5G Integrated Access and Backhaul

I’ve been discussing in this blog how I don’t believe there are any real 5G deployments yet in the US. A 5G deployment requires the implementation of the new features that are defined by the 5G specifications. To date, each of the major carriers is in the process of implementing new spectrum bands they are labeling as 5G – but the technology being delivered is still 4G that happens to use different spectrum bands. The carriers are at least a few years away from deploying any features that can be said to be 5G such frequency slicing or dynamic spectrum sharing. It’s going to be interesting to see how carriers will announce real 5G after having labeled everything else under the sun as 5G.

One of the first 5G features that will likely to be implemented is IAB – Integrated Access and Backhaul. This feature is defined in 3GPP Release 15 of the 5G specifications and will let a cell site share spectrum between connections to customers and connections to another cell site. It’s likely that the carriers will test this new feature this year and could start to deploy before the end of the year.

IAB will be useful in the deployment of small cell sites. Carriers will be able to use the bandwidth from a cell site connected to fiber to provide bandwidth for a nearby cell site – all integrated into the cell site electronics. This has several benefits for carriers:

  • This avoids needing a second set of wireless electronics to handle backhaul – and the extra antennas and power supplies needed to feed more electronics. The carriers are sensitive to the issue of reducing the profile of small cell sites and want to make them as small and unobtrusive as possible. IAB eliminates the need for extra hardware on poles.
  • It allows deployment of small cell sites before fiber is constructed to every site, and that means being able to activate small cell sites earlier. One of the primary purposes of deploying small cell sites is to offload some of the traffic that is clogging the tall tower cell sites today. Bring fiber to at least a few small cell sites in a neighborhood with IAB will allow connections to other nearby small cells before fiber is constructed everywhere.
  • It allows placing cell sites at locations that would be difficult to feed with fiber. Both Verizon and AT&T say that they view IAB in most cases as a temporary solution to use before fiber is constructed. But there will be situations where a few IAB connections could be permanent where it’s cost-prohibitive to bring fiber.
  • IAB will also provide for emergency backhaul at times when fiber to a small cell site is cut – the backhaul can be fed from nearby small cells until the fiber is repaired.

It is possible to daisy-chain multiple cell sites in a row with wireless backhaul, but that largely kills the reason for deploying small cell sites. The primary purpose of a small cell is to be a fully functional cell site that can grab traffic in a given local neighborhood to keep that traffic off the larger big tower cell sites. The physics of bandwidth is that the amount of bandwidth available for customers cuts in half at both the transmitting and receiving cell site when bandwidth is shared between two cell sites. Splitting bandwidth a second and third time further reduces the effective bandwidth available for customers at each cell site in the chain.

However, there are circumstances where splitting bandwidth is acceptable. While small cell sites are being touted as a way to beef up the 4G LTE network, the biggest use of small cell sites currently is to beam cellular signals into large buildings that have poor indoor cellular coverage. These small cells are often placed on the rooftop and beam cellular signal downward. IAB wireless backhaul could be a permanent solution to feed small cell sites that don’t need as much bandwidth as a full 5G cell site.

IAB is one of the new 5G features that will work in the background and that customers won’t notice, other than to perhaps start enjoying the benefits of small cells earlier before fiber is constructed. However, it will be one of the 5G features that will be deployed first and that will eventually enable the deployment of real 5G.

The Resurgence of Voice

One of the most interesting outcomes of the COVID-19 crisis has been a huge resurgence of telephone calls. While broadband usage is up 40% or more in some markets, the volumes of traditional voice calls have skyrocketed.

Verizon says it’s now seeing an average of 800 million calls per day, which is double the number of calls made on the last Mother’s Day. Verizon also says the average length of calls has increased by one-third over recent averages. AT&T is seeing similarly increased volumes of cellular calls which are up 35%. They have also seen the volume of WiFi calls made using home broadband on cellphones double in recent weeks. The carriers said they are handling the volumes of calls well and have only had to make a few network adjustments. I’m quoting these statistics from Cecelia Kang in the New York Times, but I’ve been hearing a few similar stories from my smaller clients as well.

Voice has been on a steady decline for years, particularly with young people who communicate by texting or by the use of apps like WhatsApp. There are plenty of kids who will tell you they rarely use their phone to initiate phone calls. There was a time when my daughter was a teenager that it seemed like torture to expect her to talk on the phone.

But the COVID-19 crisis has turned the way we communicate on its ear. People need to call a lot more as part of working from home. Conversations that were done by walking down the hall now need to be done phone or computer.

