What I Believe

Doug Dawson, 2017

I’ve been espousing a number of opinions lately in my blog postings about rural broadband and I thought it would be a useful exercise for myself to list what I believe about the rural broadband situation in the US. So please humor me a bit today while I summarize my beliefs.

I believe that the lack of broadband in rural America is approaching a crisis. There are millions of homes with no broadband, meaning that these homes can’t partake in modern on-line society. It’s becoming very clear that kids without broadband are at an educational disadvantage. Homes without broadband can’t be part of the new information work-at-home economy. It’s easy to think that lack of broadband is an isolated or local issue, but, when plotted on the map, most of the geographic area of the entire country has poor or no broadband.

And the issue is not just homes without broadband as there are many millions of other homes with poor broadband. There are homes limping by with slow DSL, sometimes not much faster than dial-up. There are numerous homes served by rural WISPs using wireless technology that is not fiber-fed and is only delivering a few Mbps. There are a lot of homes using satellite broadband which is costly, has latency that doesn’t allow for any real-time activity and which has miserly data caps. Finally there are homes spending hundreds of dollars per month using their cellphones as hotspots and paying the outrageously expensive prices for cellular gigabytes.

I believe that those regions without broadband will fall drastically behind. Families with kids won’t want to live there and homes in such areas will lose value. People will abandon these broadband dead zones over time and we will begin to create broadband deserts. This will inevitably create a huge drag on the US economy as rural America falls behind and withers away.

I also believe that fiber is the only real long-term solution to rural broadband – lots of fiber. The constant press about 5G wireless has convinced many that our broadband future is wireless. This might come to pass in dense urban areas, but for the 5G technology to work in a rural setting it will require almost the same amount of fiber as a FTTP network. So we need a lot of rural fiber construction even if the future delivery to the home might be wireless.

I believe that any government effort to help rural broadband needs to be spent building fiber. Today the FCC is spending a lot of money to beef up large telco DSL and cellular broadband, and these efforts are doomed to fail in rural areas. Families will be initially happy to get a 10 Mbps connection after having no broadband, but it will soon become obvious that this is not the same broadband that everybody else has. And within a decade or so a 10 Mbps connection will feel as obsolete as a 1-2 Mbps connection feels today. The CAF II DSL and cellular broadband upgrades are temporary band-aids that don’t solve the rural broadband gap.

I believe that any willing entity ought to be allowed to tackle the rural broadband gap. The successful efforts by the large telcos and cable companies to keep municipalities from building broadband in many states stinks of corruption. The large ISPs have spent millions lobbying to get anti-municipal laws passed while demonstrating that they are not willing to invest their own money in rural America. A rural county that needs broadband ought to be able to tackle the problem if they are willing to pay for it. Almost no rural municipality wants to tackle this and be the service provider. I am a huge fan of public private partnerships and see a lot of them being formed – but not every rural place in the country has a willing commercial partner and should not be penalized due to their geographic happenstance.

I believe we ought to remove any other roadblocks to solving the rural broadband crisis. We need to repeal any state or local regulations that make it harder and more expensive to build fiber. This means making it a lot easier to get onto poles and requiring pole owners and existing utilities to cooperate. This means not layering on rules for grant funding that require environmental reviews for long-established public rights-of-way. It means not requiring rural broadband projects to have to pay prevailing urban wages for rural construction. It means eliminating burdensome permitting and other rules that can slow down projects and add to costs.

I believe that government needs to play a role in solving the rural broadband crisis. One only has to look at a few successful state programs like the DEED grants in Minnesota that are being used to successfully help fund rural fiber networks. Government played a huge role years ago in making sure that the whole country got electricity and telephone service. I hope we have not grown too partisan and jaded to recognize that we need to step up and do the same thing for rural broadband. Government investments made in those earlier ventures like electrifying America literally paid back the initial government outlay hundreds of times over through the new taxes generated by the beneficiaries.

I believe we have to find a way to make it easier for those that want to invest in rural broadband to borrow the needed money. I often see that finding funding is the number one roadblock to rural fiber projects. Banks no longer make long-term infrastructure investments. We have one federal funding source at the Rural Utilities Service (RUS) that makes loans for broadband – but that system is broken. The RUS has a huge backlog of loan applications and the loan process takes too long. And the process has still not been made friendly to municipalities or start-ups and mostly only funds established telcos and electric coops. We need something new or something better to help fund rural broadband.

