Monthly Archives: October 2020

A Comcast Product for Cord-cutters

It’s been interesting to watch how the big cable companies have been trying to battle cord-cutting. Comcast has had a product for a while that is aimed directly at cord-cutters.  It’s labeled as Flex and is a video streaming service that is only available to Comcast broadband customers who are not buying a Comcast TV product.

Comcast hoped that Flex would be a direct competitor to Roku, Amazon Firestick, and Google Chrome. The Flex product clearly wants to keep customers who cut the cord inside the Comcast umbrella.

The product delivers 10,000 programs including Comcast content and content from other free online services like Pluto, Xumo, and Tubi. Content comes with commercials. For now, Comcast is also throwing in Comcast’s paid service Peacock for free. The Flex platform also gives customers an easy portal to watch Netflix, Amazon Prime, HBO, and Hulu.

Flex is certainly price right and currently is free for Xfinity broadband customers. When first introduced, Comcast was charging $4.95. Flex still requires the Comcast settop box and remote. I’m guessing the price came down when Comcast found few buyers willing to rent a box to get free content.

There is a big difference between Flex and competitors like Firestick or Roku in that customers can only use the apps on the platform that Comcast has installed. No additional apps for video or music services can be added to the app. This is probably the biggest disadvantage of Flex in that people are using a lot of different video apps online. I have an Amazon Firestick and it will let me add any online video app regardless of whether the app provider has a deal with Amazon.

When Comcast first introduced the Flex product, I thought the company wanted to become another superbundler like Amazon. Amazon allows customers to buy a subscription to a huge array of different online apps, and I assume Amazon gets a slice of revenue for delivering customers to partner video platforms. There are many video services for which Amazon has become the primary marketing channel. Amazon even suggests content that requires a subscription to the partner apps. The superbundler concept is likely profitable. Amazon has to be doing well taking a small slice of the revenue stream from nearly one hundred other platforms.

Amazon’s made it clear a few years ago that it wanted to become the one-stop shop for online video content, and Amazon has bundled together far more content than anybody else. But in the last year, we’ve seen the rise of proprietary platforms from CBS, Apple, Disney, and others including Comcast’s Peacock that won’t cross-market with Amazon and others. It’s not looking like any one bundler is going to be able to pull together a giant percentage of online video content.

It’s less clear how Comcast intends to benefit from Flex. I assume Comcast gets a share of ad revenues generated on platforms like Pluto. But there doesn’t seem to any other major benefit to the company for operating the Flex program, particularly since they are providing the settop box to Flex customers for free. The plan probably made financial sense at a monthly $4.95 rate, but it’s hard to see the long-term benefit to Comcast of offering a free service. Perhaps the one big benefit to Comcast is that the settop box used for Flex can also be used to control smart home and other Comcast products. Perhaps the company is using Flex to draw in customers for these other products.

Comcast has one big advantage over anybody else in the industry in that every Flex customer is already a Comcast broadband customer. That should mean that Comcast has little incremental cost for delivering the free content offered by Flex. It’s easy to forget that Netflix and all of the other online providers must maintain an expensive network to enable them to disseminate video content.

The Flex product is somewhat symbolic of the attempt for industry players to somehow be relevant in the online video market. The product doesn’t drive direct revenue for Comcast even though the company must provide a settop box. The platform is proprietary, which seems to be the new norm for video platforms. It’s one more of the many confusing choices faced by cord-cutters.

The Magnitude of the Urban Digital Divide

The web is full of stories of rural areas with no broadband options, and I’ve spent a lot of time in the last few decades helping rural areas get better broadband. There has not been nearly as much coverage of the huge broadband gap in urban areas. There are a lot of urban homes that can’t afford broadband and, in many cases got bypassed when the telcos and/or cable companies built their networks.

I just saw a statistic that made me realize the magnitude of the urban broadband divide. There has always been a lot of urban homes that don’t have broadband, but the issue took on new importance when schools were forced to send students home to work. I read an article in the Democrat and Chronicle, from Rochester, New York that says that 20% of residences in New York City don’t have access to home broadband. That’s a pretty typical percentage in looking at cities across the country. The statistic that astounded me was that this translates into 750,000 students who don’t have a way to tackle schoolwork from home.

