Monthly Archives: February 2022

Big ISP Fear of Rate Regulation

Policy fights often take bizarre directions. You might remember the furor seven years ago when the FCC under Chairman Tom Wheeler was contemplating imposing net neutrality. There were over 22 million public comments filed in the case. There was a big controversy when some of those against net neutrality filed bulk comments labeled as being from people who knew nothing about the comments, including several politicians.

I’m not entirely sure why the public got so stirred over the topic, because up until that time, there had been only a few blatant cases where ISPs had violated the net neutrality principles, with the most common being something the public largely favored – ISPS giving free access to a video service for buying broadband.

The big ISPs all lobbied hard against the net neutrality rules, but the CEO of every big ISP was on the record at least once saying that the net neutrality rules were not a big deal and that they could live with net neutrality. So why did the big carriers lobby so hard about what the FCC was doing?

The answer is that the carriers were far more worried about the FCC’s regulations that came along with FCC’s planned net neutrality rules. The FCC under Tom Wheeler was planning on strengthening the Title II regulatory policies that gave the FCC the right to regulate ISPs. The real fear that ISPs had was that the FCC would eventually use Title II authority to impose rate regulation on broadband. I think in hindsight that the big ISPs seven years ago already had long-term plans to migrate broadband rates as high as possible. Today we’re seeing the big cable companies starting to narrow in on basic broadband rates of $100 per month.

But the big ISPs couldn’t publicly lobby against rate regulation and Title II. The ISPs would have had a hard time convincing folks to file comments against controlling ISPs rates. The big ISPs would have had to argue that ISPs don’t need to be regulated – something the public would clearly and strongly disagree with. Most broadband customers of the big ISPs had at least one story of when they had an uncomfortable interaction with their ISP. The big ISPs were so unpopular at the time that they had the lowest ranking of all industries on surveys of how people rank U.S. corporations.

The big ISPs certainly could not have publicly told the truth and said that the only squabble with net neutrality rules was the risk of being told that rates are too expensive. That would be a public argument that even public allies of the big ISPs would have shied away from.

Seven years ago, the big ISPs pulled out all stops to lobby against net neutrality, although all they really cared about was the ability of some future FCC to tell them to stop raising rates. The big ISPs lost that battle in the Wheeler FCC, which everybody expected – because the FCC at the time had a Democrat majority.

The big ISPs didn’t have to wait long to get what they wanted after Donald Trump unexpectedly won the presidency. He promoted Ajit Pai to head the FCC, and his first order of business was to completely dismantle Title II regulation. This was again framed by the big ISPs as eliminating unneeded net neutrality rules – but the real issue that still was never said out loud was the goal of eliminating the threat of rate regulation.

Now that Democrats are back in charge of the White House, the whole issue has surfaced again. The big ISPs have been trying to derail or delay confirmation of Gigi Sohn as the fifth FCC Commissioner because they know that one of the first actions of the FCC under Chairman Jessica Rosenworcel will be to reintroduce Title II regulation.

I’ve seen a lot of pro-ISP articles lately talking about how net neutrality was an empty issue and how there have been no bad consequences from killing net neutrality. That may be largely true other than a few ugly examples like Verizon disconnecting firefighters battling forest fires.

But the lack of a threat of rate regulation has allowed big ISPs to raise rates with impunity. In the last five years, we’ve seen Comcast and Charter regularly raise broadband rates. Comcast rates are now north of $90, and after a series of $5 rate increases, Charter is not far behind. Other big cable companies like Cox and Atlantic Broadband charge even more than the big two. The public is currently complaining about inflation due to supply chain issues, but the cable companies have been busy raising broadband rates at a pace that far outstrips inflation.

In the recent confirmation hearing, Gigi Sohn said she was not in favor of rate regulation. I’m positive we’ll never hear the big ISPs publicly ask that question again because it will remind people about the impact of broadband on their pocketbooks. But I think we need to brace for another gigantic lobbying effort against rate regulation – disguised as arguments against net neutrality again.