I’ve been on a lot of computer meetings and calls in the last few weeks. I happen to have decent broadband and the quality of Zoom or GoToMeeting works great at my end, but I’ve connected to a lot of people who are struggling with poor quality broadband. A lot of people are connecting into computer meetings by phone out of necessity. The carriers report that the biggest surge in voice traffic is now in the daytime, which has historically been the time when phone traffic from residential neighborhoods was at its lowest. Call volumes now seem to have surged because of remote working.

A lot of the surge of voice traffic likely comes from people reaching out to friends and relatives they can no longer visit. I’ve seen a big increase in solo walkers in my neighborhood who are getting out of the house by taking a walk. The big majority of walkers are now talking as they walk – something that used to be fairly rare.

Most people are surprised to hear that over 40% of homes still have a traditional landline. Many households have ditched landlines completely for cellphones over the last decade. A number of homes with landlines have no choice because they live in areas with poor or no cellular coverage. These households are worried every time they hear something bad about their carrier, like with the recently announced Frontier bankruptcy. While many homes are struggling with poor broadband connections when being forced to stay home, there are millions of homes with no broadband and for whom the traditional landline is their only connection to the world. Many of these people have commuted to places where cellphones work and where the office has broadband, and being stuck at home with only a landline is a throwback to the days before dial-up.

It’s almost certain that voice volumes won’t stay this high after the end of the crisis. However, voice calling probably also won’t revert quickly to old volumes. I think there are likely to be a lot of people who will continue to work from home. I’ve been hearing from folks who say they’ve never been so productive before and will continue to work at home more when the crisis is over. I know that’s what drove me to work from home years ago.

We’ll probably adopt new habits. Young people who are calling and talking to family now might continue to do so when the crisis is over. People who have reconnected with old friends or began talking to existing friends daily by phone might continue to do so. This will all be made easier if the FCC is successful in finally tamping down the volume of nuisance calls we all get.

For the most part, this is a temporary situation, a throwback to the old days when the family phone was in use for most of each evening. It’s interesting to those of us who grew up in the voice business to see this resurgence.

Congress, Don’t Be Too Hasty

As Congress is handing out relief money for the COVID-19 crisis, rumors are flying around that rural broadband relief is one of the issues being discussed. The plight of employees and students unable to work from home has certainly bubbled up to a majority of those in Congress.

My advice to Congress is to not be to hasty. Don’t have the knee-jerk reaction of just tossing big bucks towards the rural broadband problem, because if you do much of the money will be wasted. There have been back-of-the-envelope estimates made that it would take anywhere from $60 billion to well over $100 billion to bring fiber to everywhere in rural America. Nobody knows the number and my guess is that it’s towards the upper end of that scale.

The typical Washington DC approach to the problem would be to earmark a pile of money to solve the problem, with no forethought of how to use the funds. This tendency is bolstered by the fiscal year spending nature of government funding, and Congress would likely expect broadband money to be spent quickly.

And that’s where the rub comes in. The broadband industry is not prepared to handle a sudden huge influx of funding. Consider all of the following issues that would quickly become apparent if this were to happen:

  • The first big question that would be asked with funding is where to spend the money – which parts of the country need the funding help? Unfortunately, the FCC will be of nearly zero help in this area, so you can’t run a giant grant program through them. The upcoming RDOF grants are supposedly aimed at bringing broadband to all of the places that don’t already have 25/3 broadband. But due to the dismal FCC mapping process, the current maps miss huge swaths of rural America that also need better broadband but that are misclassified by the FCC maps. If Congress gives the money to the FCC to disperse, the agency has no idea where to spend it according to its flawed data.
  • The next big question is how to award funds. The FCC’s RDOF grant program is using a reverse auction to award funds – but this only works when the funding is awarded to a specific footprint of grant areas. More traditional grant awards require the writing of extensive grant requests to prove the worthiness of a grant applicant and the worthiness of grant project. Anybody that remembers the Stimulus grants for broadband recalls that even at that time there were almost no qualified and experienced people available to review grant applications – and a lot of the Stimulus funding went to unworthy projects. A poorly run grant program also invites fraud and waste – the bigger the dollars the bigger the problems.
  • In perhaps the hardest issue for many to believe, there are not enough qualified ISPs ready and able to handle a big influx of funding and of operating the ensuing broadband businesses. We hear about small ISPs offering service all over the country, but all of them together don’t serve more than perhaps 5% of the broadband customers in the country today. Most small ISPs are already fully leveraged today as they’ve borrowed money to expand their footprint. Any grants that require matching funds might find a dearth of takers. If we throw money at the industry too quickly, it’s going to all end up going to the big telcos – and that likely just means pouring money down a black hole. It’s not hard to look back at the total bust of the CAF II program where the big telcos spent $11 billion in FCC funding and didn’t make any dent in the rural broadband problem. If Congress spreads awards out over time, then big new ISPs like electric cooperatives can prepare to go after the awards – most of them are not close to ‘shovel-ready’ today.
  • You can’t ask for broadband funding without some sort of engineering estimate of the cost of building a network and some sort of business plan showing that the network can operate profitably at the end of the funding. There are not a lot of ‘shovel-ready’ broadband projects laying around waiting for funding, and so the first step after a big Congress funding program would be to develop hundreds of new business plans. All of the consultants and engineers I know are already full-time busy helping companies to prepare for the $16.4 billion RDOF grants and the various state grant awards around the country.
  • The same is true of fiber construction companies. During this last construction season, we started seeing construction companies bidding up rates to go to the builder willing to pay the most for their services. There are not a lot (if any) idle fiber construction crews sitting around waiting for work. Fiber construction is not something that can be taught quickly to new workers – it takes years to develop a good fiber splicer or to train somebody to be able to determine pole make-ready.
  • We’re also starting to see backlogs for fiber materials. The waiting times for ADSS fiber that goes into the power space recently crept up to six months. The far bigger concern is electronics. Right now, the world supply chains are a mess due to COVID-19 and the industry is expecting delays in electronics delivery in the coming construction season. Supply houses and vendors aren’t talking about this, hoping it will magically go away, but there will likely be electronics shortages in the 2020 construction season even without pressure from new grants. Such shortages can cripple construction projects.
  • Finally, I am positive that any federal broadband grant money will come with stupid rules, many slapped on the funding by the big ISP lobbyists. There will be needless hoops to jump through and rules that make it hard to spend the money well. There is zero chance that federal grant funding wouldn’t come with ridiculous rules and ridiculous restrictions. If Congress is going to award big money they need to take a little time that the rules are fair and efficient.

