We are back again today for the second part of the interview with New Lisbon CEO John Greene. Rural, independent telcos have a unique relationship with regulators, often being responsible for connecting economically hard to reach areas with broadband. Various federal programs have helped to address the needs of such areas, the latest of which is the Rural Digital Opportunity Fund, or RDOF. Let’s delve into the view of such issues from the perspective of an independent rural telco.
TR: What changes are you seeing on the regulatory front that may affect smaller telcos?
JG: There is a lot of talk now that at the state and federal level they are going to start looking at small telcos that can’t do more than 25Mbps. In RDOF stage 2 the FCC is mulling over throwing some of their territories up for auction, which would be devastating for a lot of these little companies. That’s why a lot of companies like New Lisbon have been on a tear to build out as much as they can. Otherwise, the FCC could step in and take it all away and give it to a WISP or satellite company like Starlink.
TR: Could a wireless ISP really take over a rural ILEC service area at this point?
JG: I very strongly believe that WISPs have a place to play, and we are a WISP ourselves. However, I don’t believe in gigabit wireless. It’s a physical and technological impossibility in the rural areas. I have a hard time with WISPs saying that we can provide everybody 100Mbps service because I know with the amount of bandwidth that’s available off of the tower. You can’t get enough bandwidth on the radios and with the frequencies available today to provide 100Mbps service to 200 or more people. It’s physically impossible. It’s all about bits per hertz. But in their infinite wisdom the FCC, when doing things like CAF II and RDOF, never says one has to provide this level of service for 100% of customers, just that you have to do it for some number or percentage of customers. So if I’m a wireless company and I’m bidding in the 100Mbps and I pick an area with 1,000 customers, I only have to be able to provide service to the few people that want to buy 100Mpbs and I’ve met their needs. But if I’m a fiber builder, I’ve built a network that can provide that amount of service to 100% of the customers that I pass. It’s apples and oranges, and the federal government hasn’t figured that out yet. I’m not trying to say we should wash away the WISPs and the satellites. They have their place, but at the same time they shouldn’t be on a level playing field with a fiber network.
TR: So how has RDOF played out in your area so far?
JG: We bid on over a dozen areas in RDOF. We won one, and the others were won mainly by two companies: one which doesn’t have any network near any of the areas that they won, and the second which doesn’t even have a network in the state of Indiana. The question comes to mind how can they bid down below 20 or 25 percent of the support and build a fiber network, when someone like NLTC who has network already there can’t do it and make it cash flow. In each of these areas that my company bid on, we already had backbone touching it and all we were going to have to do was build off of that backbone. But we still needed at least 20 or 25 percent support to make it work, to make it pay for itself in 10 years.
TR: Why would they make such bids then?
JG: It is a land grab. First you bid on everything you can bid on, and when you get it then you go through the details, look at the maps and the numbers, and decide which areas to keep and which you don’t. Then you just throw the rest back to the FCC and pay the penalty. The penalties are small enough, so why wouldn’t they? But then the people in those areas will have to wait another couple of years before they get another auction.
TR: How might you have designed RDOF to prevent this kind of thing?
JG: First and foremost, I would have never given wireless the ability to bid gigabit, because that’s technologically not been proven. In five or six years we might be able to do it, but the auction is today not in five or six years. You have to set the rules based on what’s available today. Second, I would have moved the majority of the Long Form application to the front end and prequalify companies, their technology, and their financial prowess before I even allowed them to bid. By doing that, I think that we would have weeded out those who are not going to be able to financially do it or whose technology doesn’t pass the smell test.
TR: What about nextgen satellite players like Starlink?
JG: Despite what Elon Musk has said about Starlink, I would not have allowed him to bid in an auction on technology that’s not been proven. If he wanted to participate in RDOF, he could wait till the next round. Right now, he hasn’t even launched half of the satellites, so how can we properly evaluate the technology to see if it’s going to work? There are a lot of white papers out there that say when they start loading those satellites up, they’re going to choke. The state Starlink had the highest number of wins was on the East Coast, Rhode Island I think, which makes no sense at all. But if it’s a density of less than X number of people per square mile then satellite makes perfect sense because we know fiber’s never going to work and even wireless may have a tough time. Wyoming, Montana, parts of Alaska, parts of Arizona, Nevada, western Kansas and western Nebraska, there’s places out there satellite could make perfectly good sense.
TR: What other roadblocks stand in the way of small telcos when bidding in such auctions?
JG: The FCC has been very restrictive in the way that they work the financing and the letters of credit. In essence, you have to have an irrevocable letter of credit from a major bank that says that this company is going to be good for two to three years worth of support. If you want a billion dollars worth of support over 10 years, you have to secure a letter of credit for $200-300M. The only way these banks do that for smaller independent telcos is if you deposit two hundred million dollars in their bank, which is tough or impossible for some of these smaller companies. Had we won a dozen or so of those areas we bid on, even we would have struggled on the letter of credit because it would have been millions and millions of dollars that we would have had to set aside. We could have done it, but we’re kind of exceptional when it comes to that. That’s why when you look at the big RDOF winners, you see companies close to the financial markets and not rural telcos. Even rural electric coops were having a tough time. As regulated businesses they have easier access to cash, but tying up those funds for a decade doesn’t make sense.
TR: What role do you see the REMCs playing in all this? Where do they fit?
JG: Interestingly enough, the REMCs are often in the catbird seat for providing rural broadband for two reasons. First, they’re not out for profits as long as they break even, and they can push that profitability out for 20 years. But second, and something that people don’t realize, is that because telecommunications companies are involved in a competitive business, they don’t have access to capital like an REMC does. Telcos are considered a much higher credit risk than the local REMC because the REMCs are still in a non-competitive position providing local power distribution.
TR: What other changes to federal programs are you keeping an eye on?
JG: There are some grumblings and some bills rolling around Congress right now to start bumping up E-Rate such that E-Rate participants can actually provide Internet service in the home under the E-Rate program. I saw an article about a school district out in Utah that got a $350K grant from the federal government, and they built a CBRS wireless network off of each one of their schools in this town to provide free internet service to the students. And that’s cool, but there are caveats. First, CBRS is line-of-sight, so you only get maybe 80% of the students. The other 20% have to pay for theirs. Second, anybody can build a network, it’s maintaining the network that is hard. Third, when they build these networks, they put filters on their internet access so you can’t do anything on the internet except school work during the school day. So it’s really not a substitute for commercial internet, and even after hours, they block things they deem not to be healthy for the students. That takes you toward a nanny state like China where they put filters on everything and the people only get what they want you to get. Finally, this does nothing at all to help people in the rural areas. In town there may be internet, but two miles out of town there is still nothing. But that’s always the problem in rural America.
TR: Thank you for talking with Telecom Ramblings!
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