Category Archives: Current News

Childcare and Working From Home

The childcare industry in the county is on the verge of a major collapse, and this could mean millions of families will be looking for jobs that allow them to work from home. That will mean a lot of additional demand for decent broadband.

The childcare industry ran into troubles at the beginning of the pandemic, and over 20,000 childcare centers, or about 10% of the total, closed within a short time after the onset of the pandemic. At the time, this resulted in about 40,000 lost daycare jobs.

As the pandemic started to ebb, Congress provided $24 billion in subsidies to bolster salaries to keep people interested in taking the high-stress jobs of childcare. That funding is going to end this month. Several non-profits that concentrate on the sector say that the end of the subsidies will likely cause another 70,000 childcare centers to close – about one in three of the remaining centers. That will kill another 230,000 childcare jobs, but more importantly, will mean that around 2.3 million families will be confronted with some difficult childcare choices.

Many families will suddenly be without childcare because they won’t be able to find an alternative. It seems likely that without the subsidies, that the remaining childcare centers will raise rates – and, in many cases, making childcare costs too high to justify working.

Some families that lose childcare will find a more expensive alternative, but many will not. The loss of 70,000 childcare centers is going to affect most communities in the country. It might seem logical that some of the childcare workers who lose a job could start taking care of children in their own homes – but that is not practical in most communities. Most places now require all childcare facilities to be licensed, and any home or location used for childcare must meet a lot of requirements that are expensive or impossible to meet for the average home.

Childcare workers who lose their jobs can hopefully find employment somewhere in the overheated job market. But families who decide that a parent must stay at home without access to childcare are likely going to be looking for jobs that can be done at home – and probably online.

This raises all kinds of issues. Many of the families that are suddenly back in the home to take care of their own children will not be proficient with computers. Many will unfortunately live in places where the broadband is not good enough to support working from home.

I wonder if there are enough virtual jobs available to meet this new influx of workers seeking online work? There is a well-known national trend that many Gen X and Millennial workers prefer online work, and new job seekers will be competing with folks who have more computer skills and experience. We’re also starting to see some of the largest employers, including the federal government, starting to insist that workers come back to the office. This is likely going to make it even more competitive to pursue the remaining online jobs.

But there is still a vibrant work-from-home economy. The Bureau of Labor Statistics recently reported that 34% of workers did at least some of their work at home in 2022, down from 42% in 2020 and 38% in 2021. But those same statistics showed that getting work from home is highly correlated with the level of education – 54% of those with a bachelors degree or higher work at home some of the time compared to only 18% for those with a high school diploma or less.

New Battery Technology

The world is growing increasingly dependent on good batteries. It’s clear that using the new 5G spectrum drains cellphone batteries faster. Everybody has heard horror stories of lithium batteries from lawnmowers or weed eaters catching fire. Flying with lithium batters is a growing challenge. People with electric cars want better range without having to recharge. The best way to capture and use alternate forms of power is to store electricity in big batteries. The increasing demand for batteries is happening at the same time that trade wars for the raw materials used for batteries are heating up through tariffs and trade restrictions.

Luckily there is a huge amount of research underway to look for batteries that last longer, charge faster, and are made from more readily available minerals.

Zinc-manganese oxide batteries. Researchers at the Department of Energy’s Northwest National Laboratory have developed a technology that can produce high-energy density batteries out of zinc and magnesium. These are readily available minerals that could be used to create low-cost storage batteries.

Scientists have experimented with Zinc-manganese batteries since the 1990s, but they could never find a way to allow batteries to be recharged more than a few times due to the deterioration of the manganese electrode. They have found a technique that reduces and even replenishes the electrode and have created batteries that can be recharged over 5,000 times. This technology creates the larger batteries used for electric storage in solar systems, vehicles, and power plants.

Organosilicon Electrolyte Batteries. Scientists at the University of Wisconsin were searching for an alternative to lithium batteries to avoid the danger of the electrolyte catching fire. Professors Robert Hamers and Robert West developed an organosilicon electrolyte material that can greatly reduce the possibility of fires when added to current Li-ion batteries. The electrolytes also add significantly to battery life.