There will be people reading this in amazement and wondering how a rural broadband advocate could be recommending caution. One only has to look back to the stimulus grants to recall that probably half of that money was wasted due to the haste of the grant programs. My fear is a knee-jerk federal reaction that will throw giant bucks at the problem when the proper solution would be a series of grants awarded over five or more years to allow ISPs time to get ready. Funding in one giant lump would result in a mess of epic proportions. I fear that DC would then wash their hands of rural broadband by saying that they already funded it, and any communities left behind after a flawed grant program would likely be left behind for decades to come. Congress, if you want to help your constituents, please ask for advice and get it right.

It’s Hard to Like AT&T

Over the last year, I’ve said some nice things about AT&T. It was nice to see AT&T wholeheartedly embrace their commitment to build fiber past 12 million homes as they had promised as part of the conditions of buying DirecTV. In the past, they might have shrugged that obligation off and faked it, but they’ve brought fiber to pockets of residential neighborhoods all over the country. It seemed that they were unenthusiastic about this requirement at first, but eventually embraced when somebody at the company realized that new fiber could be profitable.

I also thought that AT&T was by far the most responsible wireless carrier in terms of not ridiculously exaggerating the supposed coming of 5G, although they finally gave in to their marketing arm and started labeling the latest version of 4G LTE as if it is 5G.

But overall, AT&T is hard to like as a company. AT&T puts stock prices and Wall Street above everything else and is probably as good of an example as any of large corporations gone amuck. AT&T clearly values the bottom line over employees, customers, and the public good.

If you look back a few years, you can find numerous times where AT&T lobbied against net neutrality and broadband regulation. The company repeatedly said that unfair regulation was stopping them from making capital investments and promised that if the government would lift regulations that they would invest more. The FCC handed them even more than they had publicly asked for when the agency eliminated Title II regulation along with net neutrality.

AT&T didn’t react to the end of regulation by increasing capital investment as promised. They instead laid off a lot of employees and in the year after net neutrality was eliminated spent about the same for capital – only due to big spending on their sole-source First Net contract. Then in 2019, capital spending dropped by $1.9 billion and they are planning to cut an additional $3 billion this year. The drop in capital spending is hard to reconcile with the supposed 5G race that we are supposedly waging against China.

AT&T also joined with other large corporations and publicly pledged that if the government would lower the corporate tax rate that they’d hire thousands of new high-paying tech jobs and again promised to increase capital spending.  The unions that work for AT&T claim that since the enactment of the 2017 tax act that AT&T has laid off nearly 38,000 employees and are down to under 248,000 employees. Rather than investing in new capital and people, AT&T has been spending billions to buy back their stock to help keep stock prices high. The company used excess cash to buy back almost $2 billion of its stock in the fourth quarter of 2019 and had announced $4 billion of additional buybacks this year that was just recently put on hold due to the COVID-19 pandemic.

