Is it Time to Kill ETC Requirements?

One of the requirements for receiving grants out of the FCC’s Universal Service Fund is that recipients offer telephone service and also obtain Eligible Telecommunications Carrier (ETC) status. That is a regulatory status that is most often awarded by state regulatory commissions. I’m wondering if this still makes sense.

It’s worth looking at the history of the ETC requirements to help answer that question. Eligible Telecommunications Carrier is defined in FCC code § 54.201. Here a few key provisions of this part of the FCC code:

  • Only providers with ETC are eligible for ‘support’ funding from the Universal Service Fund. FCC grants come out of the same pile of money that in the past provided funding to rural telcos – so it is still being considered as support.
  • Companies with ETC status must participate in the FCC’s Lifeline program.
  • State regulatory commissions are to designate carriers as ETCs, although in recent years the FCC has granted a handful of ETC designations directly. State commissions are directed to make certain that carriers are technically and financially capable of providing carrier-of-last resort obligations.
  • When a new carrier is granted ETC status in a given area this takes away the carrier-of-last resort obligations from the original telco and transfers this obligation to the new ETC.

There are two provisions of this rule that don’t make a lot of sense in today’s world. The first is carrier-of-last-resort obligations that say that a carrier must serve a new customer in a given footprint if it’s feasible. The big telcos stopped honoring this obligation years ago and AT&T finally put a dagger in this obligation when they announced that as of October 1 that the company won’t take any new orders for DSL. But the big carriers have been denying requests for service from new customers for years, mostly by telling customers there are no facilities available (even when this was not true).

It’s hard to justify requiring somebody that takes a federal grant to meet carrier-of-last-resort obligations when the FCC and states have not enforced this requirement for big telcos for more than a decade. If you take the FCC rules as gospel, then somebody that builds a rural fiber network would have to extend fiber to somebody that only wants to buy local telephone service. I suspect very few of the companies accepting the FCC grants understand that this is what the law says.

The other outdated requirement is that a carrier building rural broadband must offer telephone service. How low do telephone penetration rates have to drop until the FCC kills voice regulation and silly requirements like this one? Many broadband providers offer telephone service because even at small volumes it can have a positive margin – but the day of mandating this needs to go away. Our firm does broadband surveys and we have recently worked in markets where voice penetration rates have dropped below 10%.

What’s so odd about the voice requirement is that anybody with a good broadband connection has dozens of options to buy web-based telephone services like Vonage, Google Voice, and many others. Most such services now come with unlimited long-distance which eliminates any concern that people buying the service can’t afford to call outside of their immediate area.

The final issue with ETC status is that it draws any carrier getting the status into state regulation. Most states have reduced the amount of paperwork that comes with being regulated – but not all. This FCC has said it favors light-touch regulation, and yet they are still forcing companies to be regulated to receive federal grant funds.

It’s time for the FCC to take a hard look at the ETC rules and neuter them. The whole point of FCC broadband grants is that the winners are supposed to be bringing good broadband. If that is true then it’s time to decouple ETC status from getting grants to build broadband.

Charter Increasing Broadband Speeds

Charter announced that new customers will now be getting 200 Mbps as the basic broadband download speed, increased from 100 Mbps. During the first quarter the company also will be increasing speeds for existing customers in seventeen markets including  Palm Springs, CA; Orlando, FL; Tampa, FL; Savannah, GA; Lexington, KY; Rochester, MN; Columbia, MO; Springfield, MO; Albany, NY; Buffalo, NY; Elmira, NY; Rochester, NY; Syracuse, NY; Chattanooga, TN; Tri-Cities, TN; Beaumont, TX, and Cheyenne, WY.

Like all of the big cable companies, Charter periodically increase speeds across the board. The company raised speeds in 2014 from 30 Mbps to 60 Mbps. In 2017 the company increased speeds to 100 Mbps download.

Charter will likely eventually increase speeds in most other markets, subject to technical capability. The company says it has implemented DOCSIS 3.1 technology nationwide, but overall system capacity can still be limited by other local factors such as the overall bandwidth of the network, the configuration of electronics, and the age and quality of the coaxial plant. Like all cable companies, Charter sells bandwidth that is ‘up to’ the advertised speeds and there will be customers in the upgraded markets that will get faster broadband but who may never hit 200 Mbps target.

