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This is the first entry in a series on the “Industrial Internet,” focusing on the basic elements, legal issues and procurement implications, principally from the perspective of the end user. The term is used to distinguish industrial and critical infrastructure applications from consumer “Internet of Things” applications, but similar concepts apply.

The unifying characteristic is that information on attributes of physical objects (or the human body with regard to wearables and medical telemetry) is acquired by sensors that digitize, analyze (to varying degrees) and transmit this data. Based on software programmed rules, the sensors may issue commands to actuators to change or modify the operation of physical assets.  Sometimes the data is simply displayed and stored locally. An important function of the Industrial Internet is that the data is almost always subject to more in-depth analysis.

In over-simplified terms, in the Industrial Internet information is acquired from physical assets (electric generators) or local environments (refrigerated trailers (“reefers”)), by sensors affixed to or embedded in physical assets to measure specific parameters such as vibrations, pressure or temperature. Sensors often consist of software, firmware and a CPU and are connected to an RF transceiver or to a fixed wireline network (local or wide area).

As digitized, the data from sensors (different sensors measure different physical attributes) are transmitted (via wireless or wireline connectivity) to a local gateway, collection point or node (“node’) that, based on programmed rules and the information received, may issue commands to actuators (switches or valves) to shut down or modify operation of the equipment, lower the temperature, adjust the humidity, or trigger alarms for management intervention. In time-critical applications, the sensors may communicate with other sensors to take specific action.

After initial processing and commands by sensors or nodes (“at the edge”), the data is conveyed (real-time or not) to a “backend” (data processing capability (cloud-based or not)) that may either issue commands to the actuators or perform more in-depth analysis or both. This analysis may suggest changes in the prognostics or other programmed rules in the sensors or nodes, in data sampling frequency, or in the maintenance, manufacture or operation of the physical assets.

Except in enclosed facilities (such as factories or electric substations), the sensors or the nodes are often connected by one or more wireless pathways.  The wireless data are typically routed to a wireline Internet connection, a MPLS port or a private network on to the backend.  Industrial Internet communications are typically encrypted.  Advances in operating system software and miniaturization (to accommodate local processing and issuance of commands by the sensors), IP connectivity, data management software, and “big data” processing capabilities enable the Industrial Internet.

The term “Industrial Internet” is something of a misnomer.  An entity’s physical assets, its use of sensors (and nodes), and encrypted connectivity to the backend are typically a company-specific operation, not intended to be widely accessible.  Thus, these networks may better be referred to as “Industrial Intranets.”

Footnote:  This series is not focused on computer-controlled equipment, processes or technologies, such as robotics, used to produce refined products and chemicals, industrial equipment and consumer goods, collectively referred to as Industrial Control System (“ICS”) technologies.  Auto assembly plants, refineries and soft drink bottling plants utilize ICS technologies.

Another marker passed on the FirstNet roadmap last week as Capability Statements from bidders interested in building, operating and maintaining the Nationwide Public Safety Broadband Network were submitted March 31, 2016. Final bids are due in less than two months, on or before May 13, 2016.

FirstNet has clarified that submission of a Capability Statement is not a prerequisite to submission of a bid. However, it is unlikely that any serious bidder would choose not to take advantage of the Capability Statement process, which is designed to provide feedback from FirstNet prior to the submission of a nationwide bid.

The significant interest generated by its Request For Proposal (“RFP”) prompted FirstNet to extend the initial due dates for the Capability Statements and the bid submissions. FirstNet received over 400 questions seeking clarification of various parts of the RFP.  In record speed, FirstNet provided answers to questions on a variety of topics including vendor payments, financial sustainability of the network, rural coverage requirements, priority access and state plans.

Perhaps the best indication of the interest generated by the RFP is the number of companies requesting inclusion on a partner/teaming list. This list identifies interested entities looking to be part of a nationwide bid, as suppliers of products, services, and/or facilities. Over 600 entities are listed, including integrators, cable TV companies, rural telecommunications providers, electric utilities and numerous consultants. While there is no guarantee these entities will be included in any nationwide bid, the large number of companies looking to participate underscores the high interest in the FirstNet opportunity.

Of course, the key to success is for a prime bidder to come forward with both the ability and the resources to meet all of FirstNet’s objectives for the network. From recent trade press reports it appears that FirstNet will receive a number of meaningful competing bids. Stay tuned.

