When Giant ISPs Get Bigger, State Commissions Fight Back – Episode 8 of Unbuffered

Christopher Mitchell (00:13)
And we’re back with another episode of Unbuffered. I’m Christopher Mitchell at the Institute for Local Self-Reliance. And we’re back on the show that looks at technology and how we organize society and tries to make sure we’re using technology rather than it using us or a few people using it to use us. Today, I’m excited to be talking again with Ernesto Falcón, who is the program manager. Now stick with me for a second.

for the Communications and Broadband Policy branch of the Public Advocates Office at the California Public Utility Commission. Welcome, Ernesto.

Ernesto Falcon (Cal Advocates) (00:49)
Hey, thanks for having me.

Christopher Mitchell (00:51)
I want to tackle all of that title just to make sure people have a sense of how this stuff works. But we’ll be talking today mostly about charter and Cox and that’s sort of nestled in this topic of how do we get a better market? How do we make sure people are getting what they pay for and have better options for internet access and basically have their needs met, right?

Ernesto Falcon (Cal Advocates) (01:13)
Yeah, sounds great. Looking forward to it.

Christopher Mitchell (01:15)
Seems like it’s a passion for you. So I’m excited to be talking to you about it. Let’s start at what the CPUC does. So the California Public Utility Commission, we’re not gonna spend a lot of time on this, but like, what does it do?

Ernesto Falcon (Cal Advocates) (01:17)
Yeah.

Yeah, so you know a little bit its origin story explains why it exists. ⁓ It’s a constitutional office, meaning the people created it through a state ballot proposition ⁓ directly. And it was in response to the railroad monopolies kind of controlling and running everything, including the counties and the politics. so, you know, populist uprising occurred run by a candidate for governor that created the agency. And, you know, from the years that followed,

Additional authorities were given to the agency to oversee all utilities, electricity, water, transportation, telecom, which is in California still a state utility, while federally it’s not. And ⁓ so that’s essentially how it exists and what it does. It regulates on behalf of the public.

Christopher Mitchell (02:11)
So it regulates on behalf of the public, but within it, you have a public advocate’s office. So explain what that is.

Ernesto Falcon (Cal Advocates) (02:20)
Yeah, so the agency I work in, and it’s like an agency within the agency, ⁓ was created to be statutorily independent. And it’s about 200 public servants whose job is essentially to do the consumer advocacy on behalf of the public. People are busy. They don’t have the ability to always participate in every single government function. I kind of ⁓ think of it as a public defender in the regulatory space. ⁓

There are seven branches within the public advocate’s office. I’m one of the branch managers. So there’s one for water, there’s one for electricity, there’s one for safety. I do the broadband telecom side. And our job is just to consistently communicate with various constituencies, ⁓ NGOs that represent members of the public, and to interface with the PUC’s regulatory process to represent the various interests that is California’s public community.

Christopher Mitchell (03:16)
Now, you have a great office. You have great people working in there, many of whom, some of whom I’ve worked with, ⁓ you know, ⁓ coworkers, some of whom I’ve worked with across organizations. It’s a real great group of folks. ⁓ And the other piece that I wanted to make sure we noted is that California does this better than almost anyone else. I mean, I feel like California and New York take seriously.

the public’s role in this, whereas most states are kind of like, ⁓ the public participates, it participates, and if not, ⁓ too bad for them.

Ernesto Falcon (Cal Advocates) (03:47)
Yeah, California made a specific choice to publicly fund representation on behalf of the people. ⁓ Most other states don’t do that. They convert one of the few states that puts the level of resource into it. And I am blessed with a sizable team of 22 people, including in addition, ⁓ attorneys, consultants, and the…

You know, their, their public interest mission is to kind of achieve three things, ⁓ know, improve access, ⁓ availability, ⁓ lower prices, you know, figure out every way we can use, ⁓ policies and means of lowering prices and improve public safety and quality and quality of the connection. And so it is, ⁓ it is really a privilege to lead the team. I feel like I could do quite a lot because I have.

⁓ an arsenal of public servants with various backgrounds and expertise that really lets me look at various problems that occur in the broadband market and have ⁓ some really specialized talent to like tackle each different kind of question.

Christopher Mitchell (04:52)
And I’ll say that from our perspective, it’s making a difference. We’re seeing a lot of good policy and market interventions that are coming out of it. ⁓ One of which is the California Lifeline Broadband Pilot Program. Wanted to read it to make sure I got it right. ⁓ This is something that I happen to know from a previous conversation you’re very excited about. So what is happening there in California?

Ernesto Falcon (Cal Advocates) (05:16)
Yeah, so with the expiration of the ACP, we saw that there was going to be this challenge for people of limited income, right? So ACP, the Affordable Connectivity Program provided about $30 to people that are 200 % above the poverty line. So a family for a little over $60,000, $70,000 of income. So very income scarce individuals.

And the commission took it upon itself to modify its life current lifeline program, which currently subsidizes voice. So you’re kind of traditional telephone connection, ⁓ and engage in launching a pilot to replace the ACP. And so this is what’s called the broadband pilot program. So we’re offering $20 for a subsidy for broadband for low income people and $30 for broadband voice. there’s like a bundle or some sort of combination.