And finally, I believe we can do better. I believe that most Americans, including those that live in cities, understand that every part of the country should be connected together with the web. This is not a partisan issue and I’ve never met a rural politician of any political affiliation who doesn’t understand the need for rural broadband. I just wish that I could believe right now that the FCC, the Congress, the big banks and others will do the right things necessary to fix the problem – but I am afraid I am not optimistic.

Are You Texting Your Customers?

In the last year I’ve found all sorts of my outside interactions now involve texting. I get texts from the dentist affirming an appointment, texts from a furniture company making sure I was home during a delivery, and texts from AT&T wireless for my cellular billing. All these various businesses have found that texting saves them money. Yet I have only a few ISP clients that make wide use of texting. I find that a bit surprising because I can think of a number of ways that texting can be a big money saver for an ISP.

The most obvious one is that it can save from making unneeded truck rolls. Every ISP I know says that truck rolls are expensive, and there is nothing more wasteful than making a truck roll to a customer who is not at home. I’m sure that is why the furniture company made the text and they would not have tried to deliver if I wasn’t at home. Better yet, texting puts a technician into direct contact with the customer and allows them to work out a plan if a customer isn’t home.

But there is probably even a bigger savings in the way that AT&T uses texting. They send me a text each month when they bill me and invite me to view my bill online. This saves them from having to mail a paper bill – something that makes no sense to somebody like me that uses autopay to pay my cellular bill. I can’t imagine I would ever open an AT&T paper bill and they would be spending money and margin to send me one. Many of my clients tell me that today that over half of their customers pay by bank debit or credit card and there is a huge savings from not mailing paper bills to these customers.

I do have a few clients that use texting and they report some other significant savings. For example, they say that texting has greatly reduced their uncollectible billing. They say that it’s far more effective to prompt customers immediately if they are late in paying their bills, and that most customers promptly pay when reminded. That’s particularly effective if you give them an immediate opportunity to pay the bill by credit card.

But the savings that surprised me a bit is the fact that companies that allow interactive texting with customers report that they have significantly reduced the number of calls to customer service. There are a two primary issues that prompt the majority of calls to customer service – outages and billing inquiries.

I have a client who uses texts to inform customers about outages. Customers can get quickly frustrated if they don’t know what’s happening and when service will be restored. This client has tied texting into their OSS and network mapping system and can send texts to only those customers that have outages. And they can inform customers proactively of planned maintenance outages. They say this largely eliminates calls about outages and particularly works great after hours when they are not answering the phones.

Texting can also be a good way to answer a lot of billing inquiries. Texting can be a great tool for answering simple customer questions like their outstanding balance or the due date of their payment. It takes a lot less time for both the customer and the company to answer a simple question by text. This is a great way to communicate with customers (like me) who would always choose an option other than making a call and getting into a customer service queue.

There are a few issues with texting to be aware of. There are some archaic FCC rules that define requirements for when customers text you. This harkens back to the day when many people paid for each text message – something that barely exists any longer. But the rules are still in place and are something to be aware of. There are also rules about using texting as a form of marketing – again, something that can be done in a way that doesn’t violate the FCC rules.

There are a wide range of texting solutions. At one end of the spectrum your technicians can text customers from their cellphones. But in order to get all of the advantages listed above you will want a fully interactive texting platform that’s integrated into your OSS/BSS. Feel free to contact me and I can describe the best solutions on the market.

The End of Satellite TV?

Randall Stephenson, the CEO of AT&T, recently announced that the company will be working to replace their satellite TV (DirecTV) with an OTT offering over the web. The company plans to launch the first beta trials by the end of this year. The ultimate goal will be for the online offering to eventually replace the satellite offering.

He didn’t provide any specific details of the planned offering other than comparing it to the current DirecTV Now offering that carries about 100 channels and is a direct competitor to landline cable TV.

Obviously the company has a lot of details to work out. DirecTV currently has over 20 million customers and along with Comcast is the only other cable provider that added customers over the last year ending in the second quarter. The biggest online live broadcast offering today is Dish Network’s Sling TV with around 2 million customers. AT&T faces numerous technical challenges if they want to transfer their huge customer base onto the web.

People always speculate why AT&T bought DirecTV and perhaps now we finally have the answer. The product will be marketed nationwide, not just in the AT&T footprint. The big advantage for AT&T is that they are not saddled with FCC rules that create the large cable bundles of 200 channels, and so perhaps they have found a way to make online bundles of cable channels profitable again. It seems that there are probably more profits in a 100-channel line-up than in traditional cable offerings. The same may not be true for skinny bundles and there is a lot of speculation that low-price OTT offerings like Sling TV at $20 don’t make any money.

