FCC Modifies Lifeline Rules

The FCC released new rules for the Lifeline program in November. These rules will make it harder for some companies to participate in the program, but it opens up the door to many new participants.

The FCC has obsessed for years about fraud in the program. There are numerous cases over the years of the program providing Lifeline subsidies to people who are no longer eligible or who even died. However, a lot of that blame has to placed on the FCC. Carriers have never had any ways to know if Lifeline participant gets a job and is no longer were eligible, or even if the eligible family member dies and the subsidy continues to go to the household. The FCC has finally taken the steps to fix such problems through the creation of the National Lifeline Eligibility Verifier – a database updated monthly by government agencies that provide the support that makes participants eligible.

The following new rules are lifted directly from the FCC, which says the new rules will improve the program by:

  • Prohibiting participating carriers from paying commissions to employees or sales agents based on the number of consumers who apply for or are enrolled in the Lifeline program
  • Requiring participating carriers’ employees or sales agents involved in enrollment to register with the program administrator, the Universal Service Administrative Co. (USAC)
  • Strengthening prohibitions barring Lifeline providers from claiming “subscribers” that are deceased
  • Taking additional steps to better identify duplicate subscribers, prevent reimbursement for fictitious subscribers, and better target carrier audits to identify potential FCC rule violations
  • Increasing transparency by posting aggregate subscribership data, including data broken out at the county level, on USAC’s website
  • Increasing transparency with states by directing USAC to share information regarding suspicious activity with state officials
  • Restoring the states’ traditional role of designating carriers to participate in the Lifeline program.

One of the requirements is somewhat unusual in that ISPs need to identify those employees responsible for enrolling participants in the Lifeline plan. For most ISPs, that’s going to be the customer service staff. The requirement is a headscratcher because it’s hard to conceive of any possible good way that the FCC can use this information.

The last bullet point highlights an opportunity for ISPs that want to participate in the program. For the last several years it’s been exceedingly difficult for an ISP to enter the Lifeline program. During that same period, we’ve seen big telcos like AT&T withdraw from the plan in most of the states where they operate.

An ISP that wants to offer a low-price broadband product for low-income households can collect the Lifeline subsidy to offset price discounts. For example, an ISP could offer a low-income broadband connection and collect $20 from a customer and also collect the $9.25 Lifeline subsidy from the Universal Service Fund. The Lifeline funds are paid directly to the ISP from the Universal Service Fund.

More importantly, ISPs now can apply to become eligible for Lifeline with state regulators rather than from the FCC – which has been blocking new applications for several years. There is a particularly good opportunity for tribal ISPs since the Lifeline subsidy on tribal lands can be as high as $34.25 per qualified recipient.

Enrolling in the Lifeline program is another tool to help ISPs attack the homework gap. ISPs can use the subsidy to provide lower price broadband to qualifying homes with school students. If an ISP serves customers that qualify for a discount, it’s hard to justify not joining the program and giving such customers a break on rates.

Will Costly Alternatives Slow Cord Cutting?

The primary reason that households claim they cut the cord is due to price. Surveys have shown that most households regularly watch around a dozen cable channels, and cord cutters still want to see their favorite channels. Not all cord cutters are willing to go cold turkey on the traditional cable networks and so they seek out an online alternative that carries the networks they want to watch.

For the last few years, there have been online alternatives that carry the most popular cable networks for prices between $35 and $45 per month. However, during the last year, the cost of these alternatives has risen significantly. I doubt that the price increases will drive people back to the cable companies where they had to pay for hidden fees and a settop box, but the higher prices might make more households hesitate to make the switch. Following are the current prices of the major online alternatives to traditional cable TV:

Hulu Live TV. This service is owned 2/3 by Disney and 1/3 by Comcast. They recently announced a price increase effective December 18 to move the package from $44.99 to $54.99. Customers can also select an add-free version for $60.99. At the beginning of 2019, the service was priced at $39.99, so the price increased by 36% during the year.

AT&T TV Now (was called DirecTV Now) raised the price of the service earlier this year from $50 to $65. The company also raised the prices significantly for DirecTV over satellite and lost millions of customers between the two services.

YouTube TV raised prices in May from $40 to $50. This service is owned by Google. Along with the price increase, the service added the Discovery Channel.