A Brief History of Rural Broadband

Last week I lectured on the topic of digital redlining in Western North Carolina for a senior class at the University of North Carolina at Asheville. These students are tackling a senior project of developing an advocacy program to help find broadband solutions for our region. I realized when describing redlining that I was also describing how the history of rural telephony had contributed to the poor condition of rural broadband today. Following is a brief history of the key events that tell the story of why rural broadband in much of the country has fallen so far behind broadband in larger towns and cities.

Bell Builds to Cities. Within a few short years after the invention of the telephone in 1876, the well-funded American Bell telephone company, founded by Alexander Graham Bell and investors, had built telephone networks in all of the major cities in the country. Within a decade, they made it out to county seats like Asheville, here in Western North Carolina. American Bell had no interest in building to rural areas, and rural America was not offered the new telephone technology.

Expiration of the Bell Patent. In 1894 the Bell patent on the telephone expired, and telephone companies sprang up across the country. Most of these new companies were started in rural areas by farmers, businessmen, or groups of citizens that came together to bring telephone service. By 1927 there were over 6,000 local telephone companies.

Bell Becomes a Monopoly. American Bell became a monopoly in an extraordinary move where Theodore Vail asked the government to grant monopoly status to the company. This was done to fight off competitive telephone companies in cities. Regulating telephone companies was gradual as states accepted the idea and awarded franchise areas to telephone companies. A consequence of regulation was that small telephone companies also became regulated. The regulation trend culminated in the Telecommunications Act of 1934 that created the FCC.

Birth of Cooperatives. The Rural Electrification Administration, a New Deal agency, had been funding rural electric cooperatives since 1935. In 1949 the agency started making loans to create rural telephone cooperatives, and these companies filled in the remaining rural areas nobody else had built. By 1960 the U.S.was the envy of the world with a 99% landline telephone penetration.

The Growth of Long-Distance Calling. AT&T was created in 1885 to construct the long-line networks to connect cities. The first coast-to-coast call was made in 1915 between New York and San Francisco. Regulation led to low local telephone rates, and telephone companies made up for lost revenues with expensive long-distance rates. The downside of long-distance for rural America was that calls between rural areas and county seats all became long-distance. Coping with long-distance calling became a major concern for many rural families, and rural residents were at a disadvantage compared to city dwellers since they needed to use long-distance to communicate with basic services.

Massive Consolidation. Companies like General Telephone, Continental Telephone, and Citizens Telephone purchased many rural telcos. These companies were the precursors of big rural telcos like Frontier, CenturyTel, and Windstream.

Divestiture of the Bell Companies. In 1984, divestiture separated AT&T, the long-distance company, from the local Bell telcos, with the goal of introducing competition into long-distance. This worked spectacularly, and long-distance prices tumbled. The unfortunate consequence of lower long-distance rates was that the larger telcos saw lower profits in rural areas. Big telcos began to cut staff, close businesses offices, and generally neglect rural properties.

Local Competition and Deregulation. The Telecommunications Act of 1996 mandated local telephone competition. Over time, this led to the big telcos seeking and winning local deregulation, and as the big telcos were deregulated, the neglect of big telco rural properties accelerated.

The Rise of DSL Broadband. The first generation DSL that delivered 1 Mbps download got installed in most telcos. Rural speeds were not as fast as cities due to distance limitations on DSL. The technology improved rapidly in a few short years, and the DSL in towns was upgraded to faster speeds while rural properties mostly were not. When cities got DSL speeds up to 50 Mbps, rural area DSL stayed slow since the big telcos didn’t want to make rural investments.

Small Companies Did Much Better. The remaining smaller telcos and cooperatives did a great job during all of these industry transitions. They maintained copper wiring, upgraded DSL as needed, and eventually started upgrading in many places to rural fiber.

The Large Cellular Companies Shunned Rural America. Big cellular companies built close to major highways to capture roaming traffic, but rural cellular coverage rarely extended to where people live and work. It’s gotten better over a few decades, but rural cellular coverage maps are still largely fictional.

Summary. The poor state of rural broadband can be traced to the ways that the big telcos reacted to industry changes. Small telcos built rural networks, but large telcos gobbled them up over time. The big rural telcos then neglected rural properties in reaction to the changing economics from the deregulation of long-distance and local telephone service. Small telcos showed that it wasn’t necessary to abandon rural properties, but the big telcos stopped making investments in rural networks and for all practical purposes walked away from rural communities.

