Interest Rates and Grant Matching

I have a lot of clients looking at broadband grants that will require matching funds, and they are rightfully getting worried about the climb in interest rates.

Back when the upcoming BEAD grants were announced in November 2021, many of my clients had access to loans with interest rates in the range of 3% to 4%. The higher interest rates we are now seeing will clearly have a huge impact on the ability to afford accepting a grants to build in a rural area. Almost by definition, rural areas are sparsely populated and so it is always a challenge to cover any debt payments on grant matching funds.

Consider the following table that shows the annual debt payments that would be due for a $10 million loan for terms of 20, 25, and 30 years, at interest rates varying from 3% to 8%. This might be a loan for a $40 million BEAD grant where the grant applicant must cover the 25% matching cost for a 75% grant. The second set of numbers shows the percentage difference for each loan compared to a 20-year loan at 3%.

Interest Rate 3% 4% 5% 6% 7% 8%
20 years 672,157 735,818 802,426 871,846 943,929 1,018,522
25 Years 574,279 640,120 709,525 782,267 858,105 936,788
30 Years 510,193 578,301 650,514 726,489 805,864 888,274
20 years 100% 109% 119% 130% 140% 152%
25 Years 85% 95% 106% 116% 128% 139%
30 Years 76% 86% 97% 108% 120% 132%

The table demonstrates several things. First, big interest rate increases are a massive disincentive for an ISP to make new investments. If an ISP had a business plan last year to build a new project with a 3% loan, the debt cost has climbed 40% to 52% with a 7% or 8% interest rate. Since debt costs are one of the major expenses for building fiber, this kind of increase could easily kill expansion plans.

I know a lot of ISPs who are putting expansion plans on hold due to the interest rates. If an ISP decides to accept a high interest rate, it would only be due to a belief that the loan could be refinanced if interest rates drop. But many loans don’t allow refinancing for some fixed number of years. This is also gambling. In the past, when interest rates spiked like they are now, the rates have usually dropped back down – but there is never any guarantee that rates will drop back to the low levels of just a year ago.

This is a bigger dilemma when borrowing to match grants. Grant projects have completion requirements, and ISPs might be forced to accept a high interest rate loan due to the timing of construction. Building a grant project is different than normal planned expansion, where a project can be delayed waiting for more favorable interest rates.

One of the ways to offset higher interest rates is through longer loan terms. But that’s not always easily achievable. Many lenders don’t like making loans for more than twelve or fifteen years. It might not be easy to get a longer loan term. It’s also worth noting that one of the main consequences of banks raising interest rates is that banks start to pull back from making new loans. This may be counterintuitive, but the underlying interest rates that banks have to pay also increases when retail interest rates are higher. Higher underlying rates increase the risk and financial consequences of loan defaults. Just like home mortgages are harder to find when interest rates are higher, it’s possible that the banks that were willing to loan to grant projects might also back off.

The retraction of new debt is exactly what the Federal Reserve intends when it raises interest rates. The whole point of raising the rates is cool off an overheated economy – without going too far and causing a recession. It’s going to be a shock to at any ISP to find out that the bank it was counting on is less interested in lending to them.

Large ISPs Continue to Stagnate 3Q 2022

For the second quarter in a row, the biggest landline ISPs in the country are largely sitting still in terms of total broadband customers. The largest cable and telephone companies collectively lost 97,000 customers. But Lumen had a significant loss, and without counting Lumen, the other large landline ISPs collectively gained only 23,000 customers for the quarter.

While the traditional landline ISPs are stagnating, the fixed wireless access products (FWA) from T-Mobile and Verizon are still seeing big growth, having added 920,000 new customers in the third quarter, a quarterly growth rate of over 40%. The wireless home broadband is marketed as having download speeds over 100 Mbps.

