Hidden Fees Adding Up

Consumer Reports recently published a special report titled “What’s the Fee?: How Cable Companies Use Hidden Fees to Raise Prices and Disguise the True Cost of Service”. Cable companies have advertised prices for many years that are significantly lower than the actual bills customers see – but the CR report shows that the size of the fees has grown significantly over the last few years.

The report lists several specific examples. For example, the broadcast fee and the regional sports fees at Comcast increased from $2.50 in 2015 to $18.25 currently. The broadcast fee supposedly covers the cost of buying local network channels – ABC, CBS, FOX, and NBC. The regional sports fee can cover the cost of channels carrying regional college and pro sports. In both cases, the cable companies never disclose the actual fees they pay that are covered by these fees.

The report shows that Charter increased its broadcast fee three times in the last year, starting at $8.85 in October 2019 to reach $13.50 per month in October 2019.

It’s not hard to understand why customers are confused by the many fees. The report points out that some cable bills have more than a dozen line items, which are a mix of rates for products, external taxes and fees, and these various ‘hidden’ fees – meaning they are usually not disclosed when advertising the products.

In addition to the Broadcast TV fee and the Regional sports fees the report lists the following other fees:

  • Settop box rental fee. This is to recover the cost of the settop box hardware. For many years this fee was around $5 monthly for most cable providers, but this is an area that has also seen big price increases in recent years and the highest rate I’ve seen was $12 per month. This is to recover a settop box, which for small ISPs costs a little over $100, and must cost less for the big cable companies.
  • Cable Modem / WiFi Router. This is the fee with perhaps the biggest range of pricing – some ISPs don’t charge for this while others are charging more than $10 per month.
  • HD Technology Fee. This fee used to be charged by almost every cable company back when they started offering HD channels (a decade ago many channels were offered in both an HD and an analog format). Now that the whole industry has largely gone to digital programming, CR reports the only company still charging this fee is Comcast.
  • Internet Service Fees. This is a relatively new fee that gets billed to anybody buying Internet Access. The report highlights the fees charged by RCN and Frontier.
  • Administrative and Other Fees. These are often fees under various names that don’t cover any specific costs. However, some fees are specific – I just read an article describing a $7 fee to business customers by AT&T in California to recover property taxes.

Consumer Reports collected a number of sample bills from customers and reports that the average monthly company-imposed fees for the bills they analyzed averaged to $22.96 for AT&T U-verse, $31.28 for Charter, $39.59 for Comcast, $40.16 for Cox, and $43.79 for Verizon FiOS. They estimate that these fees could total to at least $28 billion per year nationwide.

To be fair to the cable providers, these fees are not all profits. The companies pay out substantial retransmission fees for local content and pay a lot for sports programming. However, some of the fees like settop box and modem rentals are highly profitable, generating revenues far above the cost of the hardware. Some of the fees like administrative fees are 100% margin for the companies.

Consumer Reports advocates for legislation that would force cable companies and ISPs to fully disclose everything on bills, similar to what happened with the airline industry in 2011 with the Full Fare Advertising Rule. CR believes that the FCC has the authority to require such transparency without legislation.

Buying Big Telco Properties

Over the years I have helped several clients buy telephone properties from the big telcos. This stretches back to over 30 years ago when US West sold off some rural exchanges in the Dakotas. Over the years I’ve had some role in other transactions where bigger telcos sold off an exchange or group of exchanges around the country.

I’m writing about this today because this topic is coming up again after a hiatus of a few years when there weren’t many such transactions. A few of the big telcos have quietly put parts of their historic footprint up for sale, or they are now willing to talk about selling. The following are a few issues that anybody thinking about buying a big telco company property should consider.

Condition of Network Assets. The assets from big telcos are in sad shape. Big telco copper networks are ancient. I remember helping two different parties examine the possibility of buying a large Verizon property twenty years ago and the copper networks were already in bad shape then. The big telcos began ignoring copper networks soon after divestiture in 1984 and have completely abandoned maintenance in the last few decades. Some rural telco properties have a significant amount of backbone fiber, but even much of that is getting old. Some properties have seen a recent flurry of new fiber due to the CAF II program, but this is generally not extensive. All of the other assets like buildings, huts, cabinets, and vehicles are likely to be old and tired.