What We’ve Learned About Upload Bandwidth

Until the pandemic hit, I rarely thought about upload bandwidth. I mostly used upload bandwidth to send files to people, and I rarely cared if they received the files immediately – I was happy as long as files got sent. But the pandemic changed everything for millions of people. All of a sudden, homes were unable to function well due to problems with uploading.

The big change from the pandemic came when many millions of people were sent home to work while students were sent home to attend school remotely. It turns out that connecting to schools and offices requires steady and reliable upload bandwidth, and many homes found they didn’t have that. My consulting firm has done several surveys per month during the pandemic, and we routinely have seen that at least 30% of those working or schooling from home, including those using cable company broadband, say that their bandwidth was not adequate for the needs created by the pandemic. Homes that tried to accommodate multiple people working online at the same time had the worst experiences.

We also changed a lot of other behavior during the pandemic that uses more upload bandwidth. Many who work from home started using software that automatically saves all work in the cloud. We started using collaborative software to connect to others working from home. And we began making Zoom calls to such an extent that this is now the largest use of upload broadband nationwide and has grown from practically nothing to consume over 15% of all upload broadband usage. Spending more time at home led millions to take up gaming – an activity that just started transitioning to the cloud before the pandemic.

We also got a stark reminder that broadband technologies are shared services. We saw that even homes with only one person working at home could suffer if the bandwidth for the whole neighborhood got bogged down from overuse.

It seems that everybody started collecting speed tests to figure out what was going wrong. Local governments, States, and the NTIA started gathering and looking at speed test results. We know that an individual speed test result is not reliable, but we’ve seen that masses of speed tests tell a great story about a given ISP in a given community.

We also learned that broadband networks vary by neighborhood – something that I don’t recall ever being discussed before the pandemic. Speed tests often showed that the performance of a cable company in a city could be drastically different by neighborhood. There have always been those who complained about cable company broadband, but they weren’t taken seriously by those in the same town that had adequate broadband. But we now often see some parts of cities with speeds drastically lower than the rest of the city – something cable companies have known about but never fixed.

We learned how awful rural broadband technologies can be when most rural folks had problems working and schooling from home. We figured this out when speed tests showed that rural upload speeds are often less than 1 Mbps.

Lately, I’ve been learning more about jitter, which measures the variance in broadband signal strength. Many people learned about jitter the hard way when they often got booted from school connections or Zoom calls when broadband signal strength fluctuated and hit a low point.

We also learned how the cable companies use the worst spectrum on a cable system to transmit upload speeds. They use spectrum inside the coaxial cables to transmit data, and the portion of the network used for upload is where natural interference from microwave ovens, small engines, and natural background radiation causes the most interference.

We’ve also learned that the pandemic has been good for the ISPs, although they aren’t talking about it. Millions of homes upgraded to faster broadband to try to get enough bandwidth during the pandemic. Unfortunately for many of them, their problem was not the download speeds, but the upload speeds, and the upgrade may not have brought much of a solution.

Truth in Broadband Advertising

We’re all used to crazy advertising about telecom products that make industry folks shake their heads – many of the ads about 5G come to mind. Most people don’t realize that carriers in the industry routinely challenge the claims made by competitors to force them to modify or drop deceptive ads.

Most of the largest corporations in the country belong to the National Advertising Division (NAD), which is part of the BBB National Programs and arbitrates disputes about advertising between participants in the plan. Participation is voluntary, but corporations join the effort because the arbitration process through NAD is far cheaper than using the courts to settle disputes. Corporations almost always comply with the recommendations of NAD. The NAD monitors national advertising campaigns in all media and tries to enforce standards of truth and accuracy – a high standard for advertising.

Charter recently challenged advertising that claimed AT&T’s business broadband services on fiber are better than business broadband services provided by cable companies. It was an interesting challenge because Charter disputed a number of the claims made by AT&T in the ads.

In the first dispute, AT&T claimed it was ‘up to 20 times faster’ than cable broadband. NAB agreed that the upload speeds on AT&T’s gigabit product are up to 20 times faster than a gigabit product from the cable companies but found that AT&T’s wording of the claim made it sound like all AT&T products are 20 times faster than the equivalent cable company broadband products.