The following statistics have been compiled by the Leichtman Research Group, which tracks the broadband performance of the largest ISPs in the country. The numbers for the third quarter of 2022:

 2Q 2022 2Q Change % Change  
Comcast 32,177,000 14,000 0.0%  
Charter 30,328,000 75,000 0.2%  
AT&T 15,452,000 (57,000) -0.4%  
Verizon 7,447,000 35,000 0.5%  
Cox 5,560,000 0 0.0%  
Lumen 4,256,000 (121,000) -2.8%  
Altice 4,290,600 (43,000) -1.0%  
Frontier 2,831,000 4,000 0.1%  
T-Mobile FWA 2,122,000 578,000 37.4%  
Mediacom 1,468,000 0 0.0%  
Windstream 1,175,000 (3,500) -0.3%  
Verizon FWA 1,063,000 342,000 47.4%  
Cable ONE 1,062,000 3,000 0.3%  
Breezeline 707,954 (9,965) -1.4%  
TDS 506,500 5,700 1.1%  
Consolidated 381,912 699 0.2%  
   Total 110,827,966 822,934 0.7%  
         
Total Cable 75,593,554 39,035 0.1%  
Total Telco 32,049,412 (136,101) -0.4%  
Total FWA 3,185,000 920,000 40.6%  

There is a lot to unpack in these numbers:

  • The underlying story for the big telcos is that they continue to add customers on fiber. For the quarter, the telcos lost 685,000 DSL customers but added 550,000 fiber customers. While many of the customers in those counts were converted from DSL to fiber, the fiber growth bodes well for the future of the telcos.
  • Verizon FWA grew to have more broadband customers than Cable One and Breezeline during the quarter, jumping up to become the twelfth largest ISP.
  • The biggest loser on the list is Lumen, having lost 2.8% of broadband customers during the quarter. In next quarter’s numbers, Lumen will have split off the twenty easternmost states to Brightspeed. Breezeline (Formerly Atlantic Broadband) was the biggest percentage loser among cable companies, having lost 1.4% of broadband customers during the quarter.
  • TDS continues to be the fastest-growing landline ISP, having grown by 1.1% for the quarter. Next is Verizon FiOS, having grown by 0.5% for the quarter.

A Study of ISP Billing Practices

Consumer Reports undertook a large study where it solicited broadband bills from customers across the country. The beauty of examining bills is the ability to see what ISPs really charge instead of what they say they charge.

The study is not a statistically valid sample since folks voluntarily submitted bills – but Consumer Reports was able to gather over 22,000 bills and found some interesting things.

Some of the things the analysis found are already widely understood. For example, ISPs that bundle multiple services together don’t disclose the actual price paid for each of the services. This means consumers are at the mercy of the ISP to tell them the revised bill that will come after dropping just one of the services. Companies like Comcast have been using the bundling discount as a cudgel to try to persuade folks not to break a bundle by claiming that all discounts were assigned to whatever service is being dropped.

ISPs offer other kinds of discounts. There are discounts for first-time subscribers who buy a service from the web. There are discounts for agreeing to go paperless or agreeing to auto-pay with a bank debt or credit card. There are discounts that are negotiated with customers who threaten to drop service. As might be imagined, these discounts are all over the board, even within the same ISP. Discounts are the Wild West of the broadband world, with some customers getting much deeper discounts than their neighbors.

The study also documents hidden fees that are not usually disclosed in the advertised rate for broadband. Fees like modem rental can sometimes be avoided by a customer willing to buy a modem, but in some cases, that is not an option. The biggest such fee is the median cost of $16 per month charged by Wave Broadband for a modem. Some ISPs have mysterious fees for broadband which are not explained. The biggest headscratcher is the $7.77 Deregulated Administrative Fee charged by Windstream.

The study was particularly critical of data caps. It highlighted Cox, which charges $49.99 to customers who want a guarantee of unlimited data. Consumer Reports saw one bill where Cox charged a customer $100 in a month for going over the data cap.

