Category Archives: The Industry

The Future of Triple Play Providers

HK_KEN~1I am asked often about what I see coming in the future and anyone who reads this blog knows that I look into the future a lot, be that two years, five years or 100 years. One thing that I have thought about a lot is the future of the small triple-play carriers that make up the majority of my client base. What is there business going to look like ten or fifteen years from now?

I see two very contrasting choices and I think every small carrier that survives into that time is going to have to choose one of these two paths. I think the choices are between being a dumb-pipe provider or a full service provider, and I don’t think there is much room for success to stay at status quo and be somewhere in the middle.

I think by now that everybody understands that cable TV penetration rates are going to erode over time as more and more people eschew the high price of cable TV and opt out for programming on the web. And there is always the chance at some point where the migration away from traditional cable could become a flood if somebody can find a way to get enough programming to the web to make that an attractive alternative.

A lot of small carriers today offer the triple play in a fairly passive way. They market and try to sell their products somewhat, but in their footprint they have most of the customers and they don’t do a lot of hard selling. For instance, they don’t push upselling of existing products very hard. But as they lose cable customers and even more voice customers the way they have been doing business is not going to work any longer.

If a carrier elects to become a dumb-pipe provider (or maybe calling them a distribution provider sounds a little better), then they are going to make a living by bringing fast Internet pipes to their customers and they are going to let customers pick up most of their products over the Internet.

If you are a dumb-pipe provider you are going to increase the speeds of your Internet product enough to keep customers happy. You are going to have to charge a lot more for that Internet connection than you charge today. If you are a triple-play provider today you will probably keep some voice, and maybe even some cable customers years from now, but for the most part those will have gone away and the data pipe is going to be your only significant product. From an operational perspective you will have to cut your staff and overheads back to the bare bones needed to keep the pipes working. Your company will be a stripped down version of what you do today, but you can make a profit doing this.

The other alternative is going to be a full-service provider. That means you will replace telephone and cable revenues with a host of other products and services that your customers are going to want. I am always asked what the next big thing is that people can do to make money, and the unfortunate answer is that there is no one big thing. There are a whole host of new product lines that you might get into, but no one of them is going to be as big as your telephone or cable business you are trying to replace.

So you will offer a host of new products – things like security, home automation, energy management, medical monitoring, cloud service resale and device monitoring and maintenance. Every one of these product lines, and the dozens of other that might pop up over the next decade will be of interest to some of your customers. And by having a suite of products you will have something for everybody.

Being a full service provider is going to require you to operate very differently than today. These new product lines are going to need you to spend a lot of time in people’s homes doing things like connecting new devices to their home automation system, making sure their medical monitoring devices are working right, making sure all of their computer-like devices are properly accessing everything.

And there will be one other big change in the way small carriers operate. Today the typical small carrier handles every aspect of a product from beginning to end. If they are in the cable business they have a full cable headend. But in the future when you will need to be in many product lines you are instead going to partner with and buy a lot of these products from wholesalers. That is going to take a big shift in thinking.

Finally, you are going to have to be nimble. The products you sell are always going to be changing and you will need to keep up with those changes. You will not have the luxury you have today to leisurely analyze new business opportunities, but instead you will need to be able to implement new products on the fly. You will need a very well-oiled product implementation plan to make changes fast while keeping customers happy.

Challenging CAF Funding

USAC LogoLast week the FCC accepted a challenge by OnlyInternet Broadband and Wireless that had been filed against Frontier Communications. Frontier had filed to get Connect America Funds (CAF) to spend capital to enhance broadband to some rural areas that were either unserved or underserved. The FCC agreed that OnlyInternet already served the area in question with broadband.

There have only been a few of these challenges, but there is going to be a lot more coming since the FCC is expected to expand possible recipients of the funds this month. In the past few years the major recipients of CAF funding for construction have been a handful of very large telephone companies like Frontier. However, the FCC is expected to broaden the list of recipients to include other companies like rural electric utilities.

Today a company must be certified as an Eligible Telecommunications Provider (ETC) by their state Commission to be eligible for CAF funding. But as the FCC expands the definition they also are thinking about changing this requirement.

The CAF funding is intended to provide support for constructing broadband facilities in unserved or underserved areas. An area either has to have no broadband today (unserved) or a majority of residents that can’t get broadband that meets the federal broadband definition of 3 Mbps  download / 768 Mbps upload (underserved). The FCC is expected to increase this threshold in the future, although they will probably never do anything so bold as to set the threshold to something that would be really considered as broadband. But I guess they think that if households have no broadband that they will be grateful to get 3 Mbps.