AT&T also claimed that its prices are half the price of cable broadband. The NAB found that the prices for AT&T’s top business products are half the price of the equivalent products from the cable companies but again sided with Charter because it said that the AT&T ad made it sound like all AT&T broadband products are half the price of cable company broadband.

The AT&T ads made the claim that AT&T’s fiber broadband is superior to cable company broadband. NAB found that while there was a big difference in upload speeds between the two products that the download speeds from both technologies are equivalent. NAB felt that most business customers care more about download speed than upload speed and sided against AT&T’s claim that its broadband is superior.

AT&T ads claimed that the upload speeds of cable companies are insufficient to support video conference, surging, streaming, and gaming and the NAB said there was not enough evidence to support that claim. NAD did support AT&T’s claim that fiber is superior for uploading large files.

In the ruling that will rile fiber fans, the NAD said the record did not substantiate a claim that AT&T fiber provides ‘better internet’ than cable broadband. But the NAD supported AT&T’s claim that it provides a consistent speed, even at peak times.

AT&T told the NAD that it respectfully disagreed with all of the negative findings, but the company agreed to stop using the disputed claims. I would guess that AT&T will continue to make many of these claims but will be more specific and less generic.

Many of you might not realize that the big ISPs also often challenge advertising claims made by municipal and other smaller ISPs. Such complaints generally come from counsel for the big ISPs and demand that a smaller ISP stop the disputed advertising. The process is threatening since small ISPs don’t want to engage in expensive legal disputes. I’ve known a few small ISPs that ignored such claims and were never sued, but I don’t know that there is any way to know the motivation of a big ISP in a given complaint. One of my clients who ignored such a claim said that fighting with the big ISP in the papers over an issue was the best advertising he could ever have wished for.

Cable Companies Converting to Fiber

I wrote a recent blog discussing comments from Chris Sambar, AT&T’s EVP of Technology Operations who was quoted as saying that he almost feels sorry for cable companies that compete against AT&T fiber. AT&T is convinced that building fiber is a winning strategy and that the first company that builds fiber in a market will win the majority of broadband customers.

While it’s not yet a giant movement, we do see cable companies that are converting to fiber. One example comes from an announcement by Cox that it will be undertaking a project in the Hampton Roads area to upgrade its networks to 10-gigabit fiber. The build will start this year in Norfolk and will extend over time to the rest of this rapidly-growing area.

Atlantic Broadband recently announced plans to extend fiber to 70,000 passings in New England and West Virginia. This will include the communities of Concord, Dover, Somerset, Durham, and Madbury in New Hampshire and Westover, Morgantown, Granville, and Star City in West Virginia.

Altice recently renewed its pledge to convert all of its 4.4 million customers to fiber. The Chairman of Altice, Patrick Drahi, announced he would convert the company to fiber in 2015 when the company acquired Suddenlink and Cable vision. However, the conversion to fiber slowed and has only covered about one-eighth of the company’s 9.2 million passings. Altice is back in the news with an announcement that it will expand fiber to 1 million new locations in 2022, mostly in the northeast.

We can’t forget Charter, which is planning to build fiber in the suburban and rural areas surrounding its current markets. The company won bids in the RDOF reverse auction for a million rural passings. The company is expected to chase state and federal grants to fill in the pockets won in the RDOF auction.

All of these fiber plans still only represent a relatively small share of the 75.2 million broadband customers served by the eight largest cable companies. But this start of a trend towards fiber raises some interesting questions. It’s hard to tell as someone who works inside the industry, but my sense is that the general public has become convinced that fiber is the superior technology. That perception bodes well for AT&T and anybody that builds fiber to compete against a cable company.

More importantly, a preference for fiber bodes poorly in the long run for any cable company that doesn’t have plans to get faster. Converting to fiber is a tough strategic decision for a cable company to face. Many have been putting their hopes on DOCSIS 4.0 and thought they had plenty of time to make that transition. But the pandemic seems to have moved up the timeline drastically by highlighting the weakness of cable company upload speeds. In the surveys my firm has done in the last two years, we’ve consistently seen 30% of cable customers complaining that they had problems working and schooling from home. That’s a lot of people who are deciding they’d rather have somebody other than the cable companies as an ISP.