Charter is upgrading major markets but seems to be going first to places where it has competition. Chattanooga has a citywide municipal fiber network. CenturyLink is in the process of building fiber citywide in Springfield, MO. The New York markets have Verizon FiOS while markets like Tampa and Palm Springs have FiOS provided by Frontier.

The company says it’s not increasing upload speeds with the upgrade. Most Charter markets we’ve studied have upload speeds between 10 Mbps and 15 Mbps for the 100 Mbps download product. During the pandemic, the number one complaint about cable company broadband has been the inability of multiple family members to make school and work connections at the same time. While moving to 200 Mbps will be welcomed by many homes, this upgrade will not change the ability to work from home.

One interesting way to look at the upgrades is that it’s a way to reduce network congestion. It’s unlikely that upgrading a customer from 100 Mbps to 200 Mbps per second is going to have much impact on customer usage – but downloads get done faster, freeing up the network. Faster speeds should reduce contention on the network during most times of the day.

The biggest losers from increased cable company broadband speeds are the telcos. The typical urban DSL speeds of 15 – 30 Mbps download look comparatively slower with each cable company upgrade. AT&T is the incumbent telco in some of the listed markets, and since the telco has stopped installing new DSL customers, faster broadband is going to be useful to lure even more customers from the obsolete AT&T DSL service. Unfortunately for customers, AT&T’s departure as a broadband option is handing a true monopoly to cable companies like Charter in markets where there is no fiber competitor.

I have to wonder where the cable companies will go from here. With DOCSIS 3.1 the cable companies can theoretically provide speeds up to a gigabit in most markets, depending upon local capacity limitations. Charter has been increasing speeds across-the-board every three or four years. With this speed increase Charter is now ten times faster than DSL, and from a marketing perspective allows the company to sound as fast as a fiber competitor (as long as nobody asks about upload speeds).

Charter is the most aggressive large ISP right now and is growing the fastest. This upgrade will give the company a big marketing boost. Charter is also expanding its footprint into areas surrounding its market, including accepting a grant of over $1 billion in the recent RDOF grant to bring broadband to rural areas. It’s good for the country to get faster broadband speeds, and I’m sure the FCC will somehow take credit for speeds getting faster (although they have no role in upgrades like this one).

My Telecom Predictions for 2021

It’s that time of the year for me to get out the crystal ball and peer into 2021.

The FCC Will Have Egg on its Face from the RDOF Grants. The reverse auction was a disaster in many ways with a lot of the money going to companies that can’t possibly do what they promised or companies that largely intend to make a profit by pocketing a lot of the grants. The FCC will have a chance to rectify some of the problems during the review of the long forms – but my bet is that they won’t disqualify many bidders. If the FCC doesn’t reject bad awards, it’s going to be in the headlines for years when rural America figures out that they’ve been cheated out of good broadband. At a minimum this is going to bring a close examination of whether reverse auctions are a good way to help rural broadband – because this auction was a disaster.

The FCC Will take a Path to  . . . It’s impossible to guess what the FCC will do until we know the results of the Georgia Senate races – and predicting that is beyond my pay grade. If the Democrats prevail in both races, then I predict that the new FCC will start the process of trying to bring back broadband regulation and net neutrality. But even then, I don’t expect much progress on the effort for most of 2021 – the regulatory process is slow and there will inevitably be lawsuits challenging any decisions. If the Republicans win one or both Senate seats, then we’re likely to see regulatory deadlock at the FCC for much, or even all of 2021. If there is deadlock, then very little will get done and even routine matters might get bogged down in partisan politics.

The Pandemic Will Continue to Slow Down the Industry. Even with a vaccine finally hitting the market, the first six months of 2021 will continue under pandemic restrictions. Towards the end of next year things will start feeling normal again, although we may never return to the old normal. Expect a lot more Zoom visits in place of in-person meetings. It’s still going to be a rough year for trying to hold live conventions.

Technician Shortage Becomes Noticeable. The baby boomer technicians are retiring in droves, which is already causing a shortage of the most experienced technicians for the next few years. We’ll eventually fill the shortage with new technicians, but telecom companies are going to struggle to hire and retain technicians until we’re able to close the gap.