Sling TV is owned by Dish Networks. They still have the lowest prices for somebody looking for a true skinny package. They offer two line-ups, called Blue or Orange that each cost $25 per month, or both for $40 per month. There are also add-ons packages for $5 per month for Kids (Nick channels, Disney Jr), Lifestyle (VH-1, BET, diy, Hallmark), Heartland (outdoor channels), Hollywood (TCM, Sundance, Reelz), along with News, Spanish and International packages. One of the big things missing from Sling TV is local network channels and they provide an HD antenna with a subscription. Sling TV has spread the most popular channels in such a way that customers can easily spend $50 to $60 monthly to get their favorite channels.

Fubo TV is independent and not associated with another big media company. They offer 179 channels, including local network channels for $54.99 per month. The network started with sports coverage including an emphasis on soccer.

TVision Home is owned by T-Mobile. This was formerly known as Layer3 TV. The company has never tried to make this a low-cost alternative and it’s the closest online service to mimic traditional cable TV. The service is only available today in a few major markets. Customers can get an introductory price of $90 per month (goes up to $100 after a year). They charge $10 per extra TV and also bill taxes that range from 4% to 20% depending upon the market. This is cable TV delivered over broadband.

Playstation Vue. The service is owned by Sony and has announced that it will cease service at the end of January 2020. The service is no longer taking new customers. The price of the core packages is $55 per month, which increased by $5 in July.  The service carries more sports channels than most of the other services.

The channels offered by each service differ, so customers need to shop carefully and compare lineups. For example, I’m a sports fan and Sling TV and Fubo TV don’t carry the BigTen Network. There are similar gaps throughout the lineups of all of the providers.

All of these alternatives, except perhaps TVision Home, are still less expensive than most traditional cable TV packages. However, it looks like all of these services are going to routinely increase rates to cover increased programming fees. Couple that with the fact that customers dropping cable TV probably lose their bunding discounts, and a lot of houses are probably still on the fence about cord cutting.

The Windstream / Uniti Mess

I’ve been fielding a lot of questions asking about the controversy between Windstream and Uniti. Most people seem to be fuzzy about the relationship between the companies. I’ll try my best to explain the mess that these two companies have created.

Windstream decided in January 2014 to spin off its assets into a REIT, which is a real estate investment trust, a formal kind of investment vehicle defined by law. A REIT generally owns real estate like apartment buildings, shopping malls, or perhaps specialty real estate like storage buildings or college dorms. REITs sell ownership shares to the public, similar to stocks. An investor in a REIT is making a real-estate investment while gaining safety by spreading risk across multiple properties. A REIT is generally expected to pay significant dividends.

Windstream was a traditional mostly family-owned regulated telco. Windstream moved its fiber and copper assets to a REIT owned by the newly-formed Uniti. In the split of assets, Robert Gunderman remained as CFO of Windstream while his brother Kenneth become CEO of Uniti. The Uniti REIT is attractive to investors because Windstream pays roughly $650 million per year in ‘rent’ to Uniti for use of the network. Since formation, Uniti has added other assets to the portfolio, but the Windstream assets still represent 70% of its assets.

The current mess was triggered when Aurelius Capital, a lender to Windstream, filed a lawsuit claiming that the REIT arrangement was a violation of Windstream’s corporate bonds. Windstream immediately filed for bankruptcy earlier this year when a judge ruled in favor of Aurelius Capital.

Windstream and Uniti immediately went to mediation to try to resolve the issues raised by the Aurelius Capital lawsuit. Recently it became clear that the two companies could not resolve the issues, and Windstream and Uniti are now going to court to decide the future of the REIT arrangement.

The court case is mostly going to have to resolve an accounting issue. At issue is the question of whether the payments from Windstream to Uniti are rent or if they are instead a disguised financing arrangement. This difference is vital to the survival of Windstream and Uniti. If the payments are rent, as Uniti maintains, then Windstream would have to pay rent before they make debt payments to Aurelius Capital and others. Further if the payments are rent then Wondstream would have to continue to pay Uniti to use the network. However, if the payments to Uniti are considered to be a financing arrangement, then those payments become unsecured debt and go to the end of the line in payment priority.

