How Safe is Your Network?

Last week Comcast suffered a major broadband outage. The worst imaginable set of events occurred when there two simultaneous fiber cuts on major legs of their backbone – one between Chicago and New York and one between Ashburn, Virginia and South Carolina. In case you don’t know, Ashburn is the home of the major Internet POP serving Washington DC and surrounding cities.

This is a network planner’s worth nightmare. Planners always try to build redundancy into fiber routes so that the network won’t crash from a single fiber cut. Modern backbone electronics can be set to automatically forward traffic in both directions around a ring so that service isn’t interrupted in the case of a fiber cut or failure of ring electronics somewhere along the ring. But rings using this technology can’t withstand two simultaneous cuts.

What was a bit surprising to me was the failure of a large part of the Comcast network with fiber cuts that were so far apart. It seems unlikely that the company has a fiber ring that sends all Internet traffic in such a large circle. It’s more likely that the company has centralized one or more of their routing functions, such as DNS routing in one place on the network and the fiber cuts might have isolated that key function, which would shut down their Internet product.

Redundancy is a big concern for most smaller network owners. Lack of redundancy was one of the major issues that drove Cook County, Minnesota to build their own fiber network. There is no cable provider in the county and their entire telecom network was provided by CenturyLink. Tourism is the major driver of the economy and a decade ago there was a cut in the CenturyLink fiber from Duluth that isolated the county during peak tourist season. That meant that the Internet, telephones, and cell phones didn’t work. Businesses couldn’t take credit cards, restaurants and hotels couldn’t take reservations, and family members on vacation couldn’t communicate with each other. This prompted the County to pursue a fiber network that included creating redundancy traffic in and out of the county. The network was ultimately built and operated by the local power cooperative, and today there is greatly reduced chance of a major telecom outage.

Even where there is redundancy there can be outages. One of my clients operates a large statewide fiber network that stretches for hundreds of miles. They followed good engineering practice and scheduled an upgrade of the ring electronics after midnight. While one of the nodes was being upgraded the fiber was cut on a different part of the network when a truck knocked down a telephone pole, and the whole network went dark. Fiber cuts in the middle of the night are somewhat rare, but they happen.

Whenever possible fiber engineers also build redundancy into a local fiber network. They might build a ring connecting the fiber huts serving neighborhoods so that the network keeps functioning with a cut along the ring. It’s nearly impossible to design such redundancy in the last-mile loop, but fiber cuts in the last mile only isolate homes associated with the specific fiber.

But just like with Comcast and Cook County, many local networks have a hard time creating redundancy outside of their immediate network. In geographically remote areas it’s often impossible to find a second secure route to the Internet, leaving a network, or whole communities vulnerable to a fiber cut somewhere outside their area.

Unfortunately, it’s getting easier for fiber providers to run into the same kind of issue that hit Comcast. We are migrating numerous functions to the cloud and having redundant fiber routing does not always mean that there is an automatic redundant connection made to a key cloud server. I have clients that are now relying on the cloud for all sorts of services such as VoIP, cable TV programming, DNS routing for the Internet, the use of cloud-based operational software, etc. These ISPs may have a redundant path to the Internet, but still have only one path to get to the company providing their cable TV signal or DNS routing.

The Comcast outage should prompt companies to look again at redundancy. Don’t assume that every function in the cloud is redundant even if you have a redundant connection to the Internet.

Recognizing the Cable Company Monopolies

In most cities in the US the cable company is now a broadband monopoly. They have won the competition battle and have largely taken customers formerly served by telco DSL. The cable companies have grown into monopolies due to being better competitors and by offering superior broadband products. There are still some markets where the cable companies are not monopolies – they may be competing with a fiber overbuilder or an aggressive CLEC using DSL, or the cable company has not made the upgrades in a given market to the fastest broadband products. But for most towns in the US the cable companies now fit the definition of a classic monopoly.

What I find alarming as a consumer is that there is no talk at the national or even the state level of reacting to the monopoly status of the big cable companies. I know that this conversation will eventually arise as has happened in the past with other monopolies. Monopolies naturally abuse their monopoly power more and more over time until the government is forced to react to regulate them.

