The Pushback Against Smart Cities

If you follow the smart city movement in the US you’ll quickly see that Kansas City, Missouri touts itself as the nation’s smartest city. The smart city movement got an early launch there when the City was announced as the first major market for Google Fiber. That gigabit fiber network attracted numerous small tech start-ups and the City also embraced the idea of being a technology leader.

The city’s primary smart city venture so far has been to bring smart city technology to a 54-block area in downtown. But this area only covers about 1% of the total area of the City. The City is currently contemplating expanding the smart city into the neglected east side neighborhoods near downtown. This is an area with boarded up storefronts and vacant lots, and the hope is that investing in smart city will bring a boost to this area as a way to kick-start economic development.

So far the primary smart city applications include smart parking, smart intersections, smart water meters and smart streetlights. The city also installed video surveillance cameras along the 2.2-mile downtown corridor.  The existing deployment also includes public WiFi provided through 25 kiosks placed throughout the smart city neighborhood. As of last fall there had been a reported 2.7 million log-ins to the WiFi network.

In the east side expansion WiFi will take on a more significant role since it’s estimated that only 40% of the residents in that area have home broadband today – far below the national average of 85%. The city is also looking to implement a rapid transit bus line into the east side as part of the smart grid expansion.

The new expansion into the east side is slated to have more surveillance including new features like gun shot detectors. There has been public fear voiced that this system can be used to disadvantage the largely minority population of the area.

The biggest hurdle to an expanded smart city services is money. The initial deployment was done through a public-private partnership. The city contributed $3.7 million, which it largely borrowed. Sprint, which manages the WiFi network contributed about $7 million and Cisco invested $5 million. The cost to expand the smart city everywhere has been estimated to cost half a billion.

It is the public-private partnerships that bring a troublesome aspect to the smart city concept. It’s been reported that Sprint collects data from those who log in to the free WiFi network – information like home zip code and results of Internet searches. It’s also been reported that Sprint can track people who have once subscribed to the service, even if they don’t log in. Sprint won’t say how it collects and uses customer data – but as we are learning throughout the tech world, it is the monetization of customer data that fuels many ISPs and online services.

There is also growing public concern about surveillance cameras. It’s starting to become clear that Americans don’t want to be tracked by cameras, especially now with the advent of decent facial recognition technology. We saw Seattle have to tear down a similar surveillance network before it ever went into service. We’re seeing huge pushback in Toronto about a proposed smart city network that includes surveillance.

We only have to look at China to see an extreme example of the misuse of this technology. The country is installing surveillance in public places and in retail areas and tracks where people are and what they do. China has carried this to such an extreme that they are in the process of implementing a system that calculates a ‘citizen score’ for every person. The country goes so far as to notify employers of even minor infractions of employees like jaywalking.

It’s going to be an uphill battle, perhaps one that never can be won for US cities to implement facial recognition tracking. People don’t want the government to be tracking where they are and what they do every time they go out into public. The problem is magnified many times when private companies become part of the equation. As much as the people in Kansas City might not fully trust the City, they have far less reason to trust an ISP like Sprint. Yet the smart city networks are so expensive it’s hard to see them being built without private money – and those private partners want a chance to get a return on their investment.

Is the Public Buying the 5G Hype?

T-Mobile recently conducted a survey, conducted by HarrisT, that looks in detail about how the public feels about the role of pending new technologies. They expect to repeat this survey quarterly to track how public perceptions of technology changes over time.

As you would expect, a significant number of the questions in the poll were about 5G. I’m sure that T-Mobile’s motivation for conducting the survey is due to the fact that they are one of the few companies in the industry that are not hyping 5G. They expect 5G to start creeping into the industry in 2020 and then taking as much as a decade to become a widespread reality.

The survey started by asking if respondents had heard of various new technologies. The 5G hype isn’t fully pervasive yet with 57% having heard of the technology. For other technologies: Internet of Things – 29%; machine learning – 26%; virtual reality – 83%; artificial intelligence – 78%; cloud computing – 52% and blockchain – 19%.

One of the most interesting responses in the survey is the public expectation of when they expect to see 5G in the market place. Of those that have heard of 5G, 29% thought it was already here in late 2018. 35% more think they’ll see 5G in 2019 and another 25% expect 5G in 2020. This response has to reflect the flood of marketing hype and press releases extolling 5G. The public has been inundated for several years by articles and press releases that declare that 5G is going to solve our broadband problems by delivering huge data speeds wirelessly everywhere.

