Who Will Go after the CAF II Funds?

USF-logoLast week the FCC announced the broadband guidelines that will be used to fund the Connect America Fund (CAF) Phase II filings that will be awarded in 2015. The FCC has set aside a little over $9 billion dollars of new CAF funding to be paid out of the next five to seven years. That’s five years for smaller recipients and up to seven years for some of the large telcos.

The new broadband goal is that any landline broadband connection built with these funds must be able to deliver at least 10 Mbps download and 1 Mbps upload. This increases the speed from the old threshold from 4 Mbps download and 1 Mbps upload. This is a really low threshold compared to the recent experimental grant program where the FCC only funded projects that delivered at least 25 Mbps download in unserved areas and 100 Mbps in underserved areas.

But setting the speed goal at only 10 Mbps download will enable rural telcos and cable companies to go after the funding if they are willing to use the funds to help to pay for extending their networks.

The telcos can use DSL to satisfy the CAF requirements, but in order to bring that DSL to rural areas they are going to have to expand fiber in their networks significantly. Current single-pair DSL technologies can deliver 10 Mbps to only about 7,000 feet of copper. That is not as the crow flies, but rather as the copper is wired. That provides  little more than a one mile circle around any given DSL distribution point (called a DSLAM).

Rural cable companies that already offer speeds of at least 10 Mbps only need to string more coaxial cable, or if they are going to new neighborhood may need additional fiber as well. However, some rural cable companies still use the first generation of DOCSIS equipment and they might need a significant upgrade of their network plus a replacement of cable modems in order to meet the new speed requirement.

Not unexpectedly, the large telcos are not happy with the increase from 4 Mbps to 10 Mbps. Many of them still deploy older  generation DSL equipment with maximum speeds between 1 Mbps to 6 Mbps. But to meet the CAF requirements they can use newer DSL for the new customers and don’t have to necessarily upgrade the older ones. It would be a bit ironic if the farms around rural towns end up with faster DSL than is available in the nearby towns.

We already know that AT&T and Verizon are trying hard to ditch their rural copper. Verizon already sold off most of their rural properties and wants to walk away from what they have left. AT&T has said that they want to walk away from “millions of lines of copper” by 2018 if the FCC will let them. Both companies want to replace landlines with wireless service, which costs more for a household and has severe data caps. So it is unlikely that these two companies are going to be seeking much CAF funding.

But there are a number of other large telcos who can’t walk away from copper because that is basically all they own. Companies like CenturyLink, Windstream and Frontier will be operating copper networks for many years to come. CenturyLink and Windstream are both expected to be major players in this second round of CAF funding.

Both Windstream and CenturyLink have complained about the new 10/1 Mbps requirement. I think this is because it is going to force them to do real upgrades to get the funding. In order to deliver that much bandwidth to rural areas they will have to move DSLAMs much further out into the field, and that is going to mean building fiber to connect to the DSLAM cabinets. And of course, typically the further away you get from a town, the fewer customers are on any given route to help pay for these new investments, especially the parts that the CAF isn’t going to fund.

One of the most interesting aspects of the new CAF fund is that that the subsidy can go to anybody who can bring the bandwidth. And so these large carriers must compete for the funds against players like electric cooperatives and wireless ISPs (WISPS). The funds are being awarded by a process called a reverse auction, because the company that asks for the least amount of support per customer in a given area will get the CAF funding. The only major requirement is that a CAF winner has to be able to deliver the required data speeds plus voice over the whole area to get the funding. They can’t just pick off pockets of customers like they might with a normal overbuild business plan.

The FCC is hoping that the CAF funding is going to bring broadband to at least several million more homes. But because of the reverse auction it’s really hard to predict how effective the funding will be. Further, if the bigger companies figure out that it’s not worth taking the funding, then much of the funding might go unclaimed. The old High Cost Fund was based upon providing service to rural places that had high costs by definition. If you built a network in one of the designated high cost places you got the subsidy to help keep it operating. But the reverse auction adds a lot of uncertainty to the process. It’s certainly possible that the large telcos might decide that the whole process is too risky to worry with and could send the FCC back to the drawing board.

Cable Banking on WiFI

Wi-FiI’ve been reading a lot lately about the massive effort that cable companies are putting into expanding their WiFi networks. It’s estimated that Comcast and Cablevision together now have almost 9 million public hotspots, most of which come from dual routers in subscribers homes that provide a hotspot link along with the subscriber’s link. There are about another 1.5 million hotspots deployed by Cox, Time Warner and Bright House.

At this point nobody is quite sure how the cable companies are going to monetize this business. Several years ago some standards were developed by the Wi-Fi Alliance to create interoperability between WiFi networks and cellular networks. The idea was to allow cellular companies to offload overflow cellular traffic onto commercial WiFi networks when their cell sites get too busy.