The nature of monopolies is well understood and there are well-stablished reasons why governments eventually step in to regulate monopolies:

  • Price Gouging. Monopolies always raise prices over time when there are no competitors to keep them in check. We know that Wall Street is currently urging the big cable companies to aggressively raise broadband prices.
  • Poor Service. Monopolies tend toward providing poor customer service because they have no incentive to do better. The big ISPs are already today are rated by consumers as their least favorite corporations.
  • Monopsony Power. This economics term refers to the tendency for monopolies to exploit their purchasing power by forcing low prices on their supply chain. Perhaps the best example of this is Comcast swallowing up the programmers that supply the content for their cable product.

We know from a few centuries of experience how to deal with monopolies. Governments have numerous options:

Promote Competition. Governments sometimes try to curb monopolies by promoting competition. In the broadband world this could involve the government providing funding to build urban fiber or supporting alternate technologies like 5G to directly compete with the cable monopolies.

Price Regulation. Many natural monopolies are regulated through price caps where regulators must approve rate increases. This remedy is most effective with natural monopolies like electricity or water systems which serve everybody in a community.

Quality of Service Regulation. Regulators have often intervened and forced customer service standards on monopolies. The best example is the old Ma Bell and regulators over the years defined much of the interface between AT&T and customers. They regulated many aspects of that interface such as the rules governing disconnecting customers for non-payment or be defining acceptable time period to make repairs.

Divestiture. An extreme remedy is divestiture, or breaking up a monopoly into different components. We’ve seen this in our industry when the government forced the divestiture of AT&T into local telephone companies and a nationwide long-distance network. It’s harder to see such a clean split for cable companies, but the government could make them divest of programming assets or other ventures that enable them to inflict monopoly abuses.

Rate of Return Regulation. Another effective form of regulation is rate of return regulation. This is still done today for large power companies who must defend their expenditures and rates to regulators. Earnings for the core business are strictly regulated and excess profits returned to customers.

Penalties for Monopoly Abuse. Finally, the government can impose penalties for monopoly abuses. The FCC has always had this authority and issues fines against bad actors in the industry. The Federal Trade Commission also can fine cable companies for operating practices that harm customers.

We are in an environment today where big ISPs and many other large corporations have gained the upper hand in the market through the lobbying of legislators and regulators. However, historically the treatment of monopolies has always been cyclical, and eventually the monopoly abuses become unbearable and the public demands regulation. I would think that if the cable companies follow Wall Street’s advice and raise base broadband rates to $90 per month that we’ll see the government be forced to react.

It’s also possible that some alternate technology like 5G might eventually create competitive pressure for the cable companies. But it’s just as likely that in most places that wireless carriers will be other large companies and we’ll see duopoly competition like we’ve seen for years between Verizon FiOS and the cable companies in the Northeast, where both charge similar prices and don’t really compete.

A Deeper Look at 5G

The consulting firm Bain & Company recently looked at the market potential for 5G. They concluded that there is an immediate business case to be made for 5G deployment. They go on to conclude that 5G ‘pessimists’ are wrong. I count myself as a 5G pessimist, but I admit that I look at 5G mostly from the perspective of the ability of 5G to bring better broadband to small towns and rural America. I agree with most of what Bain says, but I take the same facts and am still skeptical.

Bain says that the most immediate use for 5G deployment is in urban areas. They cite an interesting statistic I’ve never seen before that says that it will cost $15,000 – $20,000 to upgrade an existing cell site with 5G, but will cost between $65,000 and $100,000 to deploy a new 5G node. Until the cost for new 5G cell sites comes way down it’s going to be hard for anybody to justify deploying new 5G cell sites except in those places that have potential business to support the high investment cost.

Bain recommends that carriers should deploy 5G quickly in those places where it’s affordable in order to be the first to market with the new technology. Bain also recommends that cellular carriers take advantage of improved mobile performance, but also look at hard at the fixed 5G opportunities to deliver last mile broadband. They say that an operator that maximizes both opportunities should be able to see a fast payback.