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It is all-too-fitting that the annual USF report is due on April 1.  For many filers, OMB’s “Estimated Average Burden Hours Per Response” of 13.5 hours for completing the Form 499-A is laughable.  The FCC could substantially reduce USF reporting burdens by implementing a number of overdue changes.

Many process improvement proposals offered in comments filed in response to the FCC’s 2012 Further Notice of Proposed Rulemaking remain viable and doable.  These changes are independent of any FCC decision on whether, when or how to expand the base of USF-assessable revenues.  Here is a short list of USF reporting reforms the FCC should adopt.

1. Resolve appeals of USAC decisions consistent with the timelines in Section 54.724 of the FCC’s rules or revise the target dates for making decisions.

If the expert agency sits on its hands, inconsistent decisions by filers are inevitable.

2. Address USF contribution reporting questions through analogues to IRS Private Letter Rulings or      Revenue Rulings.

Determining USF contributions can be problematic because filers often must address the vexing question of whether a service is a telecommunications service or an information service.  Many of these questions remain unanswered for years. The FCC or the Wireline Competition Bureau is in the best position to answer these questions.

3. Balance the current asymmetrical periods for correcting USF reporting mistakes (5 years for underpayments and 1 year for refunds/adjustments for overpayments).

This is a no-brainer.

4. Limit adjustments to the USF contribution factor to once a year.

While USF contributions may not be “taxes,” it is noteworthy that state sales and use taxes typically are not adjusted quarterly.  This would be a “win-win” for filers and USAC.

5. Set “safe harbors” for determining interstate/international and intrastate traffic mixes for wireless and VoIP traffic that reasonably correspond to reported values.

Filers cannot be expected to remit USF contributions based on “safe harbors” that bear no relation toactual jurisdictional traffic mixes.  This would be another “win-win” for filers and USAC.

The FCC should also adopt a self-disclosure program to encourage non-filers and late-filers to register and report and remit USF contributions and all other regulatory payments.  Under this approach, the services provider would pay the amounts owed, a reasonable measure of “economic benefit” for late payment, and a realistic forfeiture amount.  Let’s maximize support for important programs and try to keep services providers in the game.  This is far better than the treble damages methodology outlined in the 2015 Forfeiture Policy Statement.

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Time is running short for schools and libraries to seek funding for eligible products and services in the 2016 E-Rate funding season. E-Rate provides funding for high speed Internet access, dedicated services, and dark fiber to schools and libraries, as well as premises-based WiFi deployments. The filing process is driven largely by schools and libraries (aka “Applicants”), many of which have already posted applications on the E-Rate Productivity Center (“EPC”) web site managed by the Universal Service Administrative Company (“USAC”). For 2016, schools and libraries have until April 29, 2016 to request discounts on eligible products and services.

Schools and libraries (“the Applicants”) initiate the bidding process by posting a Form 470 on the EPC web site, setting out entity information, services requested, technical contact information and procurement information. The filing window for Applicants to submit a Form 470 remains open until April 1. After posting a Form 470, Applicants must wait 28 days before selecting a service providers’ bid. Since the window for filing Forms 470 is now open, service providers should be accessing USAC’s Form 470 Search Tool or Form 470 Download Reports Tool to view bidding opportunities.

It is important for services providers to bid aggressively; low cost is the primary factor that Applicants must consider when selecting service providers. In addition to pricing, Applicants and prospective bidders should be mindful of the basic rules governing E-Rate bidding and funding. The FCC’s Enforcement Bureau has entered into numerous consent decrees with both service providers and Applicants, including state agencies, for alleged violations of the competitive bidding process.

When the school or library selects a winning bidder, the Applicant and winning bidder may work together to complete the filing process, which includes finalizing the FCC Form 471. Winning bidders must submit the Form 473 – the Service Provider Annual Certification (“SPAC”) Form—for the initial and subsequent funding years.  This form includes several certifications that service providers must attest to in order to participate in the program.

Prior to releasing funds, USAC must review and approve an Applicant’s Form 471. After approval, USAC will send the Applicant a Funding Commitment Decision Letter (“FCDL”) and notify the service provider that its bid has been approved. There is no set time for USAC to conclude its review of the Applicant’s filing. Some winning bids with extenuating circumstances from 2014 are just now receiving FCDLs.

Last but not least, the Applicant must file a Form 486 informing USAC that approved services have been initiated and that the Applicant is in compliance with the Children’s Internet Protection Act (“CIPA”). At this juncture, USAC will begin to pay submitted invoices.

