New Technologies and the Business Office

old robotI often write about new technologies that are just over the horizon.  Today I thought it would be interesting to peek ten years into the future and see how the many new technologies we are seeing today will appear in the average business office of a small ISP. Consider the following:

Intelligent Digital Assistants. Within ten years we have highly functional digital assistants to help us. These will be successors to Apple’s Siri or Amazon’s Alexa. These assistants will become part of the normal work day. When an employee is trying to find a fact these assistants will be able to quickly retrieve the needed answer. This will be done using a plain English voice interface and employees will no longer need to through a CRM system or do a Google search to find what they need. When an employee wants a reminder of where the company last bought a certain supply or wants to know the payment history of a given customer – they will just ask, and the answer will pop up on their screen or be fed into an earbud or other listening device as appropriate.

Telepresence. It will start becoming common to have meetings by telepresence, meaning there will be fewer face-to-face meetings with vendors, suppliers or customers. Telepresence using augmented reality will allow for a near-real life conversation with a person still sitting at their own home or office.

Bot-to-Bot Communications. The way you interface with many of your customers will become fully automated. For instance, if a customer wants to know the outstanding balance on their account they will ask their own digital assistant to go find the answer. Their bot will interface with the carrier’s customer service bot and the two will work to provide the answer your customer is seeking. Since there is artificial intelligence on both sides of the transaction the customer will no longer be limited to only asking about the few facts you make available today through a customer service GUI interface.

Self-Driving Cars. At least some of your maintenance fleets will become self-driving. This will probably become mandatory as a way to control vehicle insurance costs. Self-driving vehicles will be safer and they will always take the most direct path between locations. By freeing up driving time you will also free up technicians to do other tasks like communicating with customers or preparing for the next customer site.

Drones. While you won’t use drones a lot, they are far cheaper than a truck roll when you need to deliver something locally. It will be faster and cheaper to use drones to send a piece of electronics to a field technician or to send a new modem to a customer.

3D Printing. Offices will begin to routinely print parts needed for the business. If you need a new bracket to mount a piece of electronics you will print one that will be an exact fit rather than have to order one. Eventually you will 3D print larger items like field pedestals and other gear – meaning you don’t have to keep an inventory of parts or wait for shipments.

Artificial Intelligence. Every office will begin to cede some tasks to artificial intelligence. This may start with small things like using an AI to cover late night customer service and trouble calls. But eventually offices will trust AIs to perform paperwork and other repetitive tasks. AIs will take care of things like scheduling the next day’s technician visits, preparing bank deposit slips, or notifying customers about things like outages or scheduled repairs. AIs will eventually cut down on the need for staff. You are always going to want to have a human touch, but you won’t need to use humans for paperwork and related tasks that can be done more cheaply and precisely by an AI.

Robots. It’s a stretch to foresee physical robots in a business office environment in any near-future setting. It’s more likely that you will use small robots to do things like inspect fiber optic cables in the field or to make large fiber splices. When the time comes when a robot can do everything a field technician can do, we will all be out of jobs!

The Future of Privacy

Magnifying glassThe FCC is considering new privacy rules for ISPs. The FCC is considering treating ISPs in the same way they have historically treated telcos. Telco customers have had the ability for years to opt out of having the telephone company use their data for other purposes. Most people don’t even remember this, but when you bought your last landline the telco was supposed to ask you if they can use your contact info for marketing their own products or if they can sell your information to outside companies.

But a telco doesn’t know much about you other than your phone number and who you call. Telcos have never really ‘mined’ telephone calling data and that was what made Edward Snowden’s revelations about the NSA so startling. The NSA demonstrated the ability to draw conclusions about people according to who they call.

But the data that an ISP collects from you as a customer can tell them almost everything about you. They know everything you do on the web – your social network connections, what you search for and buy online, and what you write in every email or messaging system. And – if they wanted to – your ISP could know truly private things about you, such as what illnesses you might have, if you are happy or unhappy in your relationships, or if you do anything that would embarrass you (like looking at pornography).

