Broadband Shorts – March 2017

Today I’m writing about a few interesting topics that are not long enough to justify a standalone blog:

Google Scanning Non-user Emails. There has been an ongoing class action lawsuit against Google for scanning emails from non-Google customers. Google has been open for years about the fact that they scan email that originates through a Gmail account. The company scans Gmail for references to items that might be of interest to advertisers and then sell that condensed data to others. This explains how you can start seeing ads for new cars after emailing that you are looking for a new car.

There are no specific numbers available for how much they make from scanning Gmail, but this is part of their overall advertising revenues which were $79.4 billion for 2016, up 18% over 2015.  The class action suit deals with emails that are sent to Gmail users from non-Gmail domains. It turns out that Google scans these emails as well, although non-Gmail users have never agreed to the terms of service that applies to Gmail users. This lawsuit will be an important test of customer privacy rights, particularly if Google loses and appeals to a higher court. This is a germane topic right now since the big ISPs are all expected to do similar scanning of customer data now that the FCC and Congress have weakened consumer privacy rights for broadband.

Verizon FiOS and New York City. This relationship is back in the news since the City is suing Verizon for not meeting its promise to bring broadband to everybody in the city in 2008. Verizon has made FiOS available to 2.2 million of the 3.3 million homes and businesses in the city.

The argument is one of the definition of a passing. Verizon says that they have met their obligation and that the gap is due to landlords that won’t allow Verizon into their buildings. But the city claims that Verizon hasn’t built fiber on every street in the city and also that the company has often elected to not enter older buildings due to the cost of distributing fiber inside the buildings. A number of landlords claim that they have asked Verizon into their buildings but that the company either elected to not enter the buildings or else insisted on an exclusive arrangement for broadband services as a condition for entering a building.

New Applications for Satellite Broadband.  The FCC has received 5 new applications for launching geostationary satellite networks bringing the total requests up to 17. Now SpaceX, OneWeb, Telesat, O3b Networks and Theia Holdings are also asking permission to launch satellite networks that would provide broadband using the V Band of spectrum from 37 GHz to 50 GHz. Boeing also expanded their earlier November request to add the 50.4 GHz to 52.4 GHz bands. I’m not sure how the FCC picks winners from this big pile – and if they don’t we are going to see busy skies.

Anonymous Kills 20% of Dark Web. Last month the hackers who work under the name ‘Anonymous’ knocked down about 20% of the web sites from the dark web. The hackers were targeting cyber criminals who profit from child pornography. Of particular interest was a group known as Freedom Hosting, a group that Anonymous claims has over 50% of their servers dedicated to child pornography.

This was the first known major case of hackers trying to regulate the dark web. This part of the Internet is full of pornography and other kinds of criminal content. The Anonymous hackers also alerted law enforcement about the content they uncovered.

AT&T’s Broadband Trials

John Donovan, the chief strategy officer for AT&T, spoke at the Mobile World Congress recently and said that the company was trying five different technologies for the last mile. This includes WLL (wireless local loop), G.Fast, 5G, AirGig and fiber-to-the-premise. He said the company would be examining the economics of all of different technologies. Let me look at each one, in relation to AT&T.

Wireless Local Loop (WLL). The technology uses the companies LTE bandwidth but utilizes a point-to-multipoint network configuration. By using a small dish on the house to receive the signal the company is getting better bandwidth than can be received from normal broadcast cellular. The company has been doing trials on various different versions of the technology for many years. But there are a few recent trials of the newest technology that AT&T will be using for much of its deployment in rural America as part of the CAF II plan. That plan requires the ISP to deliver at least 10/1 Mbps. AT&T says that the technology is delivering speeds of 15 to 25 Mbps. The company says that even at the edge of a cellular network that a customer can get 10 Mbps about 90% of the time.

G.Fast. This is a technology that uses high frequencies to put more bandwidth on telephone copper wire. Speeds are reported to be as high as 500 Mbps, but only for very short distances under 200 feet. AT&T recently announced a G.Fast trial in an apartment building in Minneapolis. The technology is also being tested by CenturyLink and Windstream. All of these trials are using existing telephone copper inside of existing apartment buildings to deliver broadband. So this is not really a last mile technology. AT&T brings fiber to the apartment complex and then uses G.Fast as an inside wire technology. If they find it to be reliable this would be a great alternative to rewiring apartments with fiber.

