Cord Cutting Accelerates in 1Q 2021

The largest traditional cable providers collectively lost over 1.6 million customers in the first quarter of 2021 – an overall loss of 2.2% of customers. To put the quarter’s loss into perspective, the big cable providers lost almost 18 thousand cable customers per day throughout the quarter.

The numbers below come from Leichtman Research Group which compiles these numbers from reports made to investors, except for Cox which is estimated. The numbers reported are for the largest cable providers, and Leichtman estimates that these companies represent 95% of all cable customers in the country.

Following is a comparison of the first quarter subscriber numbers compared to the end of the 2020:

1Q 2021 4Q 2020 Change % Change
Comcast 19,355,000 19,846,000 (491,000) -2.5%
Charter 16,062,000 16,200,000 (138,000) -0.9%
AT&T 15,885,000 16,505,000 (620,000) -3.8%
Dish TV 8,686,000 8,816,000 (130,000) -1.5%
Verizon 3,845,000 3,927,000 (82,000) -2.1%
Cox 3,590,000 3,650,000 (60,000) -1.6%
Altice 2,906,600 2,961,000 (54,400) -1.8%
Mediacom 626,000 643,000 (17,000) -2.6%
Frontier 453,000 485,000 (32,000) -6.6%
Atlantic Broadband 313,591 318,387 (4,796) -1.5%
Cable One 252,000 261,000 (9,000) -3.4%
     
Total 71,974,191 73,612,387 (1,638,196) -2.2%
Total Cable 43,105,191 43,879,387 (774,196) -1.8%
Total Other 28,869,000 29,733,000 (864,000) -2.9%

 

Some observations about the numbers:

  • The big loser continued to be AT&T, which lost a net of 620,000 traditional video customers between DirecTV and AT&T TV. In the second quarter of this year AT&T spun these customers all off to a corporation.
  • The big percentage loser continues to be Frontier which lost 6.6% of its cable customers in the quarter.
  • Big customer losses finally hit to Comcast, which lost 491,000 traditional cable customers in a quarter where it added 460,000 broadband customers.
  • Charter continues to lose cable customers at a slower pace than the rest of the industry. I have to wonder if this means bundles that hard to break or some similar issue.
  • This is the ninth consecutive quarter that the industry lost over one million cable subscribers.

To put these losses into perspective, these same companies had over 85.4 million cable customers at the end of 2018 and 79.5 million by the end of 2019. That’s a loss of 13 million customers (16% of customers) since the end of 2018.

The big losses in cable subscribers happened at the same time that the biggest ISPs in the country are adding a lot of broadband customers. The biggest ISPs added over 1 million new broadband subscribers in the first quarter of 2021.

In 2020, we saw that a lot of customers dropping traditional video were switching to online versions of the full cable line-up. That didn’t carry into the first quarter of 2021 where the combination of Hulu plus Live TV, Sling TV, AT&T TV, and FuboTV collectively lost over 257,000 customers. I have to suspect that has to do with affordability.

Verizon to Expand Wireless Home Broadband

At its virtual investor day in March, Verizon announced plans to expand its wireless 5G Home broadband product. This is the product that can best be referred to as fiber-to-the-curb because it requires building fiber up and down streets in neighborhoods and then delivering the broadband wirelessly.

Until now, Verizon has been using millimeter-wave spectrum for the Home product. It seems evident that this product has not been everything that Verizon hoped for. The company first introduced the product three years ago and then paused to re-engineer the product. My guess is that Verizon found that millimeter-wave spectrum is more unforgiving in the wild than what they had hoped for.

Verizon plans to modify the Home product by layering on C-Band spectrum, which it recently purchased in an FCC auction. This spectrum sits between the two WiFi bands at 3.7 GHz to 4.2 GHz. It’s an interesting choice to make for fiber-to-the-curb because the C-Band spectrum will carry farther from the curb but will carry a lot less bandwidth than millimeter-wave spectrum.

In the original trial, Verizon reported broadband speeds of 300 Mbps. The company touts that the latest iteration of the product is faster, but I haven’t yet seen any speeds reported yet by new customers. When asked about the speeds that will be available using C-Band, the Verizon company spokesperson said speeds will be “competitive”. This tells us that speeds are still not approaching Verizon’s gigabit speed goal.