That number is mind-boggling. There are more students in NYC without home broadband than the total number of residents of Alaska, Vermont, Wyoming, or Washington DC. The article says that the percentage of homes without broadband is in the same 20% range in Rochester and Buffalo. In Syracuse, the percentage of homes without broadband is much higher at 32%. Nationwide my firm has studied urban markets where the percentage of homes without broadband ranges from under 10% to as high as 35%.

We know the primary reasons that homes don’t have broadband. Surveys and studies over the years in different markets have uncovered the same list of primary reasons homes don’t have broadband. Some homes simply aren’t interested in broadband and wouldn’t use it if was free. Some homes have low broadband needs and are happy with what they can get from a cellular plan. The biggest single barrier is the price – broadband has grown to be more expensive over time and many homes have a hard time justifying paying for broadband when they are struggling to pay for food or rent. Some homes can afford broadband but can’t also afford to keep a working computer in the home. Some people don’t know how to use a computer and need training in basic computer skills. The last reason we see given for not having broadband is a dislike for the way that ISPs and social media misuse personal data.

Around the country, some communities have found solutions for some of these problems. The gigantic challenge is how to apply solutions at the scale of a big city. How can a city provide digital literacy training on computer skills to several hundred thousand people? How do you get hundreds of thousands of computers into homes that need them? And the big dollar question is how to subsidize the cost of a monthly broadband connection to half a million homes.

What’s scary is that every other city is similar, with some in even worse shape than New York City. How do you scale up and provide solutions when the universe of people on the wrong side of the digital divide is 10 million to 20 million?

Local communities have tackled some of these issues during the pandemic. I’ve talked to rural counties that are making sure that every student has a computer at home and that every student has enough broadband to connect to school servers – usually using cellular hot spots. However, local governments are not going to be able to keep paying the fees for home broadband – even in a small community that will add up to a lot of money over time.

We can’t shy away from tackling digital divide issues just because the problem is so large and is found in almost every community. Local solutions can make a real difference, particularly in smaller communities – but the magnitude of the digital divide is too immense to easily tackle in larger cities.

The Race to Bury Net Neutrality

The Internet is currently full of news articles describing how the FCC will soon be putting to bed the last vestiges of its order a few years ago to eliminate net neutrality rules. The order that is widely being called the net neutrality ruling was a far-reaching change at the FCC that essentially wrote the FCC out of any role in regulating broadband.

Eliminating net neutrality rules was only a small part of that order. Net neutrality is a set of principles that describe how ISPs and network owners are to not discriminate between bits carried over the Internet. Most of the largest ISPs said that they could live with the net neutrality principles, and eliminating net neutrality was not a high priority for companies like AT&T and Comcast. The real priority for the big ISPs was to take advantage of a friendly FCC that was open and willing to deregulated broadband – particularly willing to eliminate any threat of broadband rate regulation.

So when you read the flood or articles this month talking about net neutrality, you need to substitute the term ‘net neutrality’ with ‘regulating broadband’ as you read articles on the topic. The FCC chose to disguise their attempt to kill regulation under the moniker of net neutrality and was successful since the average American probably has no idea that the FCC no longer regulates ISPs and broadband.

The FCC is holding a vote on October 27, just before the presidential election to cement the last open pieces from the FCC’s order to eliminate broadband regulation. The FCC’s order to write the agency out of broadband regulation was challenged in federal court. The court basically said that the FCC had the regulatory authority to either change the rules (or not change the rules) to walk away from broadband regulation.

However, the court said that the FCC needs to demonstrate that eliminating regulatory authority over broadband didn’t impact three areas negatively. The FCC was asked to clarify:

  • How eliminating broadband regulation impacts public safety;
  • How the FCC can still regulate pole attachments if it doesn’t regulate broadband;
  • If walking away from regulation negatively impacts the FCC’s ability to offer the FCC Lifeline programs that benefit low-income Americans.