One of the most interesting findings is that consumers in zip codes where there is only one fast ISP pay an average of $75, while consumers in places with broadband competition average $65. This is reminiscent of a decade ago when the conventional wisdom was that competition lowers rates by around 15%. This still seems to be the case.

The report highlights Altice (Optimum and Suddenlink) as having the highest rates before any discounts. It lists Sonic, a fiber overbuilder from San Francisco, as having the lowest rates.

The report also highlighted some cases where it found prices to be puzzling. For example, the median prices charged by AT&T for various speeds were 12 Mbps for $63, 45 Mbps for $80, 100 Mbps for $60, and gigabit for $80. The report wonders why AT&T would charge more for 12 Mbps than for 100 Mbps. I have my own theory that the big telcos are milking DSL before it dies while trying to drive people off of copper networks.

There was nothing in this report that is a surprise to consumers who are regularly annoyed and angered by the billing practices of the big ISPs. I’m guessing that the reaction of most folks reading this report is, “At least my ISP isn’t the worse one.”

My 2023 Broadband Predictions

You may have noticed that WordPress decided to halfway publish a draft of this blog on Sunday.

This is my annual stab at predicting the major trends in the broadband industry in the coming year.

FCC Mapping Will be a Mess

This might be the least brave prediction I think I’ve ever made. The first iteration of the new map just came out, and there is a lot to like and hate about the new maps. Early reports, like from the State of Vermont, are that the new maps are pretty far off in identifying the locations that can buy broadband. But the more disturbing issue is that the new maps are showing a lot of broadband availability that doesn’t seem to exist – largely due to the FCC still allowing ISPs to report marketing speeds instead of more realistic speeds. I can’t foresee the maps being useful for counting broadband customers for all of 2023.

Supply Chain Inflation Will Slow

The big supply chain issues that caused price spikes in fiber, conduit, and electronics have peaked, and I don’t think we’re going to see component prices continuing to rise. The only wild card that could still impact electronics prices is the continued bizarreness happening in the Chinese economy. Unfortunately, very few vendors will lower prices even if their own supply chain issues are solved, so we aren’t going to see material costs dropping. There will still be labor rate increases since work crews continue to be in short supply and can command premium rates. Increases in Davis-Bacon wage levels will continue to push up the cost of grant-funded labor.

Cable Companies Will Continue to Aggressively Increase Rates

There was some question about how cable companies would react to the fact that broadband customer growth has stagnated. In the second and third quarters of 2022 combined, the big cable companies collectively lost 20,000 broadband customers. Charter decided to raise rates by $5 on November 1, and I think all of the big cable companies will continue to increase rates in 2023. Rate increases bring far more bottom line benefits than any downside from customer losses. If anything, slower growth might make it more imperative to raise rates to satisfy stockholders.

Only a Trickle of BEAD Grant Cycles will Start in 2023

It’s been over a year since the announcement of the BEAD grants, but I don’t think there will be many BEAD grant applications due in 2023. State Broadband offices can request 20% of the BEAD funding after the NTIA approves a State’s initial broadband grant plan, and some of that funding will become available late in the year. There are still major hurdles for States to get the full funding, including workable FCC maps, States developing a broadband grant plan, States getting feedback from stakeholders, and a challenge of the FCC maps used for broadband (which is different than the current challenge about the map fabric). I predict that the bulk of the BEAD grant program awards will happen in 2024, more than two years after the grant program was announced.

FWA Broadband Will Continue to Make Waves.

While the big traditional ISPs are seeing no customer growth, fixed wireless access (FWA) broadband using cellular frequencies is growing explosively. T-Mobile and Verizon together added 816,000 new customers in the second quarter and 920,000 in the third quarter of 2022. These carriers are still in the process of the widespread deployment of the technology, so  I expect to see big growth continuing in 2023 to the detriment of other big ISPs.