This move would enable AT&T to leap forward and to easily keep up with the latest video technology. Almost all legacy video is using dated technology like the satellite DBS, the QAM on cable networks and even AT&T’s own first-generation IPTV headends. With an online product the company can get completely out of the settop box and the installation business for TV. They can also easily keep up with new formats and standards, such as the ability to immediately be able to offer 4K video everywhere. Going online makes it a lot easier to meet future customer demands as the industry continues to change rapidly.

But this has to be scary news for rural America. AT&T and Verizon have both made it clear they would like to tear down legacy copper networks, which will make it hard or impossible for some parts of rural America to make voice calls. If copper wires disappear then Cable TV over satellite is the only other modern telecom product available in a lot of rural America. If it’s phased out then much of rural America falls off the telecom map entirely.

While we have no idea if Dish Networks has similar plans, but the fact that they are migrating customers to Sling TV indicates that they might. This could turn ugly for rural America.

Obviously a quality OTT video product requires a quality broadband connection – something that is not available in millions of rural homes. It’s not hard to envision a future in which a home without good broadband might be isolated from the outside world.

It’s clear that the big companies like AT&T are focused only on bottom-line, and perhaps they should be. But one of the primary benefits of having incumbent regulated providers was that everybody in the country was offered the same choice of products. But unfortunately, the never-ending growth of broadband demand has broken the old legacy system. It was one thing to make sure that everybody was connected to the low-bandwidth voice network, but it’s something altogether different to make sure that rural America gets the same broadband as everybody else.

I can remember a time when I was a kid that a lot of rural homes didn’t have cable TV. Some rural homes were lucky enough to get a few TV stations over the air if they had a tall antenna. But many homes had no TV options due to the happenstance of their location. Satellite TV came along and fixed this issue and one expects when visiting a farm today to see a satellite dish in the yard or on the roof. This might become soon another of those quaint memories that are a thing of the past. But in doing so it will add to the political pressure to find a workable rural broadband solution.

Generations Matter

Nielsen recently published their first quarter Total Audience Report for Q1 2017. It’s the best evidence that I’ve seen yet that there is a huge difference between generations when it comes to video viewing habits. Compared to most surveys that look at a few thousand people, these statistics are based on almost 300,000 households.

The report examined in detail the viewing habits of the different US generations – Generation Z (ages 2 – 20), Millennials (ages 21 – 37), Generation X (ages 38 – 52), Baby Boomers (ages 53 – 70) and the Greatest Generation (ages 71+). What might surprise a lot of people is that Generation Z and the Millennials together now make up 48% of the US population – and that means their viewing habits are rapidly growing in importance to the cable TV industry.

The report outlines how the various generations own or use various devices or services. But note that these responses represent the entire household. So, for example, when Nielsen sought answers from somebody in generation Z it’s likely that the answers represent what is owned by their parents who are likely a millennial or in generation X. Here are a few interesting statistics:

  • The broadband penetration rate between generations is about the same, ranging from 82% to 85% of households. It wasn’t too many years ago when the baby boomer households lagged in broadband adoption.
  • There is a significant difference in the use of OTT services like Netflix. 73% of homes representing generation Z subscribe to an OTT service, but only 51% of baby boomer only households.
  • Baby boomers also lag in smartphone adoption at 86% with the younger generations all between 95% and 97% adoption.
  • Baby boomers also lag in the adoption of an enabled smart TV (meaning it’s connected to the web). 28% of baby boomers have an enabled smart TV while younger households are at about 39%.

The biggest difference highlighted in the report is the daily time spent using various entertainment media that includes such things as TV, radio, game consoles, and surfing the Internet.

The big concern to the cable industry is the time spent watching cable content. For example, the average monthly TV viewing for those over 65 is 231 hours of live TV and 34 hours of time-sifted TV. But for people aged 12-17 that is only 60 hours live and 10 hours time-shifted. For ages 18-24 it’s 72 hours live and 12 hours time-shifted. For ages 25-34 it’s 101 hours live and 19 hours time-shifted. This is probably the best proof I’ve seen of how much less younger generations are invested in traditional TV.

This drastic difference for TV stands out because for other kinds of media there is not such a stark difference. For example, those over 65 spend about 67 hours per month using apps on smartphones while those 18-24 use 77 hours and those 25-34 use 76 hours.

There even wasn’t a drastic difference in the number of hours spent monthly watching video on a smartphone with those over 65 watching 2 hours per month compared to 7 hours for those 18-24 and 6 hours for those 25-34.

The only other media with a stark difference is video game consoles with those over 65 using 13 hours per month while those 18-24 use 49 hours per month. Other things like listening to the radio or using a multimedia device (like Roku or Apple TV) are similar across generations.