Meanwhile the company significantly raised consumer prices. There were moderate rate increases for broadband and cellular customers, and larger ones for video customers. But the biggest increases came when AT&T ended promotional pricing on video and expected customers to pay full price at the end of contracts. This move raised video rates significantly and led 4.1 million customers to drop DirecTV, U-verse TV, and the online AT&T TV in 2019. The company has said they were glad to be rid of low-margin customers.

In the summer of 2019, AT&T was sued in a class-action suit alleging that the company was selling real-time customer location data for cellular customers, even though the company had repeatedly told customers that they were not doing so. A series of reports by Motherboard showed that AT&T, Sprint, and T-Mobile had continued selling customer data even after promising to stop the practice.

AT&T recently made headlines by dropping data caps during the COVID-19 crisis. What’s worth noting is that the company has perhaps the most restrictive data caps in the country, particularly on DSL and fixed-wireless. The data caps at AT&T are clearly in place to make money over and above any rates promised to subscribers. Hopefully, there will be a huge public outcry when the company quiets puts the data caps back in place.

During all of the above, the company has significantly increased compensation for its CEO Randall Stephenson. His salary in 2019 was more than $32 million, up from $29 million the year before. However, much of that number is based upon stock bonuses, and shares of AT&T closed under $29 last week, down from over $39 at the start of this year. The company announced a new CEO last week and we’ll have to wait to see how he is compensated.

It’s honestly hard to say much nice about AT&T these days. I think back to when I worked at the company pre-divestiture, when the company made a steady, but unspectacular monopoly profit. The company and employees in those days were proud of the US communications network which was second to none in the world. It’s been clear for a long time that none of that old Ma Bell thinking is left in the company that now is driven to maximize stock price over everything else.

A Bad Year for the Cable Industry

The traditional cable TV industry had a miserable 2019. Collectively the biggest cable TV providers lost over 5.9 million subscribers during the year, almost 7% of the total customer base. The impacts of COVID-19, along with the already existing trends in the industry spell bad news for the industry in 2020.

I expect that customer losses will accelerate over 2019 levels. The majority of subscribers leaving traditional cable cite cost as the primary reason, and as millions of people lose their jobs, one of the first things they are going to do is to ditch traditional cable for something less expensive. For years, nationwide surveys of subscriber sentiment have shown that as many as 20% of households each year contemplate dropping traditional cable TV, but for a variety of reasons many households don’t get around to doing so. This year a lot of these homes are finally going to make the change.

The industry has also lost its largest advertising draw in sports. MoffettNathanson predicted that just losing the spring and early summer sports could cost the industry as much as $26 billion in advertising. If COVID-19 carries forward through baseball and into football season those numbers will climb much higher. The MoffettNathanson numbers also didn’t include the impact on Comcast of delaying the Olympics for a year, which are a significant piece of corporate earnings. The impact of sports advertising will be uneven throughout the industry because of contractual relationships. Many contracts require networks to continue to pay for sports rights to the various sports leagues even if the games aren’t played, but contracts also require the leagues to compensate networks for lost advertising revenue. That’s going to mean a lot of lawsuits, but the bottom line is that sports leagues and cable networks will both lose a lot of revenue.

Advertising is taking additional hits. Travel-based advertising has already disappeared. It’s also now obvious that a lot of local advertising is drying up as small businesses feel the pinch from this crisis, affecting both local TV stations and newspapers. A number of small newspapers around the country have already folded, and local television and radio stations are likely to follow.

Another big hit for the industry will come as the production of new content has slowed to a crawl. Movie and television studios have put the production of new content on hold. How long will homes remain happy crawling through the old content on Netflix, Amazon Prime, Hulu, etc?

Sports networks are in big trouble since they have no live content to share. Watching ESPN right now is downright sad for a sports fan. Sports fans might watch old playoff games on ESPN, FS1 and other networks for a few weeks, but that’s going to get quickly lose its appeal.

The programmers have already baked future rate increases into their future contracts with cable providers. With sports programming and new content both dwindling, I expect a lot of small telcos and cable companies will decide that this is a good time to ditch the cable product entirely. Half of my clients that offer cable TV have already been having internal discussions about if and when to walk away from cable – this year might provide the impetus to do so.

If there is any silver lining for the industry, it’s that this is an election year and there promises to be a lot of political advertising between now and November – at least in states with close races for President or with a heavily contested Senate race.

The cable industry was already under stress and this year ought to push it closer to the brink where the traditional cable model breaks. The industry isn’t to that brink yet and over 60% of homes are still subscribing to traditional cable TV. But as that number drops, many of the industry paradigms are going to break and the industry will either have to reinvent itself or undergo the slow death that we saw with residential landlines.

The Frontier Bankruptcy

To nobody’s surprise, Frontier declared bankruptcy. What is somewhat ironic is that the company blamed their problems on the lack of fiber – something that the company had the last decade to address. The company lost 6.3% of broadband customers and 21% of video customers in 2019.