We’ll Finally Get a Fifth FCC Commissioner

I whiffed on one prediction last year. The Senate never mustered enough votes to confirm GiGi Sohn, and the FCC has been a Commissioner short for two years. I don’t know of anything that has changed, but I’m still optimistic that the Senate will finally muster enough votes to seat the fifth Commissioner. That will lead to redefining the definition of broadband to 100/20 Mbps – two years too late, and when it’s already time to be thinking about an even faster definition.

Real Movement on Solving the Digital Divide

Congress created two large digital divide grant programs aimed at tackling the underlying issues that lead to homes not having broadband. This has activated non-profits, local governments, and others to finally start getting broadband into more homes. There will be grant awards made in 2023 from the two grant programs, but I predict that communities are going to move forward with the effort regardless of winning these grants.

Electric Grants and Broadband

The U.S. Department of Energy finally announced the first round of grant applications for funding that was created by the Infrastructure Investment and Jobs Act. While these grants are aimed at improving the electric grid, any projects built with these grants could also build some fiber. The grants will total $13 billion. It’s worth noting that 30% of the funding will go to small utilities that sell no more than 4 million MWh of electricity per year.

There will be $10.5 billion in grants from the Grid Resilience and Innovation Partnership, or GRIP grants. Within the GRIP grant program are three separate programs:

  • $2.5 billion will go to grid resiliency grants to provide infrastructure to improve the survivability of the electric grid from weather-related and other events.
  • There are $3 billion for smart grid grants that can be used for projects that add intelligence to the electric grid.
  • Finally, $5 billion in grants is aimed at grid innovation. This grant is looking for creative ideas for improving the electric grid.

The other grant program is the Transmission Facilitation Program, which will provide $2.5 billion to improve the long-haul electric grid between communities.

The first and immediate round of funding for the GRIP program will be for $3.9 billion, with additional rounds of funding being announced next year. Unlike broadband grants, the first-round GRIP grants are on a rapid timeline. It took the DOE over a year to announce the specifics of the grants, but there are almost immediate deadlines coming. The White House has said that it wants to see more of the infrastructure spending being used, and this timeline will see grant awards made in 2023.

  • Anybody interested in applying for the smart grid or resiliency grants must submit a concept paper by December 16 that explains the proposed project. Concept papers for the innovation grants are due January 13. Concept papers for the transmission grants are due February 1. The DOE will have to accept a concept paper in order for an applicant to move on to the next phase of the grant application.
  • Full grant applications for the smart grid, grid resilience, and innovation programs will be due in March, April and May, respectively.

All of these grants could propose building fiber as part of the solution. Fiber is a way to get more brains into the electric grid and as a tool for making networks more resilient. There is no reason why any constructed fiber from these grants couldn’t serve the dual role of supporting a broadband network.

The short timelines for the first round of funding are going to make it a challenge for anybody that doesn’t already have a grant proposal on the drawing board. It seems unlikely that anybody who hasn’t already done so could create a partnership with an electric company and meet the concept paper deadlines. But electric companies can do this quickly, and I would expect that municipal electric companies and electric cooperatives will propose concept papers that will both improve the electric grid and also improve fiber infrastructure.

These grant announcements are a wake-up call for communities that have not already had discussions about how to improve the electric grid. There is still time to create partnerships for future grant cycles, but the time to start these discussions is now.

According to the DOE, these grants are only the down payment for the funding needed to improve electric grids. Jennifer Granholm, the Secretary of Energy, says the country might need to triple transmission capacity by 2050. Unfortunately, there were insufficient votes in the Senate to approve a large amount of proposed additional funding for the electric grid.

Matching Big ISP Tactics

There are three billing practices that are routine for the large ISPs that smart competitors avoid. First is offering special low prices to attract new customers. The second is bundling, which means giving a discount to customers buying multiple products. Third is what has become known as hidden fees, where there are routine monthly fees that are not included in the online advertised price offers to customers.

A lot of smaller ISPs wonder if they should match these same tactics. The argument for copying the tactic is that it allows advertising rates that can be compared to what the big companies advertise. The main argument against matching these tactics is that the practices are deceptive, and customers have made it clear that they don’t like these tactics. Fiber overbuilders tell me that the first customers they win in a new market are those who feel deceived and mistreated by the bigger ISPs.

