Why I am Thankful – 2017

Every year at Thanksgiving I take a pause to look at the positive things happening with the small carrier industry. This is not the easiest year to make a list because we currently have an FCC that clearly is in the pocket of the big ISPs like Verizon, AT&T and Comcast. While some of the new FCC policies supporting those big companies will benefit all ISPs, in many cases the FCC decisions are given the big ISPs a leg up over competition. But there are still things to be thankful about in our industry:

Demand for Broadband Intensifies. In the work I have been doing in rural communities it’s becoming clear that broadband has moved from a nice-to-have feature to a must-have commodity. I see evidence of this in several different ways. First, rural communities and their citizens are making a lot of noise to politicians about not having broadband. The broadband issue has become the top priority in many communities. I also see evidence of rural broadband demand when looking at the high penetration rates that come from projects being built in areas that didn’t have good broadband. Over the last few years I’ve seen such projects getting customer penetration rates between 65% and 85%. I call this a good news topic for rural carriers since it means there are still lots of opportunities for expansion, and enough customer demand to help pay for broadband projects. It’s not a positive that there are still so many communities with no broadband, but the positive here is that communities are making demands, which is the first step towards finding a solution.

Public Private Partnerships are Thriving. Very few government entities want to be an ISP and they are instead hoping to find commercial partners to bring better broadband to their communities. In just this last year I’ve worked with half a dozen local governments that have contributed funding to public private partnerships, where the government acts like the bank and the ISP owns and operates the network. Since rural broadband projects are often a challenge to finance this is a promising new trend.

ACAM Money is Financing Fiber. The ACAM money from the Universal Service Fund is being used to expand fiber and advance broadband in rural areas all over the country. The fact that some rural communities are getting fiber is helping to drive the demand for other who want the same thing. We’ll have to wait until next year to see of the CAF II reverse auctions drive similar results.

Wireless Technology Getting a Lot Better. I have a lot of clients who are now deploying point-to-multipoint radios for broadband deployment. Over the last three years these radios have improved dramatically. They are more reliable, almost approaching plug-and-play. By combining multiple frequency bands they deliver bigger broadband pipes, faster speeds and a much-improved customer experience. Depending on customer density the networks can be designed to deliver 25 Mbps to a lot of customers with some speeds as fast as 100 Mbps. There are still big issues with the technology in heavily wooded or hilly areas, but there are a lot of places where the technology is now delivering a great broadband connection.

New Revenue Opportunities Materializing. While voice revenues continue to decline and many of clients are getting clobbered on cable TV, I see a number of them doing well with new products. I have clients getting decent penetration rates with managed WiFi. I have some clients doing well with security. And I have clients making some good margins on smart home technologies. Selling new products is out of the comfort zone for many small ISPs and it requires some new thinking to successfully sell a new product – but I’ve seen enough success stories to see that it can work.

A Managed WiFi Product

A number of my clients are now selling a managed WiFi product. But the product they are offering customers under that name varies widely, and so today I thought I’d discuss a few of the different products being sold under this name.

The simplest product is one that I would call a WiFi network. Historically, ISPs that provided WiFi placed a single WiFi router near to where the broadband connection terminated into the home. And it was typical to include the WiFi functionality directly embedded into the DSL or cable modem router. This product has been around for a while and I got my first WiFi router when Verizon supplied an all-in-one router on my FiOS connection nearly 15 years ago.

But as homes have added numerous connected WiFi devices, a single WiFi router is often inadequate. With today’s greater demand for bandwidth by devices a single WiFi router often can’t reach to all parts of the home or connect smoothly to numerous devices. Most of my clients tell me that WiFi problems are now the biggest cause of customer dissatisfaction and in in many cases have surpassed cable TV issues. Many customers supply their own WiFi routers and ISPs get frustrated when a customer’s inadequate WiFi device or poor router placement ruins a good broadband delivery to the home.

