Broadband Subscriptions Continue to Grow

According to the Leichtman Research Group, the biggest ISPs added 945,000 broadband customers in the first quarter of 2019. If sustained that would be an annual growth rate of 4% for the year. That contrasts drastically with the largest cable providers that are now losing cable customers at a rate of 6% annually.

The table below shows the changes in broadband customers for the largest ISPs for the quarter.

4Q 2018 Added % Change
Comcast 27,597,000 375,000 1.4%
Charter 25,687,000 428,000 1.7%
AT&T 15,737,000 36,000 0.2%
Verizon 6,973,000 12,000 0.2%
Cox 5,100,000 40,000 0.8%
CenturyLink 4,806,000 (6,000) -0.1%
Altice 4,155,000 36,900 0.9%
Frontier 3,697,000 (38,000) -1.0%
Mediacom 1,288,000 24,000 1.9%
Windstream 1,032,400 11,400 1.1%
Consolidated 780,720 1,750 0.2%
WOW 765,900 6,300 0.8%
Cable ONE 678,385 15,311 2.3%
Cincinnati Bell 426,700 1,100 0.3%
98,724,105 943,761 1.0%

The two biggest cable companies, Charter and Comcast are growing furiously and added 85% of all of the net industry additions, with Charter growing at an annual growth rate of almost 7%. Mediacom and Cable ONE grew even faster for the quarter.

The cable companies continue to dominate the telcos. As a whole, the big cable companies added over 925,000 customers at an annual growth rate of 5.75%. By contrast, the big telcos collectively added 18,250 customers, an annual growth rate of only 0.2%. We know that telcos are continuing to lose DSL customers, so a slight gain as a group means they are finding new customers to replace lost DSL connections.

The overall net gains for the first quarter of 2018 was 815,000. The increases are larger this year due to smaller losses by the telcos rather than faster growth for the cable companies. Perhaps a few of the telcos are finally seeing some upside by the rural CAF II builds.

The surprising statistic is how much Comcast and Charter continue to grow. They are obviously winning the broadband battle in the major cities and continue to take customers away from telco DSL on copper.

There has to be something else behind this kind of growth. A few years ago, there were analysts that predicted that the broadband market was topping out. It seemed like everybody who wanted broadband had it and that there were not a lot of potential customers left in the market. In the last two years we’ve seen continued growth similar to this last quarter.

It’s always hard to identify trends when looking at a nationwide trend, but one of the few ways to explain this continued growth is that more households are deciding that they must have broadband. That might mean homes with occupants older than 65, since that demographic always trailed other demographics in broadband acceptance. It might mean more houses with low incomes are finding a way to buy broadband because they’ve decided it is a necessity. At least some of this growth is coming by the effort to extend broadband into rural America, although that effort is largely being done by ISPs that are not on the above list.

Broadband and Unemployment

Economists at the University of Tennessee at Chattanooga and Oklahoma State University conducted a study that correlates broadband speeds to unemployment. They concluded that unemployment rates are 0.26% lower in counties with faster broadband. They further concluded that broadband has a bigger impact on jobs in rural areas than in metropolitan ones.

The lead economist on the project, Bento J. Lobo, lives in Chattanooga and began the investigation because of the high-speed municipal fiber network in the City. He was curious if that network had contributed in a measurable way to jobs. The study also looked at FCC data from the National Broadband Map dataset and looked at 95 other counties in Tennessee.

The study looked at broadband availability and unemployment over the period from 2011 to 2016. The study measured broadband availability by considering places that have more than one landline broadband provider defined as served, with the rest either unserved or underserved. They concluded that Tennessee looks a lot like the rest of the country in that urban areas have decent broadband while broadband options in rural parts of the state are limited.

I have to wonder about the extent to which poor FCC broadband mapping data suppressed the findings of the study. I wrote a blog earlier this week that highlighted a Penn State study that showed the inadequacies of the FCC data in Pennsylvania, where the number of people that have broadband availability was overstated in every county in the state. For example, the Penn State study showed that there are counties in the state that the FCC considers as fully covered by broadband, but in which the average actual download speed in the county is at half of the FCC’s 25/3 Mbps definition of broadband. That kind of mapping error has to be affecting the results found in this unemployment study by overstating the rural areas that have good broadband.

The fact that the authors found a correlation is impressive after understanding the nature of the FCC dataset. The authors of this report say that the topic is worthy of more granular studies looking at specific counties that get broadband for the first time. At CCG we work with such counties and we’ve gathered a lot of anecdotal evidence over the years that broadband brings jobs to rural America.