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As widely reported, Verizon has entered into an agreement to acquire the fiber network business and assets of XO Communications from its sole shareholder Carl Icahn for $1.8 Billion, plus an option to purchase XO’s spectrum that expires at the end of 2018. Verizon is also leasing the spectrum from XO, presumably to “test drive” the spectrum until it either exercises or passes on the option.

In Verizon’s words, “[Its] ownership of XO’s fiber-based IP (Internet protocol) and Ethernet networks will help better serve enterprise and wholesale customers.  In addition, acquired fiber facilities will help Verizon continue to densify its cell network.”  The XO acquisition is reminiscent of Verizon’s acquisition of MCI that closed just over 10 years ago and delivered a global network and a sizable customer base, though Verizon had to outbid Qwest International (now CenturyLink), paying $8.5 Billion.

For enterprise customers, the merits of the transaction are mixed.  XO had become a viable competitive MPLS carrier often as a customer’s secondary MPLS provider.  This role likely ends as the transaction closes.  While not having the size or scale of the MCI network, the XO assets are substantial and XO’s network will support both Verizon’s wireless and enterprise businesses.

The remaining domestic-based “competitive carriers” of substantial scale are dwindling.  The largest by far is Level 3 which recently acquired tw telecom.  The Verizon-XO transaction triggers speculation whether Comcast or, perhaps, Charter-Time Warner, assuming that deal closes, might pursue Level 3. Such an acquisition would secure a meaningful position in the global enterprise market and a valuable IP-backbone.

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Among entertainers, the FCC is seen as the self-righteous censor that levies high profile fines against  a broadcaster for a “wardrobe malfunction,” or a radio station for playing a profane song.  It’s no wonder Eminem complained that the FCC wouldn’t let him be!

But, the times they are a-changin.  Earlier this week, a high-profile musician offered his wholehearted support for one of the FCC’s more challenging regulatory initiatives – live, on national television.

As Stevie Wonder prepared to announce the winner of the Grammy for Song of the Year, he opened the envelope and discovered the recipient’s name was written in braille.  He showed the card to the TV audience and taunted the viewers for being unable to read braille, punctuating his impromptu remarks with “nah, nah, nah, nah, nah, nah!”  He then turned serious, telling the audience, “we need to make everything accessible to every person with a disability.”

In 2010, Congress passed the 21st Century Communications and Video Accessibility Act (“CVAA”) looking to make communications devices and services, as well as certain functions of video programming, more accessible to disabled individuals and directing the FCC to adopt rules to make it happen.  The FCC has spent the past few years doing just that.

The rules are broken into two parts.  The first, “Title I,” aims to ensure accessibility features are built in to certain advanced communications services (ex. texting, email, and Facebook) and devices (ex. smartphones and tablets) that rely on broadband.  The second, “Title II,” calls for the inclusion of enhanced accessibility features in devices that enable viewing of video programming (ex. an Apple TV).  The devices are required to support closed captioning and text-to-speech capabilities for on-screen menus and guides.

Under Title I, service providers and device manufacturers must understand whether their service or product meets the FCC’s definition of an advanced communication service.  If so, companies should understand the FCC’s prescribed accessibility functions and incorporate them into their service or device.  The rules also require providers and manufacturers to create and maintain records detailing these efforts, provide the FCC with a company contact person to address consumer complaints, (whose contact information will be publicly-available in a Commission database) and certify annually it has complied with these rules.

The goal of Title II, is to enable disabled individuals to enjoy video programming by imposing certain obligations to support closed captioning and requiring on-screen menus and guides to be accessible to these consumers.  The rules are focused on ensuring that the underlying device is accessible, but the agency’s expansive definition of devices includes any video-playing apps (ex. Netflix) that are preinstalled by the manufacturer.  While the FCC’s rules implementing Title I took effect a few years ago, manufacturers of devices have until December 20, 2016, to comply with the Title II accessibility obligations.

The FCC may consider reasonable waiver requests from device manufacturers under Title II, just as the agency did under Title I.  For instance, the Coalition of E-Reader Manufacturers requested the FCC exempt e-readers (ex. Kindle) from the Title I accessibility rules.  Initially, the FCC granted temporary waivers, but earlier this year made the waivers permanent.  The agency recognized that although e-readers are capable of accessing advanced communications services, they are primarily designed for reading text-based digital works, and not for emailing, texting, or surfing the web.

Notwithstanding the challenges posed by the CVAA, the FCC should do its best to reach Congress’ noble goal of ensuring access to video programming for disabled individuals.  To paraphrase Stevie Wonder:  it’d be great if everybody with a disability could enjoy his next award presentation.