Verizon will Join AT&T in Abandoning DSL. The big telcos are finally acknowledging that copper networks are dying and will step pretending to continue to patch up dying copper. This will mean that cities where the big telcos aren’t building fiber will become a true cable monopoly.

There will be Big Increases in Broadband Rates. Most cable companies have already announced higher broadband rates for 2021. But the biggest increase in rates will come quietly. Big ISPs will start vigorously enforcing data caps. Big ISPs will stop offering as many ‘special’ prices for new customers and a larger percentage of customers will pay the list price for broadband.

5G Hype Will Continue. We will still not see any major 5G features introduced in 2021, so 5G will continue to be 4G delivered on new spectrum. But the cellular company hype will convince enough of the public that there is something special about 5G that they’ll continue to buy 5G phones.

Web Video Meetings Will Improve. Software companies will improve the software for video platforms and will make it even easier and safer to conduct video meetings. Video software is also going to start being embedded in a lot of the software we use every day. This means that video meeting traffic volumes will grow even after the end of the pandemic.

Robocallers Won’t be Deterred by the FCC Fixes. The companies that make a living with robocalls will find ways around the Shaken / Stir process and the industry is probably a few improvements away from fixing the problem.

Hacking by Foreign Governments is Going to Shake the Security Industry. For the last few years, the security industry was mostly ahead of hackers, but security is a back-and-forth battle and bad actors like foreign governments are going to take the upper hand for a while. Large corporations, government entities, and telecom companies are going to be running scared for much of the year. And like always, they’ll regain the upper hand again and the cycle will repeat.

Cellular Networks Will Continue to Degrade. The use of cellular data is currently doubling every two years, which is greatly stressing cellular network quality. The cellular carriers need to implement massive numbers of small cells, add new spectrum, and fully implement 5G to keep up with the growing demand. Since those solutions take years to implement, cellular network quality will continue to degrade in many places during 2021.

The FCC Maps Aren’t Going to Get Better. We’ve been talking about this issue for years, but we’re not going to see better maps in 2021.

AT&T’s Regulatory Wish List

CEO of AT&T Communications Jeff McElfresh recently outlined four major regulatory priorities for the company going into next year. This list couldn’t be more different than the list I made recently from the perspective of small ISPs – and I wouldn’t expect it to be. One thing you have to admire about AT&T – the company has never been bashful about asking for regulatory policies that benefit it over others in the industry. Following are the four items on AT&T’s wish list. This is the shortest such list I think they’ve ever had, since the current FCC largely gave the company everything it wanted over the last four years.

Retain a Light Regulatory Touch. It’s no surprise that this is at the top of the list since a change of administration means an FCC that is likely going to try to re-regulate the broadband industry. This topic is always tied to the reintroduction of net neutrality, but AT&T and the other large ISPs don’t care much about net neutrality. You have to search hard to find examples where the big ISPs are violating the net neutrality principles.

What AT&T really wants is to keep the no touch regulatory regime where broadband has largely been fully deregulated. This AT&T goal is always accompanied by a subtle threat that the company will stop investing in broadband if the FCC tries to regulate them. That’s complete bosh, and AT&T hasn’t considered regulation in any investment strategies in years – anybody at AT&T who suggested this internally would be laughed out of the boardroom.

Congress Should Fund the Universal Service Fund.  McElfresh acknowledges that the funding mechanism is broken for the Universal Service Fund. It currently layers a fee that’s about to hit 30% on top of interstate calling services. AT&T suggest the way to fix this is to let Congress decide the funding for the USF each year in budgetary process.

This is a dreadful idea, because it would them give AT&T and the big ISPs a place to lobby to kill any funding that would be used to compete with them. This would remove USF funding from the open deliberative process at the FCC and move it behind closed doors where lobbyists can influence Congressional votes.

McElfresh acknowledges that the USF these days is mostly used to solve broadband problems, and the more obvious solution would be to keep the USF at the FCC and fund it with a fee on broadband customers instead of voice customers. The whole purpose of the USF is universal service, and the concept behind this funding years ago was that a small fee levied on urban telecom users could be leveraged to bring telephone service to everybody, since we all benefit if the whole US is connected. That goal has been updated from telephone service to broadband and it’s as true today as ever.

