Author: Doug Dawson, CCG Consulting

Categories
The Industry

The State of the Internet – 2024

It’s been a while since I took a look at the worldwide Internet. The statistics cited below come from Datareportal.

The world population in January 2024 was 8.08 billion, up 74 million from a year earlier, a growth rate of 0.9%.

There were 5.61 billion unique mobile subscribers in January, up 138 million (2.5%) over a year earlier.

5.35 billion people used the Internet at the end of 2023, up 97 million (1.8%) from a year earlier. This means almost two-thirds of people on the planet are connecting to the web. Some interesting statistics about worldwide Internet connectivity:

  • 5% of females are connecting to the Internet, and 68.8% of males.
  • 8% of worldwide Internet access comes from laptops and desktops
  • 8% of urban residents worldwide use the Internet versus 48.9% of rural people.

The least connected nations: North Korea at 99.9%. Between 80% and 90% – Central Africa Republic, Burundi, South Sudan, Niger, Yemen, Afghanistan, Ethiopia, Burkina Faso, Madagascar

The countries that still have the most unconnected populations:

  • India 684 million
  • China 336 million
  • Pakistan 132 million
  • Nigeria 103 million
  • Bangladesh 96 million
  • Indonesia 76 million
  • Tanzania 47 million
  • Uganda 36 million

The average time spent online worldwide is 6 hours 40 minutes per day, up 3 minutes from 2023. That means the world spends a combined 780 trillion minutes using the Internet in a year.

The countries with the most average daily usage:

  • 9+ hours – South Africa, Brazil
  • 8 to 9 hours – Philippines, Columbia, Argentina, Chile, Russia, Malaysia, U.A.E.
  • U.S. is at 7 hours 3 minutes. 20th in the world.

Younger people worldwide spend more time online. The age group 16-24 spends 7 hours 15 minutes online daily, while those 55-64 spend 5 hours 15 minutes.

5.04 billion people use social media, up 266 million (5.6%) from a year earlier. There are 8.4 new social media users connected per second.

People are also spending more time on social media. The average TikTok viewer spends 34 hours per month on the site. Other sites with the most usage include YouTube (28 hours), Facebook (19.8 hours), Whatsapp Messenger (17 hours), Instagram (15.8 hours), Line (8.2 hours), X (4.6 hours), Telegram (3.8 hours), Snapchat (3.5 hours), FB Messenger (3.3 hours), Pinterest (1.7 hours), and LinkedIn (0.9 hours).

Countries with the biggest percentage of social media users.

  • Over 90% – U.A.E, Saudi Arabia, South Korea
  • 85% – 90% – Hong Kong, Singapore, Netherlands
  • 80% – 85% – Spain, Malaysia, U.K., Canada, Norway, Austria, Germany, Sweden
  • U.S. is at 70.1% – 36th place.

The most popular uses of the Internet (percentage that use each function)

  • 1 – Chat and Messaging 94.7%
  • 2 – Social Media 94.3%
  • 3 – Search 80.7 %
  • 4 – Shopping 74.3 %
  • 5 – Location services / Maps 54.4%
  • 6 – Email 49.5%
  • 7 – Music 48.1%
  • 8 – Weather 42.2%
  • 9 – Entertainment 40.6%
  • 10 – News 40.3%

Average time worldwide spent with various Internet/Media per day:

  • Using the Internet 6 hours 40 minutes
  • Watching Video (Online and TV) 3 hours 6 minutes
  • Using Social Media 2 hours 23 minutes
  • Reading Press 1 hour 41 minutes
  • Streaming Music 1 hour 25 minutes
  • Using a Game Console 1 hour 2 minutes
  • Listening to Broadcast Radio 50 minutes
  • Listening to Podcasts 49 minutes

Online ads now represent 70% of all advertising dollars. Worldwide, $1.03 trillion was spent for online ads in 2023, up $70 billion over the previous year. $719.2 billion of that spending was done on digital search sites and social media.

Categories
The Industry

How the Pandemic Changed Broadband

The Washington Post recently published an article with a series of graphs that shows the impact of the pandemic on a number of economic indicators that range from unemployment, wages, air travel, grocery prices, home prices, and consumer sentiment.