The Explosive Growth of Worldwide Broadband Usage

Sandvine gathers data from the 160 largest fixed and wireless ISPs on the planet to understand trends in usage on the Internet. The statistics discussed below come from the Sandvine January 2022 Global Internet Phenomena Report. Sandvine identifies several current industry trends:

Broadband Usage Growing Rapidly. Broadband across the whole Internet grew by 34% in 2020 and another 29% in 2021. Sandvine estimates total worldwide data usage at the end of 2021 was 786 terabytes per second. Homes are leading the growth, and Sandvine says there has been an explosion of homes using a terabyte or more of data per month. Sandvine estimates that the average usage per home at the end of 2021 could be as high as 750 gigabytes per month. This growth isn’t just from landline broadband. Mobile usage for those switching to 5G spectrum in Asia is up 60% compared to usage on 4G.

Big Company Apps Lead the Way. Sandvine says that a handful of applications now generate the lion’s share of worldwide traffic. Google, Facebook, Apple, Amazon, Microsoft, and Netflix now together generate almost 57% of all worldwide broadband traffic – far outstripping everybody else.

Masked Traffic Growing. Sandvine says there is growing use of transport protocols like QUIC multiplexed transport that hide the content of data and make it harder to plan worldwide networks. These protocols carry traffic like Apple iCloud Private Relay. Around 16% of all traffic carrier in North America is encrypted.

How We’re Using the Web. The following tables show how we’re using the web. This first table compiles all worldwide broadband usage by type. Video is still king, but there is substantial and growing usage from social media, gaming, and messaging.

 

 

 

 

 

 

The following table shows the biggest applications users for North America (Canada and the U.S.). Netflix is still the leader, but Google traffic on YouTube is growing rapidly.

 

 

 

 

 

 

Perhaps the most interesting statistic is that RTP (real-time protocol) is the leading use of upload bandwidth. This consists of real-time applications like Zoom calls. A few years ago this wasn’t even on the top ten list.

Broadband and Population Growth

Last September, The Daily Yonder wrote an article authored by Brian Whitaker and Roberto Gallardo that correlated the change in population by county from 2010 to 2020 to the percentage of homes that can buy good broadband. I’ve reread this article a few times because it makes a lot of good points about both population changes and broadband.

The article cites some interesting facts. The growth in population in the U.S. over the last decade occurred almost entirely in metropolitan areas. About two-thirds of counties from non-metropolitan counties lost population during the decade. Rural counties overall lost 280,000 residents during the decade. Specific types of counties fared differently – 80% of farming-dependent counties lost population while 40% of recreation-dependent counties lost people.

I love the story the authors are telling – that counties with better broadband fared better than counties without. As somebody who works to bring better broadband to communities, I want this to be true. But it’s a complex issue that is hard for anybody to get their hands around. Consider the issues involved in fully understanding the relationship of broadband and population.

We sadly don’t know how many people have broadband in most rural counties. The large telephone companies and many WISPS have badly misrepresented the availability of broadband in reporting to the FCC. I worked with a county last year where the FCC records showed that over half of rural residents had access to broadband faster than 25/3 Mbps. I worked with the county to solicit more than a thousand speed tests, and we didn’t find any rural residents getting a speed test over 25/3 Mbps, and most weren’t even remotely close to that speed.

By the end of 2020, the whole country was attuned to the problems contained in the FCC broadband map reporting. But it’s unfathomable to think about using statistics from FCC maps from 2010 when nobody was paying attention to the issue. It’s nearly impossible to rely on any statistics that count the percentage of broadband coverage in most rural areas – especially over time.

Another issue cropped up at the end of the decade that might have more impact on rural populations than anything we’ve seen in a long time. A lot of people moved as a result of the pandemic. I’ve worked with a few rural counties that report a significant influx of new residents in the last year. But I also heard from counties that saw a bigger outflow than normal during the pandemic. Unfortunately, these events happened after the 2020 Census data collection, and it’s going to take a while to understand how the pandemic changed population shifts.