And it’s getting off the ground. A number of carriers have signed up for it. A number of carriers were voluntold to sign up for it through our mergers. And I think there is going to be a really solid improvement in adoption and options for low income people in the state. It is only for three years. It’s a pilot program. There will be a choice that has to be made in Sacramento to extend the program or make it permanent.

So my hope is there’s a lot of success that is worth taking home because frankly, even though it sounds like a lot in a subsidy, it actually saves the government a lot of money in different ways that essentially kind of pays for itself.

Christopher Mitchell (06:45)
Let’s talk about where the money comes from and then we’ll talk about how it’s saving money. So where does the pot of money come from to ⁓ provide the discount for or the amount of money the families would be paying?

Ernesto Falcon (Cal Advocates) (06:57)
Yeah, so California has what’s called a surcharge that is placed on every what’s called an access line and an access lines effective. You know, the simplest way to think about it is if you’re buying a product that has a telephone number associated with it in California, that’s essentially serves a way for you to call, you know, anyone else. There’s a small fee that’s attached to it somewhere in the range of 75 cents a month to maybe about a dollar kind of depends on the needs of the program on the day to day.

Lifeline is the largest need in terms of the program. There’s a number of other things we fund grants for broadband access in rural areas. You know, grants for NGOs to facilitate commission work and learning from the community and hearing how, you know, what policies are working, what help they need. And the surcharge essentially will go up and down depending on the level of need. But, you know, that is essentially our main funding mechanism. It’s about 55 million access lines in state of California.

So a penny does a lot and a dollar does gives us an enormous amount of flexibility and capacity to really help people.

Christopher Mitchell (08:03)
Now, if I qualify for that, if my household has the low income or I’m on a program that makes me eligible for it, I pay $20 a month for internet service and $30 for internet and telephone if I want, or that’s the amount that is charged to the program, how does it work exactly?

Ernesto Falcon (Cal Advocates) (08:23)
Yeah, so you have to enroll in the program ⁓ and typically the carriers will validate your account with ⁓ some sort of kind of ⁓ cross verification, meaning if you are getting food stamps or CalFresh or Medicaid or another program that kind of already knows what your income status is and that you qualify.

showing that documentation when you sign up for broadband service, ⁓ a carry vets part of Lifeline will enroll you in the program and we’ll kind of handle it on their end in terms of the bill. So you don’t have to necessarily pay anything depending on how much the charge is. And in fact, a lot of our efforts recently in the public advocate’s office and my team has been to ensure that high quality products that are basically fully paid for by the subsidy. So that really it’s just getting people through the paperwork of enrollment that will get them online.

Christopher Mitchell (09:15)
Okay, and then the carriers benefit to some extent because they have a guaranteed source of income. They might prefer to make more income, but they also spend a lot of time in collections with families that are in difficult circumstances. And if they can avoid that, there’s a benefit for them. So this is kind of a, always think of it as a win-win.

Ernesto Falcon (Cal Advocates) (09:34)
⁓ absolutely. I mean, the fact that matters and a network becomes more profitable the more people that use it. And ⁓ the fact is the carriers don’t quite see it that way or rather I would, I would suggest the market is.

Christopher Mitchell (09:48)
Maybe some of the people within their companies

don’t. I think it’s always a fight internally.

Ernesto Falcon (Cal Advocates) (09:52)
Yeah, it’s

a a it’s a culture situation. Some companies, I think, really understand that the volume volume is better. It’s better to convert people who can’t pay anything to subscribers. And there’s some I will say uncharitably will think ⁓ if they can pay it, then they shall and and take the wrong idea of the more I can extract revenue from each individual person, regardless of the, I would say the stress and the financial pain and influx.

that that’s the better route in terms of improving profitability. But I think it really is misguided in terms of the approach, because if you if we’re able to convert, you know, the give or take hundreds of thousands or millions plus people who are not using Internet, not paying at all into and we enhance their buying power by 20 or $30, there’s a huge opportunity for any carrier. It’s going to be a huge revenue boost. And that’s OK. I I don’t mind that the.

that the end product is they end up actually making more money by getting more people online because ultimately our goal is to ensure broadband is available to everyone.

Christopher Mitchell (10:54)
Now you said that this will save money for the state of California. And I think this is super important. I want to come back to that in one second. But first, can any internet service provider sign up? Like can municipal companies and the electric co-ops that are doing broadband service, can they all just sign up for this? Or is it, there other steps that they have to worry about?

Ernesto Falcon (Cal Advocates) (11:13)
So they have to file what’s called the tier two advice letter to the commission essentially setting forth that they’re going to create an offering that meets the qualifications. The commission set for minimum standards. We fought for those because one thing we saw in ACP what we didn’t want to see a repeat of is the, you know, it’s kind of lowest common denominator services were receiving maximum subsidies when the reality is people deserve it, at least a minimum standard quality. And frankly, once you say I’m going to give you 20 or $30, you put that pot of money out there.

Magically, the carrier seemed to be able to produce services that meet those minimum standards in exchange for the funding. So ACP was a great program, but it had some pretty some fatal flaws in that it had no minimum standards. what we saw during the pandemic, for example, was a lot of hotspots qualifying for free $30 subsidies and then not even broadband. You’ll get them coming through those connections in various households. And so we really wanted to make sure a carrier was was providing a quality service.

And a number of them complained about it because they wanted an offer to be frank, inferior services and change the money. And we just said no.

