A-CAM – A Subsidy that Works

Yesterday I compared the broadband grant programs in California and Minnesota. There are currently two federal broadband funding programs that are producing drastically different results that are worth a comparison. I’ve written a number of blogs complaining about the inadequacies of the FCC’s CAF II program for the largest telcos in the country. Companies like AT&T, Verizon, Frontier and other big telcos accepted the federal subsidies to upgrade the rural parts of their service territories. That program requires the carriers to upgrade rural facilities to be able to deliver broadband speeds of at least 10 Mbps download and 1 Mbps upload. The upgrades also need to have latency less than 100 ms (which is a dreadful latency if near to that threshold).

AT&T and Verizon say that they plan to mostly meet their obligations by converting rural copper lines to cellular connections. Most of the other telcos, which aren’t in the cellular business plan instead to upgrade rural DSL. A few, like Frontier Communications say that they plan to upgrade some customers using point-to-multipoint wireless networks.

But they key element of all of this is the 10/1 Mbps broadband speeds. The CAF II program is spending $10 billion dollars over six years to upgrade 4 million homes to at least the 10/1 Mbps speed. Since most of these households have had little or no broadband today those speeds are going to be the first time that many of these homes get any kind of a broadband connection. But the 10/1 Mbps speeds are already obsolete for any home that wants to use broadband the same as urban households, allowing multiple users and devices on the network simultaneously.

The FCC also has a lesser-known broadband subsidy program aimed at the smaller telephone companies. This program is called A-CAM (Alternate Connect America Cost Model). The A-CAM program is paying out a little over $1 billion per year for ten years and will support a broadband upgrade to 4.9 million households. Just under half of the money is aimed at upgrades to supply at least 25/3 Mbps, with the rest aimed at the same slower 10/1 threshold as the CAF II program for the bigger telcos.

The A-CAM program gets interesting when you look at what the small telcos are actually doing with this funding. While the big telcos in the CAF II program area upgrading to just enough speeds to get them over the 10/1 Mbps requirement, many small telcos are doing a lot more. All around the country there are small telcos using the A-CAM funding as the seed money to finance and build fiber to small towns, farms and other rural areas. The A-CAM money provides the basis for borrowing the money needed to build a permanent new fiber network. Even where small telcos are only upgrading DSL, I see many of them that upgrading speeds to as much as 40 Mbps.

It’s also interesting that the smaller companies are getting less funding, on average. The big telco CAF II money is providing roughly $2,470 per rural customer while the small company A-CAM money is $2,091 per customer. The amount received by each company differs, but overall the small telcos are doing a lot more with less funding.

I don’t know for sure that the big telcos in the CAF II program aren’t spending some of their own capital dollars to augment the CAF II funding, but everything I see tells me that they are not. They are using the federal money to do whatever upgrades that will fund, and no more.

We are starting to see the differences from the two programs appear in the real world. I was just looking the other day at the map for Otter Tail County, Minnesota. It’s a large county with some farmland, a lot of lakes and recreation areas and a lot of woods, trees and rough terrain. It’s comparable to many other rural places in the country. In Ottertail County it looks like about 2/3 of the rural areas are going to get fiber, much of it due to A-CAM money. These fiber areas will be sitting next door to CenturyLink areas that will get DSL upgrades that meet the 10/1 Mbps requirement.

Customers that get fiber will have seen real benefit from the FCC program that helped to fund it. But the customers in the CenturyLink areas will not see the same benefits, although they will have friends, families and neighbors that have world-class broadband. There isn’t any real difference between the two areas other than the way that the telcos decided to use the federal broadband money. The small telcos have used the federal money as a down payment for fiber while the bigger telco are just tweaking the ancient copper network or converting to cellular.

I’ve said all along that the FCC made a colossal mistake in not creating an auction for the CAF II money. Smaller companies would have leveraged the $10 billion of funding to build a lot of fiber to rural communities. They would have borrowed and expanded their businesses to bring a permanent broadband solution to millions of households.

Instead, the $10 billion CAF II money isn’t buying much of a speed increase. In some cases CAF II is going to make things worse. I think when AT&T and Verizon start tearing down rural copper that there will be homes with lousy cellular coverage that will not only not get broadband but will lose voice service. It’s fairly obvious that the CAF II program funding was a victory for the big telco lobbyists. The big telcos had a lot to lose if that funding went to smaller companies that would have built in their service territories. But this victory for the big companies is a big loss for customers who will not see real broadband because of a poorly designed federal subsidy program.