5G. AT&T recently announced a few trials of early 5G technologies in Austin. They are looking at several technology ideas such carrier aggregation (combining many frequencies). But these are just trials, and AT&T is one of the companies helping to test pre-5G ideas as part of the worldwide effort to define the 5G specifications. These are not tests of market-ready technologies, but are instead field trials for various concepts needed to make 5G work. There is no doubt that AT&T will eventually replace LTE wireless with 5G wireless, but that transition is still many years in the future. The company is claiming to be testing 5G for the press release benefits – but these are not tests of a viable last mile technology – just tests that are moving lab concepts to early field trials.

AirGig. This one remains a mystery. AT&T says it will begin trialing the technology later this year with two power companies. There has been a little bit of clarification of the technology since the initial press release. This is not a broadband over powerline technology – it’s completely wireless and is using the open lines-of-sight on top of power poles to create a clear path for millimeter wave radios. The company has also said that they don’t know yet which wireless technology will be used to go from the poles into the home – they said the whole range of licensed spectrum is under consideration including the LTE frequencies. And if that’s the case then the AirGig is a fiber-replacement, but the delivery to homes would be about the same as WLL.

FTTP. Donovan referred to fiber-to-the-home as a trial, but by now the company understands the economics of fiber. The company keeps stretching the truth a bit about their fiber deployments. The company keeps saying that they have deployed fiber to 4 million homes, with 8 million more coming in the next three years. But the fact is they have actually only passed the 4 million homes that they can market to as is disclosed on their own web site. The twelve million home target was something that was dictated by the FCC as part of the settlement allowing the company to buy DirecTV.

We don’t know how many fiber customers AT&T has. They are mostly marketing this to apartment buildings, although there are residential customers around the country saying they have it. But they have not sold big piles of fiber connections like Verizon FiOS. This can be seen by looking at the steady drop in total AT&T data customers – 16.03 million in 2014, 15.78 million in 2015 and 15.62 million at the end of the third quarter of 2016. AT&T’s fiber is not really priced to be super-competitive, except in markets where they compete with Google Fiber. Their normal prices elsewhere on fiber are $70 for 100 Mbps, $80 for 300 Mbps and $99 for a gigabit.

OTT News, March 2017

There is a lot of activity going on with web-based video. There are offerings that are starting to look like serious contenders to traditional cable packages.

Comcast Integrates YouTube. Comcast has made a deal with Google to integrate YouTube into the Comcast X1 settop box. This follows last year’s announcement that Comcast is also integrating Netflix. Comcast also says they are working to integrate other SVOD platforms.

Comcast is making a lot of moves to keep themselves relevant for customers and to make the X1 box a key piece of electronics in the home. The box also acts as the hub for their smart home product, Xfinity Home.

One has to think that Comcast has worked out some sort of revenue sharing arrangements with Google and Netflix, although all details of these arrangements have not been reported. The most customer-friendly aspect of these integrations is that the Comcast X1 box is now voice-activated and customers can surf Netflix and YouTube by talking to the box.

Sling TV Adds More Sports. Sling TV has made another move that will make it attractive to more customers by adding the Comcast regional sports networks (RSNs) to their line-up. This includes CSN California, CSN Bay Area, CSN Chicago and CSN Mid-Atlantic. These networks carry a lot of unique sports content that is not easily available anywhere else on-line today. The networks carry pro basketball, pro baseball and a number of college sports. For example, CSN Bay Area is the home station for the popular Golden state Warriors. CSN Mid-Atlantic is the home station for the Baltimore Orioles.

I know in talking to my sports-centric friends that the narrow sports content on-line is the number one issue holding them back from switching to an OTT package. There are still other networks that Sling TV would need to add, like the Big Ten Network and the NFL Channel, to be a totally rounded sports provider. But they have already added a credible sports line-up that includes all the ESPN channels, the SEC Network, the ACC Network, NBA TV, the NHL Channel, the PAC12 Network and a few other sports networks like Univision TDN.

YouTube Launching an OTT Line-up. Cable TV just got another new OTT competitor. The new service is called YouTube TV and brings a fourth major OTT competitor along with Sling TV, PlayStation Vue, and DirecTV Now. The platform is going to launch sometime in the next few months, with no firm release date yet. The basic product will be $35 per month and allows customers to turn the service off and on at will.