Christopher Mitchell (12:20)
Okay, so how does this save the state money?

Ernesto Falcon (Cal Advocates) (12:25)
Yeah, so telehealth is really like one of the largest cost savings that occur when you’re able to get people, you know, access to the internet at a time when they couldn’t. There was a really interesting study by a group called the Brattle Group that looked at the kind of cost savings to government through the ACP. And we issued a report January of last year, if I remember right, where

We kind of followed the methodology and the modeling they did apply to the Californian and discovered similar results in terms of our Medicaid costs, hospital visit costs. You know, if you’re thinking if you’re putting out $20 a month and you’re saving a hospital well past $20 a month in terms of reducing visits to hospital, you know, having people be able to, you know, engage with their doctor while still at nearby work and able to return to work thereafter. There are kind of two benefits that occur there. One,

The cost on the hospital side, which is publicly funded in many ways, goes down. And the economic gain for the individual, many of them are hourly wage workers, so losing two hours to visit a doctor to go in person carries cumulative negative effects for them. And so by increasing their ability to just simply have the appointment remotely and then go back to work, ⁓ increases their economic output as well. So it kind of goes both ways in terms of…

the value gain and yeah it is well in excess of the surcharge in terms of the value proposition from government and from the people.

Christopher Mitchell (13:53)
Yeah. $20 a month talking about $240 a year. And I’m, I’m very passionate about this. Um, you know, I’m someone that, um, dabbles in elder care. Uh, I wouldn’t say I’m the most responsible sibling, but, uh, try to be available. um, and one of things I’ve learned is, is the difficulty of predicting, um, when you’re needed. And, um, one of the things that people don’t appreciate is how expensive it is to do a visit and how expensive it is when people don’t show up.

Ernesto Falcon (Cal Advocates) (14:06)
you

Christopher Mitchell (14:23)
And so whether it’s an elder who can’t get there or whether it is a person who’s responsible for taking care of young or older people in the family ⁓ who is then unable to visit, ⁓ at $240 a year, all you have to do is prevent like one missed visit or one ER visit per like four or five years per person on average. And some people are gonna, with remote care are gonna be actually saving far more than that. And so…

It doesn’t take a lot in terms of telehealth ⁓ benefits to just pay for this program ⁓ outright, I think. And then there’s all kinds of other benefits for other state programs as well. So yeah, I’d love to just make sure people understand that math.

Ernesto Falcon (Cal Advocates) (15:00)
Yeah.

Yeah, I mean, one more I’ll bring up, but I think is, ⁓ was key and actually I think central to a lot of the leverage and negotiation the government has over the broadband industry in the sense, common sense media had a study that showed by increasing the buying power of people who have limited income, right? So they’re able to purchase and consume more services and therefore more revenue gets generated into the industry. ⁓ the cost of deployment went down because you, you brought in the number of customers accessible to you when you deploy and expand your networks.

And so yeah, I mean, to your point about there’s winners across the board, there really is. And I think it’s because broadband is no longer a luxury service, right? It’s essentially a core essential service that you need to function politically, economically, in terms of your health and education. So there’s just a lot of benefits that derive from having the connection.

Christopher Mitchell (16:00)
Okay, so I to change directions here to another passion that you had before you went in and I share with you, which is more competitive markets. And ⁓ in the 1990s, we transitioned from telecommunications being a assumed monopoly with a regulator to trying to achieve real competition so the market would provide discipline. ⁓ And, you know, I think we’ve talked plenty about how that hasn’t always worked out. I do feel like if one steps back,

and just ignores the role of like corruption and lying of people that have like the aim of monopolizing the market. Fundamentally, there’s been this idea that government should remove barriers. And for 30 years, there’s been a focus on like, we need to remove barriers to competition, less regulations, and we have not achieved rigorous competition. before we dig into the merger issue, which gives you some levers, just give us give me a better sense. You joined the CPUC

with this idea of like, you wanna see more competition. What levers does the CPC like have to try to do that? Whether that is this deregulatory mindset or like a positive, ⁓ you know, regulation approach to establishing more competition.

Ernesto Falcon (Cal Advocates) (17:13)
Yeah, so we actually have a couple of authorities, I think, that really play a role in this. ⁓ One, we oversee the poles. ⁓ And poles are kind of these essential entry points for any carrier who’s trying to deploy in a network. Now, technically, the PUC doesn’t oversee all poles in California. This is the dynamics of having a giant state in that there’s a lot of fiefdoms. And so we do oversee a poles that are owned and controlled by electric utilities.

and owned by the telecoms. So that’s a lot, but it’s not all the state. But to the extent that we can address things like make ready access, pull quality in terms of the ability to attach fiber wires right now, those are things that have, and industry has acknowledged this writ large, you had huge impacts on deployment costs, which then increases the attractiveness of where you deploy.

We also have a program called the Loan Loss Reserve Fund. And so we’re the only state in America that has essentially like a revolving loan economic development fund that’s specifically tailored for public broadband. Municipalities, cooperatives, counties, tribes, school districts, libraries, these are the entities that are exclusively eligible to access this loan program. ⁓ It’s had some false starts because I think there is a

You know, a challenge is just my opinion and I think I could have an independent opinion of the agency that I work at because we’re statuall independent. ⁓ We have not been able to successfully roll out that funding ⁓ in yet, but the program still exists and there’s a lot more, I think, reform and thinking through about how to incentivize and support ⁓ long-term low interest loans out there.