A Tale of Two Grant Programs

It is the best of times, it is the worst of times (for broadband grants). The state of California just initiated a state broadband grant program that is likely to spend money without doing much actual good for rural broadband. This can be contrasted to the grant program in Minnesota that has already funded a lot of rural broadband networks in communities that would have otherwise not probably ever gotten it. Comparing the two programs shows that it’s not good enough to lobby for and get a state broadband grant program. It’s important to get the details right to make sure that any such program is effective and creates maximum public benefit.

The California grant program is called the California Advanced Broadband Services Fund (CASF) and was recently granted funding by Assembly act 1665 and signed into law by Governor Jerry Brown. The CASF program is not new, but this recent act changes some of the grant rules and infuses $100 million of new funding into the program.

Interestingly the new law takes effect immediately (which is not normal for this kind of legislation) and this leaves four existing open broadband grants under the older CASF open for question because while they were filed under the old rules it seems like they will be judged under the new rules.

The big problem with the grant program is that it allows first right of refusal to the incumbent telcos in any propose service area. Like with most of America, the rural areas with poor broadband service in California are mostly in areas where AT&T or Frontier Communications are the incumbent telephone company.

It is this right of refusal that is going kill any real value of the grant program. For example, somebody might file to build fiber to customers in a small town or farming area. The incumbent telephone company can block the grant application by filing one of their own. But they don’t have to match the speed or technology of the first grant and could instead ask to build something else, such as upgrading existing DSL or cellular broadband. This effectively gives the incumbent telcos veto power over any grant request.

I’ve been reading local California consultants like Steve Blum who expects the incumbents to kill most projects. It’s possible they might let a few through in areas that they don’t want to make investments, but their lobbyists were successful in changing this law to make it easy for them to grab all of the funding if they choose to do so.

This contrasts greatly with a grant program that is doing things the right way – the Border-to-Border grants in Minnesota. In that programs the legislature has set aside funding now for four straight years that provides grants up to a 50% matching for qualifying broadband projects. So far the state has provided over $85 million to the program.

The incumbent providers have the ability to challenge a grant request, but only on a very limited basis. One of the parameters used to judge a grant request is whether a particular area is unserved or underserved with broadband, with this determination made from broadband maps that were created using ISP-reported data. The incumbents can challenge a grant request if they believe that the proposed service area has better broadband than is claimed by the mapping process. They also can challenge a grant if they have near-term plans to build broadband that is fast or faster than that requested by a grant request.

Since most of the Minnesota grant requests are requesting money to build fiber directly to customers there have been no serious challenges by the incumbents. There have been a few challenges that disputed the available speeds in an area.

The net result of the Border-to-Border grants is that small towns and rural farm areas all over the state are getting a real permanent broadband solution due to the assistance provided by the grants. There are a number of independent telephone companies and small cable companies in the state that are competing with each other to grab new territories that are made feasible due to the grant program.

There is no telling if the Minnesota grant program will continue because it’s been funded during a period of state budget surpluses. It’s expected that the budget will be tighter in 2018 and we’ll have to see if they keep the grants going. But this has been, by far, the most effective state broadband grant program in the country. Other states like Ohio are looking to use the Minnesota model in developing a new grant program.

It’s my understanding that the California grant legislation started out with good intentions but got hijacked by the ever-present telecom lobbyists in the legislature. The original sponsors of the grant asked the governor to veto the bill, but for some reason it’s gone ahead. Instead of an effective grant program that will help rural areas get real broadband, the California CASF is instead going to be a state version of the FCC’s CAF II program that also funnel money to the large incumbent telcos to make marginal improvements to broadband. The new CASF is one of the worst uses of tax dollars that I can imagine – it will enrich the bottom line of the telcos without making any significant improvements in rural broadband.

Generation Z as Customers

There has been a lot written about how Millennials are not buying telecom products at nearly the same rate as old generations. A large percentage of new Millennial homes reject both traditional cable TV and telephone service. They seem to be buying home broadband at about the same rate as those in Gen X. I remember seeing a study a few years back that suggests that people’s telecom buying habits are heavily influenced by what they did as teenagers, and the buying habits of the Millennials seems to bear that out.

But now we’re starting to see studies of the next generation – Generation Z, born between 1995 and 2012. This is the first generation that was handed smartphones at an early age and it can be argued that this makes them the first generation that has been immersed in computer technology for their whole life.