The drastic difference in TV viewing has serious repercussions for the industry. For example, TV is no longer a medium to be used to reach those aged 18-24 since they watch TV over 180 hours less per month than those over 65. We’re seeing a big shift in advertising dollars and during the last year the amount spent on web advertising surpassed TV advertising for the first time. When you trend this forward a decade it spells bad news for the broadcasting and cable industries. For many years there was a big hope that as people get older that they would revert to the usage patterns of their parents. But the evidence shows that the opposite seems to be true – that kids keep their viewing habits as they grow older.

When you compare this report to earlier ones it’s obvious that the difference between generations is widening. Just comparing to 2016 those over 65 are watching more TV each month while the youngest generations are cutting back on TV over time – Generation Z watched 15 minutes less TV per day just since 2016.

Pent-up Customer Demand

I’ve recently read several articles that talk about how the new ‘unlimited’ cellular plans have increased data demands. One article quoted analyst Chetan Sharma who pointed to research done by Opanga Networks that show that Verizon’s daytime data traffic has doubled since the introduction of the unlimited cellular data plans.

These plans aren’t really unlimited, but have increased the monthly data caps to much higher levels of 20 Gigabytes or more per month. For the average cellular user this is a large enough increase to allow them to stop self-limiting their cellular data usage. It finally frees customers to use their cellphones in the way they want.

This phenomenon was expected and is familiar to any network owner who has ever done a major broadband network upgrade. I’ve worked with a number of companies over the years that have improved customer broadband and they always see a similar surge in customer broadband usage. For example, companies that have made the transition from DSL to fiber have seen this same immediate surge in customer use of the network.

But it doesn’t take a network upgrade to experience this kind of surge. I’ve had customers that operate fiber networks that have had the same phenomenon when they increased network speeds. When one of my clients moved their basic broadband product from 10 Mbps to 50 Mbps they experienced almost the same thing as Verizon.

This surge comes from freeing pent-up customer demand for broadband. Customers limit their data usage when their broadband connection isn’t fast enough. For example, with a slow broadband connection they quickly learn that they can’t watch two different video streams simultaneously. Or parents might not let their kids game online while somebody else is watching streaming video. Customers quickly understand that slow download speeds impede their ability to do multiple things at the same time. And they learn to curtail their broadband usage accordingly.

But when customers find they can do multiple things at the same time they do so. They begin to use the broadband for anything they want to do and they stop curtailing usage. When a lot of customers discover they are no longer throttled then network owner experiences an immediate surge in broadband usage. Customers will use broadband in multiple ways simultaneously in the evenings. They will begin watching HD video instead of SD video. They will subscribe to OTT video services for the first time.

But speed is not the only thing that curtails customer usage. In the case of the unlimited wireless data plans it is the fear of exceeding a costly data cap that curtails usage. The same thing can happen for home broadband usage that has data caps – customers consciously don’t use bandwidth to avoid getting higher monthly bills.

There is an interesting thing that always happens following these data surges when customers are freed to do what they want. The amount of usage surges higher, like Verizon’s doubling, and then it flattens out at a higher usage level.

It’s been well known that home broadband usage, both in terms of desired speeds and total monthly downloads, has been doubling every three years for decades. Any time that customer broadband usage is somehow capped or curtailed, customers will catch up to this original curve and will start looking like other customers that don’t have broadband restrictions.

ISPs need to be aware of this phenomenon. I still know of numerous fiber-to-the-home networks that have base data products of 10 Mbps or 20 Mbps. The owners of these networks are squelching their customers’ usage and they are dictating to customers what they can and cannot do.

The bigger ISPs understand this. The cable companies have kept ahead of the customer broadband demand curve by unilaterally increasing data speeds. In many markets the base broadband product is now at least 60 Mbps – higher than the FCC definition of broadband and higher than what most customers need today. Cable companies have learned that giving customers a little more broadband than they need stops most complaints about broadband.

Little ISPs and fiber network owners need to understand this as well. There is not a lot of excuse on a gigabit-capable network for a fiber-owner to limit customers to speeds under 25 Mbps. Their base product ought to be at least as fast as what the big cable companies offer.

I know it is fear of having a surge in network usage that stops a lot of network owners from increasing speeds. I think a lot of them also don’t fully grasp the real implications of broadband demand constantly growing in a geometric manner. When a network owner first set speeds at 10 Mbps that might have been a great speed – but it’s now holding back customers from using the data product they are paying for. I always ask network owners the question – why did you build a fiber network if you don’t want customers to use all of the broadband they want?