So the FCC wants to give customers the right to tell their ISP to not examine or use their personal data. Under the FCC’s proposed rules customers can opt out of ISP surveillance completely, or can allow their ISP to use their data in some less intrusive manner, yet to be defined.

It’s an interesting concept, because your ISP is the only entity online that knows everything about you. One would certainly hope that any such rules would apply equally to cellphone ISPs in the same manner as wireline ISPs.

These kind of privacy rules would certainly put the brakes on the money that ISPs can make from mining data about their customers. We recently saw AT&T introduce the idea of charging more to customers to avoid deep data mining – making the default condition one of being monitored.

But the FCC is not going to put these same restrictions on what they call edge providers – meaning every service on the web. Facebook or Google would be free to use whatever they know about you, with the reasoning being that people use these services voluntarily.

There is another big privacy issue looming in the near future – and that’s the surveillance that is coming from the Internet of Things. There is an amazing amount of data that can be gleaned from monitors in our home. Health monitors are going to record details about you that you don’t even know about yourself. Various monitors around the home in the form of smart locks, smart cars, motion detectors, sleep monitors, etc. are going to monitor details about you (and the other people in your home) and how you live. Those details can then be sold to data companies that will combine data from multiple sources to paint a detailed picture of what you do and when you do it. Supposedly this will be done in order to personalize advertising for you, but it’s hard to believe that companies won’t take this a lot further and use this data in unsavory ways.

Already today there are data depositories buying raw data from a number of web sources that can paint a pretty good picture of who you are. Even without the ISPs being part of the data-gathering chain it’s likely that privacy is going to become largely a thing of the past.

There are a lot of people that don’t want to be watched so closely and I think we are going to see a new industry that strives to protect you from detailed monitoring. But when I see how extensive the data collection already is today, I fear that really removing yourself from data surveillance is going to be expensive and not available to most people.

I suspect my feelings towards privacy are typical. It makes me uneasy to have companies monitoring me and I find personalized advertising to be creepy. But as our world comes to rely more and more on devices that make our lives easier, it’s not hard to see that our current feelings about privacy are probably going to become quaint anachronisms of the past.

Looking Into the Future

Alexander_Crystal_SeerYesterday I presented at the South Dakota Telephone Association annual conference, with the topic being ‘A Glimpse into the Future’. In this presentation I talked about the trends that are going to affect the telecom industry over the next 5 – 10 years as well as the broader technology changes we can expect to see over the next few decades.

These are topics that I research and think about often. A lot of this blog looks at telecom trends and technologies we can expect to see over the next five years. And once in a while I indulge myself in the blog and look at the future of other technologies. Researching this presentation was fun since it made me take a fresh look at what others are predicting about our future.

I am an optimist and my research tells me that we are living at the most amazing time in mankind’s history. There is so much groundbreaking research being done in so many different fields that the announcement of new technology breakthroughs will become commonplace during the next decade. Barely a day goes by already that I don’t see the announcement of a new technology or scientific breakthrough.

I don’t think the average person is prepared for how fast the world is going to soon be changing. The last time that the world underwent such a dramatic shift was at the beginning of the 20th century when we were introduced to electricity, cars, telephones, radios and airplanes. We are about to be hit with a tsunami of innovations far more numerous than that last big wave of change.

It’s hard for the mind to grasp the idea of exponential growth. Over the last forty years our technology has been dominated by a single exponential growth curve – the continuous growth of the speed and density of the computer chip. This one change has brought most of what we think of as modern technology – computers, the smartphone, the Internet, the cloud and our broadband and telecom networks. Anybody working in any field of electronics has been blessed for a long time by knowing that they would be able to produce a new version of their technology every few years that was faster, cheaper and smaller.