CommScope has been doing an annual report of the technology behavior of Generation Z, and this year’s report can be downloaded here. The study is not for the whole generation, just those 13 and older. It’s fascinating and takes an in-depth look at how this young generation uses technology. Some of the more interesting takeaways of this year’s study include:

  • First, this is a large generation. In 2015 they were 26% of worldwide population, which will increase to 33% by 2020.
  • Already today this generation accounts for 25% of consumer spending which is expected to increase to 40% in ten years.
  • 96% of Generation Z in advanced countries own smartphones.
  • This generation is nearly always online and spend 74% of their time online outside of school and work. According to the report this is the “first generation that appears to live equally in the digital world and the real world”.
  • 60% of Generation Z will not use an app or website that is too slow.
  • 2/3 of Generation Z are interested in buying things directly from social media sites.
  • The generation’s use of technology is increasing year-over-year. 80% say they are using their smart phone more than last year. Plus there is an increase of 42% for usage of laptops/desktops, 24% for tablets, 10% for smart watches.
  • 44% of the generation expect to buy a new smartphone every two years.
  • Their most popular apps are YouTube (56%), WhatsApp (47%), Facebook (38%), Instagram (30%), Twitter (22%), Snapchat (20%) and Google Apps (19%).
  • The generation expects performance from devices and services. They want fast bandwidth, long-lasting batteries, efficient and easy-to-use apps. They are likely to be demanding consumers.
  • 70% of the generation are satisfied with their bandwidth at home, and far less satisfied with bandwidth elsewhere like school (41%), shopping (38%), or outdoor public spaces (36%).
  • I don’t know how this compares with older generations, but a lot of Generation Z is interested in new technologies – virtual reality (44%), AI (41%), driverless cars (39%).
  • This generation is the first where more than half are content creators. 52% share content they have created with others. 43% create content weekly.
  • 2/3 of Generation Z agree with the sentiment that the age of personal privacy is over.
  • The generation is split on cellphone choice with 51% preferring Android to 49% for iOS.
  • 63% of Generation Z say that they would be lost without their smartphone.

What does all of this mean for an ISP? I think there are a few key takeaways.

  • This generation values high speed broadband. They also value mobility more than anything else. They are likely buyers of home broadband products unless future cellphone data products get fast and affordable enough to be a reasonable substitute.
  • Generation Z will be even less likely than Millennials to buy traditional cable TV, and practically none will buy landline telephones. This generation is not going to be buying the bundle.
  • This generation grew up with the small cellphone screen and will be happy with that format for much that they do.
  • Generation Z is going to be more demanding than past generations in terms of bandwidth and product performance and will quickly bail on providers that don’t live up to their expectations. This is not going to be a generation of loyal customers, but one that will switch to something better.
  • They are far more likely to be early technology adapters, particularly for technologies that will save them time, like driverless cars.

Is the Reverse Auction Right for You?

I’ve been getting a lot of questions about the FCC’s reverse auction for federal support towards building to some of the most remote households in the country. The FCC is awarding $1.98 billion to be dispersed monthly over ten years to winners of this auction.

I’m not going to repeat all of the rules of the auction. A good summary of the auction rules is at this FCC link. The FCC also released a detailed list of the areas of the country that are eligible for these awards, with the list of census groups and maps here. Finally, the FCC has released a draft of the specific auction rules which they are expected to approve at the open meeting later this month. If you are interested in joining this auction you must notify the FCC with a detailed application by March 30 for an auction to tentatively begin on July 24.

The question I’ve been getting is if it’s worthwhile to pursue this auction. My analysis of the opportunity tells me that this is only going to be of interest to specific business plans that almost need to already be underway today. Consider the following issues involved in this funding:

Coverage Areas. The minimum bidding area is a census block group. This is an area comprising 39 census blocks. These average about 1,500 households but can vary between 600 and 3,000. The locations in this auction are all rural and this the coverage areas are likely to be large – half a county or larger. And since census block groups don’t follow political boundaries, these are not going to follow county boundaries. For example, if a county was already planning on building to their whole county there is a good chance that the census block groups in the auction will bleed into neighboring counties – and a winner has to build to the whole auction areas. This will be a huge hurdle for any project that anticipates using some public money.

The Most Remote Households. The households covered by this auction are the most remote households. They are mostly the leftover households from the CAF II awards where AT&T, CenturyLink and other big telcos accepted money to build to rural households. This auction covers those households that were too far away from an existing central office and too expensive using the CAF II awards. There are no pockets of households in these coverage areas, just a smattering of remote households who are at the very ends of the existing copper networks. These households don’t create a coherent coverage area for building broadband.

