Work-at-Home as a Product

Even before COVID-19, we were headed towards a future with more people working at home, at least part-time. I’ve seen estimates pre-COVID that as many as 10% of office workdays are done from home – that number has currently skyrocketed and it’s likely that working from home will never return to the old levels.

For working at home to be most effective, employees must have easy access to the same software and the same data as when they work in the office. Employers still have the same goals for data security and for protecting sensitive company data and customer data. Workers at home need to be protected from phishing, malware, and other attempts to gain access to customer data.

This all comes at a time when we’ve undergone a transition to security that is based upon building walls around sensitive data. Companies have made data more secure by restricting access to data from outside the company buildings. Twenty years ago it was common for companies to allow workers to dial-in to company servers, but over time those connections have proven to be the easiest path for hackers to gain access to company data. Companies have built data fortresses to protect data from external access, and suddenly, companies are being asked to poke holes in those walls to allow employees to gain access to company systems from home.

To complicate matters even further, in the last five years many mid-sized companies shed IT staff as they moved everything to the cloud. Many companies are not staffed or equipped to make the shift to allow working from home, meaning that opening up their networks to home-based employees has automatically opened new risks to hacking.

The question I ask today is if there is a broadband solution that smaller ISPs can offer to make it safer for companies to support employees working from home. The biggest carriers already have such solutions, at least for their largest corporate clients. For example, AT&T and Verizon have had products that allow for guaranteed secured data connections for corporate or government cell phones. Fortune 500 companies and the military have been able to buy similar products to provide for safe remote wireline broadband connections.

AT&T just announced a new product called AT&T Home Office Connectivity that will work on DSL, fiber, or AT&T wireless. The product essentially creates a carrier-class VPN between employees and a virtual gateway to connect to a company WAN. The AT&T solution makes the multitude of connections to employees in the AT&T cloud while only creating one path between AT&T and the company servers.

It’s still questionable if the big carriers can scale these kinds of products to meet the need of smaller corporations and local governments. The big intense security platforms are incredibly expensive and are out of price reach of the average business.

However, there is a real need for guaranteed safe connections between office and home. Companies have to find a way to trust that data exchanged with employees working outside the office is as safe as data moved around inside the business. I’m guessing the explosion of people working at home is going to result in some spectacular data breaches that will scare all of the companies that have sent employees home to work.

In addition to security, those working at home need easy solutions for all of the other routine functions performed at the office including things like spam filtering, and secure data backup and disaster recovery.

There are solutions available to solve at least some of these issues today, but again they are complicated for companies without a sizable IT staff. Some of the solutions include things like:

  • Cloud-based security software is a set of software and technologies that help companies meet regulatory compliance (like with the new California privacy laws) and that are designed to protect company and customer data in a wide variety of circumstances. This differs from traditional security software in that every transaction with the cloud can be assigned different levels of privacy and access to data. For example, this is the kind of software that allows customers to review their data and nobody else’s.
  • Microsegmentation is software that can create secure zones inside data centers and cloud deployments to enable companies to isolate different parts of their workload. For example, remote employees could be given access to more limited data than those working in the office, and everything they do remotely can be blocked from having any access to core servers.
  • Cloud SD-WAN is a technology that has been used for companies that operate multiple branches. Each remote employee can be treated as a separate branch of the business and be provided with an individual firewall and other standard security protocols.

Smaller ISPs ought to find some way to explore these kinds of products to offer to customers with remote workers. This is likely to be beyond the capability of most ISPs and might best be tackled by trade associations or other groups where ISPs collaborate.

This is a product that could be sold in large quantities today if it was ready as an off-the-shelf application that could be sold to an individual user. It’s unlikely the need for supporting working from home is going to go away, so ISPs ought to do what they’ve always done and find trustworthy solutions their customers need and want.

The Coming Year of Confusion

July 2020 Calendar

I’ve had a number of people ask me about how I think COVID-19 will impact the ISP industry over the next six months. It’s an interesting question to consider because there are both positive and negative trends that ISPs need to be concerned about. The chances are that these various trends will affect markets and ISPs differently – making it that much harder for an individual ISP to understand what they are going to see over the next six months. Following are some of the trends I think ISPs will need to deal with:

People Want Faster Broadband.  Many households came to the realization that their home broadband is inadequate when parents and students tried to work from home simultaneously. OpenVault reported that the number of households subscribing to gigabit service nearly doubled in the first quarter of this year. Clients are reporting an increased demand from first-time customers as well as customers wanting to upgrade to faster speeds.