Staffing Will Be Sporadic. Often when somebody buys a smaller telco, they have a chance to pick up a qualified staff. This is important because inheriting a staff means inhering institutional memory. The employees know the customers and know the nuances of the network.

You don’t generally get that when buying big telco properties. Generally, such purchases only come with maybe a few outside technicians. Big telcos still largely perform many telco functions remotely – customer service reps will be done in distant call centers. You’ll get nobody who knows about provisioning, billing, pricing, or anything related to backoffice. The outside technicians available in the purchase are often older and near to retirement age. They are going to be unionized, which might cause them to not take a job with a buyer who’s not unionized.

Records Will Be Dreadful. The big telco will promise to give you all of the records you need to operate the business, but this will turn out to largely be a fantasy. It will turn out that many maps were never created, that customer service records are wrong, that the records showing the facilities used to serve each customer are incomplete or full of errors. This is the primary reason why customers complain about a new buyer of a big telco property because, without the records, a buyer will struggle for 6 to 8 months to figure out the business. I worked with one buyer who was still discovering unbilled circuits many years after a purchase.

Transition Costs Will be High. For the various reasons listed above, the costs to transition from the old telco to new systems and employees will be higher than expected. You’ll find yourself throwing money at trying to straighten out things like billing.

There Will be Surprises. Regardless of the preparation effort for a transition, buying a big telco property will mean some big ugly surprises. Maybe 911 circuits will go dead. Perhaps there will be no SS7 connection. Maybe emails will crash. There will be database issues and some customers will be unable to make or receive calls. Expect the first two months after the purchase to be putting out fires and dealing with irate customers.

One thing will not be a surprise. With a month or two, the public will decide that the new provider is no better than the old big telco. The telcos have already been bleeding customers and a new buyer is likely to lose up to 10% of the customer base in the first year.

Why Do You Want to Buy? I challenge any potential buyer to answer this question. It’s almost unimaginable to consider buying a big telco property without plans for upgrading or overbuilding it. The question to ask is if it’s not better to just selectively overbuild rather than buying a property and then paying again to overbuild. The math may favor buying first and then overbuilding due to the existing revenue stream. But there is also a good chance that with honest math that recognizes the reality of the transition that buying is a terrible decision. Going straight to overbuilding avoids many regulatory burdens such as being the carrier of last resort and avoids serving remote customers who are too expensive to upgrade. Overbuilders are loved by the public – something a buyer of a big telco property can only dream about.

Do Cable Companies Have a Wireless Advantage?

The big wireless companies have been wrangling for years with the issues associated with placing small cells on poles. Even with new FCC rules in their favor, they are still getting a lot of resistance from communities. Maybe the future of urban/suburban wireless lies with the big cable companies. Cable companies have a few major cost advantages over the wireless companies including the ability to bypass the pole issue.

The first advantage is the ability to deploy mid-span cellular small cells. These are cylindrical devices that can be placed along the coaxial cable between poles. I could not find a picture of these devices and the picture accompanying this article is of a strand-mounted fiber splice box – but it’s s good analogy since the size and shape of the strand-mounted small cell device is approximately the same size and shape.

Strand-mounted small cells provide a cable company with a huge advantage. First, they don’t need to go through the hassle of getting access to poles and they avoid paying the annual fees to rent space on poles. They also avoid the issue of fiber backhaul since each unit can get broadband using a DOCSIS 3.1 modem connection. The cellular companies don’t talk about backhaul a lot when they discuss small cells, but since they don’t own fiber everywhere, they will be paying a lot of money to other parties to transport broadband to the many small cells they are deploying.

The cable companies also benefit because they could quickly deploy small cells anywhere they have coaxial cable on poles. In the future when wireless networks might need to be very dense the cable companies could deploy a small cell between every pair of poles. If the revenue benefits of providing small cells is great enough, this could even prompt the cable companies to expand the coaxial network to nearby neighborhoods that might not otherwise meet their density tests, which for most cable companies is to only build where there are at least 15 to 20 potential customers per linear mile of cable.

The cable companies have another advantage over the cellular carriers in that they have already deployed a vast WiFi network comprised of customer WiFi modems. Comcast claims to have 19 million WiFi hotspots. Charter has a much smaller 500,000 hotspots but could expand that count quickly if needed. Altice is reportedly investing in WiFi hotspots as well. The big advantage of WiFi hotspots is that the broadband capacity of the hotspots can be tapped to act as landline backhaul for cellular data and even voice calls.