A 5G network deployed on existing cell towers is going to create small circles of prospective residential broadband customers – and that circle isn’t going to be very big. Delivering significant broadband would mean small circles delivering broadband for 1000 to 1,500 feet from a transmitter. Cell towers today are much farther apart than those distances, and this means a 5G delivery map consisting of scattered small circles.

There are not many carriers willing to tackle that business plan. It means selectively marketing only to those households within range of a 5G cell site. AT&T is the only major ISP that already uses this business plan. AT&T currently offers fiber to any homes or businesses close to their numerous fiber nodes. They could use that same sales plan to sell fixed broadband to customers close to each 5G cell site. However, AT&T has said that, at least for now, they don’t see a business case for 5G similar to their fiber roll-out.

Verizon could do this, but they have been walking away from a lot of their residential broadband opportunities, going so far as to sell a lot of their fiber FiOS customers to Frontier. Vericaon says they will deploy 5G in several cities starting next year but has never talked about the number of potential households they might cover. This would require a major product roll-out for T-Mobile or Sprint, but in the document they filed with FCC to support their merger they said they would tackle this market. Both companies currently don’t have the fleet of needed technicians or the backoffice ready to support the fixed residential broadband market.

The report skims past the the question of the availability of 5G technology. Like any new technology the first few generations of field equipment are going to have problems. Most players in the industry have learned the lesson of not widely deploying any new technology until it’s well-proven in the field. Verizon says their early field trials have gone well and we’ll have to wait until next year to see how 5G they are ready to deploy with first generation technology.

Bain also says there should be no ‘surge’ in capital expenditures if companies deploy 5G wisely – but the reverse is also true, and bringing 5G small cells to places without current fiber is going to be capital intensive. I agree with Bain that, technology concerns aside, that the only place where 5G makes sense for the next few years is urban areas and mostly on existing cell sites.

I remain a pessimist of 5G being feasible in more rural areas. The cost of the electronics will need to drop to a fraction of today’s cost. There are going to always be pole issues for deploying smaller cells in rural America – even should regulators streamline the hanging of small cell sites, those 5G devices can’t be placed onto the short poles we often see in rural America. While small circles of broadband delivery might support an urban business model, the low density in rural America might never make economic sense.

I certainly could be wrong, but I don’t see any companies sinking huge amounts of money into 5G deployments until the technology has been field-proven and until the cost of the technology drops and stabilizes. I hope I am proven wrong and that somebody eventually finds a version of the technology that will benefit rural America – but I’m not going to believe it until I can kick the tires.

Regulating Over-the-Top Video

I know several cable head-end owners that are developing over-the-top video products to deliver over traditional cable networks. I define that to be a video product that is streamed to customers over a broadband connection and not delivered to customers through a settop box or equivalent. The industry now has plenty of examples of OTT services such as Netflix, Amazon Prime, Sling TV, Hulu and a hundred others.

While the FCC has walked almost totally away from broadband regulation there are still a lot of regulations affecting cable TV, so today I am looking at the ramifications of streaming programming to customers instead of delivering the signal in a more traditional way. Why would a company choose to stream content? The most obvious benefit is the elimination of settop boxes. OTT services only require an app on the receiving device, which can be a smart TV, desktop, laptop, tablet or cellphone. Customers largely dislike settop boxes and seem to love the ability to receive content on any device in their home. A provider that pairs OTT video delivery with a cloud DVR has replaced all of the functions of the settop box.

There are a few cable companies that have been doing this. Comcast today offers a streaming service they label as Xfinity Instant TV. This package starts with a package of ten channels including local broadcast networks. They then offer 3 add-on options: a kids and family package for $10, an entertainment package for $15 and a sports and news package for $35. Comcast also touts that a customer can choose to stream the content to any of the millions of Comcast WiFi hotspots, not only at their homes.

It’s an interesting tactic for Comcast to undertake, because they have invested huge R&D dollars into developing their own X1 settop box that is the best in the industry. The company is clearly using this product to satisfy a specific market segment which is likely those considering cutting the cord or those that want to be able to easily download to any device.

