Let me start with some numbers to explain the FCC funding from the FCC. In the second round of the CAF II proceeding AT&T accepted a payment from the Universal Service Fund of about $428 million per year for six years, or over $2.5 billion dollars. That money is to be used to bring broadband to about 1.1 million homes. That works out to $2,300 per home.
I saw news last week about an AT&T CAF II ‘trial’ in Georgia. AT&T plans on using existing cellular spectrum to deliver a fixed broadband product. This will require the installation of a small exterior antenna at a customer site as well as the use of an AT&T modem inside of the home.
We’ve known for a while that AT&T planned to utilize their cellular spectrum rather than build or try to upgrade any copper plant, so this is no surprise. What is a bit of a surprise to me is the speeds being offered in the trial. AT&T will be providing a 10 Mbps download speed, which is the bare minimum required by the FCC’s CAF II program. We know from other trials AT&T has had around the country that this technology is capable of delivering at least twice that much bandwidth.
And the service won’t be cheap. The product is priced at $60 per month if a customer will sign a contract, and $70 per month with no contract. It’s a pretty interesting comparison between this and Verizon’s announcement of now offering gigabit speeds throughout its fiber footprint for $70 per month. I didn’t see any mention of a fee for use of the AT&T modem, but most ISPs charge for such devices, so that is probably going to be added to the price.
The AT&T product also comes with severe data caps. It comes with a monthly data cap of 160 gigabytes of total download. Overages will cost $10 for each additional 50 gigabytes, up to a maximum of $200 per month. I suspect a lot of rural homes that buy this as their first broadband product are going to be shocked at their first bill when they splurge on watching Netflix for the first time. My 3-person household uses about 700 gigabytes per month, which under this plan would cost $170 per month for somebody with a contract.
Like with all ISPs, I’m sure that the 10 Mbps data speed is undoubtedly best effort, meaning that at peak times (or if customers are too far away from a cellular tower) the speeds will be slower. That slow speed is going to severely hamper the ability for customers to use huge amounts of data since they aren’t easily going to be able to watch many simultaneous video streams.
I can’t be entirely negative, because for many households this will be their first broadband product, other than perhaps satellite data, which is largely unusable. And so to these homes it’s going to feel great to finally be able to stream data or have their kids able to do on-line homework from their homes.
But what is irksome about this product is that the federal government handed AT&T the money to do this. Certainly they will use some of the $2,300 per customer to build some new towers or to build a little fiber to towers. But the equipment to serve a customer is going to cost a lot less than this. I would bet that most customers will be served from existing towers using existing spectrum. This means that the federal government is paying for the full cost of implementing this product, but for which AT&T will reap all of the revenues and profits. That’s a pretty handsome return on investment for AT&T and amounts to an unneeded handout to one of the richest companies in the country.
Customers are going to quickly understand that, while they now have a minimal broadband capability, they don’t have anything close to the same broadband that much of the rest of the country has. Almost all of the big cable companies now sell broadband with minimum speeds of at least 50 Mbps download, often more. As households keep needing more data capacity over time – with the average household use of data doubling every three years – this AT&T product will become the broadband equivalent of dial-up within a decade.
The worst thing about this whole fiasco from my perspective is that the FCC is take big credit for bringing broadband to the parts of the country who get this kind of CAF II product, and they will probably count this as a job well done. Instead the FCC will have spent many billions on foisting broadband into rural America that is obsolete before it’s even launched. The shame is that this same money could have been used to seed matching grants in rural America that would have built fiber to a lot of these same homes. Small ISPs and telcos got excited when they first heard of the reverse auctions for the CAF II funding. But then, rather than holding those auctions, the FCC just handed this money to the big telcos with no competition for the funding – and this AT&T product is the end result of that bad decision.
Rural America is not going to be long fooled and will quickly recognize this as inferior broadband, but they are going to have no real alternatives. There is the small hope that there might be an infrastructure program from the current administration and Congress, but there is no assurance that such money might not also go to the big ISPs to do more of the same.