People that live in rural areas in the Frontier service areas know them as a dreadful ISP. They probably don’t know the company’s history. Frontier was originally Citizens Utilities based in Minneapolis. The company decided to grow by acquisition. The company first acquired 500,000 telephone lines from GTE starting in 1993 – customers that had originally been served by Contel. In 1994 they acquired 117,000 telephone lines from Alltel – properties that were originally operated by CP National. The company picked up another 187,000 rural access lines when GTE merged with Verizon since Verizon wasn’t interested in acquiring more rural customers. In 1999, Citizens purchased Rochester Telephone that served Rochester, New York. In 2001 the company acquired the assets and customers of Global Crossings, which included local telephone customers, a long-distance network, and long-haul fiber. In 2006 the company purchased Commonwealth Telephone in Pennsylvania.

The biggest acquisitions came in 2009 when Frontier purchased the Verizon customers in thirteen states for $8.6 billion. This was followed by the purchase of Verizon customers in California, Florida, and Texas in 2016 for $10.5 billion. In 2014 the company purchased AT&T’s customers in Connecticut, which had formerly been called the Southern New England Telephone (SNET). Everybody I talked to who was knowledgeable about acquisitions thought that Frontier massively overpaid for the last three purchases. The prices paid per customer were high considering the condition of the properties they were purchasing.

There is probably no better example than West Virginia. When Frontier purchased the customers in that state, Verizon had already had the market up for sale for over a decade. During that time Verizon had stopped doing maintenance, had cut staff and had taken the normal steps to ‘dress-up’ the bottom line to enhance a sale by cutting costs wherever possible. Frontier bought a telco in West Virginia that was already in dreadfully bad shape, as were many of the other properties purchased from big telcos.

Frontier’s shortcomings were recently addressed in a 164-page report by Schumaker and Company that was funded by the West Virginia Public Service Commission. The report looked in detail at Frontier’s problems in West Virginia – a state where Frontier is the only ISP for the vast majority of the state.

Unfortunately, the current version of the report is highly redacted since Frontier claimed that details of their operations in the state are proprietary. Hopefully, the redactions will be overruled due to the fact that the company is the carrier of last resort in a state where there are still huge areas with little or no cellular coverage. However, even with the redactions it’s clear from the report that the Frontier spends little money in rural areas, has cut staff significantly in recent years, and has done very little to upgrade the networks since the original purchase. Frontier recently sold some of their properties in the Northwest as a way to raise cash.

The Frontier bankruptcy plan asks for a quick restructure and the ability to walk away from $11 billion in debt. I’ve read several analysts who are skeptical that the bankruptcy will be that easy. If the company keeps losing customers at the current pace, I find it hard to think there will be many lenders willing to front big loans for the company to rebuild.

A giant telco comprised of huge rural areas never made sense. I predicted that Frontier would eventually fold when they purchased some of the most neglected telco properties in the country. It took a decade, but those purchases finally brought the company down.

Any restructuring is not going to help the rural properties served by Frontier. The best possible solutions in terms of benefits to customers would be to restructure Frontier to just operate in its larger markets and to force it to divest of rural properties to the highest bidder – even if that offer is pennies on the dollar. New owners of the rural properties would be more likely to tackle upgrades, while Frontier is not likely to care about rural America even should they start over out of the bankruptcy.

Another FCC Disaster?

Anybody thinking of filing an RDOF grant needs to pay a lot of attention to the challenges being made to the $16.4 billion RDOF grant footprint. The FCC invited ISPs to notify them if there are any Census blocks where the ISP has added broadband of at least 25/3 since June 30, 2019. Even though the RDOF is covering the most remote households that supposedly don’t have even 10/1 Mbps broadband, you’d expect that some ISPs have built into the RDOF footprint over the last 9 months. However, that’s not the response that the FCC got. While there were a number of ISPs that claimed to have built into a few Census blocks, the large incumbent telcos are claiming to have built into a huge numbers of blocks since last June. Frankly, the responses of the of large telcos are not credible and the FCC needs to take a pause and challenge these results.

Here’ what the big telcos claimed:

  • AT&T claims about 1,500 Census blocks that have been upgraded to at least 25/3 since June 30, 20198.
  • Frontier claims over 16,000 Census blocks have been upgraded.
  • CenturyLink claims over 5,400 Census blocks have been upgraded.
  • Windstream claims 1,713 upgraded Census blocks.
  • Consolidated claims over 7,300 Census blocks.

To put these numbers into perspective, the Census Bureau says that the average Census block contains 40 – 45 people. Rural Census blocks often have fewer residents than urban blocks, and even if the average for these blocks is 40 people, the big telcos are asking to remove about 1/3 of the people out of consideration for RDOF grants. That number is mind-boggling. If the big telcos had been making this kind of progress in expanding 25/3 Mbps rural broadband before June 30, 2019, then we wouldn’t have a rural digital divide.