YouTube TV will carry the typical network channels as well as ESPN, Disney, Bravo and Fox News – a line-up that sounds similar to its competition. The service will come with unlimited cloud DVR storage. It will allow 3 simultaneous streams per account and 6 user profiles per account. They will first launch in a few major urban markets (probably due to the availability of the local channels for various network channels).

If YouTube has any advantage in the marketplace it’s that they are becoming the preferred content choice for a lot of millennials. The company says they now are delivering over a billion hours per day of content. Millennials are leading the trend of cord cutters (and even more so of cord nevers), and if YouTube can tap that market they should do great.

Dish Network Predicts OTT will Replace Traditional TV. For the first time, Dish Networks Chairman and CEO said he thought that OTT programming is the real future of video. Until now the company, which owns Sling TV, has said that their product was aimed at bringing video to cord cutters.

But Sling TV and the other OTT products are getting a lot better. Sling TV now has over 100 channels that provide a wide set of options for customers. And these channels are not packed into a giant must-take line-up like traditional cable packages, and instead provide a number of smaller packages that a customer can add to the Sling TV base package. Sling TV and the other providers also make it easy for customers to add or subtract packages or come and go from the whole platform at will – something that can’t be done with cable companies.

Certainly Sling TV has made a difference for Dish. The company has been bleeding satellite customers and had customer losses for the last ten quarters. But the company had a small customer gain of 28,000 customers in the fourth quarter due to the popularity of Sling TV. The company does not report customers by satellite and OTT, so we don’t know the specific numbers.

Content Finally is King

One of the more common memes in our industry is the phrase “content is king.” This was first said by Sumner Redstone of Viacom in 1994 but made more famous by Bill Gates in 1996. The phrase has been used since then to describe how the creators of content have the power in our industry – be that programming or web content.

John Stankey, the CEO of AT&T Entertainment, recently emphasized this same concept in talking about the company’s planned merger with Time Warner. At the recent Mobile World Congress in Barcelona he said, “We just cannot envision a future where AT&T is relevant if we don’t directly participate in some of the water flowing through our pipes.”

All of the big ISPs have decided that content is key to their survival. Comcast already owns a mountain of programming, and after the merger with Time Warner, AT&T will be a content powerhouse as well. Verizon has climbed into the game with the acquisitions of AOL and Yahoo. There are web companies with the same philosophy. Netflix has built a new industry by creating new content. Google is pushing content heavily through YouTube. Amazon has started to create unique content and recently said they are going to make that a priority. Facebook is becoming a content force through Facebook Now.

I remember having this conversation with Derrel Duplechin of CCG back in 2000. We were asked by several clients to speculate about the future of the carrier industry and we foresaw that most carriers were likely on the path to eventually become what we called “dumb pipe” providers. I remember that this was a story that many of our clients did not want to hear.

We lived in a different carrier world in 2000. Most homes still had telephones and voice was the most profitable product for most carriers. The cable TV product that many of our clients sold then also had decent margins. But we predicted that both products would eventually sink in importance and in margins and that eventually most of our clients would earn most of their profits from broadband. We thought this would happen to all carriers, small and large, and we figured that the most profitable future companies would be those that found some other line of business other than just selling data pipes to end users.

We had some clients take this to heart and some of them have made a really good living by providing extra value to customers. For example, we have several clients who thrive by bringing a suite of products to businesses other than just plain connectivity. But for the most part, the majority of the ISP industry sells dumb pipes today. They compete with the speed of those pipes and with price and with good customer service – but the primary products (and the driver of most of the profits) are now data pipes.

The big companies like AT&T, Verizon and Comcast looked at that future and it scared them. It’s pretty obvious that if your only product is dumb pipes that your earnings are not going to continue to grow fast enough to satisfy Wall Street. This is probably what convinced Verizon to stop expanding their FiOS network. Both AT&T and Verizon got huge earnings boosts from expanding their cellular businesses, but that industry also seems to be heading towards the same plateau as landline ISPs – cell service is becoming a commodity.

So these big companies are now pursuing content because it looks to be the last area in our industry with the potential for significant bottom line growth. It’s going to be an interesting race to watch. Content providers have succeeded or failed over the years according to their ability to find smash hits. A huge hit movie or TV series can mean huge returns to the bottom line. But content providers that don’t create what the public wants to watch suffer badly in terms of stock prices and earnings. Being a content provider is not predictable in the same way as telecom.