On October 27 the FCC is going to take a vote to say that it’s earlier order doesn’t negatively impact any of these issues. It’s clear that that the FCC wants to finish the elimination of broadband regulation before the election on the chance that a new Democratic president will mean a new head of the FCC. The FCC has openly said that it changed the rules on broadband regulation in such a way that will make it hard for a future FCC to overturn its order.

A new FCC can obviously undo anything that was done by a previous FCC. However, the net neutrality order was done in such a way that a new FCC would have to go through the full cycle of the FCC’s processes that including various cycles of notices of proposed rulemaking, a final rulemaking, and then the inevitable court challenges to any attempt to reregulate broadband – all done with vigorous opposition from the big ISPs. The process of reversing the deregulation of broadband would likely stretch over many years.

However, there is a much shorter and quicker path for reversing the FCC’s order. Congress is free to reset the FCC rules in any way it seems fit, and Congress could finally pass a new telecom act. There hasn’t been any major telecom legislation out of Congress since 1996 – during the heyday of dial-up Internet. In today’s political environment it would take a Democratic sweep of the White House and both houses of Congress to get new telecom legislation passed.

Even should that happen with the election, the new Democratic majority would have to agree on what is contained in a new telecom act. I can’t foresee that being an easy or quick process. There is an accumulation of topics in addition to broadband regulation that would benefit from Congressional clarification including privacy, regulation of web companies, solving the digital divide, elimination of outdated cable TV and telephone regulations, a national policy on spectrum, regulation of low orbit satellites, and a host of smaller issues.

If the Democrats don’t make a clean sweep of Congress and the White House, then the current FCC will largely have succeeded and it might be many years until a determined FCC could reestablish any regulatory authority over broadband. What is clear to somebody who closely watches industry regulation – it’s going to be interesting few years ahead of us in this industry regardless of what happens at the polls in November.

Partners are Where You Find Them

An interesting new partnership has been formed between Windstream and Colquitt Electric Membership Corp. of Georgia to build a rural fiber network. Windstream is a large price-cap telco that recently emerged from an interesting bankruptcy. Colquitt is a rural electric cooperative.

Only high-level terms of the partnership have been released. Windstream will own the fiber network, will provide broadband and other services, and will own the customers. Colquitt will provide access and rights-of-ways on poles and Colquitt technicians will place the new fiber on poles. Colquitt will get access to some fibers on the new network to connect electric substations and other electric network components to fiber. The partnership is described as having a network that is ‘jointly built and jointly-owned’.

The area to be served is rural and is described as having around 7 people per square mile. It’s a little hard to put that statistic into perspective because the most commonly used metric in the industry for understanding density is the number of homes per mile of road – however, the area sounds sparsely populated.

The state of Georgia decided a few years ago to allow electric cooperatives to become ISPs – a restriction that was imposed years ago by legislation prompted by telco incumbents. Many states have recently lifted such restrictions in an attempt to find more solutions to solve the rural broadband gap.

Partnerships with larger price-cap telephone companies to provide fiber broadband is a new phenomenon. An argument can be made that decisions made by price-cap telcos over the years are one of the major reasons why much of rural America is still served by DSL broadband provided over old and poorly-maintained copper networks.

But we’ve seen several similar partnerships with price-cap telcos. CenturyLink has partnered with the City of Springfield, Missouri to provide fiber. Consolidated Communications has partnered with several villages in New Hampshire to build fiber. Cincinnati Bell has partnered with the Butler Rural Electric Cooperative in Ohio.

This announcement is a reminder to rural communities and electric cooperatives that broadband partners might be found in unexpected places. It’s easy for rural folks to assume that the telcos that built and have been operating the dreadful copper networks are not interested in providing better service. In this case, the network is being built in a rural community and it’s extremely unlikely that Windstream could justify investing the full cost to build fiber – the return and payback on investment would never meet corporate earnings metrics and would make no sense as an investment. However, sharing the costs with the electric cooperative must have reduced Windstream’s costs to the point where the project makes financial sense.