Consider the individual claims:

  • Frontier lost 235,000 broadband customers in 2019, representing 6.3% of their customer base. The company has been cash-strapped and has not been making rural capital investments. It’s fairly well understood in the industry that the company didn’t even spend much of its CAF II funding to upgrade rural customers to 10/1 Mbps. It’s inconceivable that the company that just entered bankruptcy upgraded over 16,000 Census blocks in the last 9 months.
  • Consolidated Communications is next on the list claiming upgrades in 7,300 Census blocks. The company purchased Fairpoint in July 2017 and has been actively making upgrades since then. But even for a company actively making upgrades, a claim of improvements in this many Census blocks seems hard to believe over a 9-month period that includes the winter months.
  • CenturyLink claims upgrades in 5,400 Census blocks. The company has loudly proclaimed a number of times that it is not making investments that earn ‘infrastructure returns’. It’s frankly hard to believe that they would have spent the money in rural America needed to make these upgrades.
  • Windstream is claiming over 1,700 Census blocks. The company has been flirting with bankruptcy during the last nine months and it’s reasonable to ask if they were really this active in making upgrades in the last 9 months.
  • AT&T claims over 1,500 Census blocks have been upgraded. This is the company that wants badly to get out of the rural wireline business. These upgraded Census blocks need to have come from the AT&T Fixed wireless technology. I’m not aware of AT&T having launched any mass marketing effort aimed at rural census blocks. Consider AT&T’s broadband subscriber numbers for 2019. AT&T lost a little over 300,000 broadband customers during the year. To offset that loss, AT&T claims to have added over 1 million customers on fiber. One would think it would be obvious if AT&T was also out heavily promoting the rural fixed-wireless product.

It’s easy to understand why an incumbent telephone company would make these claims. Any Census blocks that remain in the RDOF grant process are going to be overbuilt by faster technology than the rural DSL offered by these telcos. The incumbents can only remain as the monopoly provider by removing Census blocks from the RDOF footprint.

The FCC needs to investigate these claims. This is reminiscent of the overstated wireless coverage claimed last year by Verizon, T-Mobile, and Sprint that prompted the FCC to delay the rural cellular grants, now labeled as 5G Grants, for a year. It was obvious to the FCC that those wireless carriers were making the erroneous coverage claims to keep out competition. There has to be a whole lot of that going on here as well.

Remember that these claims are being made under the existing rules for the FCC’s 477 process. In the current process an ISP only has to have one customer in a Census block getting the declared speed. The easiest way for the FCC to check these numbers is to require each telco to provide the addresses of customers in each Census block that supposedly now has 25/3 Mbps broadband. The FCC could call and talk to those homes and ask them to take a speed test to see if the telco claims are even remotely plausible. I expect the lists would quickly revised and shrink if the carriers are required to get that specific.

The FCC also needs to allow Census blocks that have only a few 25/3 customers to remain in the RDOF grant. It would be a huge disservice to the other customers in these Census blocks to doom them to remain as monopoly customers for another decade.

These filings are so blatantly suspicious that the FCC has to pause, even if that means delaying the RDOF grants. Considering the hardships being experienced by everybody in these areas during the current COVID-19 crisis, the FCC cannot accept these crazy claims without challenging them. It would have been possible credible if each of these big telcos claimed a few hundred Census block upgrades – but in aggregate this filing looks like a monopoly land grab more than anything else. If these claims prove to be false the FCC needs to fine these telcos into the stone age – such fines deserve to be in the billions.

FCC to Eliminate the Subscriber Line Charge?

In WC Docket 20-71 the FCC is considering eliminating the Subscriber Line Charge (SLC). The SLC has been around since 1984. The FCC at that time wanted to lower the cost of long-distance. It was not unusual at that time to have long-distance rates as high as $0.30 per minute with the average long-distance rate in the country somewhere between $0.12 and $0.15 per minute. The FCC understood that high long-distance rates were hurting the country and they wanted to lower the fees that local telcos charged to long-distance companies like the newly formed AT&T long-distance company, MCI, and other competitive long-distance providers.

The FCC only had jurisdiction over Interstate rates. In those days every regulated telephone company calculated jurisdictional costs using Part 67 of the FCC rules. Companies performed ‘separation’ cost studies to determine the portion of the costs that were associated with local service, state long-distance service, and interstate long-distance service. In 1983 the FCC approved Part 69 which created access charges – specific interstate rates that local telephone companies were allowed to charge to long-distance carriers to use the local telephone network for originating or terminating an interstate long-distance call.