Gold Nanowire Gel Electrolyte Batteries. Scientists at the University of California, Irvine, have been experimenting with gels as the main filler in batteries since gets are generally not as combustible as liquids. They had also been experimenting with using nanowires as the diode, but the tiny wires were too delicate and quickly wore out. They recently found that they could use gold nanowires covered with dioxide along with an electrolyte gel. This combination has resulted in a battery that can be recharged 200,000 times, compared to 6,000 times for most good batteries.

TankTwo String Cell Batteries.  One of the biggest problems with batteries is the length of time it takes to recharge. The company TankTwo has developed a technique to build batteries in tiny modular compartments. These are tiny cells with a plastic coating and a conductive outer coating that can self-arrange within the battery. At an electric car charging station, the tiny cells would be sucked out from the battery housing and replaced with fully charged cells – reducing the recharging process to only minutes. The charging station can recharge deleted cells at times when electricity is the cheapest.

NanoBolt Lithium Tungsten Batteries. Researchers at N1 Technologies have developed a battery structure that allows for greater energy storage and faster recharging. They have added tungsten and carbon nanotubes into lithium batteries that bond to a copper anode substrate to build up a web-like structure. This web forms a much greater surface area for charging and discharging electricity.

Toyota Solid-state Batteries. Toyota recently announced it is introducing a new solid-state lithium-iron-phosphate battery as a replacement for the lithium-ion batteries currently used for its electric vehicles. These batters are lighter, cost less, and recharge faster. Toyota claims a range of 621 miles per charge. They say the battery can be fully recharged in ten minutes. By comparison, the best Tesla battery is good for about half the distance and can take a half-charge in fifteen minutes.

Competing with ChatGPT

I’ve been writing this blog daily since 2013, and writing it is the favorite part of my day. Writing the blog forces me to research and solidify my thoughts and opinions about various topics. But suddenly, I’m seeing headlines everywhere saying that ChatGPT will soon handle most writing and there will be no need for folks like me who write every day.

I was obviously intrigued and investigated the ChatGPT software. The latest 3.5 version of the software was launched by OpenAI in November 2022. OpenAI is a for-profit software firm that has been researching the field of artificial intelligence (AI) with the stated goal of developing friendly AI. It’s interesting that friendly is a key part of their mission statement because many AI industry pundits predict that AI will likely eventually compete with humans for resources, much like Skynet in the Terminator movies.

ChatGPT is written atop OpenAI’s third generation of software and is aimed at communicating in a written or conversational way so that a reader can’t tell the difference between the software and a human. The company has numerous investors, but Microsoft just offered to buy a 49% stake in the company for $10 billion. This instantly has me wondering when there will be a fee to use the software instead of the free version that is available now.

The press on ChatGPT has been over-the-top. I’ve seen articles comparing the impact of the launch of ChatGPT to other big events in web history, like the first web browser or the iPhone. Articles are touting that the software will mean that programmers will no longer have to write code, that students will no longer have to write papers, and that there will soon be no need for journalists (or bloggers!)

Early-generation AI writing software has been around for a few years and many baseball box scores and press summaries of quarterly earnings reports have been generated by software. These are writing tasks that are formulaic and repetitive, and I doubt that most folks noticed – although the software never captured the magic of a sports reporter like Shirley Povich, who I enjoyed reading every day for years in the Washington Post.

I had to give this platform a try. Was this software capable of writing something like this blog? If so, it would make me reconsider writing every day because if the software is that good there won’t be much need for human writers before long. As I was testing, I also considered the idea of using the software to get a jump start on a new piece of writing – the idea of seeing if the software could structure and organize an idea would be a time saver if the results were usable.

You can give complicated instructions to the software. You can provide the topic, the desired length of the end product, and describe the desired style of writing. I gave the software several topics to write about, and I was impressed with the speed of the process. The finished product is created almost as soon as you say go to the software.

But I was underwhelmed by the results. The sentences are grammatically perfect, and each paragraph has a topic and tries to make a point. Yet the end result was stilted, and some paragraphs were unreadable – I had to reread them several times to try to decipher the point (but for all I know, my readers have to do the same thing!).