What is amazing about today is that there are numerous new technologies that are at the early stages of the exponential growth curve – and all happening at the same time. Just looking at the list of these technologies is exciting – robotics, advanced machine language (artificial intelligence), nanotechnology, alternate energy, super materials, genetics and medical research. As these technologies progress we will soon be inundated with breakthroughs in all of these areas. It’s mind-boggling to envision which of these technologies will dominate our lives in a decade or two, and it’s even harder to think of how these various technical trends will intersect to produce things we can’t imagine.

What is even more exciting is that this is not even the whole list, because there are a lot of other technology trends that might become equally important in our lives. Such trends as the Internet of Things, the blockchain, natural language computing, or virtual reality might have a big impact on many of us in the very near future. I will be discussing some of these future trends over the next few months and I hope some of my readers share my enthusiasm about what is coming over the next decade or two.

I don’t usually use this blog to promote myself, but I am interested in talking to other associations and trade groups about the many topics I cover in this blog. You can contact me at blackbean2@ccgcomm.com if you are interested.

ISP Liability for Customer Behavior

Scales-Of-Justice-12987500-300x300A few weeks ago a judge ordered Cox Communications to pay a $25 million settlement to BMG, the music rights company. This come from a trial last year where a jury decided that Cox was guilty of allowing their customers to pirate BMG music over the web. This ruling is a dangerous precedent in that it holds an ISP liable for behavior of its subscribers – something that should scare all ISPs.

The case has some unusual facts. BMG hired Rightscorp to monitor the Internet for illegal file downloads of BMG music. Rightscorps sent numeous infringement notices to Cox that it wanted forwarded on to customers. These notices told customers that they had done an illegal download of BMG copyrighted material and gave customers the ability to immediately resolve the issue by sending $30 to Rightscorp.

Cox thought these notices smacked of extortion and refused to forward the notices directly to customers. Instead Cox decided to use the same policy as most large ISPs called a three strikes test, meaning that they will disconnect a customer that has been given several notices about illegal downloads. But the suspicion has always been that the big ISPs are somewhat spotty about enforcing copyright violations and don’t want to turn off paying customers.

Cox ended up blocking 1.8 million notices that Rightscorp was trying to directly send to Cox customers, and Cox largely did nothing with those notices. Cox was found guilty by a jury, and the judge set the high penalty because Cox had not done enough to enforce the copyrights of BMG.

Cox was relying on a legal strategy called ‘safe harbor’ where they would have no liability as long as they were using a reasonable set of procedures to stop music piracy. But the judge quickly pierced the safe harbor protection by saying that Cox did not do as much as they should have done to protect BMG.

This case was certainly complicated by the unsavory tactics of Rightcorps. What’s to say that all of those customers actually had violated copyright? But the bottom line is that Cox was held responsible for the supposed music piracy of their customers. That ruling that has to concern every ISP, because this is bound to open up the floodgates of similar suits and similar tactics. And who knows where this stops? Customers can engage in all sorts of illegal activities other than copyright violations.

It’s really hard for an ISP to know what to do following this decision. One strategy would be to just pass on every notice of copyright infringement. The problem with that idea is there is likely to a bunch of scammers that will copy the tactics of Rightscorps but with no real claims against customers. ISPs don’t want to get into the middle of potential scams.

ISPs could also develop and enforce tighter policies against customers that repeatedly download pirated material. The danger of that approach is that the ISP could end up ‘convicting’ a customer with no real proof that they violated copyright. This has been one of the factors that have made ISPs uneasy about getting tough on this.

Finally, I guess ISPs could do deep packet inspection to see what their customers are doing. But most ISPs don’t want to do that. And even if ISPs try this, the FCC is contemplating customer privacy rules where customers can opt out of being tracked or followed by the ISP.

So Cox and other ISPs face a dilemma. We know that the biggest ISPs have all been involved in this issue. I would love to hear from any smaller ISPs who have been involved in copyright issues and that might want to share their experience.

Why Cord Cutting Will Grow

television-sony-en-casa-de-mis-padresI have been thinking a lot about cord cutting and about my own TV habits. I know my habits have changed a lot over time, and everything I read and hear tells me this is happening everywhere. I’m starting to conclude that if the cable companies can’t find a way to provide content in the way people want to watch it that cord cutting is going to accelerate a lot faster than they are expecting.

