Tales from the Towers, Chapter 44: Why the Connect America Fund should be abolished

This article addresses why the Connect America Fund should be shut down and what steps can be taken to encourage competition in the market for wired and wireless broadband services.

I’ve mentioned many times that I believe our current government is simply clueless.  Unfortunately, I’ve come to realize that it’s simply far worse than that. If you combine corruption, selfishness, ignorance, arrogance, cronyism, stupidity, and incompetence in one package, that would pretty much describe the bloated, bureaucratic mess that is the US Federal Government. I’m not saying that there aren’t good people in the government; but as a whole, it’s simply pathetic. And this starts at the top and weasels its way down to every penny given to almost every private company, courtesy of politicians and bureaucrats who are either paying off someone for getting elected or through the concept of the welfare state. This didn’t start 5 years ago but has been going on for at least 100 years or more. Most of us never saw it or even paid attention unless they gored our ox. At this point though, the WISP industry’s ox is not only getting gored, its remains are multiplying and being spread across the land.  I believe the other name for this is manure.

The amount of waste and inefficiency in the government is legendary. There isn’t a single program in the government that isn’t mismanaged or in debt for untold reasons. Most of them still leading back to our elected officials who themselves at the Senate and Congressional level can’t even keep their own unethical house in order.  So given the government’s track record, why in the world would anyone even think they can competently manage broadband grants?

The USF (Universal Service Fund) is a perfect example of corruption and incompetence. I can’t figure out what possible reason our representatives have to continue this legal embezzlement of money from consumers and businesses. It simply gets funneled to AT&T, Alltel, Verizon, CenturyTel, and tons of other companies that know how to game the government capitalistic welfare system. Now I find out that Carlos Slim is taking the biggest chunk of Obamaphone plan. It’s as bad as setting up an auction of the most desired frequencies for NLOS operation that only the very biggest companies could possibly pay for. That was simply a stupid idea the first time and since we now know that, it’s even more amazing they are repeating it.

Apparently Verizon and AT&T don’t have enough of a monopoly of the best frequencies in the RF band.  It wasn’t enough to prevent competitors from coming into the market the first time, now they just simply feel the need to finish off their competition at the expense of the American consumer.  How about this idea: Cancel the auction and make those frequencies unlicensed bands, so that small businesses and innovators can actually compete against them. Oh wait, I forgot to schedule my Congressmen a chartered flight to play golf in Puerto Rico to explain that to him. Apparently they can only understand that information on the 8th hole under a Caribbean sun. I just can’t remember all the rules to influencing my politicians but when I do, I can move to the highest income zip code in the United States that just coincidentally lies in Washington DC area.

The FCC and the Connect America Fund are doing absolutely everything wrong that they possibly can to stop the creation of new businesses in the United States. Communications should be an area where innovation can thrive, not get stifled.  All this because the government thinks it’s smarter than the business community. It picks winners and losers and gives a bunch of money to specific companies to put their competitors out of business.  One problem is that smaller businesses can’t devote enough resources or have the experience to wade through the amount of paperwork needed to get a grant.   They are too busy doing their jobs which should be growing their business, not babysitting bureaucrats and politicians.  These people feel the need to simply justify their existence or spend all the money they were budgeted so that budget doesn’t get reduced next year.  Now toss in the biggest companies that not only have dedicated grant writers, but accountants and lawyers that can shred through a USF or CAF grant like I go through a plate of Raviolis.  I just can’t figure out what group of rocket scientists thinks this is a good idea.  It definitely shows the difference between the mentality of the average government worker or politician and a productive business owner in this country.  The desire to meddle in private industry must be a prerequisite to get a job with the government.

What is also evident is that the FCC didn’t learn from the boondoggle that was the USF and just shuffled the money over to CAF (Connect America Fund).  We don’t eliminate government bureaucrats; we just transfer them to other dysfunctional divisions.  I think the telecom industry threw a black-tie gala event when this happened in 2011 to celebrate the fact that there was a whole new program from which to suck money.  The bonus for CenturyLink and AT&T is that it is run by the same bureaucrats who gave them billions of dollars in the past.  They clearly know that they can manipulate government bureaucrats like mice in maze.  These would also be the same people who gave millions of dollars to companies in Arizona, Colorado, and Florida that were supposed to deploy a wireless backhaul and fiber system that either nobody can find or nobody uses.  Brilliant!

If the Connect America Fund just went away tomorrow, the only people who would miss it are the big telecom providers.  Just think, tens of millions of taxpayers would get an instant reduction in their cell phone and telephone bills, the big telecom companies would actually have to figure out how to run a business without government subsidies, and rural users wouldn’t have to live with outdated DSL service subsidized by the government.  Private investors also wouldn’t have to worry that the millions of dollars they invest in an area gets wiped out by their competitors who just got an ill-researched CAF grant.