The article got me thinking about the impact of the pandemic on the broadband industry – and there are several important changes that came out of our collective pandemic experience.

Upload Speeds. Probably the biggest change for the industry was that many millions of people suddenly cared about upload speeds as people tried to work from home and students tried to attend class from home. There have always been people who complained about the ability to join a Zoom call, but before the pandemic, ISPs largely ignored them.

The pandemic turned the lack of upload speeds into a crisis. It turns out that upload speeds weren’t just a problem for slow technologies like DSL and hotspots. Cable companies suddenly had a lot of irate customers who were furious that they couldn’t maintain upload connections from home. Cable companies had put a lot of effort over the previous decade into staying ahead of download speed demand. Before customers began complaining about download speeds, cable companies had regularly made unilateral upgrades to download speeds. Every few years, customers would wake up to suddenly faster speeds, and surveys showed that most cable broadband customers were happy with download speeds from cable companies.

But the pandemic suddenly meant that cable technology was seen as inadequate. It was the collective experience of customers during the pandemic that led to the public becoming convinced that fiber is a better technology and that their cable company was behind the times. This prompted the cable companies to scramble to find a faster upload solution, and we’re just now seeing them implement faster upload speeds four years after the start of the pandemic. Only time will tell if current upload speed upgrades will be good enough to turn around the public sentiment that now favors fiber over coax.

Working at Home. The pandemic sent huge number of people home to work, and many of them have never gone back to the office. My consulting firm does surveys, and before the pandemic we rarely saw more than 10% of homes that had somebody working from home even part time. Today, we routinely find communities where 15% or more of homes have somebody working at home full time, and 50% of home have somebody working from home part time.

The main impact for ISPs of having customers working from home is that it created a lot of customers who are intolerant of broadband outages. People who work from home typically lose the ability to work during the outage, and ISPs get instant feedback about outages through complaints and negative online reviews. Our surveys show that intolerance from outages has climbed significantly since before the pandemic. Many customers believe broadband should always work.

Outrage over Lack of Rural Broadband. I’ve been working with rural communities that have been yelling for more than a decade about the problems caused by poor broadband. The pandemic brought this issue to national attention when employers and schools in cities and county seats couldn’t send people home for school or work. There was so much press about the issue that I think this was the first time that a lot of urban and suburban people realized that rural folks don’t have the same broadband.

I firmly believe that the outcry about the impact of the pandemic is what got the BEAD grants put into the IIJA legislation at such a high level of funding. Before the pandemic, the federal government and states would throw a billion dollars or so each year at fixing rural broadband – I used to call this the hundred-year plan to solve rural broadband. It took the pandemic to get bigger dollars thrown at the rural broadband gap. I don’t know if anybody has added up all of the funding, but between state, federal, and local grants, we must be spending nearly $100 billion for new rural broadband networks.

Categories
Regulation - What is it Good For?

Subsidizing Rural Broadband Networks

We are preparing to award over $44 billion to construct rural broadband networks. Almost by definition, these networks will be built in rural areas where it’s hard to justify a business plan where revenues generated from the grant areas are sufficient to fund the ongoing operation and eventual upgrades to any broadband networks.

The FCC has addressed this issue in the past, and numerous FCC programs have provided ongoing subsidies for rural broadband networks. The FCC has been very careful over the past decades to create separate subsidies for small telephones and cooperatives versus the largest telephone companies. The reasons for the distinction had to do with economy of scale. A higher level of subsidy has been provided to smaller telcos since it was reasoned that small rural companies have a hard time staying afloat without a subsidy.

Conversely, the historic reasoning of regulators was that large telcos didn’t need as much subsidy, or even any subsidy since the big companies also operated in county seats and large cities. Historic regulation assumed that the profits generated in urban and suburban areas could be used to subsidize rural areas.

The original subsidy to small telcos came from the Universal Service Fund (USF). Not every small telco received a subsidy, and the amount of any FCC subsidy was calculated according to the cost structure of each small telco. Small companies would annually calculate costs, and the amount of subsidy benefited the rural companies with the highest costs.

The FCC adopted a major change to the rural subsidy program in 2014 with the USF/ICC Transformation Order. This made the compensation for small telcos more complicated and created different subsidies for different kinds of costs – but the subsidies still benefited the highest-cost small telcos. The subsidy program for small telcos eventually morphed to include the A-CAM program.