The ‘rent’ payments to Unity equate to a $6.9 billion long-term liability of Windstream. The company has another $4.8 billion in senior debt and $1.5 billion of unsecured debt. If a court decides that the payments to Uniti are rent, then the bankruptcy court is likely to erase some of the debt owed to Aurelius Capital and others. However, if the payment due to Uniti are unsecured debt, then a bankruptcy court is likely to erase some of the Uniti debt, which would put Uniti out of business.

Windstream would see a huge windfall if they could walk away from some or all of the Uniti payments – however, they’d be in the awkward position of not owning their networks. It’s hard to picture what happens to the networks if Uniti goes bankrupt.

There are several factors that the courts will use to determine if the Uniti payments are more like debt or rent. For example, rent is generally determined by fair market value of the property. The copper networks are nearing end-of-life and it’s hard to argue that the annual payments to rent copper shouldn’t be declining. However, the payments from Windstream to Uniti increase every year during the 35-year lease term. When examining all of the arguments made in this case, from an accounting perspective it seems that Windstream has the stronger arguments – but the courts will have to decide.

If Windstream is required to continue the full payments to Uniti, the telco will be cash-strapped for the foreseeable future. It seems that Windsteam feels confident they will win the lawsuit because they recently announced a plan to bring gigabit fiber to 60% of its customer base over the next 10 years, predicated upon getting out from under the Uniti debt payments. This means that the broadband future for a lot of communities rides upon the court deciding that the Uniti payments are debt and not rent.

A Peek at AT&T’s Fixed LTE Broadband

Newspaper articles and customer reviews provide a glimpse into the AT&T wireless LTE product being used to satisfy the original CAF II obligations. This article from the Monroe County Reporter reports on AT&T wireless broadband in Monroe County, Georgia. This is a county where AT&T accepted over $2.6 million from the original CAF II program to bring broadband to 1,562 rural households in the County.

Monroe is a rural county southeast of Atlanta with Forsyth as the county seat. As you can see by the county map accompanying this blog, AT&T was required to cover a significant portion of the county (the areas shown in green) with broadband of at least 10/1 Mbps. In much of the US, AT&T elected to use the CAF II money to provide faster broadband from cellular towers using LTE technology.

The customer cited in the article is happy with the AT&T broadband product and is getting 30/20 Mbps service. AT&T is cited in the article saying that the technology works best when serving customers within 2 miles of a cell tower, but that the coverage can sometimes extend to 3 miles. Unfortunately, 2 miles or even 3 miles isn’t very far in rural America and there are going to be a lot of homes in the CAF II service area that will be too far from an AT&T cell tower to get broadband.

From the AT&T website, the pricing for the LTE broadband is as follows. The standalone data product is $70 per month. Customers can get the product for $50 per month with a 1-year contract if they subscribe to DirecTV or an AT&T cellular plan that includes at least 1 GB of cellular broadband allowance. The LTE data product has a tiny data cap of 215 GB of download per month. Customers that exceed the data cap pay $10 for each additional 50 GB of data, up to a maximum fee of $200 per month.

The average household broadband usage was recently reported by OpenVault as 275 GB per month. A household using that average broadband would pay an additional $30 monthly. OpenVault also reported recently that the average cord cutter uses over 520 GB per month. A customer using a cord cutter level of data would pay an additional $70 per month. The product is only affordably priced if a household doesn’t use much broadband.

The article raises a few questions. First, this customer had to call AT&T to get the service, which apparently was not being advertised in the area. He said it took a while to find somebody at AT&T who knew about the LTE broadband product. The customer also said that the installer for the service came from Bainbridge, Georgia – which is a 3-hour drive south from the AT&T cell site mentioned in the article.

This highlights one of the major problems of rural broadband that doesn’t get talked about enough. The big telcos all have had massive layoffs over the last decade, particularly in the workforces supporting copper and rural networks. Even should one of these big telcos offer a rural broadband product, how good is that product without technician support? As I travel the county, I hear routine stories of rural folks who wait weeks to get broadband problems fixed.