I just saw a projection from SNL Kagan and that predicts that cable company video will remain a profitable business for a long time. They predict that by 2026 residential cable revenues will rise 8.6% to $117.7 billion. That assumption obviously assumes a continued loss of customers to cord cutting, with those losses offset by rate increases. But that kind of assumption assumes there is not going to be a fundamental change in the way that people watch video.

I’m a baby boomer, and so I grew up with the traditional TV experience. There was usually more than one person watching TV in our home, so once you started to watch a show you watched it to the end. You rarely channel surfed because we only had four channels growing up and somebody had to sit by the TV to manually turn the tuner. You sat through all of the commercials and the TV held your attention.

The first big change in my viewing habits came years later when I got a TV with a remote control. That’s the day I stopped watching anything other than sporting events end to end. I don’t know if this is more of a male habit, but I would surf every time I watched TV. I can remember many times when somebody asked me if I had seen a certain show or movie and my answer was always, “part of it”.

I eventually realized that surfing took most of the pleasure out of watching TV. There is nothing worthwhile about watching portions of sitcoms, old cop shows and infomercials. And so I eventually ditched my TV subscription. I had lost my desire to watch linear TV.

Now OTT has brought me a whole new world of video options. Our household has subscriptions to Netflix, Amazon Prime, Hulu, Starz, and HBO Go. During the winter last year I subscribed to Sling TV to catch football on ESPN. And, since I am interested in the OTT market I spend some time looking at as many OTT packages as I can. I’m still not a huge TV watcher and spend somewhere between 10 and 15 hours per week watching video.

I have developed new TV habits that I think are going to be problematic to the TV industry as a whole. Amazon Prime and Netflix bring me curated television. On the first day I used those services I went searching for things I wanted to watch. And both of those services then suggested other similar shows and movies based upon my tastes. I now have a backlog of things I want to watch that will probably last for the next year.

I have also grown totally resistant to commercials and am willing to pay to not have them. I know a lot of people binge watch – but I’ve never been in a hurry to get to the end of a series and so I skip between episodes of a dozen different series as my mood dictates. I love that Netflix keeps track of where I’ve been and I’m growing intolerant of any platform that doesn’t do the same thing.

For example, I don’t really care that much for HBO Go just because it’s not as easy to use as Netflix. HBO doesn’t keep track of what I’ve been watching and it’s up to me to try to remember the last episode of something I watched. HBO has some great content, but the lack of this one feature makes it much harder to navigate, particularly if I haven’t watched a particular show in a while.

I think there are a lot of people picking up these same new habits. Cable TV can’t satisfy me in the same way as Netflix and other OTT. I know that you can use a DVR and record cable shows to get a similar experience. I used TIVO for many years, which is even easier than most Cable company DVRs and it was still not as easy to use as Netflix. The DVR experience still makes a viewer spend far too much time leafing through the channel guides.

I just can’t imagine ever taking the time to scroll through a channel guide again. I wouldn’t watch cable TV if I had it for free. And I never want to channel surf again – that was always a colossal waste of time. I instead use my limited TV time to watch want I want in the order I want to watch it. I don’t think it can get any better than that. My gut says that if the cable companies can’t somehow duplicate this same experience they are going to lose a lot more customers than analysts are predicting. Younger viewers are already largely abandoning the traditional cable model, and now a lot of us older folks are doing the same. Analysts often speculate about why people drop cable. For people like me it’s not the price – it’s the cable experience that no longer interests me.

