighting factor based on broadband speeds. I find that this proposal is simple, forward-looking, and market-driven; and it does not discount the accomplishments that RLECs have made thus far in broadband deployment, nor does it leave traditional telephone subscribers in the dark.

Hargray’s ex parte filing describes how the BIP could provide a reasonable transition to a completely broadband-centric USF methodology.  Support distributed under the BIP would be contingent upon the number of broadband and voice access lines per carrier, not how much money the carrier spends. According to Hargray, “due to declining trends in voice access lines, only those carriers that are aggressively building out infrastructure and delivering affordable broadband to their residents and businesses will be able to sustain levels of support at or near their current levels.” Hargray believes this will act as an incentive for RLECs to invest in broadband facilities and keep consumer prices low in order to stimulate demand and adoption.  With per-line support frozen at 2011 levels, a carrier would lose support for each cord-cutter, but then have an opportunity to reclaim a slightly higher level of support for each new high-speed broadband customer.

Hargray’s reply comments outline the possible benefits of the BIP: it could “promote broadband investment, economic stimulus and job growth;” “allow consumer choice to direct what services the fund supports;” and “manage the size and burden associated with the fund.” As for the mechanics of the BIP, Interstate Common Line Settlement support (ICLS), Interstate Access Support (IAS), High Cost Loop Support (HCLS), Local Switching Support (LSS) and Safety Net Additive support (SNA) would be combined, and per-line support would be frozen at 2011 levels. Each recipient of support would become a Carrier of Last Resort (COLR) in their study area. I believe the most interesting aspect of the BIP is the weighting factor for broadband lines. Hargray proposes that a broadband line between 768 kbps and 1.5 Mbps would receive support equal to one telephone line, but as speeds increase so would the support level. For example, broadband lines between 1.5 and 3 Mbps would be equal to 1.2 telephone lines, and broadband lines exceeding 25 Mbps would be equal to 2 telephone lines. The weighting factors could be easily adjusted in the future as the market dictates. Hargray illustrates how support administered under the BIP would reduce over time, assuming providers continue to lose landline customers. The following data was included in Hargray’s ex parte filing:

I believe the broadband speed weighting factor is an excellent alternative to the FCC’s proposed broadband support speed limit of 4 Mbps download, 1 Mbps upload (“4/1”). Although 4/1 may be a sufficient definition of broadband in the very near term, customer demands will rapidly outgrow this definition. I also think it would be very unfortunate if RLECs failed to upgrade broadband infrastructure because they could not receive support for speeds higher than 4/1, but the BIP may effectively solve this dilemma by encouraging RLECs to upgrade networks based on demand and likely customer take rates.

Another benefit of the BIP is that it will not undermine the still-relevant landline business in rural areas. According to Hargray, the BIP does not compromise the progress and investments that RLECs have made in both voice and broadband so far, and it “leverages the benefits provided by the existing [High Cost Support] program by establishing a mechanism that enables recipients to make additional investment in reliable and robust broadband services throughout America.”  Instead of abruptly ending support for landlines, RLECs would continue to receive support based solely on the number of landline subscribers. As customers continue to migrate away from landlines, “the amount of support associated with voice-only services would drop over time consistent with the industry trend of declining voice lines.” Hargray proposes that BIP would act as a bridge to the Connect America Fund and potentially eliminate some of the risks associated with implementing a sweeping reform that could potentially leave RLECs without any USF support—or private investment opportunities. Hargray argues that the FCC “should adopt a structure that does not represent a risky start over.”

I agree with Hargray that the BIP might incentivize some RLECs who have been slow to invest in broadband infrastructure to finally step up their game. Although RLECs have traditionally been leaders in broadband deployment in rural areas, not every RLEC has modernized—this has been a significant source of criticism from the FCC and others, who claim that many rural providers are inefficiently utilizing USF. I think it is very unfortunate that the inefficiencies of a very small number of RLECs have been projected onto the collective RLEC community, and I think Hargray’s BIP could help overcome some of the negative sentiments about RLECs. Hargray shows their concern about this situation, and they argue that the BIP could “encourage companies to not only build broadband networks, but also to build them where customers want them and to price services on those networks so as to spur adoption.”

I applaud Hargray for submitting an alternative proposal because the FCC said from the very beginning of the USF Reform proceeding that they wanted to see solid models and data from the industry. I am particularly impressed with the BIP because it is forward-looking, practical, and logical. Hargray also argues that the BIP will reduce administrative burdens on the FCC, USAC and NECA because support would be based on estimated line counts rather than complex cost recovery calculations. I encourage RLECs to utilize the model illustrated above to calculate how much support they may receive in the future based on frozen 2011 per-line levels and a weighted broadband speed factor. Would your overall support decrease under the BIP, and would the BIP serve as an incentive to invest in broadband facilities capable of higher speeds?

Hargray Telephone Company is an RLEC serving Jasper and Beufort Counties in South Carolina with 41,000 telephone access lines and 16,400 broadband lines. Hargray’s reply comments are available here, and their ex parte filing is available here.