When I heard that AT&T was going to use LTE to satisfy it’s CAF II requirements, my first thought was that their primary benefit was to use the federal funding to beef up their rural cellular networks rather than to start caring about rural broadband customers. In Monroe County, AT&T received almost $1,700 per CAF household, and I wonder if they will all see the benefits of this upgrade.

I’ve always suspected that AT&T wouldn’t aggressively market the LTE broadband product. If they were heavily marketing this by now, at the end of the fifth year of the CAF II buildout, there would be rural customers all over the country buying upgraded broadband. However, news about upgraded broadband is sparse for AT&T, and also for CenturyLink, and Frontier. I work with numerous rural counties where the local government never heard of CAF II since the telcos have done little marketing of improved rural broadband.

The article highlights a major aspect of the plight of rural broadband. We not only need to build new rural broadband infrastructure, but we need to replenish the rural workforce of technicians needed to take care of the broadband networks. The FCC needs to stop giving broadband money to the big telcos and instead distribute it to companies willing to staff up to support rural customers.

FCC to Create 5G Fund

On December 4, FCC Chairman Ajit Pai announced a plan to create what he is calling the 5G Fund. This new fund will replace the already planned $4.5 billion Mobility Fund Phase II Fund and adds another $4.5 billion. The fund has been renamed to suggest that 5G will bring faster broadband to rural America.

The original goal of the Mobility Fund II was to expand 4G LTE coverage to the most rural parts of the country where there is no cellular coverage today. While preparing to award that fund, the FCC figured out that the 4G coverage maps for the biggest cellular companies were significantly overstated. This caused the FCC to pause the Mobility Fund Phase II awards, and they are now rolling that money into this larger new fund. There are things to both love and hate about this announcement.

Some of the Things to Hate:

I hate that the 5G hype got rolled into this announcement. Consider the following from Pai’s announcement:

5G has the potential to bring many benefits to American consumers and businesses, including wireless networks that are more responsive, more secure, and up to 100 times faster than today’s 4G LTE networks. . . . We want to make sure that rural Americans enjoy these benefits, just as residents of large urban areas will. In order to do that, the Universal Service Fund must be forward-looking and support the networks of tomorrow.

That statement is incredibly misleading. The only new technology that is 100 times faster than 4G LTE is the use of millimeter wave spectrum. Millimeter wave spectrum is only faster when the transmitters are fiber-fed. This fund is not going to be used to build the fiber needed to bring millimeter wave hot spots to the most rural parts of America. That technology only broadcasts fast broadband for less than 1,000 feet, so it’s likely to never be economically viable to bring this technology to remote places. Unfortunately, the Chairman’s statement is going to make rural people think they might be getting broadband that is 100 times faster.

I also hate that Chairman Pai used this same announcement to announce that AT&T and Verizon have massively overstated their 4G coverage maps. One would expect there to be some sort of regulatory repercussion for those companies exaggerating their coverage areas. The big carriers have been accused of overstating coverage to limit how much of the Mobility Fund Phase II went to smaller carriers. Instead of punishing the big carriers, this announcement glossed over the bad behavior and instead rewards them by doubling the size of the fund. I’m guessing that the fund doubled in size to cover the areas that the carriers had erroneously claimed as having cell coverage. At the end of the day, this fund is another big dollar giveaway to the biggest carriers in the country. I know this money should greatly improve rural cellular coverage – it’s just getting a bit tiresome watching this FCC hand everything imaginable to the biggest carriers.

I also hate that this order is not likely going to require that any new fiber built using federal money be made available to others. These billions will be used to construct a lot of fiber to rural cell towers and that fiber would be a great launching point for competitiors that want to bring better broadband to rural areas. You might recall that the broadband grants that came from the stimulus program required all fiber constructed with federal funds be made available to ISPs at affordable rates. However, when money is given to the big carriers – in this program and in the CAF II program – there is no such requirement.

Some of the Things to Like:

This reconstituted fund still keeps the primary goal of the original Mobility Fund Phase II, which is to bring better cellular coverage to areas that don’t have it today. I visit rural America regularly and it’s not hard in rural places to drive out of cellular coverage. Hopefully, this fund fills many of those coverage gaps. I’m always amazed when I come upon a small community in an area with zero cellphone coverage. We talk all of the time about the broadband gap, but for many folks, there is a more fundamental connectivity gap.