Interestingly. AT&T, Verizon, and Comcast are now direct competitors of Facebook, Google, Amazon and Netflix. Content certainly is king, but content also brings the risk from competition. The companies that fall behind in this race are likely to be gobbled up by their more successful competitors. I find it extremely unlikely that all of these big companies will still be in existence in 10 years.

There is no real barrier to entry into the world of content creation other than having a pile of money. It’s likely that other big companies will join the content fray. But all of these companies are entering a world that is in big flux. For example, traditional video and web content might well be replaced by virtual and enhanced reality. The companies that succeed in content will have to spend a lot of money staying one step ahead of the competition, and my money is on the more nimble technology companies. Twenty years ago I would have been shocked to know that someday AT&T would have a CEO of Entertainment – and that may turn out to be the most important job in the corporation.

Unlimited Cellular Data Pricing

SONY DSCI recently wrote a blog about how all of the cellular companies are now offering unlimited data plans. Today I’m going to look at their plans in some detail to discuss what they really mean by “unlimited.”

AT&T. AT&T now has two unlimited plans. Unlimited Choice starts at $60 for one phone with unlimited voice, text and data. It’s $55 for a second line and $20 each for lines up to ten. There is an extra fee of $5 per month for one line or $10 for multiple lines if the customer doesn’t elect autopay. Data comes with lots of limits. Video is capped at 480p standard resolution. Total download speed is limited to 3 Mbps with video capped at 1.5 Mbps, regardless of the quality of the 4G stream available. And while there is no data cap, AT&T starts throttling data speeds for the month when a customer hits 22 GB of download. And last – and what will be a killer for most potential customers – it doesn’t allow tethering.

The Unlimited Plus plan starts at $90 for the first phone. It also includes a penalty for not using autopay. It undoes all of the speed restriction of the choice plan and can stream HD video. It also allows up to 10 GB per month for tethering. It has the same monthly cap of 22 GB before the data gets throttled. This still is not an alternative for home use because of the 10 GB cap on tethering. But it’s a good business travel plan. And a home user with a tablet might find this to be a good, if expensive, broadband alternative.

Verizon. Verizon’s unlimited plan is $80 for the first phone, $60 for a second, $22 for a third and $18 for a fourth. This also has unlimited voice and text. The data has a very unusual daily cap and speeds get throttled after hitting 500 MB download in a day. There is also a monthly cap of 22 GB, after which all data gets throttled. There is a 10 GB monthly allowance for tethering, with speeds throttled to 3G after hitting that cap. Verizon allows HD video streaming.

T-Mobile. T-Mobile’s plan is priced at $70 for the first phone, $30 for a second, $41 for a third and $19 for a fourth. This also has unlimited voice and text. There is a monthly cap of 28 GB after which data gets throttled. There is a 10 GB monthly allowance for tethering, with speeds throttled to 3G after hitting that cap. T-Mobile allows HD video streaming.

Sprint. Sprint’s plan is priced at $50 for the first phone, $40 for a second. But these are promotion prices and the company warns they will probably price to ‘market’ after March 31. This also has unlimited voice and text. There is a monthly cap of 23 GB after which data gets throttled. There is a 10 GB monthly allowance for tethering, with speeds throttled to 2G (which has been discontinued in much of the country) after hitting that cap. Note that at 2G you can’t even read email, so this is effectively a hard cutoff.  Sprint allows HD video streaming capped at 1080p quality.

Various Issues. There are activation fees to consider with some of the companies. AT&T and Sprint charge $25 and Verizon $30. T-Mobile has no activation fee. T-Mobile also includes all taxes and fees in its price, something that can be fairly expensive in some parts of the country.

None of these plans is truly “unlimited” and I won’t be shocked to see the Federal Trade Commission going after all of these carriers for advertising them that way. Certainly none of these are going to be a good alternative for home broadband, except perhaps for rural customers with no better alternative. But I think even rural users will find the cap on tethering and the throttling after a fairly stingy amount of download to be impossible to live with. It’s a shame because many rural homes using traditional cellular broadband have monthly bills of $500 to $1,000.

Interestingly, I just saw yesterday that some Wall Street analysts are slamming Verizon because they fear that their network cannot handle these new ‘unlimited’ plans. But as you can see these plans are not unlimited. They are effectively capped at 2 – 3 times the size of existing family plans, that that assumes that customers will use all of the allotted data-  which many will not. There is already plenty of excess capacity to handle this at the vast majority of cell sites. And this isn’t going to much hurt the cell sites that are already over-busy.