This FCC ruling is worth pointing out because other large companies are going to also be requesting CAF funding. For instance, Frontier has requested funding for huge rural swaths of its own service territory where it had never spent the money to put in DSL. This ruling shows that you need to be on the alert if the large companies are planning to use federal funds to bring broadband to an area where you have already made the investment. You can challenge such an attempt and win.

Interestingly, Frontier had previously challenged funding for OnlyInternet for not providing fast enough upload speeds for some other markets where they were providing broadband.

If your company is close to areas that are unserved or underserved you might want to consider applying for CAF funding. CCG has been successful in the past in getting numerous federal grant awards for clients. The CAF funding awards are going to require some capital from the grantee, and the more of your own money you are willing to put in, the higher the chance of getting a grant. But it should not be unreasonable to think that CAF funding could be used to finance a significant percentage of a network build-out, as long as you are building to unserved areas.

The bottom line is to keep your eye on the CAF funding requests. The large carriers are requesting funding for large areas and some of those areas are bound to already have broadband. Don’t let the big companies get a foothold in your area using free federal funds.

Huawei in the US

Huawei Many western governments have banned Huawei, the Chinese equipment manufacturer from bidding on government contracts. In the US the government warned the industry against using Huawei because of security concerns and most of the large carriers have said that they won’t use their equipment. But Huawei is not officially banned from the US and they are now making proposals to sell equipment to smaller carriers like independent telcos.

Huawei can make a convincing sales pitch. It’s been reported that their equipment runs about 30% less expensive than similar equipment made by Calix, Adtran and Metaswitch. Since small telcos have been losing historical revenues on many fronts they are feeling pressured to do everything possible to find ways to be competitive and survive. So any offer for less expensive equipment can look really attractive.

Huawei is an interesting company. The company was supposedly founded on a shoestring by founder Ren Zhengfei and has grown to be the number one telecom equipment manufacturer in the world. There are reportedly over three billion customers on Huawei-made cellular networks. But this was not your typical startup and the company got a huge leg up with gigantic early orders from the Chinese government. They are successful in large part due to being the preferred equipment manufacturer in the exploding Chinese market. But Ren has never given a public interview and is a mystery to the world.

It’s understandable that western governments would be nervous about allowing Huawei equipment in US government offices. There is some fear that the Chinese government could somehow build spyware into the operating software. But are there any reasons for the government to block Huawei from selling to general network providers? Should telcos have any fear of using their equipment?

The only fear I can think of is that there might be a hidden Trojan horse inside the operating software that could allow Huawei to shut down networks remotely should the US and China ever get at odds with each other. But this just doesn’t seem like a credible threat to me. This would only have to be done once to any network anywhere and Huawei would be forever shunned outside of China. And while such a shutdown could be devastating to the network involved, this would not be hugely crippling to the US economy.

A more credible reason to not use Huawei is that they are not a good corporate citizen. Cisco has found large swaths of Cisco code, right down to syntax and punctuation errors in Huawei operating software. Huawei seems to come out with innovations very soon after they are announced elsewhere and they clearly do not have any notice or respect for western patents. Stealing technology and software so blatantly would not be tolerated in the western world and any manufacturer caught doing this would be sued out of existence.

So western network owners are faced with a dilemma. They can buy tried and trusted equipment from the largest manufacturer in the world at significant discounts. Or they can boycott Huawei for philosophical reasons. Companies that steal US technology ultimately do our economy a lot of harm, and this is reason enough in my mind to boycott them for their bad behavior.

The Many Takes on the Network Neutrality Decision

Network_neutrality_poster_symbolEarlier this week the DC District Court of Appeals struck down most of the provisions of the FCC’s Net Neutrality rules. There are dozens of web articles and I am not going to repeat a detailed summary of what that decision said. In short, it said that the FCC messed up years ago when they decided that the Internet is an information service and that common carrier rules don’t apply. But the net neutrality rules relied on looking at the Internet as if it is a common carrier service. A lot of legal experts pointed this out when the net neutrality rules were issued and they were right.