Christopher Mitchell (19:02)
when we have a chance in the future, I’d love to dig into that because I think this is so powerful for people to appreciate that, you know, local governments that don’t have a history of telecommunications projects or, you know, school districts or the tribes, ⁓ you know, for them to seek capital funding is difficult. And because they don’t have a long record in this area, they will be seeing higher interest rates and the presence of that loan loss reserve fund.

lowers the interest rates, which makes more projects feasible to actually work. Because the investors know that even if something goes horribly wrong, they will likely be able to recover most of their investment because it would tap into that reserve fund. And so this is a pretty cool thing. And like when the projects work, they don’t even touch it, right? So like, it’s even better is that like, it’s a revolving loan fund that hopefully doesn’t need as much. However, the state was aggressive in trying to establish a large one.

Ernesto Falcon (Cal Advocates) (19:47)
All right,

Christopher Mitchell (19:55)
and then because of changes in the economy, had to scale it back significantly. So that’s one of the other issues that’s out there.

Ernesto Falcon (Cal Advocates) (20:02)
Yeah, and there’s an inherent tension with government in that government is risk averse and yet we have to be willing to tolerate and can essentially step in to address risk in difficult to serve areas. I mean, if it wasn’t there, the private industry would have done it already, right? So like the whole point of these programs was to enable players who are not profit driven, much more longterm minded in the investment structure and better suited. And so we still have work

to do but the program still exists the authority to ⁓ provide the funding still exists and one thing that’s very unique about our Loan Loss Reserve program is it’s not it’s not restricted to the dichotomy here about unserved and served it’s it’s just it’s just an economic development fund if Los Angeles wanted to use it Los Angeles could use it if ⁓ Humboldt County wanted to use it Humboldt County can use it so it was just really designed to be a just a means of providing low low-cost loans to build.

So those are a couple examples. And then the general authority to oversee the industry and kind call balls and strikes where necessary and kind of think through modernization of these networks. Those are kind of the mechanisms that the agency has as a regulator to advance these networks. mean, one thing, just a quick thought on, or quick thing that I found in research in the past.

⁓ Every advanced economy that we in California and in America think about, like, gosh, I really wish our internet was as good as theirs. So like South Korea is like an easy example. Many of the European nations are way ahead of us. All of them had an expert regulatory involved. There is no country that had no regulatory involved and thus forth, incredible broadband options stemmed forth. That doesn’t exist in the planet. And so a lot of the ideology around keeping the regulatory out of it ⁓ really has no…

case studies or proof of concepts of that actually whatever working.

Christopher Mitchell (21:59)
Yeah, I think ultimate frisbee might be the only sport that has no refs on the field. And I think they’re more likely to move in that direction than any other sport removing the referees or umpires. So, ⁓ there’s one other thing too, that I could think of, which is that, ⁓ the CPUC was tasked with distributing billions of dollars of funding from the federal government and also money that the state set aside to improve internet access. And, ⁓ in recent years, the CPUC has really gone out of its way.

Ernesto Falcon (Cal Advocates) (22:02)
you

That sounds right.

Christopher Mitchell (22:28)
to consider a variety of projects, to encourage projects from tribal nations directly, and not to just kind of rubber stamp the same old projects from the same old internet service providers that know how to use the process. Some other states have done that well, but I feel like California’s been particularly good at breaking the mold and recognizing we need to do something different to really solve these problems.

Ernesto Falcon (Cal Advocates) (22:50)
Yeah, you know, and it really, um, you know, it’s a five person commission. Uh, my boss is the director of the public advocate’s office. And so she’s governor appointed Senate confirmed to, and it was often seen as like, kind of quote unquote, the sixth commissioner. That’s the, they refer to it. Cause she’s the consumer representation side of it, but a single motivated commissioner really does set a massive part of the agenda.

And in times past during the creation of SB 156, which is the program, the state law that I got to work on and help kind of design a lot of the original architecture in a past job ⁓ was Martha, Commissioner Martha Guzman, who was really a, an evangelist about figuring out how to get 21st century access to everyone and was very close with working with the governor’s office and kind of designing that. Then, you know, I would say in terms of the, the interest in tribal broadband really stems forth from Commissioner Darcy Howe, is

⁓ really laser focus on addressing those communities and has had a number of workshops and direct meetings with tribal leaders. you know,

Christopher Mitchell (23:53)
and she attended one of our tribal broadband boot camps, which we’re forever grateful and honored to have had her.

Ernesto Falcon (Cal Advocates) (23:58)
See, there you go. didn’t even know that, but it doesn’t surprise me. so it really, know, whoever the next governor picks for that kind of the each new governor that we get gets new gets their pick of commissioners over the years and eventually kind of substitutes all five. The priorities, motivations of any one commissioner has a huge impact on the industry. It has a huge impact on the outcomes.

Christopher Mitchell (24:20)
And it seems like ⁓ it’s just a functioning commission, which is just nice to remember that that can happen.

Ernesto Falcon (Cal Advocates) (24:25)
Like that is a

that is a possibility. I mean

Christopher Mitchell (24:28)
It doesn’t

always get in the news, so it’s worth noting.