For customers that routinely go over the current cellular data caps these might be a great alternative. Current cellular data is priced at $10 per gigabyte and these plans have reduced data prices to a more affordable price under $2 – $3 per gigabyte for somebody that uses the full allowance. But compared to traditional plans these plans all have hard monthly caps – and while those caps are at 22 GB or higher, they are effectively hard caps since data gets throttled and becomes largely unusable after hitting the cap. These plans will all tease you into watching a lot of video and then penalize you heavily for watching too much.

The State of New York vs. Charter

Scale_of_justice_2_newEvery once in a while in this industry you come across a story about one of the big cable companies that just makes you shake your head. There is such a story right now where the New York State attorney general, Eric Schneiderman, has sued Charter on behalf of its 2.5 million data customers in the state.

The issue goes back to 2012 when the company was still Time Warner Cable. At that time there were a lot of complaints from customers saying that they were not getting the data speeds they were paying for. In 2013, in association with Internet speed tests conducted by the FCC, it was determined that Time Warner had widely deployed cable modems and WiFi routers that were not capable of delivering speeds of even 20 Mbps.

In July of 2013, Time Warner promised the FCC that it would replace and upgrade all customer modems in the state and would also make other system upgrades that would increase speeds, such as reducing the size of the neighborhood nodes.

Here is where the puzzling part comes in. The FCC never retested, which is normal, and instead relied on Time Warner’s promise that they would fix the problems and increase speeds. But it turns out that Time Warner didn’t make any of the promised upgrades. They didn’t replace customer modems. In fact, they routinely recycled the bad modems back into service when they were returned by customers.

Since then Time Warner (and now Charter) has advertised even faster speeds, yet none of the customer modems are able to deliver the speeds that the company is selling. The lawsuit says there are now over 250,000 customers who are paying for speeds between 200 Mbps and 300 Mbps, but who still have the old inadequate modems that get speeds under 20 Mbps.

To add insult to injury, the company has been charging $10 per month to customers to lease the old modems (at least that’s the current lease rate). Considering that these modems don’t generally cost the cable company even $100, these customers have paid enough to have replaced these modems multiple times since the problem was first caught.

Time Warner is also being accused in the lawsuit of manipulating the FCC speed tests in 2013 to show faster results. They did this by taking speed tests at times when there was not much demand on their networks, like the middle of the night.

Finally, the company has been accused of purposefully providing inadequate backbone so that Internet traffic was delayed and slowed down getting onto their network. This means they did not provide big enough data connections to the outside world for things like Netflix or for general Internet access.

Here is the lawsuit filing. It’s an interesting and easy read and is not overly technical. I know that big companies hate to spend capital dollars that they don’t think are necessary. But in this case they got caught providing old and inadequate modems five years ago and since then did nothing to fix the problems. We know from experience that even when companies are caught like this that they don’t usually undertake a crash repair program. But if Time Warner would have implemented some reasonable plan to upgrade the network and to replace the bad modems over time there probably would not be this big lawsuit today. What’s puzzling is how the whole management chain at the company decided to do nothing. They denied a direct FCC order and also continued to get piles of customer complaints.

The lawsuit does not name a specific amount of damages, but one has to think it’s going to be a big number. The lawsuit asks for ‘injunctive and equitable relief’, meaning the return of customer payments, as well as civil penalties, meaning extra damages. If Charter has the same kind of customer penetrations we see elsewhere with cable companies – 60% to 70% of the market – it’s going to be interesting to see how they find a jury for this trial.

Runaway Retransmission Fees

rabbit earsCBS just announced that they are making over $1 billion per year in retransmission fees. These fees are a big culprit in the continually steep price increases for cable TV.

Retransmission fees are the fees that the major over-the-air networks (ABC, CBS, NBC and FOX) charge to cable companies for the right to air their content. These fees have been allowed in FCC rules for decades, but it’s been in the last ten years or so that the networks woke and up started charging cable companies to carry their content.

There are two slightly different ways that these fees work. The majority of the CBS stations around the country are owned by somebody else and are referred to as affiliate stations. CBS charges these affiliates a fee each year – which the industry calls reverse compensation – to give each station the right to carry the CBS programming. CBS and the other major networks increase these reverse compensation fees every year, and each affiliate station has little choice but to then pass those costs on as increased retransmission fees to cable operators.