Small Percentage of Households in an Area. Since these households are scattered, they represent only a small percentage of the households in any area. To reach them with broadband is going to require building broadband to everybody else – and that construction was already funded in the CAF II awards to the big telcos.

My conclusion from this is that the only sensible reason to pursue the reverse auction funding is if somebody is already building broadband to the wider rural community already. Since the households covered by this funding only are going to represent some small percentage of the total households in the area, this funding is going to only be a drop in the bucket towards funding a total broadband buildout.

The reverse auction provides a bidding advantage to somebody willing to build gigabit fiber. But because of the location and number of households that will be covered in a given area I only see two possible kinds of builders, 1) somebody that is already planning to build fiber that would cover at least a whole census block group, or 2) a WISP or cellular provider that already covers a whole census block group or who is willing to build the towers and transmitters needed to reach a whole census block group.

Finally, after all of these other issues, anybody that bids will need to demonstrate the financial wherewithal to meet the buildout requirements. This is going to make it extremely difficult for start-ups or for government entities that haven’t already raised money to build broadband for a given area. This requirement probably even makes it hard for existing providers that don’t have strong balance sheets, such as many existing WISPs.

My guess is that most of the money in this auction will go to wireless providers. But I also expect that there will be some large swaths or rural America for which nobody bids – mostly due to the fact that the awards in a given area are not going to be sufficient to create a reasonable business plan. The auction can provide a piece of the funding which can be a big benefit if somebody is already planning on building to an area. There is a lot of risk in accepting the money if you are not positive you can fund it because the FCC warns that auction winners are obligated to complete the buildout.

Cellphone Data Usage

I’ve never seen any detailed information about the amount of data that customers use on cellphones. We have the global statistics from Akamai and others that look at the big picture, but I’ve always wondered how much data the average cell phone user really uses. This is something that is important to understand for ISPs because cellphone usage on home WiFi can be a big chunk of bandwidth these days.

FierceWireless has now partnered with Strategic Analytics to look in more detail at how people use their cellphone data and how they pay for it. The data used in the analysis comes from 4,000 android phone users who agreed to allow their usage to be studied.

Following is a comparison on an average month for the amount of Cellular and WiFi bandwidth used by customers with different kinds of data plans:

‘                                                               Cellular             WiFi               Total

No Data Plan (pay-as-you-go)              0.9 GB              8.8 GB            9.7 GB

Monthly Data Cap                                 2.8 GB            14.0 GB          16.8 GB

Unlimited Data Plan                             5.3 GB            12.3 GB          17.8 GB

Interestingly, there is not that much difference in the total bandwidth used by customers with unlimited data plans versus those with caps. But the unlimited customers obviously feel freer to use data on the cellular network, using twice as much cellular data per month as those with monthly caps.

What is surprising to me is the small amount of data used by unlimited plan customers. There are truly unlimited plans like T-Mobile, but even the quasi-unlimited plans from AT&T and Verizon allow for over 20 Gigabytes of download per month on cellular. But these statistics show that customers, on average, are not using much of that data capability. It looks like many people are buying the unlimited plans for the peace-of-mind of not exceeding their data caps. This reminds me a lot of the days when telcos talked people into buying unlimited long distance plans, knowing that most of them would never use the minutes.

These statistics also show that unlimited data customers are not putting a lot of pressure on cellular networks, as the carriers would have you believe. They have always used the excuse of network congestion as the excuse for charging a lot for cellular data and for having stingy data caps. These statistics show just the opposite and show that, in aggregate that customers are not using cellular data at even a tiny fraction of the bandwidth they use on their home broadband connections.

These statistics also indicate that there are not a lot of people using cellphones to watch video. T-Mobile may give access to Netflix, but it looks like people are either watching the video on WiFi or on a device other than their cellphone. It doesn’t take much video to get to 5 GB per month in download.

To put the total usage numbers in perspective, the average landline broadband connection uses around 120 GB per month according to several ISPs. I’ve seen numerous articles over the last year talking about how cellular data use is exploding, but these numbers don’t back that up. This shows that consumers still go to landline data connections when they want to do something that is data intensive.

These numbers also counterbalance the predictions I keep reading that cellular data will eclipse landline data in a few years. That might true around the world since there are a number of places where almost all ISP connections are through cellphones. But in the US the landline data usage still dwarfs cellphone data usage and is itself still growing rapidly.