Downturn in Small Businesses. Everything seems to indicate that a lot of small and medium businesses are not going to survive the pandemic. There have already been a number of businesses like restaurants and small retail stores that have gone under. The anchor stores at malls are failing right and left. There seems to be an expectation that travel-related businesses are going to take a long time to come back. Everything I read says that there is a coming crisis in the fall for business landlords when the finally digest that business tenants are either disappearing or will want to negotiate cheaper rent. That’s likely to have a secondary ripple effect as strip malls and other business landlords start declaring bankruptcy. Over time, new businesses will grow to fill many of the voids, but there has been a huge shift to shopping online that will likely not retreat to pre-COVID levels.

People Will Continue to Work from Home. Every day I read about businesses that say that working from home, at least part time, will become the new normal in many industries. The latest was a survey of law firms that said that a lot of lawyers are not going to return to the office full time when the pandemic is over. This is good news for ISPs that provide residential broadband, because people working from home are going to demand speeds and latency that will support their work. OpenVault just reported that as of the end of the first quarter of 2020 that the percentage of homes subscribing to gigabit broadband doubled over the last year and is now at 3.75% of all homes and growing rapidly. This is not such great news for ISPs that serve law offices.

The Big Unknown is the Impact of Unemployment. As businesses fail or downsize a lot of people are not going to be returning to their original job. ISPs are already reporting that people are ditching telecom products like landlines. The cord cutting in the last month of the first quarter of this year was record-setting. The big unknown will be the number of households that can no longer afford to buy landline broadband. Obviously, unemployment isn’t going to stay at the current 40 million people, but it’s not quickly going to return to pre-COVID levels. A secondary impact of a degraded economy will be a surge in bad debt as customers hang onto to home broadband as long as they can. We’re likely to see a big impact when the Keep America Connected pledge ends. If ISPs present a bill for multiple back months of billing we ought to see a lot of customers forced to default and cancel broadband.

The Pandemic is the Dagger That Will Finally Kill DSL. Homes that have an option of using DSL or something faster like cable broadband or fiber are going to be bailing on DSL in big numbers. Many people in towns have stuck with DSL because it is priced cheaper than cable broadband. However, for a lot of homes, the most important factor in broadband has become speed and performance.

The Rural Broadband Gap Will Keep Getting Headlines. COVID-19 made it clear to elected officials at all levels of government that the rural broadband gap is badly hurting the economy. Even if schools return to normal, businesses in rural areas are not going to have the same flexibility to send employees home, and unemployed people in rural area are not going to easily be able to accept at-home jobs. That’s going to keep a sizable slice of the economy from fully participating in any recovery. Almost everybody I talk to is hopeful that this might translate to increased grant money for rural broadband – but that’s no guarantee.

We’re Going to Have Unexpected Shortages in the Supply Chain. The best way to describe the supply chain right now is spotty. Manufacturers of telecom electronics are going to suddenly find they can’t buy one or two components, and manufacturing will come to unexpected halts. Anybody building a broadband network needs to expect delays, and if history is a good teacher, the delays will last longer than expected. This is going to play havoc with anybody that has financed a new network and needs to install customers to meet debt payments.

Banks Are Going to Tighten Lending. It’s inevitable that as banks digest bad loans from failing businesses that they are going to get more cautious about making new loans. Even if interest rates don’t rise, banks will do what they always do under stress and get more conservative. Some local banks are likely to get into real trouble and will fail if their portfolio was heavily invested  into businesses that are failing.

This all makes for an interesting short-term future. There will be more people yelling for faster broadband at the same time there will be more customers unable to afford broadband. There will be grants awarded for rural markets at a time when banks might not provide the matching funds. All in all, it’s going to be a mess for most ISPs who will see both good and bad things affecting them at the same time.

 

 

 

 

Privacy in the Age of COVID-19

The Washington Post reports that a recent poll they conducted shows that 3 out of 5 Americans are unable or unwilling to use an infection-alerting app that is being developed jointly by Google and Apple. About 1 in 6 adults can’t use the app because they don’t own a smartphone – with the lowest ownership levels for those 65 and older. People with smartphones evenly split between those willing versus unwilling to use such an app.