Everywhere we go we see evidence that rural people are hungry for good-paying jobs. In one rural county we studied in Minnesota we saw that every single farm in the county had an incorporated home-based business that was separate from farming. Somebody at every farm was trying to supplement farming income. The rural folks in that county hoped that they could find better-paying jobs after getting broadband. In this particular county, the farms didn’t even have rudimentary DSL, and their broadband options were limited to satellite broadband or cellular data.

Parts of this county have gotten wireless broadband that is advertised at speeds between 25 Mbps – 50 Mbps. I agree with the researchers that more granular study ought to be done and it would be illuminating to have studied the rural households in this county before and after the introduction of broadband. My guess is that broadband has a bigger impact than calculated by this study.

Good broadband enables rural residents to find home-based online jobs – an exploding part of the new economy. In this particular county the unemployment rate might not change due to broadband – but household incomes are likely to increase as farm family members find better-paying jobs online to replace the ones they are tackling today without broadband. That kind of job upgrade would not be measured by looking at the unemployment rate, but would be discovered in more granular analysis.

The impacts in bigger cities like Chattanooga must be a lot harder to quantify. Again, we know anecdotally that programmers and other high-tech folks moved to Chattanooga due to the ubiquitous gigabit fiber network. It has to be very hard to somehow pinpoint those fiber-related new jobs out of a diverse big-city economy. This has to be particularly hard to pinpoint the impact of broadband in an economy where unemployment rates fell nationwide during the whole study period.

The Metrics of Offering Cable TV

Cable TV is a big topic with my clients. New ISPs struggle with the question of adding a cable TV product to their product mix. They do surveys that show that a lot of households still want cable TV bundled with broadband. My clients that offer cable TV wonder if they should drop it as a product.

Some interesting data was recently reported by the Wall Street research firm Cowan. They were looking at cable TV margins among bigger cable companies and concluded that it’s hard for anybody but the largest cable companies to be profitable with cable.

Consider Altice, a cable company with almost 3.3 million customers. Cowan calculates that Altice spends about 80% of cable revenues to buy the underlying programming – for 2018 that was cable revenues of $813 million and programming costs of $683 million. That means a gross operating margin of only 20% even before considering any of the costs of selling, billing and maintaining the product.

The really large cable companies do better. Comcast has around 21.8 million customers and Cowan calculates that programming only costs them 60% of cable revenues. The other big cable companies like Charter and Dish Networks pay about 65% of cable revenues for programming.

This raises the interesting question if anybody who doesn’t have millions of customers can make any money at cable TV? It’s unimaginable that Altice makes money in cable with a 20% gross operating margin. ISPs all tell me that the cable TV product is the big eater of staff time. Most of the calls to customer service are about cable signal quality. Cable issues cause the majority of truck rolls. When you look at the full effort required to support cable TV there is no way that it can be done inside of a 20% operating margin.

The bigger companies are a different story. You can see why Comcast still works hard to win and keep cable customers. At a 40% operating margin, each cable customer still has significant bottom-line value to the business.

Comcast must be dismayed at finally starting to lose customers to cord cutting, having lost 120,000 in the first quarter of this year. The company has done better than any other cable company in retaining customers. They’ve got the state-of-the-art settop box that continually updates with new features. They’ve pushed TV everywhere to allow TV on any device. And yet, even Comcast is seeing the inevitable declines from cord cutting as a result of high cable prices and the lure of online alternatives.

These numbers ought to show any smaller company that there is no sensible business plan for investing in a cable TV headend. I can’t imagine why anybody would buy a new cable headend today. It’s hard to imagine covering the cost of new electronics when the margins from cable barely cover operating expenses.

I’ve done the math and if a small ISP is honest with the evaluation, it’s hard to think that cable TV for a smaller company has any net operating margin after operating expenses. This puts companies in an uncomfortable position. The national average cable penetration is still 70%, although now dropping at 6% of market annually. That still means that a lot of customers want to buy traditional cable TV and they are going to buy it from the ISP who offers cable and broadband together. All of the surveys we’ve done at CCG show that there is still a sizable portion of the residential market who won’t buy broadband without cable TV.

I hear about ISPs exiting the cable business every month. That’s the ultimate in cord cutting when the ISP drops the cable product before the customers disappear on their own.