The Government Should Be Technology Neutral. This is perhaps the funniest thing I’ve ever seen on AT&T’s wish list because it’s classic doublespeak and AT&T wants the opposite of technology neutrality. The company is benefiting tremendously by a federal government that thinks that 5G should be a priority over every other technology.

The company also means that federal broadband grants shouldn’t consider broadband speeds as a criteria for picking winners for funding. AT&T would love to be handed billions of federal subsidies to roll out a fixed wireless product from rural cell towers – and doesn’t want to see the FCC hand out money to fiber builders that would interfere in areas that AT&T would love to keep as monopolies. The funny thing is that AT&T is already on most cell towers in the country and nothing is stopping them from marketing fixed wireless to millions of rural customers that would gladly buy faster broadband. But the company would rather be handed billion-dollar subsidies than do the hard work of selling.

Fix the Broadband Maps. The only crossover between AT&T’s list and mine is to fix the damned broadband maps. The FCC has been talking about this for years and has been hiding behind the fiction that they need a bunch of funding to make this work. The FCC could require ISPs to begin reporting more honestly starting tomorrow if it was serious about this.

AT&T points out the stupid rule where an entire Census block is deemed to have good broadband if one customer in the Census block has broadband. While that is indeed stupid, that’s probably only 10% of the problem with the current FCC maps. The real issue is that ISPs, including AT&T report marketing speeds instead of real broadband speeds. A new mapping program is barely going to put a dent in the problem unless the FCC decides to start fining ISPs that lie about broadband speeds.

Checking in on the Dish Cellular Launch

Late in 2019, Dish said that it had hoped to launch some major cellular markets by the end of this year. That optimistic schedule went out the door when the pandemic hit in March, but the task of launching a nationwide cellular network from scratch is such a daunting task that a 2020 launch was already overoptimistic.

Charlie Ergen, the Chairman of Dish, says the company is still on track to meet its commitment to the FCC. That requires having a cellular network that will reach 20% of the US population by June 14, 2022 and at least 70% of the US population by mid-2023.

The company recently took another big step in getting ready for the cellular launch when it struck agreements with four fiber providers to provide transport to new cell sites. The combination of Everstream, Zayo, Uniti, and Segra will help Dish reach cell sites. One has to think that post-launch that Dish will follow the other big cellular companies by building fiber to eliminate leased transport. But the company is entering the business without a terrestrial fiber network and it might take decades for it to catch up to the other carriers.

Dish reached an important milestone and opened its first test cell site a few months ago in Littleton, Colorado. This cell site lets the company begin implementing the company’s plan to use an open RAN network. This is a network that is largely software-driven and that can reduce the cost of electronics and maintenance. An open RAN architecture also will make Dish the nimblest cellular carrier since they will be able to roll-out new features and functions quickly on a national scale. One of the most intriguing possibilities for an open RAN network is the ability to design custom applications for large business customers – one of the most promising aspects of 5G.

Dish still has a long way to go and a lot of operational barriers to overcome. The biggest challenge from the start was hiring and assembling a coherent team to implement the roll-out. The company had no cellular expertise in house and doesn’t have a ready-made fleet of experienced cell site technicians. The challenge of hiring droves of people and getting them to gel as an efficient team is something that few companies have pulled-off.

Perhaps the biggest time challenge for the company is getting space on a huge number of cell towers. In urban areas, many cellular towers are already full. But even for towers with space, the process for getting onto even a single tower requires a lot of effort. Engineering studies must be performed for each tower to make certain that the towers can support the new antennas during storms. The alternate process of deploying small cell sites is still reported as slow by all of the cellular carriers. While some cities have streamlined the small cell process, many cities still insist on processes that take time to work through. I would think that this is a pretty good time to be a cell tower siting consultant.

Dish has gotten a head start on the customer service side of the business through the acquisition of Boost Mobile, with 9 million customers. Dish also purchased the US cellular business from Ting Mobile, which brought only 200,000 customers, but brought what has been described as a world-class customer service platform.