Big ISPs and Everyone Else

Comcast truckMost of the news about our industry is about the largest ISPs – Comcast, Charter, AT&T, and Verizon. It’s easy to think that the things that happen to these big companies are going to happen to the rest of the industry, but on a smaller scale. Certainly in the past, small ISPs had a lot in common with the big companies. But I think we are now at a time when these big companies are pulling away from the rest of the industry to the point where they have become something very different. Let me look at Comcast as an example of this, but I could make a similar case for the other large ISPs. Consider this list of ways of how Comcast is already different than the smaller ISPs in the industry:

Content. Comcast is as much of a media company as they are a cable company. In fact, their stock prices now change more from the performance of their content than it does from the cable business. Comcast owns a lot of programming content. They own NBC Universal that operates the various NBC stations including MSNBC, CNBC. USA Network, E!, Bravo, Syfy, Sprout and others. They own Telemundo and a suite of Spanish language networks. They own 25% of the Weather Channel. They also own overseas content such as Movies 24 and the Style Network. The company is also in the movie business. They own Universal Studios which has already released fifteen new films in 2016. They recently brought Dreamworks. And Comcast owns 27 local NBC stations and affiliates in major markets like New York, Los Angeles, Chicago, Philadelphia, Washington CD, Dallas and Miami.

Sports. Comcast owns the Philadelphia Flyers including the Wells Fargo Center in Philadelphia. They own the rights to broadcast the Olympics in the US. They own Comcast SportsNet which has rights to professional and college sports in a number of large cities. They own the Golf channel and are part owners of the NHL Network and the MLB Network. NBC Sports also has broadcast rights for football and other major sports.

Other Assets. They own Universals Studios theme parks in Hollywood and Orlando as well as the real estate venture at Universal Orlando Resort. They own the ticket service Fandango. They operate Comcast Spotlight which produces and sells advertising for their cable company and many others.

OTT. Comcast is hedging their bets on cord cutting by being the largest owner of Hulu – which also broadcasts a lot of Comcast content. They also produce and distribute content through Comcast Interactive Media.

Cellular. The company has announced recently that they have major plans to become a big player in the cellular market. This business will also benefit from Comcast’s 9 million+ public WiFi hotspots.

Research and Development. One of the hidden gems for the company is Comcast Labs. The company recently bragged that the company could develop solutions in days that would take months by any other company. They also benefit from their role in the non-profit CableLabs. The company has used this research to develop proprietary software and hardware not available to the rest of the industry.

Security and Smart Home. In 2015 the company reported having over 500,000 customers to its Xfinity Home security and smart home platform. They will have the scale to make this a profitable business line where smaller companies will struggle.

Comcast and these other large ISPs are no longer like the rest of the industry. For example, while other companies suffer from shrinking profits on cable TV, Comcast buys a lot of content from their own subsidiaries and is more profitable than anybody else. And they have the luxury of being able to bundle cable customers with their many other product lines like Xfinity Home and the upcoming cellular product.

It was not too many years ago when the bigger cable companies were just bigger versions of smaller cable companies and mostly differed by scale. But for these large IPSs the landline business has just become one of their many other product lines – a luxury that smaller companies don’t have.

Cisco’s Latest Web Predictions

cheetah-993774Cisco recently published their annual Visual Networking Index and as usual it’s full of interesting facts and predictions. Here are a few of the key highlights that I think small carriers will find interesting:

Busy-hour (or the busiest 60–minute period in a day) Internet traffic increased 51 percent in 2015, compared with 29–percent growth in average traffic. And it’s expected to continue to grow faster with Cisco predicting that by 2020 busy hour traffic will have increased 4.6 times while overall web usage will only double. This is a big change for network providers. Since the advent of web video we’ve seen the evenings become the busiest times on the web, but this trends shows that the evening usage is going to be far greater than the rest of the day. If a network wants to offer a satisfactory service they must design to satisfy the busy evening hours, which in four short years will be over four times busier than today.

Telco companies remember that this was the same historical pattern for voice traffic and now we see the same thing with residential broadband. It means networks must be engineered for the busy hour and are underutilized the rest of the time. Failure to design for this growth means customer dissatisfaction during the busiest hours. It also implies growing demand for faster speeds.