We’re heading into a time when many rural counties are going to suddenly get great broadband. Nobody’s crystal ball is good enough to know how much of a dent the current round of grant funding is going to make on the rural landscape. I conjecture that we’re going to see a clear distinction a decade from now between rural communities with great broadband and communities that somehow don’t find a broadband solution in the next few years.

There is another interesting trend that I think we’ll notice a lot more over the next decade. Most broadband funding is aimed at the rural parts of counties. There has been an assumption at the FCC that rural towns served by cable companies have good broadband. But my work in rural county seats often shows a different story. I’ve worked in county seats during the last two years, where 30% to 50% of residents told us in a survey that broadband in the towns was not good enough to support schooling and working from home. If good broadband is important to people, will we start seeing a migration out of county seats to the surrounding rural areas served by fiber? I’ve been working in rural counties for several decades, and a recurring theme I hear from people is that they’d love to move back to the country. Perhaps our push for better broadband will enable that.

The other big issue that makes it hard to understand rural broadband is affordability. Our surveys show there are a lot of rural residents who can’t afford fast broadband and settle for slow broadband or no broadband. Having good rural broadband available is not a remedy for the people who can’t afford it.

To be clear, I am not criticizing this article – it’s written by folks I admire, and I applaud them for wading deep through the data to make some sense of the broadband landscape. But my practical experience in working with rural counties is that every county is unique, and it’s incredibly difficult to look at broadband issues on a global basis. I can’t think of any way to ever make sense out of a universe of counties that includes large Midwest farms, counties with abject poverty, and counties that rely on tourism,

I am positive that there are rural counties that gained population (or stopped losing population) over the last decade because of great broadband. But I’ve also seen counties that already have fiber almost everywhere that lost population. To be clear, this article doesn’t claim that broadband availability drives population change, but only that there is an interesting correlation. It would be awesome if we had the right facts to be able to understand the impact of good broadband.

The Challenge of Accepting RDOF

I’ve been wondering lately if some of the RDOF reverse auction winners are having second thoughts about accepting the RDOF awards. It’s amazing how much the broadband world has changed since the end of that auction in December 2020.

It’s gotten more expensive to build fiber projects over the last year. The supply chain has played havoc with the costs of the raw components needed to build fiber networks. Many clients tell me that the cost of fiber components like conduit are collectively up by 40% or more over the last year. As somebody who has worked through several periods of inflation in the past, there is not a big likelihood that prices will return to the old levels even after the supply chain gets back to normal.

A bigger concern is the cost of labor. The explosion in the volume of fiber construction projects is almost too hard to grasp. The demand for construction crews is going to soon outstrip the number of experienced technicians. That means big challenges for finding and keeping construction crews. Shortages always lead to higher labor costs.

The federal government also layered on a new requirement that didn’t exist at the time of the auction. The Buy American Act now applies to infrastructure projects awarded with federal funds after November 18, 2021. These rules will apply to any RDOF winner that is approved by the FCC after that date. These rules don’t automatically add to the cost of building a fiber network, but they kill any thoughts of using lower-cost foreign fiber or components. The Act makes it clear that components like fiber and conduit must be 100% sourced to U.S. manufacturers. The new rules also make it seem unlikely that there will be many waivers allowed – these new rules have teeth.

The biggest kick in the teeth to an RDOF winner are the huge new grants are offering far more funding than anybody won in the RDOF auction. The giant BEADS grants can fund up to 75% of the cost of building a network for a rural project. Grants like ReConnect also have a 75% grant option. An RDOF winner that was unopposed in the auction got 60% of the FCC’s bid price – and that price was not set at the full cost of building a network but based upon some screwball federal cost models. An electric cooperative that won the RDOF auction could get a lot more funding from ReConnect grants or the upcoming BEAD grants – but nobody in the industry knew this at the time of the RDOF auction.

Another issue to consider is that RDOF winners might have missed out on the opportunity for matching state grants. While some states might make matching grants to go along with RDOF awards, many will not. That means the RDOF funding is all such winners will see.