But there are still changes needed in the industry for this to take place. First, a lot more phones need to be enabled to make calls on WiFi, a feature that is now included on the IPhone, but which few people have enabled. Probably the most important thing still lacking is the brains in the networks that will allow easy WiFi roaming so that a call or data transmission can be handed from one WiFi hotspot to another without needing a new verification and login and without restarting a given transmission. Until WiFi roams smoothly you won’t be able to continue a WiFi voice call without being cut off every time you change to a new hotspot. This might not be solved until the whole cellular network moves into the cloud using software defined networking so that the brains that are behind the handoffs of cellular calls can be applied to other types of connections.

But in high traffic areas where there is a lot of foot traffic, WiFi certainly can relieve the data traffic on cellular networks. But are the cellular companies really willing to pay for this? Already today WiFi is carrying a lot of data for cellular-enabled devices for free (to the cellular companies). Adobe published statistics recently that show that 93% of data on tablets and 43% of data on smartphones is carried by WiFi. But one would have to think that the vast majority of this is done in people’s homes and offices where they spend most of their time.

There is no doubt that having somebody else carry their data traffic is a benefit to cellular companies, but that doesn’t mean that they are going to be willing to write checks to WiFi hotspot owners for carrying cellular data. There has been no news of Comcast or the other cable companies making such deals with cellular companies, and so one would think this application is mostly speculation.

One also has to wonder about the efficacy of the current cable hotspots. The majority of Comcast hotspots are going to come from home routers that have been equipped to provide a public WiFi connection as well as the in-home connection for customers. But how useful are these connections? If you’ve ever walked around outside your house looking to connect to your own WiFi network I think you understand that reception outside of your home is sketchy. There are places where the signal is clear, areas where it is poor and areas where it doesn’t exist.

I look at my own house and wonder how valuable it is for Comcast to enable my hotspot. I get joggers and dog walkers by here on the front sidewalk, but otherwise this is not a neighborhood with much foot traffic. The only circumstances where my WiFi might have value is if workmen at my house use it, or if one of my immediate neighbors obtains a Comcast password from somebody and uses my WiFi for free. Otherwise, somebody would need to sit on my front porch or park in my driveway to get WiFi, something I would frown greatly upon.

There are a few ways that Comcast can monetize WiFi. One is to sell roaming WiFi as a service, much like you get in an airport. But to sell that service requires large areas of good coverage. And there are places like that. For example, it’s been reported that Comcast has blanketed the Jersey shore with coverage, and so selling a data connection to non-Comcast customers in these kinds of areas is a possibility.

I think the best business opportunity is for Comcast to get into the cellular business using WiFi enabled phones. They could sell cellular plans that either use only WiFi, or that use WiFi first and use cellular as the back-up. A lot of people mostly use their cellphones in homes and offices and such callers could save a lot of money if Comcast prices it right. Assuming that they could strike a deal with one of the four major spectrum holders they ought to be able to undercut the major carrier’s prices and still be profitable with such products.

But nobody knows for sure why Comcast and the other cable companies are doing this because they haven’t said. They must have something in mind, because they are spending a lot of money on public hotspots. One would certainly hope that Comcast has something in mind since they are antagonizing their cable modem customers yet again by turning them into public hotspots without their permission.

How Canada Handles Net Neutrality

canada_flag-1920x1080Every country that wants an open Internet is wrestling with the same net neutrality issues that we face in the US. Canada has come up with a common sense approach that and some of what they have done could be applied here.

Telecom rules are administered in Canada by the CRTC (Canadian Radio-television and Telecommunications Commission) which has the same role as our FCC. Major telecom laws are formulated by the Canadian parliament just as they are done by our Congress, but the CRTC then has leeway to interpret the rules.

The CRTC regulates net neutrality along with other ISP behavior through its ITMP (Internet Traffic Management Practice) rules. These rules are implemented as follows:

  • Somebody must come to the CRTC with a credible complaint of discrimination by an ISP. The CRTC doesn’t have a standing list of things that ISPs can’t do, but instead investigates and sometimes creates rules based upon actual cases of discrimination.
  • The CRTC has developed definitions of various types of discrimination over the years. For example, they use a different standard to judge technical network issues than they do commercial issues such as how customers are billed. They have developed rules that we would label as net neutrality and any ISP practice that is imposed on users that, in effect, delays or prioritizes traffic from one type of user, source, protocol, application, content, service, or destination is likely to assumed to be discriminatory
  • An ISP gets an opportunity to justify the discrimination. In order to prevail an ISP must show that:
    • The practice is justified and that the solution they have implemented is narrowly designed to address a specific problem and does not cause other negative consequences;
    • The practice is done in such a way as to cause as little discrimination as possible;
    • They must show that any harm caused to customers is as minimal as is reasonably possible;
    • And they must show that there is not some other reasonable technological solution that would achieve the same goals with less or no discrimination.