The California Consumer Protection Act (CCPA)

In June 2018 California enacted a new privacy law that adopts some of the requirements of the European Union’s privacy regulations that recently went into effect. The California law goes into effect on January 1, 2020 and will affect a lot of US companies, including many not located in California. The law applies to any company that collects and processes personal information of California residents. For now, small companies that have revenues of less than $25 million per year along with non-profit entities are exempt.

The law defines personal information much more broadly than any other US privacy legislation. Personal information is defined as, “information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household.” Using information that just identifies an address is a big expansion of privacy rules since prior rules only considered personal information of residents. The law includes a list of examples of personal data such as Social Security numbers, credit card numbers, and drivers’ license numbers, but goes a lot further and covers things like information captured and tracked by marketing cookies that capture information like IP addresses or information about computers or phones. While the law excludes information that is publicly available, essentially any information a company collects about customers is considered as private.

The new law provides specific rights to consumers:

Disclosure: A business must notify customers about its data collection practices. Companies must disclose the personal information that is being collected, describe how it’s being collected and used, and disclose if that data is being disclosed or sold to anybody else. This is to be provided in a publicly posted privacy notice and also needs to be made available to consumers upon request.

Opt-Out. Customers must be provided an easy-to-understand process for opting out of having their data sold to third parties. Consumers under 16 must opt-in to having data sold. Parents must provide consent for children under the age of 13. Companies must provide a “Do Not Sell My Personal Information” button on their main home page.

Information Removal: Customers must be provided the ability to have businesses delete their personal information, and companies must let customers know they have this right. If a customer chooses this option a business must not only delete the information from their own records but must ensure that the records are deleted by any third-party contractors that have been provided with the personal information.

No Discrimination: Businesses cannot discriminate against customer who elect to keep their data private. Businesses can’t charge an extra fee for a customer electing a privacy option. Interestingly though, businesses can offer an incentive for customers to make their data available, such as offering a discount for allowing the business to use the data.

In the same manner that recently happened in Europe, US companies that are covered by this law have a lot of things to put into place by the first of next year. Most companies won’t find it hard to make the needed disclosures and notices, but putting processes in place that delete customer data, including data that was passed on to somebody else can be a huge challenge. One of the hardest requirements to meet will be the one that requires companies to make all reasonable efforts to protect against data breaches.

The penalties for not complying with the law are high. A company can be charged up to $2,500 for every violation and up to $7,500 for each intentional violation (such as not deleting data after assuring a customer it was done). Companies can avoid fines by coming into compliance within 30 days of being notified by an attorney general of a violation.

The law also opens companies to litigation from customers. The law gives consumers the right to bring lawsuits if their data is disclosed due to negligence of the business. Consumers can file individual or class action lawsuits and can recover between $100 and $750 in damages per incident. This law will almost certainly spur a class-action lawsuit every time there is a big data breach.

I’ve reported on this law for a few reasons. California often leads the country on new legislation and it’s likely that some version of this law will spread elsewhere across the country. For instance, as I was writing this blog the state of Maine passes legislation that is even more stringent in a few areas. There is also a bipartisan effort in Congress looking at privacy rules and this law is certain to influence that effort.

This law doesn’t just apply to web-vendors. Parts of this law apply to anybody that collects sensitive customer data from the Internet such as ISPs and utilities. It’s a warning to every business to take steps to protect against breaches of customer information.

The Penn State Broadband Study

Penn State conducted an intensive study of broadband in rural Pennsylvania. The study was funded by the Center for Rural Pennsylvania, a legislative agency of the Pennsylvania General Assembly.  The results will surprise nobody who works with rural broadband and the study concluded that actual broadband speeds are significantly slower than the speeds reported by the ISPs to the FCC.

The study concluded that there was not one rural county in the state where more than 50% of residents actually achieve the 25/3 Mbps that the FCC has defined as broadband. The study came to these conclusions by conducting more than 11 million speed tests. Residents voluntarily provided an additional 15 million speed test results.

These results are similar to what’s been reported by Microsoft – they measure the actual speeds at which millions of customers download Microsoft software every month. Microsoft says such tests are the best measure of real broadband speeds and that roughly half of all broadband connection in the country are done at speeds slower than the definition of broadband.

Some of the Penn State results are dramatic. For example, in Westmoreland County the FCC maps show the whole county has access to 25/3 Mbps broadband and yet the average download speed for the county was only 12.3 Mbps. Allegheny County also shows 100% broadband coverage on the FCC maps and yet the average download speed in the County is only 20 Mbps.