The biggest cable companies are already benefitting from WiFi backhaul today. Comcast just reported to investors that they added 204,000 wireless customers in the third quarter of 2019 and now have almost 1.8 million wireless customers. Charter is newer to the wireless business and added 276,000 wireless customers in the third quarter and now has almost 800,000 wireless customers.

Both companies are buying wholesale cellular capacity from Verizon under an MVNO contract. Any cellular minute or cellular data they can backhaul with WiFi doesn’t have to be purchased from Verizon. If the companies build small cells, they would further free themselves from the MVNO arrangement – another cost savings.

A final advantage for the cable companies is that they are deploying small cell networks where they already have a workforce to maintain the network. Bother AT&T and Verizon have laid off huge numbers of workers over the last few years and no longer have the fleets of technicians in all of the markets where they need to deploy cellular networks. These companies are faced with adding technicians where their network is expanding from a few big-tower cell sites to vast networks of small cells.

The cable companies don’t have nearly as much spectrum as they wireless companies, but they might not need it. The cable companies will likely buy spectrum in the upcoming CBRS auction and the other mid-range spectrum auctions over the next few years. They can use the 80 MHz of free CBRS spectrum that’s available everywhere.

These advantages equate to a big cost advantage for the cable companies. They save on speed to market and avoid paying for pole-mounted small cells. Their networks can provide the needed backhaul for practically free. They can offload a lot of cellular data through the customer WiFi hotspots. And the cable companies already have a staff to maintain the small cell sites. At least in the places that have aerial coaxial networks, the cellular companies should have higher margins than the cellular companies and should be formidable competitors.

Nielsen’s Law of Internet Bandwidth

One of the more interesting rules-of-thumb in the industry is Nielsen’s Law of Internet bandwidth, which states that:

  • A high-end user’s connection speed grows by 50% per year.

This ‘law’ was postulated by Jakob Nielsen of the Nielsen Norman Group in 1998 and subsequently updated in 2008 and 2019. Nielsen started by looking at usage for himself and other big data users, going back to a 300 bps (bits per second) modem used in 1984. In 1998 Nielsen had measured growth at 53% annually and rounded to 50%. In the ten years from 1998 to 2008, he had measured growth to be 49% annually. At least for himself and other big data users, this ‘law’ has held steady for 36 years.

While this is not really a law, but rather an interesting observation, it’s something that all ISPs should notice. In my time in the industry, I’ve seen the bandwidth use of the largest users grow at a faster pace than everybody else. This is something every network engineer ought to keep in mind when designing networks.

Consider bandwidth at schools. I recall seeing some schools get gigabit connections a decade ago. When first installed the gigabit connections seemed to be oversized and schools wondered at the time if they needed that much bandwidth. But since then they’ve figured it out and many schools have grown past a gigabit connection and want a lot more. School networks that were thrilled to find an ISP that could provide a gigabit of bandwidth are now looking to build private fiber networks as the most affordable solution for satisfying the bigger bandwidth needs they see coming in future years.

We’ve seen the same thing at hospitals, factories, and other large businesses that have embraced the cloud. Businesses subscribe to large data pipes and then outgrow them in only a few years.

Network engineers are generally cautious people because they have to balance capital budgets against future broadband demand. Given an unlimited budget, many network designers would oversize data pipes, but they don’t like to be accused of wasting money. I can’t even count the number of times I’ve heard from network engineers who thought they were designing a network ready for the next decade only to find it full in half that time.

Nielsen points out a statistic that most of us have a hard time grasping. A network experiencing 50% annual growth will use over 57 times more data a decade from now than used today. He compares the growth of bandwidth to Moore’s law that says that computer chip capacity doubles every 18 months. That works out to mean over 100 times from capacity after a decade of growth.

The only place we see this kind of rampant growth for entire networks today is urban cell sites where data usage is doubling every two years. That’s a startling growth rate when you think of it in real terms. A cellular carrier that finds a way to double the capacity of an urban cellular network will see that new capacity gobbled up within two years.

It’s not hard to understand why the cellular industry is in a panic and is looking at every way possible to expand capacity. Interestingly the industry elected to hide their concern about growth behind the story that we need to do everything possible to enable 5G. I guess it’s hard for the cellular industry to expose their vulnerabilities by instead just telling the public that they need to greatly expand cellular capacity. This need for capacity is why they are building small cell sites, buying more spectrum and pushing their labs to finish the development of 5G – they need all three of those things just to keep up with growing demand.