Today there are numerous brands of WiFi network devices available. These systems deploy multiple WiFi routers around the home that are connected with each other to create one ubiquitous network. The routers can be connected wirelessly in a mesh or hard-wired to a broadband connection. These devices are widely available and many customers are now installing these networks – I’ve connected an eero network in my home that has vastly improved my WiFi quality.

I have a number of clients that sell the WiFi networks. They will place the WiFi units in the home in a manner that maximizes WiFi reception. The revenue play for this product is simple equipment rental and they charge each month for the devices. ISPs generally set up the routers so that they can peer into them for troubleshooting since customers inevitably will unplug a router, move one to a less than ideal place or place some big object near one that blocks the WiFi signal. But that’s about all that comes with the product – expert placement of routers and simple troubleshooting or replacement if there are problems.

At the other end of the spectrum are a few clients who really manage the customer WiFi experience. For example, customers can call when they buy a new WiFi device and the NOC technicians will connect the device to the network and maximize the WiFi connection. They will assign devices to different frequencies and channels to maximize the WiFi experience. These ISPs have invested in software that tracks and keep records of all of the devices connected to the WiFi network, meaning they can see a history of the performance of each customer device over time.

The ISPs monitor the WiFi performance and are usually proactive when they see problems, in the same manner than many ISPs track performance of fiber ONTs. The WiFi network moves the ISP deeper into the customer home and allows the ISP to make certain that customers are getting the bandwidth they are paying for.

Nobody know what to charge for this yet and I see monthly rates for the managed WiFi that range from $10 to almost $25 per month. I don’t have enough experience with this to yet suggest the right price. Like any new product the success is going to be due mostly to the marketing effort expended. I have a few clients who have already gotten penetration rates of 25% or more with prices in the $15 – $20 range.

But this product isn’t for everybody. For example, I have clients that don’t want to take on the product due to the extra truck rolls. But almost all of my clients have worries about eventually becoming dumb pipe providers and the managed WiFi product provides a tangible way to maintain contact with a customer to demonstrate the ISPs value proposition. And like with any equipment rental play the revenue stream is good. Once the cost of the hardware and initial installation have been recovered the product is almost all margin.

 

 

The Beginning of the End for Copper

The FCC voted last Thursday to relax the rules for retiring copper wiring. This change was specifically aimed at Verizon and AT&T and is going to make it a lot easier for them to tear down old copper wiring.

The change eliminates some of the notification process to customers and also allows the telcos to eliminate old copper wholesale services like resale. But the big consequence of this change is that many customers will lose voice services. This change reverses rules put in place in 2014 that required that the telcos replace copper with service that is functionally as good as the copper facilities that are being removed.

Consider what this change will mean. If the telcos tear down copper in towns then customers will lose the option to buy DSL. While cable modems have clobbered DSL in the market there are still between 15% and 25% of broadband customers on DSL in most markets. DSL, while slower, also offers lower cost broadband options which many customers find attractive.

I don’t envision AT&T and Verizon tearing down huge amounts of copper in towns immediately. But there are plenty of neighborhoods where the copper is dreadful and the telcos can now walk away from that copper without offering an alternative to customers. This will give the cable companies a true monopoly in towns or neighborhoods where the copper is removed. Customers losing low-cost DSL will face a price increase if they want to keep broadband.

The rural areas are a different story. In most of rural America the copper network is used to deliver telephone service and there are still a lot of rural customers buying telephone service. You might think that people can just change to cellular service if they lose their landlines, but it’s not that simple. There are still plenty of rural places that have copper telephone service where there is no good cellular service. And there are a lot more places where the cellular service is too weak to work indoors and customers need to go outside to find the cellular sweet spots (something we all remember doing in airports a decade ago).

Of a bigger concern in rural areas will be losing access to 911. A lot of homes still keep landlines just for the 911 capabilities. Under the old rules the carriers had to demonstrate that customers would still have access to reliable 911, but it seems the carriers can now walk away without worrying about this.

The FCC seems to have accepted the big telcos arguments completely. For instance, Chairman Pai cited a big telco argument that carriers could save $40 to $50 per home per year by eliminating copper. That may be a real number, but the revenue from somebody buying voice service on copper is far greater than the savings. It seems clear that the big telcos want to eliminate what’s left of their rural work force and get out of the residential business.

