The Impact of Satellite Broadband

Recently I’ve had several people ask me about the expected impact of low-orbit satellite broadband. While significant competition from satellites is probably a number of years away, there are several major initiatives like StarLink (Elon Musk), Project Kuiper (Amazon), and OneWeb that have announced plans to launch swarms of satellites to provide broadband.

At this early stage, it’s nearly impossible to know what impact these companies might have. We don’t know anything about their download and speed capacity, their pricing strategy, or their targeted market so it’s impossible to begin to predict their impact. We don’t even know how long it’s going to take to get these satellites in space since these three companies alone have plans to launch over 10,000 new satellites – a tall task when compared to the 1,100 satellites currently active in space.

Even without knowing any of these key facts, BroadbandNow recently grabbed headlines around the industry by predicting that low-orbit satellites will bring an annual savings of $30 billion for US broadband customers. Being a numbers guy, I never let this kind of headline pass without doing some quick math.

They explain their method of calculation on their web site. They are making several major assumptions about the satellite industry. First, they assume the satellite providers will compete on price and will compete in every market in the country. Since the vast majority of American live in metro areas, BroadbandNow is assuming the satellite providers will become a major competitor in every city. They also assume that the satellites will be able to connect to a huge number of customers in the US which will force other ISPs to lower prices.

Those assumptions would have to be true to support the $30 billion in projected annual consumer savings. That is an extraordinary number and works out to be a savings of almost $20 per month for every household in the US. If you spread the $30 billion over only those households that buy broadband today, that would be a savings of over $23 per month. If your further factor out the folks who live in large apartments and don’t get a choice of their ISP, the savings jumps to $27 per household per month. The only way to realize savings of that magnitude would be from a no-holds-barred broadband price war where the satellite providers are chewing into market penetrations everywhere.

I foresee a different future for the satellite industry. Let’s start with a few facts we know. While 10,000 satellites is an impressive number, that’s a worldwide number and there will be fewer than 1,000 satellites over the US. Most of the satellites are tiny – these are not the same as the huge satellites launched by HughesNet. Starlink has described their satellites as varying in size between a football and a small dorm refrigerator. At those small sizes these satellites are probably the electronic equivalent of the OLT cabinets used as neighborhood nodes in a FTTH network – each satellite will likely support some limited and defined number of customers. OneWeb recently told the FCC in a spectrum docket that they are envisioning needing one million radio links, meaning their US satellites would be able to serve one million households. Let’s say that all of the satellite providers together will serve 3 – 5 million homes in the US – that’s an impressive number, but it’s not going to drive other ISPs into a pricing panic.

I also guess that the satellite providers will not offer cheap prices – they don’t need to. In fact, I expect them to charge more than urban ISPs. The satellite providers will have one huge market advantage – the ability to bring broadband where there isn’t landline competition. The satellite providers can likely use all of their capacity selling only in rural America at a premium price.

We still have no real idea about the speeds that will be available with low-orbit satellite broadband. We can ignore Elon Musk who claims he’ll be offering gigabit speeds. The engineering specs show that a satellite can probably make a gigabit connection, but each satellite is an ISP hub and will have a limited bandwidth capacity. Like with any ISP network, the operator can use that capacity to make a few connections at a high bandwidth speed or many more connections at slower speeds. Engineering common sense would predict against using the limited satellite bandwidth to sell gigabit residential products.

That doesn’t mean the satellite providers won’t be lured by big bandwidth customers. They might make more money selling gigabit links at a premium price to small cell sites and ignoring the residential market completely. It’s a much easier business plan, with drastically lower operating costs to sell their capacity to a handful of big cellular companies instead of selling to millions of households. That is going to be a really tempting market alternative.

I could be wrong and maybe the satellite guys will find a way to sell many tens of millions of residential links and compete in every market, in which case they would have an impact on urban broadband prices. But unless the satellites have the capacity to sell to almost everybody, and unless they decide to compete on price, I still can’t see a way to ever see a $30 billion national savings. I instead see them making good margins by selling where there’s no competition.

What’s the Future for CenturyLink?

I don’t know how many of you watch industry stock prices. I’m certainly not a stock analyst, but I’ve always tracked the stock prices of the big ISPs as another way to try to understand the industry. The stock prices for big ISPs are hard to compare because every big ISP operates multiple lines of business these days. AT&T and Verizon are judged more as cellular companies than as ISPs. AT&T and Comcast stock prices reflect that both are major media companies.