All network owners need to acknowledge that there are parts of their network where the demand is growing faster than average, and any network updates should make certain that the largest customers get the future capacity they are sure to need.

Mapping Cellular Data Speeds

AT&T recently filed comments in Docket 19-195, the docket that is looking to change broadband mapping, outlining the company’s proposal for reporting wireless data speeds to the FCC. I think a few of their recommendations are worth noting.

4G Reporting. Both AT&T and Verizon support reporting on 4G cellular speeds using a 5 Mbps download and 1 Mbps upload test with a cell edge probability of 90% and a loading of 50%. Let me dissect that recommendation a bit. First, this means that customer has a 90% chance of being able to make a data connection at the defined edge if a cell tower coverage range.

The more interesting reporting requirement is the 50% loading factor. This means the reported coverage area would meet the 5/1 Mbps speed requirement only when a cell site is 50% busy with customer connections. Loading is something you rarely see the cellular companies talk about. Cellular technology is like most other shared bandwidth technologies in that a given cell site shares bandwidth with all users. A cell site that barely meets the 5/1 Mbps data speed threshold when it’s 50% busy is going to deliver significantly slower lower speeds as the cell site gets busier. We’ve all experienced degraded cellular performance at rush hours – the normal peak times for many cell sites. This reporting requirement is a good reminder that cellular data speeds vary during the day according to how many people are using a cell site – something the cellular companies never bother to mention in their many ads talking about their speeds and coverage.

The recommended AT&T maps would show areas that meet the 5/1 Mbps speed threshold, with no requirement to report faster speeds. I find this recommendation surprising because Opensignal reports the average US speeds of 4G LTE across America is as follows:

2017 2018
AT&T 12.9 Mbps 17.87 Mbps
Sprint 9.8 Mbps 13.9 Mbps
T-Mobile 17.5 Mbps 21.1 Mbps
Verizon 14.9 Mbps 20.9 Mbps

I guess that AT&T favors the lowly 5/1 Mbps threshold since that will show the largest possible coverage area for wireless broadband. While many AT&T cell sites provide much faster speeds, my guess is that most faster cell sites are in urban areas and AT&T doesn’t want to provide maps showing faster speeds such as 15 Mbps because that would expose how slow their speeds are in most of the country. If AT&T offered faster speeds in most places, they would be begging to show multiple tiers of cellular broadband speeds.

Unfortunately, maps using the 5/1 Mbps criteria won’t distinguish between urban places with fast 4G LTE and more rural places that barely meet the 5 Mbps threshold – all AT&T data coverage will be homogenized into one big coverage map.

About the only good thing I can say about the new cellular coverage maps is that if the cellular companies report honestly, we’re going to see the lack of rural cellular broadband for the first time.

5G Broadband Coverage. I don’t think anybody will be shocked that AT&T (and the other big cellular companies) don’t want to report 5G. Although they are spending scads of money touting their roll-out of 5G they think it’s too early to tell the public where they have coverage.

AT&T says that requiring 5G reporting at this early stage of the new technology would reveal sensitive information about cell site location. I think customers who pony up extra for 5G want to know where they can use their new expensive handsets.

AT&T wants 5G coverage to fall under the same 5/1 Mbps coverage maps, even though the company is touting vastly faster speeds using new 5G phones.

It’s no industry secret that most of the announced 5G deployment announcements are mostly done for public relations purposes. For example, AT&T is loudly proclaiming the number of major cities that now have 5G, but this filing shows that they don’t want the public to know the small areas that can participate in these early market trials.

If 5G is a reasonable substitute for landline broadband, then the technology should not fall under the cellular reporting requirements. Instead, the cellular carriers should be forced to show where they offer speeds exceeding 10/1 Mbps, 25/3 Mbps and 100/10 Mbps, and 1 Gbps. I’m guessing a 5G map using these criteria would largely show a country that has no 5G coverage – but we’ll never know unless the FCC forces the wireless companies to tell the truth. I think that people should be cautious about speeding extra for 5G-capable phones until the cellular carriers are honest with them about the 5G coverage.