This is a change that has been inevitable for years. The copper networks are deteriorating due to age and due even more to neglect. But the last FCC rules forced the telcos to work to find an alternative to copper for customers. Since AT&T and Verizon are cellular companies this largely meant guaranteeing adequate access to cellular service – and that meant beefing up the rural cellular networks where there aren’t a lot of customers. But without the functional equivalency requirement it’s unlikely that the carriers will beef up cellular service in the most remote rural places. And that means that many homes will go dark for voice.

This same ruling applies to other telcos, but I don’t think there will be any rush to tear down copper in the same manner as AT&T and Verizon. Telcos like Frontier and Windstream still rely heavily on their copper networks and don’t have a cellular product to replace landlines. And I don’t know any smaller telcos that would walk away from customers without first providing an alternative service.

It’s hard to think that the FCC is embracing a policy that will leave some households with no voice option. The FCC is purposefully turning a blind eye to the issue, but anybody who knows rural America knows this will happen. There are still a lot of rural places where copper is the only communications option today. Our regulators once prided themselves on the fact that we brought telephone service to every place that had electricity. We had a communications network that was the envy of the world, and connecting everybody was a huge boon to the economy. We could still keep those same universal service policies for cellular service if we had the will to do so. But this FCC clearly sides with the big carriers over the public and they are not going to impose any rules that the big telcos and cable companies don’t want.

Broadband and Education

I’ve always taken it as a given that broadband is important for education. I know as I travel around the country and meet with folks in rural counties that education is at the top of the list of reasons why rural areas want better broadband. I’ve heard countless stories of the major efforts rural families undertake to help their kids keep up with schoolwork.

I recently saw a study that looks at the impact of lack of broadband on education. The study comes from the ICUF (Independent Colleges and Universities of Florida) – a group of 30 universities in the state. This study correlates lack of broadband with lower high school graduation rates, lower percentages of college degrees and lower per capita income.

The study says that 700,000 Floridians don’t have enough broadband to take part in distance learning. Distance learning is used for numerous college degree programs and the ICUF institutions have over 600 distance learning degree programs.

But distance learning is now also a big part of K-12 education and students are expected to be able to use distance learning tools for homework or to make up for work missed during absences. High schools also use distance learning to offer a wider variety of classes to students on subjects where it would otherwise be hard to justify hiring a teacher. My daughter finished high school in Florida last year and she took a distance learning math class when she was unable to otherwise fit it into her schedule.

The study concludes that students need broadband speeds at something similar to the FCC definition of broadband of 25 Mbps down and 2 Mbps up in order to successfully use distance learning. I would also add that distance learning requires low latency in order to maintain a live connection – this is not something that can be done, for example, with a satellite broadband connection.

The study identified 13 counties in the state that have inadequate broadband, ranging from Madison County where 41% of residents can’t get broadband to Dixie County where 99% of households don’t have broadband access. These counties have significantly fewer citizens with college degrees than the 19 counties that are at the top of the list in terms of broadband access.

But the 13 county statistic is misleading because every county has pockets of students without good broadband. As soon as you get outside city limits almost anywhere the availability of broadband quickly diminishes. A few years ago I looked at my own county, Charlotte County, and I found several pockets of homes without broadband even inside suburban neighborhoods.

The state of Florida has a goal to have 55% of its population with a college degree or advanced education certificate by 2025. They think this is needed to keep the state competitive in the global economy. The areas without broadband are far below that target with college graduation rates between 12% and 27%. A few of the urban counties in the state already have as many as 54% of residents with a college degree or certificate.

This study doesn’t reach any conclusions on how to close the rural broadband gap (something a whole lot of us are struggling with). But they see this study as a cry to develop policies and funding to close the gap. The conclusion of the study is that areas without broadband will fall further behind than they are today unless we can find broadband solutions.