With that said, the stock price for CenturyLink has performed far worse than other big ISPs over the last year. A year ago a share of CenturyLink stock was at $19.24. By the end of the year the stock price was down to $15.44. As I wrote this blog the price was down to $10.89. That’s a 43% drop in share price over the last year and a 30% drop since the first of the year. For comparison, following are the stock prices of the other big ISPs and also trends in broadband customers:

Stock Price 1 Year Ago Stock Price Now % Change 2018 Change in Broadband Customers
CenturyLink $19.24 $10.89 -43.4% -262,000
Comcast $32.14 $43.15 34.3% 1,353,000
Charter $272.84 $377.89 38.5% 1,271,000
AT&T $32.19 $30.62 -4.9% -18,000
Verizon $48.49 $56.91 17.4% 2,000

As a point of comparison to the overall market, the Dow Jones Industrial average was up 4% over this same 1-year period. The above chart is not trying to make a correlation between stock prices and broadband customers since that is just one of dozens of factors that affect the performance of these companies.

Again, I’ve never fully understood how Wall Street values any given company. In reading analyst reports on CenturyLink it seems that the primary reason for the drop in stock price is that all of the company’s business units are trending downward. In the recently released 1Q 2019 results the company showed a year-over-year drop in results for the international, enterprise, small and medium business, wholesale, and consumer business units. It seems that analysts had hoped that the merger with Level 3 would reverse some of the downward trends. Stock prices also dropped when the company surprised the market by cutting its dividend payment in half in February.

CenturyLink faces the same trends as all big ISPs – traditional business lines like landline telephone and cable TV are in decline. Perhaps the most important trend affecting the company is the continued migration of broadband customers from copper-based DSL to cable company broadband. CenturyLink is not replacing the DSL broadband customers it’s losing. In 2018 CenturyLink lost a lot of broadband customers with speeds under 20 Mbps, but had a net gain of customers using more than 20 Mbps. CenturyLink undertook a big fiber-to-the-home expansion in 2017 and built fiber to pass 900,000 homes and businesses – but currently almost all expansion of last-mile networks is on hold.

It’s interesting to compare CenturyLink as an ISP with the big cable companies. The obvious big difference is the trend in broadband customers and revenues. Where CenturyLink lost 262,000 broadband customers in 2018, the two biggest cable companies each added more than a million new broadband customers for the year. CenturyLink and other telcos are losing the battle of DSL versus cable modems with customers migrating to cable companies as they seek faster speeds.

It’s also interesting to compare CenturyLink to the other big telcos. From the perspective of being an ISP, AT&T and Verizon are hanging on to total broadband customers. Both companies are also losing the DSL battle with the cable companies, but each is adding fiber customers to compensate for those losses. Both big telcos are building a lot of new fiber, mostly to provide direct connectivity to their own cell sites, but secondarily to then take advantage of other fiber opportunities around each fiber node.

Verizon has converted over a hundred telephone exchanges in the northeast to fiber-only and is getting out of the copper business in urban areas. Verizon has been quietly filling in its FiOS fiber network to cover the copper it’s abandoning. While nobody knows yet if it’s real, Verizon also has been declaring big plans to to expand into new broadband markets markets using 5G wireless loops.

AT&T was late to the fiber game but has been quietly yet steadily adding residential and business fiber customers over the last few years. They have adopted a strategy of chasing pockets of customers anywhere they own fiber.

CenturyLink had started down the path to replace DSL customers when they built a lot of fiber-to-the-home in 2017. Continuing with fiber construction would have positioned the company to take back a lot of the broadband market in the many large cities it serves. It’s clear that the new CenturyLink CEO doesn’t like the slow returns from investing in last-mile infrastructure and it appears that any hopes to grow the telco part of the business are off the table.

Everything I read says that CenturyLink is facing a corporate crisis. Diving stock prices always put strain on a company. CenturyLink faces more pressure since the activist investors group Southeastern Asset Management holds more than a 6% stake in CenturyLink and made an SEC filing that that the company’s fiber assets are undervalued.

The company has underperformed compared to its peers ever since it was spun off from AT&T as US West. The company then had what turned out to be a disastrous merger with Qwest. There was hope a few years back that the merger with CenturyLink would help to right the company. Most recently has been the merger with Level 3, and at least for now that’s not made a big difference. It’s been reported that CenturyLink has hired advisors to consider if they should sell or spin off the telco business unit. That analysis has just begun, but it won’t be surprising to hear about a major restructuring of the company.

The Fastest and Slowest Internet in the US

The web site HighSpeedInternet.com has calculated and ranked the average Internet speeds by state. The site offers a speed test and then connects visitors to the web pages for the various ISPs in each zip code in the country. I have to imagine the site makes a commission for broadband customers that subscribe through their links.

Not surprisingly, the east coast states with Verizon FiOS ranked at the top of the list for Internet speeds since many customers in those states have the choice between a fiber network and a big cable company network.

For example, Maryland was top on the list with an average speed of 65 Mbps, as measured by the site’s speed tests. This was followed by New Jersey at 59.6 Mbps, Delaware at 59.1 Mbps, Rhode Island at 56.8 Mbps and Virginia at 56 Mbps.