NFL City Broadband

Every few years a large city takes a hard look at the broadband issue and considers building a citywide fiber network to make their city more competitive. A few years ago, San Francisco took a hard look at the issue. Before then, cities like Seattle, Baltimore, Cleveland, and others considered fiber networks.

The latest city that might be joining the fray is Denver where fiber proponents are pushing the City Council to have a 2020 ballot initiative for removing statewide restrictions on municipal participation in finding fiber solutions. Numerous smaller communities in Colorado have already held ballot initiatives that allowed their cities to opt-out of the restriction. Some of those cities have gone on to build fiber networks and others are now studying the issue.

If such a ballot initiative passed it would not necessarily mean that Denver would be considering building a fiber network. Instead, this would remove the restrictions created by a law sponsored by the big incumbent telephone and cable companies that requires a referendum before a city can even have a serious conversation about fiber.

A lot of people probably wonder why a large city would consider building a fiber network. It turns out that many cities have sizable pockets without adequate broadband. There are places in every big city where the cable companies never provided service – often to apartment buildings in poor neighborhoods. I’ve written several blogs about studies that show that AT&T redlined DSL deployment and that numerous poor neighborhoods still can only get DSL with speeds of 3 Mbps or less. I can’t remember any more who made the estimate, but I recall a paper published six or seven years ago that estimated that there were as many people in cities with no good broadband option as there are in rural America.

Even where cities have broadband, the big cities still have digital deserts where whole neighborhoods barely subscribe to broadband because of cost. The city of Buffalo, NY identified that the city has a huge homework gap and found that many students there didn’t have broadband. After some investigation, the city found that there were numerous neighborhoods where only 30 – 40% of residents could afford broadband. Buffalo has begun a program to provide free home WiFi for students, with the first deployment to cover 5,500 homes.

There have been several recent studies that have shown that affordability has become the number one reason why homes don’t have broadband. That issue is about to intensify as all of the big cable companies are starting to raise broadband rates annually. The big cable companies are also tamping down on special pricing that lets many homes get broadband for an affordable rate for a few years. Cities are recognizing that they have to find ways to solve the digital divide because they can see a huge difference between neighborhoods with and without broadband.

No NFL city has yet tackled building a fiber network to everybody, and perhaps none of them ever will. Building a fiber network of that magnitude is expensive and cities like San Francisco and Seattle got estimates of price tags over $1 billion to provide fiber everywhere. All big cities also already have some neighborhoods with fiber, making it harder to justify building fiber everywhere.

However, every big city has neighborhoods with poor broadband options and neighborhoods suffering from a huge homework gap and digital divide because of affordability. I expect more cities are going to tackle initiatives like the one undertaken in Buffalo to find ways to get broadband to those who can’t afford big-ISP prices.

Many cities are restricted from taking a serious look at broadband solutions because of statewide legal restrictions. The Colorado legislation that requires a referendum just to consider a broadband solution is typical of these laws. There are twenty-two states with some sort of restriction on municipal broadband which is intended to stop the cities in those states from looking for solutions.

The bottom line is that the only solutions for the digital divide and the homework gap are going to have to come locally. And that means that cities must be free to look for broadband solutions for neighborhoods that lack broadband options. There have been enough studies that demonstrate that students without home broadband underperform those with broadband in the home. I have no idea if the City Council in Denver is willing to at least tackle the ballot initiative to allow them to talk about the issue – but if they don’t, then their poorer neighborhoods are doomed to remain at a huge disadvantage to the rest the city.

Using Wireless Backhaul

Mike Dano of Light Reading reports that Verizon is considering using wireless backhaul to reach as many as 20% of small cell sites. Verizon says they will use wireless backhaul for locations where they want to provide 5G antennas but can’t get fiber easily or affordably. The article sites an example of using wireless backhaul to provide connectivity where it’s hard to get the rights-of-way to cross railroad tracks.

This prompts me today to write about the issues involved with wireless backhaul. Done well it can greatly expand the reach of a network. Done poorly it can degrade performance or cause other problems. This is not an anti-Verizon blog because they are one of the more disciplined carriers in the industry and are likely to deploy wireless backhaul the right way.