Decommissioning Rural Copper, Part 2

In the last blog I wrote about my belief that AT&T and Verizon want out of the rural wireline business. They both have plans to largely walk away from their rural copper networks and replace landline copper services with cellular service. Today I want to talk about what regulators ought to do with those networks.

When these two giant telcos walk away from rural copper they will inevitably harm rural America. While many homes will get the ‘privilege’ of now buying highly-priced cellular-based broadband, other homes are going to find themselves without telephone service if they happen to live in one of the many cellular dead zones. Such homes will not only be unable to benefit from cellular broadband, but if they have poor cell service they will find themselves cut off from voice communications as well.

As somebody who has traveled extensively in rural America I can tell you that there are a lot more cellular dead zones than people realize. And it’s not only farms, and there are county seats in rural America where it’s difficult to get a working cellphone signal inside of buildings.

As part of this transition both companies are going to walk away from a huge amount of existing copper cable. I think this copper cable is an incredibly valuable asset and that regulators ought not to allow them to tear it down.

The copper wire network today goes almost everywhere in rural America. Congressional laws and FCC policies led to most homes in the country getting access the the copper network. These copper wires occupy a valuable space on existing telephone poles – on the majority of rural poles the only two wires are the power lines at the top and the telephone wires at the bottom.

If these copper wires are kept in place they could greatly reduce the cost of building rural fiber. It is far cheaper when building fiber to ‘lash’ the fiber onto an existing set of cables than to hang fiber from scratch. It was this construction technique that allowed Verizon to build a lot of its FiOS fiber network – they lashed fiber onto existing telephone wires. And my guess is that when Verizon decommissions urban copper they are still going to leave a lot of the copper wires in place as a guidewire for their fiber.

If these telcos are going to walk away from these copper wires, then they ought to be required to keep them in place for use by somebody else to hang fiber. Many states might force the big telcos to tear down the copper wires since they will eventually create safety hazards as they break away from poles if they aren’t maintained. But if somebody else is willing to take over that maintenance then it shouldn’t be an issue.

I can picture a regulatory process whereby some other carrier is allowed to come in and ‘claim’ the abandoned wires once they are empty of customers. That would provide fiber overbuilders or rural communities to claim this copper as an asset.

There is some salvage value to copper wires and and it’s possible, but not probable that the value of the copper could exceed the cost to tear it down. So I can see the telcos fighting such an idea as a confiscation of their assets. But these rural wires have been fully depreciated for decades and the telcos have earned back the cost of these copper lines many times over. I believe that by the act of abandoning the wires and depriving some homes of wireline service that the big telcos will have forfeited any rights they might have to the remaining assets.

Anybody claiming the abandoned copper could use it in two ways. First, in many cases there is still existing life left in the copper, as witnessed by Frontier and CenturyLink rehabbing old rural copper with upgraded DSL. Local communities or small carriers could use the copper to bring the better services that the big telcos have refused to do over the last few decades.

But more importantly these wires represent the cheapest path forward for building rural fiber. Anybody taking over the old copper can save a lot of fiber construction costs by lashing fiber onto the existing copper. If our nationwide goal is really to get better broadband to rural America, then offering abandoned copper to fiber builders might be one of the easiest tools available to help the process along.

The big telcos abandoned rural America dacades ago. They stopped doing routine maintenance on rural copper and slashed the number of rural technicians. They now want to walk away from that copper and instead force rural America to buy cellular services at inflated prices. We owe it to the folks who paid for this copper many times over to get some benefit from it and to offer an alternative to the new rural cellular monopolies.

Decommissioning Rural Copper

I’ve been watching AT&T and Verizon since I’ve been in the industry (including a short stint at Southwestern Bell in the early 80s). We are about to see both of these companies unravel their rural telco properties.

Verizon got ahead of the curve and has been selling off rural properties for a few decades, many of which ending up with Frontier. Verizon still serves some rural areas and probably has shed  half of their rural customers. But there are still big swaths or rural Verizon customers in Pennsylvania, New York, Maryland and other northeastern states. Verizon benefitted from these sell-offs by selling completely depreciated and poorly maintained networks at high prices – as can be evidenced by how much Frontier is struggling to cover their massive debts. AT&T has sold almost no rural properties and still serves gigantic rural areas in dozens of states.

Both companies are clearly on a path to tear down the remaining rural copper networks and replace them with cellular wireless networks. There are both pros and cons for these transitions for rural customers.