These rules have just recently been strengthened on December 17 when Parliament passed a bill that adds significant fines to ISPs that are found guilty of discrimination. Fines of up to $10 million can be levied per infraction for first offenses and up to $15 million for subsequent offenses. This adds some teeth to net neutrality and other violations.

To some degree the Canadian telecom environment is a lot like ours. Canada has three large telcos – Bell, Rogers and Telus – that each are the predominant provider in different areas of the country. The country also has smaller competitors, but like us the company doesn’t have vigorous competition in a lot of markets.

Perhaps there is something to learn from the Canadian approach. It certainly is very pragmatic and the same regulatory process is used to judge a huge array of issues. It all stems back to a law passed years ago that said that telecom providers and ISPs can’t discriminate. The CRTC has used that one rule to achieve what would we call net neutrality rules. For example, in 2005 the CRTC faulted Telus which had blocked web access to pro-union websites that were striking against it. Earlier this year they ruled against Bell Canada for charging more for access to products that compete with ones that it owns. The Canadian system builds rules based upon the cases brought to it rather than crafting a big framework of rules up-front.

The Canadian system also treats wireline and wireless the same in terms of the way they treat customers or the way they operate their networks.

The new fines are the part of the Canadian law that I find to be the most attractive. Without significant financial penalties there is not much incentive for the large ISPs to change their behavior. I would venture to say that fines of $10 million and $15 million are probably not high enough for the US Market where a carriers might make hundreds of millions by discriminating. But it’s the right concept.

The Hidden Costs of Accepting Government Money

Numismatics_and_Notaphily_iconThere are often strings attached to taking government money that must be considered before accepting such money. Some of the gotchas include having to comply with prevailing wage rules, environmental reviews and Historical Preservation Act rules.

Let me start with prevailing wages. Any company that works on a government infrastructure project is required to comply with prevailing wages. Prevailing wages are hourly rates that are created by government regulatory agencies to represent what workers and laborers of specific types must be paid in specific geographic areas. The original concept behind the prevailing wage laws was to not let public construction projects destabilize a local construction industry. Basically the government didn’t want laborers shipped into an area who would work for much lower wages than the people who lived in the area.

This sounds good in concept, but in practice, in many states the prevailing wages are set considerably higher than what local laborers are paid. In fact, in many states the prevailing wages are suspiciously close to urban union wages. And so the opposite of what the government was protecting against often happens and contractors working on government projects end up having to pay more for labor than what people in an area will willingly work for, and this can greatly inflate the cost of government projects.

The procedures of complying with prevailing wages for telecom projects is complicated. Typically the prevailing wages are published by job titles and these titles rarely line up well with the actual workers that are hired for a fiber project. And so a construction company must guess how to slot each position into one of the pre-defined wage categories and then hope that they guessed right, since their decision often doesn’t get audited until after the project has been built.

In the telecom industry there are only a few hundred construction companies around the country that build fiber networks. It’s a very specialized field and the workers are highly trained. Nobody is going to hire somebody who’s inexperienced off the street to be a cable splicer or to operate a cable plow. The fiber construction business has developed a good equilibrium between supply and demand. Construction companies can’t hire experienced workers if they don’t pay enough, and so their competitive prices include the kind of wages that cable splicers and others are willing to work for. It’s an equilibrium that the industry seems happy with.

Probably the biggest concern is that even when you take only a small amount of government money, the prevailing wages might apply to the total project. The prevailing wage doesn’t have to be very much higher than the actual wages for it to cost you money to take ‘free’ government money.

Another requirement that often comes with government money is that you have to undertake an environmental study. This means hiring somebody to certify that your project is not going to disturb endangered species, interfere with wetlands or cause pollution of the environment. But laying fiber doesn’t affect any of these items because fiber is almost always built in public right-of-way along existing roads. When the state first built the road they always set aside part of the right-of-way for utilities to build in the future. This means that fiber is placed into soil that was already excavated when the road was built. So an environmental review makes no sense and I’ve never heard of a commercial fiber project that did an environmental review when building in a public right-of-way.

There are similar issues with compliance with the Historic Preservation Act. These rules are designed to prevent construction from disturbing buildings that are designated as historic properties or to protect against disturbing archeological sites. Again, this doesn’t make sense when fiber is constructed in public rights-of-way along existing roads which were previously excavated when the road was first constructed. There are times when commercial companies undertake these reviews, such as when they build fiber across country away from roads or if they are going to build on an Indian reservation. But no commercial contractor would ever consider such a review if they are building along public roadways.