Dano says that Verizon has already addressed one issue that is of concern today to municipalities that are seeing small cell deployments. Cities are worried about small cell devices that are large and unsightly. There are already pictures on the web of small cells gone awry where a mass of different electronics are pole-mounted to create an unsightly mess. Verizon describes their solution as integrated, meaning that no additional external antennas are needed – implying that the backhaul is likely using the same frequencies being used to reach customers. The small cell industry would do well to take heed of Verizon’s approach. It looks like courts are siding with municipalities in terms of being able to dictate aesthetic considerations for small cells.

Another issue to consider is the size of the wireless backhaul link. For instance, if Verizon uses millimeter wave backhaul there is a limitation today of being able to deliver about 1-gigabit links for 2 miles or 2-gigabit links for about a mile. The amount of bandwidth and the distance between transmitters differ according to the frequency used – but none of the wireless backhaul delivery technologies deliver as much bandwidth as fiber. Verizon has been talking about supplying 10-gigabit links to cell sites using next-generation PON technology. Wireless backhaul is going to be far less robust than fiber. This is likely not an issue today where many cell sites are using less than 2 gigabits of bandwidth. However, as the amount of broadband used by cellular networks keeps doubling every few years it might not take long for many cell sites to outgrow a wireless backhaul link.

The primary issue with wireless backhaul is the bandwidth dilution from feeding multiple wireless sites from one fiber connection. Consider an example where one cell site is fiber-fed with a 10-gigabit fiber backhaul. If that site them makes 2-gigabit wireless connections to four other cell sites, each of the 5 sites is now upward limited to 2 gigabits of usage. The bandwidth of the four secondary sites is limited by the 2-gigabit link feeding each one. The core site loses whatever bandwidth is being used by the other sites.

That’s probably a poor example because today most cell sites use less than 2 gigabits of bandwidth. Verizon’s use of 10-gigabit fiber backhaul moves them ahead of the rest of the industry that has cell sites with 1- to 5-gigabit backhaul connections today. The weaknesses of wireless backhaul are a lot more apparent when the wireless network beings at a site that only has a 1- or 2-gigabit fiber connection.

I’m sure that over time that Verizon plans to build additional fiber to relieve network congestion. Their use of wireless backhaul is going to push off the need for fiber by a decade or more and is a sensible way to preserve capital today.

The issues with wireless backhaul are far more critical for carriers that don’t have Verizon’s deep pockets, fiber networks, or discipline. It’s not hard today to find wireless networks that have overdone wireless backhaul. I’ve talked to numerous rural customers who are buying fixed wireless links from WISPs who are delivering only a few Mbps of bandwidth. Some of these customers are getting low speeds because they live too far away from the transmitting tower. Sometimes speeds are low because a WISP oversold the local antenna and is carrying more customers than the technology comfortably can serve.

But many rural wireless systems have slow speeds because of overextended wireless backhaul. In many cases in rural America, there are no fiber connections available for fixed wireless transmitters, which are often installed on grain elevators, water towers, church steeples or tall poles. I’ve seen networks that are making multiple wireless hops from a single gigabit fiber connection.

I’ve also seen preliminary designs for wireless ‘mesh’ networks where pole-mounted transmitters will beam wireless broadband into homes. Every wireless hop in these networks cuts the bandwidth in half at both radio sites (as bandwidth is split and shared). If you feed a mesh wireless network with a gigabit of bandwidth, then by the fifth hop a transmitter only sees 62 Mbps of raw bandwidth (which is overstated because by not accounting for overheads). It’s not hard to do the math to see why some rural wireless customers only see a few Mbps of bandwidth.

I’m sure that Verizon understands that many of the cell sites they serve today wirelessly will eventually need fiber, and I’m sure they’ll eventually build the needed fiber. But I also expect that there will be networks built with inadequate wireless backhaul that will barely function at inception and that will degrade over time as customer demand grows.

Cable Companies and 10 Gbps

One topic covered extensively at the recent SCTE-ISBE Cable-Tec Expo in New Orleans was the ability of cable networks to deliver 10 Gbps broadband to customers. The fact that this is even being discussed is a testament to the fact that big ISPs all acknowledge the huge growth of demand from consumer and business broadband in the country.

Most urban cable companies just made the upgrade to DOCSIS 3.1 in the last year or so that allows them to offer gigabit products to customers. Everybody acknowledges that the need for 10 Gbps products is likely at least a decade away, but now is the time to start the technology research needed to create a product in that timeframe.