I also like that some of this money will go to the smaller cellular carriers that already serve in rural America. I have faith that they’ll use the money more wisely than the big carriers. The fund will operate as a reverse auction, and I hope that the many smaller cellular carriers can win the money in places where they already have better networks than the big carriers.

Cable Customers Continue to Plummet – 3Q 2019

The number of traditional cable TV subscribers continued to plummet in the third quarter of 2019. The numbers below come from Leichtman Research Group which compiles these numbers from reports made to investors, except for Cox which is estimated.

The numbers reported are for the largest cable providers and Leichtman estimates that these companies represent 93% of all cable customers in the country.

For the quarter, the large cable companies lost 2.1% of subscribers which would equate to a trend of losing 8.4% for the year. However, that number needs to be put into context. The biggest drop of customers came from AT&T / DirectTV which lost nearly 1.3 million customers in the quarter, and 2.6 million customers so far this year. Much of AT&T’s loss comes from the decision to end discount plans to customers and has been letting customers go who won’t agree to pay full price at the end of previously given discount plans. The company says they are glad to be rid of customers who were not contributing to the bottom line of the company. All of the other providers collectively lost 0.9% of market share for the quarter, or a pace of 3.8% annualized. It appears the many of the lost DirecTV customers didn’t reappear at another cable provider and are gone from the industry, and so AT&T seems to be pushing households to cut the cord perhaps earlier than they might have otherwise. The nearly 1.8 million customer loss for the quarter sets a new record for cord-cutting.

Following is a comparison of the second and third quarters of this year:

3Q 2019 2Q 2019 Change % Change
Comcast 21,403,000 21,641,000 (238,000) -1.1%
DirecTV 16,828,000 17,901,000 (1,073,000) -6.0%
Charter 16,245,000 16,320,000 (75,000) -0.5%
Dish TV 9,494,000 9,560,000 (66,000) -0.7%
Verizon 4,280,000 4,346,000 (66,000) -1.5%
Cox 3,900,000 3,940,000 (40,000) -1.0%
AT&T U-verse 3,600,000 3,704,000 (104,000) -2.8%
Altice 3,223,400 3,255,300 (31,900) -1.0%
Mediacom 729,000 747,000 (18,000) -2.4%
Frontier 698,000 738,000 (40,000) -5.4%
Atlantic Broadband 312,555 307,261 5,294 1.7%
Cable ONE 298,063 308,493 (10,430) -3.4%
Total 81,011,018 82,768,054 (1,757,036) -2.1%

Some other observations:

  • Frontier continues to bleed and lost 5.4% of its cable customers along with 71,000 broadband customers in the second quarter.
  • Several other companies – Mediacom, and Cable One lost more than 2% of their cable customer base in the quarter.
  • The rate of loss for Dish Networks continues to shrink, and this might be due to picking up customers that are leaving DirecTV.

I haven’t seen anybody tracking the quarterly performance of all of the online cable equivalent providers – the companies that carry a full line-up online. It seems unlikely from the numbers I have seen that these companies are picking up a lot of the customers leaving traditional cable TV. For example, Leichtman reports that Sling TV picked up 214,000 customers in the third quarter while DirecTV Now lost 195,000 customers.

I have to wonder at what point the cable industry will start to implode? Cord cutting is accelerating. The popular press and social media are full of advice telling people to cut the cord. There are major new online content platforms like Disney+, HBO Plus, and Apple + that are providing additional justification to cut the cord. Advertising revenues are starting to drop along with subscriber revenues.

There must be drastic changes in industry practices if the traditional cable business is to survive. Continued price increases are pushing cable TV out of the range of affordability for most homes. To survive, the cable companies and the programmers would have to get together to reform the industry with affordable products people are willing to buy. At least for now, that possibility seems remote.

Immersive Virtual Reality

In case you haven’t noticed, virtual reality has moved from headsets to the mall. At least two companies now offer an immersive virtual reality experience that goes far beyond what can be experienced with only a VR headset at home.

The newest company is Dreamscape Immersive that has launched virtual reality studies in Los Angeles and Dallas, with more outlets planned. The virtual reality experience is enhanced by the use of a headset, hand and foot trackers, and a backpack holding the computers. The action occurs within a 16X16 room with vibrating haptic floor (responds to actions of the participant). This all equates to an experience where a user can reach out and touch objects or can walk around all sides of a virtual object in the environment.

