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Spiral Investing in Rural California While AT&T Invests in Sacramento - Community Broadband Bits Podcast 267
With the right policies and local investment, Spiral Internet could bring high quality Internet access to much of northern California. Spiral is a small private company and its CIO, Michael Anderson, talks with us today for episode 267 of the Community Broadband Bits podcast.
We discuss Spiral's enthusiasm for open access fiber networks and how the California Public Utilities Commission (CPUC) is funding some rural Internet investment. In particular, we get a sense of how Spiral is making the transition from reselling DSL to fighting for open fiber networks in rural California.
One of the larger challenges today is an effort in the California Legislature to modify the rural broadband subsidy program to essentially give AT&T veto power over the CPUC grants. As we have discussed many times before, AT&T and some of the cable companies want a right of first refusal to grants, a policy that would dramatically disrupt the process for the smaller companies that are actually investing in high quality connectivity in areas poorly served by the incumbents.
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Thanks to Arne Huseby for the music. The song is Warm Duck Shuffle and is licensed under a Creative Commons Attribution (3.0) license.
Michael Anderson: If there's an existing incumbent nearby, and they claim that area, then they can say, "No, you can't fund that, we'll challenge it," and then they don't really have to give you a timeframe as to when they are going to provide that service, so it is a real show stopper.
Lisa Gonzalez: This is episode 267 of the Community Broadband Bits podcast, from the Institute for Local Self-Reliance. I'm Lisa Gonzalez. This week, Michael Anderson from Spiral Internet, and Christopher, talk about the California company, their history, and their approach. They also discuss what it's like to work in an environment where national providers do all they can to pretend competition from ISPs like Spiral. Some of those efforts are playing out right now, as the state legislature reviews funding that has traditionally been used to expand Internet access in rural areas. Before we start the interview, we want to remind you that this commercial-free conversation is not free to produce. Please take a moment to contribute at ILSR.org. If you've already contributed, thanks. Now here's Christopher and Michael Anderson from Spiral Internet.
Christopher Mitchell: Welcome to another edition of the Community Broadband Bits podcast. I'm Chris Mitchell with the Institute for Local Self-Reliance up here in Minneapolis. Today I'm talking with Michael Anderson, the Chief Information Officer for Spiral Internet, all the way out there in California. Welcome to the show.
Michael Anderson: Thank you, Chris.
Christopher Mitchell: So, you are in California, but in a place called Nevada City, I believe, which confuses me every single time I talk to you or one of your folks from Spiral Internet. Can you tell us a little more about your company?
Michael Anderson: Whenever you hear Nevada City, California, people still think that we are in the state of Nevada, which is not the case. Actually, Nevada City had the name "Nevada" first, and then when the state came along, they added the "City." That was back in the 1850s. Anyways, Nevada City's a gold rush town located halfway between Lake Tahoe and Sacramento. We're off the I-80, a little bit north of there. Interestingly enough, it's a technology hub, starting with the mining technology, going back to the 1850s, and now after World War II, a gentleman by the name of Litton came up here and did glass tubes for technology after the war effort, and then the Grass Family group is based here, which is a video equipment manufacturer, and they've had spinoffs since the 1960s. We call ourselves Video Valley, and we've got about 150 technology companies here, though our population is just about 100,000.
Christopher Mitchell: And you're not an incumbent provider, right? You are a company that sort of sprung up to fill in gaps and seize an opportunity to actually provide good service, compared to the incumbents.
Michael Anderson: That's correct, yeah. Back in the '90s, AT&T was the incumbent, and they had dial-up, and then introduced DSL, and then Comcast came in -- We have two cities here that are side-by-side, about three miles apart, Grass Valley and Nevada City, and there were a number of DSL resellers, Spiral being one of them, that competed with AT&T in the 2000s, and so that's our history. We've been around, actually, since the mid-'90s, when we first offered dial-up to compete with AT&T and other dial-up providers. So around 2010, realized that Comcast was pretty much done with their build, and they had stuck to the city centers. AT&T was starting to not expand with the DSL anymore, and we realized that it was time to start thinking about fiber. That's when our CEO, John Paul, and his partner Chip Carmen, started going to some conferences, and understanding and learning about what's happening with fiber out in the rest of the country, and decided to do a proposal for a fiber project through the California Public Utilities Commission, California Advanced Services Fund.