On the plus side, many of these rural areas have never had broadband since these big telcos never extended their DSL to their rural service areas. We know that they could have extended DSL, because we have hundreds of examples of independent telephone companies that brought DSL to all of their customers, no matter how remote. But the big companies stopped spending money on rural properties decades ago. The remaining copper is now in terrible shape and one has to imagine that cellular voice is probably often as good or better than voice over these old copper lines.

There will now many customers who can buy fixed cellular broadband. This uses the same frequencies as the broadband for smartphones, but the cellular companies are pricing it to be a little less expensive. For many households the fixed-cellular broadband will be the first real broadband alternative they have ever had.

But there are also big downsides to this shift from old copper to cellular networks. First, cellular networks are effective for only a few miles from any given cell site. Anybody who has driven in rural America knows that there are cellular dead spaces everywhere. Any customers living in the cellular dead spaces are going to be left with no communications to the outside world. They’ll lose their copper and they won’t have cellular voice or data. This will be a huge step backwards for many homes.

The big telcos will be taking advantage of the fact that, as a cellular provider, they have no obligations to try to serve everybody. One of the reasons that we had nearly ubiquitous telephone coverage in the country is that telcos were the carriers of last resort in their service areas. They were required by law to extend telephone service to all but extremely remote customers. But that obligation doesn’t apply to a cellular carrier. We already have tons of evidence that the cellular carriers make no apologies to homes that happen to live out of range of their cellular towers. With no copper landlines left we will now have rural communications dead zones. It will be hard for anybody living in these dead zones to stay there and certainly nobody is going to build new homes in a place that doesn’t have cellular service.

There is a downside even for those households that get fixed-cellular broadband. The speeds on this service are going to be slow by today’s standards, in the range of 10 – 15 Mbps for those that live relatively close to a cellular tower, but considerably slower for customers at greater distances. The real downside to getting cellular data is that the speeds are not likely to get better in rural America for many years, even decades. The whole industry is abuzz with talk about 5G cellular making a big difference, but it’s hard to see that technology making much impact in rural areas.

I think this transition away from copper is going to catch a lot of rural people by surprise. These two big telcos have already started the process of decommissioning copper and once that gets full FCC approval the speed of decommissioning copper is likely to soon accelerate. I think a lot of homes are going to be surprised when they find out that the telcos no longer have an obligation to serve them.

Regulating Online Video Content

Recently the Kommission für Zulassung und Aufsicht der Medienanstalten (ZAK) – the German equivalent of our FCC – recently concluded that OTT services ought to be regulated the same way as other broadcast radio and television networks. Specifically they were looking at Twitch.tv the web gaming service, but the ruling could have far-reaching consequences.

I think the ruling raises two questions. First, should any regulatory body be regulating video content on the Internet? Second, why are we still heavily regulating cable TV?

The European press is lambasting the order as nothing more than a money grab. One of the benefits of regulating anything is to charge fees for that regulation. Like many regulatory bodies around the world the ZAK is largely funded by fees charged to the companies that it regulates (which is also largely true for the FCC as well). This means that regulators have a perverse incentive to regulate things, even if they don’t need to be regulated.

The idea of regulating a worldwide web ‘channel’ like a TV station is absurd. For those of you that may not know about Twitch.tv, it’s the primary gaming network for worldwide gamers. It’s owned by Amazon. It’s a huge platform and works like YouTube where over 17,000 ‘partners’ post gaming content into ‘channels.’ The platform averages 625,000 simultaneous viewers at any given time, making it one of the most popular web platforms in the world.

So regulating Twitch.tv would be the same as regulating YouTube. It’s a platform where virtually all of its content is created by others. Other than extracting fees from the platform for the privilege of regulating it, it’s hard to understand what else the ZAK could regulate. Twitch.tv and YouTube are open platforms and only function because they allow anybody to post content. Both platforms will take down offensive content or content that violates copyrights if they are asked to do so. But the platforms, by definition of the way they operate, have no control of the content that is posted. I’m at a total loss what the ZAK thinks they can regulate.

You have to also wonder how effective any regulation would be. There are a huge number of smaller web platforms that might fall into the same category as Twitch.TV. It’s hard to imagine anybody being able to launch a new platform if they are expected to comply with different rules in a hundred countries. But it’s also hard to envision the ZAK doing anything other than somehow trying to ban the content from the whole country of a platform that refuses to comply with their regulations. I don’t think the ZAK understands the political ramifications of banning a platform used by all the young tech-savvy programmers (and hackers) in their country!