What I find interesting is how the press has reacted to this ruling. I went to a Google search and I read dozens of articles about the ruling. There are not too many really controversial issues in the telecom industry and for the most part our press mostly looks at technical and business issues. But it seems that the net neutrality ruling hit people in a more visceral way. Since every article author relies on the Internet they all had a very personal reaction to the ruling and so the reactions to the ruling are all over the board. It is the range of reactions that I find so interesting:

  • The Court itself said that they agreed that their ruling could have a chilling effect on future innovation and if the carriers were to strike sweetheart deals with large content providers on the web it might disadvantage start-up companies who cannot afford to pay to get preferred access. Lots of articles took this perspective.
  • Public interest groups are massively alarmed over the ruling and one article went so far as to say that this ruling marks the first day of the end of the Internet. Most of these reactions were not quite so dire, but in general these groups assume that the ruling means that the large network providers like Verizon, AT&T and Comcast are going to use the Court’s ruling to quickly change how the Internet functions. They think that these large companies cannot resist the urge to monetize the ability to discriminate among content providers and that they will use this power to choke and slow down internet traffic providers that won’t pay them a toll.
  • Legal experts took a very different tact and most of them talked about ways that the FCC could fix what they have done. Almost universally they opined that they saw this coming (and most of them did). They say that the FCC screwed up years ago when they declared the Internet to be an information service and that the only way to fix this is to somehow get the Internet back under the common carrier rules. As a whole the legal opinions were pragmatic and not particularly politically biased or emotionally charged.
  • And there were political opinions. There are those who opined that the new FCC chairman Wheeler is not entirely thrilled with the idea of net neutrality and that he would put a brave face on the ruling but not fight hard enough to overturn the Court ruling. Others thought just the opposite and assumed that the FCC would fight this ruling to Supreme Court while working to craft a new approach to fix the problem.
  • And finally there were the business prognosticators who took at a shot at predicting what this would mean to the business world. These opinions varied widely. At one extreme was an opinion that the network owners would do almost nothing so as to not make the FCC enact a different set of more effective rules. On the other extreme were those business analysts who assumed that the carriers already have a list of changes they will make due to the ruling and that we will see a lot of announcements soon of deals between network owners and large content providers. I also saw a number of predictions that once the cat is out of the bag that the FCC is going to have a big practical challenge to undo the results of this ruling.

I don’t have any better crystal ball than anybody else. I have no idea how hard the FCC is going to fight this. I agree that the only practical solution is to somehow bring the Internet under the common carrier rules. But that is going to be a hard thing to do. I also think that the carriers will start implanting some arrangements that break the spirit of network neutrality. AT&T had announced a plan to do that just a few days before the court ruling. Comcast and Verizon had proposed arrangements in the past that went against the grain of network neutrality. But I can’t see this as the beginning of the end of the Internet. If the big companies abuse this too badly they will give consumers the impetus to look for providers who don’t screw them. So the big companies will find ways to make money off of this, but they won’t be the total demons that are feared by the public interest groups. It’s going to be interesting to watch and I will report back on this from time to time.

The FCC and State Laws

FCC_New_LogoThe DC Circuit Court of Appeals issued a long decision yesterday that says that the FCC’s rules on Network Neutrality were unenforceable as written. A large number of experts saw this coming and the general belief in the industry was that it would eventually be overturned. I will talk more about this topic in a later blog.

But the court order had another interesting discussion that could have a big impact on fiber deployment. Here is the Court’s decision. In paragraph 706 the court option says:

The statute directs the Commission to “encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans . . . by utilizing . . . price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.”

What this paragraph means is that the Court thinks that the FCC already has the regulatory authority to get rid of state-imposed barriers against competition from municipal networks. There are a number of states that have created barriers against municipal competition over the years. Some large states like Texas and Florida basically have an outright ban against municipalities building fiber networks for commercial purposes. Other states instead have restrictions that make it hard for a municipality to get into the fiber business on one way or the other.

As my blog showed yesterday there are large swaths of the country that have below average Internet speeds due to the incumbent providers not building or upgrading networks that can provide fast Internet. And yet, there are hundreds of communities that are clamoring for faster Internet. Roughly 150 communities have already built a fiber network to serve business and residential customers. Hundreds more have built networks that serve government locations and sometime larger business customers.

I have seen numerous surveys where 70% or more of the households in a given community want faster Internet. Many towns, particularly smaller rural ones are falling onto the wrong side of the digital divide. They live in areas where DSL is still only delivering 1 – 3 Mbps speeds and where cable networks have not been upgraded to DOCSIS and newer technologies.  And in these town whatever Internet they have generally doesn’t reach very far outside of town borders, so people within a short distance from town are still stuck today with dial-up or satellite Internet.