The company has launched with three separate adventures, each lasting roughly 15 minutes. In Alien Zoo the user visits a zoo populated by exotic and endangered animals from around the galaxy. In The Blu: Deep Rescue users try to help reunite a lost whale with its family. The Curse of the Lost Pearl feels like an Indiana Jones adventure where the user tries to find a lost pearl.

More established is The Void, which has launched virtual reality adventure sites in sixteen cities, with more planned. The company is creating virtual reality settings based upon familiar content. The company’s first VR experience was based on Ghostbusters. The current theme is Star Wars: Secrets of the Empire.

The Void lets users wander through a virtual reality world. The company constructs elaborate sets where the walls and locations of objects in the real-life set correspond to what is being seen in the virtual reality world. This provides users with real tactile feedback that enhances the virtual reality experience.

You might be wondering what these two companies and their virtual reality worlds have to do with broadband. I think they provide a peek at what virtual reality in the home might become in a decade. Anybody who’s followed the growth of video games can remember how the games started in arcades before they were shrunk to a format that would work in homes. I think the virtual reality experiences of these two companies are a precursor to the virtual reality we’ll be having at home in the not-too-distant future.

There is already a robust virtual reality gaming industry, but it relies entirely on providing a virtual reality experience through the use of goggles. There are now many brands of headsets on the market, ranging from the simple cardboard headset from Google to more expensive headsets from companies like Oculus Rift, Nintendo, Sony, HTC, and Lenovo. If you want to spend an interesting half an hour, you can see the current most popular virtual reality games at this review from PCGamer. To a large degree, virtual reality gaming has been built modeled on existing traditional video games, although there are some interesting VR games that are now offering content that only makes sense in 3D.

The whole video game market is in the process of moving content online, with the core processing of the gaming experience done in data centers. While most games are still available in more traditional formats, gamers are increasingly connecting to a gaming cloud and need a broadband connection akin in size to a 4K video stream. Historically, many games have been downloaded, causing headaches for gamers with data caps. Playing the games in the cloud can still chew up a lot of bandwidth for active gamers but avoids the giant gigabyte downloads.

If history is a teacher, the technologies used by these two companies will eventually migrate to homes. We saw this migration occur with first-generation video games – there were video arcades in nearly every town, but within a decade those arcades got displaced by the gaming boxes in the home that delivered the same content.

When the kind of games offered by The Void and Dreamscape Immersive reach the home they will ramp up the need for home broadband. It’s not hard to imagine immersive virtual reality needing 100 Mbps speeds or greater for one data stream. These games are the first step towards eventually having something resembling a home holodeck – each new generation of gaming is growing in sophistication and the need for more bandwidth.

Aesthetics and 5G

A recent news article by CBS4 in Denver shows a power supply unit for 5G that was recently installed in Aurora, CO. It’s roughly 5-foot tall and I venture to guess that most homeowners would not want this device at the front of their home.

The cellular companies have convinced the FCC that they need carte blanche authority to place small cell sites where they are needed, and the FCC gave them this authority in September 2018. The FCC order reversed the historic process where cell site placement was under local control. In asking for a national preemption of local rules the cellular carriers argued that they needed blanket authority to put cell sites anywhere in public rights-of-way if the US is to win the 5G war.

Communities all over the country have pushed back hard against the FCC ruling. Numerous cities and states have filed lawsuits against the FCC ruling. Courts have chipped away at that ruling and in August of this year, the US Court of Appeals for the D.C. Circuit ruled that the FCC couldn’t preempt local ordinances concerning environmental and historic preservation reviews of cell site placement. A few cities have passed ordinances that would stop deployment of small cells due to concerns about health, property values, or aesthetics.

When the wireless companies first started deploying pole-mounted small cell sites some of the deployments were major eyesores. Deployments included placing large boxes and antennas and power supplies in the air connected by a maze of live wires. The wireless carriers quickly cleaned up their act in terms of hideous deployments, but in looking at the deployment in Aurora they still have a way to go. One interesting thing about this deployment is that the device sits on the ground. When this order was issued the press covered this as an order about placing devices on poles and they missed that the FCC gave the big carriers the right to put devices anywhere in the public right-of-way.