When asked more specifics about 5G, 64% were somewhat excited or very excited about 5G in general. They were also somewhat or very excited about the following attributes of 5G: faster upload and download speeds – 92%; wider network coverage – 91%; higher quality streaming video – 85%; higher quality voice calls – 89%; less lag time on mobile devices – 90%; more reliable mobile connections – 93%; greater number of connected devices – 80%; smart city data sensors – 68%; driverless vehicles – 50%; virtual reality in the work environment – 59%; smart energy grids – 75%; supercharged IoT – 64%; expanded use of drones – 47%; next generation artificial intelligence – 59%; telehealth – 68%; remote surgery – 59%; real time language translation – 72%; replacement of landline broadband connections – 75%; replacement of traditional cable TV – 75%.

Interestingly, only 27% of total respondents thought that 5G would have a big influence on their daily life.

In a finding that I find disturbing, 65% of respondents think 5G will have a positive impact on rural America. Even the biggest 5G proponents admit that 5G is going to be hard to justify in low-density areas. It’s not hard to understand this belief because I’ve seen numerous articles that make this claim. 79% think 5G will have a positive impact in cities.

When asked which companies would be leaders in 5G, the unsurprising responses include Verizon (43%), AT&T (36%), Apple (43%), Samsung (35%) and T-Mobile (20%). However, there were surprises on this list including Amazon (24%), Comcast (12%), Google (36%), Facebook (12%), Microsoft (34%) and Dish Networks (5%).

The public believes that 5G is going to bring price increases. 84% said they thought that 5G would result in higher cellular service prices. 77% said they thought 5G would lead to higher cable TV prices (this has me scratching my head). 81% said they thought 5G would lead to higher process for home broadband – but wouldn’t increased competition for home broadband bring lower prices? 86% expect the prices for smart phones to be higher.

Overall, the survey shows an unrealistic public perception about when we’ll see the benefits of 5G. It’s not hard to understand this misperception since there are untold articles making it sound like we’re on the verge of a 5G revolution. I’m guessing this might have been one of the motivations for T-Mobile to sponsor this survey since they are one of the most realistic voices in the industry talking about the 5G time line. It will be interesting to see what the public thinks in a few years after very little 5G has actually been implemented. But perhaps I’m just being overly skeptical since the big carriers like AT&T are now extolling their 4G LTE product as 5G – maybe the public will but it.

Minnesota Sues Comcast

Lori Swanson, the Attorney General of Minnesota sued Comcast on December 21 seeking refunds to all customers who were harmed by the company’s alleged violation of the state’s Prevention of Consumer Fraud Act and Uniform Deceptive Trade Practices Act. The complaint details the sort of practices that we’ve come to expect from most of the big cable companies – and hopefully this serves as a warning to smaller ISPs that might be following similar practices. It’s an interesting read.

The most significant dollar complaint is that Comcast has defrauded customers about the true nature of two fees – the ‘Regional Sports Network Fee’ and the ‘Broadcast TV’ fee. These two fees now total $18.25 per month. These fees are both a part of every cable package and are not optional to customers, but Comcast does not mention them when advertising the cable products. Further, Comcast customer service has repeatedly told the public that these fees are mandated by the government and are some a tax that is not set by Comcast.

Comcast only started charging separately for these two fees in 2014, but the size of these line items has skyrocketed on bills. In recent years the company has put a lot of the annual rate increases into these fees, allowing the company to continue to advertise low prices. The Regional Sports fee passes along the cost of Fox Sports North, and perhaps other regional sports. The Broadcast TV fee includes the amounts that Comcast pays local affiliate stations for ABC, CBS, FOX and NBC.

Interestingly, Comcast was previously sued over this same issue and settled the case without a verdict. As part of that suit the company promised to fix the problems, but they continued into 2017. In a pleading that is sure to displease company employees, Comcast threw its customer service reps under the bus and blame the issue on them. Comcast argues that breaking out these fees makes it easier for customers to know what they are paying for – but there are numerous examples cited in the complaint where new customers were surprised at the size of the first bill they receive from the company.

The complaint also says that the company often misrepresents the fees for equipment rental such as cable settop boxes, digital adapters and broadband modems. The complaint says that for some packages these fees add 30% to the cost of the product and are not fully disclosed to customers.

The complaint also says that Comcast routinely adds unwanted fees to customer bills. Customers that are visited by Comcast field technicians, who visit a business office or who buy from a Comcast door-to-door salesperson are often surprised to see additional products added to their bill. The complaint blames this on the practice of paying commissions to employees for sales.