I’m also thinking that maybe wireless manufacturers might actually want to invest in next-generation technologies if they know that they may have lots of potential customers, not just a few big telecom providers.  This increases their exposure to varying market forces like Dragon experienced when Clearwire stopped purchasing their equipment.  SkyPilot was also a victim of that when MetroFi went under.  But let’s keep recreating those market environments because the concept of diversification doesn’t have any value to a business.  Maybe we should force every politician and bureaucrats who doles out money to attend some class on the concept of capitalism or the free-market because they seem totally focused on destroying it.

More WISPs or ISPs would also enter the market very quickly if the playing field were fair.  Especially if they don’t have to compete against a government agency that used to think DSL was the future or that everyone needs fiber to their home because it’s so important to watch NetFlix in HD.  So the same people who can’t afford non-subsidized Internet are the same people who can afford 60” TV monitors to watch HD NetFlix.  The logic here is so stupid that if it wasn’t true, I would think it was funny.

This boondoggle of an agency is so bad, Comcast and Cox, two highly competitive cable companies in Arizona that wouldn’t share an Oasis if it was the only water in the desert, drafted a joint letter to the USF telling them to quit giving money to CenturyLink (formerly Qwest before CenturyLink figured out how to feed at the USF trough by buying small, rural companies).  The pointed out that it’s anti-business and makes it hard to compete against them.  They can’t justify investing in Arizona if CenturyLink is getting an unfair advantage.  You would think after this type of letter, the head of the FCC would get a clue; but no, it wouldn’t be the government way.  Hopefully the incoming FCC Chairman wakes up to the fact that they could save the taxpayers a whole bunch of money by doing the right and logical thing and closing down the Connect America Fund.  Of course, then the Chairman would have a smaller budget, less power, and all the things that are against a bureaucrat’s code of conduct.  They also wouldn’t be able to funnel money to companies that elected their boss; but if that ever stops, I’ll probably be shoveling snow out of my driveway in Arizona at that time.

To take this a little further, CenturyLink already has a huge monopoly in Arizona.  They get to write the rules if you want fiber into most areas since they are the only game in town.  For example, we just got a quote from them for a 1Gbps fiber circuit out to a WISP area that they cover which is about 20 miles from Tucson. They already have fiber all over the area and offer 20Mbps DSL on one side of the street and maybe 640K to 7Mbps, assuming it’s not raining in which case it just shuts off.  They charge $40 plus all the insane taxes the government can sneak by the clueless taxpayers for internet (yes I know, $19.95 per month for internet but only if you have the $25 phone service and even more taxes which totals into the $50 plus range).  However, the fiber is there and it’s all brand new.  We asked them for 2 quotes for fiber, 50Mbps and 1Gbps.  The 50Mbps circuit was about $2300 per month plus some taxes.  A little high but not unreasonable based on some other areas I’ve worked in.  Now sit down for this next one.  The 1Gbps circuit was $23,000 per month.  Thank you USF for investing a couple billion dollars in them over the last few years so that they could meet the criteria that, how did you put it in your goals:

“To promote the availability of quality services at just, reasonable, and affordable rates” or maybe this one, “To increase access to advanced telecommunications services throughout the nation”.

I’m still a little baffled on how $23K per month for a 1Gbps circuit falls under either one of those categories.  I’d almost rather be trying to do this in some third-world countries because at least I know which department officials I need to bribe to get a reasonable connection.  It’s far easier than trying to figure out how our government thinks this advances the needs of its citizens.  I do know CenturyLink is really happy and they aren’t the worst offenders.  AT&T and Verizon get even bigger leaches.

Since the USF was such a brilliant idea, our government in its infinite stupidity and perfectly represented by the FCC, decided to switch the fund from expanding phone service to expanding Internet.  Apparently by 2011, between cell phones, copper, fiber, and satellite, our citizens were now smart enough to get their own phone service.  So now they need help getting Internet service.  Apparently we needed faster Internet access to everyone’s house and dwelling because somehow that was added to the Constitution as a taxpayer-funded right.  I just didn’t get the memo.  Doesn’t matter that every library, school, McDonalds and Starbucks has free Internet access already and low-income taxpayers can get it for $10 a month from most providers.  It also doesn’t matter than anyone in our country can get a free cell phone with text messaging.  That program is so efficient, that some people even have 4 or 5 cell phones, regardless of need or income.  Oh wait, that’s only about $700 million wasted every year which is a pittance by government standards.  I won’t even get into the tens of millions of dollars CAF has already wasted and it’s only 2 years old.  But since CAF is now requiring fiber, we can waste money and grow inefficient companies faster.  That’s a great track record to build upon.