IP video traffic will be 82 percent of all consumer Internet traffic by 2020, up from 70 percent in 2015. As you might expect, much of the increased data traffic on the web will be driven by video and more people use the web for entertainment.

Globally, Internet traffic will reach 21 GB per capita by 2020, up from 7 GB per capital in 2015. This demonstrates that the total amount of data on the web is going to continue to grow at a torrid pace. Part of this growth will come by adding new users to the web, but web traffic everywhere is still growing rapidly.

Broadband speeds will nearly double by 2020 . . . global fixed broadband speeds will reach 47.4 Mbps, up from 24.7 Mbps in 2015. So, not only Internet volumes grow, but customers are going to demand faster speeds. These numbers are a little deceptive in that they combine business and residential fixed broadband speeds together. But still, service providers need to be prepared to increase customer speeds to keep them happy. Expect networks that can’t increase speeds to grow increasingly unpopular.

Business IP traffic will grow at a CAGR of 18% from 2015 to 2020. It’s easy to assume that video is causing consumer data usage to grow much faster than business usage, but business broadband demand is growing almost as quickly as consumer broadband demand.

Smartphone traffic will exceed PC traffic by 2020. This is pretty amazing considering that in 2015 PCs drove 53% of all web traffic while smartphones generated only 8%. But by 2020 Cisco is predicting that traffic from PCs will fall to 29% and traffic from smartphones will grow to 30%. Of course, in North America with our extensive WiFi, a lot of this smartphone traffic will end up on landline connections. To reach these numbers, mobile broadband usage will grow 53% per year through 2020.

Court Setback for Municipal Competition

Scale_of_justice_2_newThe Sixth Circuit Court of Appeals in Cincinnati ruled that the FCC didn’t have the authority to overturn state limitations on municipal broadband. Specifically the case looked at the two FCC orders that would have overturned state restrictions for Chattanooga, Tennessee and Wilson, North Carolina to expand their municipal systems to serve customers outside of their base service territory.

While this ruling has only been to one court so far, I could foresee an opposite reading from another court on the same facts. This is one of those cases working in the gray areas where the court has to interpret the intent of a law, not just the specific language.

The specific issue at hand in these cases was whether the FCC had the authority to overturn the state prohibitions against broadband under Section 706 of the Telecommunications Act of 1996. In that Act the Congress had instructed the FCC and State Commissions as follows:

The Commission and each State commission with regulatory Jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment. (Bold emphasis is mine)

In that Act the Congress clearly told the FCC and State regulatory commissions to encourage broadband competition and to remove barriers to infrastructure investment. The judges in this case did not dispute that the FCC was tackling a barrier to infrastructure investment in their orders.

Interestingly, the court didn’t dispute any of the facts in the case. They recognized the benefits of fiber broadband and acknowledged that the areas where Chattanooga and Wilson want to build have no existing competition (or even any broadband). The court also recognized that the state laws in the two states were clearly barriers to infrastructure investment by the cities.

It would seem by accepting the facts presented by the cities that the court would then rule in their favor. But they didn’t and the court’s ruling boiled down to deciding that the FCC didn’t have a clear mandate to preempt state law under the authority of Section 706. The court says that the language in Section 706 is not strong enough to support preemption.

I guess it all comes down to an interpretation of language. Certainly the statute uses the word ‘encourage’ (instead of some stronger word). But the Act goes on to suggest that the FCC use the regulatory rules at its disposal (such as regulatory forbearance) to effectuate this encouragement. To me, a non-lawyer, that sounds like Section 706 is instructing the FCC to act, not just to passively encourage competition.

As is usual with these kinds of appeals, this case is not only an interpretation of the language that I’ve highlighted above. Various parties intervened in the case and argued that this was an issue of states’ rights versus federal authority. And I am sure that the politics and the underlying judicial philosophy on that larger issue had a lot to do with the decision.

The FCC is an interesting federal agency because they regularly preempt states’ rights on telecom issues. The most recent such decision was one that ordered state and local calling rates from prisons be reduced in line with federal rate guidelines. The agency has a long history of overriding state Commissions to bring state telecom rules in lines with FCC policies.