The complaint notes that Comcast is well aware of these issues. The company settled an FCC complaint about the same issues in 2016 and late last year made refunds to more than 20,000 customers in Massachusetts over these same issues.

It’s not hard to verify some of the issue. If you go to the Comcast website you’ll find that it’s almost impossible to find the real cost of their cable and broadband products. The company constantly advertises low-priced specials that don’t mention the extra programming fees or the equipment fees.

This is a cautionary tale for smaller ISPs that compete with Comcast or other large cable companies. It’s always tempting to advertise cheap special prices in response to big cable company advertising. I know many smaller cable providers that have also separated out the sports and broadcast fees and who are not always fully forthcoming about equipment charges and other fees. It’s hard to watch customers leave who are lured by falsely advertised low prices – but most small ISPs have elected to deal with customers fairly as a way to differentiate themselves from the big companies.

How Bad is the Digital Divide?

The FCC says that approximately 25 million Americans living in rural areas don’t have access to an ISP product that would be considered as broadband – currently defined as 25/3 Mbps. That number comes out of the FCC’s mapping efforts using data supplied by ISPs.

Microsoft tells a different story. They say that as many as 163 million Americans do not use the Internet at speeds that the FCC considers as broadband. Microsoft might be in the best position of anybody in the industry to understand actual broadband performance because the company can see data speeds for every customer that updates Windows or Microsoft Office – that’s a huge percentage of all computer users in the country and covers every inch of the country.

Downloading a big software update is probably one of the best ways possible to measure actual broadband performance. Software updates tend to be large files, and the Microsoft servers will transmit the files at the fastest speed a customer can accept. Since the software updates are large files, Microsoft gets to see the real ISP performance – not just the performance for the first minute of a download. Many ISPs use a burst technology that downloads relatively fast for the first minute or so, but then slows for the rest of a download – a customer’s true broadband speed is the one that kicks in after the burst is finished. The burst technology has a side benefit to ISPs in that it inflates performance on standard speed tests – but Microsoft gets to see the real story.

I’ve ranted about the FCC’s broadband statistics many times. There are numerous reasons why the FCC data is bad in rural America. Foremost, the data is self-reported by the big ISPs who have no incentive to tell the FCC or the public how poorly they are doing. It’s also virtually impossible to accurately report DSL speeds that vary from customer to customer according to the condition of specific copper wires and according to distance from the DSL core router. We also know that much of the reporting to the FCC represents marketing speeds or ‘up-to’ speeds that don’t reflect what customers really receive. Even the manner of reporting to the FCC, by Census block, distorts the results because when a few customers in a block get fast speeds the FCC assumes that everyone does.

To be fair, the Microsoft statistics measure the speeds customers are actually achieving, while the FCC is trying to measure broadband availability. The Microsoft data includes any households that elect to buy slower broadband products to save money. However, there are not 140 million households that purposefully buy slow broadband (the difference between 163 million and 24 million). The Microsoft numbers tell us that the actual speeds in the country are far worse than described by the FCC – and for half of us slower than 25/3 Mbps. That is a sobering statistic and doesn’t just reflect that rural America is getting poor broadband, but also that many urban and suburban households also aren’t achieving 25/3 Mbps.

I’ve seen many real-life examples of what Microsoft is telling us. At CCG Consulting we do community surveys for broadband and we sometimes see whole communities where the achieved speeds for customers is lower than the speeds advertised by the ISPs. We often see a lot more households claim to have no broadband or poor broadband than would be expected using the FCC mapping data. We constantly see residents in urban areas complain that broadband with a relatively fast speed seems slow and sluggish.

Microsoft reported their findings to the FCC, but I expect the FCC to ignore their story. This is a drastic departure from the narrative that the FCC is telling Congress and the public. I wrote a blog just a few weeks ago describing how the FCC is claiming that big ISPs are delivering the speeds that they market. Deep inside the recent reports the FCC admitted that DSL often wasn’t up to snuff – but the Microsoft statistics mean that a lot of cable companies and other ISPs are also under-delivering.

In my mind the Microsoft numbers invalidate almost everything that we think we know about broadband in the country. We are setting national broadband policy and goals based upon false numbers – and not numbers that are a little off, but rather than are largely a fabrication. We have an FCC that is walking away from broadband regulation because they have painted a false narrative that most households in the country have good broadband. It would be a lot harder for politicians to allow broadband deregulation if the FCC admitted that over half of the homes in the country aren’t achieving the FCC definition of broadband.