Before the USF/ICC Order, only a small portion of big telephone company areas were eligible for any USF subsidy. The ICC Order was a huge win for big telcos, and subsequent to the Order, the FCC created the CAF II subsidy for the most rural locations served by the big telcos. Suddenly, many billions of dollars of subsidy flowed to big telcos to upgrade rural DSL speeds to at least 10/1 Mbps.

In recent years, the FCC opened subsidy programs to a wider range of carriers than just incumbent telephone companies. Both the CAF II reverse auction and the Rural Development Opportunity Fund (RDOF) were conducted using a reverse auction and were available to any ISP. Some of these funds went to telcos, but also went to cable companies, fixed wireless ISPs, and new start-up fiber overbuilders.

This history raises an interesting question. The BEAD grants are not a subsidy program. As a grant program, practically every dollar spent with BEAD funds must be used to build broadband infrastructure – with only some minor reimbursements allowed to cover the cost of complying with the grant paperwork. The BEAD money does not cover any operating expenses for the rural networks that will be built.

In a post-BEAD world, there will be a reshuffled mix of rural broadband networks – properties still operated by small telcos, properties that are still receiving CAF II or RDOF subsidies, and areas built with BEAD or ARPA grants that will not be receiving any subsidies. Some of the BEAD properties will be operated by giant telcos and cable companies, while others will be operated by a wide range of smaller ISPs. The FCC will have created a real mess in rural America, with adjoining areas receiving drastically different levels of federal support – even when the local cost characteristics are identical.

I find it inevitable that companies that win BEAD will start lobbying for operating subsidies within a few years of networks being constructed. The FCC will be faced with the challenge of coming up with a sustainable subsidy program for all rural broadband networks. I think the FCC has several possible paths to take in the post-BEAD world:

The FCC could continue with existing subsidy programs with no acknowledgement that there is a wide disparity between areas that get and don’t get subsidies. The FCC could randomly decide on new subsidy programs to support subsets of companies – perhaps a subsidy program for BEAD winners and another for RDOF properties.

Or the FCC could start all over and design a subsidy program for the post-BEAD world. The best subsidy program would be cost-based, like the original USF. The original cost-based USF looked at the company-wide costs of each ISP, not at the costs to operate in rural areas. Under a cost-based system, small rural companies would likely get the most subsidy per subscriber while large ISPs that operate urban networks would likely get nothing and would be expected to support rural properties with urban profits.

Another option would be that the same amount of subsidy goes to support every rural subscriber, regardless of who owns the ISP business.

There has been a tickle in the back of my brain for the last year wondering why companies like AT&T, Charter, and Comcast seem to be willing to pursue grants for rural areas where it will be a challenge for revenues to fully cover costs. The big telcos have been working feverishly to ditch copper networks, and it’s hard to understand why they are now willing to go back into rural areas that have low density and long drive times.

But it recently struck me – these big companies are betting on the FCC creating a future subsidy program for areas being built with the current flood of ARPA and BEAD grants. I can’t see any other way to justify some of the grants I’ve seen the big companies accept. My bet is that we’ll barely make it through the BEAD grant awards before the big company start lobbying for new subsidy programs that benefit them more than other rural ISPs.

Categories
Technology

Technology Shorts April 2024

Scientists continue finding ways to make computers faster and better. Today’s blog talks about three interesting developments in computing technology.

Universal Computer Memory. The holy grail of computing memory has been universal computer memory that can replace the current need for both short-term and long-term memory in the computing process. An article published in Nature Communications describes a new material that looks like it will enable universal computer memory.

Computers currently use RAM for short-term memory. RAM chips are superfast but need a lot of physical space and use a lot of power. A big downside to RAM is that everything is lost if a computer loses power. Long-term memory is achieved using flash memory, which is much slower than RAM but can retain data without power. Universal computer memory would capture the best of both worlds by being fast, energy-efficient, and retaining data without power.