Dish still needs to raise around $10 billion to complete construction of the cellular network. This is aided in part by already having about $1 billion in revenues from Boost Mobile customers. Dish executives still believe raising the money is not going to be a problem, but some industry analysts are a little more skeptical.

Dish is pinning its hopes on having a network with operating costs that are 35% to 50% lower than the existing cellular companies. A lot of that expected benefits come from the open RAN network and the expected savings in both hardware and labor costs incurred by other cellular companies to maintain and upgrade the network.  There is still a long way for the company to go, and like many in the industry the pandemic slowed down its plans – but it seems to be on the right track. I would love to see the Gantt chart for this roll-out – it must be a doozy!

Is Cable TV Dying?

A recent article in Axios was titled ‘Cable TV’s Slow, Painful Death’. The article makes a few interesting predictions about the cable industry. The article predicts that 25 million homes will cut the cord by 2025. Since the traditional cable industry has recently been losing over a million homes per quarter it’s not hard to imagine losing five million cable homes per year. The article’s boldest prediction is that the industry will stabilize at 50 million homes – something I’ve not seen predicted elsewhere.

The article’s prediction matches the belief of many, that cable is quickly dying. But there are a lot of moving parts in the industry trends that could lead to different long-term outcomes. Consider the following:

  • In the recently completed third quarter of this year, the MVDPs alternatives of Hulu + Live TV, Sling TV, and AT&T TV Now added as many customers as were lost by traditional cable companies. By the time you add in fuboTV and YouTube TV, this industry segment added more customers than were lost by the traditional cable companies for the quarter. This indicates that a lot of homes are still willing to pay to watch the traditional networks that have been carried by the traditional cable providers. Is it possible that loyalty to traditional cable programming will be strong enough to keep most homes buying some version of cable programming?
  • Several online MVPDs have announced significant price increases in just the last month. Saving money is the major reason that households say they are cutting the cord. How many homes will hesitate to cut the cord or even return to cable companies if the price of the online alternatives is also perceived as expensive?
  • The cable companies are already resigned to losing traditional cable customers, and most of them have publicly said so. While losing cable customers cost these companies a lot of top line revenue, the margins are so thin on cable that bottom line losses are relatively small. The margins on cable TV have been shrinking to the point that there is no margin for smaller companies providing cable TV, and the margins for the large cable companies can’t be a lot better. This trend would indicate that cable companies might not even try to keep cable customers.
  • As Axios points out, sports programming is the big unknown. It’s what keeps a lot of homes buying traditional cable. A lot of pundits are predicting that sports networks will strike out on their own, but that’s incredibly risky and might not happen. Consider the example of the Big Ten Network. The best I can tell the network is collecting monthly fees from around 60 million homes per month. If those fees are fifty cents per month (I’m just guessing), then the network would have to find two million customers willing to pay $15 per month for the network to break even. These networks have to be seeing the same trends mentioned above where the Big Ten Network is picking up customers online at the same pace it’s losing traditional cable customers. I can’t see any current motivation for the Big Ten Network to strike out on its own.

The bottom line from these trends is that nobody can foresee where the industry is going. It’s clear right now that homes are cutting the cord from the traditional cable companies. The big wild card in making any predictions is what the biggest traditional cable companies decide to do. If these companies decide to stop fighting for cable customers, then the traditional industry could collapse a lot faster than predicted by Axios.

But the big companies could also decide to remain relevant in the industry. The big cable companies could migrate programming online or could buy the biggest online providers. Perhaps the big cable companies can finally convince Congress to allow for some version of a la carte programming to let people buy only the channels they want. There is also nothing stopping traditional cable companies fro streaming content so that viewers could binge watch a whole season.

There is one interesting wild card that must be influencing the big cable companies. The big four of Comcast, Charter, AT&T, and Verizon control 73% of the cable market today – but they also control 73% of the broadband market. None of these ISPs want to see the programming from the remaining 76 million cable customers flood online. That much of an increase in video would swamp the broadband networks of these providers.

I love making predictions because as a blogger I’m not hurt if my predictions are wrong. But my crystal ball is totally cloudy when it comes to predicting the trajectory of how people will choose to watch video.