The FCC has been tasked by Congress to find ways to improve broadband in areas that are unserved or underserved – with those categories being defined by the FCC maps. The Microsoft statistics tell us that there are huge numbers of underserved households, far higher than the FCC is recognizing. If the FCC was to acknowledge the Microsoft numbers, they’d have to declare a state of emergency for broadband. Sadly, the FCC has instead doomed millions of homes from getting better broadband by declaring these homes as already served with adequate broadband – something the Microsoft numbers say is not true.

The current FCC seems hellbent on washing their hands of broadband regulation, and the statistics they use to describe the industry provide the needed cover for them to do so. To be fair, this current FCC didn’t invent the false narrative – it’s been in place since the creation of the national broadband maps in 2009. I, and many others predicted back then that allowing the ISPs to self-report performance would put us right where we seem to be today – with statistics that aren’t telling the true story. Microsoft has now pierced the veil to see behind the curtain – but is there anybody in a position of authority willing to listen to the facts?

Trusting Big ISP Data

The FCC has finally come to grips with the fact that big ISPs are supplying bad data to the various FCC mapping efforts that are then used to distribute FCC funding and to set national policies. The latest mapping snafu come from one-time data collection from the cellular carriers last year showing rural cellular coverage. These maps were to be used to establish a new federal fund called the Mobility Fund II which will distribute $4.53 billion for the expansion of 4G cellular coverage to rural parts of the country that have little or no cellular coverage.

The big cellular companies have been lying about their cellular coverage for years. If you look at the nationwide 4G LTE coverage maps from AT&T and Verizon you’d think that they have cellular coverage virtually everywhere except in areas like deserts and mountains. But anybody living or traveling in rural America knows better. It’s not hard to drive very far off main highways and hit areas that never see a bar of cellular coverage. And even where there is coverage, it’s still often 3G or even older technology.

When the FCC collected data for the Mobility II funding the big carriers stuck to this same flawed mapping data. It turns out that overclaiming rural cellular coverage will keep funding from going to the smaller cellular companies that still serve in many parts of rural America. Luckily the FCC effort included a challenge process and the FCC was flooded with challenges showing that cellular coverage is far worse than is claimed by the big carrier maps. There were so many challenges that the FCC put the Mobility II award process on hold until they can sort it out.

This is just one of the mapping efforts from the FCC that have been used to award billions of dollars of funding over the last decade. The FCC relied on mapping data from the big telcos to establish the areas that were eligible for the billions of dollars of CAF II funding.

Since rural areas served by the biggest telcos have been neglected for years, and since the big telcos deployed very little rural DSL outside of towns it’s not hard to identify huge swaths of rural areas that have little or no broadband. But the big telco broadband coverage data contains a ton of inaccuracies. For example, there are numerous smaller rural towns that are listed in the telco databases as having decent broadband, when the reality on the ground is broadband speeds of a few Mbps at best. It looks like the big telcos often reported marketing speeds rather than actual speeds. This inaccuracy has stopped others from seeking federal grants and loans to upgrade such towns.

I fear that rural broadband mapping is on the verge of the next crisis. As a blogger I am contacted a lot by folks in rural America describing their broadband situation. I’ve heard enough stories to convince me that the big telcos have made only a half-hearted effort at implementing CAF II. I think many homes that should have seen CAF II broadband upgrades will see zero upgrades while many others will get upgraded to speeds that don’t meet even the measly CAF II goal of 10/1 Mbps.

The big telcos are not likely to come clean about having pocketed CAF II funding rather than spending every penny to make upgrades, and so they are going to claim that the CAF II areas have been upgraded, regardless of the actual situation on the ground. Rural households that didn’t see the promised upgrades will then be counted by the FCC as having better broadband. That will make these areas off limits to future federal funding to fix what the telcos botched. We already see the newest federal grant programs having a new requirement that no more than 10% of the homes covered by federal funding can have broadband today. Because of the falsified mapping, many homes without broadband are going to be deemed to be covered and it will be a massive challenge for somebody else to get funding to help such areas. These communities will be harmed twice – once by the telcos that aren’t upgrading speeds and second by the inaccurate mapping that will stop others from funding assistance to fix the problem.

The big telcos and carriers have huge incentives to lie about rural broadband coverage. None of the big telcos or cellular carriers want to spend any of their own money in rural areas, but they love the revenues they are receiving by a captive rural customer base who pays high prices for poor broadband. The big companies are fighting hard to preserve these revenues, which means they don’t want anybody else to get funding to improve broadband. To make matters worse, the big telcos continue to eliminate technicians and maintenance budgets in rural America, making it nearly impossible for customers to get repairs and service.