Scientists at Stanford and other universities are using a new material called GST467 that contains germanium, antimony, and terbium. Scientist are configuring GST467 in a stacked-layer structure known as a superlattice. They believe this will create chips that are faster, less expensive to manufacture, and that will use less power. The team tested hundreds of different chip sizes and configurations using the new material. They found that a GST467 memory device achieved fast speeds while consuming very little power. They also believe the material can retain data for more than ten years at temperatures above 248 degrees Fahrenheit. These are all huge performance improvements over current chips.

First Graphene Semiconductor.

Graphene is made from a single layer of carbon atoms bound in a tight hexagonal lattice. It seems like a superior material to use for electronics since it’s a better conductor than silicon. Scientists have always known that graphene also has an unusual property where electrons passing through it can be structured in a wave-like pattern that is perfect for quantum computing.

Researchers have never been able to overcome the issue of creating a band gap, which is the ability to easily move electrons where needed inside a graphene chip. A band gap is what enables components like a transistor to turn on and turn off.

A reported in Nature, scientists at the Georgia Institute of Technology, and from China, have created the first working graphene-based semiconductor. The chip is made from epitaxial graphene, which is a specific crystalline form of graphene bonded to silicon carbide. They’ve found that transistors in this structure can operate at terahertz frequencies, which is ten times faster than today’s silicon-based chips. The best news is that it looks like this new structure could be integrated into the current processes for chip manufacturing.

Protonic Artificial Synapse. Engineers at MIT have developed an artificial synapse that mimics the way the brain works, but that can move data a million times faster than the human brain. The human brain is by far the most powerful data processor due to the unique structure of neutrons and synapses, and scientists and engineers have been trying for years to duplicate the brain using electronic neural networks.

The MIT team has mimicked neural networks by creating a chip that works more like the brain. It uses an analog system that shuttles data using protons instead of electrons. The chip uses a solid electrolyte made from phosphosilicate glass (PSG) that allows the creation of a programmable resistor that will work at room temperatures.

When a strong electric field of up to 10 volts is applied to the device, the protons move very quickly, which is what allows the chip to be up to a million times faster than a brain. They’ve found that the chip seems to have a long-life and doesn’t break down from the increased power. The big challenge is to find a way to mass-produce the chips then arrange them into the most effective array.

Categories
Technology

The Battle for Network Monitoring

An interesting battle is underway to capture the market for monitoring devices. The latest entry into the market is 5G RedCap. This is a technology that is currently under development in chipsets and ought to hit the market in 2025 and 2026.

RedCap is the latest attempt by cellular carriers to monetize 5G. RedCap was defined in the 5G specification 3GPP Release 17. The technology allows for 5G devices that are less complex, less costly, and more power efficient than conventional 5G devices like smartphones. RedCap will compete for monitoring devices like sensors that send small packets of information continuously and require a long battery life. This will include devices like industrial wireless sensors, health wearables, and surveillance devices. Traditional 5G is not good for such devices because 5G chips add too much cost and use too much power.

5G RedCap devices will use fewer antennas and will support less bandwidth than a typical 5G connection. Fewer antennas, lower bandwidths, and different modes of operation will help to reduce power consumption. RedCap devices can transmit data without having to connect to a network – the RedCap device can transmit its bits and hope a network is receiving it.

Cellular carriers will be working on ways to monetize the new capability – perhaps by selling monthly subscriptions for all of the devices at a given site.

This contrasts with the other technologies used to monitor devices. For devices inside or near buildings, the monitoring technology of choice is free wireless connectivity using WiFi or Bluetooth. Devices can be monitored with these technologies without paying an additional fee. However, WiFi devices can still require more power than is being envisioned by RedCap. Most WiFi monitoring devices have to periodically be recharged, which is not always practical for a small device like a sensor that alerts the network if somebody walks through a hallway.

WiFi is not a good solution for monitoring outdoor devices that are not located very close to a WiFi network. WiFi also isn’t a good solution for something like a portable health wearable unless the user always carries a cellphone – an impractical requirement.

The other interesting player in the market is Amazon. The company launched its Sidewalk network in 2021. Amazon has created a local network that is established between Amazon devices in the home and neighborhood. The network uses a combination of Bluetooth and 900 MHz LoRa signals. This network can communicate with Amazon from devices inside a home, and the LoRa spectrum can pick up devices outside and in neighboring homes. Amazon says that it already covers over 90% of homes and wants to move that to over 95%.