The study further showed that the difference between actual and reported speeds have been widening since 2014. That’s likely to mean that the FCC maps are showing improvements that aren’t really happening in the rural networks.

I have to point out, in the FCC’s favor, that households don’t always buy faster broadband when it’s available – many households continue to purchase older, slower DSL to save money. However, this phenomenon can’t come close explaining the results in Westmoreland County, where the actual speeds are only 12 Mbps – half the FCC’s definition of broadband. A more likely explanation is that the maps for the County show broadband available in rural areas where actual DSL speeds are only a few Mbps.

CCG helps our clients conduct similar tests on a smaller scale and we’ve seen similar results all across the country. The FCC maps are often pure fantasy. We routinely find rural areas that supposedly have fast broadband where there is no broadband. We often study county seats that supposedly have fast data speeds and yet where actual speed tests show something far slower. The speeds on the FCC maps come from data that is self-reported by ISPs, and some of the ISPs clearly have reasons to overreport the available speeds.

What is really irksome is that the FCC knows all of this already. They know that ISP reported broadband speeds are overstated, and yet the FCC compiles the faulty data and makes policy decisions based upon garbage data. The FCC’s recently published their 2019 Broadband Deployment Report which concluded that broadband is being deployed in the US on a reasonable and timely basis. In my opinion, that conclusion borders on fraud since the FCC knows that much of the data used to reach that conclusion is wrong. The real broadband situation in rural America is much more like what is being reported by Penn State and Microsoft. Rural residents in places like Allegheny County, Pennsylvania should be incensed that the FCC is telling the world that their broadband is up to snuff.

The FCC is starting a multi-year process to ‘improve’ the broadband maps – but this will just push the problem a few years into the future. The fact is that it’s almost impossible to map real broadband speeds in rural America. How can you map broadband speeds when real networks in rural America are in lousy shape? How can you map broadband speeds when two neighbors can experience drastically different broadband speeds due to the nuances in their copper wires? The big telcos have neglected maintenance on copper networks for decades and it’s no surprise that broadband speeds vary widely even within a neighborhood.

The best solution is to throw the maps away. The fact is that every place served by copper ought to be considered as underserved, and locations more than a few miles from a DSLAM ought to be considered as unserved. We need to stop pretending that we can somehow make a realistic map of broadband speed availability – the proposed new mapping might be a little better, but it can never be accurate. Every ISP technician that works in the field will tell you how ridiculous it is to try to map rural broadband speeds.

We need to face facts and recognize that we’re going to have these same issues until rural America gets fiber. There are now enough places in rural America with fiber to show it can be done. The FCC’s ACAM program has shown that fiber can work if there are subsidies to help with the construction costs. We’ve understood this for more than a century since we built the rural electric grids. But we probably can’t fix the problem until we’re honest about the scope of poor broadband. I have big doubts that this FCC is ever going to acknowledge that the real state of broadband is the one highlighted by this study.

Linear TV Nostalgia

The other day I saw a fun video where a few teenagers were trying to figure out how to use a rotary dial telephone. They never did quite figure it out, but there’s no reason they should. It’s just another piece of old technology that has faded into history.

I recently wrote a blog about cord cutting and that got me to thinking that there is soon going to be a generation of kids who grow up without routinely experiencing linear TV. Linear TV has been part of most of my life. I remember when my family got our first black and white TV in 1957. It was a huge heavy console with a rounded screen that hummed from the many tubes that made it work.

We could only get three stations – WTOP which was CBS out of Washington DC, WBAL which was NBC out of Baltimore, and WTTG which was an independent station from Washington DC. WTTG was an interesting station – it’s the second oldest station in the country. They ran a lot of older programming and aired a steady diet of old stuff like the Three Stooges, Shirley Temple movies, and the Little Rascals. I didn’t realize until much later in life that other people my age didn’t see nearly as much of this older programming as we did. We were only able to watch ABC by climbing on the roof and fiddling with the antenna – doing so meant we lost the other stations. However, there would occasionally be a World Series game or other important sports event on ABC that would entice my father to climb onto the roof, quietly mumbling expletives.

It’s probably hard for kids today to understand how TV brought families together. There was no other source of live entertainment other than going to the movies, since even by the 50s most of the interesting programming was gone from radio. In our house there were a few evenings where we all watched TV together. With only two network stations available we watched the same shows every week. Sunday was the almost mandatory TV day. In the 1950s Sunday nights brought Lassie, The Jack Benny Show, The Ed Sullivan Show, and then GE Theatre and Alfred Hitchcock Presents. By the 60s this became Lassie, Walt Disney, The Ed Sullivan Show, and Bonanza – a lineup that held in our house for many years.