While the Courts opinion yesterday is not going to change any of the state laws, it might encourage the FCC to tackle this issue again. It’s common knowledge that the Internet speeds in this country are below average, and it’s finally dawning on a lot of people that Internet networks are being built in a patchwork manner, with some places with blazingly fast speeds and others stuck with decades-old technology.

I think by now that it’s pretty obvious that some incumbent providers are not ever going to make the investments in smaller towns to upgrade the networks. So people in these areas are going to fall further and further below the national average Internet speed, currently at around 18 mbps download. And for those communities this is dire. We tend to think of fast Internet as mostly a tool to watch movies online. But it’s easy to forget that fast Internet is needed for a lot of daily functions. For example, many college courses are now offered only online and somebody on a slow connection is shut off from getting college credits in this way. So much of what we do has now moved to the Internet, and many sites that we all take for granted every day are nearly non-functional on a slow Internet connection.

People with slow Internet are moving into the slow lane of our economy. So one can hope that the FCC will be emboldened by this language from the DC Circuit Court of Appeals and will tackle this issue again. They looked at the issue in 2004, but the FCC was not even sure then that they had the authority to do this. Hopefully this will give them a reason to look at it again. There are a whole lot of people who live in places that will never have fast Internet unless their local government steps in to fill the gap. It’s nice to think that commercial companies ought to do this everywhere, but that just is not the reality.

Broadband Map of the US

broadband-by-congressional-districtConsider the following map of US broadband. This map was compiled by Gizmodo using data on broadband usage gathered by Ookla. This is a rather different map than the official US Broadband Map that is generated by the FCC. The official map uses data that is self-reported by the carriers. However, this map has been created by sampling and pinging actual Internet connections. Ookla owns speedtest.net and tests millions of connections from all across the country and at all times of the day.

This map is at a fairly high level and is shown per congressional district. But more detailed maps are available at the state and County level.

broadband-by-congressional-district

This map shows that there is a wide disparity of broadband speeds around the country. One surprising finding to me is that the average Internet connection is now at 18.2 Mbps download. The map then goes on to show those areas that are faster than average in blues and slower than average in reds. The 18.2 Mbps number is faster than I expected and goes to show that carriers around the country have been increasing speeds. This is certainly faster than the speeds that have been reported by other sources.

When you look deeper than this map at the broadband statistics you see a lot of what you would expect to see. Urban areas generally have faster broadband than rural areas. And the Verizon FiOS areas have much faster broadband than other parts of the country.

And this map shows some areas with fast broadband that might surprise people. For example, North and South Dakota have faster than average broadband. This is because the states are largely served by independent telephone companies that have built fiber into small towns and rural areas. And central Washington has some of the fastest broadband in the country thanks to several municipal networks that have built fiber-to-the-home.

One thing the map doesn’t show, at this high level, is that there are pockets of fast Internet scattered in many places. There are FTTH networks built in many small towns but these towns are not large enough to skew the data for the larger congressional districts shown on this map.

One state with high broadband is Florida, where I live. I have speeds available up to 104 Mbps from Comcast. The map for Florida shows what the cable companies are capable of and it’s a shame they have not improved their networks in more places to be this fast.

Ookla reports that the fastest town in the US is Ephrata, Washington with an average download speed of 85.5 Mbps. Second is Kansas City at 49.9 mbps. One would assume that with gigabit service that Kansas City will become the fastest place as more people are added to Google’s fiber.

One thing the map shows, is that an awfully lot of the country is below the average. Ookla reports that the slowest places are Chinla and Fort Defiance in Arizona which both have an average speed of less than 1.5 Mbps. These towns are within the Apache reservation and many native American towns are woefully underserved. The map shows large swaths of poorly served areas like West Virginia and Kentucky in Appalachia, like north Texas and Oklahoma, like Wyoming and Montana, and Maine.

I know at my house I have a 50 Mbps cable modem service and to me it feels just right. It allows us to watch multiple streaming videos while also working and using  computers for on-line gaming. I just moved from a place where my speeds would bounce between 10 Mbps and 20 Mbps and I can see a big difference. In my line of work I talk to people all of the time in rural areas who are still stuck with only dial-up or satellite as their broadband options. I know I could not do my job from such areas. These areas probably are not even showing up on this map because people who have connections that slow are probably not doing speed tests very often. They know they are slow.