The biggest flaw was that the writing was full of factual errors. That makes a lot of sense because the software distills what is written on the web when writing content. It takes the good and the bad, the factual and non-factual, and the easy-to-understand and obtuse writing that exists on the web and mashes it in a synthesis of what it finds. I realized that I would have to fact-check everything ChatGPT writes because the software has no way to discern what is true or untrue. There is a term for this among data scientists, and I read that ChatGPT currently has a hallucination rate of between 15% and 21%, meaning that it seems to make up that percentage of facts in its writing.

I know there is instant hope among students that this software can churn out the dreaded school essay – but that doesn’t look likely. The software has been out for only two months, and I saw that a software engineer has already developed a program that can detect with more than 90% accuracy if something is written by a human or by ChatGPT. Students beware.

The day will likely come when the ChatGPT writing gets better, but there is nothing in this software today that would make me consider giving up writing or even using this as a tool. The hallucination rate means I can’t trust it to be factual, so it’s not even worth using to create a kernel of an idea for a blog. Most importantly, the output is not readable – it’s all perfect English, but I couldn’t understand the point of about half of what it wrote for me. If my blogs are going to be unreadable, I want the obtuseness to be fully human-generated!

Broadband Satellite Issues

One of the most interesting aspects of serving broadband from low-orbit satellites is that it brings issues related to space into the broadband discussion. Space issues were less important for high earth orbit satellites that sit 20,000 miles above the earth. Other than an occasional impact from sunspots, there wasn’t much of note. But there are two recent events that highlight our new focus on low-earth orbit satellites. I would never have imagined a decade ago that I would be interested in these topics in terms of the impact on broadband.

The first is a piece of legislation introduced by Senators Maria Cantwell (D-WA), John Hickenlooper (D-CO), Cynthia Lummis (R-WY), and Roger Wicker (R-MS). The legislation is called the Orbital Sustainability (ORBITS) Act. The bill is intended to begin the development of a technology called active debris removal (ADR) that would be used to remove dangerous debris from low earth orbit.

The risk of space debris has been well documented by NASA and others. There are over one hundred million pieces of debris orbiting the earth today. These range in size from dust-sized up to out-of-service satellites and rocket boosters. Space will be getting a lot more crowded as the industry plans to launch tens of thousands of additional satellites in the coming years. Space is going to get crowded.

So why is debris a problem? The issue was described by NASA scientists Don Kessler in 1978. He postulated that as mankind put more objects into orbit that the inevitability of collisions would increase and that over time there would be more and more debris. This is easy to understand when you realize that every piece of debris is circulating at over 20,000 miles per hour. When objects collide, even more debris is created, and Kessler postulated that there would eventually be a cloud of debris that would destroy anything in orbit, making low-space unusable.

The legislation would fund research into different technologies that can be used to clean debris, with NASA tackling some of the trials. The hope is for an eventual system that scrubs space of debris as it is created to keep the valuable low-orbit space usable.

In other news, President Putin of Russia has threatened to destroy Starlink and other satellites that are helping Ukraine in the war between the two countries. Targeting satellites as part of war is an idea that has been used by Hollywood for years. The first such movie I remember is Moonraker, the James Bond movie that sent the British secret service agent into space.

In September, a Russian diplomat said at the United Nations that satellites could be legitimate military targets. He argued that civilian satellites that provide broadband might be a violation of the Outer Space Treaty that provides for only peaceful uses of satellite technology. He is obviously aiming his comments at Starlink, although in a few years, there will be multiple companies in the same category.

Russia has already been targeting Starlink with cyberwarfare hacking to try to corrupt the satellite software. It’s been reported that Russia was also looking for a way to identify the location of the satellite receivers on the ground.  But it was clear from recent threats that Russia is hinting at some method of crippling or destroying satellites in orbit.

The earth has become massively reliant on satellite technology. It’s now becoming a source of broadband, but there are many other vital uses such as GPS technology, weather forecasting, studying and tracking resources like water and minerals, and numerous other uses.

The idea of attacks on satellites is scary. This might range from some sort of hunter satellites that attack other satellites or more indiscriminately through something like nuclear blasts that would disable all electronics. But the investment in satellites is huge and would not easily be replaced. The bigger question raised is if it is worth spending money on satellites that can be destroyed.

It’s likely that the threats are just rhetoric because every country depends on satellites for a lot of everyday functions. But countries have done insane things in wartime before, so it’s not off the table.