We had a few other TV nights, except in the summertime when kids played outside until dark. I remember in the 50s we regularly watched shows like I Love Lucy, The Danny Thomas Show, The Red Skelton Show (my father’s favorite after Bonanza), and I’ve Got Secret. By the 60s this changed to new shows like The Dick Van Dyke Show, Perry Mason, Mr. Ed, The Beverly Hillbillies, and Rawhide. As you can see by the lineup, there was family compromise, and everybody got to watch their favorite show.

In 1964 we got our first color TV to watch the seventh game of the World Series when Bob Gibson pitched against and beat the Yankees. It took my mother a few years to forgive my father for that impulse purchase. But this sure made a difference for watching shows like Walt Disney and sports. Before then we would occasionally watch football games at my Aunt Helen’s house since she had bought one of the first color TVs in the area (and she always had red velvet cake for halftime).

In 1968 we got a second TV, which went into a basement TV room, mostly to move some of the kid’s programming out of the living room. This new TV also let me watch things the rest of the family wasn’t interested in like the original Star Trek, ACC sports, and NBA basketball.

Somewhere during the 60s the ABC signal got stronger and we could routinely watch three networks. Around 1970 we added the little hoop antenna because two UHF stations became available to us. They mostly reran older series and movies, but it felt liberating to have a few more choices. We still only watched the major networks as a family in the evenings.

Keeping a TV operating was an artform. There was a pile of different-sized tubes in the back of the TV. It was fairly obvious when a tube failed, but a lot harder to spot one that had intermittent problems. The normal way to solve intermittent problems was to yank out all of the tubes and take them to a TV repair shop to be tested. The last resort was to take the whole TV to the shop where it might sit for several long weeks where there’d be no TV in the house.

It’s probably hard for kids today to believe that there was no remote control. Somebody had to get up and manually change the channel. However, with so few available channels we rarely changed the channel since we already knew what we were going to watch. Kids would also be surprised to learn that the networks went off the air after the late news – everybody from the station went home. Like most households, we got the TV Guide in the mail every week that told us what was upcoming. The main advantage of the TV Guide was to make sure not to miss specials – because networks didn’t cross-advertise and it was easy to miss a special TV event without the TV Guide.

Like the rest of America, the TV brought the world into our living room. One of the first big news events I recall clearly was watching Alaska join the US. We watched Walter Cronkite cover big events like the the Cuban misslile crisis, the Kenneday assassination, and the Vietnam War (where we had uncles and cousins fighting). We watched everything about the space race. I was a big fan of the political conventions which were raucous events in those days.

I’ve been a cord cutter now for a decade and I can no longer tolerate linear TV. I love the ability to pause and rewind with delayed TV and I’ve learned to love binge watching. But there was something special about the way that the TV influenced our lives when it was a new medium – something that is gone into history like the rotary dial phone.

Existing 4G Spectrum

I suspect that most people don’t realize the small number of frequencies that are used today to support cellular service. Below is a list of the frequencies used by each US cellular carrier for providing 4G LTE. Except for Sprint, they all use the same basic frequencies.

Frequencies (in MHz)

AT&T  – 1900, 1700 abcde, 700 bc

Verizon – 1900, 1700 f, 700 c

T-Mobile – 1900, 1700 def, 700 a, 600

Sprint – 1900 g, 850, 2500

The letters represent separate licenses for specific sub-bands of the various frequencies. For example, the 1700 MHz band has been licensed in bands a through f and the carriers own rights to various sub-bands rather than to the whole spectrum. The same is also true for 1900 MHz and 700 MHz spectrum. In many cases, the licenses for the various spectrum bands are not nationwide. This means the frequencies used in Cleveland by one of the carriers might be slightly different than the spectrum used in San Francisco.

The carriers are using these limited spectrum bands today to support both 4G voice and data. In metropolitan areas, the carriers are in big trouble. They are finding it impossible to satisfy customer requests for data service, which is resulting in customer blockages or greatly reduced broadband speeds.

One of the primary reasons that the carriers are running into blockages on 4G data is that they aren’t deploying enough different bands of spectrum for broadband. The carriers have three remedies that can be used to improve cellular data – use more bands of spectrum, build more cell sites (small cells), and implement 5G which will allow for more simultaneous connections.