The major concern among those not willing to use such an app comes from the distrust people have about the ability or willingness of those two tech companies to protect the privacy of their health data. This unwillingness to use such an app, particularly after already seeing the impact that the virus is having on the economy is disturbing to scientists who have said that 60% or more of the public would need to use such an app for it to be effective.

This distrust of tech companies is nothing new. In November the Pew Research Center published the results of the survey that showed how Americans feel about online privacy. That study’s preliminary finding was that more than 60% of Americans think it’s impossible to go through daily life without being tracked by tech companies or the government.

To make that finding worse, almost 70% of adults think that tech companies will use their data in ways they are uncomfortable with. Almost 80% believe that tech companies won’t publicly admit guilt if they are caught misusing people’s data. People don’t feel that data collected about them is secure and 70% believe data is less secure now than it was five years ago.

Almost 80% of people are concerned about what social media sites and advertisers know about them. Probably the most damning result of the survey is that 80% of Americans feel that they have no control over how data is collected about them.

Almost 97% of respondents to the poll said they have been asked to agree to a company’s privacy policy. But only 9% say they always read the privacy policies and 36% have never read them. This is not surprising since the legalese included in most privacy policies requires reading comprehension at a college level.

There is no mystery about why people are worried about the collection of personal data. There have been headlines for several years talking about how personal data has been misused. The Facebook / Cambridge Analytica data scandal showed a giant tech company selling personal data that was used to sway voters. The big cellular companies were caught several times selling customer location data that lets whoever buy it understand where people travel throughout each day. Phone apps of all sorts report back location data, web browsing data, and shopping habits and nobody seems to be able to tell us where that data is sold. Even the supposed privacy advocate Apple lets contractors listen to Siri recordings.

It’s not a surprise that with the level of distrust of tech companies that it’s becoming common for politicians to react to privacy breaches. For example, a bill was introduced into the House last year that would authorize the Federal Trade Commission to fine tech companies to as much as 4% of their gross revenues for privacy violations.

California recently enacted a new privacy law with strict requirements on web companies that mimic the regulations used in Europe. Web companies must provide California consumers the ability to opt-out from having their personal information sold to others. Consumers must be given the option to have their data deleted from the site. Consumes must be provided the opportunity to view the data collected about them. Consumers also must be shown the identity of third parties that have purchased their data.

The unwillingness to use the COVID-tracking app is probably the societal signal that the hands-off approach we’ve had for regulating the Internet needs to come to an end. Most hands-off policies were developed twenty years ago when AOL was conquering the business world and legislators didn’t want to tamp down on a nascent industry. The tech companies are among the biggest and richest companies in the world and there is no reason to not regulate some of their worst practices. This won’t be an easy genie to put back in the bottle, but we have to try.

Cord Cutting Accelerates in 1Q 2020

The largest traditional cable providers collectively lost over 1.7 million customers in the first quarter of 2020 – an overall loss of 2.2% in customers. This is the biggest overall drop in customers ever in a quarter. To put this loss into perspective, the big cable providers lost 18,800 customers every day.

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 2019:

1Q 2020 4Q 2019 Change % Change
Comcast 20,845,000 21,254,000 (409,000) -1.9%
Charter 16,074,000 16,144,000 (70,000) -0.4%
DirecTV 15,136,000 16,033,000 (897,000) -5.6%
Dish Networks 9,012,000 9,144,000 (132,000) -1.4%
Verizon 4,145,000 4,229,000 (84,000) -2.0%
Cox 3,820,000 3,865,000 (45,000) -1.2%
AT&T U-verse 3,440,000 3,440,000 0 0.0%
Altice 3,137,500 3,179,200 (41,700) -1.3%
Mediacom 693,000 710,000 (17,000) -2.4%
Frontier 621,000 660,000 (39,000) -5.9%
Atlantic Broadband 306,252 308,638 (2,386) -0.8%
Cable One 303,000 314,000 (11,000) -3.5%
Total 77,532,752 79,280,838 (1,748,086) -2.2%
Total Cable 45,178,752 45,774,838 (596,086) -1.3%
Total Satellite 24,148,000 25,427,000 (1,029,000 -4.1%
Total Telco 8,206,000 8,639,000 (123,000) -1.5%

Some observations of the numbers:

  • Note that AT&T no longer reports customers by division, so Leichtman has reflected all of their losses as DirecTV and shown no losses for AT&T U-verse.
  • The big loser is AT&T, which lost nearly 897,000 traditional video customers between DirecTV and AT&T U-verse.
  • The big percentage loser is Frontier that lost almost 6% of its cable customers in the quarter.
  • The big cable companies fared the best, but still lost 1.3% of their customer base in the quarter.
  • Satellite TV continues to dive and lost more than 4% of customers in the quarter.