Ernesto Falcon (Cal Advocates) (24:31)
Well, and one thing I often remind my team about is history has a tendency to repeat itself. ⁓ The 1996 federal law, the Telecom Act, ⁓ was derived from New York and California laws. So New York California spent a lot of years building kind of telecom regulation and then Congress said, hey, those are good ideas. Let’s just federalize those. ⁓ We’ve kind of gone backwards now where the federal government has left the field and it’s kind of taking its hands off the wheel of this.

And I often communicate with New York on kind what’s going on in their backyard. It’d be simply because New York’s leading in many ways and California’s leading in different ways. so we’re back at it ⁓ in a kind of a pre 90s era of telecom rig.

Christopher Mitchell (25:13)
All right, so I wanted to talk about Charter and Cox. Charter had been the nation’s second largest cable company. Cox was three or four, four, somewhere around there. It was a top five. And it’s funny because you don’t think about it for a couple of months and it just, you lose all the facts. It’s a pretty big deal in California where, you know, I believe what I remember like 95 % of the state.

Ernesto Falcon (Cal Advocates) (25:23)
Somewhere down there, Yeah, that’s right.

you

Christopher Mitchell (25:40)
can get internet access from one of five companies basically can get decent internet access is pretty centralized in some ways for such a large thriving ⁓ economy. ⁓ And so ⁓ what’s first of all, before we deal with that in particular, ⁓ why does the CPUC get to say anything about this merger?

Ernesto Falcon (Cal Advocates) (26:02)
So in state law, have authority over mergers between utilities. ⁓ Both of these have utility functions in them. And an interesting legal ⁓ policy issue here is when these companies are merging and they assert, if you allow our regulated portions to merge, we’re going to deliver all these other valuable products and services in addition. And so anything they assert as part of a justification to allow the consolidation.

we also get to review and we also get to analyze. they can’t just, you know, there was a funny tension where charter and Cox would say, we’re to be able to bring down broadband prices and we’re going to be able to improve broadband services. but you don’t have any authority over broadband, which is untrue. We actually do have authority over this. And the dynamic is if you’re going to come into the commission and say, allow us to merge and here’s the good things we’re going to give you, we get to scrutinize each everything they say to confirm if that’s true or not.

Christopher Mitchell (26:58)
we’ve certainly seen in mergers in a variety of different jurisdictions, claims were made that were not ⁓ made good. They made promises that weren’t kept. So it’s certainly something ⁓ one wants to keep an eye on. So in this case, Charter’s buying Cox. Cox has a lot of service down in more Southern California, think, San Diego area. And ⁓ so what are the main concerns here?

Ernesto Falcon (Cal Advocates) (27:17)
San Diego, yep.

So it really stems from just the increased consolidation, right? And the level of concentration that that creates. One thing that we ⁓ reviewed and were able to publish a study in January of this year, so it seems like January we try to produce something every year. ⁓ We worked closely with UCSB on utilizing this tool called the Browp and Query tool, which is this kind of automated data scraping technology that allows you to kind of scan a list of addresses.

We have enormous amount of internal information that we collect from the industry, subscriber data, location data, and things that we can’t publish. And we didn’t have a way to look at dynamic pricing, meaning ⁓ what’s the price of that service and that block right now, right? We’re able to look at kind of the generally reported year, year averages, but not, you know, spot analysis of what’s going on. UCSB created this tool that we were happy to partner with and provide, you know, funding to expand on.

And originally we came at it with the two things we wanted to look at. One, want to look at issues of digital discrimination and seeing ⁓ if there’s any detectable trends with census data and kind of the overlap. ⁓ Two, I wanted to find out is there a meaningful difference when there’s three gigabit providers versus two in terms of the prices on average. And the…

The Northern California areas, the Bay Area in particular, actually is blessed with multiple cable and fiber options. ⁓ So we took Oakland, for example, and San Mateo, which both have.

Christopher Mitchell (28:56)
like

many neighborhoods are, think is what you’re, I just, would like to be clear. Like, don’t think, is not the case that like necessarily every address isn’t necessarily have three options, but there are lot of neighborhoods that there are three options. Is that correct or am I understating it?

Ernesto Falcon (Cal Advocates) (29:10)
In Oakland in particular Sonic fiber really went pretty far They’re not a hundred percent coverage, but they’re they’re they’re pretty deep and throughout the city So there’s it’s actually you really commendable I think on their part, but they you know they just see opportunity and even if there’s a cable, you know monopoly and That’s kind of their target market. So and not and then converse the flip side of that in Southern, California No, you know, there’s an awful lot of one choice

which is tragic because it’s a global city of high density. It really should be, you know, see all of South Korea. And so we had the opportunity to able to measure urban markets of high density to see, you know, what’s the pricing difference when you have three versus two versus one. an inadvertent discovery when we kind of did the statistical sampling at scale here was the gigabit offering is actually what controls overall pricing. And so

much of the, I think, analysis of competitions focused on 120 Up, weirdly enough, 120 Up was never a standard picked on competition basis. was just for the viewers to understand kind of the politics and how this plays in technology. Congress was trying to pass an infrastructure law, Biden was president, and kind of the sky is the limit in how much we’re going to fund. And so a lot of the emphasis of BEAT originally was how do we get fiber to basically everyone? That’s why it’s like a $15 billion program.