Christopher Mitchell: It's interesting, because I've met John Paul a few times at Broadband Communities, and I just wanted to throw in a quick plug for people who are not aware, but there's a Broadband Communities event up in Atlanta coming down in November. It's the second week, I believe, of November, and it's -- If people go to BBCmag.com/Atlanta, you'll find information about it. Just wanted to slide that in there, and it's been great -- I actually feel kind of bad, because I've talked to John Paul for many years, and then I met you one time, and I was like, "Come on my show!" One of the things that I found interesting is that there's certainly private companies and municipalities that I think of as seeing their role as doing what Comcast does, but doing it with better technology, more reasonable pricing, good customer service, but they haven't really changed the business model in interesting ways, necessarily, aside from those things, which are clearly valued by subscribers. You guys have a different philosophy, I think.
Michael Anderson: Yeah, we do, because through the educational process that we've undergone, and understanding how things are being done in Asia and Europe through what's known as "open access," where the fiber or whatever wire line technology is a utility, and then the retail services are on top of that, and the competition for those retail services really drives the price down, and provides a lot of granularity for customers, as to what kind of services they want, whether it's phone, or data, or video content. Whereas here, with proprietary networks in the United States, people are stuck with bundles. So we're not doing a bundle. We will be providing just the Internet, and then helping our customers figure out how they want to do their retail services, and hopefully in the future, the United States will become more of a open access country, and the proprietary networks will start to diminish.
Christopher Mitchell: Does that mean, then, that you're open to if some of the counties around you, or communities, wanted to build just the infrastructure and lease it to you to operate on, that you would be open to that?
Michael Anderson: Absolutely, and we've been actually talking to a number of communities in northern California. Yesterday, talking with our CFO, and he was curious, "So, how many communities are we actually talking about?" And there's 22 of them that are currently unserved or underserved. They have DSL that's starting to fall through the cracks, and the incumbent, whether it's Comcast, or Suddenlink, or Charter, or whoever else, they're really kind of stuck in a very tight footprint, and not willing to move out of a dense city center. So the surrounding areas in those 22 communities are just really hurting, and they're all starting to show up at these conferences, and trying to figure out, what are our options? So they're looking at community builds, and they're looking at ways to get things kind of kickstarted, but they're not really interested in running the actual ISP, or finding those retail services, so we're trying to figure out ways to help them do that. So, yeah, we're in discussion with a number of communities in northern California. That's sort of what we see as our footprint for the next 3-5 years.
Christopher Mitchell: And I think, just as a reminder, you say northern California. It's funny, because I always think of it as eastern California. I'm not being all that savvy with how people think of it, but to be clear, this is not the redwood coast area, this is more in the mountains and things like that, right?
Michael Anderson: Well, actually, yeah, people have different ideas out there as to what northern California really is. I mean, California is an enormous place, and a lot of people think, "Northern California, you're talking about San Francisco."
Christopher Mitchell: I always get a kick out of that, yeah.
Michael Anderson: Yeah, and so we're really not looking at San Francisco. We're looking at everything north of San Francisco, and so if you were to draw a line Marin County all the way to the state of Nevada, say, Reno, everything north of that, all the way to the Oregon border, is the territory that we're looking at. Nevada County, Nevada City, Grass Valley, that's in that area, and Sacramento is there. They have, of course, a number of incumbents, but surprisingly enough, a big city like Sacramento, the capital of the state of California, the more suburban and even rural areas just outside of the Sacramento city footprint are also having a tremendous amount of difficulty getting good broadband in those areas.
Christopher Mitchell: Sure. I wish that was a surprise, unfortunately.
Michael Anderson: Yeah.
Christopher Mitchell: One of the things that California has done to try and remedy that, and you mentioned that you've been the recipient of a grant from this process, but the California Public Utilities Commission, which is often called the CPUC, they have a program that is open to all, really, I believe, although it's mostly smaller companies such as yourself that have taken advantage of it, where they offer a grant program to try and improve Internet access in specific communities. Before we get into how some of the providers, or some of the big companies like AT&T are trying to change it, maybe you can just describe how the process works for the rounds that you've been involved in.