But thinking about this makes me ask why we are still regulating cable companies in the US. There are slews of FCC rules that dictate things like channel line-ups. It’s FCC rules that force cable companies to still offer basic, expanded basic, and premium tiers of service. It’s now pretty clear that few consumers are happy with this structure. The average household only watches about a dozen channels monthly regardless of the size of the tiers they purchase. It is the requirement for these tiers that has allowed the programmers to force programs onto cable companies that they don’t really want.

It is the cable tiers that have forced up the price of cable. Households spend huge monthly bills to watch a dozen channels – all because the regulations force channel line-ups that contain a hundred or more channels that the household isn’t interested in.

And cable companies are now competing against companies that don’t have these same restraints. Companies like SlingTV can put together any channel line-up they want with no regulatory constraints telling them what they can or can’t offer. Surveys have always shown that people would rather buy just those channels that they want to watch. And yet cable companies in the US are not allowed to compete head-on with OTT providers.

It would be easy to blame the FCC for not keeping up with the times. However, the most draconian cable rules come directly from Congress and the FCC’s hands are tied from deviating from rules that are embedded in law. We are now at a time when we really need to consider these old rules. The cable companies are being forced to sell programming that customers don’t want to pay for. The whole industry would benefit if cable companies were free to pursue packages that people actually want to buy. Freeing up all video providers to offer what customers want is a far better solution than trying to drag web companies into becoming regulated cable companies.

How Much Speed Do We Really Need?

There is a lot of buzz floating around in the industry that the FCC might lower the official definition of broadband from 25 Mbps down and 3 Mbps up. Two of the current FCC commissioners including the chairman opposed setting that definition a few years back. Lowering the speeds would let the FCC off the hook for the requirement by law to make sure that the whole country can get broadband. If they lower the definition, then voila, millions more Americans would be declared to have adequate broadband.

So today I thought I’d take a look at the download speeds we really need at our homes. You may recall that back when the FCC set the 25/3 Mbps definition that they made a list of the broadband speed needed to do typical activities. And in doing so they tried to create profiles of some typical American households. That attempt was awkward, but it was a good starting point for examining household bandwidth needs. I’m updating their list a bit for things that people do today, which is already different than just a few years ago. Consider the following web activities:

  • Web Background 5 Mbps
  • Web Browsing 1 – 2 Mbps
  • Online Class 1 – 2 Mbps
  • Social Media 1 – 2 Mbps
  • Streaming Music 3 Mbps
  • Voice over IP 2 Mbps
  • SD Video stream 1 – 3 Mbps
  • HD Video Stream 4 – 6 Mbps
  • 4K Video Stream 15 – 20 Mbps
  • Gaming 1 – 3 Mbps
  • Skype / Video Conference 1 – 3 Mbps
  • Big File Downloader 50 Mbps

People don’t agree with all of these listed speeds because there are no standards for how the web works. For example, by using different compression schemes a video stream from Netflix is not identical to one from Amazon. And even from one source there is variation since an action move takes more bandwidth than something like a stand-up comedy routine.

It’s important to remember that broadband demand can come from any device in your house – desktop, laptop, smartphone, tablet, etc. It’s also important to note that these are speed requirements for a single user. If two people in the house are watching an separate video, then you have to double the above number.

What the FCC failed to consider back when they set the speed definition is that households need enough bandwidth to handle the busiest times of the day. What matters is the number of simultaneous activities a home can do at the same time on the web, with most families being busiest in the evenings. There might be somebody on social media, somebody watching an HD movie, while somebody else is doing homework while also using a smartphone to swap pictures.

There is another issue to consider when trying to do simultaneous tasks on the Internet – packet loss. The connection between the ISP and a customer gets more congested when it’s trying to process multiple data streams at the same time. Engineers describe this as packet collision – which sounds like some kind of bumper-car ride – but it’s an apt way to describe the phenomenon. Most home routers are not sophisticated enough to simultaneously handle too many multiple streams at once. Packets get misdirected or lost and the router requests the missing packets to be sent again from the originator. The busier the router, the more packet interference. This is also sometimes called ‘overhead’ in the industry and this overhead can easily grow to 15% or more of the total traffic on a busy connection, meaning it takes 15% more bandwidth to complete a task than if that task was the only thing occurring on the broadband connection.

There is another kind of interference that happens in homes that have a WiFi network. This is a different kind of interference that has to do with the way that WiFi works. When a WiFi network gets multiple requests for service, meaning that many devices in the home are asking for packets, the WiFi router gets overwhelmed easily and shuts down. It then reinitiates and sends packets to the first device that gets its attention. In a busy network environment the WiFi router will shut down and restart constantly as it tries to satisfy the many needed devices. This kind of interference was designed into the WiFi specification as a way to ensure that WiFi could satisfy the needs of multiple devices. This WiFi overhead can also easily add 15% or more to the network demand.