CBS also directly owns 14 TV stations in major cities as well as two smaller stations. In these stations CBS directly charges the retransmission fees to the cable companies.

I call these fees runaway in the blog title because there doesn’t appear to be any end in sight for the size of these fees. At the end of 2015 CBS had estimated that these fees would grow to $2 billion by 2020. But they just now upped their estimate to $2.5 billion. To hit those targets from today’s $1 billion revenue figure means we’ll be seeing big increases in cable rates. And if CBS is raising the fees this much you can expect the same thing from the other major networks. This is verified by estimates from SNL Kagan who now estimates total retransmission fees in 2020 of $10.6 billion.

To put that number into perspective, there will roughly be around 90 million cable households by 2020. That means by then that the average retransmission cost per household will be $10 per month. But that average hides the real story. A lot of satellite subscriptions don’t include network channels, or if they carry some they come from one of the major markets like New York City or Chicago. I’ve always figured that the satellite guys are getting a greatly reduced price for those channels, which would benefit both them and the big station that sells bulk subscriptions. There are also many places in the country where the cable systems don’t carry all four networks, or they again carry some remote station at a reduced cost. When you consider all of that I’m guessing that the real cost per household for urban cable systems will be around $15 per household per month.

For years now the major networks have been saying that they deserve to get as much revenue as the most expensive cable networks – and that means ESPN. ESPN now costs over $6 per household per month. If the four major networks climb that high that will be $25 per household per month just for the four major networks. The irony is that most households can receive these networks for free with “rabbit ear” antennas.

But the FCC cable rules require that cable systems carry all local networks that can be received by people with rabbit ears. And that means that cable customers cannot opt out of receiving or paying for these channels in a cable subscription. The only way for a household to avoid these fees is to drop traditional cable packages completely.

A number of cable companies have begun to isolate the retransmission fees on customer bills and call it something like “local network charge.” But I don’t think the cable companies have done a very good job of explaining the retransmission fees to customers.

There are more households every year thinking about dropping cable, and for many of them the primary issue is price. As cable subscription prices keep climbing much faster than inflation my guess is that the cord cutting phenomenon is going to accelerate. There are OTT services now like Sling TV that will sell customers a high quality set of rabbit ears that can be easily incorporated with their content. There are a lot of households that will be happy to avoid paying for local networks if somebody can make it easy for them to do so.

Finally, Unlimited Cellular Data

SONY DSCIn a virtual blink of an eye all of the cellular companies are now offering unlimited data. This probably represents a watershed event for the cellular industry and probably marks the start of the slide of cellular data into a commodity, much as has happened in the past with cellular voice and texting.

Up until now, US cellular data has been the most expensive broadband in the world. They have been selling a gigabyte of download for $10. There are numerous ISPs that will let people download a terabyte of data for between $60 and $120 per month, and that makes cellular data between 80 and 160 times more expensive than landline data.

It’s really impossible to blame this gigantic pricing difference on anything other than greed. Looking back five years ago the cellular companies claimed the high prices were due mostly to a desire to protect their cell sites from being swamped with data usage. Perhaps back when cell sites used traditional TDS backhaul (DS3s mostly), there might have been some truth to this. But today most cell sites have fiber Ethernet backhaul of gigabit or greater capacity.

This change seemed inevitable. The cellular companies have all started offering zero-rated plans where they offer some content (often their own) on an unlimited basis while still counting other content against their stingy data caps. That stark contrast pointed out the hypocrisy of their pricing. And while the current FCC is backing away from enforcing these kinds of net neutrality issues – the price contrast is so large that it might have brought eventual scrutiny from Congress during any Telecom Act re-write.

Possibly the biggest impact of this change is that it’s going to change how people use cellphones and other mobile devices like tablets and laptops. Cellphone data speeds in the US are not the best in the world, but they are good enough in most places to be able to watch a single video stream. It’s not much of a stretch of the imagination to foresee wide usage of apps that will use cellphones to capture and transfer video images to televisions. And that could make cellular data an economic substitute for landline broadband.

There is already a lot of talk about younger people preferring cellular data to landline data – mostly due to the mobility aspect. But this has largely meant that cell phone users had to stay close to WiFi most of the time in order to avoid large cellular bills. But unlimited data plans will free users to go anywhere there is a strong enough cell signal to get the connection speeds they need. Over time this could lead to an erosion of landline broadband connections, where households that have unlimited cellular data will find that to be good enough.