Some Unexpected News

In an attempt to stop the massive bleeding of traditional cable TV customers AT&T has cut the prices for cable on both the DirecTV and U-verse platforms. The company lost almost 400,000 linear TV customers in the recent third quarter.

As an example, DirecTV’s ‘Select’ bundle of 150 channels will now be priced for a two-year contract at $35 for the first year and $76 for the second year, compared to the recent prices of $50 for the first and $90 for the second. All of the other packages have similar drops of $10 to $15 in the first year and lower second year prices.

I call this unexpected news because it goes against every trend in the rest of the industry. The average monthly revenue for the 2-year Select contract just fell from $70 per month to $55.50 per month – more than a 20% discount. From what I know about programming prices it’s hard to think that AT&T has any margin at the new prices and they are clearly under water for the first year, spending more for programming than what they will collect in revenue.

This price reduction brings a couple of different ideas to mind. First, it’s clear that AT&T still wants to have traditional linear cable TV customers. Even at little or no margin they see value in that, although I honestly can’t see what that benefit might be. Certainly, one benefit might be to prop up DirecTV through sheer volumes of customers. I think AT&T envisions the future of cable TV to be more in line with the smaller on-line packages being sold as DirecTV Now. But the general public largely is not yet ready to make the shirt to totally online and so perhaps AT&T wants to keep people using its products until that is a more likely shift.

But this price drop also talks about the market elasticity of cable TV. We’ve known for years that customers that cut the cord almost all say they are leaving traditional cable TV because of the cost. That was already happening before the plethora of new on-line alternatives like Sling TV and Playstation Vue. These new alternatives products have created what is called in economic terms as a substitute. Over 900,000 households changed to one of these online cable products in the most recent third quarter, and so it’s obvious that many people now view a skinny bundle like Sling TV to be a reasonable substitute for the big cable packages.

And this makes sense. We know that most households don’t watch many different channels even on a 200-channel cable offering, and so as long as a smaller lineup has channels a household is comfortable with then skinny bundles become economic substitutes for the traditional big cable bundle.

And of course, all of this is compounded by OTT providers like Netflix, Hulu and Amazon prime that provide a huge array of online content that is another competitor to cable TV. I can tell you personally that I am far happier with having one skinny bundle (currently Playstation Vue) and access to OTT content than I ever was with the big cable bundle. I remember channel surfing through the big cable packages at 3:00 in the morning (a time I am often awake) and finding nothing but bad programming and infomercials. The choice from online programming are far better for my tastes and style of watching TV.

This change makes me wonder if we aren’t seeing the end of the tolerance of the public towards costly cable TV products. If the idea that traditional cable TV packages are no longer worth the price we could be seeing a watershed moment in the industry – one where a huge cable provider makes a last stab to keep customers.

It will be interesting to see if any of the other cable providers react the same way. This is a bold move by AT&T and one would think that those seeking a cheaper alternative might be attracted to these new bundles. But of course, every customer that takes one of these packages will probably be bailing on a traditional package from one of the cable companies. This is going to be an interesting battle to watch.

The Future of WiFi

There are big changes coming over the next few years with WiFi. At the beginning of 2017 a study by Parks Associates showed that 71% of broadband homes now use WiFi to distribute the signal – a percentage that continues to grow. New home routers now use the 802.11ac standard, although there are still plenty of homes running the older 802.11n technology.

But there is still a lot of dissatisfaction with WiFi and many of my clients tell me that most of the complaints they get about broadband connections are due to WiFi issues. These ISPs deliver fast broadband to the home only to see WiFi degrading the customer experience. But there are big changes coming with the next generation of WiFi that ought to improve the performance of home WiFi networks. The next generation of WiFi devices will be using the 802.11ax standard and we ought to start seeing devices using the standard by early 2019.

There are several significant changes in the 802.11ax standard that will improve the customer WiFi experience. First is the use of a wider spectrum channel at 160 MHz, which is four times larger than the channels used by 802.11ac. A bigger channel means that data can be delivered faster, which will solve many of the deficiencies of current WiFi home networks. This will improve the network performance using the brute strength approach of pushing more data through a connection faster.