Leitchman speculated that the magnitude of the losses could be due to the impact of COVID-19. However, the story seems to be a bit more complex than that. Several of the big companies reported about the same level of disconnects as in recent quarters but saw a big drop-off in new customers buying service. It’s worth noting that the above losses were experienced even while these same companies saw an increase of over 1 million new broadband customers in the same quarter- the best growth in broadband since 2015.

The full impact of COVID-19 will likely be seen in the next quarter. There has to be an impact from over 23 million newly unemployed people this year, as of mid-May. Cutting cable is one of the most obvious ways for a household to save money.

There may be evidence that COVID-19 had an impact by the end of March. Leichtman also tracks the subscribers of the online TV services that are owned by the above companies. Collectively, there was a loss of 319,000 customers by Hulu Live, Sling TV, and DirecTV Now. Additionally, Paystation Vue exited the market in the first quarter. However, YouTube TV is reported to be growing and had over 2 million customers by the end of February.

Losses of this magnitude have to be rolling downhill in the industry. These losses mean a lot lower revenues for cable TV networks. It means a lot less franchise revenues for local governments. It means lower advertising revenues from loss of eyeballs.

Is Teleworking Here to Stay?

Broadband networks are stretched thin today due to the large numbers of adults and students working from home. There are a lot of stories on the web that indicate that a lot of employees are not going to be going back to the office when the pandemic is over.

Here are two stories about a trend towards more teleworking from the dozens that a Google search uncovered. The government in Travis County, TX says that as many as 3,000 of their 5,000 employees might be asked to work from home at the end of the pandemic. This is a large county that includes Austin and the surrounding suburbs. There are about 2,000 employees who can’t work from home including law enforcement, medical examiners, and offices that work with the public like the County Clerk’s office – but the government will consider sending everybody else home to work. The County says that productivity has gone up since employees went home and the County is pleased with the noticeable difference in air pollution from fewer commuters.

An article in Marketwatch had interviews with the CEOs of six tech companies and all thought that a significant portion of the workforce would never be brought back to the office after the end of the pandemic. For example, Stewart Butterfield of Slack recently told investors that he would expect 20% to 40% of the company’s workforce to remain at home. The other CEOs voiced similar opinions. They also said their companies are also likely to permanently dial-back on travel and attendance at conferences. The CEOs were excited about the options created by being able to hire talented employees from across the country.

There are some obvious impacts if companies everywhere adopt this kind of thinking. It bodes poorly for expensive office space in downtown areas. There would be a big downturn in all of the businesses that serve commuters, like restaurants and parking garages if a significant portion of workers never returns to the big city centers. There would be a drop in transit revenues and road tolls.

It also has long-term implications for broadband. While the big ISPs are all telling the world that their networks are handling the increased traffic that’s pouring into and out of neighborhoods today, those working at home know better. By now everybody has experienced video calls where some callers are pixelating or disappearing in the middle of a call. Everybody probably also has friends who are telling them the stories of wresting with poor broadband outside of cities – where only one family member at a time can use the broadband.

ISPs have seen a one-time spike in usage that may never fully go away. Most of the increased usage comes from people doing office work or schoolwork over the broadband network that would formerly have been done inside of a school or office server environment. People are teleconferencing now for conversations that would have happened in a conference room or cubicle.

One of the most likely outcomes of people working from home is going to be a big outcry from folks demanding faster upload connection speeds. A lot of the problems experienced from working at home during COVID-19 comes from the miserly upload speeds that broadband technologies other than fiber provide to a home. Cable companies, in particular, are likely to increase upload speeds – something they’ve purposefully kept small in order to provide as much download speed as possible. But there is a world of difference between a 100/5 Mbps connection and a 90/15 Mbps connection.

ISPs are also going to have to get used to a different demand curve. Residential broadband networks have always been busiest in the evenings when everybody is at home using the Internet for videos and gaming. During COVID we’ve seen some interesting shifts in broadband usage by time of day. Daytime usage is up significantly, while evening usage has not grown, and many ISPs say evening usage has decreased. The busy hour in a neighborhood may no longer be 8:00 PM.