Big ISP online advertising has felt sleazy for many years. I wrote a recent blog where Charter in Los Angeles offers customers drastically different introductory rates depending upon neighborhood – with the highest rates being offered to the neighborhoods with the highest level of poverty. It’s common to see broadband specials advertised for less than half of the list price. A customer has to click through multiple levels of footnotes to find out the rate at the end of the special – if it is online at all. It’s not hard to think that somebody could be attracted to low rates without understanding that big increases will be coming in a year or two.

Bundling is an interesting pricing strategy. Customers are given a discount for buying multiple products but are never told which products get the discount. If a customer tries to drop one of the bundled products, they inevitably find that the dropped product had all of the discount and the customer usually ends up paying full price for the products they don’t drop. This tactic is intended to bully folks into not breaking the bundle.

Hidden fees are just plain sleazy. A customer buying an online cable product will get socked with a range of hidden fees on the first bill. While they thought they were buying a $40 cable package, the first bill could easily be $60 or $70. The most common hidden fee for broadband is usually a high rate for the cable modem, which can be over $15 per month. Even more expensive are data caps, which can significantly add to the monthly bill.

The majority of the small ISPs I work with don’t use these tactics. They understand that these tactics are what drive consumers to seek them out. Most of the small ISPs I know have the philosophy of charging the same fair rate all of the time.

But I’ve seen ISPs that start with the simple, fair rate philosophy and get sucked into offering discounts to try to win new customers. Their marketing folks become convinced that matching the big company techniques is the only way to get new customers. I’ll grant that mimicking the big guys is probably the easiest sales technique, but acting like the big ISPs is a poor long-term tactic for many reasons.

  • Promotional rates tell customers that rates are negotiable, and once an ISP goes down that path, customers will ask for breaks forever. Many consumers are used to negotiating with the big ISPs and will do so with the small ISP as well.
  • These tactics tell customers that your rates are too high and that the real rate is the discounted rate. Customers who are too timid to negotiate for lower rates feel cheated.
  • Unplanned discounts can be devasting to cash flows and meeting financial objectives. If your business plan and budgets are based upon a specific set of rates, then giving discounts lowers the average revenue per customer. Do the math and consider what happens if the average revenue for all of your customers drops by $5 or $10.
  • Matching the big ISP tactics also attracts customers who will drop an ISP for a small discount elsewhere. Every few years, they will compare you against the competition and will take the best offer. ISPs with fair rates tell me that they rarely lose a customer to special rates – and that might be because they don’t attract customers who get a thrill out of bartering.
  • Finally, special discounts complicate your dealing with customers. The ISP now has to track when special promotions are finished and notify customers that rates will increase. This likely means having to talk with most of your customers, and calls to the call center will skyrocket. It’s important to remember that most customers view the perfect ISP as one they never need to talk with.

I’m a huge fan of keeping things simple because I have seen so many ISPs that thrive with the philosophy. The danger of mimicking the big ISP tactics is that the public will see you as just another untrustworthy ISP.

 

A Slowdown in Cellular Expansion?

Mike Dano had a series of articles recently in LightReading talking about how the big cellular carriers plan to significantly cut back on 5G spending in 2023. Dano cited one analyst, Tom Nolle of CIMI that said that the cellular carriers are having a hard time making the business case for expanding 5G. The cellular companies are not seeing an uptick in new incremental revenues as a result of 5G investments. He says the cellular companies are clueless and don’t see a path to increase revenues next year.

This feeling of falling 5G expectations was bolstered by a somber outlook from Crown Castle. The biggest owner of cell sites said that it doesn’t see the big cellular carriers spending heavily in 2023 for cell towers or small cell sites.

As might be expected in complicated economic times, not all analysts agree. Dano cites analysts from Raymond James that say that 2023 will mark the year when the cellular companies start spending at a slow steady pace over multiple years to put in the promised 5G expansions.