The CTIA, the lobbying group for the wireless carriers has been heavily lobbying the FCC to allocate 400 MHz of additional mid-range spectrum for cellular data. The FCC is considering repositioning numerous bands of spectrum and the CTIA wants to grab everything possible for data purposes.

Unfortunately, spectrum alone is not going to provide the solution the wireless carriers are hoping for. One of the primary reasons that the cellular carriers only use a few different bands of spectrum today is to simplify handsets. There is a huge price to pay for using multiple bands of spectrum in a cell phone. The more bands of spectrum, the more antennas that must be supported and the more power that is used.

If the cellular companies try to load many more bands of mid-range spectrum onto cellphones they will have majorly overstressed the battery life of phones. Most cellphone customers are not likely going to want to trade faster data speeds for shorter battery lives. As I look forward at the strategies of the cellular carriers, the battery life of cellphones might be their biggest limitation. The question is not so much about how much data a cellphone can handle, but rather how much battery life must be sacrificed to gain broadband  performance. The only solution for this is likely some new battery technology that is not yet on the horizon.

I don’t believe that the average cellphone user values cellular data speeds in the same way that they value fast landline data speeds. 4G today is easily capable of streaming video and there’s no reason on a cellphone to stream more than one video stream at the same time. 4G is reasonably okay today at operating most celular apps. The one group of cellphone users that always want more bandwidth are gamers – but there is no way that cellphones are ever going to be able to match the capabilities of gaming systems or gaming computers using landline broadband connections.

I scratch my head every time I hear 5G claims about providing gigabit cellular service. I don’t want to sound like an old-timer who sees no need for greater speeds. But I think we need to be realistic and ask if superfast cellular bandwidth is really needed today – after all, there are still no landline applications for homes that require anything near to a gigabit of bandwidth. The primary reason homes need faster download speeds is to handle multiple big bandwidth applications at the same time, something that is not today a requirement for cellphones.

The idea of gigabit cellular is mostly coming from the imagination of the cellular company marketers. The 5G standard calls for eventual ubiquitous 100 Mbps cellular speeds. Even achieving that much speed is going to require tying together multiple mid-range bands of spectrum. I’m having a hard time seeing the additional revenue streams that will pay for the massive upgrades needed to reach the 100 Mbps goal. The cellular companies all know this but aren’t talking about it because that would dilute the message that 5G will transform the world.

Will Congress Be Forced to Re-regulate Broadband?

Last year the current FCC largely deregulated broadband. They killed Title II regulation and also handed off any remaining vestiges of broadband regulation to the Federal Trade Commission. The FCC is still left with broadband-related tasks associated with broadband. For instance, they still have to track broadband adoption rates. They are still required to try to solve the rural digital divide. They still approve electronics used to provide broadband. But this FCC has killed its own authority to make ISPs change their behavior.

I wrote a blog a month ago talking about the regulatory pendulum. Industries that become dominated by monopolies are always eventually regulated in some manner – governments either proscribe operating rules or else break up monopolies using antitrust laws. One only has to look at the conversation going on in Washington (and around the world) about somehow regulating Facebook, Google and other big web platforms to see that this is inevitable. Big monopolies always grow to trample consumers and eventually the public demands that monopoly abused be curbed.

It’s only been a little over a year since the FCC deregulated broadband and there are already topics looming that beg for regulation. There is nothing to stop this FCC or a future FCC from reintroducing regulation – the courts already gave approval for regulating using Title II. Regulation can also come from Congress – which is the preferred path to stop the wild swings every time there’s a new administration. Even the ISPs would rather be regulated by Congress than to bounce back and forth between FCCs with differing philosophies.

Over half of the states have introduced bills that seek to regulate data privacy. Consumers are tired of data breaches and tired of having their personal information secretly peddled to the highest bidder. A year ago the California legislature passed data rules that largely mimic what’s being done in Europe. The Maine legislature just passed rules that are even more stringent than California in some ways.

It’s going to be incredibly expensive and complicated for web companies to try to comply with rules that differ by state. Web companies are in favor of one set of federal privacy rules – the big companies are already complying with European Union rules and they’ve accepted that providing some privacy to consumers is the cost of doing business. Privacy rules need to apply to ISPs as much as they do to the big web companies. Large ISPs are busy gathering and selling customer data in the same manner as web companies. Cellular companies are gathering and selling huge amounts of customer data.

