Federal Broadband Policy: Impact on Minnesota

Minnesota Broadband Summit

Phillip BrownConnected Nation

pbrown@connectednation.orgNovember 14, 2012

Broadband in Minnesota

• 28% of Minnesotans do not subscribe to broadband• More than half of low-income households with children have not

adopted• 79% of low-income seniors have not adopted• 40,000 Minnesota businesses do not subscribe to broadband

“No country, however rich, can afford the waste of its human resources.”

Franklin Delano Roosevelt

• The federal ACCESS subsidy system is changing dramatically• Broadband ADOPTION has stalled – with profound impact upon the

economy and opportunity• USE of broadband by many businesses and institutions is improving – but

more needs to be done to improve connectivity options and use by schools, libraries, health care institutions

2011 © Connect Minnesota ® All Rights Reserved. Do Not Copy Without Written Permission.

National Broadband Policy is shifting towards a multi-faceted approach that

encompasses ACCESS, ADOPTION, and USE

Federal Policy Areas

• Universal Service Policy – the Connect America Fund

• Public Safety• Infrastructure Policy• Affordability and adoption initiatives

High Cost$4.03B

1,900 Eligible Telecommunica-

tions CarriersLow Income$1.75B

13.7M Low Income Households

Rural Health Care$81.5M

3,000 Health Care Providers

E-Rate$2.23B

Over 31,000 Ap-plicants

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The Federal Universal Service Fund

For information on current USF programs www.usac.org

Financed through approx. 15% telecommunications service

consumer fee

$8.2 Billion Annually to Meet Four Objectives

Current high-cost subsidies aimed at

providing voice service ubiquitously at

relatively uniform and affordable rates

The USF in Minnesota (2011)

Minnesota consumers and businesses

contribute $130.2 million per year – a net gain to

state of $4.5 million

Minnesota providers collected $134.7 million

in 2011

$98.9 million for network

deployment to high-cost areas

$5.9 million in discounts for

basic telephone service for low-income persons

$26.7 million in subsidies to

connect schools and libraries

$3.2 million in subsidies for rural

health care communications

• 2010: National Broadband Plan calls for an overhaul of USF High Cost Program transitioning subsidies to directly support broadband service

• 2011: FCC Order Transitions High-Cost Program from subsidies to dial-up in remote areas to “Connect America Fund” – Transition to subsidize provision of 4 Mbps down/1 Mbps up fixed broadband service in

“unserved” areas– Creates a Mobility Fund to subsidize mobile broadband, while transitions out CETC funds– Creates a Remote Areas Fund to subsidize broadband in extremely remote areas (likely

applicable only in states such as Alaska)

• 2012: Phase I– Begin phase-out of duplicative subsidies– Focused on areas where one-time capital injection can spur deployment– $300 million in Mobility Fund allocated– $115 of budgeted $300 million in fixed wireline subsidies allocated among larger carriers

• 2013: start transition to Phase II (ongoing support and competitive bidding)

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Connect America Fund Transition

• Phase I – 2012 – $600 Million One-Time Capital Injection • CAF – Phase I: $300M one-time capital injection to expand broadband across for price cap

territories (Large ILECs: AT&T, CenturyLink, Frontier, Verizon, etc.)• Mobility Fund-Phase I: $300M one-time capital injection to expand mobile broadband across

unserved areas • Phase II – 2013 – 2015 – Annual Recurring Subsidy Disbursements

• CAF – Phase II: – $1.8B in funds to build broadband in all unserved areas of a price cap carrier’s territory across a

state • $2B in funds to build broadband across unserved areas served by rate-of-return carriers

• Mobility Fund – Phase II: $500M annual recurring capital injection • Post Phase II - All subsidies determined by competitive mechanism

• CN Policy Brief: http://www.connectednation.org/sites/default/files/bb_pp/connected_nation_usf_reform_cover_memo_and_table.pdf

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Three Transitional Phases

Universal Service Mindset Changes

• Broadband mapping information and ongoing tracking/reporting will be used to target subsidies efficiently

• Phased and targeted approach, designed to build infrastructure quickly

• Program will be on strict budget and will eliminate duplicative subsidies

• Subsidies will eventually shift to competitive bidding (immediately for mobile, eventually for fixed networks)

• Providers will not receive subsidy to provide service in an area in which broadband and voice are available from an “unsubsidized competitor”

• Rural carriers immediately required to provide 4 Mbps down/1 Mbps up upon “reasonable request” as condition of receiving current voice subsidies

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• CAF – Phase I– A $115M in subsidies has been accepted by price cap carriers in 37 states

• http://www.fcc.gov/maps/connect-america-fund-caf-phase-i– CN Policy Brief: http://

www.connectednation.org/sites/default/files/bb_pp/phase_i_connect_america_fund_commitments_7.26.2012.pdf

• Mobility Fund – Phase I– Reverse auction took place on Sep 2012

• Eligible Areas - http://www.fcc.gov/maps/mobility-fund-phase-1-eligible-areas • Auction Results (795 bids in 31 states and 83,494 road miles) - http://

apps.fcc.gov/auction901/map/auction_result_ext.html – CN Policy Brief: http

://www.connectednation.org/sites/default/files/bb_pp/cn_policy_brief_-_mobility_fund_phase_i_final.pdf

