Windstream CEO Says CAF II Auction 'Flawed,' Cites Satellite Latency, WISP Buildout Issues
Windstream knocked the FCC's recent Connect America Fund Phase II auction to allocate $1.49 billion in cumulative broadband-oriented subsidies over 10 years for fixed services in legacy high-cost ILEC areas (see 1808280035). CEO Tony Thomas said $122 million in support for satellite service was effectively wasted. He doubted two wireless ISPs receiving $501 million total can meet buildout requirements. WISP officials disputed that view; the FCC vowed to enforce buildout duties.
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"This auction was both flawed in design, if not in its conception," said Thomas on a Thursday quarterly earnings call. The impact on Windstream was "very modest," targeting less than 1 percent of households in its footprint, he said. In 2015, the telco accepted $175 million of the $179 million in annual CAF II support offered by the FCC (see 1508050072), and overall, major telcos accepted about $1.5 billion of $1.675 billion (see 1508270068). The auction was to fill in gaps in broadband service.
The FCC says 713,176 locations lacking 10/1 Mbps broadband will gain service -- 99.75 percent at 25/3 Mbps -- through auction support (here, here and here). "This is probably not the time to fly the mission accomplished flag," said Thomas. He recently shared CAF II concerns with officials (see 18102400500).
Viasat won funding "for the exact same high-latency service they provide today," Thomas said. "That's 600-700 milliseconds of latency. That's slow. That’s $122 million that does nothing to advance rural broadband and close the digital divide." Viasat didn't comment.
Thomas is skeptical WISPs Nextlink Internet and Wisper Internet, which won $281 million and $220 million, respectively, will meet buildout requirements. Based on Windstream's analysis of its areas, "these WISPs will have significant difficulty meeting the obligations at these funding levels," he said, citing distance, line-of-sight, hill, foliage and rain-fade issues in very remote areas. "Unfortunately ... it could be four to five years before we know if these winners are going to be able to meet their obligations because, obviously, the more expensive locations are back-end loaded," he said.
"Wisper has grown from the ground up specializing on serving the underserved," said CEO Nathan Stooke in a statement. "For the last 15 years, we have successfully deployed fixed wireless to thousands in rural areas. The results of the CAF II auction reinforced the important role of fixed wireless providers in bridging the digital divide. We are very confident that we will be able to serve our CAF II areas." Nextlink (which bid as AMG) didn't comment.
“The FCC intends to enforce all of its [CAF] buildout requirements strictly," emailed a spokesperson. "For the locations to be served by reverse auction winners all but one-quarter of one percent will have access to service at speeds of at least 25 Mbps. That’s more than twice as fast as the 10 Mbps standard that Windstream must meet for the annual support it is receiving through the non-auction mechanism.”
WISP "initial deployments will, of course, be successful," Thomas said. "It’s only when you get into the later stages of the deployment and the more challenged areas, will we see the futility of their bidding." Windstream is nevertheless "well positioned ... leveraging all sorts of new technologies" to improve service, he said. "I’m confident, when these folks roll in, they’ll be very challenged to compete with Windstream."
Wireless ISP Association President Claude Aiken said in a statement that "regardless of what any individual companies are able to achieve, it is ironic that incumbents who are discovering the benefits of cost-effective fixed wireless technology in meeting their CAF II obligations are expressing concern over the plans of other CAF recipients that have already deployed fixed wireless to serve customers for many years.”
Thomas told us fixed wireless is a good technology, noting Windstream is using it in rural areas, with promising results. He just doesn't believe it will work economically under FCC buildout duties and Nextlink and Wisper funding levels. The WISPs will receive $2,800 per location or less in CAF II support, which isn't enough, at least in Windstream's "exorbitantly" high-cost areas, he said. His company did modeling and bid in the auction but didn't win support. He remains "perplexed" by the WISP bids: "I challenged our guys to rerun the numbers to make sure we didn't miss something."
Reverse auctions probably aren't the best way to allocate broadband subsidies, but if the FCC is going to hold them, it needs to learn the lessons of CAF II, Thomas said, suggesting high latency be further penalized. ViaSat would have to launch low earth orbit satellites to lower its latency, he said, citing fiber and fixed wireless latency as a few milliseconds.
Windstream's stock closed up 12 percent to $5.11 after reporting Q3 earnings, "highlighted by continued growth in consumer broadband customers and enterprise strategic sales." Overall revenue fell from the year-ago quarter, but operating and net income rose.