A fourth technology in use today is using satellites to monitor remote devices. However, the electronics for such devices are neither low-cost nor low-power.

In looking at the various technologies, it’s clear that each technology will find a niche. RedCap seems best aimed at the mobility market. The technology will make it easier to sell wearable technology and anything else that is not stationary. RedCap might always fit into industrial situations where an operator is attracted to large numbers of low-power and low-cost sensors. But RedCap will come with a price, so when you buy a wearable device, be prepared for a monthly 5G fee.

Categories
Regulation - What is it Good For?

Rural Broadband Is Expensive Today

One of the trends that is a concern for ISPs is plans by State Broadband Offices to force BEAD winners to charge low rates for broadband. I understand some of the rationale behind these attempts.

One argument for lowering rates is that the government is paying a big portion of the cost of building the broadband networks, and it ought to be able to extract concessions from the ISPs for taking the grant funding. That sounds like a reasonable argument until you take a harder look at the places where BEAD funding is going to be used. In most places, BEAD will be used for the most sparsely populated places, which in many instances also have the toughest topography and construction challenges.

The other argument I’ve often heard is that ISPs can provide lower rates because ISPs make a lot of money and can afford it. This might be true for the large national ISPs that can average the revenues from BEAD areas across larger markets with higher margins. But big ISPs don’t want to take on markets that lose money, and they might pass on accepting BEAD in states that insist they charge low rates. Any assumption that smaller ISPs can afford to lose money on a property is badly misplaced – this is like expecting your favorite restaurant to provide low menu prices for a significant percentage of their customers. Such a restaurant won’t be in business for long.

BEAD grants are being offered to ISPs just to get them to consider building networks in places they would otherwise never consider. In many cases, the business case for coming to a BEAD area can barely reach profitability even with a large grant. This is not true of all BEAD places, and there are still some areas covered by BEAD with decent housing density. However, most BEAD areas are high cost to build and high cost to service and maintain after construction. I fully expect a bunch of ISPs who are wading into BEAD to wonder in five years why they ever went through the effort.

What the ISPs are providing as the quid pro quo for the grant funding is building a fast network that can bring a remote rural area into parity with urban broadband. There will be no excess margins in most BEAD business plans that can somehow cover low-cost broadband prices.

The other interesting point that most people are missing is that, for the most part, rural broadband rates are higher today than urban rates. Most areas that get a BEAD network will see lower rates along with a new faster broadband network. How can I say that? Consider the broadband alternatives that exist in rural areas that are BEAD-eligible.

  • Most people using Starlink are now paying $120 per month after shelling out for the receiver.
  • High-orbit satellite broadband is expensive. Consider Viasat. The base plans range from buying 40 gigabytes for $69.99 up to buying 300 gigabytes for $299.99. Extra usage after the data caps can be purchased in small bundles ranging from $9.99 for 5 extra gigabytes to $99.99 for 80 extra gigabytes.
  • Cellular hotspots can be incredibly expensive. The base fee for hotspots sounds reasonable, but the data caps are tiny. Consider AT&T. It sells a hotspot with either a 15-gigabyte data caps for $35 or a 100-gigabyte data cap for $55. The killer is that the overage fee for exceeding those data caps is $10 per gigabyte. Hotspots for T-Mobile, Verizon, and UScellular are similar. I still hear horror stories of families with school children who pay hundreds per month for a hotspot. The only way not to spend money with a hotpot is to greatly curtail broadband usage.
  • While not universally true, many rural fixed wireless providers have high rates. It’s not hard to find rates over $100.
  • The only ‘affordable’ rural broadband alternative is DSL. But it’s getting exceedingly difficult to find or sign up as a new DSL customer in most places, and in many cases the speeds are too slow to be usable. There are exceptions, of course, but most rural folks I’ve talked to tell me that DSL is no longer an option.

Many of the companies building BEAD networks will have rates significantly lower than the current rural rates cited above. BEAD networks will not have data caps, which eliminates the worry spending more than the basic rate. Most rural folks offered BEAD are going to be relieved if asked to pay a decent fixed rate for a connection that is far faster than what they had before. A huge percentage of rural households will see a significant monthly cost decrease just by paying the normal prices of the companies that build BEAD networks.