I unfortunately don’t have any easy solution for the problem of crappy mapping. Perhaps the FCC could entertain challenges to the broadband maps in the same way they are accepting challenges in the Mobility II process. I know a number of rural communities that would make the effort to create accurate broadband maps if this might bring them better broadband.

The Future of Video Streaming

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I predict that we are going to see a huge shake-out in the online video market over the next few years. The field of OTT providers is already crowded. There are providers that offer some version of the programming offered on traditional cable TV like Sling TV, DirecTV Now, Playstation Vue, Hulu Plus, YouTube TV, fuboTV and Layer3 TV. There are also numerous providers with unique content like Netflix, Amazon Prime, CBS All Access, HBO Go, and more than 100 others.

The field is going to get more crowded this year. Disney is planning a Netflix competitor later this year that will include Disney’s vast library of content including unique content from Marvel, Lucasfilm, 21st Century Fox and Pixar.

AT&T also plans to offer a unique-content platform that includes the vast library of content it acquired through the merger with Time-Warner along with the content from HBO.

Apple has finally been creating unique content that it will start showing some time this year. Amazon has stepped up the creation of unique content. Comcast is planning a launch with the unique content it owns through NBC Universal and Illumination Studios.

But the biggest news is not that there will be more competitors – it’s that each of the creators of unique content is intending to only offer their content on their own platform. This is going to transform the current online landscape.

The big loser might be Netflix. While the company creates more unique content than anybody else in the industry they have benefited tremendously from outside content. I happen to watch a lot of the Marvel content and my wife sometimes refers to Netflix as the Marvel network – but that content will soon disappear from Netflix. Disney owns the Star Wars franchise. NBC Universal (Comcast) recently purchased the rights to Harry Potter. CBS owns the Star Trek franchise. AT&T owns the Game of Thrones. Amazon bought the rights to develop more Middle Earth (Lord of the Rings) content. Is Netflix going to be as attractive if they are unable to carry attractive external content in addition to their own unique content?

Each of the major content owners is aiming to capitalize on their most valuable content. For example, the industry buzz is that there are numerous new Star Trek efforts underway and that CBS All Access will become all Star Trek, all of the time. Each of these content owners is making similar plans to best monetize their content.

This looks it is going to turn into a content arms race. That means more content than ever for the viewing public. But it also means that a household that wants to watch a range of the most popular content is going to need numerous monthly subscriptions. I think 2019 is going to become the year when the monthly cost of online content starts climbing to rival the cost of traditional cable.

My family is probably fairly typical for cord cutters. We watch local channels, traditional cable networks and sports through Playstation Vue. We have subscriptions to Netflix, Amazon Prime and Hulu. During the year we add and subtract networks like ESPN Plus, CBS All Access, HBO NOW and several others. And we also buy individual TV shows and movies that aren’t included in these various platforms.

I’m not unhappy with our array of content. Each of our three family members gets to watch the content they want. We’re each free to use the devices we like and watch at times that are convenient.

The number one reason cited for cord cutting is to save money. I’m pretty certain that as a family that we already aren’t saving anything compared to what content cost us before we went online. However, saving money was not our primary reason for going online. I look forward and I suspect that we’ll probably add some of the new content this year such as Disney, so our costs are likely to keep climbing.

A few years ago there was a lot of speculation about where the industry is headed. A lot of people thought that the Amazon super-aggregator model was the future, and Amazon is doing well by reselling dozens of unique content platforms under its name brand. However, it looks like the industry is now headed in the opposite direction where each big corporate owner of unique content is going to want to extract the maximum value by selling directly to the public.

I have to wonder what this all means for the public. Will the high cost of buying numerous online packages dissuade many from cutting the cord? It’s also confusing trying to find what you want to watch with so many different sources of content that are in separate silos. It’s going to be interesting to see these industry giants battling each other for eyeballs.

AT&T is Not Launching Mobile 5G

AT&T recently took the next step in the 5G hype race by announcing that it is releasing the first mobile 5G device. The announcement was made at end of the year to cover past AT&T announcements that the company would launch mobile 5G in 2018. The company can now say that they beat Verizon and Sprint to the market.