The usage by cellular carrier was also reported, as follows:

‘                                                          Cellular             WiFi                Total

AT&T                                                 2.4 GB            11.4 GB          13.6 GB

Sprint                                                4.4 GB            13.8 GB          18.2 GB

T-Mobile                                           5.3 GB            13.1 GB          18.4 GB

Verizon                                             3.6 GB            14.4 GB          18.0 GB

My one take-away from these numbers is that Sprint and T-Mobile customers feel freer to use their smartphone for video and data downloading – but even they mostly do this on WiFi. These numbers also show that the stingy monthly data caps from AT&T and Verizon have trained their customers to not use their cellphones – even after those companies have increased the monthly caps.

The Value of Broadband Competition

A recent study by the Berkman Klein Center for Internet and Society at Harvard University looked at the prices charged by community-owned broadband networks and found that in 23 out of 27 networks they studied that the municipal provider offered the lowest price in the market for broadband.

They didn’t just consider the monthly fees but looked at the total costs to a customer over a 4-year time frame and considered connection charges, equipment and other ancillary charges and fees along with price increases that come after the end of introductory specials.

I’m not surprised by these findings, but my experience is that this phenomenon is not limited to municipal providers. Around the country there are now hundreds of commercial ISPs and fiber overbuilders who are also building into competitive markets and competing against the big cable companies and telcos. And for the most part they compete with a combination of lower prices and better service.

It’s interesting to watch how the big cable companies react to competition. Most of them react by offering special rates that are lower than the published rates of a new competitor. They will often blitz a market with these special rates when a competitor is building a network to try to lock up customers before the new ISP launches. Some of these ‘special’ prices are incredibly cheap and I’ve seen markets where the special rates are half of the regular rates offered by a cable company. What I find surprising is that I sometimes see special package rates that look to be even lower than the cost of the cable TV programming – meaning no margin for the cable company. It’s also not unusual to see the incumbents enforce customer contracts in competitive markets and make it hard and expensive for customers to leave them.

But even with special rates the cable companies often can’t resist sliding other charges onto bills. If you haven’t looked at a big cable company bill in detail, you ought to. In addition to the normal triple play product bundle there are usually charges and fees that are tacked onto the base prices. These fees might be for network programming, for sports programming or just some invented fee that’s not particularly for anything. The cable companies hope that customers mistake these for taxes, but they are just ways to increase the base price of the triple play advertised or special prices. The big ISPs also have jacked up ancillary charges or the last few years, like Comcast’s most recent increase to $11 per month to use one of their cable modems. If a fair comparison is made of the charges on bills, then it’s going to be rare when competitors don’t have the lowest prices. These extra fees and charges are likely to be the reason that incumbents cost more even in markets where they try to ‘match’ rates of competitors.

One thing that these comparisons don’t discuss is how competition lowers the prices for everybody in a market. Customers jumping to a competitor get lower prices, but so do most customers that stick with the incumbents. I’ve seen a number of competitive markets where the incumbents stop raising rates every year, and it’s not unusual to see rates in a competitive market fall significantly below prices in nearby markets with no competition. I wish this Harvard study had looked into this in more detail. I’ve only ever seen once study that looked at this phenomenon and it must have been ten years ago when a study showed that competitive markets had overall rates roughly 15% lower than surrounding communities. I’d like to see how that looks today.

Competition also brings other benefits to a market. For example, one of my clients a few years back was competing in a major market with Comcast and noticed that when customers called Comcast customer service that their calls went straight to the top of the call cue. But even without such trickery it’s pretty normal for incumbents to up their game in competitive markets with better customer service, more repair technicians and other changes to help retain customers. Fees that punish customer behavior also largely disappear in competitive markets, such as charges for exceeding monthly data caps.

The other thing that I often see in competitive markets is a win-back program. It’s not unusual to see an incumbent make it hard for a customer to leave without having to first suffer through a long call offering major incentives to stay. Some of the most famous customer service horror stories are about overzealous employees in a win-back program who do crazy things to try to keep customers from leaving.

There are not that many truly competitive markets in the country. There are only a relative handful of urban municipal providers, and other fiber overbuilders have still barely made a dent in the potential market. Where Comcast competes with Verizon FiOS the two companies stopped competing with price years ago and have largely reach a stasis in each market. It will be interesting to see if fixed 5G wireless and other new competitors bring more real competition. The strategies the incumbents use today to deal with real competition work because they can cut prices in the few competitive markets and make up for it elsewhere. But that dynamic will change if we ever see widespread competition.

Who Owns Customer Data?