As with most topics, I ask what this might mean for rural broadband. T-Mobile and Verizon have made a big recent splash in the industry with the rollout of the FWA fixed cellular broadband product. In the second quarter of 2022, Verizon and T-Mobile added 816,000 FWA customers. For the quarter, the largest seven cable companies collectively lost 60,000 customers. The six largest telephone companies lost 88,000 customers. Before the first quarter of 2022, we heard almost nothing about FWA.

I have to wonder what the news of a cell site expansion means for rural broadband. For customers lucky enough to be able to buy it, the FWA product has been a huge improvement over other kinds of rural broadband. I talked to one farmer who lived adjacent to a cell site and was seeing speeds of 200 Mbps. For this farmer, the faster FWA speeds meant being able to finally utilize his smart farming applications. But his neighbors, only two miles away, weren’t seeing speeds over 50 Mbps.

I’ve always wondered why a cellular company would make the FWA upgrade or even the 5G upgrade at a rural cell site. For a cell site located in a farming area there probably aren’t more than a handful of potential customers within a few miles of a tower. It doesn’t seem like an investment that is ever going to see a return. Voice is a little different because a voice signal can carry many more miles from an upgraded cell site – but most upgrades are leaving voice traffic on 4G.

Both T-Mobile and Verizon said that they were seeing many of the new FWA customers in cities and suburbs and not from rural areas. This makes sense. First, a lot more people are candidates for the product in more densely populated areas. The FWA product is also priced attractively, and I’ve been thinking of it more as a DSL replacement than a direct competitor to cable broadband. The FWA speeds are not as fast as cable broadband, and the signal strength will vary as it does with any wireless product.  Just look at how the cellular bars vary at your house and ask if you want that kind of variance in a home broadband connection. If your only existing choice is lousy rural broadband, you’ll gladly take it as an upgrade. But it seems like a harder sell to folks who have faster alternatives.

I can’t do any more than speculate because even the analysts don’t agree on the trajectory of the cellular industry, although the poor outlook from Crown Castle seems fairly persuasive. We are now sitting at an odd economic time where inflation and interest rates affect everybody, including the big companies. I suspect we’re going to get mixed signals about the near-term future from others, and not just the cellular companies. 2023 is going to be an interesting year to follow the big ISPs.

Broadband Pricing Disparities in L.A.

Now that digital equity has become a hot topic. I’m starting to see studies from around the country looking at the inequities in the way that large ISPs treat customers.

One of the latest studies comes from the California Community Foundation, which looked at rates being offered to new customers in different parts of Los Angeles. Los Angeles is an odd broadband market in that Charter is a monopoly in much of the market. Charter claims to provide service in almost 96% of Census blocks, while AT&T and Frontier each only serve about a fifth of the market. Fourth is Cox, with a tiny market share. This means that a majority of customers in Los Angeles can only buy broadband from Charter, with no other landline option.

The study concentrated on Charter since they are the ubiquitous ISP, but there are findings about the other two ISPs as well. The study was done by looking at broadband products and rates that are advertised to homes scattered across the 88 separate communities in the LA area. ISPs today make offers online to customers looking to connect to broadband, and the study looked at specific offers made in different communities.

The study instantly found that the products and prices offered to residents vary widely by neighborhood. You might think that the products available online from a big ISP like Charter would be the same for the whole market or even the whole country, but there is a dramatic difference in some cases with the products and prices that are offered online.

For example, the base broadband product offered by Charter online seems to be Internet Ultra, which provides a download speed of 500 Mbps. This is the only product that was offered at every address in the study. About three-quarters of addresses were offered the 300 Mbps download product. Only about one-fourth of homes were offered the 100 Mbps broadband product.

The biggest finding from the study is that Charter offers better pricing along with better terms and conditions to wealthier neighborhoods. That is counterintuitive, and basic economics 101 says that businesses should be expected to get the highest prices out of customers who can afford it.