But probably more significant is the use in 802.11ax of 4X4 MIMO (multiple input / multiple output) antennas. These new antennas will be combined with orthogonal frequency division multiple access (ODMFA). Together these new technologies will provide for multiple and separate data streams within a WiFi network. In layman’s terms think of the new technology as operating four separate WiFi networks simultaneously. By distributing the network load to separate channels the interference on any given channel will decrease.

Reducing interference is important because that’s the cause of a lot of the woes of current WiFi networks. The WiFi standard allows for unlimited access to a signal and every device within the range of a WiFi network has an equal opportunity to grab the WiFi network. It is this open sharing that lets us connect lots of different devices easily to a WiFi network.

But the sharing has a big downside. A WiFi network shares signals by shutting down when it gets more than one request for a signal. The network pauses for a short period of time and then bursts energy to the first network it notices when it reboots. In a busy WiFi environment the network stops and starts often causing the total throughput on the network to drop significantly.

But with four separate networks running at the same time there will be far fewer stops and starts and a user on any one channel should have a far better experience than today. Further, with the ODMFA technology the data from multiple devices can coexist better, meaning that a WiFi router can better handle more than one device at the same time, further reducing the negative impacts of completing signals. The technology lets the network smoothly mix signals from different devices to avoid network stops and starts.

The 802.11ax technology ought to greatly improve the home WiFi experience. It will have bigger channels, meaning it can send and receive data to WiFi connected devices faster. And it will use the MIMO antennas to make separate connections with devices to limit signal collision.

But 802.11ax is not the last WiFi improvement we will see. Japanese scientists have made recent breakthroughs in using what is called the TeraHertz range of frequency – spectrum greater than 300 GHz per second. They’ve used the 500 GHz band to create a 34 Gbps WiFi connection. Until now work in these higher frequencies have been troublesome because the transmission distances for data transmission has been limited to extremely short distances of a few centimeters.

But the scientists have created an 8-array antenna that they think can extent the practical reach of fast WiFi to as much as 30 feet – more than enough to create blazingly fast WiFi in a room. These frequencies will not pass through barriers and would require a small transmitter in each room. But the scientists believe the transmitters and receivers can be made small enough to fit on a chip – making it possible to affordably put the chips into any device including cell phones. Don’t expect multi-gigabit WiFi for a while. But it’s good to know that scientists are working a generation or two ahead on technologies that we will eventually want.

Big Telcos and Broadband

A recent article in Telecompetitor reports that analysts at Moffett Nathanson expect the big telcos to start making inroads into the near-monopoly for broadband currently enjoyed by the cable companies. The article focused specifically on AT&T, but some other big telcos like CenturyLink are also aggressively expanding fiber networks.

I would have to assume that the analysts got the following goals directly from AT&T because I can’t find any other references to these specific goals. But each of these is in line with statements made by AT&T executives over the last year. According to the article, AT&T broadband goals over the next few years are as follows:

  • Offer broadband speeds below 50 Mbps to 30 million passings using DSL;
  • Offer broadband speeds between 50 – 100 Mbps to 20 million passings using paired copper VDSL;
  • Offer ‘near gigabit’ speeds to 10 million passings using via 5G wireless;
  • Offer gigabit speeds using FTTH technology to 14 million residential passings and 8 million business passings.

The real news here is in the last two bullet points. AT&T accepted the goal from the FCC for passing 12.5 million customers with FTTH from the merger with DirecTV. It’s big news if they intend to extend that to 22 million passings. And the goal of using millimeter wave radios to reach another 10 million potential customers is something new.

If AT&T meets these goals they will be bringing serious competition to the cable companies. AT&T and the other telcos have been bleeding DSL customers for over a decade and handed the cable companies a near-monopoly on fast broadband in most urban and suburban markets. According to Moffett Nathanson the telco expansion will bring near-gigabit speeds on telco networks to 32% of the country.

