Get Real: Bring Down the Price of Rural Internet Backhaul

Everyone agreed. It’s time to bring down the cost of rural backhaul where its exorbitant. When I went to the OPASTCO meeting of rural telcos, their leader, John Rose, told me this was a crucial issue for them and that “OPASTCO would be at the FCC every day to get this done.” I got the message.

Last September, the broadband plan presentation to the commissioners pointed out these excessive backhaul costs were 25%-40% of the problem. I made a bad mistake not moving on this immediately because I didn’t understand the issue. If I had, hundreds of thousands of homes would be connected by now and prices across rural America would be falling. And it wouldn’t require a penny of public money.

Stupid. So I’ve asked the wireline bureau to use special access where wholesale Internet connections cost more than 3x the national average.

We have an open proceeding called special access with enough of a record that we can come to a decision any time — even next week. Internet connectivity costs $5-15/megabit in most of the country, but far too many rural carriers have to pay prices of $100 and even $200/megabit. This came up time and again at the broadband plan workshops.

The explanation is simple: in many areas, there are only one or two fiber connections to the net and they can charge monopoly-like prices. It costs little more to deliver a 1 gigabit backhaul connection in the most remote part of the country, as long as fiber is in place. Fiber is in place to phone company offices almost everywhere. It was paid for decades ago in telephone rates and is typically fully depreciated. Most areas have spare capacity and dark fiber; for others the cost of upgrading with WDM gear is paid for in a few months.

This is a classic market failure. So I’ve asked the wireline bureau to immediately draft regualtions incorporating these principles recommended by the broadband planners.

1) If the price for wholesale Internet connectivity in any area is more than three times the national average, there is a rebuttable presumption of market failure. If there are special high costs – like a requirement to run more fiber – then the case needs to be examined individually.

2) Where there is apparent market failure, we will ask all the parties to engage in 90 days of mediation to come to an equitable rate. This will resolve most cases without any formal regulation.

3) After 90 days, if no agreement is reached, we will ask either the wireline bureau or an administrative law judge to set a rate based on the evidence. Because the results of a proceeding like that are unpredictable, I expect most parties will reach an agreement and avoid the process.

4) Anyone who receives a reduced rate under this program must file a simple form every six months for the first two years and every year thereafter. It will report the availability, pricing and take rates for broadband in their territory.

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The best thing about using special access is it will dramatically reduce Universal service costs. Rural carriers getting reduced rates will be able to reduce costs with less expensive IP transit and therefore will need less of a subsidy. The schools, libraries, and health clinics supported by universal service will save money because their bandwidth costs will go down as well.

The right amount of regulation is as little as practical but no less. This is natural.On August 18, 2010, in Jules, by notjulius


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