ISP Liability

Charter was recently ordered to pay over $1.1 billion to the estate of the family of an 83-year-old Charter customer that was murdered by a Spectrum technician in 2019. A jury had originally ordered Charter to pay $337 million in compensation plus $7 billion in punitive damages. The judge lowered the punitive damages to be more in line with comparable punitive damage calculations.

This was a case that should concern all ISPs. The technician, Roy Holden, was seemingly a good technician. He had completed over 1,000 service calls with no customer complaints. It turns out that the technician had stolen credit cards and checks from a few elderly customers, but this wasn’t discovered until after the murder. Charter had done a routine background check when he was hired that showed no arrests, convictions, or other criminal behavior. There was nothing about Roy Holden that made him look any different on paper than the many technicians hired by other ISPs.

It’s likely that the award was so large due to Charter being such a large and profitable company. But even the base award of $337 million would ruin all but the largest ISPs in the country.

This is obviously a pretty rare event and, as Charter argued in court, was totally unforeseeable. How can any ISP know when it has a rogue or unbalanced technician? Unless an employee is acting erratically, it’s impossible to think that an ISP, or the many other kinds of companies that do in-home customer service calls can protect against this kind of event.

ISPs have no financial backstop for this kind of large court award. Most of my clients carry general business insurance in the range of perhaps $5 million. That level of coverage won’t come close to covering the damages awarded in this case. I don’t know many ISPs that could survive a lower award – even $20 – $50 million would ruin most of my clients.

This kind of event is rare, and I can’t imagine that insurance can be purchased to protect against it. If there is such a policy, it would have to be extraordinarily expensive, and ISPs would have a hard time justifying the premiums due to the low risk of ever having such an event.

Facility-based ISPs generally don’t carry a large amount of insurance. It’s not feasible to insure expensive networks against things like storm damage. Instead, ISPs rely on big storm damage to be covered by FEMA along with other infrastructure that is damaged in big natural disasters like storms, fires, and floods.

I suspect this award will send some ISPs to talk to their insurance agent – and they will find that there is no practical way to insure against this kind of event. But that doesn’t make ISPs any different than companies that install appliances, countertops, or air conditioners. I think this is one of those things that ISPs shouldn’t think too hard about. I’ve read articles on the issue that suggest that ISPs need a more vigorous vetting process for new employees. But realistically, that probably makes almost no difference, although it might convince a jury to set a smaller award.

Lobbying the BEAD Rules

Thirteen Republican Senators sent a letter to the NTIA asking the agency to change its approach in administering some of the provisions of the $42.5 billion BEAD grants. This is just one of the first of what I think will be many attempts to influence how the grant funding is awarded. We can’t ignore that there will be politics involved in determining who gets grant awards. That became inevitable for a grant program of $42.5 billion that also involves the States.

The letter specifically asked for changes related to rate regulation, technology preference, provider preference, workforce requirements, middle mile deployments, and the application review process.

Rate Regulation. The Senators point out that the legislation has a specific prohibition of the BEAD program suggesting or requiring broadband rates. The letter argues that the NOFO for the program suggests several requirements that will set or restrict rates, such as a suggestion that there should be a low-cost option established at $30 along with a still-undefined middle-class affordability plan.

Technology Neutrality. The Senators take exception to the NTIA’s clear preference for fiber and want to make sure that fixed wireless and cable technologies can be considered for grants.

Preferences for Grant Recipients. The Senators are concerned that the NOFO for the program insists that there is an equitable and nondiscriminatory focus for choosing grant winners. They fear that this is going to push state grant offices to favor non-traditional broadband providers instead of existing proven ISPs.

BEAD and Digital Equity Participation. The Senators want to make sure that there is no automatic link between a State participating in both the BEAD program and the Digital Equity program. This is the first time I’ve heard of this issue, and this means there are States considering not accepting the funding that will be used for getting computers into homes and offering digital literacy training.

Workforce Preference. The Senators believe that the BEAD rules favor ISPs that use a ‘directly employed workforce’ as opposed to contractors and subcontractors. That observation was a new one for me and will send me back to reading the NOFO more carefully. The Senators are also worried about the requirement that projects greater than $35 million must enter into a project labor agreement – something they say will be challenging in a market with a skilled labor shortage.