It’s tragic what happened in terms of Trump and like what’s happened with this benefit the bargain stuff, but the the industry that was selling fixed wireless and that’s primarily AT &T and T-Mobile’s lobbyists were saying no, no, no, don’t do like a hundred symmetrical or gigabit, you know, access. You should do a hundred down, 20 up. Why that number? Well, it’s because their spectrum allocation on their towers, they plan to sell at high capacity downlink and low capacity uplink. And the average numbers were a hundred down, 20 up. So

pulling the current back, that’s where that number comes from.

Christopher Mitchell (31:09)
Right.

And similarly in the cable plant, they knew that they would be able on most of their cable systems to offer 20 megabits upload ⁓ to a large number of customers. Although there’s been times where they’ve actually contradicted that in California ⁓ as well, saying that they couldn’t offer it to everyone at the same time. ⁓ But they knew that they couldn’t do 50, for instance. ⁓ So they wanted to keep that upload speed low because of technological limitations that they didn’t want to fix in their network.

Ernesto Falcon (Cal Advocates) (31:26)
That’s right. That’s right.

That’s exactly right. so, you know, politics dictated that number. The FCC, think, again, from politics adopted that number as like the metric will measure whether broadband is being sufficiently deployed. ⁓ Really misses the ball. mean, the Europeans have already moved on to gigabit. The advanced Asian markets are already looking at gigabit. And the market has moved on to gigabit in America. And so, you know, the way the data, what we found out from the data and what we have seen and we’ll publish more findings in the summer is ⁓

the market and demand is in the 500 and above range and the products that are offering those are competing with each other when they do, are aggressively pricing that gigabit speed and then everything kind of below that speed is priced, of downscale from there. And if you don’t have two gigabit options and really was, ironically, Duopoly is actually pretty good when it comes to gigabit access.

And I think that’s probably just market structure of typically it’s like an AT &T fiber entering a market. So they’re pricing aggressively to acquire customers in the future with that hold, we’re going to have to watch and see. But, you know, we found that the gigabit connection is really kind of central to price. And if you had at least two options on average, consumers were paying 15 to 40 bucks less a month. And so you’re going back to like our core statutory mission. How do we lower prices?

the discovery that if you have two gigabit options, that’s exactly how you start lowering prices, at least in today’s market. ⁓ Really pivoted our focus in charter Cox to look at, well, how many parts of California are the sole gigabit provider? ⁓ It’s a little over 2 million places. And so a lot of our regulatory focus was on how do we address monopoly ⁓ in those situations until there’s a second option. And granted, the fiber companies are expanding.

⁓ So we need to look at how do we intervene in the meantime until competition can enter those markets or figure out other ways regulation can ensure that the lack of competition isn’t an impact on the consumer’s bill.

Christopher Mitchell (33:42)
Right. I think it’s worth remembering. And I know that you know this, but for listeners, ⁓ the bathtub is also draining, right? It’s like, want to fill the bathtub up with competition. And so we see that there’s new investments coming from existing providers and there’s new providers that are coming in, but there’s also consolidation that is taking competition out of the market simultaneously. And so, ⁓ I, like the way you think about it because that trend, might not be present in five years. These things are dynamic and, and moving around.

So what the best policy might be may be changing over time. Now I do want to ask, so one of the things I was interested in, because we’re talking about a settlement, which is exciting between Charter and Cox and you all, is that I saw that the Digital Equity Los Angeles and Media Alliance had intervened in this. And so can you just give us a quick sense of what that means? What did they do in order to help with this settlement?

Ernesto Falcon (Cal Advocates) (34:36)
Yeah, so the way it works is that as a merger is under review and you can file to be a party, meaning, ⁓ you you’re representing some constituency or a portion of the public and saying, I would like to have a say in how this merger proceeds. ⁓ The settlement the Public Advocates Office has with Charter Cox is just a two-party settlement. ⁓ Potentially other parties may join, but the involvement of ⁓

the digital equity ⁓ LA community, I think was kind of central to a lot of the things we asked for. So one thing they raised a number of years ago was ⁓ discriminatory pricing that was occurring ⁓ on the promotional rate. And our study that we published earlier this year kind of I think validated a lot of their findings at a statistical level. ⁓ One advantage I have that an NGO nonprofit doesn’t have is, I mean, I am the government, right? And so I have…

resources that exceed what a nonprofit who has to depend on fundraising and grants and things of that nature. I also have access to data and ⁓ a state education system that is second to none that we can partner with as another state government agency. And so we’re able to produce and refine data at a much more deeper level than many of the NGOs are capable of, simple by resource capacity. So the fact that they kind of

their biggest role I think was identifying there’s a hint of a problem over here and here’s what it looks like. Then we took it to the next level and dug much deeper and found, there seems to be a problem in terms of what prices are being offered for the exact same service. we have several conditions in our settlement, but one thing we really wanted to dig into and worked on the commission was, ⁓

if it’s the same service, should effectively be the same price. There should not be a world where a gigabit in one part of LA is more expensive than a gigabit in a different part of LA. It’s the exact same damn wire, it’s the exact same hardware. So one condition that charter had to agree to with us was for three years, the promotional pricing essentially is nondiscriminatory statewide. So we set the price caps of what a gigabit 500, 100 will be at $30 for 100, $50 for 500.