The Advertised Speed Problem

There has been a lot of hype over the last two years about fixing the FCC broadband maps. The FCC has proposed a method for defining broadband coverage by asking ISPs to draw polygons on maps around areas where the ISPs have customers or could connect a new customer soon after an order is placed. The FCC touts this as a way to make ISPs report more honestly. The current FCC has dragged their feet for several years to force implementation of new reporting, but the impetus is probably finally here to get this done.

But will polygons really fix the FCC maps? Some of the worst abusers of the FCC mapping process, at least in terms of reporting imaginary coverage areas are wireless ISPs. They often claim potential coverage to places that are both distant and with no line of sight from existing towers. But how is somebody sitting at the FCC going to judge the coverage claimed by a WISP? Short of forcing WISPs to file a wireless propagation study from each transmitter, how can anybody who is not local judge claims made by any ISP? I fully expect at least some WISPs to continue to overclaim coverage areas even with reporting by polygons.

But let’s assume for argument’s sake that the polygon process forces ISPs to be more honest about coverage areas. That alone ought to reclassify a whole lot of rural Census blocks as being unserved – where today claiming even one potential customer in a Census block means the FCC counts the whole block as having broadband capability.

Unfortunately, the polygons only fix what I think is the second most important problem with the current FCC data gathering. The problem that has caused the most harm to rural households is overstated broadband speed capabilities by ISPs. ISPs of all sorts routinely lie and exaggerate the speeds they are delivering. This happens everywhere, from cities to the most rural places in the country.

I speculate that the following are some of the major reasons that speeds are overstated:

  • There are ISPs who report the same speeds to the FCC that they report to customers. If an ISP tells the world on its web site and says on customer bills that it delivers speeds up to 25 Mbps, it’s not likely going to come clean on a public database like the FCC 477 and tell the truth that it’s only delivering speeds of a few Mbps.
  • I think there are ISPs that see the FCC reporting system as a form of advertising. The average citizen doesn’t know how to decipher the FCC broadband reporting, but there are half a dozen web sites that make money by telling people the broadband available in their zip code. These sites largely spit out to the public whatever is reported to the FCC (it’s hard to think how they would do anything else). I think that exaggerating speeds to the FCC likely translates into increased inquiries from potential customers.
  • It’s hard not to think that some of the big telcos exaggerate broadband speeds to keep out competition. Companies like Frontier and CenturyLink know that the FCC uses the 477 databases to establish broadband grants – so fudging the speeds can be an effective way to keep out grant money. There are huge geographic areas where these ISPs claim DSL speeds in the range of 25 Mbps where the actual speeds at customers are perhaps a few Mbps. We saw Frontier try to reclassify over 16,000 Census blocks as having speeds of 25 Mbps or faster just before the recent RDOF grants.

I’ve seen nothing in the proposed fixes to FCC mapping that is going to fix this problem. It’s impossible to think that ISPs that exaggerate broadband speeds are going to change the practice unless there are big consequences for not telling the truth. Unfortunately, the only tool the FCC has to correct speed reporting is imposing fines against ISPs. I honestly can’t see the FCC fining ISPs heavily enough to convince them to report honestly. But without enforcement, it’s highly unlikely that new FCC maps will be any better than the current ones – and the big telcos all know this.

The Expansion of Data Caps

Comcast is going to introduce data caps in the Northeast in January. This will impact customers in Connecticut, Delaware, Massachusetts, Maryland, Maine, New Hampshire, New Jersey, New York, Pennsylvania, Virginia, Vermont, West Virginia, and the District of Columbia, as well as parts of North Carolina and Ohio.

The Comcast data caps place a cap on total usage, which is upload and download combined, at 1.2 terabytes in a month. Customers that exceed that cap are charged $10 for every 50 gigabytes over the cap, with a maximum charge of $100. Customers that expect to routinely exceed the data caps can buy unlimited data for an extra $25 per month.

While the measurement of usage will start on January 1, Comcast is giving customers a ‘credit’ for the month of January and February. Comcast will report usage to customers and will be giving customers two months to get used to the idea of data caps. The Comcast data plan normally gives customers one such credit per year and doesn’t bill customers who accidentally go over the data cap.