Middle-Mile Deployment. The Senators don’t like the requirement that any project that includes middle-mile routes must allow for interconnection with other carriers that want to use the fiber routes.

Unnecessary Burdens. The Senators say there are requirements that add burdens on grant applicants that were not included in the legislation. This includes issues such climate resiliency and system hardening for the useful life of fiber. They say such requirements add unnecessary costs and will delay the deployment of networks.

It’s an interesting list of objections. A few of the objections are on everybody’s hate list of the grant rules. Grant applicants do not want to figure out a climate resiliency plan and will be fearful if they do it poorly, they might not win a grant.

A few of the requests are clearly in favor of incumbent ISPs, such as any requirement that might force a State broadband office to consider non-traditional ISPs like cities.

And a few requests are things that concern all ISPs, such as the NTIA requiring broadband rates that are too low to make a business plan work.

Just as interesting are the items not included on the list. Small ISPs are worried about the requirement to have a certified letter of credit – something that doesn’t concern large ISPs. Not having this on the list makes me think the Senators are being prompted by big ISPs.

This blog is not meant as a criticism of the Senators’ suggestions. Every constituency in the country is going to have its own wish list of things the BEAD grants should emphasize or deemphasize. I’m hoping to collect these as I see them – it will be interesting when the dust clears to see who had the most influence on the BEAD rules.

Satellite Cell Service

T-Mobile and Starlink made a joint announcement recently about an arrangement where Starlink will enable voice and texting capabilities to T-Mobile cellphones by the end of 2023. This is a service that would work with existing cell phones and would supposedly kick in when a phone can’t find a signal from a cell tower. Starlink said the technology would be enabled by new satellites that have significantly larger antennae than the current satellites in the constellation. In the press release, Elon Musk touted this as being able to reach people lost in the wilderness, but the much bigger use will be to fill in cellular coverage in rural areas for T-Mobile.

While the two companies made a big splashy announcement about the arrangement, they are late to the game as other industry players already have similar plans underway.

AST SpaceMobile has been working on deploying satellites aimed specifically at the cellular market. The company plans to launch its first five satellites in 2024. The company’s business plan is to launch fairly large satellites weighing over 3,300 pounds to create a constellation dedicated to cellular coverage. The company has already created partnerships with more than 25 mobile operators around the world, including the giant cellular company Vodaphone.

Lynk is taking a different approach and will launch small satellites around the size of a pizza box. The company has one test satellite in orbit with another schedule this December. The company plans to have 50 satellites in orbit by the end of 2023. Lynk already has 14 commercial agreements in place and will support large corporations and governments as well as mobile providers.

Just yesterday, Apple announced that it will offer a texting service for those lost in the wilderness in a partnership with Globalstar. This service is going to be text only and is going to be exceedingly slow, but it will supposedly work for folks who have the latest iPhone and who also are able to point the phone directly at the satellite. There will be an app that will tell a user where the satellite can be found.

All of these plans raise a lot of questions that we won’t get answered until somebody has a working satellite product. For example, could somebody inside a vehicle connect to a satellite? I have no problem connecting to the Sirius XM satellite service, so this might not be a problem. Will these connections somehow roam and connect back to cellular carriers when the user is in reach of a cell tower? That would be really complicated, and my guess is that this won’t work. Mike Sievert, the CEO of T-Mobile said this project is like putting a cell site in the sky, but much harder – and I believe him. I’ve been trying to picture how the satellites will pick out the right calls because filtering through the many billions of cellphone calls to find the right ones sounds like a huge data processing challenge.

The service would certainly be a boon to somebody lost in the  woods, but this is a much-needed service for a lot of people. My consulting firm does surveys, and it’s not unusual to find rural counties today where 30% or more of homes say they have no cellular coverage at their homes. The national coverage maps of the big cellular companies are a joke in many rural places.

T-Mobile and Starlink said that these connections would be only for voice calls and texting at first but that using cellular data might be on the horizon. That would be a significant accomplishment since a receiver many times larger than a cell phone is needed today to communicate with a satellite.

The real potential for this product is not in the U.S. and Europe where a large percentage of folks can connect today to cellular networks. The real market is the many parts of the world where modern cellular towers are a rarity. Most Americans probably don’t understand or appreciate that there is still a lot of the world where folks are not connected, or perhaps only connected through one universal connection that is shared by a whole community.