In saying this, I’m not ignoring the fact that there are households that can’t afford the normal prices charged by ISPs – but those folks also can’t afford the broadband prices available in rural areas today. Rural ISPs can’t shouldered with providing the low rates so that folks can afford broadband. ISPs can’t be forced to somehow fund the end of the ACP – particularly in rural areas. Anybody who has ever operated any business knows that operating with too-low rates is a road to eventual financial disaster.

Categories
Regulation - What is it Good For?

NTIA Releases Digital Equity Funding

The NTIA recently announced $811 million in funding for digital equity that is available for States and Territories. This round of funding is part of the $1.44 billion Digital Equity Capacity Grant program of money that will go to States to administer digital equity grant programs. $60 million of this fund was allocated to States in 2022 for planning purposes. The NTIA has taken so long to deploy these funds that these disbursements represent the grant funding allocated for the law for years 2022 through 2024. There will be a few more future years of grant funding.

The total funding for digital equity in the IIJA (Infrastructure, Investment, and Jobs Act) was $2.75 billion. It’s expected that the NTIA will launch the $1.25 billion Digital Equity Competitive Grant Program this summer that will make grants directly available to entities like political subdivisions of states, non-profits, schools, libraries, and others.

States have two months to ask for their share of the funding. In this round of funding, $760 million is available to 50 states, Washington, D.C. and Puerto Rico, $45 million for Native entities, and $8.4 million is allocated for territories. The NTIA established a tentative award amount for each government entity. As expected, the largest amounts of funding goes to the states with the largest populations – California ($70 million), Texas ($55 million), Florida ($41 million), and New York ($37 million). Even states with small populations get a significant amount of funding, like North Dakota ($4.5 million), South Dakota ($5.0 million), and Wyoming ($5.3 million).

The States will use this money to make digital equity grants in each state. These grants are not intended for ISPs, but for non-profits, local governments, and related entities. Expect to hear about grant programs in every state as the summer progresses.

These grants are part of the larger effort of the IIJA to tackle all aspects of the digital divide. BEAD grants are intended to address the deployment and availability of broadband. The soon to be defunct ACP plan was intended to address affordability. It’s unfortunate that the NTIA has finally gotten around to spending money for the digital equity effort just as the affordability component is dying.

These grants are intended to tackle digital equity, with the stated purpose for identifying and solving barriers for people to use digital resources. It seems likely that most of the grants under this program will be used to get broadband devices into people’s hands and teach them how to use broadband. I expect to see a wide range of creative proposals made to States under this wide umbrella of uses.

Most States have been telling the public about these upcoming grants for years, and many of the entities that can use the funding have gotten prepared to file digital equity grants. But I have to imagine that States have varied in the effectiveness of this communication and there may still be non-profits, and others that haven’t heard of these grants.

A lot of communities have taken the approach of trying to consolidate all of the various stakeholders in a community into one grant application – with the reasoning that this might be the best way to be sure a community gets its fair share of funding. That might mean pulling in schools, colleges, libraries, and others to develop digital training classes and curriculums. It might mean pulling in the folks who are equipped to refurbish computers or distribute laptops to the public. Any community that has not considered this consolidated approach still has a little time, although it seems likely that we’re only months away from States announcing grant application cycles.

Categories
Regulation - What is it Good For?

Can States Pick Up the End of ACP?

FCC Chairwoman Jessica Rosenworcel made it clear recently that the FCC is not willing to tackle funding for the ACP plan that is expiring in May. She estimated that the FCC would have to add something like $9 to every broadband bill in the country to fund the ACP plan.

But there is another alternative. States could pick up the ACP funding just for their state. States will have the authority to do this after the FCC approves the reinstitution of Title II authority this month. That authority would give the FCC the authority to create the fee needed to fund the ACP through the FCC Universal Service Fund.

We’ve always had a regulatory structure that allows States to tackle any telecom issue that the FCC decides not to pursue. Once Title II regulation is in place, and assuming that the FCC formally passes on funding ACP, then each state would be free to do so.

It’s obvious that the big ISPs are worried about this. A joint letter from Comcast, Charter, and Cox was recently sent to the FCC asking it to preempt States from establishing a State version of ACP.