Our homes are starting to get filled with Internet-enabled devices. I recently looked around my own home, and in addition to the expected devices like computers, printers, tablets and smartphones we have many other devices that can connect to the Internet. We have a smart TV, an eero WiFi network, three Amazon Echos, several fitness trackers, and a smart watch. Many homes have other Internet-connected devices like smart burglar alarms, smart thermostats, smart lighting and even smart major appliances. Kids can have smart toys and game consoles these days which have more computing power than most PCs.

Every one of these devices gathers data on us and a good argument can be made that we are all being spied on by our devices. Each device witnesses a different part of our lives, but add them all together and they paint a detailed picture of the activity in your home and of each person living there.

There are numerous examples of companies that we know are using our data:

  • Last year it was revealed that Roomba was selling detailed information about the layouts of homes to data brokers.
  • The year before we found out that Samsung smart TVs were capable of listening to conversations in our living rooms and also had backdoor connections to the Internet.
  • There has been an uproar about smart talking toys that not only interact with kids but also listen and essentially build profiles on them.
  • Smart devices like smart phones, tablets and computers come with software that is aimed at gathering data on us for marketing purposes. This software generally is baked in and can’t be easily removed. Some companies like Lenovo (and their Superfish malware) went even further and hijacked user web traffic in favor of vendors willing to pay Lenovo.
  • Buyers of John Deere tractors found out that while they own the tractor they don’t own the software. The company penalizes customers who try to repair their tractor by anybody other than an authorized John Deere repairperson.

Probably the most insidious result of all of this spying is that there are now data brokers who gather and sell data that can paint a detailed profile of us. These data profiles are then used to market directly to us or are sold to politicians who can target those most sympathetic to their message. It’s also been reported that smart criminals are using this data to choose victims for their crimes.

I’m sure by now that everybody has searched for something on the web, and then noticed that for the next few weeks they are plastered with ads trying to sell them the subject of their search. This happened to me a few years ago when I was looking at new pick-up trucks on the web. But today this goes a lot farther and people complain about getting medical ads after they have searched the web about an illness.

To make matters worse, we have a government regulatory policy in this country that benefits the corporations that are spying on us. Last year Congress passed privacy rules that let ISPs and anybody else gathering raw digital data off the hook. There are essentially no real privacy rules today. Data privacy is now under the purview of the Federal Trade Commission. They might intervene in a particularly egregious case of invasion of privacy, but their rules are not proactive and only can be used to find companies that have already broken the rules. Unless fines grow to be gargantuan it’s unlikely that the FTC will change much of the worst practices using our data.

The European Union is in the process of enacting rules that will clamp down on data gathering. Their rules that go into effect in a few months will require that customers buy-in to being monitored. That is great in concept, but my guess that it’s going to take a decade of significant fines to get the attention of those companies that gather our data. Unless the fines are larger than the gains from spying on people then companies will continue to monitor us, and they will just work harder to hide evidence of spying from the government.

I think there are very few of us who don’t believe our data should belong solely to us. Nobody really wants outsiders knowing about their web searches. Nobody wants unknown companies tracking their movement inside their homes, their purchases and even their conversations. But for now, the companies that are gathering and using our data have the upper hand and are largely free do nearly anything they want with our data.

Big Telcos and Rural Customers

Recently, Sunit Patel, the CFO of CenturyLink, told investors that the company would be focusing on expanding their broadband networks only to the most densely populated parts of its footprint. Further, the company will now focus on opportunities that maximize both their retail operations as well as their new wholesale business that comes from the purchase of Level3. This is not surprising, and this has undoubtedly been the Company’s philosophy for many years. However, this is something that you rarely hear said publicly by the large telcos. And that’s because saying it so plainly also means that the company is admitting that they are not spending capital for the less dense parts of the footprint.

The large telcos like CenturyLink, Verizon and AT&T have been ignoring the rural parts of their network for literally decades. And yet they rarely talk about this – no doubt due to a public relations edict inside the companies. It’s refreshing to hear one of them spell it out.

We’ve heard this same story from both AT&T and Verizon in the past, but couched in different language. They have tried to put a positive spin on their announcements about rural properties by framing them as upgrading customers to wireless instead of wireline. But this is just another way of saying that they want to tear down copper lines in rural areas and charge more to households that happen to live close enough to a cellular tower to serve them. What’s never said is that these rural transitions to wireless will leave a lot of homes that have poor cellular coverage with no broadband and no telephone coverage – a reversal of a hundred-year universal service effort to keep everybody in the country connected.