Even though they are at the top of the list, Maryland is like most states and there are still rural areas of the state with slow or non-existent broadband. The average speed test results are the aggregation of all of the various kinds of broadband customers in the state:

  • Customers with fast Verizon FiOS products
  • Customers with fast broadband from Comcast, the largest ISP in the state
  • Customers that have elected slower, but less expensive DSL options
  • Rural customers with inferior broadband connections

Considering all of the types of customers in the state, an average speed test result of 65 Mbps is impressive. This means that a lot of households in the state have speeds of 65 Mbps or faster. That’s not a surprise considering that both Verizon FiOS and Comcast have base product speeds considerably faster than 65 Mbps. If I was a Maryland politician, I’d be more interested in the distribution curve making up this average. I’d want to know how many speed tests were done by households getting only a few Mbps speeds. I’d want to know how many gigabit homes were in the mix – gigabit is so much faster than the other broadband products that it pulls up the average speed.

I’d also be interested in speeds by zip code. I took a look at the FCC broadband data reported on the 477 forms just for the city of Baltimore and I see widely disparate neighborhoods in terms of broadband adoption. There are numerous neighborhoods just north of downtown Baltimore with broadband adoption rates as low as 30%, and numerous neighborhoods under 40%. Just south of downtown and in the northernmost extremes of the city, the broadband adoption rates are between 80% and 90%. I have to guess that the average broadband speeds are also quite different in these various neighborhoods.

I’ve always wondered about the accuracy of compiling the results of mass speed tests. Who takes these tests? Are people with broadband issues more likely to take the tests? I have a friend who has gigabit broadband and he tests his speed all of the time just to see that he’s still getting what’s he’s paying for (just FYI, he’s never measured a true gigabit, just readings in the high 900s Mbps). I take a speed test every time I read something about speeds. I took the speed test at this site from my office and got a download speed of 43 Mbps. My office happens to be in the most distant corner of the house from the incoming cable modem, and at the connection to the Charter modem we get 135 Mbps. My slower results on this test are due to WiFi and yet this website will log me as an underperforming Charter connection.

There were five states at the bottom of the ranking. Last was Alaska at 17 Mbps, Mississippi at 24.8 Mbps, Idaho at 25.3 Mbps, Montana at 25.7 Mbps and Maine at 26 Mbps. That’s five states where the average internet speed is at or below the FCC’s definition of broadband.

The speeds in Alaska are understandable due to the remoteness of many of the communities. There are still numerous towns and villages that receive Internet backhaul through satellite links. I recently read that the first fiber connection between the US mainland and Alaska is just now being built. That might help speeds some, but there is a long way to go to string fiber backhaul to the remote parts of the state.

Mostly what the bottom of the scale shows is that states that are both rural and somewhat poor end up at the bottom of the list. Interestingly, the states with the lowest household densities such as Wyoming and South Dakota are not in the bottom five due to the widespread presence of rural fiber built by small telcos.

What most matters about this kind of headline is that even in the states with fast broadband there are still plenty of customers with lousy broadband. I would hope that Maryland politicians don’t look at this headline and think that their job is done – by square miles of geography the majority of the state still lacks good broadband.

Broadband and Food Safety

I recently saw a presentation that showed how food safety is starting to rely on good rural broadband. I’ve already witnessed many other ways that farmers use broadband like precision farming, herd monitoring, and drone surveillance, but food safety was a new concept for me.

The presentation centered around the romaine lettuce scare of a few months ago. The food industry was unable to quickly identify the source of the contaminated produce and the result was a recall of all romaine nationwide. It turns out the problem came from one farm in California with E. Coli contamination, bur farmers everywhere paid a steep price as all romaine was yanked from store shelves and restaurants, also resulting in cancellations of upcoming orders.

Parts of the food industry have already implemented the needed solution. You might have noticed that the meat industry is usually able to identify the source of problems relatively quickly and can ususally track problems back to an individual rancher or packing house. Cattle farmer are probably the most advanced at tracking the history of herd animals, but all meat producers track products to some extent.

The ideal solution to the romaine lettuce problem is to document every step of the farming process and to make that information available to retailers and eventually to consumers. In the case of romaine that might mean tracking and recording the basic facts of each crop at each farm. That would mean recording the strain of seeds used. It would mean logging the kinds of fertilizer and insecticide applied to a given field. It would mean recording the date when the romaine was picked. The packing and shipping process would then be tracked so that everything from the tracking number on the box or crate, and the dates and identity of every immediate shipper between farm to grocery store would be recorded.

Inititally this would be used to avoid the large blanket recalls like happened with romaine. Ultimately, this kind of information could be made available to consumers. We could wave our smartphone at produce and find out where it was grown, when it was picked and how long it’s been sitting in the store. There are a whole lot of steps that have to happen before the industry can reach that ultimate goal.