As part of the creation of access charges, the FCC decided to arbitrarily shift some Interstate costs from long-distance carriers to telephone subscribers – this was the start of the Subscriber Line Charge (SLC). In that first year, the FCC shifted $1 from Interstate costs to the fee charged to every telephone subscriber. The SLC was raised annually until it reached $4.50. Over time the FCC eventually increased the fee to as much as $6.50. The SLC is still an FCC access charge, but it is billed to end-user customers and not to long-distance carriers. Theoretically, this means that every telephone subscriber is paying $6.50 for the right to make or receive long-distance calls – even if they don’t use that right.

The FCC’s actions had the desired effect, and long-distance rates dropped annually. This was a big deal for homes and businesses. I remember as a kid when making a long-distance call was a big deal, since a 7 to 10-minute call cost a dollar. Long-distance rates got cheaper until eventually, we have cellphones and local phones that come with unlimited long distance.

I remember working for a holding company of small telcos after divestiture and everybody was concerned that raising local rates a dollar per month was going to cause customers to drop phone service. I don’t think we lost any customers from the first local rate increase, or in subsequent years as the SLC continued to be increased. Customers applauded the cheaper long-distance rates.

The SLC has caused confusion over the years. A lot of customers have assumed the SLC is a tax – but the amount is billed and kept by the telephone company. The real confusion started after the Telecommunications Act of 1996 that allowed competitive local exchange carriers (CLECs) to compete with local telephone companies. CLECs didn’t have a clear way to set competitive rates. For example, if a CLEC was competing against a telco with $20 local rates, that telco might also have had a SLC charge of $6. That means the true local rate was $26. If the CLEC wanted to give a modest discount and charge $23, they had a dilemma. While a $23 rate was a good deal for customers, it didn’t compare well against the $20 base telephone rate that was charged before adding the SLC. Most CLECs elected to break their local rate into two parts to match the separate local rate and the SLC charged by the telcos. In this example, a CLEC might have set a $17 local rate and kept the $6 separate rate.

CLECs were not authorized to bill the SLC charge because they were not subject to the same jurisdictional separations of costs. Instead, CLECs just split local rates into two pieces to try to match telco rates. Many CLECs tried to make their version of the SLC charge sound like a tax by calling it the ‘FCC Fee’ or some similar name. The FCC made a few CLECs change the name of the fee, but mostly the FCC ignored how CLECs billed, and many customers have long believed that the SLC fee was a tax and not part of local rates.

It was inevitable that the FCC would finally end the SLC – the need for it is long over. However, for local telephone companies, the SLC has part of the basic rate for telephone service. If the FCC eliminates the SLC, most telcos cannot automatically add the lost revenue back to local rates. As hard as it might be to believe today, many telcos are still under state regulation of rates and would need permission from a state regulator to add the lost SLC fee to local rates. I predict that many state commissions will deny a local rate increase, or at least make telcos jump through a lot of hoops to get it. Local telephone regulation is largely dead, but this would give state regulators perhaps their last chance to feel relevant for local telephone rates.

Meanwhile, CLECs that decided to charge the SLC can instead just add the lost amount to their base rate. The FCC has made it clear in this docket that once approved, no company is to bill a line item that could be construed to be the SLC. The chances are that anybody that still has a landline from a telco, including numerous businesses, will see a rate reduction by as much as $6.50 per telephone line per month. Telcos will likely just see revenues drop as they lose the SLC fee and aren’t able to replace it.

Predictions for a Post-COVID-19 World

While it might still be too early to make predictions, there are dozens of articles on the web predicting how the COVID-19 pandemic might change our long-term behavior. Here are some of the more interesting predictions I’ve seen that involve broadband and telecom:

An Outcry for Better Home Broadband. Millions of people were sent home for work or school to homes that didn’t have good broadband. These folks have been telling the world for years that they don’t have good broadband. When this crisis is over these people are going to insist on being heard, and they are going to take out their anger on politicians who don’t help to find broadband solutions. This means Mayors and City Councils that are not pro-broadband. This means County Boards and Commissions that don’t offer matching grants to attract ISPs. This means any state politician who votes against significant state broadband grants or who votes against municipal participation in broadband. And this means federal Senators and Representatives that support the big cable companies and telcos over their constituents. Folks are not likely to be fooled any longer by false legislation that supposedly is pro-broadband but which is the exact opposite – because folks are going to be paying attention to any news concerning their home broadband.

Digital Meetings Are Here to Stay. We are all seeing how effective it can be to meet online. People are going to be a lot less willing to travel for a one or two-hour meeting. I know my days of doing that kind of traveling are over. This means airline business travel is likely never coming back to former levels, but it means a lot more. I was talking to somebody in local government the other day who told me that they spend over 10 hours of every workweek driving between meetings around a large county. He said he thinks the day or required live attendance at such meetings is likely over.