There could be two significant historical events this November. On November 8, 2016 the American people will elect the 45th President of the United States. One week earlier, on November 1st, the First Responder Network Authority, commonly referred to as FirstNet, hopes to select a winning bidder to construct, maintain and operate a nationwide public safety broadband network (“NPSBN”).

Purpose: The NPSBN is intended to bring our nation’s public safety personnel into the 21st century, giving them access to state-of-the-art broadband capabilities including high speed data and video on a hardened network designed to operate under emergency conditions. FirstNet is licensed for 20 MHz of 700 MHz “beachfront” spectrum. A successful launch of the network will enable a highly informed, coordinated response to public safety events including medical emergencies, natural disasters and acts of terrorism.

The FirstNet RFP. Almost four years after Congress established FirstNet through enactment  of the Middle Class Tax Relief and Job Creation Act of 2012, FirstNet recently released its long-awaited Request for Proposal (RFP) looking for a commercial entity to build and run the network. Although only one nationwide bid will be selected, no one entity is capable of meeting all of FirstNet’s objectives.  To achieve a truly nationwide network, prime bidders will need to form partnerships, including those with rural telecommunications service providers and other rural America infrastructure owners, such as electric cooperatives and oil and gas companies.  The selection process will be conducted over four phases with only the most competitive bids surviving to the final phase.

Focus on Capability Statements. In the first phase, interested parties must demonstrate they are capable of performing necessary work by providing a Capability Statement. These statements are due by March 17, 2016.

Capability Statements will be evaluated based on five factors:

  1. the ability to obtain public safety use and adoption of the network;
  2. the ability to provide coverage and capacity nationwide using the NPSBN and other spectrum;
  3. partnerships with rural telecommunications providers;
  4. the ability to monetize the network, which may include a secondary user customer base in addition to primary public safety users; and
  5. the financial ability to develop and sustain the network.

Once this threshold level is met FirstNet’s review of the competitors will intensify.

Submission Date for Qualified Bidders.  Following FirstNet’s analysis of the Capability Statements, those deemed best qualified will then be invited to submit a proposal. Proposals in response to the RFP are due April 29, 2016. A proposal must address numerous objectives, including nationwide coverage, financial stability, competitive pricing, cybersecurity solutions and construction milestones for both urban and rural areas.  The winning bid will be based on the proposal delivering the “overall best value” to FirstNet based on these objectives and certain defined technical requirements.

If all goes according to plan, November 2016 could be a very historical month.

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For better or worse, you decide, the FCC is challenged when adopting policies or making decisions that impact enterprise customers.  This is the second of two entries on enterprise customers and the FCC.

IP Transition.  Responding to persistent calls from AT&T, Verizon and CenturyLink, the FCC is in the midst of setting the ground rules for telecom carriers to migrate from copper networks and TDM services to fiber networks and all-IP services, consistent with Section 214 of the Act which requires the FCC to balance carriers’ and end-users’ (residential, SMB and enterprise) interests as carriers seek to discontinue existing services and facilities.

These rules may impact enterprise discretion on planned migrations to Ethernet private line, VoIP offerings and Ethernet special access service, shifting the timing and extent of migrations to the wireline carriers.  There are three major aspects to the FCC’s IP-transition rules.

1.   Wireline telcos retiring copper loops must provide at least six months’-notice to business customers by mail or e-mail (under certain circumstances) when retiring copper loops to the premises, unless the customer previously consented to copper retirements.

2.  The FCC is requiring the rates, terms and conditions for the replacement Ethernet special access services be “reasonably comparable” to the discontinued DS-1 and DS-3 access services.

3.  The FCC is developing principles to govern the discontinuance of TDM voice and private line services.

Recommendation.  Retailers, railroads, financial institutions and other enterprises with several hundred or even several thousand domestic locations should develop IP migration plans, mindful that carriers are not required to implement their IP transitions over a defined period or uniformly throughout their service territories.

USF Contribution Reform Lags—Badly.  The FCC’s most recent effort to implement USF contribution reform started and stalled in 2012.  Despite the numerous thoughtful comments and recommendations, inertia prevailed.  In its 2015 Open Internet Order, the FCC stated that contribution reform is being assessed in a separate proceeding.  Unfortunately, agency action is not eminent even though the USF Contribution Factor has now hit 18.2%.