Now, let’s put this in perspective because common sense simply doesn’t exist within the government.  Right now we are losing jobs in this country at a rate of 5-1 over jobs created.  Regardless of what the unemployment figure is at, people are leaving the workforce, are underemployed, or are unemployed at a much higher rate than new jobs are being created.  There is also a couple trillion dollars or more being held back by businesses because of fear of the economy, taxes, and Obamacare costs.  The new “Connect America Fund” collects $4.5 billion dollars per year.  I say again, there are trillions waiting to be invested or spent which last time I checked, was significantly more than $4.5 billion.  I get that not all of that would be invested in telecom, but the current yearly spending level for the cellular and wired infrastructure far exceeds that amount anyway.  The only people who get hurt are the small ISPs that are far more efficient.  If someone in the Connect America Fund needs to see the math on that one, please let me know, I’ll be happy to whiteboard it for you.

Government programs like Solyndra, Fisker, A123, etc. show you that government is already the least efficient and most incompetent money manager on the planet.  So what would happen if the government –

  • didn’t collect that $4.5B dollars,
  • invest in outdated DSL service with companies such as AT&T and CenturyLink,
  • let Comcast, Cox, and other cable companies compete fairly,
  • let WISPs not worry about future fiber investments by competing government-funded entities?

More than likely, the telecom industry and Internet access would move forward much faster backed by much more than $4.5 billion.  Many jobs would be created and new companies started, and if fiber were the right answer, then it would get put in by private industry so fast, that moles would be running for cover.

However, fiber everywhere is not the right answer everywhere today and the Connect America Fund is totally the wrong answer.  And as I’ve argued before, the number of people who really need more than 10Mbps today is negligible.  There is simply no application for it.  HD video is less than 8Mbps.  Even if you are the Brady Bunch, it’s easy to push today’s wireless technologies in suburban environments to 20Mbs.  Since we can do that wirelessly now for 1/100 the cost of fiber, what possible reason do we have as a country to keep stealing money from one part of our economy to funnel to back the biggest players in the telecom industry?  Here is the reality, if they really are that good, why don’t they have fiber everywhere already?  Here is the answer, it doesn’t make economic sense.  That’s when the government steps in and says, “We know better than the private sector and pandering to our constituents is what we do best.”

Competing with cable and DSL providers is my favorite topic and $23K per month is a pretty good motivator to find an innovative solution.  If you can get bandwidth costs to about $5 per Mb per month and use some of the methods I’ve described to limit torrents, malware, and other useless bandwidth    applications, your cost of actual bandwidth per customer is about $1 per month.  That’s a profit margin of 95%. What other product can you possibly resell with those kinds of numbers?  Being an Internet provider is one of the most profitable businesses that anyone can have.  That alone should tell the government to get the heck out of the way and let the free enterprise take over.  We haven’t done such a great job as an industry with government intervention and localized monopolies, but new wireless technologies mean that twisted pair, cable, and fiber aren’t the only games in town any longer.  Verizon pretty much told you as much last quarter when they realized that their profitability is in cellular, not copper or fiber.  And if anyone doesn’t think there isn’t already enough fiber in the ground to meet the needs of most WISPs in suburban areas, pick pretty much any main street with a traffic light and start trenching with a pick-axe.  You will start hitting fiber pretty quickly.  You will also probably get arrested but hey, my point will have been made and that’s what’s important here.

Although it takes a little footwork, research, door knocking, hand-shaking, and you must have confidence in the wireless equipment you use, it isn’t very hard to extend backhaul across any city without local loop cable or a tower.  CenturyLink’s insane price quote had me spending a few days knocking on doors to find a way around them.  It paid off even though it may take 5-6 hops.  It also isn’t expensive since after several years, we know a 50Mbps Ubiquiti connection at up to 5-10 miles cost less than $200 and a 100Mbps with a Titanium Rocket is less than $600.  In my case, most of my hops are 1 mile or less which is even easier and cheaper.  I will be providing free Internet access to a couple small businesses, 3 homes, and a bird-feeder, but I got my backhaul to bypass CenturyLink.  In the future, I will upgrade to at least 24GHz which raises my cost to about $20-$25K.  Throw in my data center costs at about $2K-$4K per month and my ROI on avoiding a company that has clearly taken advantage of bureaucratic and political naiveté, and my ROI is less than a month and a half compared my original, government subsidized quote.