It’s an interesting product in several ways. First, Verizon seems to be building this in markets where it was not the incumbent telephone company. Many of the markets announced so far were legacy markets served by AT&T, and Verizon is stepping into the void that AT&T created by ceasing the sale of DSL. It will be interesting to see if Verizon uses the product in its legacy markets where it never built FiOS.

Verizon has been an interesting ISP since the advent of the FiOS fiber product. The company remained disciplined and only built FiOS where the construction costs met the company’s internal cost metrics. This resulted in a disjointed FiOS roll-out where FiOS was only built in the parts of markets that met the company’s metrics. I have to think they will do something similar again.

One of the reasons for the company to expand the Home product is to take advantage of its aggressive fiber builds over the last five years. Verizon has been building fiber all over the country to replace expensive backhaul leases for cell towers. The Home product is a way to take a second advantage of that construction, as well as a way to justify building fiber deeper into neighborhoods to reach small cell sites.

Verizon has said that it hopes to build to pass 25 million homes and businesses by 2025 with the technology. At the investor meeting, Verizon voiced a goal of reaching a 20% market penetration with the new service – meaning a target of 5 million new broadband customers. Part of the strategy for doing so is to bundle the product aggressively with Verizon cellular service.

In the long run, the success of this product is probably going to boil down to broadband speeds that will be achieved with the C-Band spectrum. We’ll have to wait to see how that spectrum behaves when transmitted at pole height in neighborhoods with trees, shrubs, and other impediments. I would think that any product north of 100 Mbps speeds will play well today if it’s priced low enough. The challenge for Verizon is likely to be a decade from now when the cable companies might have increased basic speeds to something like 500 Mbps. The good news for Verizon is that this product could someday be converted to fiber FiOS by building the fiber drops. Verizon might be using the wireless product to gain market share in new markets, with the full realization that eventually homes will want the fiber connection.

Broadband Usage Still Strong 1Q 2021

OpenVault just released its Broadband Insights Report for the 1st quarter of 2021. The report shows continued robust average household demand for broadband. The monthly average household usage at the end of the first quarter was 461.7 gigabytes. This is the combined upload and download usage for the average American home. To put that number into perspective, look how it fits into the past trend of broadband usage from OpenVault:

1st quarter 2018           215 Gigabytes

1st quarter 2019           274 Gigabytes

1st quarter 2020           403 Gigabytes

2nd quarter 2020          380 Gigabytes

3rd quarter 2020           384 Gigabytes

4th quarter 2020           483 Gigabytes

1st quarter 2021           462 Gigabytes

OpenVault observes that usage seems to be returning somewhat to seasonal patterns, where historically usage dropped in the first quarter each year compared to the preceding fourth quarter. The first-quarter usage is down 4% from the December 31 usage but is up 15% from the first quarter of the pandemic a year ago. Probably more importantly, usage is up 69% since 2019 and 115% since 2018. Average household bandwidth usage has more than doubled in three years – an extraordinary growth rate. It’s going to be really interesting later this year to see how households react to the end of the pandemic. The general expectation is that most classrooms will be back to normal by the fall, and a significant percentage of the workforce will start returning to the office.

The statistic that probably best defines the pandemic is the growth of average household upload usage each month. At the end of 2019, the average US home uploaded 19 gigabytes of data per month. By the end of 2020 that had grown to 31 gigabytes. In the first quarter that dipped a bit to an average of 30 gigabytes.

The first quarter saw a widening gap between the usage of homes with data caps at 440 gigabytes per month and homes with unlimited usage at 495 gigabytes per month. It appears that data caps cause homes to curtail usage of over 50 gigabytes per month.

Median usage dropped significantly in the quarter from 289 gigabytes at the end of the fourth quarter down to 269 gigabytes at the end of the first quarter. The median is the level at which 50% of homes use less broadband and 50% use more. A dropping median usage would indicate that a significant number of homes have reduced broadband usage – perhaps homes where students or adults went back to school or the office.