The primary problem with these requirements are that they add both cost and time to a project. The prevailing wage issue can sometimes drastically increase the cost of a project if there is a big difference between actual wages and prevailing wages. And the other reviews can cost hundreds of thousands of unnecessary dollars, but worse can add a big delay at the start of a project, which by definition makes a project more expensive.

So be careful before taking federal or state monies that you first read the fine print. I know of a number of projects that were part of the stimulus grants a few years ago where awardee returned the grant money once they understood the real cost of compliance. Sometimes government money costs more than its worth.

Who Has Fast Broadband?

The Department of Commerce issued the following graph recently as part of a report titled Competition Among US Broadband Service Providers. The graph is a little hard to read, so I include it here for easier viewing. The purpose of the graph is to show that there is not very much competition for data speeds of 25 Mbps and higher. The graph shows the number of households that are able to buy various speeds of broadband from a low of 3 Mbps to a high of 1 Gbps. It does a good job of demonstrating the story that the Commerce Department wants to tell – which is that for most markets there is only one provider of fast Internet.

commerce_department_broadband

But there is another story told by this graph that nobody seems to want to talk about, which is how the government is doing a really lousy job of counting the number of households that still can’t get the slower speeds of Internet access. This graph shows, for example that only two million US households can’t get 3 Mbps download speeds and that 6 million can’t get 10 Mbps. And those numbers are total bosh.

These numbers are based upon the database that supports the National Broadband Map, and frankly, for rural America, this data is a farce. The problem with the map is that the data speeds are self-reported by the telcos and cable companies and supposedly represents the speeds that the carriers advertise in various markets, not the speeds that people can actually get. Further, the speeds are counted by census block, and if only a few homes in a block can get a certain speed then it is assumed that most can. This blog is too short of a forum to go into a detailed discussion of why the sampling method behind the map is a misuse of statistics, which would require a math-based whitepaper, and maybe one of these days I’ll take the time to write it.

Consider the actual speeds that can be achieved with DSL, where the speed drops rapidly with distance from the DSL hub, called a DSLAM. On very good copper DSL can deliver 10 Mbps of speed for about 7,000 feet. That’s not 7,000 feet as the crow flies, but 7,000 feet of pole lines. In most places that is not a whole lot more than a mile. Good copper can deliver 3 Mbps up to about 13,000 feet, which is almost twice as far as 10 Mbps but which only still equates to maybe 2.5 miles. And the sad reality is that most rural copper is not very good and so actual distances that can be achieved are going to be less than these theoretical distances. It’s well known that the largest telcos like AT&T, Verizon and Qwest neglected rural copper for decades and their copper in many places is a disaster.

Further, a lot of rural towns are still equipped with older DSL technology that tops off at a capacity of between 1 Mbps and 6 Mbps. In those communities even the people in town can’t get 10 Mbps as is suggested by the National Broadband Map. The reality is that the large telcos generally advertise the same products everywhere in a region. So small towns will see advertisements that say something like “speeds up to 20 Mbps, with fine print at the bottom of the ad that will say “where available”. Thus the large companies are not lying when they say they advertise fast speeds in rural areas, but the whole point of the Map is supposed to be to measure the broadband that people can buy.

What is even worse is that the large telcos will sell you DSL that barely works. I’ve heard of rural customers who buy DSL with speeds as low as 144 kbps, just a little faster than dial-up. At peak times some of these people revert to dial-up which is faster. And they pay the same price as a customer in the nearby town who might have 6 Mbps. Households with these slow speeds are undoubtedly shown on the Broadband Map as able to buy broadband.

Cable companies have a more definable situation. Cable ends where the coaxial cable ends and if you live one home beyond the last connection you can’t get cable modem. Almost all of the faster speeds on this chart are from urban and suburban cable modems. Many of those systems have been upgraded to deliver over 100 Mbps, and in competitive places like Austin TX they can deliver over 300 Mbps. But rural cable systems share a problem with rural telcos in that many of the systems are old. Some older cable systems don’t yet offer cable modems. And many other older systems can’t deliver speeds greater than 6 Mbps, making them very similar to rural copper systems.

So this graph works for the story it wants to tell, which is that there is often only one provider in a market that will offer speeds of 25 Mbps and higher. But the government really needs to stop publishing statistics  that make it look like most of the country already can get speeds of 10 Mbps, because it simply is not true in much of rural America. I get a little angry every time I see the government make pronouncements based upon this bad data. It feels like a cover-up with the government and the FCC together to deny how poor our broadband is. I wish it was true that  only two million people can’t get 3 Mbps and only 6 million can’t get 10 Mbps, because we wouldn’t have as far to go to improve.