The examples listed in the report are devastating. In one case, Charter offered an address in Willowbrook (where the poverty rate is 8%) a 2-year special rate of $30 per month for a new subscriber to the Internet Ultra product. A home just two miles away in Watts, where the poverty rate is 31%, was offered the same product for a 1-year deal at $70 per month. In both cases, the product reverts to the $95 list price at the end of the term. This is a gigantic difference. The home in Willowbrook was offered 500 Mbps for a two-year cost of $720, while the home in Watts was offered a package that would cost $1,980 over two years.

Charter called the report misleading and said that promotional rates change all of the time. But the study was done across the city at the same time, meaning there was no big timing difference where promos had changed. Charter’s defense is that everybody eventually pays the full price.

There is no easy way for Charter to defend this. It’s obvious that somebody at the company is uploading different specials into the online portal by address or neighborhood. This can’t be random, and that means that somebody in the Charter marketing department (or, more likely, some piece of software) is making these determinations based on what others are willing to pay in each neighborhood. This feels like broadband pricing set by a sophisticated pricing algorithm like what is used for airline seats.

Charter has broken no laws, but this is still a black eye for the big ISP. The big cable companies might wonder why a fiber overbuilder does so well in new neighborhoods – but they need to look no further than the findings from this study to know why customers don’t like or trust them.

Being Stingy with Broadband Speeds

As I work in various parts of the country, I help new ISPs choose the speeds and the prices to offer on fiber networks. Part of that research begins with looking at what other ISPs charge in the region. I should probably stop being surprised, but I’m still taken aback when I see fiber-based ISPs offering what can best be described as stingy speeds. Just the other day, I ran across an ISP that is offering a range of speeds between 25/3 Mbps and 100/20 Mbps on fiber. Earlier this year, I ran across an ISP that has fiber products as tiny as symmetrical 10 Mbps.

This frankly mystifies me, and I always wonder why somebody with fiber would offer broadband products that are similar to their competitors. I figure that part of the reason is what I would call old thinking. Somebody offering that kind of speed is likely a small telco that used to offer DSL or a small rural cable company that didn’t have fast speeds. DSL products were set at a range of speeds up to 25/3 Mbps because that’s what the technology would allow.

I can’t imagine the thought process that says the slow speeds are adequate. According to OpenVault, 75% of U.S. Households are currently subscribing to download speeds of 200 Mbps or faster. That includes over 14% of homes nationwide that are subscribing to a gigabit product. It’s clear that people want faster broadband.

I think another part of the reason that an ISP would set low speeds is a fundamental belief that customers that buy faster speeds will somehow cost the ISP a lot more money. But after having seen the impact of hundreds of ISPs that have upgraded to faster speeds – I know this is not true. There is a one-time increase in broadband usage when you unblock a community that has had restricted broadband. The people in such communities start using broadband like everybody else, and that looks like a one-time big increase in usage – but people are just catching up to the ways that most of the rest of country uses broadband. After that short burst to catch up, usage then grows like everybody else.

Another reason behind offering slow speeds probably goes back to the day when buying Internet backbone connections was extremely expensive, and operators feared that a burst in usage would cost a lot. That’s also not true anymore in most places. Wholesale broadband prices have tumbled over the last decade. I know ISPs that are buying eight or ten times more bandwidth than a decade ago, at basically the same cost. I know that there are still some small ISPs located deep in rural areas that are paying far too much for broadband from the local telco.

There was a time when most of the industry tried to throttle customer usage. I remember quotes from the CEOs of the big cable companies and telcos saying that people didn’t need faster speeds. However, folks like Verizon FiOS and a handful of early fiber overbuilders exploded that concept and the cable companies did a 180 and now routinely increase customer speeds as a way to keep folks satisfied.