It’s important to understand where the new AT&T broadband is being built. The majority of the new coverage is in three market niches – apartment buildings, new greenfield housing developments and business districts. AT&T’s expansion has largely focused on these specific market niches and is likely to continue to do so. AT&T is not proposing to duplicate what Verizon did with its FiOS network and bring broadband to older single family home neighborhoods. They are instead focusing on buildouts where the the cost of construction per customer is the lowest – the ultimate cherry-picking network.

This means that the AT&T coverage will bring the opportunity for gigabit broadband to a much larger footprint, but that’s not always going to bring customer choice. In the MDU market many landlords are still allowing only one ISP into their apartment complexes. As telcos like AT&T compete with the cable companies for this market the broadband speeds in apartments and condos will get much faster, but many customers will still only have the option to buy from whatever ISP that landlord has allowed.

I have to admit that this market shift to bring broadband to MDUs caught me a bit by surprise. Many years ago Verizon showed that there is a successful business plan for building fiber to older residential neighborhoods. In the northeast Verizon still carries significant market share in its FiOS neighborhoods, and customers consistently rate them as having better customer service than the cable companies. Other telcos like CenturyLink are copying the Verizon model and are building swaths of fiber in residential neighborhoods.

The traditional wisdom was that it is too costly to bring fast broadband to apartments. A decade ago bringing fiber to an apartment meant rewiring the whole building with fiber – and for many apartments that is prohibitively expensive. But there have been technology advances that have made this more feasible. For example, much of the ‘near-gigabit’ speeds can be achieved by using G.Fast technology over existing coaxial or telco cable in older apartments. There have also been big improvements for indoor fiber deployments that include small flexible fibers and techniques for installing fiber inconspicuously in hallways. Many buildings that seemed too costly to serve years ago now make economic sense. Finally, the potential to deliver backhaul to an MDU using millimeter wave radios is going to eliminate the need to build as much fiber.

The real big unknown is how successful any of these big companies will be with 5G. As I’ve been writing lately there are still a lot of barriers that might make it difficult for AT&T to use the wireless technology to cover 10 million passings. We’re going to have to wait to see some real deployments over the next few years to see if the technology works as promised and if the cost of deployment is as cheap as anticipated. But the one thing that these analysts have gotten right is that the big telcos are finally fighting back against the cable monopolies they helped to create by sticking with DSL too long. It’s going to be interesting to see how well they do in winning back customers that they lost over the last two decades.

Fiber and the New Economy

Many communities look at having a fiber network as a catalyst for economic development. When fiber was relatively new this was clearly the case. We can look at some of the early adapters of fiber, like Bristol Virginia to see how communities leveraged a fiber network to bring large employers and jobs to their communities.

I’ve been talking to some economic development pros recently and I think that historic economic development model is rapidly changing due to the nature of our new economy. I don’t think there will ever come a time when communities won’t hope for a major employer to move to their area, and we know today that requires having great broadband. But I also think that smart communities will look beyond this model and will find new ways to best leverage fiber.

Probably the biggest recent change in our economy is the work-at-home phenomenon. People are able to work at home for major corporations, and that means they can live anywhere. But the real juice from the work-at-home economy is from people starting their own businesses from their homes.

I’ve worked out of my house for nearly twenty years. When I first started doing this it was rare and I didn’t know anybody else who worked full-time from home. But today its common – just on my one city block there are a half a dozen families supported by work-at-home jobs.

The other big economic trend is that we are becoming more of a service economy. There are numerous businesses making a go of it by supporting others in their community. A few big retail companies like Walmart and Amazon devastated a lot of the small retail community across the country. But I look around and see a thriving service community that is immune from the effects of big retail – restaurants, brew pubs, pet sitters, investment advisors, Lyft drivers, etc.

The new economy also fosters craftsmen and artists. Where I live it’s hard to find a carpenter or electrician since they are all so busy. As I travel around the country I see art and photography studios everywhere.

So what does all of this have to do with fiber and economic development? First, I think it’s becoming clear that communities without fiber are in danger of becoming irrelevant and of withering. The people working in the new economy need broadband to work at home or to sell their services or art work. And communities clearly need good broadband to support good education.