Demand for Faster Upload Speeds. The permanent uptick in more video meetings means there will be an increased demand for faster upload broadband speeds. The FCC still talks about 25/3 Mbps as acceptable broadband, but a home or office getting only 3 Mbps upload is not able to hold multiple simultaneous video calls. Homes and businesses are going to favor technologies willing to meet that upload speed demand.

Telemedicine has Arrived. I have been watching the glacial acceptance of telemedicine for fifteen years. The biggest hurdles have been the reluctance of doctors to try telemedicine and the willingness of insurance companies to pay for it. We’ve broken both of those barriers and telemedicine is here to stay. There are numerous routine doctor visits that don’t require an office visit. It’s never made sense to force patients who aren’t sick to march through a waiting room that has been filled all day with those with colds, the flu, or worse.

Expect Contactless Payments. I can remember being promised twenty years ago that we’d be able to pay for things by waving a cellphone. Nobody wants to hand a credit card to a clerk or even pass a credit card through a device that other people have used all day – so stores that install touchless payment systems are quickly going to become preferred. Expect an expansion of telephone, voice, and vision interface at checkout locations and a phase-out of credit card swiping. Also, expect an increased reluctance to take cash. There were already stores in New York City last year that made headlines by refusing to accept cash – expect a lot more of that.

More Telecommuting. Businesses have seen that people can be effective when working from home. Expect to see businesses more easily allowing for working from home at least part-time. This likely means a downturn in business real estate. For example, my neighbor is an architect who works at a small local branch of a larger firm. They’ve already seen the effectiveness of working from home and have already discussed not reopening the local office when the crisis is over. More telecommuting means more daytime use of neighborhood bandwidth and an increased expectation of residential broadband signal quality.

A Reboot for Corporate Security. We just spent a decade moving corporate data behind firewalls and restricting access to data from outside the business. Many businesses scrambled to find ways to allow employees to work from home, and in doing so undid many of their security protocols. Expect a major reboot as companies implement security solutions that support telecommuting.

Cable Customers Plummet in 2019

The final numbers are in for 2019 and the largest cable providers collectively lost over 5.9 million customers for the year – a loss of almost 7% of customers. 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 95% of all cable customers in the country.

Following is a comparison of the end of 2018 and 2019:

4Q 2019 4Q 2018 Change % Change
Comcast 21,254,000 21,986,000 (732,000) -3.3%
Charter 16,144,000 16,606,000 (462,000) -2.9%
DirecTV 16,033,000 19,222,000 (3,189,000) -16.6%
Dish TV 9,394,000 9,905,000 (511,000) -5.2%
Verizon 4,229,000 4,451,000 (222,000) -5.0%
Cox 3,865,000 4,015,000 (150,000) -3.7%
AT&T U-verse 3,440,000 3,704,000 (264,000) -7.1%
Altice 3,179,200 3,286,100 (106,900) -3.3%
Mediacom 710,000 776,000 (66,000) -8.5%
Frontier 660,000 838,000 (178,000) -21.2%
Cable ONE 314,000 318,061 (4,061) -1.3%
Atlantic Broadband 308,638 347,638 (39,000) -11.2%
Total 79,530,838 85,454,799 (5,923,961) -6.9%
Total Cable 45,774,838 47,334,799 (1,559,961) -3.3%
Total Satellite 25,427,000 29,127,000 (3,700,000 -12.7%
Total Telco 8,639,000 8,993,000 (664,000) -7.4%

These losses were offset a bit as the combination of Hulu Live, Sling TV and AT&T TV collectively added just over 1 million customers. Leichtman doesn’t have subscriber numbers for YouTube TV and a few others that are not publicly reported.

Some observations of the numbers:

  • The overall loss of nearly 7% of customers represents a free fall of traditional cable TV. At the worst of the downside, landlines dropped about 5% of market share per year.
  • The big loser is AT&T, which lost nearly 4.1 million video customers between DirecTV and AT&T U-verse, and AT&T TV. The losses were so large at DirecTV that Charter moved up to become the second largest cable provider.
  • The big percentage loser is Frontier that lost 21% of its cable customers for the year.
  • The cable big companies fared the best, but this is partially due to the fact that Comcast and Charter each added 1.4 million broadband customers for the year – and added cable customers as part of that growth.
  • Cable ONE’s losses are small due to the 2019 acquisition of Fidelity.

As large as these losses are, the losses for 2020 are likely to be a lot larger. The primary reason household still give for cutting the cord is the high price of traditional cable TV. My guess is that the uncertainty of household incomes this year are going to drive many more homes to save money by migrating to lower-cost entertainment alternatives.