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Current Status

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Potential Minnesota Impact

Connect America Fund Targets in Minnesota

• 13.19% of Minnesota households do not have access to 6 Mbps down/1.5 Mbps up fixed broadband

• 6% of households do not have access to 3 Mbps down/768 kbps up fixed broadband

• 5,456 “road miles” in Minnesota were classified by FCC as “unserved” by 3G wireless and eligible for subsidy

• Mobility Fund: No mobile provider submitted a bid to serve any unserved area of Minnesota

• Fixed Broadband Phase I CenturyLink accepted $10.9 million

to build out to 14,137 unserved locations in 21 counties

4 Mbps down/1 Mbps up deployment to be completed within three years

Only about 4.4% of the homes in Minnesota without 3/768 service

Phase I in Minnesota: Mixed Results

Mobility Fund: Eligible Areas

• Only over 5,000 unserved road miles in 4285 census blocks – dark blue at right – were eligible for Phase I Mobility Fund

• Minnesota Department of Commerce requested that FCC expand the list of eligible areas to include an additional 10,090 census blocks – light blue — that Connect Minnesota mapping data indicated do not have adequate access to 3G wireless service (1.5 Mbps down/200 kbps up)

Why did no wireless subsidy bids in Minnesota?

• Limited Areas: Connect Minnesota and Minnesota Department of Commerce identified 2x as many census blocks without adequate 3G service than FCC declared eligible

• Limited Number of Providers: only four companies were eligible to bid for high-cost wireless subsidies (T-Mobile, Verion, Tekstar and Hickory Tech)

• T-Mobile did place bids to build out in seven other states, but not Minnesota– T-Mobile submitted bids for unserved areas in LA, PA, VA, GA, NM, TX and WA– Average T-Mobile bid: $2,561.22– T-Mobile submitted bids as high as $39,000 per unserved road mile – a bid for $24,096

to serve Llano, Texas was accepted– In the end, T-Mobile is receiving $23 million to build-out 3G and 4G to over 10,500 road

miles in VA, NM, TX and WA• Any Other Possible Explanations?

– Many of the “unserved” areas are in or by National Forests– Is there adequate availability of sites for tower location and rights of way?– Access to adequate middle mile infrastructure?– What can Minnesota do to better attract wireless investment?

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• CAF – Phase I Round 2: NPRM expected shortly to determine disbursement mechanism for remaining $185M

• CAF – Phase II – FCC currently developing cost model to ascertain eligible subsidies in price cap territories

and across areas served by small, rural rate-of-return carriers– CN Policy Brief: FCC Begins Assessment of CAF Phase II Cost Models http://

www.connectednation.org/sites/default/files/bb_pp/connect_america_fund_phase_ii_cn_policy_brief_final.pdf

• Mobility Fund – Phase II – Reverse auctions of $500M in funds in 2013

• Eligible Areas for funding based on SBI mapping data– Fixed - http://www.fcc.gov/maps/section-706-fixed-broadband-deployment-map – Mobile - http://www.fcc.gov/maps/section-706-mobile-deployment-map

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Next Steps

– Subsidizes voice service (mobile or fixed) to low income households • $1.75B in 2011, up from $0.82B in 2008, benefiting 13.7M households• Funding accrues to provider serving household

– 2012 Order reforms Low Income program – FCC assessing possibility of expanding subsidies to include broadband service

• Low-income broadband adoption pilot program - $25M in funding. Deadline for application – August 2012

– CN Policy Brief: http://www.connectednation.org/sites/default/files/bb_pp/usf_lifeline_faqs.pdf 16

Lifeline Reform

2011 Lifeline Disbursement by State (Million)

Minnesota $5.9 Michigan $65.6

Iowa $5.5 North Dakota $2.1

Illinois $67.7 South Dakota $1.3

Wisconsin $20.7 Nebraska $1.6

• Provides discounts to help schools and libraries obtain telecommunications and Internet services at affordable rates

• $2.23B in 2011, up from $1.76B in 2008, benefiting 31,288 applicants

– Learning-on-the-Go: FCC pilot providing $9M to 20 schools to support off-campus wireless connectivity for mobile learning

– State and regional planners can leverage E-Rate to promote middle-mile network investments

• Encourage regional and local coordination to aggregate demand of CAIs 17

E-Rate

2011 E-Rate Disbursement by State (Million)

Minnesota $26.7 Michigan $51.1

Iowa $12.9 North Dakota $4.2

Illinois $92.6 South Dakota $2.3

Wisconsin $3.3 Nebraska $9.6

Infrastructure

Many of these often-hidden infrastructure

costs can have disproportionate impact

in rural areas

As much as 20% of costs of fiber construction are related to cost of pole access, permits, rights-of-way, and related charges

More than half of the cost of trenching fiber can be shared or avoided through “dig once,” open-trenching, or conduit policies

Minnesota Broadband Task Force has appropriately focused on this issue – and federal policy is shifting