The number of households that are heavy users of broadband continues to be strong. At the end of the first quarter, 13% of homes consumed more than 1 terabyte of data per month (1,000 gigabytes), up from 7.3% of homes just a year earlier. OpenVault has started also counting what they call extreme users or homes using more than 2 terabytes per month – 1.6% of all homes were extreme users at the end of the first quarter, up from 1% only a year earlier.

Of all of the statistics gathered by OpenVault, the fastest-growing category is the number of homes subscribing to a gigabit-speed service. At the end of the fourth quarter that has grown to 9.8% of all households, three and half times the 2.8% of homes that were buying gigabit products at the end of 2019. Perhaps the most amazing statistic from OpenVault is that 80% of households now subscribe to a broadband service that provides speeds of 100 Mbps download or faster. This one fact alone provides the justification to update the outdated FCC definition of broadband of 25/3 Mbps. The vast majority of American households obviously believe broadband means 100 Mbps or faster.

10G – Really?

Earlier this year at the CES show in January the big cable companies discussed their vision for the future and introduced the concept that cable networks would be able to deliver 10-gigabit broadband in the future. They labeled the promotion at the show as 10G. I didn’t write about it at the time because I assumed this was a gimmick to give some buzz to this show in the middle of the pandemic. But lately, I’ve seen that they are still talking about the 10G initiative.

For once this is not just the big US cable companies. The US companies were accompanied in this big splash announcement by Rogers, Shaw Communications, Vodafone, Taiwan Broadband Communications, Telecom Argentina, Liberty Global, and smaller cable companies.

My first reaction to the name 10G was a chuckle because the cable companies are linking themselves to the deployment of 5G cellular, which turns out to not be any faster than 4G. But the cellular companies have hammered home the supposed advantages of 5G so relentlessly that I imagine the average person thinks 5G means faster speeds. I don’t think I would have chosen the cellular analogy as a symbol for faster speed.

The question I have to ask is why the companies want to talk about 10-gigabit broadband so early? It’s likely to be near the end of this decade before any of them actually can deliver that much speed to customers. The assertion is made because of the promise of the new DOCSIS 4.0 standard that was released by CableLabs a year ago. Comcast recently conducted the first lab trial of the technology and achieved speeds of about 4 gigabits.

But it’s a long way from the first breadboard lab trial to a working technology that will be deployed in cable networks. DOCSIS 4.0 is a fundamental change to cable networks and is going to be an expensive upgrade. It means changing most of the field electronics including cable modems. In many cases, it’s going to mean replacing old coaxial cable. And it might even mean having to convert to switched digital video to make this much bandwidth fit inside cable networks.

When DOCSIS 4.0 was first announced, the CTOs of most of the cable companies were cold to the technology, having just finished the upgrade to DOCSIS 3.1 (at least for download speeds). There was a lot of speculation in the industry that cable companies would consider converting to fiber rather than go through another big patch on aging copper networks – most cable systems are nearing fifty years in age.

It’s not hard to understand what prompted this. Fiber providers are now starting to routinely deploy XGS-PON which has the capability of 10 gigabit symmetrical broadband. That means 10-gigabit is already here today in some markets, a full decade before cable companies can respond.

The cable companies are also quietly worrying about their lousy upload performance on cable networks. While the companies all crowed about how they survived the pandemic, they all know that many of their customers struggled badly trying to handle work and school from home. They failed the people who needed them the most.

Two decades after Verizon launched FiOS, the big telcos are finally laying fiber like crazy. The cable companies know that once customers change to fiber that they are likely never coming back to a cable company network. While fiber has been built to only a relatively small portion of urban America, it is relentlessly coming. The cable companies have to fear that over the next decade that fiber providers will do to them what they’ve been able to do to DSL competitors. The cable industry’s success over the last decade comes from taking customers from old telephone copper.

I think a peek into the future where there is a lot more fiber is likely what prompted the 10G promotion – that and perhaps a few too-clever marketing folks. But talking about 10G is not the same thing as delivering broadband that homes need today – and the cable companies know this.

Has Your Broadband Gotten Cheaper?