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For better or worse, you decide, the FCC is challenged when adopting policies or making decisions that impact enterprise customers.  This is the first of two entries on enterprise customers and the FCC.


Open Internet Order.  With no explanation, the FCC excluded high speed Internet access service sold to enterprise customers from the rules adopted last year in its Open Internet Order.  These customers do not benefit from the bright line rules, principally the rule that ISPs not block publication of or access to lawful Internet content, and the broadband Customer Proprietary Network Information (“CPNI”) rules.  By including mobile broadband service in the definition of regulated, mass market Broadband Internet Access Service (“BIAS”), the FCC appears to be saying that the Open Internet rules apply only when employees purchase wireless service directly, but not when purchased under enterprise wireless agreements.Assuming the Open Internet Order survives judicial review, the merits of two regulatory regimes for the same service will be determined in the marketplace.

Special Access Service Investigations.  Since at least 2002, the FCC has been investigating—with varying degrees of focus—whether the rates charged by the price cap ILECs for special access services (principally DS-1 and DS-3) are or are not “just and reasonable”  under Title II of the Communications Act.  (In other words, are special access rates too high?)  The high water mark came in 2012 when the FCC suspended its rules granting price cap ILECs special access pricing flexibility because the FCC determined that the “collocation triggers [for pricing flexibility] are a poor proxy for the presence of competition sufficient to constrain special access prices.”  To assess the extent of competition, the FCC sought data on both TDM and Ethernet-based dedicated access services.  With data collection now complete, the FCC and services providers are engaged in a lengthy data review process.

Concerns raised by competing carriers prompted the FCC in 2015 to open another proceeding to investigate price cap carrier special access tariff pricing plans.  The FCC noted that the competing carriers allege these pricing plans “incorporate a complicated web of all-or-nothing bundling, loyalty and term commitments, complex enforcing penalties, circuit migration rules and other provisions.”

That the FCC recognizes special access pricing is problematic is positive.  The remaining questions are whether, when and how the FCC will respond.

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2016 looks to be the year the Federal Communications Commission (FCC) will place its biggest bet on the value of spectrum and begin to see whether two novel approaches to spectrum management are hits or misses.

Later this year, the FCC will conduct its Broadcast Incentive Auction, whereby it will seek to transition a large amount of wireless spectrum from television broadcasters to wireless providers.  In a nutshell, the objective of the Incentive Auction is to incent TV broadcasters to sell their spectrum back to the FCC, which in turn will auction the spectrum to wireless carriers.  It’s a “never-been-done-before” type of endeavor with a big upside.   But it could also be an embarrassment if it doesn’t go as planned leaving one FCC Commissioner to state, he is “praying it is not a failure.”  The FCC’s willingness to go out on a limb shows the Commission sees a bigger risk in not addressing the Country’s increasing demand for spectrum by continuing to maintain the status quo.

The Broadcast Incentive Auction isn’t the only spectrum policy innovation that will play out this year. The FCC’s plan to implement a Citizen’s Broadband Radio Service (CBRS) in the 3.55-3.7 GHz band has garnered less attention from the press, but, if it works, it could prove valuable to multiple segments of the wireless industry.

Under its new CBRS rules, the Commission will largely turn management of the 150 MHz of spectrum at 3.55-3.7 GHz over to one or more yet-to-be-named third party database managers.  Those database managers would be responsible for dynamic assignment of operating parameters to users and licensees in real-time.  The band would be a mix of Federal incumbents, auctioned license winners, and unlicensed secondary users.

For their part, wireless carriers view the CBRS as providing access to a very large amount of spectrum that could be used for small cell and in-building coverage.  CBRS compatible chips in wireless devices would enable carriers to offload very high capacity applications from their wide area LTE networks in certain areas.  In theory, the dynamic channel assignment would allow more intensive use of the band than otherwise achievable through the conventional approach of exclusive licensing.

One criticism of the CBRS is that it replaces what had been a successful spectrum allocation at 3.65-3.7 GHz.  This band, which was allocated only less than ten years ago, was used by hundreds of licensees including wireless Internet Services Providers, electric utilities, oil and gas companies, and other industrial users for high-bandwidth services. It remains to be seen to what extent the CBRS will be suitable for these users.  One potential hurdle – if accessing the dynamic spectrum database requires critical infrastructure companies to connect sensitive control systems to the Internet, expect many of those entities to take their wireless applications to other bands due to cybersecurity concerns.

The CBRS is an experiment in spectrum policy.  As one Commissioner states, “Will it work? […] We will see.”