A second big benefit to Comcast is that they save a lot of money on programming by offering smaller channel line-ups. Traditional cable packages generally include a lot of channels that customers don’t watch but which still must be paid for. Comcast would much prefer to sell a customer a smaller channel line-up than to have them walk away from all Comcast programming.

The third reason why a cable provider might want to stream content is that it lets them argue that they can selectively walk away from cable regulations. The only real difference between Comcast’s OTT and their traditional cable products is the technology used to get a channel to a customer. From a regulatory perspective this looks a lot like the regulatory discussions we had for years about VoIP – does changing the technology somehow create a different product and different regulations. Before VoIP there were numerous technology changes in the way calls were delivered – open wire, party-lines, digitized voice on T-carrier, etc. – but none of the technology upgrades every changed the way that voice was regulated.

I can’t see any reason why Comcast is allowed, from a regulatory perspective, to stream their ITT content over their cable network. The company is clearly violating the rules that require the creation of specific tiers such as basic, expanded basic and premium. What seems to be happening is that regulators are deciding not to regulate. You might recall that three or four years ago the FCC opened investigation this and other video issue – for example, they wanted to explore if video delivered on the web needs to be regulated. That docket also asked about IP video being delivered over a cable system. The FCC never acted on that docket, and I chalk that up to the explosion of online video content. The public voted with their pocketbooks to support streaming video and the FCC let the topic die.  There are arguments that can be made for regulating streaming video, particularly when it’s delivered over the same physical network as traditional cable TV, like in the case with Comcast.

Clearly the FCC is not going to address the issue, and so the technology an lack of regulation ought to be made available to many other cable providers. But that doesn’t mean that the controversy will be over. I predict that the next battleground will be the taxation of streaming video. Comcast would gain a competitive advantage over competitors if they don’t have to pay franchise fees for streaming content. In fact, a cable company can argue they don’t need a franchise if they choose to stream all of their content.

It’s somewhat ironic that we are likely to have these regulatory fights with the cable product – a product that is clearly dying. Customers are demanding alternatives to traditional cable TV, yet the FCC is still saddled with the cable regulations handed to them by Congress. One nightmare scenario for Comcast and the industry would be if some competitor sues a cable company to stop the streaming product – because that would require the regulators, and ultimately the courts to address the issue. It’s not inconceivable that a court could decide that the Comcast streaming service is in violation of the FCC rules that define channel line-ups. Congress could fix this issue easily, but unless they do away with the current laws there will always be a background regulatory threat hanging over anybody that elect to use the product.

Getting Militant for Broadband

My job takes me to many rural counties where huge geographic areas don’t have broadband. I’ve seen a big change over the last two years in the expectations of rural residents who are now demanding that somebody find them a broadband solution. There have been a number of rural residents calling for better broadband for a decade, but recently I’ve seen the cries for broadband grow into strident demands. As the title of this blog suggests, people are getting militant for broadband (but not carrying guns in doing so!)

The perceived need for broadband has changed a lot since the turn of this new century. In 2000 only 43% of homes had a broadband connection – and in those days that meant they had a connection that was faster than dial-up. In 2000 DSL was king and a lot of homes had upgraded to speeds of 1 Mbps. There have always been homes that require broadband, and I’m a good example since I work from home, and when I moved fifteen years ago my offer on a new house was contingent on the home having broadband installed before closing. My real estate agent at the time said that was the first time she’d ever heard about broadband related to home ownership.

As I’ve cited many times, the need for broadband has continued to grow steadily and has been doubling every three years. By 2010 the number of homes with broadband grew to 71%, and by then the cable companies were beginning to dominate the market. By then DSL speeds had gotten better, with the average speeds at about 6 Mbps, but with some lucky customers seeing speeds of around 15 Mbps. But as DOCSIS 3.0 was implemented in cable networks we started seeing speeds up to 100 Mbps available on cable systems. It was a good time to be a cable company, because their rapid revenue growth was fueled almost entirely by adding broadband customers.