The new model I see for economic development recognizes the new economy and values it in the same way that they used to value drawing in the big employer. A person making $65,000 per year from their home is probably more valuable to a community than somebody making the same in a new factory that relocated for tax incentives. The factory worker might be commuting and carrying the salary elsewhere while the home worker is likely to shop and spend their money locally. And the factory is likely to be shipping profits out of town. We’ve known for decades that there is a huge multiplier effect from spending money locally, and creating jobs that spend locally can really fuels a local economy.

So I think the smart communities are those that will embrace this new economy and foster it. I would venture to say that very few communities even know how many local people work from their homes. And few have any strategy for attracting more people to work from home or for helping local people start new home-based businesses.

Since work-at-home employees can generally live anywhere, cities need a strategy if they want to foster this new economy. One possible strategy is to do everything possible to make a community into a place that people want to live. That means expending economic development resources to promote new restaurants, to foster the local art community, to create better parks and green spaces. It means cleaning up old downtowns and doing everything possible to get businesses to occupy empty spaces. It means eliminating tax or other disincentives for new small businesses. And it means making sure there is good enough broadband to support all of these efforts.

Cable Labs Analysis of 5G

Cable Labs and Arris just released an interesting paper that is the best independent look at the potential for 5G that I’ve seen. Titled ”Can a Fixed Wireless Last 100m Connection Really Compete with a Wired Connection and Will 5G Really Enable this Opportunity?”, the paper was written to inform cable companies about the potential for 5G as a direct competitor to cable network broadband. The paper was released at the recent SCTE-ISBE forum in Denver. The paper is heavily technical and is aimed at engineers who want to understand wireless performance.

As is typical with everything I’ve seen out of Cable Labs over the years the paper is not biased and takes a fair look at the issues. It’s basically an examination of how spectrum works in the real world. This is refreshing since the vast majority of materials available about 5G are sponsored by wireless vendors or the big wireless providers that have a vested interest in that market succeeding. I’ve found many of the claims about 5G to be over-exaggerated and optimistic in terms of the speeds that can be delivered and about when 5G will be commercially deployed.

The paper explores a number of different issues. It looks at wireless performance in a number of different frequency bands from 3.5 GHz through the millimeter save spectrum. It takes a fair look at interference issues, such as how foliage from different kinds of trees affects wireless performance. It considers line-of-sight versus near line-of-sight capabilities of radios.

The conclusions from the report are nearly the same ones I have been blogging about for a while:

  • Speeds on 5G can be significant, particularly with millimeter wave radios. The radios already in use today are capable of gigabit speeds.
  • The spectrums being used suffer significant interference issues. The spectrums will be hampered when being used in wooded areas or with the trees on many residential streets.
  • Coverage is also an issue since the effective delivery distance for much of the spectrum being used is relatively short. The means that transmitters need to be relatively close to customers.
  • Backhaul is a problem. Fast speeds require fiber connectivity to transmitters or else robust wireless backhaul – which suffers from the same coverage and interference issues as the connections to homes.

The paper also takes a look at the relative cost today of deploying 5G technology at today’s costs:

  • The CAPEX for a 3.5 GHz system used for wireless drops (800-meter coverage distance) costs $3,000 for the transmitter and $300 per home. These radios would be making home connections of perhaps 100 Mbps.
  • A millimeter wave transmitter costs about $22,500 with home receivers at about $650. This would only cover about a 200-meter distance.
  • In both cases the transmitter costs would be spread over the number of customers within the relatively short coverage area.
  • These numbers don’t include backhaul costs or the cost of somehow mounting the radios on poles in neighborhoods.
  • These numbers don’t add up to compelling case for 5G wireless as strong cable competitor, particularly considering the interference and other impediments.

The conclusion of the paper is that 5G will be most successful for now in niche applications. It is likely to be used most heavily in serving multi-tenant buildings in densely populated urban areas. It can be justified as a temporary solution for a broadband customer until a carrier can bring them fiber. And of course, we already know that point-to-multipoint wireless already has a big application in rural areas where there are no broadband alternatives – but that application is not 5G.