The AT&T announcement is referring to the device they are calling a puck. It’s a small Netgear modem that is being touted as a 5G mobile hotspot. The puck is based upon at least a few aspects of the 3GPP NR standard, allowing AT&T to claim it’s 5G. AT&T has not been fully forthcoming about how the device works. Where available the device will supposedly grab bandwidth from AT&T’s 5G cellular network – but since the 5G network is mostly still imaginary, in most places it will grab signal from the existing 4G LTE network. Within a home the puck will transmit WiFi, just like any other WiFi router.

There is no real product here. For at least three months AT&T will be giving away the puck and service for free to selected users. After that they’ve said the pricing will be $499 for the puck plus $70 monthly for bandwidth with an incredibly stingy 15 GB data cap. My prediction is that this product never makes it to market because it’s hard to envision anybody in an urban area willing to pay $70 a month such a small amount of WiFi bandwidth. The only market for the puck is possibly a few early adapters with money to burn who want to be able to say they owned the first 5G devices.

This announcement sets a new low for 5G hype. What I found most disturbing is that dozens of news sites picked up the story and basically spit back the AT&T press release and called it news. Those dozens of articles give the public the impression that 5G mobile is right around the corner, which is exactly what AT&T intended – they want the public to equate 5G and the AT&T brand name together. To be fair, there are several industry articles that didn’t buy into the AT&T hype.

The AT&T announcement also made this sound like a breakthrough technology by implying that this will deliver faster cellular speeds. There is a lot needed before there is a faster 5G cellular network. First, AT&T would need to install 5G transmitters on residential streets, requiring them to build neighborhood fiber networks. For the puck to work with millimeter wave spectrum AT&T would need to put a small antenna on the outside of a home to receive the signal since millimeter wave bandwidth won’t pass through the walls of a home. A network that will deliver residential millimeter wave cellular bandwidth is nearly identical to a network that would deliver 5G fixed broadband.

AT&T is not taking any of those needed steps. In fact, AT&T’s CTO Andre Fuetsch spent the fall repeatedly taking potshots at Verizon’s 5G deployment, saying that Verizon is making a mistake chasing the ‘fixed’ 5G market.

To further deflate this announcement, AT&T’s CFO John Stephens recently told AT&T investors to not expect any 5G revenues in 2019. He admitted it will take many years until there are enough 5G phones in the market to make a noticeable difference in revenues. It seems the only cellular carrier being truthful about 5G is T-Mobile which says it will begin introducing some 5G characteristics into their cell sites starting in 2020.

The bottom line is that AT&T just announced the release of a WiFi router that works off their 4G LTE network, but which supposedly will incorporate at least some aspects of the 3GPP NR standard. The company isn’t planning to charge for the product and it’s hard to envision anybody buying hotspot bandwidth at the prices they announced. But AT&T got what they wanted, which was dozens of news articles declaring that AT&T was the first to market with mobile 5G. I bet a decade from now that’s exactly what the Wikipedia article on 5G will say – and that’s all AT&T was really shooting for.

Remember the Dumb Pipe?

I recently read an article that warned that the big ISPS need to embrace artificial intelligence, software defined networks and cloud infrastructure if they don’t want to become a ‘dumb pipe’ provider. It reminded me that the small ISP industry heard this same warning a decade ago. Small telcos and cable companies were all warned by numerous industry experts that they were fated to just become dumb pipes.

After a couple of years the dumb pipe phrase passed out of our conversations, but the issues that led to that warning were all still in play. Even a decade ago we knew that services other than broadband had a dim long-term future.

A decade ago we saw landline penetrations dip below 90% from a high of around 98%. There were dire warnings everywhere that voice would soon be dead and that voice margins would evaporate. Since then we’ve seen a steady market decline of about 5% of total market share annually, but that means that even after a decade that landlines still have a nationwide penetration rate of about 40%. The decline hasn’t been spread evenly and I have clients with voice penetration rates ranging between 20% and 55%.

We also knew a decade ago that cable TV was going to be in trouble. Netflix had just gone online with pay-per-view movies in 2007, but nobody understood then how powerful online video would become. The real concern then was that small video providers were already seeing annual programming rate increases that neared double-digits and everybody feared that the public would not tolerate large annual rate increases forever. For most small providers this was the first time they had ever had to annually raise rates for a product and nobody was comfortable. But the lure of programming is strong, and even after a decade of rate increases that have easily doubled cable TV prices the national penetration rate is around 68% for traditional cable TV – not drastically below the 75% penetration of a decade ago. It turns out that the public still likes the programming more than they hate the rate increases.