Broadband in urban areas has continued to improve. We’re now seeing Comcast, Charter, Cox and other cable company upgrade to DOCSIS 3.1 and offer speeds of up to 1 Gbps. DSL that can deliver 50 Mbps over two bonded copper lines is becoming old technology. Even urban cellular speeds are becoming decent with average speeds of 12 – 15 Mbps.

But during all of these upgrades to urban broadband, huge swaths of rural America is still stuck at 2000 or earlier. Some rural homes have had access to slow DSL of 1 – 2 Mbps at most. Rural cellular speeds are typically half of urban speeds and are incredibly expensive as a home broadband solution. Satellite broadband has been available the whole time, but the high prices, gigantic latency and stingy data caps have made most homes swear off satellite broadband.

Rural homes look with envy at their urban counterparts. They know urban homes who have seen half a dozen major speed upgrades over twenty years while they still have the same lousy choices of twenty years ago. Some rural homes are seeing an upgrade to DSL due to the CAF II program of speeds of perhaps 10 Mbps. While that will be a relief to a home that has had no broadband – it doesn’t let a home use broadband in the same way as the rest of the country.

To make matters feel worse, rural customers without broadband see some parts of rural America get fiber broadband being built by independent telephone companies, electric cooperatives or municipalities. It’s hard for them to understand why there is funding that can make fiber work in some places, but not where they live. The most strident rural residents these days are those who live in a county where other rural customers have fiber and they are being told they are likely to never see it.

This disparity between rural haves and have nots is all due to FCC policy. The FCC decided to make funds available to rural telcos to upgrade to better broadband, but at the same time copped out and handed billions to the giant telcos to instead upgrade to 10 Mbps DSL or wireless. To make matters worse, it’s becoming clear that AT&T and Verizon are intent in eventually tearing down rural copper, which will leave homes with poor cellular coverage without any connection to the outside world.

The FCC laments that they cannot possibly afford to fund fiber everywhere. But they missed a huge opportunity to bring fiber to millions when they caved to lobbyists and gave the CAF II funding to the big telcos. Recall that these funds were originally going to be awarded by a reverse auction and that numerous companies had plans to ask for the funding to build rural fiber.

It’s no wonder that rural areas are furious and desperate for better broadband. Their kids are at a big disadvantage to those living in towns with broadband. Farmers without broadband are competing with those using agricultural IoT. Realtors report that they are having a hard time selling homes with no broadband access. People without broadband can’t work from home. And rural America is being left behind from taking part in American culture without access to the huge amount of content now available on the web.

360-degree Virtual Reality

South Korea already has the fastest overall broadband speeds in the world and they are already working towards the next generation of broadband. SK Broadband provides gigabit capable fiber to over 40% of households and has plans to spend over $900 million to increase that to 80% of households by 2020.

The company also just kicked off a trial of next generation fiber technology to improve bandwidth delivery to customers. Customers today have an option of 1 Gbps service. SK Broadband just launched a trial with Nokia in an apartment building to increase end-user bandwidth. They are doing this by combining the current GPON technology with both XGSPON and NG PON2 to increase the overall bandwidth to the apartment complex from 2.5 Gbps to 52.5 Gbps. This configuration allows a customer to run three bandwidth-heavy devices simultaneously with each having access to a separate 833 Mbps symmetrical data path. This particular combination of technologies may never be widely implemented since the company is also considering upgrades to bring 10 Gbps residential service.

The big question is why SK Broadband thinks customers need this much bandwidth? One reason is gaming and over 25 million people, or a little over half the population of the country partake in online gaming today. There is not another country that is even a close second to the gaming craze there. The country also has embraced 4K video and a large percentage of programming there uses the format, which can require data streams as large as 15 Mbps for each stream.

But those applications don’t alone the kind of bandwidth that the company is considering. The architect of the SK Broadband network cites the ability to deliver 360-degree virtual reality as the reason for the increase in bandwidth. At today’s compression techniques this could require data streams as much as 6 times larger than a 4K video stream, or 90 Mbps.