It’s been clear for some time that cable companies don’t want to lose the speed battle and are working to compete against the introduction of fiber in urban markets. The number of households being passed by fiber continues to grow. AT&T built past millions of homes in the last few years, mostly in small pockets around existing fiber nodes. CenturyLink even built residential fiber for a few years before abandoning the concept to concentrate on building fiber to businesses. It’s not clear who might build urban and suburban fiber, but the fact that the cable companies are looking at 10 Gbps speeds means they think that somebody will do so.

Other than some limited cases, most fiber providers are still building fiber networks with 1 Gbps fiber speeds. Verizon is building a 10 Gbps fiber network to supply bandwidth to small cell sites but is not yet using the new technology in the FiOS network. The whole fiber industry is waiting for one of the big ISPs to embrace 10 Gbps products to help pull down equipment prices, but that doesn’t look likely to happen any time soon.

There are significant upgrades needed for the cable industry to offer 10 Gbps speeds. A 10 Gbps downstream data path requires 1.3 GHz of bandwidth, which is greater in capacity than all but a handful of cable networks. Adding a decent upload data stream and still carry TV channels means that cable systems will need to upgrade to 2 – 3 GHz of bandwidth. That’s a major upgrade and would likely require replacing most or all of the amplifiers and power taps in the outside coaxial cable network. This would also likely require some replacement of older coax cable. Upgrading to faster speeds would mean an upgrade to headends as well as to the millions of DOCSIS modems sitting in customer homes.

I’ve heard speculation that cable companies will consider an upgrade to fiber rather than going to 10 Gbps over DOCSIS. Almost every cable company is now using PON technology when building to greenfield subdivisions. While it’s expensive to build fiber to every home, almost every CEO of the big cable company has acknowledged that their eventual future is with fiber. Altice is already pursuing the upgrade to fiber and other cable companies will all eventually consider it.

There are always skeptics of the need for big bandwidth and many in the industry scoff at gigabit broadband today as nothing more than a marketing ploy. What the critics ignore is that the world grows into larger bandwidth over time. Residential broadband usage is currently growing at a rate of about 21% annually in terms of both total monthly downloads and of desired customer speeds. When gigabit products were first introduced, they were 40 times faster than the average broadband product at that time of about 25 Mbps.

There will inevitably be new uses of bandwidth that will require faster speeds. Just as one example, I saw that Verizon had acquired the products of the augmented reality firm Jaunt. We have all been promised the future ability to hold virtual hologram meetings, and when somebody develops such a product it’s going to sweep the country.  When that happens, households will be bouncing up against the gigabit speed limit and asking for more. I also ask the cable companies to not forget my holodeck – I’m still waiting.

Farm Access to Broadband

The US Department of Agriculture has been measuring computer usage on farms and publishes the results every two years in its Farm Computer Usage and Ownership report. The most recently released report for 2019 was compiled by asking questions to 20,000 farmers. This is a large sample from the more than 2 million farms in the country.

One of the key findings of the report is that 75% of farms reported having access to to the Internet in 2019, up from 73% in 2017. The breakdown of farms by type of connection is as follows:

2017 2019
Satellite 23% 26%
DSL 28% 22%
Cellphone 19% 18%
Cable 16% 16%
Fiber 9% 12%
Dial-up 3% 3%
Other 2% 3%

There are a few notable highlights in these numbers.

  • First, farms are abandoning rural DSL, as are many other customers. If CAF II upgrades had been done right, the DSL category ought to at least be holding even.
  • I also find it surprising that fixed-wireless isn’t listed as a choice. Fixed wireless is now available in many parts of the country. While many WISPs today offer slow broadband speeds, this category of connections should grow as speeds improve significantly over the next few years.
  • It’s a national shame that 3% of farms are still stuck with dial-up.
  • Far too many farms still use their cellphone for Internet access.

The report is also an interesting way to look at general broadband availability in rural America. For example, a few states have a high fiber coverage rate to farms, such as North Dakota (61%), Montana (39%), and South Dakota (36%). Other states have practically no broadband to farms, such as California and Louisiana at 1%, and other states below 5% including Georgia, Michigan, New York, Ohio, Pennsylvania, and South Carolina.

The states with the biggest reliance on cellphones for farm broadband include Louisiana (52%), Michigan (37%), and Florida (34%).