The upside to this, though, might be that poorer households might finally get better access to the Internet. Until now, unless a user was able to sit at home behind a landline WiFi signal, cellular data has been too expensive to use in urban areas for things like homework. Since most people now see a cellphone as mandatory to daily life, poorer households will probably be able to get by with only a cellular data plan. This might be the last nail in the coffin for urban DSL.

This change will really make a difference in rural America. I have heard from many rural households that use their cellphone data plan for their household broadband and it’s not unusual to hear of families with schoolkids spending $500 or more per month for totally inadequate cellular broadband. These households are going to be relieved to be able to buy a $100 unlimited plan instead.

Of course, in a lot of rural America there is not the same kind of cellular service that those in cities take for granted. There are very few rural places that have more than one major cellphone carrier with decent signal. And there are a lot of rural households that live too far from a cell tower to get decent cellular speeds. But unlimited plans will probably be a good band-aid to cover for the lack of affordable broadband for millions of rural homes. It won’t be too many years when this won’t be enough speed, but for today cellular broadband is a whole lot better than no broadband.

We’ll have to wait a bit to see if these plans really are unlimited, and what it means if they aren’t. Obviously the plans will be a lot less useful if they somehow preclude tethering. But however they are priced, we are probably not going backwards to the day when your $60 cell plan includes 2 gigabytes of download with every additional gigabyte costing an additional $10. Teens ten years from now will think anybody who remembers being careful how we used our cellphones is an ancient dinosaur!

Putting the Lifeline Program on Hold

FCC_New_LogoEarlier this month the FCC under new Chairman Ajit Pai reversed earlier FCC approval for nine Lifeline providers who had been granted the ability to provide either wireline or wireless Lifeline broadband service. The Lifeline program grants a subsidy of $9.25 per month for low-income customers.

These were the first nine companies that had filed for the new Lifeline Broadband Provider designation to provide the subsidy for broadband connections. The Lifeline program for 32 years has provided this same subsidy to telephone service, but last year the program was extended also to data services – with the caveat that a given household is only eligible for one monthly subsidy.

The nine providers are Spot On, Boomerang Wireless, KonaTel, FreedomPop, AR Designs, Kajeet, Liberty, Northland Cable, and Wabash Independent Networks. Four of the providers had obtained their new Lifeline status on December 1 with the others being granted in January. Boomerang Wireless had already started to serve lifeline-eligible customers and the FCC ordered them to notify their customers and to cancel all lifeline subsidies within 60 days of the new order.

The stated reason for the reversals was that the FCC wanted to “promote program integrity by providing the Bureau with additional time to consider measures that might be necessary to prevent further waste, fraud, and abuse in the Lifeline program.” None of these companies has been accused of fraud but rather were the first nine companies to be granted the status of Lifeline Broadband Provider with the ability to sell a subsidized data product.

The fraud issue is an interesting one because the FCC had already overhauled the Lifeline processes to protect against fraud. For years carriers were allowed to self-certify that customers met at least one of several qualifications that made them eligible for Lifeline. But the FCC eliminated self-certification by publishing a national list of eligible customers – the list provided by and updated by other federal agencies overseeing eligible programs.

The FCC had also done compliance audits over the last several years looking for Lifeline fraud and didn’t find much of it. The new FCC order cited a $30 million settlement from Total Call Mobile that had been found to be seeking reimbursement for duplicate and ineligible customers. But the vast majority of the lifeline providers were found to have few or no issues.

Customers may have other options because the 800 carriers that already provide a Lifeline voice subsidy are now also allowed to provide a data subsidy. But nobody knows how many of these existing providers plan to offer subsidized data, and in fact over 80 Lifeline-eligible carriers recently asked to be excused from the program. This includes most of the biggest carriers in the country including AT&T, Verizon, CenturyLink, Charter, Cox, Frontier, Fairpoint, Windstream and Cincinnati Bell. There were also a lot of wireless carriers asking to be excused from the program.

It’s possible that politics has something to do with this order. The FCC under past Chairman Wheeler had reset the Lifeline program’s annual budget to $2.25 billion a year, indexed to inflation. There are Republicans in Congress who have called for the program to be capped instead at $1.75 billion annually. Stopping these new providers is one way to stop the program from growing. One would think that the withdrawal of the biggest carriers from the program will also greatly shrink the fund.