Michael Anderson: I guess around 2010, a former commissioner on the public utilities commission had really noticed that this underserved and unserved area issue was starting to come to a head, so she was able to -- Her name is Rachelle Chong, and she was able to lobby the current commissioners to create this fund called the California Advanced Services Fund, under the CPUC, and that allowed any provider, it could be Comcast or AT&T, but it was mostly designed for smaller companies like Spiral to apply for funds to help these rural areas get connected with a faster version of broadband.
Christopher Mitchell: How is it funded?
Michael Anderson: Okay, so, it's funded through a small tax that's on everybody's landline bill in California, I think it's about 14 cents, and it's there every month for just the copper landline connection, and it translates to hundreds of millions of dollars over two or three years' time frame, and so what happens is -- I believe the first funding was in 2011, and then there was one in 2014, and I think now there's a new one coming along, but what happens is that the money gets put into the fund, and then the fund is drawn down by applications, and then once it gets to a point where it needs to be replenished, then it goes to the legislature, and they go through the process of reviewing the program and agreeing to continue having that tax on all the landline bills.
Christopher Mitchell: And this is something that even some of the bigger carriers themselves have taken part of. I think, Frontier, I've seen their name pop up sometimes, so this isn't just a program for smaller companies like you. It's really available and been used by large companies as well, right?
Michael Anderson: That is correct. I believe Frontier has taken advantage of it, and of course, Frontier took over the Verizon region that they had previously had in California. Up until now, the companies like Comcast, and Suddenlink, and Charter, and AT&T had not taken advantage of the fund. In fact, they made it pretty clear that they weren't interested, and they supported the program, and were just neutral on how they felt about what was going on with this.
Christopher Mitchell: Right, although, as we're about to learn, that didn't last. Suddenly, something's different, and this is something I've railed on before, but it sounds like there is an effort to kind of poison it. An effort from the big companies to protect their turf in ways that will make the program really less valuable overall, unfortunately.
Michael Anderson: That seems to be what's happening. The current assembly bill is AB 1665, and they were hoping to be able to vote on it in the current session, but they had to table it because of this increased interest on the part of AT&T and Comcast. Their lobbyists started to really get involved in the process. And I do want to mention on a side note that rural broadband is a bipartisan issue, so many of the assembly members who are on this legislation are republicans in very conservative rural districts, and they are co-sponsors, and after some education, have really come on board with the concept of getting this money and having it go to whoever's willing to put a project in place in their areas, because most of these areas are agricultural, and you really can't compete in the agricultural world without a good broadband connection. I mean, that's what's happening, and they see that, and so they're on board, and it's really great to have a bipartisan issue that conservatives and liberals can get together on and work hard on trying to solve this problem.
Christopher Mitchell: And I think it's also worth noting, and I hope you'll correct me if I'm wrong, but this is the kind of thing for people who see the world often as republican versus democrat. This is also the case that AT&T lobbyists spend a lot of time golfing with democrats, and prominent democrats. I think the LA Times has done a series of stories about just how powerful AT&T is with the democrats, so this isn't a situation for people who want to be a purist on one side or the other, this is -- It's complicated as to how the parties break down in supporting this kind of high-quality access when they're faced with a powerful lobbying campaign from AT&T.
Michael Anderson: That's right. That's right on. And the cities on the coasts, LA, and San Francisco, and San Diego, those are all predominantly democratic legislatures, and legislators, and they really don't have much understanding of the rural broadband problem. They look at what's happened in their cities, and they consider themselves to be very well-served by the incumbents, and when the incumbents tell them that the cities in the rural areas are also served in the same manner, they don't really spend a lot of time in our area. They don't see how people live, and where they live, and so the fact that there's a line where that service stops is a little bit unknown to them. So that's part of the education that we've had to undergo in Sacramento, and we're doing our lobbying and working with the legislators, and saying, "Look, you've got a nice situation in the city, but out here, we have a little bit of a different situation, and, yeah, come on up and spend some time with us, and we'll show you exactly what we're talking about." One of the things that I'd really like to mention is, probably our biggest lobbying group in California are the realtors, and the people that are now faced with situations where they're trying to sell homes and property that used to be served by DSL, and actually are losing service. We have a number of realtors here in Nevada County who have fallen out of escrow, because the home was put on the market, it had DSL service, and then come to find out after the sale, the DSL was no longer available, and that's just been really kind of crazy.