CenturyLink isn’t in the same position as the other two giant telcos in that they don’t have a cellular option for rural households. The company is in the process of making substantial upgrades to the rural copper network using money provided by the FCC as part of the CAF II program. This upgrade is intended to bring rural DSL speeds up to at least 10/1 Mbps. But this money isn’t covering everybody in rural areas and the company and the FCC excluded millions of the most rural homes from these upgrades. I’ve heard through the grapevine from technicians at some of the big companies that the telcos are using the FCC money to do their best effort and that not everybody will get the promised speeds. The telcos will do what they can with the FCC money until it is all spent.

What this means for rural customer of the big telcos is that good broadband is not coming. Many households are going to be offered somewhat faster DSL or else cellular broadband from the CAF II upgrades – but that’s a one-time upgrade and it’s unlikely that these companies are going to do any more upgrades beyond this one-time shot.

I find it unfortunate that rural households who don’t understand technology and don’t understand these big telcos probably think their broadband speeds will be improved. The press releases from these companies and even from the FCC make it sound like solutions are on the way.

I probably shouldn’t be so cynical, because for a home that doesn’t have any broadband today a 10/1 Mbps connection is going to be a welcome relief. But a connection at that speed is already inadequate today for any home that really wants to use broadband. That kind of speed is not going to easily let different family members use much broadband at the same time. And that speed will grow quickly obsolete as the amount of speed needed and the amount of total annual download for the average family continues to double every three years. Any connection that feels just barely adequate today is going to feel slow in five years and nearly non-functional in a decade.

I have to give credit to Mr. Patel for saying this so directly. There is no clearer signal to rural communities that they need to look for a broadband solution on their own. The big telcos will spend any money they get from the FCC on rural infrastructure, but otherwise the big companies are unlikely to devote any additional capital dollars towards improving rural networks. This is no change from the way it’s been for a long time, but finally we can point to somebody who said out loud what we’ve always known.

FCC BDAC Removing Regulatory Barriers

One of the sub-committees created by the FCC’s as part of its Broadband Deployment Advisory Committee (BDAC) effort looked at Removing State and Local Regulatory Barriers to broadband deployment. Here is a preliminary draft of their report, which is probably close to the final report. As noted in other blogs on the BDAC, the FCC is not obligated to address any of the issues identified by the sub-committee.

It’s an interesting document in that the sub-committee has made a detailed list of all of the common transgressions imposed by states and localities that have slowed broadband or wireless deployments in the past. It serves as a great primer of the kind of issues that a new network deployment might face. But to be fair, that was the mandate given to this group.

I have zero problems with the list of deployment issues and it seems thorough and accurate. But I don’t think the proposed solution is realistic. They basically recommend that the FCC should preempt states and localities for anything to do with broadband or wireless deployment. That’s not a surprising recommendation since the group was asked to list regulatory hurdles that should be eliminated. But there are numerous reasons why having the FCC preempt all local control of rights-of-ways connectivity is a bad idea. One reason I hate the idea is that this is at the top of the wish list for every DC telecom lobbyist for the big ISPs – and they seem to be getting their way too much these days.

With that said, the complaints listed are valid and I’ve seen many of these issues arise during new network deployments. I’ve worked with a number of communities that have processes or ordinances that are a barrier to broadband, and I always advise them to fix such problems if they are hoping for more broadband deployment in their community. But if I’ve learned anything from working around the country it’s that communities differ significantly, and I don’t favor a one-size-fits-all solution from the FCC that would take everything to do with rights-of-way, permitting and other issues out of the hands of local government.

But this document creates a great cautionary tale for cities, counties and states. Almost every sized community talks about having better broadband or about having more broadband competition. Many cities have looked at their various processes and rules and streamlined or eliminated rules that would be a barrier for somebody building fiber. Any community that is hoping to attract fiber construction should be proactive and look at these issues now. It’s quite possible that prospective fiber builders have investigated cities and taken them off of their list of potential markets without even talking to the cities.

Some of the issues discussed by this document can be real killers of fiber deployment. Some good examples include:

  • Permitting processes that are onerous, require a lot of paperwork and which have issues that make them hard to use, such as only being effective for a few weeks after issuance.
  • Other city practices that slow down construction. This could be burdensome traffic control processes, slow inspection of finished work, slow marking of existing utilities. One of the big killers for larger cities is an unwillingness to hire enough temporary city staff to process the volumes of paperwork associated with a large fiber project.
  • One interesting issue pointed out is that cities often don’t charge all utilities consistently. They might try to charge more or extract concessions from a new fiber provider that they don’t expect of existing utilities.