The most interesting thing about this order to me is that it seems to conflict with statements made by new Chairman Pai. On his first day as Chairman he addressed FCC employees and told them that one of his top goals was to bring broadband to all Americans. But this reversal of Lifeline status came just three days later and seems contrary to that goal.

It’s certainly possible that after more internal review that these companies might still be granted Lifeline status. But this also might instead be an indicator that the new Chairman wants to curb the Lifeline program, or maybe even eliminate it. I guess we are going to have to wait a while to see what this all means, including the Chairman’s statements about expanding broadband to all.

Amazon as an ISP?

Amazon EchoI mentioned in a blog last week that there is a rumor that Amazon is considering becoming an ISP. This information came from The Information, which says it got this by somebody inside Amazon management.

It’s an intriguing idea. Amazon has shown throughout its history that it loves to own its supply chain. If you recall, Amazon started out as a web reseller of books. But over time the company has built what must certainly be the largest and most efficient bricks and mortar fulfillment infrastructure in the world.

And the company hasn’t stopped there. The company has been building a fleet of semi-trailers used to haul its inventory, thus bypassing UPS and the Post Office. The company uses third-party tractors today but their goal is to build a fleet in anticipation of self-driving trucks within the coming decade. The company is also experimenting with drones, wheeled robots and other ways to bypass local delivery services.

The company has done the same with its successful data center business. They have built massive data centers and assembled a dark-fiber network to connect them together and to connect to major customers. And it is that fiber network that could create the backbone of an ISP network.

You have to think that Amazon learned a lesson from Google Fiber’s foray into FTTP, and so it seems unlikely that they would leap into a massive infrastructure build in that same mold. The article says Amazon might consider using the open access networks in Europe as a way to avoid building fiber. But they don’t have to go the whole way to Europe to try this. For example, just across the mountains from Seattle are a number of Public Utility Districts (county-wide municipal electric companies) that have built open access fiber networks that pass over 100,000 homes – an easy way for Amazon to test the ISP idea.

And around the country are a number of other open access networks. All of the municipal networks in states like Colorado, Utah and Virginia are required by law to be open access. We have the example of Huntsville, AL that built a FTTP network for Google that will become open access after a few years. There are numerous communities around the country that would gladly build fiber networks if they were guaranteed to get companies like Amazon and Google as major ISP tenants. It’s been my experience that almost no city wants to be an ISP unless it has no other option – but there are many who want fiber badly and would welcome Amazon with open arms.

I would think that Amazon will also keep their eye on the developments with wireless last mile. There might come a time when they might be able to leap into the ISP business with a reasonable cost per customer – at least in selected markets.

Amazon would be an interesting ISP. It was just a few years ago that it was clear that an ISP needed a traditional cable TV product to be successful. Google tried to launch without cable TV in Kansas City and hit a brick wall in selling to residential customers. But the tide is turning and I’m not sure that TV is mandatory any longer.

Amazon already has an impressive content platform with Amazon Prime and they have said that they are going to spend billions to create their own content, following the lead of Netflix. It’s also becoming clear that customers are becoming willing to accept an abbreviated line-up of popular cable channels like what’s being sold by Sling TV and other OTT providers. Amazon could be competitive with an abbreviated cable line-up made up of local programming, popular cable channels and its own content.

But Amazon has some advantages that other ISPs don’t have. For now Amazon is leading the pack in the intelligent personal assistant market with its Amazon Echo. I’ve had an Echo for about six months and I already can tell that it is improving. The company is working towards introducing cloud-based AI to the platform and within a few years the Alexa assistant should become a true computer assistant like has been envisioned for decades in science fiction.

My gut tells me that bundles which focus on smart computer services like Alexa will soon be more popular than the traditional triple-play bundles from Comcast and AT&T. Amazon has one huge advantage as a start-up ISP in that customers like using them – something they have fostered by delivering packages regularly on time to a huge percentage of households in the country. They are at the opposite end of the customer service scale from Comcast and the other big ISPs.

I have no idea if this rumor is true. But the idea is so intriguing that I hope Amazon is considering it. One of the major complaints about broadband in this country is the lack of competition and choice. Companies like Amazon can bring fresh competitive bundles that break away from the traditional triple play and that can redefine the ISP of the future.

Update: This rumor persisted and in February 2017 I posted an update about this rumor. https://potsandpansbyccg.com/2017/02/21/amazon-as-an-isp-2/