That is the power of partnerships. Investing all of the cost to build fiber in this case probably didn’t make financial sense to either the electric cooperative or to Windstream. Both parties have something to gain out of the transaction. Windstream gains customers who will like the broadband service on fiber. The cooperative gets a fiber network connecting substations. Both are contributing to an improved community that will benefit both companies in the long-term. We’ve seen that fiber can reinvigorate a rural community. Many people want to live in rural areas but need good broadband to work from home – having a fiber network should attract new residents and keep residents some local people from leaving the area to find better broadband.

During the last year, my advice to rural communities is to have a serious discussion with the incumbent providers. Historically I’ve always advised to not bother with the incumbents because over decades I had never seen a large incumbent telco respond to plea to improve service. This is still a rare occurrence, but this partnership, and the ones mentioned earlier illustrate that it’s worth having the discussion on the outside chance that you hit the right note and the right opportunity to get the attention of the incumbents.

AT&T Stops DSL Sales

USA Today reported last week that AT&T stopped selling new DSL to customers on October 1. This is an event that will transform the broadband landscape in a negative way across the country. There are a number of immediate consequences of this action by the company.

Probably the most dramatic impact will be that many rural customers will no longer have an option for landline broadband. While rural DSL broadband is slow, a DSL connection at speeds between 1 Mbps and 6 Mbps beats the alternatives – which is satellite broadband or cellular hotspots. Since there are a lot of rural homes where those two technologies don’t work, this means some homes will suddenly have no broadband option. Expect to soon see stories of folks who buy rural homes and then find they have no option to buy broadband.

In cities where AT&T DSL is the only alternative to a cable company broadband service, this move bestows total monopoly power to the cable company. Our firm does broadband surveys and we still find markets where AT&T DSL represents as much as a 30% market share. Many homes buy DSL because it costs less, and that option just got taken off the table in AT&T markets. And just like in rural markets, every city has customers who’s only choice is DSL. For various reasons, there are streets in most cities where the cable companies never constructed network. Any customer moving into one of these broadband deserts will find themselves with no broadband alternative.

According to an article just published by Ars Technica, only 28% of AT&T broadband customers have access to AT&T fiber – anybody living in the neighborhoods without fiber will no longer be able to buy broadband from AT&T. That has to equate to tens of millions of households that just lost a broadband option. The FCC proudly measure the number of homes with multiple broadband options, and I’ll be curious to see if they recognize this sea change in the market.

This change will stop the practice of customers who hop back and forth between DSL and cable company broadband to save money. I just talked to a customer the other day that has bounced between DSL and cable company broadband for almost twenty years. Both the cable company and the telco offer introductory prices each time for swapping, and this customer has gone back and forth between the ISPs regularly every few years. In neighborhoods where AT&T is the telco DSL provider, this might mean the end of introductory special prices from the cable company – they now have zero incentive to compete for customers.

I would have to think that Verizon will eye this announcement closely. They have openly said that they want to do away from copper network technology. This might be all of the push needed for Verizon to follow suit. This announcement might be citied in telco history as the beggining of the end of copper wires. AT&T says they won’t be tossing folks off DSL service, but will no longer connect new customers to the DSL technology. Over time this is going to mean fewer and fewer customers on copper, and I suspect AT&T already has a date in mind when they walk away from the technology completely.

Ironically, AT&T just recently announced that they were going to claim a seventh year of CAF II support in 2021 and will collect over $427 million in subsidies next year to supposedly support rural DSL. Hopefully, the FCC will view this announcement as grounds for stopping such payments. It would be absolutely insane to give millions to AT&T to support a technology that the company will no longer sell or install.

This timing of the announcement is also curious at a time when the pandemic is still raging. This means a home that needs to buy broadband to support students or adults working from home will no longer have that option if the only wired connection is AT&T DSL.

This announcement also creates an interesting dilemma for the FCC. Will the FCC pretend that the huge AT&T DSL footprint still exists? It’s impossible to pretend that areas have a broadband option when the only provider of landline service refused to connect new customers. I’m sure the FCC will act as if this announcement never happened – because recognizing it means now counting millions of homes as having no broadband option.