The real fear of becoming a dumb pipe a decade ago was that small ISPs would have to survive on nothing but broadband revenues. A decade ago small ISPs had broadband penetration rates in the 40% to 50% range and when they did the math they didn’t foresee that as enough revenue to replace the shrinking landline and video revenues. Many small telcos were so sure about the downfall of the small ISP industry that of them sold their businesses, fearing they’d never see a higher valuation.

However, since then we’ve seen broadband penetration rates continue to grow and roughly 84% of homes nationwide now pay for a broadband connection. Rising broadband penetration rates settled the fears of many small ISPs who are still in business.

Interestingly, many small ISPs have not raised broadband rates since a decade ago. It’s been hard to justify raising rates when the big ISPs also didn’t raise rates. Urban broadband that was overpriced a decade ago looks like more of a bargain after a decade of steady rates.

The good news for small ISPs is that the big ISPs are now poised to significantly raise broadband rates. In November we just saw Charter raise the broadband price for bundled customers by $5 per month – an increase that is unprecedented in the industry. Wall street analysts are telling the big cable companies that the market can bear broadband rates as high as $90, and they seem to be listening. As the big ISPs raise broadband rates, small ISPs will be able to ride the coattails and edge rates higher – knowing that for them that rate increases will go straight to the bottom line.

I don’t see any small ISPs who are worried about becoming the dumb pipe – because most of them are already there. If they still offer cable TV, they do so for customer convenience because the product has no margin. Small ISPs continue to lose landline customers, but they now understand that they can survive on broadband and related products like managed WiFi.

The main issue facing small ISPs these days is economy of scale. It’s clear that when broadband represents most of the margin of an ISP that profits come by controlling costs. The best way to control costs is not by tightening the belt, but by gaining customers to better spread existing costs. I see many small ISPs doing the math and aggressively pursuing new broadband customers. Far from fearing being a dumb pope provider, I see small ISPs enthusiastically embracing that role and growing their customers and their margins.

Telecom Predictions for 2019

It’s that time of year when I look forward at what the next year might bring to the industry. I see the following as the biggest telecom trends for 2019:

5G Will Not Save the World (or the Industry). This will be the year when we will finally stop seeing headlines about how 5G will transform society. There will be almost no actual introduction of 5G in networks, but we’ll still see numerous press releases by the big ISPs crowing about fictional 5G achievements.

CAF II Buildout Nearly Complete, but Few Notice. The CAF II upgrades will not have the impact hoped for by the FCC. Many areas that should have gotten speed increases to at least 10/1 Mbps will get something less, but nobody will officially monitor or note it. Households that buy the upgrades to 10/1 will still feel massively underserved since those speeds are already seriously obsolete.

People Will Wonder Why They Bought 5G Cellphones and 802.11ax Routers. The wireless carriers will begin charging premium prices for 5G-capable cellular phone yet there will be no 5G cell sites deployed. Households will upgrade to 802.11ax WiFi routers without realizing that there are no compatible devices in the home. Both sets of customers will feel cheated since there will be zero improvement in performance. Yet we’ll still see a few articles raving about the performance of each technology.

FCC Will Continue to Work Themselves out of the Regulatory Business. The current FCC will continue on the path to deregulate the large carriers to the fullest extent possible. They will continue to slant every decision in the direction of the big ISPs while claiming that every decision helps rural broadband.

Rural America Will Realize that Nobody is Coming to Help. I predict that hundreds of rural communities will finally realize that nobody is bringing them broadband. I expect many more communities to begin offering money for public/private partnerships as they try desperately to not fall on the wrong side of the broadband divide.

Broadband Prices Start to Climb. 2019 will be the first year that the world will notice the big ISP strategy to significantly increase broadband prices. We saw the first indication in November when Charter increased bundled broadband prices by $5 per month – the biggest broadband price increase in my memory. All the big ISPs are hoping to have broadband prices to $90 within 5 – 7 years.

Corporate Lobbyists Will Drive Policy. In 2018 there were numerous FCC decisions that came straight from the pens of telecom lobbyists. In 2019 those lobbyists will drive state and federal telecom legislation and FCC decisions.

Comcast and Charter Continue to Eat into Cellular Market. These two cable companies will quietly, yet significantly begin eating into the cellular markets in urban areas. I still don’t expect a major reaction by the cellar companies, but by 2020 we should start seeing cellular prices take another tumble.