Historically, carriers would seek homeowner permission to install cabinet-sized boxes. More often than not they would find a place in a neighborhood where the cabinets and boxes were somewhat hidden from sight. Even though the process required voluntary participation by homeowners, it worked well. Sometimes carriers had to go to the city when they were unable to find a location for a needed cabinet, but in most cases, the carriers and the public worked out a solution.

It seems unfair that the first time that a homeowner finds they are getting a large cabinet in their yard is during the installation process. Just because carriers have the right to place anything related to small cells in the right-of-way doesn’t mean they should callously do so without communicating with the public. In this case, the wireless carrier probably had alternatives like placing the needed electronics in an underground vault instead of the large cabinet. That solution would cost more but would eliminate animosity with residents.

That raises an interesting regulatory question. In the long-run regulations are driven by what the public finds acceptable or unacceptable. The public in Aurora is not likely to be upset by this one small cell deployment, but imagine if there are 200, or 500 or 1,000 identical cabinets placed around the city. When carriers deploy solutions that the public doesn’t like, a city is going to fight back against the unpopular practices. New ordinances for small cells are likely to end up in court, and at some point, a judge will decide if the Aurora small cell device somehow crosses the line.

The FCC 5G order is interesting in that it swings to the far extreme of the regulatory pendulum by ruling that the wireless carriers have blanket authority to place any device anywhere they want. Over time, whether done by a future FCC, by the courts, or by Congress, rulings at the extreme fringe of the regulatory pendulum inevitably swing back towards the center. It’s almost inevitable over time that cities will get back more say about the aesthetics of small cell placement.

Counting Gigabit Households

I ran across a website called the Gigabit Monitor that is tracking the population worldwide that has access to gigabit broadband. The website is sponsored by VIAVI Solutions, a manufacturer of network test equipment.

The website claims that in the US over 68.5 million people have access to gigabit broadband, or 21% of the population. That number gets sketchy when you look at the details. The claimed 68.5 million people includes 40.3 million served by fiber, 27.2 million served by cable company HFC networks, 822,000 served by cellular and 233,000 served by WiFi.

Each of those numbers is highly suspect. For example, the fiber numbers don’t include Verizon FiOS or the FiOS properties sold to Frontier. Technically that’s correct since most FiOS customers can buy maximum broadband speeds in the range of 800-900 Mbps. But there can’t be 40 million people other people outside of FiOS who can buy gigabit broadband from other fiber providers. I’m also puzzled by the cellular and WiFi categories and can’t imagine there is anybody that can buy gigabit products of either type.

VIAVI makes similar odd claims for the rest of the world. For example, they say that China has 61.5 million people that can get gigabit service. But that number includes 12.3 million on cellular and 6.2 million on WiFi.

Finally, the website lists the carriers that they believe offer gigabit speeds. I have numerous clients that own FTTH networks that are not listed, and I stopped counting when I counted 15 of my clients that are not on the list.

It’s clear this web site is flawed and doesn’t accurately count gigabit-capable people. However, it raises the question of how to count the number of people who have access to gigabit service. Unfortunately, the only way to do that today is by accepting claims by ISPs. We’ve already seen with the FCC broadband maps how unreliable the ISPs are when reporting broadband capabilities.

As I think about each broadband technology there are challenges in defining gigabit-capable customers. The Verizon situation is a great example. It’s not a gigabit product if an ISP caps broadband speeds at something lower than a gigabit – even if the technology can support a gigabit.

There are challenges in counting gigabit-capable customers on cable company networks as well. The cable companies are smart to market all of their products as ‘up to’ speeds because of the shared nature of their networks. The customers in a given neighborhood node share bandwidth and the speeds can drop when the network gets busy. Can you count a household as gigabit-capable if they can only get gigabit speeds at 4:00 AM but get something slower during the evening hours?

It’s going to get even harder to count gigabit capability when there are reliable cellular networks using millimeter wave spectrum. That spectrum is only going to able to achieve gigabit speeds outdoors when in direct line-of-site from a nearby cell site. Can you count a technology as gigabit-capable when the service only works outdoors and drops when walking into a building or walking a few hundred feet away from a cell site?