If I was a betting man, I bet that the FCC will not preempt the States on this issue. While the FCC is not ready to take on the flak that would come with creating a nationwide ‘tax’ on every broadband household and business, I’m guessing that they will allow States to do so.

Many States already have a mechanism that easily could handle this. A lot of States have a State universal service fund that mimics the structure of the FCC’s USF. The States have used these funds in the past to support rural telcos or to fund other telecom-related issues. Many States already assess a fee on telephone customers to fund the State USF. It’s not much of a stretch for a State to extend this to cover a broadband discount.

States that decide to create a low-income subsidy plan that like the ACP will face the same kind of issues highlighted by Chairwoman Rosenworcel. A State fee could easily be anything from a few dollars per month to over $10 per month. People are annoyed at any taxes and fees added to products they must buy, and a large fee is going to draw a lot of public attention and ire.

There are ways that the States could reduce the size of an ACP replacement. An easy change would be to not cover cellphones, just home broadband connections. States are also likely to fiddle with the qualifications. The ACP program had a wide range of ways to qualify, with the most important one being that ACP is eligible to homes making as much as twice the level of poverty for a given area. States might lower that threshold to lower the size of the fund and the size of any monthly fee.

It’s always interesting to watch big ISPs fight hard to keep fees from being assessed on broadband. In this particular case, a State USF assessment wouldn’t likely cost an ISP anything since they would pass the fee on to customers. But big ISPs are fighting hard to maintain the current environment where broadband can’t be taxed. While payments to a state or federal USF fund are technically fees and not taxes, they feel like taxes to the folks who pay them. The big ISPs have been successful at keeping broadband from being taxed for the last 25 years, and they don’t want to open up the floodgate where State and local governments feel they can tax broadband revenues for ACP since that would raise the issue of assessing fees for a wide variety of other purposes.

Of course, this discussion could end in a hurry if Congress steps up and funds some version of ACP. That’s not something I’m willing to bet on.

Categories
The Industry

Cord Cutting Continues in 2023

Leichtman Research Group recently released the cable customer counts for the largest providers of traditional cable service at the end of 2023. LRG compiles most of these numbers from the statistics provided to stockholders, except for Cox and Mediacom – they now combine an estimate for both companies. Leichtman says this group of companies represents 96% of all traditional U.S. cable customers.

I suspect there are regular blog readers who wonder why I post these statistics every quarter. There are several reasons.

  • I find it fascinating to watch the slow train wreck of the implosion of the cable TV industry. Recall that the big cable companies like Comcast and Charter got so large through selling only cable TV and no other products. Technology let them compete and then beat telcos for broadband customers, but they already had a huge number of customers in 2000 when broadband competition kicked off in earnest.
  • I’m fascinated to see that there are still over 55 million household buying cable TV from the largest companies. A lot of folks have completely written off cable TV as irrelevant, and a thing of the past, but 42% of households are still buying a traditional cable TV package. Roughly 30 million homes have cut the cord since 2018, but there are still 55 million more homes that might someday migrate all of their video to broadband networks.

The traditional cable providers continue to lose customers at a torrid pace, losing 1.7 million customers in the third quarter. Overall, traditional cable providers lost over 18,700 customers every day during the quarter. The overall penetration of traditional cable TV is now down to 42% of all households, down from 73% at the end of 2017.In the fourth quarter, Comcast dropped from being the large cable provider and fell below Charter. Losses were big across the board, and only Charter, Verizon, and Breezeline lost less than 10% of the cable customer base for the year. The traditional cable providers lost over 6.9 million cable customers for the year – with only a fourth of those customers choosing an online cable substitute.

In the fourth quarter, online cable substitutes like YouTube and Hulu Live picked up 1,476,000 customers, almost all by YouTube. For the year, these providers added almost 1.9 million customers.

Categories
Regulation - What is it Good For?

Can the FCC Fund the ACP?

A lot of folks have been pleading with the FCC to pick up the tab to continue the the Affordable Connectivity Program (ACP). Folks are assuming that the FCC has the ability to take on the ACP program inside the Universal Service Fund. To make that work, the FCC would have to apply a monthly assessment against all broadband users – something the FCC should have the authority to do if it votes to reinstate Title II authority over broadband at its April meeting.