A Real Chance for OTT?

FCC_New_LogoOn Friday the FCC released an NPRM in Docket FCC 14-210 that asks a host of questions about allowing Internet content providers to be treated as cable companies. The NPRM contains a very thorough discussion of all of the rights and obligations of being a cable company, and anybody who doesn’t understand the regulation of cable companies can get a quick education just by reading the NPRM.

It’s obvious that by raising the issue that the FCC is in favor of promoting more competition for cable TV. This is something that the public obviously wants. But the FCC has to walk a fine balance with this issue. If they make it too easy for online content providers then they might accelerate the collapse of the traditional cable TV business. I know many would applaud that, but there are a lot of homes that can’t get cable over the Internet and who are not situated to get it from a satellite. On the other hand, if they make it too hard to qualify to deliver content online then not many companies will try and they will have accomplished little.

One might think that it’s an easy question to answer until you read the NPRM. There are some very tricky issues for the FCC to wrangle with:

  • For example, should somebody who only wants to deliver a package of a few channels be able to buy them? (Cable companies can’t do that).
  • Should they require an Internet provider to carry the major network channels like cable companies must do, and if so, would they be required to carry the channels in every market and have to swing deals with hundreds or even thousands of stations?
  • Can an Internet provider that only wants to deliver content on a delayed basis, like Netflix, be able to buy any programming they want?
  • Can a content provider like Disney offer a package of programming online that only includes content they own?
  • Do online providers have to provide services like closed captioning (for the deaf) and video description (for the blind)?
  • Would ad-based online companies have to comply with the rules about the loudness of commercials?
  • Does an online provider have to notify customers of things like weather alerts or other emergency announcements?
  • Can the FCC require content providers to negotiate with possibly thousands of new online market entrants? Even today many content providers send smaller providers to somebody like the National Cable Television Cooperative to get content. Would this mean that NCTC would have to accept online providers into the Coop?
  • Would online providers have the same restrictions against making exclusive deals with MDU owners?
  • What do they do about the more arcane rules such as cable cards, inside wiring and signal leakage?
  • Can a company with no business presence in the US become a US cable company since they have access to customers through the Internet?

I think it’s pretty obvious that the FCC is going to do something to allow online competition. But they are starting with a regulatory framework that was written specifically with coaxial networks in mind and that has many rules that don’t make sense for an Internet provider.

I think there are a lot of people who would become cord cutters if they could buy smaller packages of the programming they want online. I know I would personally be very happy with a package of Netflix, Amazon Prime, ESPN and the Big 10 Network. But I think a lot of people are going to be disappointed when the find out that online cable competition is not going to be the same thing as a la carte programming where subscribers can choose only the channels they want to buy. It might be that on-line packages cost as much as the ones from the cable companies.

Once a company qualifies as an online cable company they are going to be saddled with many of the same rules that apply to cable companies. And they are going to be in an industry where the balance of the power has swung very much to the content providers. For example, it’s common today that if a cable company wants to buy one channel from one of the big eight content providers that they have to take virtually every channel that the provider owns.

There is also an issue that is faced by many customers that is not addressed in the NPRM. It’s a very common trend these days for cable companies to require at least some bundling in order to buy Internet access. For example, in my town I can only buy Comcast’s slowest Internet speed without having to subscribe to at least some cable channels. But it’s doubtful that without considering Internet as a Title II service that the FCC can order cable companies to sell all speeds of broadband as a standalone product. This is one of the issue that is stopping potential cord cutters. So here is yet another issue that is tangled up in in the Title II regulatory debate along with net neutrality.

How We Get Our Entertainment

Fatty_watching_himself_on_TVNielsen just published The Total Audience Report for the third quarter of 2014 in which they look in detail at how Americans are getting their entertainment. They define entertainment broadly and include things like web browsing on computers and cellphones. But they do not count voice calling or texting, which are communications.  This report concentrates on the time that people spend on different devices. The report looks at the data in a number of different ways and I found a few of the comparisons to be quite interesting.

The report shows that the way we are accessing entertainment is changing rapidly. Consider the following statistics comparing the number of hours per day that the average person uses various devices , for the third quarters of 2012 and 2014 (in hours and minutes):

‘                                                            3Q 2012          3Q 2014

Watch Live TV                                        4:50                  4:32

Watch Time Shift TV                              0:24                  0:32

Watch DVD / Blu-Ray                            0:09                   0:09

Use a Game Console                             0:09                  0:12

Use Internet on a Computer                1:04                  1:06

Use a Smartphone                                 0:53                  1:33

Listen to AM/FM Radio                          2:51                  2:44

Use a Multimedia Device                      0:00                  0:04

The total time spent by the average person doing these activities increased over the two years from 10 hours and 20 minutes to 10 hours and 52 minutes. The time spent watching traditional TV and listening to AM/FM radio dropped while everything else stayed the same or climbed. The most dramatic shift was in the use of smartphones for entertainment which grew by 75% in just two years.