Comcast has not implemented data caps in the Northeast before but has enforced them in other parts of the country. One of the most interesting things about this decision is that Comcast will be billing data caps in many cases where customers have the option to change to fiber on Verizon FiOS. Verizon not only doesn’t bill data caps, but the company offers symmetrical data speeds which mean households don’t have bandwidth constraints for working from home or attending school from home.

The timing is also odd since it’s clear that the pandemic is far from over. There are still a lot of households facing the unemployment of a family member due to the pandemic. The pandemic is also still forcing a lot of adults and students to work from home, which eats up a lot of data. Perhaps the oddest part of this timing is that Comcast is also raising prices on basic broadband by $3 per month on January 1 – something that it doesn’t look like Verizon will be doing.

It’s obvious why Comcast is making this change. At the end of the third quarter of 2019, a little more than 4% of homes used more than a terabyte of data per month. In the recently ended third quarter of this year that had jumped to 8.8% of all homes in the country. Even more astonishing, 1% of homes now use more than 2 terabytes of data per month. There is suddenly is a lot of money to be made from data caps. Implementing data caps in the Northeast probably equates to the same amount of new revenue as a systemwide rate increase.

Comcast says it will notify customers as they approach the data cap limit. But in states where Comcast bills data caps there are a lot of customers who have independently measured data usage and who claim that Comcast routinely overstates home broadband usage. It’s too bad that we don’t have a regulatory agency that could develop some rules concerning data caps – but the FCC has given away its authority on this kind of issue.

Not to be outdone, Charter has asked the FCC to allow it to start billing data caps in May 2021. The company agreed to not bill data caps as part of the agreement to purchase Time Warner Cable. That agreement lasts until 2024, but Charter is asking to implement data caps two years earlier than that agreement.

ISPs always argue that data caps are needed to protect the network. But we know that the extra network usage during the pandemic has happened during the daytime – when networks have historically not been overly busy. The evening periods when usage is the heaviest have barely changed during the pandemic. The data caps are clearly for one reason – to make more money. Unless the FCC reasserts broadband authority and tackles the issue, we’re going to see the big ISPs extract as much revenue as possible out of the public.

Video and Broadband Demand

One of the obvious drivers of broadband usage is online video, and a study earlier this year by the Leichtman Research Group provides insight into the continuing role of video growth in broadband usage. The company conducted a nationwide poll looking at how people watch video, and the results show that Americans have embraced online for-pay video services.

The survey concentrated on what it calls SVOD service (subscription video-on-demand). In the industry, this category includes pay services like Netflix and Disney +, but does not include the online services that mimic the networks covered by traditional cable TV like Sling TV. This is the eighteenth annual nationwide survey by LRG that looks at video usage.

One of the most interesting results of the survey is how many households still buy some form of pay-TV service. 74% of homes pay for a full cable TV service. About 2/3 of all households still buy traditional cable TV from cable companies or satellite providers. This means that 8% of homes now buy video an online service that mimics traditional TV channels such as Sling TV, Hulu + Live TV, YouTube TV, or fuboTV. That’s no longer a surprising statistic when we saw in September that Hulu + Live TV is now the fifth-largest provider of video, in front of Verizon.

Even considering that many homes are buying full video packages online, the statistics show a continuing decline in traditional TV viewers. Where 74% of homes buy some form of cable service today, that’s way down from the 85% of homes in 2015 and the peak of the TV pay-market at 88% in 2010. This shows that 14% of all homes have stopped buying pay-TV in the last decade.

The survey summarized cable households in another interesting way:

  • 60% of homes pay for a full TV service and also buy at least one SVOD service like Netflix.
  • 14% of homes buy a full pay-TV service but do not subscribe to an additional SVOD service like Amazon.
  • 20% of homes buy an SVOD service like Netflix but don’t pay for a full TV line-up.
  • Only 6% of homes don’t pay for any TV service.

The survey also summarizes the use of SVOD service like Netflix in a way I hadn’t seen before:

  • The survey showed that 79% of households using traditional cable TV (from a cable company or satellite TV service) also purchase an online video service.
  • 76% of households that don’t subscribe to traditional cable TV pay for an online video service.
  • However, 96% of customers who subscribe to an online video service that mimics traditional cable TV also buy at least one additional for-pay TV service.