The good news to me from this map is that the average speed in the US is up to 18 Mbps. But the bad news is that there are so many large areas left without good broadband. We still have a lot of work to do.

 

 

Sponsored Data . . Huh . . What is it Good For?

Internet_Explorer_e_and_Nuvola_red_XAdmit it, your mind finished that headline with ‘absolutely nothin’. And rightfully so. AT&T Wireless announced last week that they are starting a new program they are calling Sponsored Data. This is a plan that let’s content providers pay for data usage for their customers, and any data used by a sponsored plan would not count against their data caps.

Of course, this announcement came along with the promise that this does not violate Network Neutrality. In fact, AT&T swears that they are big fans of Network Neutrality. Nothing could be farther from the truth. You know the big network providers have always wanted to get into the revenue streams from content providers. After all, they spend a lot of money always upgrading their networks to be faster and each time those nasty content providers find content that makes customers use the new bandwidth. It must be very frustrating to be a huge network owner.

Of course this idea violates Network Neutrality. One has to wonder how long the AT&T marketers had to work to spin this to sound like a good idea. And they have done so. What they want to do is to let large app providers pay for the bandwidth for customers who use their app. What customers isn’t going to think this is a great idea?

But it’s a dreadful idea. This is exactly the kind of scheme that Network Neutrality is supposed to stop. In reality, under this plan, large wealthy content providers will pay AT&T a big fee to cover the bandwidth that customers use for their apps. This will let them get even more customers, at a cost. But this idea will have two consequences. First, a handful of large companies will do this if they believe it will get them more users. Because user is what creates value on the Internet. The more faces you have, the more billions a company is worth.

But the corollary of this is that small start-up companies won’t be able to afford this. And so the next big app may never get off the ground when competing with companies who can afford the sponsor fees. Over time, getting content providers to pay for bandwidth is going to kill innovation and stop the next generation of companies from getting started. And that benefits nobody.

It’s not like the wireless carriers like AT&T aren’t already getting a fortune for their data. The US already has some of the highest data prices among developed nations and cell phone data is by far the most expensive data in the US. So cellphone companies like AT&T are already gouging their users for their capped data plans.

There is no doubt that customers would like this, at least at first. After all, who wouldn’t like playing the newest game on somebody else’s dime. But we all know that programs and apps on the Internet come and go quickly and over time all users will suffer from lack of new content and new content providers.

It’s also pretty easy to envision that if this is allowed to stand that it won’t be too many years when only large ‘sponsors’ are expected to pay for their users’ data, but that AT&T will have their hand out to all of the app providers on the web.

The whole point of Network Neutrality is to not let content providers and network owners conspire to make some content preferred over others. Because once that barrier is broken then the Internet will stop being a source of innovation and will become the playground of a handful of large wealthy companies who will control the content. The big carriers come up with some scheme to get around Network Neutrality every few months and this is the latest. It’s quite clever, but it can’t be allowed to stand.

Always More Bandwidth

UHDTV_resolution_chartNetFlix has announced that they will be shooting the second season of ‘House of Cards’ in ultra HD. This is a video technology that uses over 4,000 pixels per frame. Obviously this is going to result in really amazing picture quality.

But this is also going to mean a big increase in the bandwidth needed to deliver the show across the Internet. SONY is working on TV that can display this new technology and they estimate that it is going to require about a 15 Mbps streaming download in order to view an ultra HD video without interruptions. And long before TVs are ready to view this it’s going to be available on computers and tablets.

This is going to increase the pressure on networks to increase speeds yet again. There are a huge number of households in the country who can’t get 15 Mbps downloads. But even a household who gets 15 Mbps download speeds is going to have problems streaming this big of a stream. We all know that the amount of bandwidth that comes across an Internet connection varies constantly, and thus somebody who has a 15 Mbps data connection has that speed sometimes, but often has less than that.

Plus, households today routinely are using their Internet bandwidth for multiple functions simultaneously, and while one family member is watching ‘House of Cards’ it is likely that there are other family members who want to watch some different video, play a game, browse the Internet, offload data from a cell phone or make a VoIP call.