Christopher Mitchell: And to explain the mechanics of that, something that we've seen before is that there may be a limited number of circuits, there's a waiting list to get on it, so when a homeowner is selling their home and they're leaving, they lose service, and then you don't get new service as a new person moving in, you get put on a wait list until other people move out, basically.
Michael Anderson: Yeah, and here in Nevada County, the wait list, they actually don't even do that anymore, there is no wait list. What we tell the realtors, and this is what they're doing here in Nevada County, is if you're selling your home, you don't turn off your telephone service, your landline service, which has the DSL attached. You leave it in your name, and let it go through escrow, and then just basically hand that off to the new owner under the name of the previous owner, and then you wait a year or whatever, and put your name on it as another person on that landline.
Christopher Mitchell: If there's not a waiting list, why are they turning circuits off? Is it still a shortage? Do they have fewer DSL circuits today than they did six months ago?
Michael Anderson: Yeah, and that's just anecdotal. I don't know exactly how that's all set up, but as a DSL provider, Spiral, we know that there's less DSL service in the areas that we resell over those copper lines than we had before, because they are decreasing the number of connections, and I think that's just part of the strategy that AT&T has with their wireless. They're moving to a wireless business model. They have a Connecting America fund grant that they're using in rural California, I think it's 60 million dollars, that they're putting up cell towers, and they'll have 5G as well as fixed wireless on those towers.
Christopher Mitchell: Yeah, yeah, yeah. I believe it when I see it. I'm just, I'm trying to calm down over here as you're describing that, because we've been following what AT&T is doing, and at least in the southeast, and in a lot of other places, they're just planning on doing a straight 10mb by 1mb, caching all that that money from the Federal Government, and saying, "Why would we ever upgrade? If you want us to upgrade, you can throw a billion dollars at us again." I want to get back, though, rather than talking about the sad plight of folks, and talk more about the solutions. But before we get there, the thing that we were dancing around, and the thing that AT&T and some of the cable companies are trying to do is this, basically, a right of first refusal. If you can just tell me exactly how this works, and what the concern is in Sacramento over this proposed change to the CPUC broadband funds.
Michael Anderson: There's a couple of things that they've added to this recent legislation, AB-1665, to -- a poison pill is probably a bit harsh, but anyway, it's a way of making it so that less people will have access to this funding, and one of those is, they've added this one line, "The Commission shall award grants from the broadband infrastructure grant account on a technology-neutral basis, including both wire line and wireless technology." Now, that's new, because before, when we received our grant in December of 2015, the commissioners were very clear that the wireless technology, fixed wireless technology, really wasn't going to be robust enough moving forward, and those were the challengers that had challenged our grant. That's one of the reasons it took two years after our application to be approved, is that we had to go through these wireless challengers. These were fixed wireless providers in our region, smaller companies, and so we were able to prove that they didn't have the coverage that they said that they did, so adding that back in there, where the commissioners had, in our resolution approving our grant proposal, they had said that wireless needed to be looked at as a legacy technology. That's one thing. The other one is the one you just talked about, in terms of if an existing incumbent is going to be providing service. The actual language here is, "The Commission shall annually offer an existing facility-based provider the opportunity to demonstrate that it will provide broadband access to a delineated unserved area within a reasonable time frame. The Commission shall not approve funding for a project providing broadband access to a delineated unserved area if the existing facility-based provider demonstrates to the Commission that it will, within a reasonable time frame, upgrade existing service to provide broadband access throughout the project areas." That's new language, and basically what it's saying is if there's an existing incumbent nearby, and they claim that area, then they can say, "No, you can't fund that, we'll challenge it," and then they don't really have to give you a time frame as to when they are going to provide that service. So it's a real show stopper.
Christopher Mitchell: And I think maybe you can describe to us how the conversation would go now, if you go to a bank, or some other investor in a project, and they're saying, "Well, wait, you can put in this application, but at any point, you can basically get derailed by the incumbent." That's not something that -- That's something that seems like it has a lot more risk, suddenly.