Anybody who lives in a home with active users understands how networks can get overwhelmed. How many of you have been frustrated trying to watch a movie when others in the house are using the Internet? Even big bandwidth can be overwhelmed. I have a friend who has a 100 Mbps fiber connection on Verizon FiOS. He went to watch a video and it wouldn’t stream. He found that his two teenage sons were each using half a dozen gaming streams at the same time and had basically exhausted his fast bandwidth pipe.

The FCC can tinker with the official definition of broadband since that is their prerogative. But what they can’t do is to define for any given home how much bandwidth they really need. The funny thing is that the big ISPs all understand this issue. The cable companies have unilaterally increased speeds across-the-board to urban customers several times in recent years and in most markets offer speeds considerably faster than the current FCC definition of broadband. These ISPs know that if they were only delivering 25 Mbps that they would be overwhelmed with customers complaining about the connection. Those complaints are the real proof of how much bandwidth many homes need. If the FCC lowers the definition of broadband then they have on blinders and are ignoring how homes really use broadband today. If they lower the speed definition it’s hard to see it as anything other than a political move.

Another Comcast Bundle

Comcast just announced that they will be bundling solar panels with their other services in selective markets. This adds to the already-largest bundle of products in the industry and is one that many competitors will have a problem keeping up with.

Comcast has been doing a trial with Sunrun, a solar panel maker from San Francisco. Comcast found during this test that their customer satisfaction and customer retention rates rose significantly with customers who bought the solar panels. Comcast has now entered into an exclusive 40-month marketing deal with the company. It’s been reported that Comcast will get 10% of Sunrun’s stock if they can install 60,000 solar customers. Comcast has committed to spend $10 million on sales and marketing for the solar panels and will get a share of the customer revenue from the product.

Sunrun currently has about 150,000 solar installations in 22 states. Comcast has over 27 million potential solar customers. The cable company also has over 1 million home automation customers, which Comcast believes will be their best market for the new solar product.

Even before this announcement Comcast has become a fierce competitor. Comcast’s CEO Brian Roberts recently said that as he looked around the industry that he didn’t see any products of interest that the company doesn’t already have – a claim no other ISP can make.

This announcement falls on the heels of Comcast’s decision to get into the cellular business. They are now marketing in a few markets with prices lower than Verizon and AT&T and plan to eventually roll this out to their whole footprint. They also just bought a pile of spectrum that will help them increase margins on cellular service. Analysts say that over five years that Comcast could capture as much as 30% of the cellphone business in their markets.

Comcast says it is tackling both of these product lines to reduce churn and to increase customer stickiness. They understand that long-time customers are their most profitable customers and they are putting together bundle options that ought to please a lot of households.

All of their effort looks to be paying off. Comcast is the only cable company that gained cable TV customers for the year just ended in the second quarter. They gained 120,000 customers while the rest of the industry is now bleeding cable customers at an average rate of 2.5% of total customers per year. While the bundles are probably not the only reason for that it’s hard to argue with this success.

Comcast has done a lot of other things to increase customer satisfaction. They created Comcast Labs (similar to Bell Lab). This group of scientists and engineers are concentrated largely on developing products that improve the customer experience. This group developed the X1 settop box which has rave reviews from customers. It’s so popular that Comcast is now selling this box to other monopoly cable providers. The settop box has an ever-growing number of features and can be voice-activated. Comcast has also integrated Netflix and Sling TV into their settop box to keep customers on their box and platform.

Comcast has also found great success with their smart home product. This is probably the most robust such product on the market and includes such things as security and burglar alarms, smart thermostat, watering systems, smart blinds for energy control, security cameras, smart lights, smart door locks, etc. Their product suite can be easily monitored from the settop box or from a smartphone app. The press releases from the Sunrun announcement is the first time in a while that we’ve heard about their success and the million plus customers using these products.

The company still has a lousy reputation for customer service and most of their customers dread having to call them. But they are supposedly putting a lot of money into making their customer service better. They recently began moving a lot of customer service back to the US, finally understanding that the cost savings of using foreign reps is not worth the customer dissatisfaction.

The flip side to making customers more sticky is that it makes it that much harder for a competitor to take their customers. Somebody buying a solar panel on a long-term payment plan is not likely to leave them for a competitor, particularly if there are financial penalties for doing so. Customers with a suite of home automation products become locked in unless they are willing to yank all of the monitors out and start over. Bit by bit Comcast is shielding their most lucrative customers from being poached by others.