What might it look like for the FCC to absorb the dying ACP program? FCC Chairwoman Jessica Rosenworcel told Congress that rolling the ACP into the USF could add $9.00 to monthly broadband and telephone bills. She also cited an internal FCC report that found that broadband bills could increase between $5.28 and $17.96 per month. I decided to kick the tires on the FCC’s estimates.

Taking over the Existing ACP. The existing ACP has 23.3 million recipients. That includes 13 million cellular customers, and the rest using landline or wireless broadband. It’s not easy to pin down the number of U.S. broadband customers that a fee might be assessed to. For example, there are numerous wholesale arrangements that would have to be defined – like assessing the fee on a landlord who includes broadband in the rent. Using a variety of sources, I assumed there about 121 million total broadband customers that could be assessed a fee to support ACP.

Funding the current ACP with a monthly fee on all broadband users equates to a monthly fee of $5.78. However, the monthly ACP fund disbursements grew 28% over the last year, so an initial fee would have to be set higher to prepare for growth over the next year. That means the starting USF fee might have to be something like $7.50 per month, and there would have to be additional future increases to the fee until the ACP fund reached equilibrium. It’s not hard to envision the broadband fee growing significantly beyond $10 per month in a few years.

This also raises the uncomfortable question about giving low-income households a $30 monthly discount and then charging the same folks to fund the program. If low-income households are excused from the USF fee, then the fee to everybody else would be increased by another 20%.

Exclude Cellular from ACP. There is a lot of controversy about giving the ACP discount to cellular customers. Almost all of the cellular companies involved in the program are cellular resellers, and most of the suspected ACP fraud involves cellular ACP claims.

If ACP is limited to landline (and fixed wireless) customers, the broadband fee would be a lot smaller. With the current number of ACP enrollees, the FCC broadband fee would be roughly $2.54 per month. However, it seems likely that a lot of ACP recipients receiving the discount on cellphones would convert that to a home broadband connection, which would quickly boost the fee.

The most common qualification for ACP is participation in the SNAP program that provides food subsidies for low-income households. There are currently 21.6 million households that get SNAP benefits, and if all of them applied for the ACP discount, the monthly fee to fund the USF would equate to  $5.36. The current economy has historically low unemployment rates, and a future dip in the economy could quickly add to households eligible for SNAP and ACP.

Assessing a Fee on Broadband Isn’t Easy. It’s more challenging than you might think to assess a fee on every broadband customers. A fee on single family homes and standalone businesses is fairly straightforward. But there are a lot of complicated broadband billing arrangements. Landlords for both residents and businesses often build broadband into the rent. Landlords might drop broadband rather than pay a fee for every tenant. There are many arrangements providing free broadband to public housing. There are many varieties of wholesale broadband relationships that would have to be figured out.

Impact of Raising Rates. It’s not hard to imagining the furor that would ensue if people drop their broadband connection as unaffordable because of the extra fee. One of Chairman Rosenworcel’s fears is that funding broadband this way would push a lot of broadband rates to an unaffordable level.

Conclusion. I think Chairwoman Rosenworcel is in the right range with her estimate if you trend the current ACP recipients to grow for a few more years. However, the FCC has alternatives. If ACP recovery was limited to home broadband and not cellphones, it looks like the fee might might top out at $6 or $7 – lower than her $9 projection. If cell phones remain eligible for ACP, it’s not hard to envision the USF fee growing far past her cited $9 fee – that might be how the FCC predicted a $17 fee.

But the real issue isn’t the size of the monthly fee – but whether the FCC is willing to take on the responsibility. If the FCC was to assess a $5 – 7 fee on every broadband user, the agency would be in the crosshairs by both sides of the political spectrum. Realistically, it also seems likely that an attempt by the FCC to implement such a fee would be challenged and end up in court for years – which wouldn’t help anybody.

The FCC is obviously being cautious, but they might be right in doing so. Tackling such a controversial solution with such high visibility would likely put the FCC under a lot of scrutiny, which might even bring the entire Universal Service Fund under attack. I know it’s not the answer that people want to hear, but the best solution is for Congress to fix ACP – unfortunately, nobody is feeling highly hopeful about that.

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