This also means that we need to get used to the idea of Zoom and Go-to-Meeting because a lot of the people we deal with will be working from home. There are likely to be many societal changes that evolve from this pandemic, but it doesn’t take a crystal ball to see that working from home is going to be a lot more prevalent than before.

COVID-19 Boosts 1Q 2020 Broadband Subscribers

Leichtman Research Group recently released the broadband customer statistics for the end of the first quarter of 2020 for the largest cable and telephone companies. Leichtman compiles most of these numbers from the statistics provided to stockholders other than Cox, which is estimated. Leichtman says this group of companies represents 96% of all US landline broadband customers.

The big news is that additions in the first quarter were up nearly 85% over the number of customers added in the fourth quarter of 2019.  For the quarter, these large ISPs collectively saw growth that annualizes to 4.8%. This was the biggest quarterly overall subscriber growth since early 2015.

3/31/20 1Q Change % Change 4Q 19 Adds
Comcast 29,106,000 477,000 1.7% 443,000
Charter 27,246,000 582,000 2.2% 339.000
AT&T 15,315,000 (74,000) -0.5% (186,000)
Verizon 6,982,000 26,000 0.4% (5,000)
Cox 5,230,000 60,000 1.2% 25,000
CenturyLink 4,667,000 (11,000) -0.2% (36,000)
Altice 4,237,300 50,100 1.2% 7,000
Frontier 3,480,000 (33,000) -0.9% (55,000)
Mediacom 1,349,000 21,000 1.6% 12,000
Windstream 1,067,300 18,000 1.7% 9,300
WOW 797,600 16,100 2.1% 7,600
Cable ONE 793,000 20,000 2.6% 83,862
Consolidated 786,125 1,960 0.2% 14
TDS 460,000 4,800 1.1% 17,500
Atlantic Broadband 457,233 5,770 1.3% 5,326
Cincinnati Bell 427,500 1,800 0.4% 1,600
Total 102,401,158 1,166,530 1.2% 669,788
Total Cable 69,216,233 1,231,970 1.8% 922,788
Total Telco 33,184,925 (65,440) -0.2% (253,586)

We know that a lot of the growth was due to COVID-19, which drove employees and students to work from homes. A lot of homes likely purchased broadband for this purpose. These big ISPs also pledged to the FCC that they wouldn’t disconnect customers for non-payment during the pandemic. However, the real impact of that policy won’t show up until the second quarter.

Comcast and Charter continue to dominate the rest of industry, and accounted for 86% of total net growth for the quarter. The large cable companies collectively gained over 922,000 subscribers, which their biggest quarterly growth since 2007. The telcos collectively still lost customers for the quarter, but losses are significantly less than in 2019. The biggest telco loser was AT&T which lost 186,000 customers for the quarter. Frontier continued to lose the biggest percentage of its customer base and lost nearly 1% of its broadband customer base during the quarter.

This growth is impressive, and much of the boost has to be due to an increased need for home broadband. We’ll have to wait until later in the year to see the impact of having over 36 million people file for unemployment and for potentially millions of small businesses to close. There has been a long-running debate in the industry about whether broadband is recession-proof. Arguments can be made that homes out of work will hang onto broadband as long as they can in the hopes it can help them find work. In a few quarters, we’ll find out.

Is it Time to Tax the Internet?

There is a law advancing in the Maryland legislature that would tax Internet advertising. The law, if enacted would collect taxes from online advertising done by Google, Facebook, and others. The tax would immediately be challenged in court due to our history of not taxing things related to the Internet.

The idea of not taxing the Internet began with the Internet Tax Freedom Act in 1998. That law grandfathered taxes imposed in 13 states on Internet access but prohibited it elsewhere. The law also prohibited local governments from imposing taxes on electronic commerce. The law imposed a 3-year moratorium on such taxes and was extended eight times until the tax prohibition was made permanent in the Trade Facilitation and Trade Enforcement Act in 2015.

There are other precedents for not taxing electronics commerce. For example, the Supreme Court ruled in 1967 that requiring remote vendors to collect sales taxes would impose an undue constraint on interstate commerce. The prohibition against sales taxes for out-of-state sellers was strengthened in 1992 in the Supreme Court’s ruling in Quill Corporation v. North Dakota that prohibited a state from collecting sales taxes unless a business has a physical presence in a state. These prohibitions were assumed to also apply to sales made over the Internet if the seller lived in a different state than the buyer.