What is 360-degree virtual reality and how does it differ from regular virtual reality? First, the 360-degree refers to the ability to view the virtual reality landscape in any direction. That means the user can look behind, above and below them in any direction. A lot of virtual reality already has this capability. The content is shot or created to allow viewing in any direction and the VR user can look around them. For example, a 360 virtual reality view of a skindiver would allow a user to follow an underwater object as the diver approaches, and look back to watch is as they pass by.

But the technology that SK Broadband sees coming is 360-degree immersive VR. With normal virtual reality a user can look at anything within sight range at a given time. But with normal virtual reality the viewer moves with the skindiver – it’s strictly a viewing experience to see whatever is being offered. Immersive virtual reality let’s a user define the experience – in an immersive situation the VR user can interact with the environment. They might decide to stay at a given place longer, or pick up a seashell to examine it.

SK Broadband believes that 360-degree VR will soon be a reality and they think it will be in big demand. The technology trial with Nokia is intended to support this technology by allowing up to three VR users at the same location to separately enter a virtual reality world together yet each have their on experience. Immersive VR will allow real gaming. It will let a user enter a 3D virtual world and interact in any manner they wish – much like the games played today with game machines.

This is a great example of how broadband applications are developed to fit the capacity of networks. South Korea is the most logical place to develop high-bandwidth applications since they have so many customers using gigabit connections. Once a mass of potential users is in place then developers can create big-bandwidth content. It’s a lot harder for that to happen in the US since the percentage of those with gigabit connections is still tiny. However, an application developer in South Korea can get quick traction since there is a big pool of potential users.

 

Do People Really Want a la Carte TV?

We just got a glimpse of a la carte TV and it makes me wonder if this is what people really want. Poll after poll over the years have shown that people would like to pick their own channels. I’m not sure that many people really want a la carte channels once they see the market reality of the product.

Sling TV just started offering a number of a la carte channels and they are available to anybody. Subscribers don’t need to buy another Sling TV package and can buy just one channel. The company says they are planning on offering more a la carte channels.

For now the a la carte line-up is small. It includes Showtime for $10 per month, which is also available elsewhere on line. The other channels available now include:

  • Dove Channel for $5 per month. This channel is not carried on any cable systems and is marketed direct to consumers. It carries a library of Christian-based programming.
  • CuriosityStream for $6 per month. This is an ad-free network that delivers documentaries and shows about science, technology, technology and nature.
  • Stingray Karaoke for $7 per month. This network carries a big library of karaoke songs that streams both the music and lyrics.
  • Outside TV Features for $5 per month. This network carries a big library of outdoor adventure sports films. This is the network that carries the dramatic footage of surfing, skiing, skydiving and numerous adventure sports.
  • UP Faith & Family for $5 per month. This carries original content and movies that are family-based and faith-friendly.
  • Pantaya for $6 per month. This network carries Spanish movies.
  • NBA League Pass for $28.99 per month. This network carries all NBA games and related content.

Sling TV is not the first one to offer a la carte channels and it’s a big part of Amazon Prime. Amazon carries many of these same networks, and over 100 others. However, you must subscribe to the Amazon Prime service for $119 per year in order to buy the a la carte channels. Amazon has taken the approach of being the biggest bundler of content and has become the portal to a huge array of content.

The only other service with any real a la carte characteristics is the new package offered by Charter, only to their own customers. They provide the local networks in a market and then let a subscriber choose 10 out of 65 networks. This is supposedly priced at $21.99, but the fine print shows there will be other fees, typical of a cable company, and I’m guessing this will cost around $30.

What strikes me most about the Sling TV offering is the monthly fee of between $5 and $7 per channel. How many people are willing to spend $60 to $84 per year for one channel? Surveys by Nielsen have shown that the average family regularly watches about a dozen networks. A price of $5 per channel would mean a price of $60 per month to get the networks a household wants. But local network channels, movie networks and sports networks would likely cost more than $5 and it wouldn’t be hard to see a bill of $75 to $100 to buy only the channels a family regularly watches.