There are other regulatory issues that are also looming. It seems obvious that if the administration and the Senate turn Democratic that one of their priorities will be to reimplement net neutrality. The ISPs are already starting to quietly violate net neutrality rules. They are first tackling things that customers like such as sponsored video as part of a cellular plan – but over time you can expect the worst kind of abuses that were the reasons behind net neutrality rules.

I think that broadband prices are going to become a major issue. The big ISPs have all acknowledged that one of the few tools they have to maintain earnings growth is to raise broadband prices. Cord cutting is accelerating and in the first quarter the ISPs lost cable customers at a rate of 6% annually. Cord cutting looks like it’s going to go much faster than the industry anticipated as millions of customers bail on traditional cable each quarter. The pressure to raise broadband rates is growing.

We’ve already seen the start of broadband price increases. Over the last few years the ISPs have been raising rates around the edges, such as increasing the monthly price for a broadband modem. More recently we’ve seen direct broadband price increases such as the $5 rate increase for bundled broadband by Charter. We’re seeing Comcast and other ISPs start billing people for crossing data caps. Most recently we know that several ISPs are talking about significantly curtailing special rates and discount for customers – eliminating those discounts probably equates to a 10% – 15% rate increase.

At some point, the FCC will have to deal with rising broadband rates. Higher broadband rates will increase the digital divide as households get priced out from affording broadband. The public will put a lot of pressure on politicians to do something about ISP prices.

Deregulating broadband at a time when a handful of ISPs have the vast majority of broadband customers was one of the most bizarre regulatory decisions I’ve ever seen. All monopolies, regardless of industry need to be regulated – we’ve known this for over a hundred years. It’s just a matter of time before Congress is forced to step up and re-regulate broadband. It may not be tomorrow, but I find it highly unlikely that broadband will still be deregulated a decade from now, and I expect it much sooner.

Cord Cutting Picking Up Pace

Leichtman Research Group has published the cable TV customer counts for the first quarter of 2019 and it’s apparent that the rate of cord cutting is accelerating. These large companies represent roughly 95% of the traditional cable market.

1Q 2019 2,018
Customers Change % Change Losses
DirecTV / AT&T 22,383,000 (543,000) -2.4% (1,189,000)
Comcast 21,866,000 (120,000) -0.5% (371,000)
Charter 16,431,000 (145,000) -0.9% (244,000)
Dish TV 9,639,000 (266,000) -2.7% (1,125,000)
Verizon 4,398,000 (53,000) -1.2% (168,000)
Cox 3,980,000 (35,000) -0.9% (115,000)
Altice 3,297,300 (10,200) -0.3% (98,000)
Frontier 784,000 (54,000) -6.4% (123,000)
Mediacom 764,000 (12,000) -1.5% (45,000)
Cable One 320,611 (11,500) -3.5% (37,465)
83,862,911 (1,249,700) -1.5% (3,515,465)

A few things strike me about this table. First, the annual rate of loss is now 6%. That’s faster than we ever saw for telephone landlines which lost 5% annually at the peak of the market losses. We are only into the third real year of cord cutting and already the rate of customer growth has leaped to a 6% annual loss.

The other big striking number is that the overall traditional cable penetration rate has now dropped to 70%. According to the Census, there are 127.59 million households and adding in the customers of smaller providers shows a 70% market penetration. That’s still a lot of homes with traditional cable TV, but obviously the conversation about cutting the cord is happening in huge numbers of homes.

Another interesting observation is that AT&T is now at the top of the list. They’ve stopped reporting customers separately for DirecTV and for AT&T U-verse, which combined makes them the large cable provider in the country. However, at the rate the company is bleeding traditional cable customers, Comcast is likely to be number one again by the end of this year. AT&T has been encouraging customers to shift to DirecTV Now, delivered only online. However, that service also lost 83,000 customers in the first quarter, so the overall AT&T losses are staggering, at an annual rate of loss of over 8%.

The big losers in total customers are still the satellite companies. As those companies have gotten more realistic about pricing they’ve seen customer flee. There have been numerous articles in the press in publications like Forbes wondering if Dish Networks is even a viable company after these kinds of losses. There is also recent speculation that AT&T might spin off DirecTV and perhaps even merge it with Dish Networks.

The biggest percentage loser is Frontier, losing 6.4% of their customers in just the first quarter. It’s been obvious that the wheels are coming off of Frontier and the company just sold off properties in western states last month in order to raise cash.