Are Broadband Grants Taxable?

Casey Lide of Keller & Heckman wrote a recent blog that warns that federal grant funding might be considered as taxable income by the IRS. This would be a dreadful outcome for any taxable entity that receives the grant funding since it would create a huge tax liability that would have to somehow be covered outside of the grant funding. This would not affect just the big telcos and cable companies but also the many small telephone companies and cooperatives which are also taxable.

This is not a new issue. There were a lot of questions about federal grants being taxable in 2009 when the NTIA awarded BTOP and BIP grants that were the result of the stimulus spending that came out of the recession. The IRS eventually declared a ‘safe harbor’ for those grants, meaning that it agreed to not tax the grant funding. But the threat of possible taxation stopped many of my commercial clients from pursuing those grants in 2009.

Lide points out that the IRS has always presumed that grant funding is income to the entity receiving the grant and is taxable. Consider a common type of federal grant such as when a research lab gets a grant to pay for the salaries of researchers. Such a grant has always been considered to be taxable income to the lab. The research lab doesn’t worry about this because when it spends that money for salaries, the expenses are deductible from the income, and the lab doesn’t incur any net tax liability. This is one of the reasons that this kind of grant is often awarded each fiscal year to give the grant recipient a chance to spend the grant money in the year the income is received.

But grants given to build infrastructure are different. If a corporation accepts a $10 million grant to build fiber, it cannot expense the fiber immediately to offset the income from the grant. IRS rules have always insisted that hard assets are written off over the economic life of the asset using depreciation expense. I haven’t checked lately, but the IRS suggested tax life for fiber has been set at 25 years, meaning that one-twenty-fifth of the cost of the fiber is recognized as an expense each year over 25 years.

In this example, the corporation that accepted the $10 million grant would be saddled with a $10 million revenue and only be able to wipe out a small portion of it in the first year using depreciation. That would create an instant federal tax liability of 21% on the difference between the grant and one year of offsetting depreciation expense, plus whatever state incomes taxes would be owed. The corporation could not use the grant funds to cover the tax liability – grant money can only be used to build infrastructure. The corporation would eventually see the benefit of depreciation on future taxes, but that relief would be glacially slow over 25 years – it would not stop them from having to write a big check to the IRS this year.

Lide points out the way that the IRS got around this rule with the 2009 grants. There was a legal case in the 1950s, Brown Shoe Co., Inc. v Commissioner where the courts rules that grant funding received by a shoe company for keeping their factory operating was not taxable since none of that money was used to enrich the owners of the business. The IRS was able to make this same determination with the BTOP and BIP grants because, by definition, none of the money was used to enrich the owners of corporations since it was all spent to build infrastructure.

Lide believes that there have been changes in the 2017 Tax Cuts and Jobs Act that might make it impossible for the IRS to make that same ruling for current federal grants. Congress could have avoided this issue by explicitly saying that the new grants aren’t taxable – but that’s not in the various laws.

This is very distressing news for a corporation that has already accepted grant funding from the CAREs Act or from ARPA funds because they might be facing an unexpected tax liability. I know cooperatives and telephone companies that have already accepted some of these funds and who will be shocked if this interpretation holds to be true. One of the problems we have currently in dealing with these kinds of issues is that the IRS is running several years behind and won’t have yet dealt with a tax return from a corporation receiving recent the latest infrastructure grants.

As a further word of warning, this same issue would apply to anybody accepting state infrastructure grants. A state would have to take positive action to forgive the grant from state income taxes, but that would not shield state grant revenue from federal tax liability. Any taxable entity that has already received CAREs or ARPA funding, or anybody thinking about taking ARPA or BEADs funding to reach out to legislators on the issue. It may turn out that Congress might be the only one who can fix this – they certainly didn’t intend for anybody building rural broadband to incur a huge tax penalty. If this doesn’t get resolved, many of the carriers who are planning on using grants to solve the rural broadband gap might have to drop out of the pursuit of grants.

Can Satellite Broadband be Affordable?

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

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

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

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

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

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

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

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

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

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

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

Closing the Homework Gap in Chattanooga

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

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

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

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

https://www.edconnect.org/

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

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

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

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

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

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

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

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