It’s also hard to know how to count apartment buildings. There are a few technologies being used today in the US that bring gigabit speeds to the front of an apartment building. However, by the time that the broadband suffers packet losses due to inside wiring and is diluted by sharing among multiple apartments, nobody gets a true gigabit product. But ISPs routinely count them as gigabit customers.

There is also the issue of how to not double-count households that can get gigabit speeds from multiple ISPs. There are urban markets with fiber providers like Google Fiber, Sonic, US Internet, EPB Chattanooga, and others where customers can buy gigabit broadband on fiber and also from the cable company. There are even a few lucky customers in places like Austin, Texas and the research triangle in North Carolina where some homes have three choices of gigabit networks after the telco (AT&T) also built fiber.

I’m not sure we need to put much energy into accurately counting gigabit-capable customers. I think everybody would agree an 850 to 950 Mbps connection on Verizon FiOS is blazingly fast. Certainly, a customer getting over 800 Mbps from a cable company has tremendous broadband capability. Technically such connections are not gigabit connections, but the difference between a gigabit connection and a near-gigabit connection for a household is so negligible as to not practically matter.

It’s All About the Collateral

I’m often asked if a business plan is solid enough to take to the bank for financing. I disappoint a lot of folks when I tell them that, while a solid business plan is important, getting loans is all about the collateral.

Banks are not in the business of understanding your business. They don’t know how to evaluate a broadband business plan. It’s important to understand that in a given week a bank might be offered your broadband business plan, a plan to roll-out a dozen yogurt stores, a plan to combine several farms, and a plan to start a new brewery. They can’t begin to be able to understand the nuances of the many business plans they see.

It’s very easy to become too invested in your business plan. I often hear people describing their business plan as ‘can’t fail’. I can usually demonstrate that this is not so by changing a few of their key assumptions. It’s the rare broadband business plan that can’t be worsened by lowering the customer penetration rate, slowing down the speed of sales, or increasing the interest rate on debt.

Banks understand this. Every bank has a portfolio of failed projects where the bank lost a lot of their loan investment even though a project looked solid. Banks are skeptics by nature because they deal all day with prospective borrowers who are convinced that they are bringing a no-fail project. If a loan is large enough, a bank might hire an expert like me to check the assumptions in a business plan to help to identify the most sensitive variables. However, even with expert advice, a bank is still going to assume that a business can fail.

That’s why I say that the most important thing is collateral. Collateral represents the ability of the bank to recover some of their funds should a project fail. The stronger the collateral, the easier it is for banks to make the loan.

There are various types of collateral. The best collateral is a payment guarantee that kicks in even should a project be a total bust. This is the reason why municipal bonds that are backed by tax revenues can get lower interest rates. If a city builds a fiber network, a golf course, or an arena and the expected revenues don’t materialize, a tax-backed loan requires the city to raise taxes to make the bond payments.

Many new ISPs become familiar with the idea of collateral when banks ask them for a personal guarantee, meaning a borrower must pledge their home and savings as back-up for a project. That guarantee is rarely as powerful as tax-collateral, but it improves a borrower’s chance of getting the loan.

Established ISPs also face loan guarantees. If a telco wants to undertake a large new fiber project, they generally end up pledging their entire existing company to get the new loan. Communities often wonder why existing ISPs don’t expand faster, and more often than not it’s because they’ve already used up all of their collateral on existing loans. Just like with households, every business has a natural lending cap, at which no bank will loan them more.

Banks do consider other issues other than collateral. For example, a bank might consider track record when lending to an ISP that has been successful many times in the past – and that track record might lower the needed collateral. Banks love grants, but love owner equity even more since it means the owner has skin in the game.

Occasionally I see a new fiber venture that gets funded when it probably shouldn’t. There are local banks that lend to a local fiber project because they think their community needs fiber to thrive and survive. A bank in that situation is putting themselves on the line since they see their survival tied to the survival of the community.

The bottom line is that a project without collateral is not easily bankable. Unsophisticated borrowers think the numbers in their business plan tell a bank all they need to know. The truth is that the business plan is several items down the checklist for a bank, with collateral at the top of the list.