The process needs to start with rural broadband. The farmer needs to be able to log the needed information in the field. The day may come when robots can automatically log everything about the growing process, and that will require even more intensive and powerful broadband. The farmer today needs an easy data entry system that allows data to be scanned into the cloud as they work during the growing, harvesting, and packing process.

There also needs to be some sort of federal standards so that every farmer is collecting the same data, and in a format that can be used by every grocery store and restaurant. There is certainly a big opportunity for any company that can develop the scanners and the software involved in such a system.

In many places this can probably be handled with robust cellular data service that extends into the fields. However, there is a lot of rural America that doesn’t have decent, or even any cell service out in the fields. Any farm tracking data is also going to need adequate broadband to upload data into the cloud. Farms with good broadband are going to have a big advantage over those without. We already know this is true today for cattle and dairy farming where detailed records are kept on each animal. I’ve talked to farmers who have to drive every day to find a place to upload their data into the cloud.

In the many counties where I work today the farmers are among those leading the charge for better broadband. If selling produce or animals requires broadband we are going to see farmers move from impatience to insistence when lack of connectivity means loss of profits.

I know as a consumer that I would feel better knowing more about the produce I buy. I’d love to buy more produce that was grown locally or regionally, but it’s often nearly impossible to identify in the store. I’d feel a lot safer knowing that the batch of food I’m buying has been tracked and certified as safe. Just in the last year there’s been recalls on things like romaine, avocados, spring onions, and packaged greens mixes. I don’t understand why any politician that serves a farming district is not screaming loudly for a national solution for rural broadband.

Access to Low-Price Broadband

The consumer advocate BroadbandNow recently made an analysis of broadband prices across the US and came up with several conclusions:

  • Broadband prices are higher in rural America.
  • They conclude that 45% of households don’t have access to a ‘low-priced plan’ for a wired Internet connection.

They based their research by looking at the published prices of over 2,000 ISPs. As somebody who does that same kind of research in individual markets, I can say that there is often a big difference between published rates and actual rates. Smaller ISPs tend to charge the prices they advertise, so the prices that BroadbandNow found in rural America are likely the prices most customers really pay.

However, the big ISPs in urban areas routinely negotiate rates with customers and a significant percentage of urban broadband customers pay something less than the advertised rates. But the reality is messier even than that since a majority of customers still participate in a bundle of services. It’s usually almost impossible to know the price of any one service inside a bundle and the ISP only reveals the actual rate when a customer tries to break the bundle to drop one of the bundled services. For example, a customer may think they are paying $50 for broadband in a bundle but find out their real rate is $70 if they try to drop cable TV. These issues make it hard to make any sense out of urban broadband rates.

I can affirm that rural broadband rates are generally higher. A lot of rural areas are served by smaller telcos and these companies realize that they need to charge higher rates in order to survive. As the federal subsidies to rural telcos have been reduced over the years these smaller companies have had to charge realistic rates that match their higher costs of doing business in rural America.

I think rural customers understand this. It’s a lot more expensive for an ISP to provide broadband in a place where there are only a few customers per road-mile of network than in urban areas where there might be hundreds of customers per mile. A lot of other commodities cost more in rural America for this same reason.

What this report is not highlighting is that the lower-price broadband in urban areas is DSL. The big telcos have purposefully priced DSL below the cost of cable modem broadband as their best strategy to keep customers. When you find an urban customer that’s paying $40 or $50 for broadband it’s almost always going to be somebody using DSL.

This raises the question of how much longer urban customers will continue to have the DSL option. We’ve already seen Verizon abandon copper-based products in hundreds of urban exchanges in the last few years. Customers in those exchanges can theoretically now buy FiOS on fiber – and pay more for the fiber broadband. This means for large swaths of the northeast urban centers that the DSL option will soon be gone forever. There are persistent industry rumors that CenturyLink would like to get out of the copper business, although I’ve heard no ideas of how they might do it. It’s also just a matter of time before AT&T starts walking away from copper. Will there even be any urban copper a decade from now? Realistically, as DSL disappears with the removal of copper the lowest prices in the market will disappear as well.

There is another trend that impacts the idea of affordable broadband. We know that the big cable companies now understand that their primary way to keep their bottom line growing is to raise broadband rates. We’ve already seen big broadband rate increases in the last year, such as the $5 rate increase from Charter for bundled broadband.

The expectation on Wall Street is that the cable companies will regularly increase broadband rates going into the future. One analyst a year ago advised Comcast that basic broadband ought to cost $90. The cable companies are raising broadband rates in other quieter ways. Several big cable companies have told their boards that they are going to cut back on offering sales incentives for new customers and they want to slow down on negotiating rates with existing customers. It would be a huge rate increase for most customers if they are forced to pay the ‘list’ prices for broadband.