This day has been inevitably coming for decades. Regulators have long pretended that they could demand that the big telcos keep supporting an obsolete technology. AT&T and Verizon have been telling regulators for years that they are going to walk away from copper, and now one of the big telcos is doing so. It’s just a matter of time until AT&T begins decommissioning DSLAMs and starts tearing down copper wires for the salvage value – and I can’t see any way that regulators can stop them.

FCC Kills CableCards

The FCC Commissioners recently unanimously voted to eliminate the rules that require cable companies to support devices that use CableCard technology for connecting to video services. The largest user of the technology is TiVo, but consumers have also been able to buy settop boxes using the technology rather than paying monthly to lease a box from the cable company.

The requirement for CableCards came from the Telecommunications Act of 1996. The congressional authors of that act thought that consumers ought to have an alternative to leasing a mandatory settop box from a cable company. After some industry wrangling, the FCC ordered that cable companies be ready to allow devices with CableCards by July 2000.

The big cable companies hated the CableCard rule and refused to share network security keys with CableCard manufacturers, making it a major challenge for a customer to install a CableCard device. In 2005 the FCC clarified the original order and told cable companies that software had to be separate than settop box devices so that CableCards could connect to cable company networks.

Over time, the software on cable networks has grown increasingly complex, and CableCard technology never became plug and play. Anybody who has ever installed a TiVo box knows the challenge of getting the CableCard software to talk to a specific local cable system. Because of this, and because of ongoing resistance to cable companies to make it easy for CableCards to work, no major market for consumer-owned settop boxes ever emerged. However, even in recent years, there have been sales of roughly half a million CableCard devices per quarter.

The biggest user of CableCard technology is TiVo which has a CableCard in every DVR recorder it sells. The FCC order doesn’t force cable companies to continue to support CableCard technology, but they likely will. Any cable company settop box built before 2015 uses CableCard technology – that was the easiest way for the cable companies to make CableCards work.

However, the FCC eliminated the last vestige of regulation on CableCards, so there is nothing to stop a cable company from cutting off CableCard devices, other than perhaps a desire to not push more households to cut the cord. Cable companies are also free to charge extra to consumers for connecting with a CableCard device.

It’s more likely that CableCard devices will just become technically obsolete over time. Without the FCC’s rules in place, the cable companies might not worry about the impact on CableCards as they update settop box software. This likely spells the end of the traditional TiVo box that could record many hours of video to watch later. Most cable companies offer an alternate to TiVo and allow customers to record and store programming in the cloud rather than on a device in the home. However, TiVo and other companies already started that transition, and TiVo introduced a cloud DVR service in 2018 for a cord-cutter that allows recording of video content that comes from any source such as over-the-air, or from an online service.

Consumers who have used CableCard devices face having to eventually pay the monthly fee for a settop box if they want to keep traditional cable TV service. Ironically, there might be a bigger need for a settop box alternative today than there was in 2000. Largely freed from regulation, the cable companies have raised fees on settop boxes, and I’ve seen monthly rental rates as high as $15 per month.

In the end, the CableCard regulation was largely a bust. It provided an alternative to renting settop boxes, but the cable companies never stopped fighting the idea and never made it easy for consumers to connect and use a CableCard device.

Georgia’s New Broadband Maps

A year ago, the state of Georgia undertook an effort to accurately map broadband availability in the state. Like many states, Georgia understood that the FCC’s broadband maps badly overstate broadband coverage. The goal of the state mapping effort was to define areas that don’t have good broadband to stimulate broadband investment where it’s needed most.

The results from the mapping effort are stunning. The State shows that over 507,000 homes and businesses, and 1 million people in the state don’t have access to 25/3 Mbps broadband. That is double the 252,000 homes identified by the FCC as not having access to 25/3 Mbps broadband.

I work with the FCC data every week and I’ve always known it is terrible. Our firm and many others look at the data in individual markets, but I’ve never found a way to grasp the extent of the problems with the FCC data on the global scale. It’s unconscionable for the FCC to overstate broadband coverage by 100%, as shown by the Georgia analysis.