Sometimes the big ISPs do something that leaves me shaking my head in disbelief. The latest is an absurd report from USTelecom that supposedly demonstrates that the price of broadband has been dropping while almost every other commodity that we buy has gotten more expensive. The report doesn’t just suggest that broadband got slightly less expensive, but that “the price of the most popular tier of broadband service declines by 7.5%” last year.

It’s clear why this report was written. It wasn’t written for the general public because every consumer knows that the price of broadband has been increasing. This article was written to provide cover to politicians who will try to protect the big ISPs from re-regulation by the new FCC. It provides a false talking point that the big ISPs are already taking care of us and that regulators shouldn’t meddle with a market that is working so well.

Let’s start with a few demonstrable facts. Comcast and Charter together serve more than 50% of the broadband customers in the country, and their broadband prices have risen significantly in the last few years. Just this past January, Comcast raised the price of its most popular product Performance Plus Internet by $3 to reach $76. Additionally, the Comcast WiFi modem went from $13 to $14. Comcast also raised the broadband product by $3 in early 2019. Charter raised the rate for basic broadband by $5 in each of the last two Decembers.

Think just for a second how preposterous it is to say that rates for the industry dropped 7% in 2020 when half of the broadband market instead saw rate increases. For this article to be true implies that all of the other big ISPs had significant rate cuts to offset the Comcast and Charter rate increases. Raise your hand if Verizon, AT&T, Cox, Altice, or Mediacom slashed your broadband bill during the last two years.

If this was a legitimate article, it would be accompanied by tables of data so that people could verify the assertions. Instead, the language that describes how the rates decreases were calculated is so fuzzy so that it’s impossible to know what the author is comparing from year to year. USTelecom will never publish the raw data because I’m sure it would show that the author is playing a sleight of hand of some sort.

I also have to wonder how anybody can get accurate pricing data for the big ISPs. They all offer different prices to different customers. The cable companies still offer exceedingly low promotional prices that are given to new customers that migrate from DSL – but these prices disappear in a year or two and go back to list prices. Many of the big ISPs grandfather some customers on older speeds and prices – these are prices and products that are stuck out of time like an ancient bug stuck in amber. Most confusingly, a large percentage of broadband customers of the big cable companies buy a bundle of services, and customers have no idea what they pay for each component of the bundle. The only way to find out what you are being charged for broadband is to drop cable TV to find out how much you’ll pay for what’s left.

There is one class of customers that have seen a price decrease – those buying the fastest products. When Comcast first introduced the gigabit broadband product it was priced at $121 and was only available in a few markets. Over time as that became a real product, the company lowered the price to entice people to upgrade. But you can’t say that there has been deflation in the price of fast broadband – instead, the early pricing was set to dissuade people from ordering what Comcast couldn’t deliver.

The report shows a decrease in the cost paid per megabit of data, and I am sure that has dropped over time. Over the past decade the cable companies have unilaterally increased speeds on basic broadband from 30 Mbps, to 60 Mbps, to 100 Mbps, and now to as high as 200 Mbps. This was done without big price increases – so the price per megabit would drop as speeds are increased. But we can’t believe the percentage decrease cited in the article if the calculation is based on the same numbers used to show that overall prices are dropping.

Finally, the report goes on to assert that American broadband is less expensive than broadband in Europe, which again is completely absurd. There are numerous reports that show that broadband prices in Europe and the far east are as much as half the cost of US broadband, due to both competitive market pressures and also strong regulation of broadband.

I don’t think there is any consumer in the US who thinks that prices are dropping at big ISPs. There are markets where new competitors appear and prices get lowered a bit, but this unfortunately only happens in a small percentage of the overall market. I understand that the real purpose of this report is to allow the big ISPs to provide talking points for the politicians they fund, but even those politicians know that the monthly checks they write to ISPs for broadband have gotten larger every year – the proof is in their checkbook.

Broadband Growth for 1Q 2021

Leichtman Research Group recently released the broadband customer statistics for the end of the first quarter of 2021 for the largest cable and telephone companies. Leichtman compiles most of these numbers from the statistics provided to stockholders other than for Cox, which is estimated. Leichtman says this group of companies represents 96% of all US landline broadband customers.