The survey also shows that age is still a factor for paying for a full for-pay TV service. 81% of adults over 55 have a for-pay TV service, 76% of those between 35 and 54 have a pay-TV service, and only 63% of those between 18 and 34 have pay-TV service. This is the trend that is making TV less valuable for advertisers that want to reach younger audiences.

A few other interesting factoids coming out of the survey:

  • 38% of consumers who have moved in the last year do not buy a full for-pay TV service. This verifies something we’ve seen in many surveys where respondents say they are thinking of cutting the cord, but then don’t do it. Perhaps when life presents an easy option to cut the cord, such as when moving, consumers finally decide not to resubscribe to pay-TV. That would imply there is still a large potential pool of cord-cutters in the market.
  • 13% of all TV households use a TV antenna rather than subscribe to a pay-TV service for local channels.

Buried somewhere in these statistics are the millions of rural homes that don’t have the option to stream video.

AT&T’s New View of Fiber

AT&T’s CFO John Stephens described AT&T’s fiber philosophy on a recent investor call. He described fiber as a “three-for-one opportunity” for AT&T. The first opportunity is for cellular backhaul. AT&T has been busy in recent years building fiber to reach traditional cell sites and is now building fiber to reach small cell sites. The company made a deliberate decision to reduce the amount spent on leasing fiber transport from others.

The second is building to businesses. AT&T often builds fiber to reach a large business which alone justifies the cost of building fiber. But he says the company now also looks at nearby small businesses. All business customers on fiber are high-margin, and generally steady customers. I’m sure AT&T understands what most fiber overbuilders understand – business customers on fiber are not likely to switch back to cable company broadband as long as they believe they are paying a fair price.

Finally, Stephens says the third opportunity is residential. In 2015, AT&T agreed to build fiber to pass 12.5 million homes and businesses. For a few years it didn’t look like the company was working to meet that goal (not untypical for merger conditions that never get fulfilled by big carriers). But in recent years AT&T has been doing exactly what Stephens describes. They have leveraged existing or newly built fiber to add small pockets of residential customers to fiber. All over the country, AT&T has small pockets of 50 or 100 homes that are near to fiber pops that can buy now buy fiber.

This strategy seems to be paying off for the company. In the recently ended third quarter, AT&T added 357,000 customers to fiber to bring total subscribers on fiber to 4.7 million. Stephens says the company now has a 33% penetration in neighborhoods where it has built fiber. A year ago, he said that the company’s goal is to reach 50% penetration after a few years.

AT&T is still bleeding DSL customers and announced on October 1 that it was going to stop connecting new DSL customers. AT&T lost 217,000 DSL customers in the third quarter but still has 10.5 million in service. That number should drop faster now that the company is not connecting new DSL customers. AT&T will converts a few DSL customers to fiber, but the large majority will eventually switch to cable company broadband.

It took AT&T many years to see the light, but the relatively new AT&T philosophy is what I’ve been preaching to clients for years. If you’re going to absorb the big cost of building a fiber route, then you ought to take advantage of every revenue opportunities along that route. I believe every fiber route ought to be looked at as a profit center.

Building a fiber route is a major investment for any company from small CLEC to AT&T. Every new fiber route has at least one justifiable financial reason. A fiber might reach to a school or a cell tower or provide transport to connect two markets. A ISP feels justified in building the fiber for that primary purpose. However, there are few fiber routes that don’t pass additional revenue opportunities.

There are many fiber owners that have not yet figured this out. I know of a bunch of municipal and CLEC networks that are built to reach big anchor tenants that ignore other opportunities along fiber routes.

One of my favorite examples of an ISP that has done this right is Jaguar Communications in Minnesota. In addition to being a local ISP, the company built an extensive backbone fiber network through a number of rural counties. These rural routes were built to reach cell towers, to sell transport to other carriers, or to connect Jaguar markets. Jaguar decided years ago to sell fiber-to-the-home along every transport route. Throughout the state is a Jaguar fiber backbone network that also sells fiber to farms along the fiber routes. I don’t know the number of customers Jaguar reaches this was, but it’s likely to be at least a few thousand. The revenues that can be made from a few thousand fiber customers is no small thing. Jaguar was recently acquired by Metronet, and I don’t know if the new company will continue the practice – but they should because it maximizes profit on every fiber investment.