The poor penetration rate of real broadband is further evidenced by the way that farmers conduct business. 49% of farmers used a desktop or laptop to conduct business in 2019 while 52% used their cellphone. 24% of farmers buy agricultural inputs over the Internet and only 19% use the Internet to sell their goods.

There has been a lot of press in the last few years talking about how technology is transforming farming. However, these innovations are not coming to farms that are stuck with dial-up, satellite or rural DSL technology.

We’ve seen that better broadband can come to farms by looking at the high fiber coverage of farms with fiber in Montana and the Dakotas. That fiber has been built using a combination of subsidies from the Universal Service Fund and low-cost loans from the USDA and cooperative banks. We know how to fix rural broadband – we just don’t have the national will yet to get it done.

Comcast Breaks Promise of Lifetime Prices

Barely a month goes by when I don’t read about a colossal failure of customer service by one of the big ISPs. The latest comes from Comcast, and the company seems to have broken a major promise made to customers.

When Google Fiber announced in 2016 that they were coming to Salt Lake City, Comcast decided to compete against Google Fiber by offering ‘lifetime’ prices for various bundles. For example, there was a triple play bundle at $120 per month plan that included broadband, cable TV and a telephone line. In anticipation of Google coming to the market, Comcast engaged in a door-to-door sales campaign that marketed the lifetime special and other discounts on Comcast products in an attempt to lock down customers before Google Fiber hit the market. Ironically, Google Fiber changed their mind and never made any significant investment in the market.

The lawsuit alleges that Comcast doorknockers promised customers the lifetime product and backed this up in writing that their price would be good for as long as the customer kept the plan. Customers were assured at each step of the process that they were buying a lifeline plan and that rates would never be increased. For example, Comcast customer service reps on the phone repeated the assurance that the prices would be good forever. The lawsuit asserts that as many as 20% of the 200,000 upgrades sold during the sales campaign in Utah were sold as lifetime plans.

As you might expect from the title of this blog, after a few years Comcast raised the prices on the lifetime plans. At that point, Comcast customer service denied any knowledge that these were lifetime rates and said they had never heard of such a plan. Comcast enforced the rate increases, some of which were substantial.

It’s hard to imagine that any company would sell a guaranteed lifetime price for a bundle that includes cable TV. The cost of buying wholesale programming has been increasing at 10% – 15% annually for many years. In a decade, any lifetime plan would be massively underwater. Additionally, Comcast is now in the mode of annually increasing broadband prices – but that’s not something that was probably discussed inside of the company in 2016.

It’s not hard to figure out how this could happen in a big corporation. I’m just speculating, but I expect the marketing campaign included an outside sales team. These sales teams get most of their compensation from completed sales and are famous in the industry for making outrageous claims to customers. I always caution my clients about hiring sales companies that bring entire sales teams in from out of state. While these companies will get sales, the worst of them often leave a trail of unhappy customers behind them. I would expect that this sales staff had some role in choosing the message of lifetime rates – something they know they can sell.

However, it had to be more than a rogue sales team that pushed the lifetime rates. Comcast customer service at the time was also telling the customers that the plans were lifetime rates. I’ve talked to several Comcast customer service reps over the years and they describe the customer care process at the company as chaotic. From what they’ve described it’s not hard to imagine the specific customer care group supporting the sales campaign also supported this effort because they also could make sales commissions. Many of the horror stories coming out Comcast customer care over the years have involved employees engaging in bad behavior to chase sales commissions.

But there also had to be local management buy-in of the plan. I’m sure we’ll never know, but it would be interesting to know if this was strictly a local management decision in Salt Lake City or if there was corporate buy-in. Comcast seems to have overreacted to Google Fiber elsewhere and it’s possible that this was a corporate plan.

This lawsuit highlights the difficulty in operating a huge ISP. Many big companies have seen sales commission plans gone awry. Inevitably, some employees find ways to maximize bonuses through bad behavior. We saw something similar from Wells Fargo bank last year and it’s hard for any giant corporation to strenuously push sales campaigns while also policing that employees don’t take advantage of the plans.

This story offers a few lessons for other ISPs. I am a huge believer in the efficacy of door-to-door sales plans done well. But there are unscrupulous outside firms that will sell anything for a high-enough commission. The best sales plan involves local people trained and managed by an ISP directly. The other lesson is that sales commission plans for non-salespeople must be carefully designed to not promote bad behavior.