The 1,000,000 net broadband customers added in the quarter beats the 900,000 broadband additions in the fourth quarter of last year. The following are the statistics showing the growth in the first quarter.

 1Q 2021 1Q Change % Change
Comcast 31,034,000 460,000 1.5%
Charter 29,234,000 355,000 1.2%
AT&T 15,435,000 51,000 0.3%
Verizon 7,193,000 64,000 0.9%
Cox 5,435,000 55,000 1.0%
CenturyLink 4,728,000 (39,000) -0.8%
Altice 4,370,800 11,600 0.3%
Frontier 3,052,000 (17,000) -0.6%
Mediacom 1,454,000 16,000 1.1%
Windstream 1,122,300 13,000 1.2%
Cable ONE 880,000 23,000 2.7%
WOW! 823,800 10,000 1.2%
Consolidated 794,224 2,024 0.3%
TDS 501,700 8,400 1.7%
Atlantic Broadband 511,004 6,383 1.3%
Cincinnati Bell 437,600 1,500 0.3%
107,006,428 1,020,907 1.0%
Total Cable 73,742,604 936,983 1.3%
Total Telco 33,263,824 83,924 0.3%

Leading the way is Comcast and Charter, which collectively added 815,000 new broadband customers. That represents 80% of all of the new net customers added by the industry. The cable companies collectively added 936,983 customers in the fourth quarter compared to 83,924 for the telcos. If the 1% growth rate is sustained, the large ISPs will add over 4 million customers this year, a little below the 4.8 million new broadband customers added in 2020.

Buried inside of these numbers is the fact that the telcos collectively added 400,000 customers to fiber in the quarter bringing total telco fiber customers to 14.6 million. Over time this growth ought to let the telcos claw back some of the growth experienced by the cable companies over the last few years.

It will be interesting to see what happens to broadband customers as the pandemic finally slows down and students return to live school and many people move back to the office. The pandemic has also attracted a lot of new customers to buy low-income broadband offerings, and we’ll have to wait to see if those are long-term sustainable.

Frontier Faces a New Problem

Frontier recently emerged from bankruptcy and seemingly is ready to tackle some of its biggest problems. The company has been laden in heavy debt and unable to pursue an aggressive capital expansion program to build fiber. The company has been bleeding both broadband and cable customers over the last few years.

The company shed $10 billion of debt in bankruptcy and told the bankruptcy court that it intends to immediately start building fiber to kick-start the refreshed business. The industry analysts at MoffettNathanson have opined that a reinvigorated Frontier has a chance to improve performance and to achieve decent returns on capital investments. The analysts expect Frontier to stabilize its customer base by 2023 to 2024 and then begin growing customers and revenues.

However, after barely being out of bankruptcy, Frontier was hit by a lawsuit from the Federal Trade Commission and the attorney generals of Arizona, California, Indiana, Michigan, North Carolina, and Wisconsin. The lawsuit alleges that Frontier knowingly advertises speeds that it knows it can’t deliver. The FTC suit says that “Since at least January 2015, thousands of consumers complained to Frontier and government agencies that the company failed to provide DSL Internet service at the speeds they were promised.”

This lawsuit should be a warning to many other ISPs. The suit specifically attacks the practice of advertising “up to” speeds that no customer can attain. The FTC acknowledges that Frontier says that they might not be able to deliver the advertised speeds to all locations and that speeds are not guaranteed. This aligns with other recent FTC actions where the FTC believes that warnings in the fine print can’t be used to offset significantly different claims in the main body of advertising. Essentially, the FTC says Frontier can’t claim speeds up to 25/3 Mbps when it knows that no customer in a service area can get close to that speed.

The FTC is partnering with states due to a recent court ruling that said that the FTC cannot impose monetary damages. States are allowed to do so, and as partners in the suits, these states will clearly be seeking monetary damages from Frontier.

Anybody that has lived or worked in rural America knows that the FTC and state claims are valid. I’ve worked with clients in Frontier territory where the company claims 25/3 Mbps in the FCC reporting – and according to the suit also in advertising to customers. When we’ve done speed tests in some counties where Frontier is an ISP, we often haven’t seen any customer achieving speeds greater than 10/1 Mbps, with many even slower than this.