The FCC data comes from ISPs that report broadband speeds and coverage to the agency. ISPs have different incentives to overstate coverage, and it’s obvious that many of them do so. The main ISP benefit of overstating broadband coverage is to dissuade competition. The FCC also uses the faulty data reported by ISPs to determine areas that are eligible for FCC broadband grants. For example, the FCC’s maps were used to determine areas that are covered by the $16.4 billion in grants that will be awarded in October.

The homes and businesses living in areas where the FCC broadband data is overstated should be livid about the issue. The Georgia mapping effort identified 255,000 homes and businesses that are in areas that should be considered for FCC grants but that weren’t included in the RDOF grants. Those grants are going to fund a lot of new fiber networks.

Georgia took a different approach to mapping. The state created the Georgia Broadband Deployment Initiative (GBDI) in 2018. The purpose of the initiative is to “coordinate and establish broadband programs to increase economic, education, and social opportunities for Georgia citizens and businesses.” The GBDI is an inter-agency effort supported by the Department of Community Affairs (DCA), Georgia Technology Authority (GTA), Department of Economic Development (DEcD), State Properties Commission (SPC), and Georgia Department of Transportation (GDOT).

The GBDI contacted ISPs to discuss broadband coverage. More importantly, the agency initiated speed tests to find out the real speeds being delivered across the state. While there are admittedly some issues with the accuracy of a given speed test when taken in mass a true picture of broadband speeds emerges.

The best thing the GBDI has done was to create a map that shows the side-by-side difference between the state’s map and the FCC mapping data. Differences pop out immediately. I wish every state would do this since it lets anybody in the state understand the broadband speed issue in their neighborhood. The differences between the two maps is amazing. There are entire counties that the FCC largely believes has access to 25/3 or faster broadband that show only limited coverage on the state version of the map.

The GBDI website also lets people search their address and also see the details of the local Census block.

A lot of states undertaking mapping efforts and speed tests, and this might be the only way to strong-arm the FCC into fixing its mapping efforts. The FCC plans to implement a new mapping regime, but unfortunately, if the agency doesn’t punish ISPs for reporting false data, the new maps might not be any better than the old maps.

Who Should Solve the Digital Divide?

Adjit Walia, a Global Technology Strategist at Deutsche Bank suggested in a recent paper that it’s in the best interest of US tech companies to tackle the digital divide. He says that those companies rely on a computer-literate public and workforce and that they ought to take a small sliver of their earnings and invest in students today before they fall on the wrong side of the digital divide.

By tech companies, I assume Walia is talking about Google, Amazon, Facebook, Apple, and the hundred other large corporations that make their money on software and the web. Walia cites a statistic that 61% of existing US jobs and 69% of new jobs require digital literacy and that the tech companies need to be proactive to help make sure that America has the workforce needed for these companies to continue to thrive. I find it interesting that his argument looks at closing the digital literacy gap as an investment that will yield a high return for these companies. I’ve always thought this was the case and that we are never going to solve the digital divide if doing so is viewed somehow as charity.

Walia is specifically referring to the millions of urban students that don’t have home broadband or computers. We have ample evidence that kids without digital tools at home fall far behind other students in achievement. A recent study from the Quello Center at the Michigan State University quantified the impact of the computer gap in a study that neutralized the impact of poverty. The scariest finding of that study is that 11th graders without home computers have the average equivalent digital literacy of 8th graders with home computers.

Walia is proposing a $15 billion plan to be spent over five years. He proposes the solution has three components.

  • He recommends subsiding broadband connections to homes through programs offered by the big cable companies. He says the tech companies should invest $1 billion per year in this effort.
  • He proposes a program to get computers into homes that he estimates at around $1 billion.
  • Finally, the most expensive part of his proposed solution would be a one-year training module for students and adults in the affected households in digital literacy. He estimates the cost of this training at $9 billion over five years.

This is an intriguing idea and I hope that some of the tech companies step up to the concept. Every generation of kids who graduate with poor digital literacy skills is going to struggle for life in an economy that is moving more and more to digital skills.

