Broadband Communities

JAN-FEB 2019

BROADBAND COMMUNITIES is the leading source of information on digital and broadband technologies for buildings and communities. Our editorial aims to accelerate the deployment of Fiber-To-The-Home and Fiber-To-The-Premises.

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J A N U A R Y / F E B R U A R Y 2 0 1 9 | w w w. b r o a d b a n d c o m m u n i t i e s . c o m | B R O A D B A N D C O M M U N I T I E S | 2 3 its financial strength. If multiple entities apply jointly, each must provide two years of financials and pledge some specific assets to the newly formed applicant. As mentioned earlier, grant applicants must provide a 25 percent match. STRATEGIES FOR DEPLOYMENT One would think all these restrictions, which existing carriers lobbied for, would deter a lot of potential competitors. But already I hear about rural folks planning creative end runs around the ReConnect rules. Some of these end runs even include the participation of national carriers. A few examples: • Reverse cherry-picking. A new competitor in a given area can join forces with an existing incumbent local exchange carrier (ILEC), competitive local exchange carrier (CLEC), fixed wireless ISP or franchise cable operator to combine multiple underserved contiguous areas in which the existing operator provides less than 10 Mbps/1 Mbps service. ese are probably outlying areas around minimally served small communities that, if included, would keep the outlying areas from qualifying for funds. e joining entities will be able to show financials. e new joint entity will be separate but wholly owned, most likely a CLEC. is reverse cherry-picking strategy may even work for a 5G deployment, as 5G is currently considered a fixed, not a cellular, technology. In this arrangement, a local company partners with a national cellular carrier to deploy 5G and associated backhaul. e local carrier benefits because it won't be stuck providing low-margin dark fiber to someone else's 5G microcell. e national carrier benefits because it can share the 5G microcell sites and efficiently use all the spectrum available to either party and because the RUS subsidizes the backhaul network. e local company may have to give up its right (and obligation) to provide landline and/or video service in an area that it isn't serving well anyway. • Cellular cooperation . Small unserved or underserved towns have proposed to build large cell towers, rent them to national cellular carriers and share the new fiber backhaul with the carriers. With an anchor tenant assured and with ReConnect loans or grants, the town can then build a fixed network to its homes and businesses. A typical large tower can be built for well under $1 million. Leasing space to carriers saves them significant legal costs and zoning battles. Often, national carriers have fiber trunk within reach but would charge local communities a hefty premium to connect. e carriers could exchange that premium for access to customers at a low cost. Cellular carriers likely don't have to worry about competition from the new entity because ReConnect doesn't subsidize cellular service. (However, the new entity may have to account for cellular competition in its business plan if improved cellular service leads to more smartphone-only customers.) e one deal of this type I've seen envisions fiber and point-to-point wireless backhaul, some of it reaching 5G microcells as they are deployed. • Regionalization. Regional or municipal carriers can cooperate among themselves, and even with a national carrier, to build cell sites and share backhaul. A key advantage for the local interests is having more control over 5G siting than exists under FCC rules promulgated last year. e big disadvantage is that every entity will have to supply two years' worth of germane financials for the RUS or existing asset evidence for the FCC. As FCC funding is theoretical and the RUS is ready to go, I've seen only possible RUS applications. • Health care play. Many underserved areas are desperate for medical care and assisted living or nursing facilities. e FCC is committed to increasing the funding for telemedicine it already provides with Universal Service Fund money. e new farm bill upped telemedicine funding from $65 million a year to $72 million. An existing underserved area, even if on the edge of an area meeting the minimum 10 Mbps/1 Mbps service threshold, could be the site for such facilities and serve as the core of a new broadband center. One such proposal I've heard about would be sponsored by an existing health care entity near a small commercial/industrial zone. e health care provider would provide the bulk of the 25 percent equity. Broad B and Communities ' financial models suggest these approaches align with what the future seems to hold for broadband providers outside urban cores or national fiber footprints. In general, having a regional provider deploy open-access 5G microsites that combine most or all available spectrum allows for more efficient use of capital and spectrum. e backhaul serving the tiny cell sites will eventually be 100 percent fiber but could start with point-to- point millimeter-wave links in places where fiber does not yet make economic sense. e new rural funding should also unlock local capital. e RUS has worked in the past with local and regional banks (smaller banks will combine lending power for big projects), so there is an existing financial infrastructure for placing such loans. Since at least 2010, rural bank balance sheets have suffered from local population loss, which has eroded mortgage assets. e outside boost from broadband funding can help banks meet other local loan needs as well. v Contact the Hawk at steve@bbcmag.com. Join the Hawk's financial modeling workshop (free to Summit registrants) at the Broad B and Communities Summit in Austin on April 8. Models suitable for the strategies discussed here and for multiple-dwelling- unit deployments will be featured. Attendees get all the models, free to use and modify, as well as background material and economic studies on a free thumb drive. We expect representatives from the FCC and the USDA to attend the Summit, assuming the federal shutdown is over.

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