I am going to be the first to say that many network providers have worked hard over the last few years to increase their bandwidth. Cable companies have converted to digital to free up bandwidth formerly used for TV channels. DSL providers have gone to more bonded pair DSL and have also moved DSLAMs closer to homes.

But the unfortunate truth for network providers is that every time they increase the bandwidth available on their networks, the world finds a way to use the new bandwidth, and usually in short order. There is no end in sight of this escalation. Looking out just a few years it’s easy to see even more uses for the bandwidth in our homes. Modern security alarms are putting ubiquitous HD video cameras throughout the home that can be viewed remotely. Multiple companies are working on medical monitoring products that will constantly monitor our health. More and more devices in the home are being made smart and will be integrated into the Internet of Things. And there is already an 8,000 pixel ultra HD video standard on the drawing boards.

There is a move in the country today to create gigabit communities. This means communities that are capable of delivering 1 Gbps download speeds to homes and businesses. It is really hard to think of enough uses today to fill up a gigabit of capacity. But it is not a big stretch into the future to look at homes routinely needing wanting 100 megabits, 200 megabits and more.

It’s easy to forget that it was just back in the 90’s when we were all using dial-up Internet that got 56 kbps bandwidth at best. Homes have grown from that tiny trickle and twenty years later it’s not hard to find homes that need 50 mbps to function smoothly. That is a thousand-fold increase in bandwidth over twenty years. And we are nowhere close to the end game.

In the not too distant future we are going to routinely need to be delivering more than 100 Mbps. That is going to require fiber networks or cable networks that have been converted to a full digital capacity including IPTV. Both of those networks will provide the capacity to grow to a full gigabit. After that speed we probably exhaust the capacity of coaxial cable and ultimately everything is going to have to be fiber.

Communities that have fiber today are the ones who are not going to get throttled as the bandwidth needs continue to grow. The need for faster bandwidth is growing so rapidly today that cities that look to have good bandwidth today – say 15 mbps to 30 mbps networks  – are going to look very slow in five years. Network providers who are doing anything other than fiber are going to be constantly frustrated as people always want more bandwidth.

Some Telephone Statistics

Fuld-modell-frankfurtSince it’s the start of the New Year I thought I would take a look at the most recent statistics that have been released for the telephone industry The U.S. Department of Health and Human Services recently published the latest Wireless Substitution Report which looked at household penetration rates for landlines and cellphones. This seems like an odd branch of the government to be tracking telephone penetration rates. But this agency is tasked with tracking child poverty in the country and they began asking questions about telephone usage years ago because they were concerned that their normal way of doing telephone surveys was becoming inaccurate.

And they were right. I wrote a recent blog talking about how surveys done to only landlines are no longer statistically valid. And this latest report shows this to be the case. It shows that landline use in general has continued to decline. But it also shows that this decline is not across the board.

For example, the study summarizes the percentage of people living in wireless-only households for two categories – those with at least one child under 18 in the home and those with no children. In every state the percentage of wireless-only households is larger for families with children than for those without. And the difference are significant. For example, for Alabama (the first state on the list) there are 13% more homes with children that are wireless-only (47% versus 34%).

This big difference means that if you conduct a survey using landlines you are statistically much more likely to be calling homes without children. And that is very likely going to slew your results for any survey that might be affected by having kids in the house. For example, if you are asking about broadband, homes with kids are generally the ones who need the most bandwidth.

It’s interesting to see how the wireless and wireline penetration rates vary by state. For example, there are a few states where the percentage of families who are wireless-only is relatively high like Mississippi (59%), Idaho (58%), and Arkansas (57%). But there are also states where homes with children still have landlines. Consider the wireless-only penetration rates for homes with families for New Jersey (20%), Connecticut (21%), Vermont (23%) and New York (23%) and Massachusetts (24%). While this report doesn’t report on the correlation of these penetration rates to household income, it looks like the more wealthy states still have more landlines than poorer states.

There is also a difference in wireless-only homes between urban areas and rural areas. In a number of the states the survey looked deeper at the penetration rates in certain urban areas, and in almost all cases there are more wireless-only homes in urban areas than in the state as a whole (meaning that the penetration rates for wireless-only must be lower in suburban and rural areas). Some of the urban areas have a very high wireless-only penetration such as Dallas (63%), Montgomery (57%), Nashville (56%) and Detroit (54%).

The survey also breaks down homes into several categories of telephone usage – wireless-only, wireless-mostly, Dual-use, landline-mostly, landline-only and no telephone. These statistics should worry anybody who builds a business plan off selling a lot of residential landlines.