It’s also interesting to look at these same statistics by age group. Consider the following that shows weekly statistics for the average person in three different age groups (in hours and minutes):

‘                                                               18 – 24            35 – 49            65+

Watch Live TV                                         17:34              29:41               47:13

Watch Time Shift TV                                1:43                3:40                 3:19

Watch DVD / Blu-Ray                               0:46                1:08                 0:37

Use a Game Console                               3:35                1:03                 0:07

Use Internet on a Computer                  4:54                7:22                 2.48

Watch Video on Internet                        1:46                 1:48                 0:26

Using an App on Smartphone               9:40                 9:39                 1:16

Watch Video on Smartphone                 0:29                 0:14                 0:00

Listen to AM/FM Radio                          10:30              13:48               12:06

Use a Multimedia Device                        0:38                 0:30                 0.13

This shows a dramatic difference by age for watching traditional TV. The younger you are, the less TV you watch. Young people in the 18-34 age group watch 63% less TV than those over 65 while 35-49 year olds watch TV 37% less. It’s the dramatic decrease in TV viewing by younger viewers that has the TV industry worried. This is certainly going to mean a major shift in advertising dollars away from TV, something that has recently become noticeable. And this same trend of caring less about TV might be what breaks the traditional cable model rather than cord cutters. Young people still watch TV, but a lot less than older generations.

There is also a huge difference between generations in terms of total hours spent using these devices. The 18–24 year-olds spend 51 hours and 20 minutes per week, those 35-49 spend 68 hours and 20 minutes, and those over 65 spend 68 hours and 6 minutes.

People under age 50 have made a dramatic shift to using their smartphones for entertainment, be that playing games, browsing the web or shopping. Both the 18-24 year olds and the 35-49 year olds use their smartphones over 9 hours per week. Interestingly, I have read a lot of articles talking about how smartphone video usage is growing rapidly and will eventually swamp other kinds of viewing, but these numbers don’t support that contention. This shows that even those in the 18-24 group are watching video on the smartphones less than a half-four per week on average. Certainly usage of smartphones in general is way up, but they still only represent a very tiny sliver of the market for watching video.

These charts also reminded me how much people still listen to AM/FM radio. I listen to Sirius XM radio in my car since I am a talk radio junky and I haven’t listened to regular radio in years. But these numbers still show that all age groups are listening to the radio more than 10 hours per week.

The Unregulated Texting Market

Text-messageComcast recently started texting me about my cable bill. And like most things they do they didn’t quite get it right. They sent me three texts telling me I was being billed and when they sent me a second text telling me I had paid I discontinued the texting service. Since my bill is identical month to month and I always pay my bill on time, I thought getting five texts was annoying.

I would contrast this to the texting service that I have had with AT&T wireless for many years. They send me a text when my bill is ready to review and they notify me a second time when they have billed against my credit card. I think in the dozen years I have used them that they have only sent me a few other texts, such as asking me to rate customer service after I visited their store. I am sure that if I didn’t pay my bill on time that AT&T would text me more to prompt me to pay. But overall I am satisfied with the AT&T texting service. It’s not intrusive and it keeps me adequately informed.

Comcast is a bit late to this game and many other carriers and other types of companies already use texting to connect to customers. When I moved to Florida I found that a lot of businesses here use text messages. For example, I bought some furniture from Haverty’s who texted me throughout the delivery process. They let me know when my furniture was delivered to their warehouse, and they texted me several times to coordinate delivery. Using texts they were able to pin down the time of my delivery to about an hour. I think a lot of people would be happy if Comcast technicians could do the same thing.

So texting can be a great tool when used correctly. A lot of people don’t want to talk to customer service reps and a two-way texting service provides a great alternative. With AT&T I can do such things as make queries about my bill and I don’t have to call or be at a computer.

But there is a darker side to texting because the large wireless carriers control the market very tightly. SMS texting as we know it got introduced in cellphones in the late 90s. But, like the Internet, texting is not covered by Title II regulation and so there are very few FCC rules that apply to text. The FCC has a few rules, such as mandating that texting can’t interfere with voice calling, but otherwise the product is largely controlled by the big carriers like AT&T and Verizon.

Since Comcast is not a wireless carrier they must buy texts wholesale from one of these large wireless carriers. Interestingly, those carriers are quite strict about how texting is used. For example, they limit the number of times per month that texting can be used to send a sales message to a given customer. I assume that the carriers are careful about this because they don’t want a lot of customer complaints at the FCC, which might result in becoming regulated by Title II.