His solutions are not new, and anybody involved in digital literacy has been seeking these same three solutions for several decades. There are numerous local programs that help kids in cities around the country, but we’ve never had the funding to do this right.

It’s easy to talk about $15 billion as it is an unachievable and gigantic goal. Walia pointed out that the stock value of the biggest tech firms increased by over $2 trillion just since the start of the pandemic. This is an industry that could easily afford to give back some of their earnings, since, as Walia argues, the investment made now will repay these companies many times over through having millions of more citizens who are part of the digital economy.

Walia’s appeal is not just that solving the digital divide is the right thing to do. I doubt you can find anybody who doesn’t understand the consequences of generation after generation of kids who lag behind their peers due to something as simple to fix as broadband. What I like is that Walia has made this an appeal to the pocketbooks of the big companies – and I hope they are listening.

The Breakup of AT&T

I finally got around to reading a book that’s been on my list for a long time. The book is The Deal of the Century: The Breakup of AT&T by Steve Coll. This book came out in the 1980s and chronicled the events and the big personalities involved in the divestiture of AT&T into the Baby Bells on January 1, 1984. I worked with Southwestern Bell until just before divestiture and watched how the topic consumed everybody inside the old Ma Bell business. The monopoly that has been steady for a century was suddenly a perilous place to work, and career employees found their futures to be uncertain.

This is blog is not a book review, although I recommend this book for anybody that wants to understand how we ended up with the telecom industry we have today. The book has two focuses. It looks at the court cases involved in the processes. People may not remember that the antitrust case against AT&T had been going on for a long time before Judge Harold H. Greene took over the case. He brought discipline to the prosecution and singlehandedly got the case on track.

The book also looks at the big personalities involved in the case. In addition to Judge Greene was John D. deButts and Charles Brown, the presidents of AT&T that fought, but eventually agreed to the divestiture.  On the prosecution side was Assistant Attorney General Charles Brown and outside counsel George Saunders. Also playing a big role from Congress was Peter Rodino from New Jersey and Tim Wirth from Colorado. The book describes the chain of events and interplay of personalities that eventually led to breaking up AT&T.

Looking back 36 years after the breakup it’s easy to see how divestiture changed the telecom industry in both good and bad ways. On the plus side, it introduced competition. The premise of the divestiture was about allowing competition for long-distance service. It’s probably hard for kids today to believe that making a long-distance call required an affordability assessment when talking to somebody outside the local calling area cost ten cents or more per minute – at wage levels a fraction of today. Long-distance has gotten so cheap today that it is thrown in on telecom products. Nobody thinks twice about calling somebody and talking for an hour on a cellphone or across a computer link.

However, the idea of competition didn’t end with divesture and there is a straight line between the AT&T divestiture and the Telecommunications Act of 1996 that allowed competition for local service in addition to long-distance. That spelled the end of the telecom monopoly.

Probably the best outcome of the breakup of AT&T was the way that competition opened up the development of the Internet. If Judge Greene had not been successful, we may not have seen the success of the dial-up ISPs that relied on telephone lines to function. An AT&T monopoly would have been able to fend off and maybe block cable company broadband networks. Without robust long-distance competition, we probably wouldn’t have seen the same successful development of the cellular industry – it likely would have remained as a tool for corporations and the wealthy.

But there is a flip side to the successes due to competition. Increased competition led to decreased regulation. As long-distance companies and the cable companies pummeled the regulated telcos we saw federal and state regulators allow the telcos to deregulate. That deregulation is probably the biggest factor that has culminated in today’s badly deteriorated and non-functional rural telecom networks. The idea of carrier-of-last-resort has seeped away over the years and regulators stopped insisting that regulated telcos take care of the needs of rural customers. In most parts of rural America, the telecom landscape is probably the worst it’s been for a century. Nobody is tasked with making sure rural America has broadband.