First, the number of homes with no phones is still at 1% – 2% in most states as it has been for decades. But the number of households that have only a landline is around 10% in most states with a few places at half of that. The lowest landline-only penetration is in the twin cities in Minnesota where only 3.2% of households only use a landline.

But what is probably most striking from the report is looking to see how many homes have a landline at all. In the tables the percentage of homes that have a landline would be those that are not wireless-only who have a phone of some kind. There are states and cities where less than half of homes still have landlines. For example, in Arkansas only 48% of homes have a landline. In Idaho it’s 45%. In Dallas it’s only 42%.

Of course there are still places where most homes have landlines such as in Connecticut where 79% of homes still have a landline. But for a lot of the country the percentages of homes with landlines has dropped significantly over the last few years. I look forward to seeing these same statistics in another year or two. These numbers are based upon 2012 surveys and it’s likely that the numbers are even lower than shown in this report.

The Battle for Austin

Official seal of City of Austin

Official seal of City of Austin (Photo credit: Wikipedia)

An interesting battle is shaping up in Austin as AT&T and Google are taking the early steps in head-to-head competition. Both have announced that they will build gigabit networks in the City. The obvious beneficiaries of this business will be the top-end customers in the City. It will be interesting to watch how both companies do there.

Other than a few greenfield tests, this will be AT&T’s first foray into fiber-to-the-premise. They have built their broadband business using DSL over multiple copper lines. It’s obvious that AT&T is drawing a line in the sand with Google and telling them that competition with fiber in AT&T markets is going to be met with competing fiber.

AT&T has announced their pricing for their faster product. Initially they will be offering Internet speeds of up to 300 Mbps, with the promise that those products will be upgraded for to gigabit free once the fiber has been built. This certainly gives them a leg up early since they have the ability to sign customers now.

There are two pricing options for the AT&T data product. For $99 customers will get the full gigabit (after upgrade). But interestingly, customers will be able to get the same gigabit speed for $70 if they agree to let AT&T monitor their Internet usage and give them directed advertising. That makes you pause for a second until you realize that this is the Google model. Every customer who uses a Google product, be that Gmail, Google+ or any of the other host of products is continuously monitored so that Google can know more about them. I think AT&T is being quite clever in that this compares their $70 product directly to Google’s product. What I think AT&T is really offering is a premier-priced product that comes without monitoring.

Both companies offer a handful of cable TV options. At least for now one would think AT&T has a leg up in this area since the word in the industry is that customers like all of the programming options they get with today’s U-Verse offering.

If Google sticks with the same product line they have in Kansas City, then they will also be offering a $70 gigabit offering and a few cable options. So the two companies will have the same basic price for gigabit service and will not be competing on price.

A gigabit product prices at $70 is clearly a product aimed at the more affluent households in the market. A lot of homes are going to find that too pricy regardless of the speeds that come with the product. In Kansas City, Google only rolled out their gigabit product in neighborhoods that guaranteed them at least a 15% take rate. It is going to be interesting in Austin, with two gigabit providers to see if there are many places where Google will be able to achieve that same take rate. If they can’t get that, how much will they build in Austin?

In any market a large percentage of households go for products in the $40 range for Internet, regardless of what other speeds are available. To some degree this is a matter of economics, but it also has a practical aspect. Most likely the households who subscribe to a $40 service in Austin are those homes who have not yet chosen to watch much of their video on the web. House holds with multiple people who are all trying to use the web for video are finding basic Internet products to be inadequate.

There is another competitor in the market, Time Warner, and nobody is talking about them. One has to think that today that they are the predominant ISP in Austin since the cable companies have won that battle almost everywhere over DSL. One would think that if they can offer something relatively fast, say 50 Mbps download for less than $50 that they might hang on to the majority of the market while the other two companies beat up each other going for the top end of the market.

One last point to mention in that I am scratching my head trying to figure out how AT&T is going to deliver speeds today of ‘up to 300 Mbps’ over existing copper. Such speeds over DSL either require the customer to be very close to the DSLAM or else require multiple pairs of copper, far more than the normal bonding of two pairs. From what we know about AT&T’s normal networks, those are not practical alternatives. There are fiber-to-the curb technologies that will deliver 300 Mbps, but those require fiber very close to the home. So that claim has us wondering if that is a real claim or a marketing claim.