I don’t think this is what households want. When people respond to surveys talking about buying channels individually they were not thinking of paying $5 each. I recall a Nielsen survey from a few years ago where people suggested they would be willing to pay less than $2 per channel if they could buy them individually.

I saw a Google article that said that the Dove Channel had over 100,000 customers. Even if they now have twice that, at $5 per month per subscriber the network would have a monthly income of $1 million. That might sound like a lot, but it’s not enough to support a staff, buy the needed content and also try to fund original programming.

Contrast this with a network that sits today on the traditional line-ups on cable systems. At the current nationwide cable TV penetration rate of 69%, a network that charges only a nickel to the cable companies would make $4.4 million per month. A network like the Dove Channel would need to get nearly 900,000 subscribers at $5 per month to perform as well as traditional cable network that charges only a nickel. You can see why most cable networks are scared of the a la carte model because there are very few of them could survive as online providers.

The Value of Persistence

One of the most common questions I am asked by those getting ready to build a fiber network is “How can we know that we will get enough customers to make this work?”. They are always hoping there is some magic pill that will let them gain a huge market share to assure their success. Over the years of watching clients launch fiber into hundreds of markets I can assure you there are no magic pills. I’ve come to the conclusion that the two biggest hurdles in the business are first, getting the new network financed, and second, selling to customers.

But there are traits of successful fiber overbuilders that can be duplicated.

Pre-sales campaign. Fiber overbuilders need to take advantage of the one-time buzz that happens when you first bring fiber to a neighborhood. Somewhere between 3 and 6 months before network launch you need to blitz neighborhoods to let them know fiber is on the way. Ideally you will touch every potential customer, and this means a personalized sales approach. This means throwing neighborhood events like ice cream socials or cook-outs. It means distributing door-hangers followed by knocking on every door to let customers know that fiber is on the way.

There is a well-understood maxim that any fiber overbuilder can get 30% of a market just by showing up. There are always customers that either are hungry for better broadband or who simply hate the incumbent providers. An aggressive pre-sales campaign will attract these customers by letting them know you are coming. But pre-sales will also attract another 10% or more of the market, meaning an initial penetration on day-one of 40% or even much higher.

It’s easy to forget that the easiest thing for any potential customer is to do is nothing. If your sales approach is passive – mailers and newspaper ads, you won’t overcome customer inertia that will make it easy for many potential customers to do nothing and to keep the ISP they are already using.

Knowledge Sells. The most successful fiber overbuilders send out knowledgeable salespeople to knock on doors and talk to potential customers. The key word there is knowledgeable. I’ve seen numerous companies hire temporary salespeople, give them a few hours of training and then wonder why they aren’t selling. Successful companies retain permanent salespeople or even send out their own staff to sell door-to-door. When you engage a customer in person it’s essential that the salesperson can comfortably answer all questions about products, prices, the technology and can clearly talk about why a potential customer should switch service.

So don’t take the cheap and easy path of sending out college kids in the summer to sell your network. A knowledgeable sales team will be two or three times more effective at closing sales -so if you are going to make the effort to send out salespeople, send out the right ones.

Persistence. The number one key to long-term success is persistence. Too many fiber builders will blitz a neighborhood one time when it’s first built. They move on to blitz the next new neighborhood and revert to using passive sales techniques in the older market. Such neighborhoods might slowly gain customers over time, though growth often comes as much from word-of-mouth from existing customers as it does from passive sales techniques.

Smart ISPs are persistent. I have clients who knock on doors every year. They have realistic expectation of adding perhaps 2% or 3% per year from a door-knocking campaign in a mature market – but over a decade that translates into a 20% to 30% higher market penetration than they might have had using passive sales techniques. Persistence can pay off for any kind of ISP – I know both commercial and municipal ISPs who have grown to customer penetration rates north of 75% by plugging away at sales year after year.