It’s worth noting that the FCC allows ISPs to report advertised speeds in the FCC mapping, so according to the FCC, as long as an ISP is advertising a speed to customers, they can report that to the FCC. What this lawsuit says is quite different – it says that ISPs shouldn’t advertise speeds that can’t be delivered. This is something that I’ve always thought the FCC should implement, but they never have. In fact, in the ‘new’ broadband mapping the FCC is planning to introduce it is still allowing ISPs to report advertised speeds instead of an estimate of actual speeds.

While this lawsuit is against Frontier, they are not the only ISP in the country that is claiming speeds to customers and to the FCC that are faster than what can be delivered. In rural areas, we’ve seen this same issue with other large telcos and from numerous WISPs. I would have to think that if Frontier loses this suit that this might be a big warning for the rest of the rural broadband industry.

When the FCC opens up the new mapping to public comments, I predict the agency will be swamped with people complaining about the actual speeds compared to what is being advertised. Oddly, if the FCC sticks with the idea that reporting advertised speeds is okay, it will ignore such complaints – which is not going to make the public very happy.

The Fiber Expansion Craze

I’ve written several times recently in blogs that there is a growing backlog in buying fiber cable. Some of the backlog is due to the general supply chain malaise that seems to be affecting almost everything we buy. I found out during the recent gas shortages in North Carolina that there is a shortage of truck drivers. Apparently, many truck drivers found something else to do during the pandemic and now there is a shortage of drivers to deliver the many goods that are shipped by truck.

The primary issue affecting the fiber backlog is the exceptionally high demand for fiber. Consider all of the following announcements about building fiber in 2022:

  • RDOF fiber construction probably starts next year.
  • It’s anticipated that much of the $10 billion earmarked for broadband in the ARPA plan will end up as fiber construction over the next two years. It’s also expected that some cities and counties will use some of the $350 billion in ARPA funds to build fiber.
  • The new NTIA grants expect fiber networks to be built in one year.
  • There are also beefed-up grant programs at USDA and EDA that will start next year.
  • Verizon is in the midst of a many-year fiber buildout to pass 25 million homes by 2025 with fiber to support its Verizon Home fiber-to-the-curb service.
  • AT&T announced it’s going to pass 3 million new homes and businesses this year and 2 million homes next year with fiber, to add to the 14.5 million already passed.
  • Altice has announced plans to upgrade 500,000 passings from HFC to fiber this year.
  • Fronter announced as it was coming out of bankruptcy that it plans to pass 495,000 homes with fiber this year.
  • CenturyLink is planning on passing at least 400,000 premises with fiber this year plus the company is still expanding its middle-mile fiber network.
  • Consolidated Communications plans on passing 300,000 homes with fiber this year.
  • Windstream plans to add several hundred thousand fiber passing this year.
  • Numerous smaller telcos like Ziply, TDS, and Cincinnati Bell have aggressive fiber expansion plans.
  • Numerous fiber projects from the CAF II reverse auction are now under construction.
  • Smaller telcos are continuing to build fiber under the ACAM program.
  • Dozens of electric cooperatives are building FTTP.
  • Numerous ReConnect grant projects from the past several years are now under construction.
  • State grants have funded significant fiber projects.
  • Independent fiber builders across the country like Google Fiber, MetroNet, US Internet, and numerous municipalities quietly continue to build fiber projects.
  • Cellular companies all continue to build fiber to replace cellular transport leases.
  • Long-haul fiber networks continue to expand.
  • Electric companies are aggressively expanding smart grid networks.
  • Cable companies use significant fiber every year to split nodes.
  • I’m sure this list misses some large fiber initiatives.

This all adds up to an unprecedented amount of fiber construction. There has never been a time in my memory when the industry has been this busy. It’s no wonder that we’re seeing a backlog in fiber delivery times. It’s probably a good year to be a fiber salesperson.