$70 for a gig and anywhere else they want to lower the price It can’t be more than a $15 range from the top of the price So if there are areas where say fiber enters a part of the state and it comes in at a very aggressive price Charter responds and say okay. We’re gonna drop the gigabit price for that area to 40 bucks to respond to it statewide

everyone’s entitled to $55 because there can’t be more than a $15 difference between the most competitive parts of the state and the least competitive parts of state. So we wanted to create a type of tethering between the two in order to ensure to really lower that variance by a lot. you know, some places will save, you know, $5 a month, some places will save 20 to $30 a month. And so, um, it really is, and it’s temporary and the rationale behind the temporary nature is, as we were talking about earlier,

is fiber is expanding. Technically, once you have enough, once we were able to kind of eliminate the gigabit monopoly zone in the state of California, then we have solved at least the initial problem of ⁓ monopolization and monopoly rates. The next question will be, do we see parallel pricing and duopoly behavior that there follows? And, you know, don’t have an answer to that yet until we see it.

Christopher Mitchell (38:10)
And that’s interesting because there’s no real experimentation around price caps. ⁓ I mean, the Federal Communications Commission is pretty clear about ⁓ not supporting it, and that’s true of Republicans and Democrats. ⁓ I’d say a lot of policymakers are deeply concerned about it. And then people like me are also deeply concerned about price cap efforts because of the potential for endless litigation. ⁓ And…

It seems to me that like one of the things these three years will give us is a sense of like, well, like if you structure it this way, it might be a little more effective because charter is in control of its pricing. It just has a range in which it cannot abuse ⁓ the people who don’t have as much of a choice. And so that’s a, I think it’s an interesting policy tool. Have you seen it used elsewhere? Did you guys come up with it? Like you’ve any sense of, of prior use?

Ernesto Falcon (Cal Advocates) (38:59)
So

this price cap kind of tethering between competitive and non-competitive, it’s the first time. We’re the first to do it. It really stems from the research analysis work that my senior researcher, Bisha Yee, produced in January because we were able to see, why is there $40 discrepancy here? Let’s really narrow that down. Let’s bring it down to as little as possible and ideally cross-pollinate the benefits of competitive parts of the state with the less competitive parts of the state.

The, so yeah, no, it’ll be the first time. And we’re gonna have to, there’s a lot of compliance and oversight work that follows to ensure that they can keep consistent. And so we’ll probably continue our partnership with UCSB to essentially just, let’s just scan and audit parts of the state once the settlement’s in place, once the merger is approved with those conditions. And if there’s a problem, then we take it up to the commission for an enforcement action. I suspect, and let me go back a big step.

what we’re trying to remedy because the reason you have rate regulation and kind of setting prices in this way is it’s supposed to substitute for competition. That’s the entire premise behind it and that’s kind of gotten lost in a lot of the theory of why do you set rates. If there is identifiable lack of competition, the government’s job is to essentially replicate competition until there’s competition. And so that’s why these are temporary. These are designed to ⁓

you know, essentially replicate what we’re seeing in, in duopoly and, and, and three way competition markets in the state and just kind of make it all kind of the same. Um, the, the other thing about it too is, um, you don’t want to go too aggressive because an interesting thing is on the flip side of it is if you were to say, okay, you have to charge the lowest prices across that the best competitors are charging the unfortunate, what you end up doing is suppressing the ability for those competitors and those markets.

Because the more more the companies over price, the more it attracts alternatives. So there is this push pull we have to be careful about when you think about how you set prices.

Christopher Mitchell (41:07)
I was thinking about that in relation to the ⁓ Lifeline program. And ⁓ my preference would be that we would have fewer subsidy programs and ⁓ networks that were designed to really meet the needs of folks. Because just having affordable price from charter doesn’t necessarily mean that charter is gonna be the best ISP for people that might need some additional support and additional needs where we’d prefer to have.

you know, some kind of arrangement that ⁓ had a business model, which might frankly require, you know, some kind of ongoing support, financial support to work because of the higher costs of serving those folks. But the simple fact is people need access yesterday and like you’re providing a solution that gets it to them today. And that’s really terrific. So like, I always feel like, you know, it’s important to keep those things in mind. ⁓ One other thing I wanted to note, I want to come back to the settlement terms before we run out of time, but ⁓

the Digital Equity LA and Media Alliance, also just, I wanna give them kudos for doing the hard work of getting people interested in this stuff and educating them on it. I had a podcast recently ⁓ with Neil Chilson and we were talking about decentralized solutions. And he made a point that will always stick with me, which is, he said it differently, but it’s that this is not a spectator sport. We need people to get involved into like, right to their elected officials and play their role and be a part of civil society. So.

So those groups are very inspiring for that. But I know you agree, but we’ll just move back to the settlement. ⁓ And what else is included in the settlement that people should know about that’s going to allow this merger to move forward?

Ernesto Falcon (Cal Advocates) (42:42)
Yeah, well, and I want to connect a dot here on something you brought up. the Los Angeles consortia has received grant funding from the PUC to exist. And so it is very valuable for their contributions to the policy because we can only know so much. We need people on the ground to tell us when they see something and when they’re identifying problems, because then that informs my team to investigate. You know, we have enormous ability to request data from these companies to kind of dig in and find out what’s not working, what is working.