We also see carriers like Comcast starting to collect some significant revenues for customers going over the month data caps. As household broadband volumes continue to grow the percentage of people using their monthly cap should grow rapidly. We’ve also seen ISPs jack up the cost of WiFi or other modems as a backdoor way to get more broadband revenue.

As the cable companies find way to extract more revenue out of broadband customers and as the big telcos migrate out of DSL my bet is that by a decade from now there will be very few customers with ‘affordable’ broadband. Every trend is moving in the opposite direction.

5G and Home IoT

I’ve been asked a lot recently about the potential future of 5G – everybody in the industry wants to understand the potential threat from 5G. One of the biggest proposed uses for 5G is to connect IoT devices to the cloud. Today I’m going to look at what that might mean.

It’s clear that 5G cellular will be the choice for connecting to outdoor IoT sensors. Sensors for farm equipment in rural areas or for outdoor weather and traffic sensors in urban areas are going to most easily handled by 5G cellular since the technology will eventually be everywhere. 5G is particularly suited for serving IoT devices due to frequency slicing where just the right amount of bandwidth, large or small, can be allocated to each small outdoor sensor. 5G has another interesting feature that will allow it to poll sensors on a pre-set schedule rather than have the sensor constantly trying to constantly connect – which will reduce power consumption at the sensor.

It’s clear that the cellular carriers also have their eye on indoor IoT devices. It’s harder to say that 5G will win this battle because today almost all indoor devices are connected using WiFi.

There are a couple of different 5G applications that might work in the indoor environment. The cellular carriers are going to make a pitch to be the technology of choice to connect small inside devices. In my home I can get a good cellular signal everywhere except in the old underground basement. There is no question that cellular signal from outside the home could be used to connect to many of the smaller bandwidth applications within the home. I can’t see any technical reason that devices like my Amazon Echo or smart appliances couldn’t connect to 5G instead of WiFi.

But 5G cellular has a number of hurdles issues to overcome to break into this market. I’m always going to have a wired broadband connection to my home, and as long as that connection comes from somebody other than one of the big cellular carriers I’m not going to want to use 5G if that means paying for another monthly subscription to a cellular provider. I’d much rather have my inside devices connected to the current broadband connection. I also want all of my devices on the same network for easy management. I want to use one hub to control smart light switches or other devices and want everything on the same wireless network. That means I don’t want some devices on WiFi and others on cellular.

One of the sales pitches for 5G is that it will be able to easily accommodate large numbers of IoT connections. Looking into the future there might come a time when there are a hundred or more smart devices in the house. It’s not that hard to picture the Jetson’s house where window shades change automatically to collect or block sunlight, where music plays automatically when I enter a room, where my coffee is automatically ready for me when I get out of bed in the morning. These things can be done today with a lot of effort, but with enough smart devices in a home these functions will probably eventually become mainstream.

One of the limitations of WiFi today is that it degrades in a busy environment. A WiFi network pauses each time it gets a new request for a connection, which is the primary reason it’s so hard to keep a good connection in a busy hotel or convention center.

However, the next generation with WiFi 6 is already anticipating these needs in the home. WiFi can adopt the same frequency slicing used by 5G so that only a small portion of a channel can be used to connect to a given device. Events can be scheduled on WiFi so that the network only polls certain sensors only periodically. The WiFi network might only interact with the smart coffee pot or the smart window shades when something needs to be done, rather than maintaining a constantly open channel. It’s likely that the next iterations of WiFi will become nearly as good as 5G for these functions within a closed home environment.

There is an even better solution that is also being discussed. There’s no reason that indoor routers can’t be built that use both WiFi and 5G frequencies. While the cellular companies are gobbling up millimeter wave spectrum, as long as there is an unlicensed slice of spectrum set aside for public use it will be possible to deploy both WiFi on mid-range frequencies and 5G on millimeter wave frequencies at the same time. This would blend the benefits of both technologies. It might mean using WiFi to control the smart coffee pot and indoor 5G to connect to the smart TV.

Unfortunately for the cellular carriers, these duel-function routers won’t need them. The same companies that make WiFi routers today can make combination 5G / WiFi routers that work with the full range of unlicensed spectrum – meaning no revenue opportunity for the cellular carriers. When I look at all of the issues I have a hard time seeing 5G cellular becoming a preferred technology within the home.

 

Starry Resurfaces

I’ve written a few times over the years about Starry, a wireless ISP that is originally launching in Boston. The company was founded by Chet Kanojia who readers might remember as the founder of Aereo – the company that tried to deliver affordable local programming through a wireless connection.

Starry’s product set is simple – $50 per month for 200 Mbps broadband. There’s a $50 install fee and then $50 per month with no add-ons or extra charges. This easily beats the regular broadband prices for Charter and Verizon FiOS, both at $70+ for the same speed when considering the charge for the modem.

Starry has changed its business plan. They had first announced a launch in 2016 that was going to beam to a small antenna placed in a customer’s window. I’m imagining they ran into a number of issues with this, including technical issues, because that plan never went beyond the first round of beta testing and Starry went quiet.