Infrastructure: Policy Response

Middle Class Tax Relief and Job Creation Act of 2012Requires common federal land permitting form for broadbandRequires a “direct cost recovery” fee for federal permits for broadbandLowers cost and expedite timing of locating and modifying wireless

facilitiesShould have an impact on National Forests in Minnesota’s North

• June 14, 2012 White House Executive Order 13616• Significant changes to federal rights-of-way policies, as called for by National

Broadband Plan• Implements “dig once” policy of installing underground fiber conduit along

federally-funded highway where appropriate• Requires every federal agency (including Interior) to “develop and implement a

strategy to facilitate the timely and efficient deployment of broadband facilities on Federal lands, buildings and rights of way

• Nation’s lack of an interoperable wireless network for first responders was highlighted by the 9/11 Commission Report – and spectrum has been reserved since 1997 for this purpose!

• Middle Class Tax Relief and Job Creation Act of 2012 created and funded the First Responder Network Authority (“FirstNet”)

• FirstNet’s mandate is to design, build, operate, and maintain a public safety broadband network that will have both rural and urban coverage

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Public Safety Broadband

• FirstNet is an opportunity to expand broadband in rural Minnesota

• FirstNet must leverage existing public and private infrastructure and can be used to support “secondary users”, which may include other governmental agencies and the private sector• Priority mobile service to Public Safety community, but

network can be leveraged by secondary users: Commercial operators, Community Anchor Institutions, state and local government

• Coordination with state and local authorities essential • Essential to leverage SBI broadband maps and regional planning

efforts to expand broadband21

Public Safety Broadband

CN Policy Briefs:SEP 28, 2012 - http://www.connectednation.org/sites/default/files/bb_pp/cn_policy_brief_-_firstnet_board_meeting_09252012_final.pdf AUG 23,2012 - http://www.connectednation.org/sites/default/files/bb_pp/cn_policy_brief_-_firstnet_notice_web_version_082012.pdf

For more information:http://www.ntia.doc.gov/category/public-safety

http://dps.mn.gov/divisions/ecn/programs/armer/Pages/studies-reports.aspx

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Public Safety Broadband

FirstNet is…

A federal agency “administered by” the U.S. Department of Commerce An independent Board of 15 members – three statutory federal members

(DHS, DOJ, OMB) and 12 appointed from the state, local, public safety, and industry community

An exclusive wireless license holder of the public safety broadband license A wireless network operator with a budget of $7 billion that will build a

nationwide wireless network and sell service to public safety agencies A regulated firm that will have to meet substantial rural deployment

milestones, leverage existing commercial infrastracture “to the maximum extent economically desirable”, ensure interoperability of equipment and services, and be subject to regulation of the price of its services by the Department of Commerce

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What is FirstNet?

• Minnesota Department of Public Safety estimates that building a public safety broadband network in Minnesota will cost $185-315 million in capital and have annual operating costs of $14-15 million

• Translated nationally that is a total capital cost of over $16 billion and annual operating costs over $300 million -- and FirstNet has only a $7 billion budget

• Solution:– Rely extensively on existing commercial and state infrastructure to

lower costs– Actively seek out local public/private partnerships that will hopefully

uncover additional users of the network– Work closely with the state, local and Tribal governments to lower

costs and make FirstNet services attractive24

FirstNet’s Challenge

– Continue improving accuracy and completion of SBI state broadband maps– Promote PPPs to expand broadband in unserved & underserved areas leveraging various

CAF programs– Promote middle-mile network investment by encouraging local and regional CAI demand

aggregation (schools, libraries, public safety, government)– Coordinate state and regional planning efforts to jointly leverage CAF, Lifeline, E-Rate

FirstNet, BIP and other federal funding sources

• State regulatory agencies– Help inform stakeholders of funding opportunities at FCC – Encourage providers to become Eligible Telecommunications Carriers for the funding under

the USF program – Work with state and local authorities to accelerate private investment

• Streamline construction planning processes and remove barriers to state & local RoW– State USF program to complement USF and other federal funding opportunities?

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Role of Regional and State Authorities

– FCC Contribution Reform• Request for Comment issued in 2012 to begin process

– FCC Reports and Projects on Broadband Deployment, Speed, Competiveness

– TV White Spaces• FCC Order: http://

transition.fcc.gov/Daily_Releases/Daily_Business/2012/db0405/FCC-12-36A1.pdf

– Spectrum Allocation– Connect To Compete

• FCC enabled broadband adoption non-profit• Connected Nation steering partner in effort• Many partners including Intel, Microsoft, Goodwill, Best Buy, 19

broadband providers, Discovery, Sesame Workshop26

Other Issues

Translating Federal Policy Changes to Local Opportunities

• Taking advantage of federal policy that is now targeted at gaps will require targeted local solutions

• State and local Infrastructure policy matters

• Public/Private Partnerships can foster increased adoption and use, which will lower per-customer cost of deployment

• Local aggregation of demand for broadband can lower risk and attract investment

2011 © Connect Minnesota ® All Rights Reserved. Do Not Copy Without Written Permission.

Creative and Multifaceted Approaches can Expand Broadband Availability, Adoption, and

Use in Minnesota