Everything associated with fiber construction is also going to be in big demand and likely have supply chain issues. Fiber electronics are already suffering from the chip shortage that’s affecting all electronics industries. But there will be a huge demand for lasers and electronics to light all of the fiber that’s being constructed. I’m hearing of spotty backlogs in this area that are likely going to grow longer.

Perhaps the one shortage that means the most is the shortage of fiber technicians. In February, the eleven largest telecom trade associations wrote a letter to the White House and Congress and said that the industry will need 850,000 more fiber man-years by 2025 to keep up with the demands of the industry. The technician shortage is already here and everybody I know building fiber is worried about finding and keeping the needed technicians.

The Challenges of Rural Grants

The rules for the different federal grant programs this year are going to make it a challenge in some cases to put together a coherent grant application. Anybody thinking of applying any of the new federal money to rural areas needs to be aware of the many moving parts of the rural broadband puzzle.

One of the most challenging pieces of the puzzle is the RDOF grants. Those grants were awarded by Census block and very few RDOF areas are comprised of contiguous areas – most RDOF grant areas have ‘holes’ with no grant funding surrounded by RDOF award areas. There are also numerous stray RDOF Census blocks geographically separated from larger grant areas. The rules for new federal grant funds say that money shouldn’t be used for any area that has already been awarded federal funding. This means that anybody putting together a rural grant needs to avoid seeking funding for any areas awarded with RDOF.

Of course, there is a twist. None of the RDOF grants have been awarded yet and there are large grant areas where various parties have filed challenges to the plans of the RDOF winners. In some of these areas it seems likely that there will be lawsuits by challengers should the FCC award the funding and lawsuits by the RDOF grant winners should they not get the funding. That might mean some of these RDOF areas might be tied up in court for years. There are also areas where RDOF grant recipients have turned back grant Census blocks, and these have not been clearly identified by the FCC.

Anybody assembling a grant also needs to avoid areas covered by other federal grants like the CAF reverse auction, ReConnect, e-Connectivity, Community Connect, and Broadband USA that have been awarded and that are not as easily identifiable as RDOF. To make matters more confusing, some of these older grants will continue to be awarded this year, probably without paying attention to grant applications in these many other grants. Some smaller telcos are still building fiber networks that were funded by the FCC’s ACAM program – and clearly should be off-limits to federal grant money.

Depending upon the state you are in, there might also be previous state broadband grants that have been awarded to build broadband. Even where building these same areas might not be prohibited by law, an ISP probably doesn’t want to be the second builder in an area where somebody is already slated to build good broadband.

One of the most aggravating situations is where the FCC awarded grant funding to satellite providers. In the CAF reverse auction, a lot of large areas were awarded to Viasat and it’s prohibited to be able to use new federal funding to overbuild these areas. It sadly feels like such areas might not be eligible for real broadband for a decade. There is going to be a similar issue with low-orbit satellites like Starlink. Early reports are that the satellites don’t work well in areas with a lot of trees, and Starlink accepted grant funding in places like western North Carolina that is all mountains and trees.

This leads to a discussion of broadband speeds. The Interim guidance provided by the Department of Treasury for the ARPA grants includes language that suggests that the funding can be used in areas where current broadband technologies do not ‘reliably’ deliver 25/3 Mbps. Nobody knows what ‘reliably’ means. We know that there are huge rural areas where telcos and wireless carriers claim 25/3 speeds that are not delivered, and it seems that the Treasury language provides cover to work in these areas – at least for Treasury funding.

The Treasury language almost certainly can be applied to any place served by DSL. Consider a DSL customer that is actually getting 25/3 Mbps DSL during the non-busy times on a network. In busy times when the network gets full, such a customer is going to receive far less than the 25 Mbps peak speed. When shared networks have big demand and under stress, the speeds drop – sometimes by a lot. The same can be said for many fixed wireless networks. What is the grant eligible speed for such a customer – the 25 Mbps download speed received at 2:00 in the morning or the 10 Mbps received at 8:00 in the evening?

Unfortunately, the language used to define broadband speeds in the Treasury grants will not be the same definition used by other grants. I can promise you that by the fall people are going to be driven nuts by grants that define eligible areas differently.