The big carriers have a good reason to be cautious, because they make a fortune on texting. It costs almost nothing to send a text, as in a very tiny fraction of a penny (with many zeros before the first digit). The bandwidth used for a text message is tiny, and the date path being used has to be there any way since it is a control channel for some of the functions of cellular calls. The texts they have been selling for years for ten cents has to be the most obscenely profitable product in the world.

But the carriers often go further than just limiting the number of texts. For instance, in the past there are instances where the big carriers have blocked texts. One well-known case was when Verizon blocked text messages coming from Naral Pro-Choice America. Verizon thought the content of the texts was too controversial and graphic and blocked the group from texting. In an unregulated world Verizon is free to establish any rules they want for the texting service they sell, and so they are free to block Naral. But I find it disturbing when Verizon gets in the censorship business while using spectrum they got from the government.

This is a good example of what might happen to the Internet without any net neutrality rules. In the texting world the carriers have become judge, jury and executioner and they control texting with an iron fist. One can imagine over time that the major ISPs could do the same thing to the Internet.

Regulation by the carriers has a positive side. Verizon is actually more likely than the FCC to quickly slap Comcast’s wrist if they get carried away with the number of texts they send to a given customer. But do we really want a large company like Verizon deciding what can and cannot be done in the texting world?

Texting is directly analogous to the regulation of the Internet. Today we have no net neutrality rules since the last set are in limbo. The Internet is being controlled right now by the large carriers. I think the only thing stopping the carriers from making deals for Internet fast lanes or even worse things is that they are afraid the FCC will use that as an excuse to implement Title II regulation. But if the day comes when the carriers stop worrying about that threat, then we only have to look at the texting market to see what carrier regulation looks like. It’s not particular pretty.

Is 10 Mbps Really Broadband?

Polk County Sign‘On December 11 the FCC released an order in Docket No 10-90 that increased the definition of broadband for rural landline connections that can receive funding from the Universal Service Fund. The new baseline definition of broadband is 10 Mbps download and 1 Mbps upload and which replaces the old definition of 4 Mbps download and 1 Mbps upload. In today’s world is 10 Mbps really broadband?

The FCC came to this number based upon tables they included in the Tenth Broadband Progress Notice of Inquiry released last August. The FCC suggested the following as representative of the broadband usage today in different sizes of homes:

‘                                       Light Use        Moderate Use             Heavy Use

One User                      1 – 2 Mbps          1 – 2 Mbps                6 – 15 Mbps

Two Users                    1 – 2 Mbps          1 – 2 Mbps                6 – 15 Mbps

Three Users                 1 – 2 Mbps          1 – 15 Mbps              More than 15 Mbps

Four Users                   1 – 15 Mbps        6 – 15 Mbps              More than 15 Mbps

The first thing that is obvious is that the FCC didn’t set the new standard high enough to satisfy households with 3 or 4 people. I know in my household with 3 users that we often look something like the following in the evening:

1 User watching HD movie                      5.0 Mbps

1 User watching SD movie                       3.0 Mbps

Web browsing                                           0.5 Mbps

Cloud Storage                                           1.0 Mbps

Background (synching emails, etc.)       0.4 Mbps

‘          Total                                                9.9 Mbps

But we can use more than that. For instance we might be watching three HD videos at the same time while still doing the background stuff, and using over 16 Mbps, as the FCC suggests.

Clearly the old metric of 4 Mbps that was adopted in 2011 is now too low. But I think the new standard is already too low for today’s usage and it will probably be three years or more before this is considered again.

This new definition is going to be used in the upcoming reverse auction for Universal Service Fund support. Carriers can ask for a monthly subsidy from that fund to help to offset construction of broadband facilities that will deliver the 10 Mbps speeds. That is not a lump sum grant, but instead a payment per month over 5 – 7 years that help to pay for the new investment over time.

So what kind of landline technology can deliver this much speed? Clearly fiber can do it. Cable companies with their hybrid fiber coaxial plant can do it. And DSL can do it on good copper up to about 7,000 feet from the central office. The problem in rural areas is that the copper is often not in good shape. Plus we know that both AT&T and Verizon want to ditch copper and are unlikely to take any funding to expand copper capability. The only other way that DSL can deliver this speed any significant distance is to locate the DSLAMs (DSL hubs) in the field. But that means building more fiber.

The way I understand this change, it only applies to companies looking for a subsidy out of the Universal Service Fund. This change would be a lot more impressive if it was also the new definition of bandwidth for all purposes including the National Broadband Map. If that map was accurate, then changing the minimum definition of broadband to 10 Mbps would mean that many millions of rural homes would suddenly be classified as having no broadband. But that map is full of inaccuracies because the speeds that are ‘available’ to customers are self-reported by carriers which often exaggerate the actual speeds they can deliver.