This same thinking also manifests in pricing. An ISP that offers 25 Mbps on fiber might also offer a gigabit product – but at a price that nobody can afford. I still run across gigabit broadband on small fiber ISPs priced at $175 per month or higher. These prices are set to make sure that only a few people buy the faster broadband. This thinking comes from the underlying belief that faster speeds are a luxury. But that’s really odd thinking for somebody that operates a network that can easily provide symmetrical gigabit broadband at an affordable price.

And that’s what gets me the most – these ISPs are losing revenues by being stingy. If they offer a slow broadband product at $50, they would likely have a lot of customers willing to pay $70  or $80 per month for gigabit broadband. I can tell by looking at the offerings that most ISPs with slow speeds are making less than their peers.

I understood these speeds and prices somewhat a decade ago when fiber networks were new and buying backbone Internet was expensive. But I can’t understand ISPs that have these stingy pricing plans when their peers a town away have normal broadband pricing.

ISPs and Customer Data

The FCC recently made a data request to cellular carriers asking how long the companies retain geolocation data on customers. For those not sure what that means, it means that the carriers record your location from your smartphone as you move around during the day. Your cellular company keeps data that can retrace everywhere you’ve been during the day. This rightfully makes most people nervous that somebody is watching and recording every place they visit.

Geolocation data is only one small piece of the data that cellular carriers collect on people. Cellular companies obviously know everybody you’ve called and texted, including the content of every text. They know every app you’ve used, websites you’ve visited, and the topic of every Google search you’ve made from your phone. Cellular companies also know the content of every email you send, assuming the email is not encrypted.

The FCC sent the data request in response to pressure from the public and politicians to put some commonsense caps on the collection and use of customer data. Here is a link to the responses from the fifteen largest cellular carriers.

Here are a few of the most common responses to the data request:

  • Cellular carriers said they retained records of customer activity to be able to respond to requests from law enforcement. This is a big turnaround from twenty years ago when telephone companies only tracked customer telephone usage after getting a valid subpoena to do so. It now seems that the carriers claim to record everything done by all customers to be able to respond to subpoenas involving only a minuscule percentage of people. The carriers cite law enforcement and FCC rules that force them to track customers.
  • Ten of the carriers said that customers have no options for opting out of having their locations tracked.
  • The amount of time that carriers retain data varies from two months to five years.

This is an issue that has been investigated at the FCC before. Several years ago, the FCC considered large fines against some of the largest cellular carriers for improperly misusing customer location data, such as selling data to bail bondsmen.

This FCC investigation centered only on geolocation data, but people are concerned about how ISPs and wireless carriers use all collected customer data. Company privacy practices vary widely, as does the way that carriers explain data collection practices. Consider what various carriers tell customers in the terms of service.

T-Mobile explicitly tells customers that it uses their data to consider marketing to them. Further, its privacy policy not only says that customer data is collected directly but that the company might buy or get personal data from third parties like social media platforms, analytic providers, and consumer data resellers.

AT&T says that it might share customer data with third parties, such as device information, advertisements you view, and demographic information like your age, gender, and ZIP code.

Verizon says it may collect demographic and interest data and look at how customers use the Verizon website and apps. That may not sound like a lot, but it includes “information about browsing, searching and buying activities; IP address, mobile phone number, device numbers and identifiers, web addresses of the sites you come from and go to next, screen recordings, browser and operating system information, platform type, connection speed, and other attributes.” Verizon also sells data to third parties.

At the other extreme are carriers like Comcast, which says that it doesn’t track or record the apps people use, or the websites visited.

But interestingly, most of the carriers that say they don’t use customer data have resisted any FCC or FTC attempts to restrict the data that might be collected.

The FCC inquiry only dips a toe into the fringe of data collection practices. It’s always been assumed that the carriers make a lot of money selling and using customer data, but none of them ever identify or quantify the financial benefits. I know I am probably like a lot of the public and would like to see more restrictions and disclosure requirements for carriers and ISPs. I know this view is shared by most small ISPs that don’t record or share data – I think they need to remind folks about this more often.