The bottom line of this discussion is that somebody that wants to use the newly available federal grant funds needs to do homework. You need to make sure that the areas you want to build aren’t already slated to get funding from some previous federal program. You also need to be cognizant of the speed issue because grants are going to define eligible areas differently. The worse thing about all of this is that nobody is seeking to use the latest federal grants in areas that have good broadband. But the nuances of the grant rules will mean many areas with lousy broadband are going to slip through the cracks and not get funded.

The Ghost of US West

In a recent earnings call, Jeff Storey, the CEO of Lumen made it known that the company will be actively looking to sell non-core assets after sluggish revenue growth in the first quarter of this year. I speculate that the non-core assets include selling rural copper assets and customers. CEO Storey came to the business from Level 3 when his company merged with CenturyLink.

The business that Storey is trying to run is the remnants of US West, one of the seven Baby Bells created in 1983 from the divestiture of AT&T. The company was the incumbent telephone company in 14 western states ranging from Nebraska to Arizona to Washington. Until 1990 when the business consolidated under the US West name, it controlled three holding companies that retained their original telco names – Mountain Bell headquartered in Denver, Northwestern Bell headquartered in Omaha, and Pacific Northwest Bell headquartered in Seattle.

US West struggled from its inception compared to the other Baby Bells, mostly due to the huge geographic footprint of the business and the huge swaths of rural areas served by the business. In 1998 the company tried to increase shareholder value by spinning off MediaOne, which took the cable, cellular, and international business lines.

Qwest acquired US West in 2000 in a hostile takeover. Qwest was owned by Phillip Anschutz who had built a long-haul fiber business based upon using the rights-of-ways of the Southern Pacific Railroad. Qwest was formed in 1996 and benefitted from the CLEC boom of the late 1990s had a high-flying stock price. Regulators made the merged companies divest of the long-distance business as part of the merger.

The US West business was quickly renamed to the Qwest brand. The newly formed company quickly got into financial trouble due to the crash of the dot-com companies and large CLECs in 2000. Qwest had also ventured into a large partnership in Europe with the Dutch incumbent telco KPN that collapsed by 2002. Qwest got quickly into trouble with regulators for slamming – moving customers to its services without customer approval. The company was also fined $250 million by the Security and Exchange Commission for shady transactions with the telecom arm of Enron. Since Qwest had borrowed a huge amount of money to pay for US West, the business was quickly teetering on the edge of bankruptcy. In 2002 Qwest sold its directory business to help stave off bankruptcy.

Qwest limped along until it was acquired in 2010 by CenturyLink, a regulated incumbent telco from Monroe, Louisiana. CenturyLink had grown through acquisitions. For example, before buying Qwest, the company had acquired telephone lines from GTE, Verizon, Telephone USA, and smaller telcos like Madison River. CenturyLink’s final acquisition before buying Qwest was a merger with Embarq, the telco that had been built through acquisitions by Sprint.

CenturyLink acquired Qwest in a stock-for-stock cashless transaction in April 2011, which meant that CenturyLink inherited the still large remaining debt from Qwest. CenturyLink made some smart acquisitions that made it an early player in cloud computing, buying companies like Savvis, Ciber, AppFog, DataGardens, and Cognilytics.

CenturyLink acquired fast-growing Level 3 Communications in 2017 for $25 billion – although industry insiders say that Level 3 acquired CenturyLink. Within a few years, the former Level 3 executive team including Jeff Story took over the operations of the business. In September 2020, the company was rebranded as Lumen.

These various permutations of US West have struggled financially since divestiture from AT&T in 1983. The company was the slowest-growing Baby Bell after divestiture and was seriously crippled with debt after the hostile takeover by Qwest. I’ve heard the commonly spread rumors that the Level 3 executives are constantly frustrated by the inability to make changes inside the company due to the regulated nature of the core telco business.

Lumen now owns one of the biggest middle-mile fiber networks in the country, but the last mile copper is getting ancient. It wasn’t in the greatest shape at divestiture and the copper has aged 38 years since then. The question that industry watchers like me ask is if the old copper plant will be spun-off yet again to another company that will try to make it work – will the ghost of US West continue to sink everybody who touches it?