Household Bandwidth Usage Will Continue to Grow. There will be no slowdown in the growth of household broadband as homes add many more bandwidth-capable devices to their homes. Another few million customers will cut the cable TV cord and ratchet up bandwidth usage. Online programming will routinely first offer 4K video and we’ll see the first commercial 8K video online.

We’ll See First Significant Launches of LEO Satellites. There will be little public notice since the early market entries will not be selling rural broadband but will be supporting corporate WANs, cellular transport and the development of outer space networks between satellites.

25 New Online Programmers Emerge. There will be a flood of new online programming options as numerous companies jump into the market. We won’t see many, and possibly no failures this year, but within a few years the market reality will drive out companies that can’t gain enough market share.

Transport Price Pressure Tightens. Anybody selling transport to cellular companies will see big pressure to lower prices. Those who ignore the pressure will find out that the carriers are willing to build fiber to bypass high costs.

Big Companies Will Get Most New Spectrum. The biggest ISPs and cellular carriers will still gobble up the majority of new spectrum, meaning improved spectrum utilization for urban markets while rural America will see nearly zero benefits.

Americans Love Their Media

One of the best sources for understanding trends in media consumption is Nielsen. Their recently released Total Audience Report for the second quarter of 2018 supplies detailed statistics on how Americans consume media including live TV, radio, Internet Browsing, gaming and smart phones. They are the only ones I know who pull this all together and who also trend media usage over time.

Media in general is a major factor in the life of US adults. In the second quarter of this year the average adult spent an average of 10 hours and 45 minutes per day using some form of media. That usage varies by age with adults aged 50-64 at the highest with an average of 11 hours and 49 minutes per day. What might surprise many is that adults aged 18-34 were the lowest demographic at just over 8 hours of media use per day.

The time spent on various types of media is intriguing. Live and time-shifted TV is still king and the average adult watches TV for 4 hours and 21 minutes per day. Next is using apps on smart phones at 2 hours 19 minutes per day. Radio usage is third with an average of 1 hour 49 minutes per day. Smaller categories include game consoles at 44 minutes per day, using tablets at 43 minutes per day and browsing the Internet on a computer at 32 minutes per day.

As we’ve known from the long-time tracking from Nielsen, the hours watching TV varies widely by age group. Adults over 65 watch TV almost 7 hours per day. But a statistic that scares the whole television industry is that adults aged 18-34 are only watching an average of 2 hours per day. There have been several studies over the last few years that concluded that television viewing habits adopted when we are young carry forward for life. Those over 65 are from the generation stretching back to the birth of TV and it’s still an important part of their life, while younger people have chosen other ways to consume media. This doesn’t bode well for the future of TV.

Some other categories of usage have become common for everybody. All adults under 65 now spend between 2 and 3 hours per day using apps on a smartphone. Those over 65 are at about half that usage. Also, average usage of tablets is about 46 minutes per day for everybody over 34, and at 33 minutes per day for those under 34.

Another interesting statistic is how we use media throughout the day. We’re all familiar with the fact that TV usage peaks in the evenings with viewing at prime time double the TV viewing for the rest of the day. But interestingly, the use of combined digital media – smartphones, computers and tablets – is consistent from 8 AM through bedtime.

Another interesting statistic is what Nielsen calls reach – what percentage of adults are touched by a given media during the week. The leader in this category is radio that reaches 92% of adults at least once during a week. Next is live and time-shifted TV that reaches 87% of us. Smart phone apps reach 78% of adults during a week, and Internet on a computer reaches 54% of people each week.

There are some other interesting statistics in the report. 24% of households now have a smart speaker device like the Amazon Echo. That’s pretty amazing for a technology that didn’t exist just three years ago. 19% of adults listen to a podcast each week. 15% of us now listen to satellite radio. I would guess that many people would think that social media has overtaken our lives, but the average adult spends 44 minutes per day on a social media platform.

Another interesting statistic is how we watch TV. Almost 83% of adults watch TV in some manner. 81% of them still watch traditional cable TV; 13% watch TV using an antenna and 6% watch TV on the Internet. It’s easy for us in the Industry to think that Internet TV has taken over the industry, but most households are still watching TV the traditional way. This statistic should scare network planners because it highlights the huge amount of video that could transition to online in the future.

Of course, none of us are average and I doubt that anybody that reads this matches the overall statistics. Like other baby boomers I grew up in a time when the only media available was TV and radio and it’s always interesting to pause and consider the huge number of options we have today. These options mean we all use media in our own individual way. It’s still interesting, though, to see how our individual use of media aggregates into a national average – which is what drives the telecom industry we work in.