However, such rulings change over time and the Supreme Court reversed the older decisions in 2018 in the case of South Dakota v Wayfair, Inc. The Court effectively ruled that states can require remote sellers of any kind, including online sellers to collect state sales taxes. Since that ruling, many states have imposed sales taxes on Internet sales.

Opponents of the tax on advertising say that the proposed law would violate the intent of the Internet Freedom Act to not tax electronic commerce. The application of a tax to advertising is different enough from a sales tax that the Supreme Court ruling won’t automatically apply. If the law is passed it will likely have to go to the Supreme Court. To a non-lawyer like me, it seems the issue is similar enough to sales taxes that there is a good chance that at tax on advertising would be allowed. Even if it allowed, such a tax has the significant challenge of identifying the advertising revenue that applies to a given state. For example, what portion of nationwide advertising for Ford trucks would apply to Maryland?

The Maryland law does freshly raise the question of whether it’s time to tax the Internet. The original Internet Tax Freedom Act was an attempt by Congress to protect the fledgling broadband business. It’s debatable if the growth of the Internet would have been slowed had there been a few dollars of taxes applied to broadband bills like were applied to landline telephone bills. But the new Internet companies were the darlings of Wall Street, and Congress decided to keep broadband products free from taxation.

The broadband tax that’s most needed is a surcharge on broadband to help fund the FCC’s Universal Service Fund. Many states also have similar funds. The USF is currently being funded by fees charged to landlines and cellphones. The purpose of the fund is currently to promote broadband for places that don’t have it. The fund will be paying for the $20.4 billion RDOF grants for rural broadband and the $9 billion 5G Fund grants to improve rural cellular coverage. It’s silly that we aren’t charging a small fee onbroadband users to help pay for rural broadband – everybody in the country benefits when there is broadband everywhere. I can’t fathom a justification for having landlines users pay for rural broadband but not broadband customers.

Congress is often mystifying. I can understand the initial ban against Internet taxes, although I don’t believe such taxes would have hampered the explosive growth of broadband. But I can’t think of any justification in 2015 for making the ban on Internet taxes permanent. Considering the huge problems that lack of rural broadband just caused during the COVID-19 crisis, there is no justification for not increasing the funding for the Universal Service Fund, and the easiest way to do so is to tax broadband customers.

The Battle over Encryption

There has been a tug-of-war between the US government and tech companies on the issue of encryption since the Clinton administration. The latest attack on encryption is the EARN IT Act (Eliminating Abusive and Rampant Neglect of Interactive Technologies).

In the 1990s the battle over encryption started because of the development of Pretty Good Privacy (PGP) software that developed end-to-end encryption. The Clinton administration proposed a ‘Clipper Chip’ which provided a backdoor at ISPs so that law enforcement could decrypt messages when necessary. That idea was quashed by a coalition from the right and left that didn’t want the government spying on private communications.

The idea of killing encryption died down because most big web platforms chose transport layer encryption. In this commonly used encryption method, a web company will encrypt traffic transmitted across its platform. This stops messages from being read by anybody in the middle of a transmission. Most big web companies, with the notable exception of Apple, will allow law enforcement to have access to the content of a transport layer encrypted message, because the web company can decrypt any message by reversing the encryption technology they use.

The encryption conversation flared up again in 2013 when Edward Snowden released proof that the NSA and other intelligence agencies were routinely decrypting traffic on platforms like Google, Facebook, Microsoft, and Yahoo. This meant that the government was routinely decrypting messages sent across the web without going through the normal processes of issuing a subpoena for cases that warranted investigation. According to Snowden, the government was decrypting almost everything sent over the big public platforms.

This led to a renewed interest in end-to-end encryption. This differs from transport layer encryption in that messages are encrypted at the end-user level instead of by the big web company. In end-to-end encryption, a message is encrypted on a sender’s device, sent to the recipient in an unreadable format, and then decoded on the recipient’s device. There are several ways to make this work, but none of the methods can be read by anybody else, including the big web companies that might be transmitting the messages. Law enforcement can still figure out the content of messages, but they have to work hard at it and gain access to both the sender and the receiver’s devices.

The general public has been pressuring the big web companies to incorporate end-to-end encryption in normal communication, and a number of them have considered doing so. Google pledged to incorporate end-to-end decryption in Gmail a few years ago but still hasn’t done so. There are platforms like Wicker and Signal that allow for end-to-end encryption, but the major platforms have not yet implemented it.