Unfortunately, the idea that everything in the telecom world ought to be open to competition ignores the fact that landline networks work best as monopolies. We’ve seen the consequences of the competition movement in two big ways. In urban areas, the cable companies have largely become the new monopolies, but nobody seems to want to invoke that word or talk about invoking monopoly regulation. In rural areas, every big telco has largely walked away, and nobody wants to make infrastructure investments that don’t make high rates of return. The only long-term solution to having broadband everywhere is a regulated environment that ensures that most rural places share in the benefits of affordable communications. The challenge we face is figuring out a path from today’s fully deregulated world back to something that will work for rural America. I’ve heard dozens of simplistic suggestions on how to make this work again, but it’s a puzzle that I’m not sure can be solved.

A Huge FCC Giveaway

Is there is a way to take the worst broadband subsidy program ever and make it worse? The FCC just answered that question by extending the CAF II program for a seventh year.

The CAF II program paid the large price-cap telcos to supposedly upgrade rural broadband to speeds of at least 10/1 Mbps. Over $11 billion was paid out over six years starting in 2015 and completing this year. This money went to the big telcos like AT&T, CenturyLink, Frontier, Windstream, Consolidated, and a few others. Buried in the original awards was a provision that the carriers could elect to extend payments for a seventh year – and of course, they are doing so.

Why do I call this subsidy plan a failure? Even in 2015, it was ludicrous to spend money to build 10/1 Mbps broadband. 2015 is the same year that the FCC increased the definition of broadband to 25/3 Mbps and so the FCC was investing in new Internet infrastructure in 2015 that didn’t qualify as broadband at the time of the award of funding. Worse, the FCC gave the big telcos six years to complete the construction of the upgraded 10/1 Mbps architecture – which is this year. The FCC is still paying money in 2020 to upgrade rural customers to speeds of 10/1 Mbps.

But that’s not the worst of it because it doesn’t look like a lot of the upgrades were ever done. Our company helps rural counties assess the condition of broadband, and it’s rare in many rural places that were covered by CAF II to find even a single customer getting broadband speeds of at least 10/1 Mbps. We’ve done speed tests in counties this year where the average download speeds are 4 to 5 Mbps, with a significant number of customers getting speeds under 1 Mbps. The big telcos have been cheerily reporting progress to the FCC on implementing CAF II, but in the real world, it’s hard to find any evidence that many upgrades have been made.

I have seen the DSL in rural county seats get faster, and I suppose this was done with CAF II money – even though the funding was supposed to be used for rural customers. When DSL is upgraded in a county seat, the only rural customers that see any benefit have to be within a mile or so from the town.

To improve rural DSL to 10/1 Mbps requires building a significant amount of rural fiber so that customers are within four or five miles of a fiber node equipped with DSL gear. We’ve driven whole counties looking for evidence of such upgrades and have rarely found the needed new fiber construction or electronics huts. There is no need to take my word for this – states like Georgia and Minnesota have created broadband maps that are showing no evidence for most of the CAF II upgrades.

And now the FCC is going to pay a seventh year of funding to these same telcos – only this time the companies don’t have to spend the seventh year funds to improve broadband. Instead this money is seen as ‘support’ to the telcos. This is a straight giveaway that means $503 million for CenturyLink, $427 million for AT&T, and $313 million for Frontier – straight to the bottom line. This is the most blatant handout of federal broadband funds I’ve ever seen – because these funds won’t improve broadband for any rural customer. This will just help AT&T make its dividend payments and help ease Frontier coming out of bankruptcy. 

The original plan in 20i5 included the provision for the seventh year of payout – but the FCC could have changed that rule at any time in the last six years. This is over a billion dollars being wasted  that could instead be added to the RDOF fund to build rural fiber or put into some other worthwhile broadband grant fund. The FCC would benefit rural communities more if they just walked around handing out this cash to rural folks during the pandemic.

This FCC has been pro-big carrier from the start – but adding a seventh year of CAF II is hard to see as anything other than federal waste being done openly. The companies getting this money didn’t meet the obligations of the original CAF II funding and are now perversely getting rewarded for their failure. This kind of waste makes me ill when I do the math and realize that this money could instead be used to build fiber for everybody living in the poorest 40 counties in the country. I guess it’s more important to ‘support’ AT&T instead of rural households with no broadband.