The new technology will use millimeter wave spectrum to beam broadband to a receiver on the top of apartment buildings and will then use existing wiring to connect to customers. This involves point-to-point radios. Starry launched a few years ago using licensed millimeter wave spectrum at 38.2 and 38.6 GHz. The company says they are going to be using spectrum between 37 GHz and 40 GHz, so they must be planning to engage in the upcoming auctions for 37 GHz and 39 GHz spectrum.

At the spectrum they are using they could easily be beaming between 1 – 2 gigabytes of data to a given apartment building today. That will increase if they get access to more bands of spectrum.  That’s plenty of bandwidth to provide a 200 Mbps product to every tenant. The company is advertising that they are using pre-5G technology. That’s an interesting phrase because they are likely delivering Ethernet over the wireless connection to each building. Perhaps if they buy more spectrum they will then claim to be using 5G. This is an interesting concept for point-to-point radios because the 5G standard doesn’t do anything to increase the speed on a connection. However, they might get some advantages from 5G which will make it easier to link multiple frequencies on the same point-to-point path.

The current business plan is to use the existing wiring in a building. That is interesting because they are bringing broadband to the roof, and the wiring from apartment buildings today always originates on the first floor or basement in a communications space. I have to think that Starry is dropping a fiber from the roof to the communications room in order to get access to wiring.

The only wiring that is almost always available in a home-run configuration to each apartment is the telco copper, and I guess this is the wiring they are using. With today’s G.Fast technology it’s easy in most cases to achieve speeds of at least 400 Mbps and sometimes faster. I’ve heard that G.Fast is achieving near gigabit speeds in labs, so it’s likely over time that Starry will be able to step up the speeds. Coaxial cables are a different matter and there are numerous different wiring schemes around and also a wide variety of situations where the cable incumbent can lay claim to those cables.

Starry is creating yet another competitor for anybody building broadband in an urban environment. I have a hard time seeing this technology making any sense in a small town or rural environment. In cities the technology probably only makes sense for somewhat sizable apartment buildings, or perhaps multi-tenant business buildings. It’s an intriguing technology for landlords because they can offer tenants another option other than the incumbent cable or telephone company.

It’s been interesting over the years to watch the evolution of broadband in apartment buildings. For many years there were hurdles for a competitor to deliver big bandwidth inside apartment buildings. The cost of rewiring older apartment buildings was often prohibitive. But today there are lower-cost techniques for stringing fiber inside older buildings as well as creative uses of existing wiring such as using G.Fast. Where apartment buildings were often left out of fiber business plans they are now a big focus for competitors.

The bottom line is that anybody planning on competing for downtown apartment buildings will have another potential competitor. Starry plans on being in most major metropolitan markets and there are likely going to be copycat ISPs that do this elsewhere. Urban apartment buildings have gone from being underserved to perhaps having some of the best broadband in any market.

5G Claims for Rural America

There are a few hot-button topics that are the current favorite talking points at the FCC. T-Mobile and Sprint are pressing both the 5G and the rural broadband buttons with their merger request. The companies are claiming that if they are allowed to merge that they can cover 96% of America with a ‘deep, broad, and nationwide’ 5G network.

There are multiple technologies being referred to as 5G – wireless broadband loops and 5G cellular – and their claim doesn’t hold water for either application. In making the claim the companies want regulators to think that they are talking about wireless 5G loop like the technology that Verizon recently test-drove in Sacramento. That technology is delivering 300 Mbps broadband to those living close to the transmitters located on poles. The carriers are smart and know this is the kind of claim that will perk up the ears of regulators and politicians. A ubiquitous 300 Mbps rural broadband product would solve the rural digital divide.

T-Mobile and Sprint are not talking about 5G wireless loops. That technology requires two things to have any chance of success – sufficient neighborhood housing density and fiber backhaul. Rural areas with poor broadband generally lack fiber infrastructure built close to neighborhoods, so a 5G provider would have to build the needed fiber. I can’t imagine why anybody that builds fiber close to a neighborhood would then choose a squirrely wireless link that delivers less than a gigabit of speed instead of a direct fiber connection that can deliver 10 Gbps using today’s readily-available technology.

The other missing element in rural America is customer density. I read an article that says that each Verizon 5G wireless loop transmitter in Sacramento can see at least 20 potential customers. There are a number of industry analysts who think that even that is a hard business case to justify, so how can wireless loops ever work in rural American where a given transmitter will likely see only a few homes? I can foresee the 5G loop technology perhaps being used to deliver broadband to small rural subdivisions or small towns where the wireless link might be cheaper than stringing fiber. However, most of rural America is characterized by low density and homes that are far apart.