What I’ve never figured out is why some RDOF winners bid the awards down to ridiculously low levels. There are places where bidders accepted RDOF awards under 10% of the expected cost of building a network – in some cases as low as 1%. In one county I’m familiar with, an RDOF bidder accepted less than 5% of the cost of building the network. This is a county with some of the easiest costs in the country to bury fiber. But this county is typical of rural areas and is sparsely populated, so the cost per passing is still high. Even considering the relatively low construction costs in the area, I couldn’t make a business case in this county for accepting less than 50% outside funding to make the project viable. I’m still scratching my head, wondering how this RDOF winner expects to make a business plan out of such a low award.

It’s not hard to imagine that some RDOF winners are having second thoughts. There are penalties for walking away from RDOF, but those penalties might be a lot smaller than the downside of being forced to build a rural network that will never generate enough revenue to cover the cost of construction. I was mystified by some of the winning RDOF bids in 2020 – and those bids make a lot less sense when viewed from 2022.

Can Satellite Broadband be Affordable?

When we first heard of the possibility of broadband from low-orbit satellites, there was a lot of speculation that the technology could bring affordable broadband to the masses around the globe. The latest announcement from Starlink shows that affordable broadband is probably not coming in the immediate future.

Starlink announced a premium tier of service with a $500 monthly fee for 150-500 Mbps. The receiver has a one-time cost of $2,500. The product offers faster speeds by doubling the size of the receiving area of the receiver. These prices are a big step up from the current Starlink broadband product that offers 50-150 Mbps service for $99 per month with a $500 fee for the receiver.

I’ve been thinking about the issues faced by a satellite constellation owner in trying to recover the cost of the network to make a profit. At current costs, it’s incredibly expensive to launch Starlink satellites. It’s rumored that it currently costs about $60 million for one launch that can place 49 satellites into orbit. That’s a cost of over $1.2 million per satellite before considering the cost of the satellite hardware. But this cost is supposed to be dropping due to the ability to reuse rocket components, with near-future costs soon to be around $30 million per launch. That would still mean a cost per satellite of $600,000 each. Elon Musk says his goal is to get the cost per launch down to $10 million, and that would still mean a launch cost per satellite of over $200,000.

These costs wouldn’t be bad if the satellites had some longevity, but it’s estimated that low-orbit satellites will remain in orbit from 5-7 years, meaning a satellite owner must recover its launch costs in a relatively short period of time.

This is not to say that Starlink can’t make money, and I have to assume that the current prices are set so that the company can become profitable. But it’s hard to imagine lowering prices until a satellite company has a large enough customer base to cover operating costs and the continued cost of replacing satellites.

Starlink also admits that it is subsidizing the home receivers it sells for $500. But with mass production, that cost is likely to plummet. But for now, it’s one more financial hurdle to overcome.

The other component of cost to consider is the cost of backhaul. In the U.S., it will be easy for Starlink to build a series of earth stations that can download and upload data with the satellite constellation. We have fiber backhaul routes crisscrossing the country, and there are numerous carriers willing to negotiate good prices with Starlink for connecting earth stations to the Internet.

But this is not going to be so in much of the rest of the planet. Consider places like inland Africa where there are far fewer fiber middle-mile routes, and where the amount of bandwidth is limited and expensive. Lack of backhaul could make it a challenge to operate in markets like Africa.

There are also countries that will block Starlink or that might impose big license fees to deliver the broadband. China is unlikely to allow broadband connections that bypass the Great Firewall of China. India is discussing license fees with Starlink, and could make it expensive to do business there. Those two countries alone contain 36% of the world’s population.

The last complexity faced by any satellite broadband company will be competition from other satellite owners. It’s likely that within five years that we’ll see worldwide coverage from Starlink, OneWeb, and Project Kuiper – and other companies and countries are considering satellite constellations. The industry math will quickly get challenging if there is any downward pressure on prices through competition. Starlink is only going to be able to sell $500 premium connections if no other satellite company offers something less expensive.

Elon Musk has said many times in the last year that there is no guarantee of financial success at Starlink and that the company could easily go bankrupt. The company must be losing money during this early beta stage, but that’s experienced by all new ISPs. Let’s also not forget the stated original reason for funding Starlink. The goal was to create a cash cow that would spin off the funding needed to settle Mars. The need to generate cash isn’t going to tempt the company to have affordable rates. There is a lot of moving parts to operate a satellite business, with many of the long-term costs still unknowable. It will be interesting watching the satellite companies figure out the business on the fly.

