Monthly Archives: April 2019

Comcast the ISP

Occasionally I see a statistic that really surprises me. I just read a quote from Dave Watson, the President of Comcast Cable where he told investors that Comcast has an overall 47% broadband market penetration rate, meaning that 47% of the households in their footprint buy broadband from Comcast. I would have guessed that their market penetration rate was higher. He did say that they have markets where they exceed a 60% market share.

There are a few reasons why their overall market share isn’t higher. For one thing, the company overlaps a lot of the same big markets where Verizon competes with fiber-based FiOS. The company also competes with fiber overbuilders like US Internet in Minneapolis and Sonic in the Bay Area that are chipping away at broadband customers. The company is also competing against a few municipal fiber overbuilders like in Chattanooga where the city-based fiber ISP has won the lion’s share of the market. It’s clear that fiber is a formidable competitor for any cable company.

Comcast also faces significant competition in the MDU market where there are numerous companies vying to serve large apartment buildings and complexes. For example, a big percentage of AT&T’s fiber expansion goal to pass 12 potential customers has been achieved through building fiber to large MDUs all around the country. There are also a number of successful ISPs that compete nationwide in the large MDU market.

Comcast, like all of the big cable companies, was a latecomer in competing for the business market. Historically the cable companies didn’t build their network in business districts and the telcos and CLECs gained early control of this market. Comcast and other cable companies now compete vigorously in the business market, but this is the one market segment that is competitive almost everywhere.

It is clear that Comcast is winning the battle against DSL. Comcast added 1.35 million broadband customers in 2018, while the telcos collectively lost nearly half a million customers.

I believe that the secret to the recent Comcast success is from offering faster broadband speeds. The company has upgraded to DOCSIS 3.1 and now offers gigabit broadband speeds. More importantly, the company has unilaterally increased speeds across-the-board several times to give them a significant speed advantage over DSL. The most recent speed increase last year increased base product speeds to 200 Mbps. It’s now an easy marketing advantage for the company to contrast this with the top DSL speed of 50 Mbps. Comcast is betting that speed wins and looking at the trend of their customers versus the telcos they seem to be right.

Comcast is also benefitting from the fact that many homes now find themselves bumping against the speed limits on slower products. Many homes that use multiple devices simultaneously are starting to find that a broadband speed of even 50 Mbps isn’t adequate for the way they want to use broadband. We are finally reaching the point where even the best DSL is becoming obsolete for many families. This trend is certainly accelerating and we saw 3.5 million new cord-cutting households last year who now watch all video online.

Even knowing all of the above market trends I was still surprised by the 47% market share. My firm does broadband surveys and we’ve never seen a Comcast or Charter market share below 60% in the markets we’ve studied. Of course, our experience is biased by the fact that we are only studying markets where somebody is thinking about building fiber, and there are undoubtedly Comcast markets that are considerably higher or lower than the 47% average market share.

I expect the Comcast market share to keep climbing. I think they have now won the war with DSL and in those markets where they aren’t facing a fiber competitor they will continue to pick up customers who realize they need more speed. As the household demand for broadband continues to double every three years, the migration from DSL to cable broadband is likely to accelerate.

I think it’s likely that telcos with copper networks are starting to lose steam. As the telcos keep losing DSL customers one has to wonder how much money the telcos will spend on advertising to support a sinking market. Just like I’m always surprised when I find out that there are still a few million dial-up customers remaining across the country, I think we have reached the tipping point on DSL, and DSL will start to be considered as a dead and dying technology. It might take another decade for DSL to finally die, but that slow death is finally underway.

FCC Looking at Rural Spectrum Rules

The FCC released a Notice of Proposed Rulemaking on March 15, in WT Docket No. 19-38. This NPRM asks if there are changes to spectrum rules that might make spectrum more easily available for small carriers and in rural markets.

This NPRM was required by the MOBILE NOW Act that was included in the Ray Baum’s Act that reauthorized the FCC. That Act required the FCC to ask the following questions:

  • Should the FCC establish a new program, or modify existing programs to make it easier to partition, disaggregate, or lease spectrum in rural areas and spectrum access by small carriers?
  • Should the FCC allow ‘reaggregation’ of spectrum that has been partitioned or disaggregated on the secondary market, up to the size of the original market area?
  • Would relaxing performance requirements for partitioned or disaggregated licenses make it easier for small carriers to use rural spectrum?
  • Are there any procedural changes that would make it easier to transfer spectrum to small carriers?
  • Are there incentives the FCC can provide to encourage spectrum license holders to lease or sell spectrum to small carriers that will serve rural areas?

If the FCC is serious about helping to solve the rural broadband divide they need to take a hard look at the suggestions various parties will make in this docket. The docket notes that there have been over 1,000 assignments of spectrum over the last decade, but most of these have been from speculators (who buy spectrum with the goal to sell and not use) assigning spectrum to the larger carriers. There are not many examples where the big spectrum holders have peeled off portions of their spectrum for rural use.

Today most spectrum is being used in urban areas but not deployed in the surrounding rural areas. It’s hard to fault the cellular companies for this practice. The low customer density in rural areas doesn’t require cellular carriers to deploy the same mix of spectrum needed to satisfy urban cellular bandwidth needs.

This unused spectrum could be used to provide spectacular fixed wireless broadband – something that is not really a significant part of the business plan of cellular companies. With newer techniques for combining multiple frequencies to serve a single customer, the availability of more swaths of spectrum could be used to significantly increase rural broadband speeds.

There are also regulatory reasons for the pool of unused rural spectrum. The cellular carriers have always lobbied hard to have spectrum auctioned to cover huge geographic footprints. It’s a lot easier for the carriers and the FCC to not bother with auctioning off rural coverage areas separately. The FCC’s coverage rules are also lax that a spectrum license holder can satisfy deployment requirements by deploying spectrum in the urban areas while ignoring the rural parts of the license areas. The FCC has also been extremely lax in enforcing deployment requirements, and license holders in some cases have gone for a decade without deploying spectrum without fear of losing the license.

The big cellular companies have opposed making it easier to deploy frequency in rural areas. They have some legitimate concerns about interference, but there are techical solutions to guard against interference. The big companies mostly don’t want to deal with smaller users of the spectrum. I would expect them to file comments in this docket that say that the existing system is adequate. Today’s rules already allow for leasing or partitioning of spectrum and the big companies don’t want new rules that might force them to work with rural providers.

Probably the most interesting question in the docket is the one asking if there are incentives that would drive the big license holders to work with smaller providers. I can think of several solutions, but the easiest one is what I call ‘use it or lose it’. The FCC ought to change the rules to be able to reclaim licensed spectrum that isn’t being used. The rules should not allow the deployment of spectrum in a city to tie up the use of that same spectrum for a huge surrounding rural area.

While the MOBILE NOW Act required the issuance of this NPRM within a year, it doesn’t require the FCC to act on any of the suggestions made by respondents to the NPRM. I would strongly encourage anybody interested in using rural spectrum to contact their members of Congress and ask them to encourage the FCC to take this NPRM seriously. Over the last two years it’s hard to point to any actions of this FCC that support rural broadband over the interests of the large carriers. The big wireless companies don’t want the hassle of dealing with smaller providers – but that’s the right thing to do. Spectrum ought to benefit all parts of the country, not just the urban areas.