Michael Anderson: Yeah, that's exactly what happens. The private funders that we work with, they've expressed concerns with this new language. We're hoping -- Again, it's still in the committee, and we're hoping that we can get that pulled out. It just got added recently. So it's a back and forth, and we're hoping that people will understand the ramifications of that language, and what it does to really reduce the amount of area in northern California that will be available for this kind of funding.
Christopher Mitchell: Especially when you just consider that there's so much freedom of the incumbent then, basically, to just circle all of the areas that have higher density, higher marginal profit potential, and just deny a business case to anyone to connect the other areas as well, and then those areas are just totally left behind. This sort of language just, I find it infuriating, because I understand if someone hears constantly from the cable lobbyists from AT&T, "Oh, we have to do it this way?" But you need to run this by someone critically, and say, "Hey, if this is what we're trying to achieve, if we're trying to say, 'We don't want for the state to create unfair competition,' is this a good way to do it, or not?" And obviously, it's not.
Michael Anderson: Yeah, I totally agree. In fact, I mentioned we had challenges with our project and the grant we were given, that the challenges were from fixed wireless companies, but we did have one challenge from Comcast, and it was for a very specific area that they said that they served, and as a matter of fact, they didn't serve that are. So we actually had to go, we had that money pulled out of our grant, where it was originally set up, and we've had to go house by house and say, "Are you served?" And have them write, basically, an affidavit saying, "No, I'm not served." And then we're in the process of re-challenging that and having that money put back in, which we're very confident is going to happen.
Christopher Mitchell: I mean, I don't want to just presume bad faith, but you hear enough of these stories, and it's either incompetence or bad faith, and neither one of them should be rewarded by the regulators, or the lawmakers. Next week we're going to be doing a show, if the schedule holds, in which we'll talk more about some of the wireless issues, and actually Federal grants, and how, if this is money to try and deal with unserved areas, one should not embrace a technology that cannot cover some people. A lot of these WSPs, even WSPs that are doing a great job, they're using a technology where, if you're living on the wrong side of a hill, they can't cover you, and we should really be thinking hard about whether we're going to subsidize technologies that leave some people out.
Michael Anderson: Right. Exactly. You're right on the money with that.
Christopher Mitchell: So with a nice interview that got increasingly rant-y by the host, I really appreciate you coming on and, I think, giving people a hope, also, that there's companies out there that get the benefit of open access, and that ideally we can find a way to make sure everyone's covered, and has a choice, and has high-quality connectivity.
Michael Anderson: Yeah, and I really appreciate what you're doing, because I think the key to all of this is education. I mean, that's what we do all day long. There are so many people that just because they live in the United States, and their only experience with broadband is based on a bundle and a proprietary network, they have no idea what open access is, what it would look like, how it would function, and once you tell them, their eyes open up wide, and they just say, "Wow. How do we get that?" That's what we're hoping to do, is get that education out there and help people understand that this is the way for America to be globally competitive, and without broadband we're really going to be having a difficult time with that.
Christopher Mitchell: All right, well, let's go build some markets, then. Thank you so much.
Michael Anderson: Okay, thank you, Chris. Appreciate the time.
Lisa Gonzalez: That was Michael Anderson from Spiral Internet, visiting with Christopher about the company and how big Internet access providers are lobbying to change funding rules in California. We have transcripts for this and other Community Broadband Bits podcasts available at MuniNetworks.org/BroadbandBits. Email us at podcast@MuniNetworks.org with your ideas for the show. You can follow Chris on Twitter. His handle is @CommunityNets. You can also follow MuniNetworks.org stories on Twitter. The handle is @MuniNetworks. Subscribe to this podcast, and the other ILSR podcasts, Building Local Power, and the Local Energy Rules podcast. You can access them on Apple podcasts, Stitcher, or wherever else you get your podcasts. Never miss out on our original research. Subscribe to our monthly newsletter at ILSR.org. Thank you to Arne Huseby for the song, "Warm Duck Shuffle," licensed through creative commons, and thanks for listening to episode 267 of the Community Broadband Bits podcast.