What T-Mobile and Sprint are really talking about is 5G rural cellular service. Sprint brings a unique asset to the merger – they are the only US cellular carrier using nationwide spectrum in the 850 MHz and the 2.5 GHz bands. T-Mobile is the only carrier currently using 600 MHz spectrum. The combined companies would have by far the biggest inventory of spectrum – giving them a big advantage in urban America.

But is there an advantage this spectrum can bring to rural broadband? The short answer is no. I say that because I don’t see 5G cellular being that important in rural America? There are several reasons why the T-Mobile and Sprint announcement makes little sense.

The biggest issue is that there is not going to be fully-functional 5G cell sites anywhere in the country for years. It’s likely to take most of the coming decade until we see cell sites that comply with all 13 of the major improvement goals listed in the 5G specifications. There will be a natural progression from 4G to 5G as the carriers implement upgrades over time – the same upgrade path we just saw with 4G, where the first fully-compliant 4G cell sites were finally implemented in late 2017.

The bigger question is if most rural cell sites need 5G. The new technology brings several major improvements to cellular. First will be the ability of one cell site to make up to 100,000 simultaneous connections to devices, up from several thousand connections today. This improvement will be mostly accomplished using frequency slicing. This allows a cell site to tailor the size of the broadband connection to each customer’s demand. For example, a connection to an IoT device might be set at a tiny fraction of a full cellular channel, thus freeing up the rest of that channel to serve other customers. Many rural cell sites won’t need this extra capacity. A rural cell site that serves a few hundred people at a time will continue to function well with 4G and won’t need the extra capacity.

5G also can be used to increase the speed of cellular broadband, with the goal in the standard to bring speeds to as fast as 100 Mbps. That is also unlikely to happen to any great degree in rural America. Speeds of 100 Mbps will be accomplished in urban areas by having multiple cell sites connect to a single cellphone. That will require densely packed small cell sites, which is something we are already starting to see in the busy parts of downtowns. It’s incredibly unlikely that the cellular companies are going to introduce small cell sites through rural America just to boost handset broadband speeds. Speeds are not likely to be much faster than 4G when a customer can see only a single tower.

The T-Mobile and Sprint claim is pure bosh. These companies are not going to be investing in fiber to bring 5G wireless loops to rural America. While a combined company will have more spectrum than the other carriers there is no immediate advantage for using 5G for rural cellular coverage . The T-Mobile and Sprint announcements are just pushing the 5G and the rural broadband hot-buttons because the topics resonate well with politicians who don’t understand the technology.

Rural America Deserved Better

I’ve often contended that the large telcos have made their money back several times over in rural America and could have comfortably rolled those profits back into rural networks. If they had done so then by now most of rural America would have at least 25/3 Mbps DSL and an upgrade to rural fiber would be underway.

Since the big telcos haven’t modernized rural networks for decades we are now faced with making the leap from poorly maintained copper straight to fiber. Sadly, the big telcos could have copied what smaller telcos have done – continually build a little fiber each year deeper into the rural areas to reduce the length of the copper loops. I’ve watched small telco clients over the last twenty years that have upgraded rural DSL from 1 Mbps to 6 Mbps to 15 Mbps and then to 25 Mbps or faster.

Instead, the big telcos built DSL in county seats and some other small towns in their service areas. Where the small telcos might have upgraded electronics three or four times since the late 1990s, the big telcos have likely upgraded the DSL in towns once, and perhaps in some lucky towns twice. This is why it’s still easy to go to rural towns all over the US and find maximum DSL speeds of 6 Mbps or 12 Mbps. The DSL electronics in many of these towns are now over ten or fifteen years old. The big telcos also rarely extended DSL outside of the town hubs. Customers that lived within a few miles of town were given DSL of perhaps 1 Mbps or 2 Mbps and customers further out were offered DSL that is often barely faster than dial-up.

This was all a deliberate decision. Upper management of the big telcos decided before 2000 that they weren’t going to extend DSL into the rural areas surrounding towns and they’ve made zero effort to do so since then. The big telcos failed their rural customers when they walked away from upgrading the copper and regulators mostly let them get away with it. The telcos had collected telephone revenues from the rural areas for decades before 2000. The telcos were all still regulated in 2000 and were all still considered as the carrier of last resort for telephone service. I think the FCC and state regulators screwed up when they didn’t also make them the carrier of last resort for broadband.

Some states tried to force the telcos to provide rural broadband. Pennsylvania is a famous example of bad behavior by the big telcos. In 1993 Bell Atlantic promised state regulators that they would bring universal broadband to cover over two million rural homes in the state. The state rewarded the telco by allowing a major rate increase, supposedly to help pay for the upgrades. It’s now 26 years later and the company that renamed itself as Verizon never made any of the promised upgrades. The rural valleys of central and western Pennsylvania have some of the worse rural broadband in America due to this broken promise.