I know that there are a lot of rural small towns where the real speeds of either DSL or cable modems today is under 6 Mbps and sometimes only a few Mbps. These areas are mostly counted today as having broadband and under the new definition they would no longer have it. But making that change is a public hot potato and no FCC staffer or politicians wants to say that fewer Americans have broadband.

Anything that brings more broadband to rural areas is good, but this increase just feels inadequate. If CAF funds are used to build DSL that barely can deliver 10 Mbps, then households getting the speed upgrades will find themselves being too slow in just a few years before the ink has barely dried on the paperwork. Statistics show that household bandwidth consumption is doubling every three years, and so in six short years, a household that needs 10 Mbps today is going to need 40 Mbps.

In the recent experimental grants that were just awarded by the FCC, the broadband speeds required to get funding varied between 25 Mbps and 100 Mbps. Those kinds of speeds are enough broadband to provide a little future-proofing. It is a mistake to give anybody federal money to build a new network that can only deliver 10 Mbps. Any town that gets such an investment will get very temporary relief but will then fall behind the curve in a few years when the rest of the country has 100 Mbps or faster service.

The FCC’s Plate is Full

FCC_New_LogoI don’t think I can remember a time when the FCC had more major open dockets that could impact small carriers. Let’s look at some of the things that are still hanging open:

Net Neutrality. This is the granddaddy of all FCC dockets, if for no other reason than the number of responses filed in the docket. The network neutrality docket asks the basic question if there is any legal mechanism that the FCC can use to ensure that the Internet remains open. The public debate on the issue has concentrated on discussion of whether there should be Internet fast lanes, meaning that some companies could buy priority access to customers. Of course, the flip side of that question is if most of the Internet can be made slower in favor of a handful of large companies willing to pay a premium price to ISPs to be faster.

The issue has become political and there are polarized positions on opposite sides of the topic. The large players in the industry have also lined up in predictable ways with the giant cable companies and telcos against any form of regulation on broadband and almost everybody else on the opposite side of the fence.

Municipal Broadband. Petitions filed by Chattanooga TN and Wilson NC prompted the FCC to investigate if they should overturn the various state restrictions against broadband. There are roughly twenty states that have some sort of restriction against municipalities either entering the business or for operating as a retail provider of services. In some state there is an outright ban against any form of municipal broadband competition. In others, municipalities can build networks but can only provide wholesale access to the networks.

This issue is a classic case of pitting states’ rights against the ability of the a federal agency to preempt them. The FCC has overturned numerous state laws in the past and certainly has that ability in terms of telecom law. But in most past cases the FCC overturned rules established by state commissions and here they would be overturning laws created by state legislatures. There are a number of states that say they will sue over the issue as well as some members of congress that are vehemently against overturning state laws.

IP Transition. The IP transition can have huge repercussions on LECs and CLECs. At issue is the replacement of the traditional TDM network with an all-IP network. From a technical perspective this transition if very straightforward and the carrier world is already in the process of implementing IP connections in the voice network.

But there is a long list of carrier compensation issues that are tied deeply to TDM network rules that must be dealt with. For example, one the primary principles that help to make CLECs competitive is that they can choose to meet incumbent networks at any technically feasible point of their choice. The RBOCs view the IP transition as a way to change this balance and they want CLECs to pay to bring all voice traffic to them.

And rural consumers have a huge stake in this docket since the large telcos see this as an opportunity to ditch customers on rural copper. AT&T, for example, has made it clear that they would like to cut the copper to millions of rural customers.

Mergers. The FCC is processing two large merges between Comcast and Time Warner and between AT&T and DirecTV. The Comcast merger is the one with the most practical market consequences since it merges the two largest incumbent cable companies. The cable industry already suffers from the lowest customer satisfaction among all industries and the two companies are near the bottom of the pack in the industry.

So customers are worried that the merger will lead to even worse service. And competitors worry that the mega-company that would result from these two mergers will have too much market power. The FCC Chairman Tom Wheeler has publically expressed some concern about this merger being good for the industry, so it doesn’t sound like a slam dunk.

Internet TV. The FCC is looking at whether it should regulate Internet TV. For example, should a channel line-up broadcast over the Internet have to follow the same rules as a broadcast over a cable network? This ruling is going to have a huge influence over how small companies deliver cable TV.

Everything Else. In addition to these big issues the FCC has a lot of other open dockets. Some of them are relatively small, such as the docket that looks at whether the FCC should regulate robocalls. But some cover large issues, such as the docket that is examining how the FCC sells wireless spectrum.