The EARN IT Act would tackle end-to-end encryption by tying encryption methods to the Section 230 protections that are key to operating big web platforms. Section 230 was created as law in the Telecommunications Act of 1996 and says that online services can’t be held responsible for end-user content they didn’t create. This is what allows Facebook, Twitter, Reddit, and Google to host content created by end-users that might violate various local laws. Without Section 230 protection, most privacy lawyers say that web companies couldn’t function since they would be sued by those who disagree with content.

The EARN IT Act would remove the blanket immunity from Section 230 and web companies would ‘earn’ Section 230 protections by providing backdoors for government surveillance. The EARN Act has ostensibly good intentions in that it addresses child sexual abuse. Web companies would have to certify annually that they are following whatever guidelines the government determines for monitoring or they would lose their Section 230 immunity. Those guidelines aren’t even listed in the EARN Act and would be determined periodically by a 19-member commission.

The EARN IT Act is a backdoor way to eliminate end-to-end encryption because if Google would lose Section 230 protections if it couldn’t certify that all Gmail can be decrypted. It’s likely such a certification would force web companies to spend a fortune to monitor every message on their platform before it is posted or transmitted – putting the web companies in the uncomfortable position of spying on everything said on their platform. As usual, Congress is trying to achieve something without the courage to outrightly say what they mean. The goal of the EARN Act is to outlaw end-to-end encryption, but it’s instead wrapped up inside a law that says it would fight against child pornography.

The Upload Crisis

Carriers continue to report on the impact of COVID-19 on their networks. One of the more interesting statistics that caught my eye was when Comcast reported that upload traffic on their network was up 33% since March 1. Comcast joins the rest of big ISPs in saying that their networks are handling the increased traffic volumes.

By ‘handling’ the volumes they mean that their networks are not crashing and shutting down. But I think there is a whole lot more to these headlines than what they are telling the public.

I want to start with an anecdote. I was talking to a client who is working at home along with her husband and two teenagers. The two adults are trying to work from home and the two kids are supposed to be online keeping up with schoolwork. Each of them needs to create a VPN to connect to their office or school servers. They are also each supposed to be connecting to Zoom or other online services for various meetings, webinars, or classes.

These functions all rely on using the upload path to the Internet. The family found out early in the crisis that their broadband connection did not provide enough upload speed to create more than one VPN at a time or to join more than one video call. This has made their time working at home into a major hassle because they are being forced to schedule and take turns using the upload link. This is not working well for any of them since the family has to prioritize the most important connections while other family members miss out on expected calls or classes.

The family’s upload connection is a choke point in the network and is seriously limiting their ability to function during the stay-at-home crisis. But the story goes beyond that. We all recall times in the past when home Internet bogged down in the evenings when everybody in the neighborhood was using broadband to watch videos or play games. Such slowdowns occurred when the download data path into the neighborhood didn’t deliver enough bandwidth to satisfy everybody’s request for broadband. When that download path hit maximum usage, everybody in the neighborhood got a degraded broadband connection. When the download path got overloaded, the network responded by giving everybody a little less bandwidth than they were requesting – and that resulted in pixelating video or websites that lose a connection.

The same thing is now happening with the upload links, but the upload path is a lot more susceptible to overload.  For technologies like coaxial cable networks or telephone DSL the upload path leaving the neighborhood is a lot smaller than the download path into the area. As an example, the upload link on a coaxial network is set to be no more than 10% of the total bandwidth allowed for the neighborhood. It takes a lot more usage to overload the download path into the neighborhood since that path is so much larger. On the upload path, the homes are now competing for a much smaller data path.

Consider the difference in the way that homes use the download path compared to the new way we’re all using uploading. On the download side, networks get busy mostly due to streaming video. Services like Netflix stay ahead of demand by downloading content that will be viewed five minutes into the future. By doing so, the neighborhood download network can have cumulative delays of as much as five minutes before the video streams collapse and stop working. The very nature of streaming creates a buffer against failure – sort of a network insurance policy.

Homes are not using the upload links in the same way. Connecting to a school server, a work server, or a video chat service creates a virtual private network (VPN) connection. A VPN connection grabs and dedicates some minimum amount of bandwidth to the user even during times when the person might not be uploading anything. A VPN carves out a small dedicated path through the upload broadband connection provided by the ISP. There is no buffer like there is with downloading of streaming video – when the upload path gets full, there’s no room for anybody else to connect.