The sad part at this point is that CenturyLink isn’t even covert about destroying small businesses with the help of the inept FCC.  Last year they asked for $75 million to wipe out over tens of successful WISP operators under the pretense that the WISPS aren’t serving the community needs.  They even named the WISP companies by name, that’s how little respect they had for the bureaucrats to understand what they were attempting to do (or maybe the bureaucrats knew and just didn’t care).  There are so many things wrong with this proposal, I don’t even know where to start.  I’m just baffled as to why in the heck does a $40 billion dollar company need an extra $75 Million dollars to compete against other companies?  That alone should tell you that CenturyLink knows that their deployment strategy is inefficient and unprofitable so they wouldn’t invest their own money in it.  They want the taxpayer’s money since they know the bureaucrats managing it don’t know a flying donut about business or profitability.  The damage they do to competitors when the federal government intervenes along with the waste of taxpayer’s money is simply criminal.  What nobody ever talks about though, is the amount of money it takes to run an agency that spends this money.  With retirement benefits, lavish Vegas and Hawaii vacations (err, training conferences), and giving these bureaucrats private health care and retirement programs, all funded by taxpayers, it’s at least hundreds of millions of dollars.  Personally, I think the FCC should fire one bureaucrat for every net job that gets destroyed from their incompetence.  Then they might do their homework and see the damage their decisions make.

The other issue involves the complete lack of outrage and backlash to CenturyLink from the FCC when they were specifically told that this request for funding would do damage to or wipe out those companies.  That should have triggered an investigation into the program immediately.  It was obvious that this was just a continuation of CenturyLink’s modus operandi from the beginning.   Where else did it happen and which companies were damaged by it?  Unfortunately that would involve someone in the FCC actually doing the right thing for both businesses and taxpayers.  It was evident by the 700MHz auctions that the FCC doesn’t give a hoot about consumers, innovation, or small business in this country.  Fortunately for everyone, WISPA stepped in to help them do the right thing since CAF administrators are clearly incapable of understanding the damage they could have caused by awarding this grant.

Enough is enough.  Small businesses such as WISPS shouldn’t have to be vigilant on every grant submitted to the USF.  Big companies count on us not catching them sneaking proposals by while lazy or ignorant bureaucrats just rubber-stamp everything they do because it’s good for the country.  I’m going to tell you what I think is good for the country.  Close the Connect America Fund, fire everyone in that department, and quit stealing $2.50 from everyone American who wants to use the phone.  Quit selling the best frequencies to the biggest companies, this further inhibiting and crushing small business that employ the majority of people in this country.  Get out of the way of private industry and let them move forth with technology that can revolutionize internet access in this country.  Empower the wireless industry with bigger low-frequency bandwidth resources than the stinky little 6Mbps scraps the cell phone companies didn’t want, for good reason.  Do that and I guarantee that the private sector will expand and deliver the right services at the right prices for the consumer.  We may yet get a fair business market here in the US if all the WISPs stand up and say, “I’m mad as hell and I’m not going to take it anymore”.

See http://www.fcc.gov/encyclopedia/connecting-america

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Previous article: Tales from the Towers, Chapter 43: Galactus – Destroyer of Wired Worlds

Next article: Tales from the Towers, Chapter 44: I’ll give you two 5s for 10 (why wireless ISPs should use the 10 GHz band for backhaul and why the FCC should approve unlicensed use in this frequency band)

About Rory Conaway

Rory Conaway has been in the IT and Wireless Industries for the past 25 years as an author and consultant. He currently operates a growing WISP operation in Southern Arizona. He consults with investors, manufacturers, and WISPs, and develops financial business models for startups. In addition to writing articles in industry publications such as Mission Critical Magazine, Mr. Conaway also writes the series “Tales from the Towers” that can be found on various such as www.triadwireless.net and www.muniwireless.com. He has also engineered several wireless designs such as S.P.I.R.I.T. and Guerilla Wireless as well as building integrated wireless and video surveillance for airport security, municipal and critical infrastructure, SCADA systems, and hotel/MDU deployments.

Comments

  1. Rory, tragic, but true. As long as the regulators lack a good analytical engine, we will continue to subsidize inefficiency. The irony is that with equal access and competition we were on the path to market driven universal and free access in the 1980s and 1990s.

  2. Rory Conaway says:

    Do you think I should put my name in as a nominee for the FCC?

  3. Rory, you would make a fine FCC chairman. Alas, you did not contribute a billion dollars to the Obama campaign. Obama just appointed Penny Pritzker, a billionaire and fundraiser for his campaign, to become Commerce Secretary. So the US now has a government of the 1 percent, for the 1 percent, by the 1 percent.

  4. rory Conaway says:

    I like that 1 percent comment. So much for lobbyists not getting appointed to his cabinet. When we finally figure out neutrino and entanglement radios, the FCC will become irrelevant and this administration will be held up in history class as an example of how to destroy a country from within.

  5. Carl Johnson says:
  6. Rory Conaway says:

    And here is another “successful” $100M government funded project

    http://www.denverpost.com/breakingnews/ci_23192781/eagle-net-seeks-third-party-manage-colorado-broadband

    I think it’s time to redefine the definition of insanity.

  7. Mike Calvin says:

    I fully agree with you brother. I have fought them tooth and nail in my market and they have even tried taking credit for my expansion in the press.