I know many fiber overbuilders languishing with 40% to 50% penetration rates while having a superior network, better prices and better customer service. They are suffering from what I’ve always called the ‘build-it-and-they-will-come’ mentality and they think their obvious advantages will somehow draw customers to them. What they haven’t done is make the effort to look each potential customer in the eye and explain those advantages. I highly recommend that the general manager and top executives of every ISP take a few days every year to knock on doors. They will quickly learn that a lot of households never heard of their company even though they have had fiber in a neighborhood for years. It’s a humbling experience that quickly demonstrates the value of talking to prospective customers in person.

Shrinking Cellular Backhaul Revenues

There are a few carriers that rely on cellular backhaul as a major part of their revenue stream, but there are many more carriers that provide transport to a handful of cell sites. In all cases these are some of the highest-margin and lucrative products sold on the market today, and a business line that every carrier wants to keep. However, there are big changes coming in the cellular market and today I will look at the trends that are going to affect this market over the next decade.

Increasing Bandwidth Demand. The growth in bandwidth demand at many cell sites is explosive with the overall growth in cellular data doubling every 18 months. This growth is not the same everywhere with growth coming in cell sites serving residential customers and not in older cell sites built to satisfy highway phone coverage.

The demand growth is being driven by several factors. First, it’s becoming far more prevalent for customers to use cellphones to watch video. Part of that growth in demand comes directly from the big cellular companies which are bundling in access to content as part of the service. But a more important reason for the growth in demand is that the historic reluctance of customers to use cellular data is eroding as the cellular companies push ‘unlimited’ data plans.

Demands for Lower Transport Costs. Cellular service has become a commodity. The industry is no longer adding many new customers since almost everybody has a cellphone. This has led to price wars between cellular providers, and lower average customer prices are driving the cellular companies to look to cost reductions. At least in urban areas they are starting to also lose significant customers to Comcast, with Charter just entering the fray.

Recently I’ve seen cellular companies ask for lower prices as contracts get renewed or else demand greater bandwidth for the prices already in place. This means that fiber owners are not likely to see increases in revenues even as the bandwidth they are delivering grows.

Cellular Carriers Building Fiber. I’ve had several clients tell me recently that Verizon or AT&T is building fiber in their area. While this construction might be to reach a new large customer, the most likely reason these companies are building right now is to eliminate leased transport at cell sites. This is not just happening in urban areas and one of my clients who serves a market of 10,000 homes tells me that Verizon is building fiber to all of the cell sites in the area.

Verizon made headlines last year when they ordered $1 billion in fiber. AT&T is also building furiously. If you believe the claims made by T-Mobile and Sprint as part of the proposed merger – they also will be expanding their own fiber.

I also expect the cellular carriers to make reciprocal deals to swap fiber connections at cell sites where they now own fiber. If Verizon and AT&T each build to 2,000 cell sites they could easily swap transport and both gain access to 4,000 cell sites – that’s a huge nationwide decrease in transport revenues for others.

Growth of Small Cells. Layered on top of all of this is the predicted growth of small cell sites. I don’t think anybody knows how big this might market grow. I’ve seen optimistic predictions that small sell sites will be everywhere and other predictions that the business case for small cell sites might never materialize. Many of my clients are seeing the deployment of a few small cell sites to relive 4G congestion, but it’s hard to predict in smaller markets if this will ever expand past that.

One thing we can know for sure is that the cellular carriers will not be willing to pay the same prices for connection to small cell sites that they’ve been paying for the big cell tower sites. By definition, a smaller cell site is going to serve a smaller number of customers and the pricing must be reduced accordingly for it to make sense for the cellular providers.

Conclusion. My best guess is that cellular transport will be hit and miss depending up the specific local situation. There are many who will lose all cell site transport where the cellular carriers decide to build their own fiber. But even where they don’t build fiber I would expect the cellular carriers to bring the threat of physical bypass into price negotiations to drive transport prices far below where they are today.

This is a natural economic consequence of cellular becoming a commodity. As the cellular industry tightens its belt it’s going to demand lower costs from its supply chain. Transport costs are one of the major costs of the cellular industry and the most natural place for them to look to reduce costs. The big cell companies already understand this future which is one of the primary reasons they are furiously building fiber today while they have the cash to do so.