The sad thing is that states like Pennsylvania had to try to bribe the telco to do the right thing. As regulated telcos, the companies should have routinely spent annual capital to improve the rural networks, a little each year. They were collecting the revenues to make it happen. What I find shortsighted about this decision by the telcos is that, if they had upgraded to decent rural broadband they likely would enjoy 80%+ broadband penetration rates in rural areas – all with zero competition. The telcos passed on the opportunity to make a lot of money.

It’s a lot harder today to make a business case to leap from copper to fiber – mostly because little rural fiber has already been built in many counties. If the big telcos had built fiber deep into the last mile, then the upgrade to fiber could have been gradually introduced over time. Instead, the big telcos simply all decided that they were quietly going to walk away from rural America without making any announcement they were doing so. For years they have talked about their commitment to rural America. They are putting out press releases even today patting themselves on the back for the CAF II upgrades – which was funded by the FCC but which should all have been funded over past decades using the revenues collected from rural customers.

If the big telcos had done what they were supposed to have done as regulated carriers, then the CAF II subsidies could have been used to aid them in upgrading to fiber in the last mile. We know this could work because most small rural telcos are making upgrades to fiber from the ACAM funds, which is equivalent to the CAF II funds, but for smaller telcos.

I lay a lot of blame on the regulators. Everybody in the industry understood what the big telcos were doing (and not doing). Regulators could have been a lot tougher and threatened to yank the big telco franchises in rural America. In the perfect world, regulators would have handed the rural service areas of the big telcos to somebody else twenty years ago when it was clear the telcos had all but abandoned the properties.

Telco regulation helped to build the copper networks that reach to rural homes and regulation should have been used to expand broadband. The sad part of all of this is that, if the telcos had done the right thing, then millions of homes in rural America would have decent broadband today, provided by the telcos, and the telcos would be benefitting from the revenues from those customers. Rural America deserved better.

The End of the Bundle?

There are a few signs in the industry that we are edging away from the traditional triple play bundle or telephone, cable TV and broadband. The bundle was instrumental in the cable company’s success. Back in the day when DSL and cable modems had essentially the same download speed the cable companies introduced bundles to entice customers to use their broadband. The lure of getting a discount for cable TV due to buying broadband was attractive and gave the cable companies an edge in the broadband marketing battle.

Over time the cable companies became secure in their market share and they created mandatory bundles, meaning they would not sell standalone broadband. Over time this spit the broadband market in cities – the cable company got customers who could afford bundles and the telco with DSL got everybody else. Many of the cable companies became so smug about their bundles that they forced customers to buy cable TV just to get their broadband. I’ve noticed over the last year that most of the mandatory bundles have died.

The bundle lost a little luster when the Julia Laulis, the CEO of CableOne, told her investors in February on the 4Q 2018 earnings call that the company no longer cares about the bundle. She said what I’m sure that many other cable companies are discussing internally, which is that the bundle doesn’t have any impact in attracting customers to buy broadband. On that call she said, “We don’t see bundling as the savior for churn. I know that we don’t put time and resources into pretty much anything having to do with video because of what it nets us and our shareholders in the long run. We pivoted to a data-centric model over five, six years ago, and we’ve seen nothing to derail us from that path.”

Her announcement raises two important issues that probably spell the eventual end of bundling. First, there is no real margin on cable TV. The fully loaded cost of the product has increased to the point where the bottom line of the company is not improved by selling cable. The only two big cable providers who might see some margin from cable TV are Comcast and AT&T since they own some of the programming but for everybody else the margins on cable TV have shrunk to nothing, or might even be negative.

I’ve had a number of clients take a stab at calculating the true cost of providing cable TV. The obvious big cost of the product is the programming fees. But my clients tell me that a huge percentage of their operational costs come from cable TV. They say most of the calls to customer service are about picture quality. They say that they do far more truck rolls due to cable issues than for any other product. By the time you account for those extra costs it’s likely that cable TV is a net loser for most small ISPs – as it obviously is for CableOne, the seventh largest cable company.

The other issue is cable rates. High programming rates keep forcing cable providers to raise the price of the TV product every year. We know that high cable prices are the number one issue cited by cord cutters. Perhaps more importantly, it’s the number one issue driving customer dissatisfaction with the cable company.

I have to wonder how many other big cable companies have come to the same conclusion but just aren’t talking about it. Interestingly, one of the metrics used by analysts to track the cable industry is average revenue per user (ARPU). If cable companies bail on the bundle and lose cable customers their ARPU will drop – yet margins might stay the same or even get a little better. If there is a new deemphasis on bundles and cable TV subscription the industry will need to drop the ARPU comparison.

It’s not going to be easy for a big cable company to back out of the cable TV business. Today there is still a penalty for customers who drop a bundle – dropping cable TV raises the price for the remaining products. We’ll know that the cable companies are serious about deemphasizing cable TV when that penalty disappears.