For the last few years, Comcast and Charter were still holding on to overall cable customers. This was mostly buoyed by new cable customers that came from big increases in broadband customers – these two companies have added the bulk of new nationwide broadband customers over the last two years. But even with continued broadband growth, these companies are now seeing cable counts drop, and it’s likely that their rate of cord cutting among customers they’ve had for many years is probably as high as the rest of the industry.

It’s still hard to predict the trajectory of cable TV. In just two years the industry as a whole has gone from minor customer losses to losing customers at a rate of 6% per year. I don’t see any analysts predicting where this will bottom out – will it level off or will losses continue to accelerate? In any event, any industry losing 6% of customers annually is in trouble. It’s not going to take many years of losses at this rate for the industry to become irrelevant.

Is the FCC Really Solving the Digital Divide?

The FCC recently released the 2019 Broadband Deployment Report, with the subtitle: Digital Divide Narrowing Substantially. Chairman Pai is highlighting several facts that he says demonstrate that more households now have access to fast broadband. The report highlights rural fiber projects and other efforts that are closing the digital divide. The FCC concludes that broadband is being deployed on a reasonable and timely basis – a determination they are required to make every year by Congressional mandate. If the FCC ever concludes that broadband is not being deployed fast enough, they are required by law to rectify the situation.

To give the FCC some credit, there is a substantial amount of rural fiber being constructed – mostly from the ACAM funds being provided to small telephone companies with some other fiber being deployed via rural broadband grants. Just to provide an example, two years ago Otter Tail County Minnesota had no fiber-to-the-premise. Since then the northern half of the county is seeing fiber deployed from several telephone companies. This kind of fiber expansion is great news to rural counties, but counties like Otter Tail are now wondering how to upgrade the rest of their county.

Unfortunately, this FCC has zero credibility on the issue. The 2018 Broadband Deployment Report reached the same conclusion, but it turns out that there was a huge reporting error in the data supporting that report where the ISP, Barrier Free, had erroneously reported that they had deployed fiber to 62 million residents in New York. Even after the FCC recently corrected for that huge error they still kept the original conclusion. This raises a question about what defines ‘reasonable and timely deployment of broadband’ if having fiber to 52 million fewer people doesn’t change the answer.

Anybody who works with rural broadband knows that the FCC databases are full of holes. The FCC statistics come from the data that ISPs report to the FCC each year about their broadband deployment. In many cases, ISPs exaggerate broadband speeds and report marketing speeds instead of actual speeds. The reporting system also contains a huge logical flaw in that if a census block has only one customer with fast broadband, the whole census block is assumed to have that speed.

I work with numerous rural counties where broadband is still largely non-existent outside of the county seat, and yet the FCC maps routinely show swaths of broadband availability in many rural counties where it doesn’t exist.

Researchers at Penn State recently looked at broadband coverage across rural Pennsylvania and found that the FCC maps grossly overstate the availability of broadband for huge parts of the state. Anybody who has followed the history of broadband in Pennsylvania already understands this. Years ago, Verizon reneged on a deal to introduce DSL everywhere – a promise made in exchange for becoming deregulated. Verizon ended up ignoring most of the rural parts of the state.

Microsoft has blown an even bigger hole in the FCC claims. Microsoft is in an interesting position in that customers in every corner of the country ask for online upgrades for Windows and Microsoft Office. Microsoft is able to measure the actual speed of customer download for tens of millions of upgrades every quarter. Microsoft reports that almost half of all downloads of their software is done at speeds that are slower than the FCC’s definition of broadband of 25/3 Mbps. Measuring a big download is the ultimate test of broadband speeds since ISPs often boost download speeds for the first minute or two to give the impression they have fast broadband (and to fool speed tests). Longer downloads show the real speeds. Admittedly some of Microsoft’s findings are due to households that subscribe to slower broadband to save money, but the Microsoft data still shows that a huge number of ISP connections underperform. The Microsoft figures are also understated since they don’t include the many millions of households that can’t download software since they have no access to home broadband.

The FCC is voting this week to undertake a new mapping program to better define real broadband speeds. I’m guessing that effort will take at least a few years, giving the FCC more time to hide behind bad data. Even with a new mapping process, the data is still going to have many problems if it’s self-reported by the ISPs. I’m sure any new mapping effort will be an improvement, but I don’t hold out any hopes that the FCC will interpret better data to mean that broadband deployment is lagging.