I’m not enough of a lawyer to understand if there is an obvious appeal to the Supreme Court, or what the likelihood of winning such an appeal might be. But I have followed appeals of FCC decisions for a long enough time in my career to see that this ruling is not strong enough to be the final word on the issue. I am sure we’ll see this topic come up again.

 

Fixed Wireless and CAF II

USF-logoBill Smith, the President of Technology Operations at AT&T just announced that the company will use fixed wireless to meet CAF II requirements when it is ‘uneconomical to build wireline’. The CAF II requirements are that AT&T (and every other large telco that took the funding) must provide 10/1 Mbps broadband to everybody within defined rural geographical areas. The FCC awarded the telcos billions of dollars over 6 years to complete the upgrades.

On the day I first read of the CAF II awards I expected that AT&T and some of the other telcos would use wireless to fulfill the obligations. I am very familiar with a lot of the rural areas where the CAF II money was awarded and I know it would take a lot more money than what the FCC was providing to build broadband to these areas that have little or no broadband today.

There are only a few technological approaches that can be considered in the rural areas covered by CAF II:

  • Fiber is the ultimate broadband delivery mechanism, but there is no chance that any of the big telcos will build rural last-mile fiber to satisfy this requirement. I’ve looked at some rural counties recently where the cost to build fiber can be 5 – 10 times more than what CAF II is providing.
  • Expanded DSL. Most of the CAF II areas have either no DSL or incredibly slow DSL where the customers are too far from the DSL hub. The only way to bring 10/1 DSL to rural America is to build a lot of fiber deep into rural areas and then initiate the DSL out in the hinterlands. This is also expensive, but because it keeps the existing copper lines it costs a lot less than building fiber everywhere.
  • Point-to-Multipoint Wireless. In this technology transmitters are put onto towers and where the 3.65 GHz spectrum is available can deliver 10 Mbps or more up to perhaps 6 miles. The distance are only out to about 4 miles at most if using WiFi spectrum. There are several problems with this technology. First, existing towers are sometimes scarce in rural areas and this means building new towers. Second, this isn’t a great solution where there are a lot of trees or a lot of hilly terrain. It’s a great solution in the plains, not so great in Appalachia. Finally, this equipment has a life-cycle of perhaps 7 – 10 years before it has to be replaced. After the CAF II funds are spent and this equipment wears out it might mean that in decade that customers on this technology will revert to no broadband.
  • Cellular Data. This is data delivered using licensed spectrum and AT&T has a mountain of it, and in rural areas this spectrum is largely unused. But to get 10/1 speeds everywhere means building new towers, and probably fiber to reach those towers.

Most people think of cellular data as something that only works on cellphones. But there are all sorts of devices that can receive cellular bandwidth, such as phones and data modems that work directly from cellular signals.

But the biggest issue with the cellular solution isn’t technological. As long as somebody is close enough to a cell site it will work (with the caveat that if the cell site is too busy a user might get no signal). The real issue is price. If AT&T is going to price fixed data similarly to cellular data, then this is not a broadband solution. Cellular broadband in the US is about the most expensive broadband in the developed world. At an average cost of about $8 per downloaded gigabit of data, it doesn’t take much for a normal household to rack up huge bills.

Comcast recently said that their average customer download is around 100 gigabits per month. At cellular prices that would cost $800 to $1,000 a month, which is not what the FCC had in mind for CAF II. There are many homes in rural America already using their cellphones for data. I recently talked to a rural household that sees bills of $500 per month in the summer when the kids are home all of the time – and that’s with constantly telling the kids to stay off broadband.

AT&T has a dilemma if they sell their cellular data to cellphone users at today’s high prices but sell it to fixed broadband customers at a lower price. Since fixed data customers will use a lot more data if it’s not too expensive, this will kill their argument that cellular data needs to be so expensive due to congestion at the towers. So I’ll be very interested to see how AT&T’s plan is implemented. I hope that if AT&T implements their first CAF II market at cellular data prices that the FCC pulls the plug on the rest of the funding. And if AT&T offers cellular data for CAF II customers at a reduced rate then all of their cellphone customers ought to raise holy hell.