Wednesday
Jun082011

USF Reform - Their Two Cents: FTTH Council 

Fiber-to-the-Home Council Recommends 25 Mbps for Rural Broadband

On May 23, 2011, The Fiber-to-the-Home Council (“FTTH Council”) filed reply comments in the Universal Service Fund Reform proceeding, where they expressed concern about the FCC’s proposal for a broadband speed target of 4 Mbps download, 1 Mbps upload (“4/1”) in rural and unserved areas. Although the FTTH Council agrees that a relatively low speed target may be sufficient in the immediate near term, it would ultimately “deprive rural residents and businesses of broadband performance comparable to that found in urban areas.” The FTTH Council recommends 25 Mbps (in both directions) by 2015, and argues that FTTH is the most efficient and financially prudent broadband technology for high-cost areas—therefore, the revamped High Cost Fund should ensure support for rural FTTH deployment.

The FTTH Council points to the rapidly growing demand for Internet content and applications, such as distance learning, enhanced video conferencing, and HD telemedicine, as evidence that high-performance broadband networks need to be supported by USF.  I believe that in rural and remote areas, high-bandwidth applications can literally mean the difference between life and death, business or no business, and education or no education. The FTTH Council clearly understands the importance of high speed broadband to rural residents, businesses and communities as broadband users increasingly require “Next-Generation Access” (NGA) broadband service.  The FTTH Council cites a report by consulting firm CSMG on consumer adoption of NGA broadband applications, which supports “the conclusion that consumer demand for symmetrical bandwidth is likely to exceed 25 Mbps by 2015.”

In addition to thinking about future demands for high-performance broadband, I believe it is also important to look to the past for examples of why broadband speeds must be forward-looking and well beyond the minimum requirement. Advocates of the 4/1 Mbps target claim that most broadband consumers do not actually need higher speeds because they primarily use broadband to check e-mail and browse the Web. However, this assumption does not consider the adoption and use of future broadband-enabled applications, and according to the FTTH Council, “it is highly likely that innovative applications development will lead to as-yet undefined applications with significant public benefit.” Now-common applications like YouTube, Netflix streaming video, Google maps, Skype and Apple iTunes skyrocketed in popularity as a result of increased broadband speeds over the last 10 years, but continued investment in high performance broadband is necessary so that consumers can continue to benefit from new applications. The FTTH Council provides an interesting infographic on page 14 of the reply comments to illustrate the relationship over time between broadband speeds and “killer apps.” Clearly, as the FCC moves towards reforming the Universal Service Fund to support broadband, the power of innovation must not be underestimated.

In the USF Reform docket, there is prevailing criticism that FTTH is not a financially viable solution for broadband deployment in rural and unserved areas, but the FTTH Council argues that rural FTTH is well worth the private and federal investment in the long term. The FTTH Council urges the FCC to “encourage the rapid deployment of FTTH because it will enable rural telephone companies to more expeditiously meet consumer needs and thereby receive higher revenues and lower operating costs, which then translates into an eventual reduction in universal service support.”  Not only does fiber enable “virtually unlimited throughput capabilities,” FTTH networks also offer “lifetime operating expenditure savings” of $100-$250, which makes the actual cost of FTTH on par with other technologies, savings included. 

The FTTH Council calculates the cost of deploying FTTH to the “last 5%” of rural households as $44b, nearly half of the total $94b cost to deploy FTTH to the last 20%. However, the cost to deploy fiber in the eightieth to ninetieth percentile is roughly $29b, and the FTTH Council urges rural telephone companies serving the that percentile of unserved households to upgrade to FTTH.

The financial aspects of FTTH are definitely attractive from an RLEC perspective, but will the FCC agree that FTTH is the best broadband technology for rural areas? Comments in the USF proceeding show that RLECs are extremely concerned about access to private capital right now, as regulatory uncertainty over USF hovers over lenders like a dark cloud. Private lenders have reservations about lending to companies that may not be able to repay loans if USF support is reduced or eliminated completely in some cases. The FTTH Council argues that the current High-Cost Support program significantly reduces the risks associated with private lending for broadband deployment in rural areas. If the FCC’s USF Reform proposals are adopted, the risk of investing in RLECs will increase, and “investors will demand a higher premium or higher interest rate on debt or loan,” and some investors may refuse capital to RLECs altogether. As a result, the “hurdle rate” for determining if an investment is viable will increase significantly, and some planned FTTH projects may not “get over the hurdle.”  The FTTH Council compares the stability of the current High-Cost USF system to a low-risk structured settlement, but the future CAF support model makes investing in RLEC FTTH projects more akin to a risky startup venture. 

Private lending and USF support go hand-in-hand for RLECs, and are clearly representing a double-edged sword as the USF Reform rulemaking nears decision time. Without continued USF support, private lenders may shy away from RLECs. Without private lending for broadband and FTTH deployment, rural communities will either continue to fall behind in broadband development, or they will lose their broadband provider altogether. The FTTH Council recommends that the FCC combine the current High-Cost Fund with the proposed Connect America Fund to achieve ubiquitous broadband. According to the FTTH Council, the FCC should “preserve and build upon the success of the High-Cost fund and meld the aim of this fund with CAF’s new objective to reach unserved areas.”

The FTTH Council’s reply comments are available to read here.