And, um, you know, so, that is all funded by the surcharge, you know, it kind of goes back to, you know, everyone pays a little bit into this program. What are you getting out of it? Where you’re getting a lot of community representation is another byproduct of that to the, um, settlement term. So, so one thing I’ve been articulating in Sacramento is there, I, there’s two markets. There’s the general market that middle income and upper middle income exist in. And there’s a low income market that should be seen and treated differently.

because these are folks who are not making discretionary choices based on, that’s the best product for me or I’ll take that. They’re making sacrifices between choices. And so it is our policy goal as the public advocate’s office to create as many basically fully subsidized high quality options for the low income population simply because, you know, we ran what’s called an affordability calculation. There’s tools of the commission that makes, you look at counties.

Christopher Mitchell (43:39)
Mm-hmm.

Ernesto Falcon (Cal Advocates) (44:06)
and census data and income status and determine is this affordable, is this not affordable? And we were able to determine there’s a lot, there’s parts of the state where there are people who can only afford to pay zero to get access to the internet. Senior citizens surviving on social security alone would be like ⁓ a typical example of that. So it is our.

mission and goal to think about them as a separate and different market because they’re just not participating because there’s nothing at zero absent, something that’s subsidized that meets that price point. So with that as a background, the other thing we aggressively worked on in terms of coming to terms with Charter and their merger here was for them to offer one basic broadband service at the price point of $20. So for the next five years, there’s $20,

⁓ at 100 down 20 up throughout the charter network and the charter Cox network and this builds off what we’ve already achieved with Verizon and the merger of frontier and so we already kind of set a precedent that Verizon committed to ⁓ offering essentially fully subsidized broadband service throughout the state that is part of our lifeline program and ⁓ now charter will too and so large swaths of the state so the charter Cox territory is about a million

million individuals, I think it’s like 350 households that are qualified as low income are going to be entitled to essentially free service if they wish to use enroll in the program and apply the subsidy to it. The second piece we were able to agree to, and this is new in terms of low income policy. What we are seeing in the data, going back to what I was saying about, you know, the markets moved on and most subscribers are in the 500 and above range nowadays. It’s even true for low income.

Most of them are not really there’s kind of two two populations of low-income there There’s there’s once you’re subscribing to the most basic service at the lowest price Which is typically these discounted services a cable offer 50 down 10 up, which I think is an inferior product It should be at least 100 down 20 up at this point And then there’s a population. They’re subscribed to 300 500 even a gigabit not at the same levels as a general market but but still a sizable portion of the population about 40 % of them in the state, California, so

We wanted a higher quality product, which is where we are able to agree to a 500 down, 20 up offering from charter for also for five years at $50. And they’re all supposed to include voice connectivity to it, wireline voice. So this would be just like your telephone at the house. Under those conditions, a consumer can access that for $20 out of pocket because the state will pay for $30 of the cost of that.

They also can bundle mobile wireless. Yeah, as long as they qualify, as long as their income qualified and enrolled in the program. ⁓ So my hope is enrollment grows because it’s an entitlement that everyone is allowed to access. We created it for that purpose. And unfortunately, enough people, not everyone uses it. There’s still a sizable population of people who are able to access these funds and have not done it. And so my hope is by creating really attractive products,

Christopher Mitchell (46:52)
as long as they qualify.

Ernesto Falcon (Cal Advocates) (47:19)
that are meaningful out there that will motivate people to say, you know what, how do get that? Oh, I have to sign some paperwork and I have to go through a little bit of friction to get there. I’ll do that because this is a solid connection that lets my kids do homework at home, I might even be able to get your remote work now is because of this. that is our hope of the higher tier low income rules that we established with Tartar with the 500 down, 20 up.

Christopher Mitchell (47:46)
Excellent. Any any last thoughts before we call it a show?

Ernesto Falcon (Cal Advocates) (47:51)
Yeah, I mean, you know, the present is looking better. We are delivering, I think, some of the best affordable options in the country, and they’re all time limited. so fundamentally, policymakers will have to make a choice about what the future holds when as these expiration dates start arriving. And to your point, I think that’s inviting more competition, figuring out more discrete solutions. you know, we recommended to state that we should look at what New York has done. We should think about

the fact that there should be some baseline floor that ensures, you know, from our perspective, the subsidy meets meets a service that covers the cost. Industry wins long run, even though they would kick and shout and scream about that. But for going to enhance the buying power of people, we got to make sure there’s products available to them that are worth those those dollars.

Christopher Mitchell (48:39)
Yeah, I think there’s probably some people who live in areas that aren’t touched, right? And that would be not a lot of people given the makeup of California. But if you’re in an area where there’s no Verizon or Frontier historically and no charter or Cox, then you’re not necessarily directly benefiting from some of the agreements here. And you got to tell your public officials, hey, like we got to fix this. can’t just ⁓ we can’t just patch it when there’s opportunities because of mergers. We have to actually have.

proactive statewide solutions for this. So there’s a role for people there too.

Ernesto Falcon (Cal Advocates) (49:10)
That’s absolutely right.

Christopher Mitchell (49:13)
Well, thank you, Ernesto. I feel like that was very clear. And I love it when we have people from these important agencies who can talk in ways that don’t require a law degree to understand, even though I know that you have one.

Ernesto Falcon (Cal Advocates) (49:23)
Yeah.

I want to keep it real.

Christopher Mitchell (49:30)
Excellent. Thank you so much.

Ernesto Falcon (Cal Advocates) (49:32)
Thank you, Chris.

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