Closing the Homework Gap in Chattanooga

There are plenty of skeptics that deride municipal broadband for various reasons, mostly centered on whether local government should be competing against commercial ISPs. What those skeptics are missing is the immense benefits that a municipal broadband network can bring to a community.

Witness the huge undertaking in Hamilton County, Tennessee, home to Chattanooga’s municipal EPB fiber broadband network. At the start of the pandemic, the school districts quickly discovered that roughly one-third of the 45,000 households with students didn’t have home broadband, making remote school impossible.

The community is responding in a big way and has decided to solve the homework gap in the county, by making sure that every home with a student has broadband access. Even before the pandemic, EPB had offered a low-cost broadband product for $26.99 that had reached about 10% of the homes in the community – but EPB found that even that price was a barrier for a lot of households. The county also has a lot of students that live outside of the footprint of the fiber network.

The community has come together to create a partnership called HCS EdConnect. This is a collaboration between the EPB fiber business, the City of Chattanooga, Hamilton County, Hamilton County Schools, a local non-profit the Enterprise Center, and several private funders. HCS EdConnect has pledged that all low-income students in Hamilton County will have free broadband for the next ten years.

https://www.edconnect.org/

This is an expensive undertaking, and Deb Socia, the CEO of the Enterprise Center, says the total cost will be $15 million over ten years to fund broadband connectivity. That includes $8.2 million upfront to fund the cost of connecting homes to broadband. That money was raised with $1 million from Hamilton County Schools, $1.5 million each from the City of Chattanooga and Hamilton County, and generous donations from the private sector, including $1 million each from the Blue Cross Blue Shield Foundation of Tennessee and the Smart City Century Fund.

Qualifying homes with students will get free broadband for at least ten years, as long as they stay in the district and have students at home. Households qualify if they are eligible for free or reduced-price lunches and those receiving SNAP or TANF benefits.

By Tennessee law, EPB cannot provide free broadband, so the remaining funding will be to cover the monthly cost of the EBP low-cost broadband program in the city or to provide a free cellular hotspot outside the city. However, EPB is still a big participant in the project and has hired eight new technicians to implement the program.

The difference-maker in this case is having a municipal fiber network that puts the needs of the community above profits. There is no reason that a commercial ISP like Comcast or Charter couldn’t engage in a similar partnerships – but I’ve never heard of any discussions of this nature.

It’s almost impossible to stress the importance of this effort for the county. The benefits of having good home broadband transcend the temporary issues of the pandemic. A definitive study of the negative impact of students living in homes without broadband was published in early 2020 by the Quello Center, part of the Department of Media and Information at Michigan State. The results of that study were eye-opening. The study showed that students with no Internet access at home tested lower on a range of metrics, including digital skills, homework completion, and grade point average. Some of the specific findings include

  • Students with home Internet access had an overall grade point average of 3.18, while students with no Internet access at home had a GPA of 2.81.
  • During the study, 64% of students with no home Internet access sometimes left homework undone compared to only 17% of students with a high-speed connection at home.
  • Students without home Internet access spend an average of 30 minutes longer doing homework each evening.
  • One of the most important findings identified a huge gap in digital skills for students without home broadband. To quote the study, “The gap in digital skills between students with no home access or cell phone only and those with fast or slow home Internet access is equivalent to the gap in digital skills between 8th and 11th grade students.” It’s hard to grasp that the average 11th grade student without home broadband had the equivalent digital skills an 8th grader with home broadband.

Hamilton County is going to see transformational benefits from this effort. Students who grow up with good digital skills are going to grow up ready to thrive in a digital economy. Hamilton County has a lot of homes below the poverty level, and my bet is that in the decades to come that the county will become a different place.

This move by Hamilton County answers the big question of why cities might consider building a municipal broadband network – it can be transformational for the long-term well-being of the community. This move also throws a gauntlet at the feet of the cable companies. They never miss an opportunity to quash municipal and other potential competitors. Perhaps a better tactic would be to become a valuable partner with local government to tackle the digital divide.