Investing in Fiber

fios vanThere is a recent short article in Forbes titled, To Evade the Wheeler Tax, Capital is Fleeing Digital Infrastructure by Hal Singer. The premise of the article is that the FCC’s move to regulate broadband under Title II has somehow driven the large ISPs to stop investing in broadband. He cites the fact that Verizon has used their excess cash to buy content and software rather than invest it in infrastructure. Just in the last year Verizon has bought AOL for $4.4 billion, Fleetmatics (connector of smart devices) for $2.4 billion and recently announced the purchase of Yahoo for $4.8 billion.

But Singer couldn’t be more wrong. It’s obvious that Singer has a bias against broadband regulation by the title of his article, and certainly Forbes is in generally favor of the unregulated marketplace. But for his premise to be true, Verizon would have to be stopping its expenditures for broadband and instead be choosing these new paths. And that has not happened.

Verizon stopped building FiOS fiber well over a decade ago. It’s been clear for a long time now that Verizon doesn’t think their future is in landlines. For a very long time they have considered themselves as a wireless company. One only has to look at their annual report to understand that somebody who didn’t know the company might barely realize they are in the wireline business. Those reports talk almost entirely about cellular, which makes sense since the wireless business dwarfs the broadband business.

Singer is right that Verizon has been ditching landline properties. But these were mostly in areas away from Verizon’s northeast core and included both copper and fiber assets. But it’s also clear that Verizon hasn’t given up broadband in the northeast. They are currently in the process of buying XO for $1.5 billion, one of the larger fiber-based CLECs that’s centered in the northeast. Verizon also recently announced they were going to bring broadband to Boston, and it now looks like this will become a test bed for using millimeter wave radios as a fiber-to-the curb deployment, rather than building traditional FiOS networks. My guess is that Verizon sees wireless local loops for broadband as their next big use of their cellular spectrum and existing fiber assets, and if Boston proves the new technology then Verizon will probably begin making huge investments again in broadband.

The problem with articles like Singer’s is that rich people that make big investments read Forbes and might decide that investing in broadband is a bad idea. Before they do that I hope that they look at broadband investments with the right perspective. Investing in broadband is an investment in infrastructure. And that means that such the investment is going to earn infrastructure-like returns. Anybody that builds broadband networks is likely looking at long-term returns of 10% to 20%. The returns can be a little higher for cherry-picking only the best neighborhoods. And the returns will probably be higher if wireless local loops can save on capital expenditures.

But infrastructure returns are not venture capital returns. Investments today in software and content are seeking returns of at least 30%. But such investments are a lot riskier than investing in broadband – and thus the relative returns.

The fact is that for the last ten years almost nobody has invested in broadband in this country. Most of the new construction since Verizon stopped building FiOS has come from independent telephone companies, municipalities and cooperatives. Today we are seeing more activity with the two biggest players being Google and CenturyLink, along with a dozen or so smaller urban fiber builders. We also now see the cable companies making significant investments to move cable modems to the next generation DOCSIS 3.1.

So the decision by the FCC to regulate ISPs under Title II has changed almost nothing because big telcos like Verizon were not investing in landline broadband before that decision. Certainly that decision might eventually put a cap  on the returns of the largest ISPs like Comcast and Verizon. But mostly the FCC rules are going to stop the large ISPs from ripping off the public with data caps or by raising the rates through the backdoor by inventing imaginary fees. But the FCC rules are not going to change the fundamentals of the marketplace that understands that investment in broadband is infrastructure investing. Companies that make such investments will still make infrastructure-like returns, like has been true during all of my career. The much more fundamental question that Singer ignores is, why aren’t there more companies looking to make 10% to 20% infrastructure returns? Answering that question might require a book rather than a blog or a short article.