But for now, Cable Labs is telling its cable company owners that there doesn’t seem to be a viable business case for 5G as a solution for widespread deployment to residential homes in cities and suburbs where the cable companies operate.

The Rush to vMVPDs

To those of you not familiar with the industry lingo, a vMVPD is a virtual multichannel video programming distributor, or virtual cable company. This term is being used to describe OTT providers that offer a version of the same channels offered by cable companies. This sector includes Sling TV, DirecTV Now, Playstation Vue, Hulu Live, YouTube TV and a few others. These providers stream networks on the same linear schedule as is shown on cable TV. Providers of alternate programming like Netflix or Amazon Prime are not considered as vMVPDs.

Industry analysts say that the vMVPDs as a group gained over 900,000 customers in the recently ended third quarter. That is a startling number and represents almost one percent of the whole traditional cable TV market, all captured in just one quarter. We’ll have to wait a bit to see how the whole cable market performed. But we already know that Comcast lost over 150,000 cable customers for the quarter. Since they had been hanging onto cable customers better than the other cable companies I think we can expect a bloodbath.

This kind of explosive growth is perhaps the best harbinger for the slow death knell for traditional cable TV. This new industry is still less than three years old with Sling TV having launched in February 2015. The industry started slowly and had only a few hundred thousand customers at most by the end of 2015.

But it’s now obvious that a lot of people are deciding that they don’t want to pay the big monthly bill for the giant channel line-up. The analysis from Nielsen shows that most households only watch a handful of channels. While no vMVPD is probably going to give households exactly the channels they most want to watch, they are obviously providing enough channel choices to lure people away from the cable companies.

It’s an interesting transition to watch. To some degree the programmers are contributing to their own demise. When people leave a cable line-up of 200 channels to instead watch an vMVPD line-up of less than 50 channels there are obviously a lot of networks that are no longer collecting customer fees. Practically every network is bleeding customers and this shift to OTT viewing is going to kill off a lot of network channels. I read an interview a few months ago with the head of programming at Fox who believed that his company would shut down the majority of their cable networks within a few years.

Another thing I find interesting about this shift is that the vMVPDs are not particularly easy to use. I’ve now tried four of them – Sling TV, DirecTV Now, Playstation Vue and Fubo TV, and I will get around to trying them all eventually. None of them have the ease of use of a cable settop box. You can’t just surf through channels easily to see what’s on and you have to instead navigate through menus that take several steps compared to a simple ‘channel up’ command on a cable remote.

These four services also have channel guides of a sort, but they are also cumbersome to use. I’ve found that it can easily take three or four minutes to change between two shows, and that’s when you know what you want to watch. The guides on these services are not yet friendly for looking hours or days ahead to see what you might want to watch later. And at least one of the services, Playstation Vue, is so confusing that I often get lost in its menus.

And yet nearly a million people changed to one of these services in the last quarter. The biggest appeal for these services is price along with a total ease to subscribe or unsubscribe. After years of dealing with big cable companies I was apprehensive the first time I tried to unsubscribe to Sling TV – but it took less than a minute to do on-line and was not a hassle. The services differ in features like the number of people who can watch different programming at the same time on an account, but they are all becoming more people friendly over time.

At this point AT&T might be the only company that is getting this right. The company lost 385,000 customers in the third quarter between DirecTV satellite service and U-verse. But they gained 296,000 DirecTV Now customers to make up for a lot of those losses. At this point nobody is talking about the margins on vMVPD service, but it can’t be a whole lot worse than the shrinking margins on traditional cable TV.

I believe we are seeing the future of TV in the vMVPD product. We’ll probably look back five years from now and laugh at these hard-to-use first generation services. I’m sure that over time they will get far easier to use and I’m getting ready to experiment using my Amazon Echo to navigate through Playstation Vue. When it becomes simple to use vMVPDs, then  traditional cable TV might have become passe.