The nearest analogy to this situation harkens back to traditional landline telephone service. We all remember times, like after 911, when you couldn’t make a phone call because all of the circuits were busy. That’s what’s happening with the increased use of VPNs. Once the upload path from the neighborhood is full of VPNs, nobody else is going to be able to grab a VPN connection until somebody ‘hangs up’.

Residential customers have historically valued download speeds over upload speeds and ISPs have configured their networks accordingly. Many technologies allow an ISP to balance the upload and download traffic, and ISPs can help upload congestion by providing a little more bandwidth on the upload stream. Unfortunately for cable companies, the current DOCSIS standards don’t allow them to provide more than 10% of bandwidth on the upload side – so their ability to balance is limited.

As I keep hearing these stories from real users I am growing less and less impressed by the big ISPs saying that everything is well and that their networks are handling the increased load. I think there are millions of households struggling due to inadequate upload speeds. It’s true, as the big ISPs are reporting, that the networks are not crashing – but the networks are not providing the connections people want to make. No big ISP is going to admit this to their stockholders – but I bet a lot of those stockholders already understand this first-hand from having troubles trying to work from home.

Windstream Adding YouTube TV

Windstream announced earlier this year that it is now offering YouTube TV to customers as an alternative to its traditional cable TV offering. The company has not yet fully ditched its traditional Kinetic TV offering, but this is a first step towards doing so. As more small cable operators look at the math of staying in the TV business, I’m expecting we’ll see a lot more ISPs considering the same transition. There are a lot of implications for converting traditional cable TV to a streaming service.

Regulatory. While regulation of traditional cable TV isn’t a massive burden, all regulatory requirements disappear with a conversion to a streaming service like YouTube TV. There are a several annual FCC filings required by cable operators that would disappear. If a cable operator is paying local franchise fees, they can avoid the monthly reporting of customers and revenues to local tax authorities.

Taxation. The biggest external change from such a conversion would be that the cable operator no longer has to collect and remit local franchise fees assessed on cable service which vary across the country between 3% and 6%. The cost of collecting taxes and fees and of dealing with tax authorities disappears for the cable operator.

The biggest implication of this change is that local communities could see franchise fees dry up overnight. I would expect a cable provider like Windstream to withdraw and cancel their franchise agreements if they fully adopt YouTube TV. If the primary cable provider in a town makes this conversion, then franchise fee payments dry up immediately. Franchise fees are an important part of balancing local government budgets, particularly in smaller towns.

Cancelling franchise agreements also means that all of the local obligations that come with a cable franchise disappear. The cable provider would no longer provide a PEG channel to show local government meetings and other local content. Any subsidies for local government iNets for bringing connectivity to city halls and schools would disappear.

Operational. There are huge operational savings for ISPs that make this conversion. Most of my clients that offer cable TV tell me that 60% or more of calls to customer service are about the cable product. Eliminating traditional cable means reducing customer service calls and reducing truck rolls.

Getting out of the traditional cable business also means getting out of the settop box business. There is a huge operational savings from not having to keep a settop box inventory and keeping boxes operational. Installations get much easier when there is no settop box to connect.

Broadcast Fees. There are also implications for the larger cable market. Online services like YouTube TV are not required to comply with FCC channel lineups and they can offer whatever packages they negotiate with programmers. This means many networks will no longer be carried and will lose the revenue for every customer that makes this conversion. This becomes cord cutting at the corporate level and as 200-channel lineups get shrunk to 70 channels, a lot of monthly fees to programmers evaporate.

If you look at the YouTube TV line-up, you’ll see the most popular networks. For example, the service includes the primary Discovery channel, but not all of the ancillary Discovery channels that come with a traditional TV subscription. This is true throughout the line-up as the service concentrates on the most-popular channels only.

Profitability. The biggest change is to profitability. I expect that if Windstream fully calculated the cost of being in the cable business that they would show no margin or a negative margin. All of the ancillary costs of extra truck rolls, dealing with settop boxes, tracking and reporting franchise fees and taxes, etc. can add up.

I don’t know what YouTube TV will pay to a cable provider like Windstream, but it can’t be much – no more than a few pennies on the dollar. Nobody would make this transition to get rich from the commission fees, but rather to avoid the costs and the hassles of remaining in the traditional cable business.