The sub-committee also addressed wireless deployments. While many cities have policies for large cell tower deployments, most cities have not developed any processes for dealing with the myriad smaller cell sites and 5G transmitters that carriers are going to want to deploy over the next decade. I would hope that considering the issues listed in this draft report will prompt more cities to develop friendlier policies and not wait until they have requests for connections and rights-of-way. I’ve talked to many cities who have said that they wish they had thought harder about fiber deployment before a network was built – and the time is now to get ahead of the curve for wireless deployments.

This document also ignores one of the biggest issues in the industry. The big ISPs all want rules that make it easier for them to build fiber or deploy new wireless devices – but they don’t necessarily support rules that make it easier for new competitors to build against their existing networks. I’ve repeatedly observed some of the big carriers like AT&T or Verizon argue for different rules on the local level than what they supposedly support at the national level. It will be interesting to see where these companies stand if the FCC tries to implement some of the proposed solutions.

Starry Back in the News

You might remember Starry as the ISP that announced it was going to offer wireless broadband in Boston at the beginning of 2016. At the time the company began advertising and selling window receivers. But then the company went silent and just recently reemerged with an announcement that it’s ready to finally go into business.

Starry is founded by Chet Kanojia, the founder of Aereo. That company tried to wirelessly transmit local TV signals to subscribers but got shut down through a series of court challenges. But Kanojia is back now and ready to tackle the major ISPs with a competitive broadband product.

The company claims that it is going to be able to beam a 200 Mbps broadband connection for up to two miles from a transmitter (although the signal at the end of that distance probably won’t be that strong). Starry has opted to use the 802.11ac standard and is transmitting using the licensed 37 – 38.6 GHz frequency. The company has plans to upgrade soon to the new 802.11ax standard.

This frequency is licensed from the FCC in two ways. First, there is going to be one nationwide license for the 37 – 37.6 GHz bands that will be coordinated to share under the nationwide frequency holder, and that is likely to be used for mobile broadband. The rest of the frequency will be licensed to up to five license holders for each PEA (Partial Economic Area). These are geographic footprints of relatively the same size and there are 416 covering the whole country.

This same frequency is now also available for mobile broadband and it’s expected that 5G providers will grab a lot of the licenses in metropolitan areas where there is enough density to justify a 5G mobile data application.

The Starry deployment will need to deploy multiple transmitters in a given geographic area if they want to reach most of the customers. For instance, a transmitter than can only see the east side of a building won’t be able to serve somebody on the west side. And metropolitan areas also have a lot of wireless shadows where a taller building will hide transmissions to shorter buildings behind it.

The company still plans to deploy this network using receivers placed in a window. That will allow them to avoid issues involved with getting landlord permission or of serving a building with one transmitter and then somehow wiring to get to customers (the Webpass business model).

The company’s website is promoting a 200 Mbps connection for $50 per month, with no monthly usage cap and with no gimmicks or additional fees. This will include the customer receivers. The company says its receiver costs $150 and the customer CPE costs $200 – $220, with needed equipment included in the customer monthly price.

Starry is already operating in its test-bed market of Boston and announced new beta test deployments in Los Angeles and Washington DC. It says it plans to expand offerings by the end of the year to Atlanta, Chicago, Cleveland, Dallas, Denver, Detroit, Houston, Indianapolis, Miami, Minneapolis, New York City, Philadelphia, San Francisco and Seattle. I’ve seen a few analysts wondering where the company will get the money needed for a widespread deployment.

The technology is best suited to densely populated areas in order to maximize the number of potential customers that can be reached by the relatively short 2-mile radius from a given transmitter.

This technology won’t be easy for others to copy. At least for a while its unlikely that smaller ISPs are going to easily be able to obtain the licensed spectrum that Starry is using. Starry has also developed its own proprietary electronics, much like Kanojia did for Aereo. Maybe more importantly, the other big wireless companies are pursuing the 5G standard rather than the WiFi standard, meaning that Starry might be one of the few companies pursuing this using WiFi. Without frequency and equipment it’s going to be hard for others to copy this.

A competitive wireless product at $50 per month is going to bring real competition to urban ISPs. We’ve just recently seen Comcast raise the rates for standalone broadband to $75 and we’ll have to see how companies like Starry and new 5G competitors affect the big ISPs and their pricing. The one big drawback for Starry and other 5G providers might be the lack of a cable offering and the rest of the traditional bundle. While it’s easy to think that cable is a dying product, 75% of the homes in the country still have a traditional cable subscription. These wireless products are aimed at cord cutters and we’ll just have to see how much of the market is ready to make that leap to standalone broadband at a lower price. I know I’d try it!