Broadband Usage Continues to Grow

The firm OpenVault, a provider of software that measures data consumption for ISPs reported that the average monthly data use by households grew from 201.6 gigabytes in 2017 to 268.7 gigabytes in 2018 – a growth rate of 33%. The company also reported that the medium use per household grew from 103.6 gigabytes in 2017 to 145.2 gigabytes in 2018 – a growth rate of 40%. The medium represents the midpoint of users, with half of all households above and half below the medium.

To some degree, these statistics are not news because we’ve known for a long time that broadband usage at homes, both in total download and in desired speeds has been doubling every three years since the early 1980s. The growth in 2018 is actually a little faster than that historical average and if the 2018 growth rate was sustained, in three years usage would grow by 235%. What I find most impressive about these new statistics is the magnitude of the annual change – the average home used 67 more gigabytes of data per month in 2018 than the year before – a number that would have seemed unbelievable only a decade ago when the average household used a total of only 25 gigabytes per month.

There are still many in the industry who are surprised by these numbers. I’ve heard people claim that now that homes are watching all the video they want that the rate of growth is bound to slow down – but if anything, the rate of growth seems to be accelerating. We also know that cellular data consumption is also now doubling every two years.

This kind of growth has huge implications for the industry. From a network perspective, this kind of bandwidth usage puts a big strain on networks. Typically the most strained part of a network is the backbones that connect to neighborhood nodes. That’s the primary stress point in many networks, including FTTH networks, and when there isn’t enough bandwidth to a neighborhood then everybody’s bandwidth suffers. Somebody that designed a network ten years ago would never have believed the numbers that OpenVault is reporting and would likely not have designed a network that would still be sufficient today.

One consequence of the bandwidth growth is that it’s got to be driving homes to change to faster service providers when they have the option. A household that might have been happy with a 5 Mbps or 10 Mbps connection a few years ago is likely no longer happy with it. This has to be one of the reasons we are seeing millions of homes each year upgrade from DSL to cable modem each year in metropolitan areas. The kind of usage growth we are seeing today has to be accelerating the death of DSL.

This growth also should be affecting policy. The FCC set the definition of broadband at 25/3 Mbps in January of 2015. If that was a good definition in 2015 then the definition of broadband should have been increased to 63 Mbps in 2019. At the time the FCC set that threshold I thought they were a little generous. In 2014, as the FCC was having this debate, the average home downloaded around 100 gigabytes per month. In 2014 the right definition of broadband was probably more realistically 15 – 20 Mbps and the FCC was obviously a little forward-looking in setting the definition. Even so, the definition of broadband should be increased – if the right definition of broadband in 2014 was 20 Mbps, then today the definition of broadband ought to have been increased to 50 Mbps today.

The current FCC is ignoring these statistics for policy purposes – if they raise the definition of broadband then huge numbers of homes will be classified as not having broadband. The FCC does not want to do that since they are required by Congressional edict to make sure that all homes have broadband. When the FCC set a realistic definition of broadband in 2015 they created a dilemma for themselves. That 2015 definition is already obsolete and if they don’t change it, in a few years it is going to be absurdly ridiculous. One only has to look forward three years from now, when the definition of broadband ought to be 100 Mbps.

These statistics also remind us of the stupidity of handing out federal subsidies to build technologies that deliver less than 100 Mbps. We still have two more years of CAF II construction to upgrade speeds to an anemic 10 Mbps. We are still handing out new subsidies to build networks that can deliver 25/3 Mbps – networks that are obsolete before they are completed.

Network designers will tell you that they try to design networks to satisfy demands at least seven years into the future (which is the average life of many kinds of fiber electronics). If broadband usage keeps doubling every three years, then looking forward seven years to 2026, the average home is going to download 1.7 terabytes per month and will expect download speeds of 318 Mbps. I wonder how many network planners are using that target?

The final implications of this growth are for data caps. Two years ago when Comcast set a terabyte monthly data cap they said that it affected only a few homes – and I’m sure they were right at the time. However, the OpenVault statistics show that 4.12% of homes used a terabyte per month in 2018, almost double from 2.11% in 2017. We’ve now reached that point when the terabyte data cap is going to have teeth, and over the next few years a lot of homes are going to pass that threshold and have to pay a lot more for their broadband. While much of the industry has a hard time believing the growth statistics, I think Comcast knew exactly what they were doing when they established the terabyte cap that seemed so high just a few years ago.

Cable Subscribers – 3Q 2018

We are now in the second year of real cord cutting. The statistics show the traditional cable industry losing about 1 million customers per quarter. The numbers for the recently ended 3Q of 2018 come from the Leichtman Research Group and I compare to year-end 2017.

3Q 2018 4Q 2017 Change
Comcast 22,015,000 22,357,000 (342,000) -1.5%
DirecTV 19,625,000 20,458,000 (883,000) -4.1%
Charter 16,628,000 16,997,000 (369,000) -2.2%
Dish 10,286,000 11,030,000 (744,000) -6.7%
Verizon 4,497,000 4,619,000 (122,000) -2.6%
Cox 4,035,000 4,200,000 (165,000) -3.9%
AT&T 3,693,000 3,657,000 36,000  1.0%
Altice 3,322,800 3,405,500 (82,700) -2.4%
Frontier 873,000    961,000 (88,000) -9.2%
Mediacom 793,000    821,000 (28,000) -3.4%
Cable ONE 328,921    283,001 45,920 16.2%
  Total 86,096,721 88,788,501 (2,691,780) -3.0%

These companies represent roughly 95% of the entire cable market. Not included in these numbers is WOW with over 400,000 cable customers.

This group of large companies dropped almost 2.7 million customers so far this year, with losses in the third quarter over 1 million – making the third quarter the biggest losing quarter in history. Cord cutting is accelerating and 2018 is certainly going to exceed the 3.1 million cable customers that dropped in 2017.

The big losers are the satellite companies which lost 1,577,000 customers so far in 2018. These losses are offset by the fact that these two companies own the largest online video service, with Dish’s Sling TV now having 2,370,000 customers and DirecTV Now having 1,858,000 customers.

Not reflected in these numbers is the fact that 2018 so far has been a boom year for building new homes, with 1.6 million new housing units added nationally during the year so far. If you assume that new homes buy cable TV at the same rate as older homes, then the estimate of cord cutting would be 1.1 million higher for the first three quarters than is shown in these net numbers shown in the table.

In 2017 Comcast and Charter didn’t fare as poorly as the rest of the industry, but their rate of loss has roughly doubled over a year ago.

Cable ONE looks to a bit of an anomaly, but they had lost over 11% of customers in 2017 due to disputes with programmers, and they seem to have recaptured many of those customers.

The most obvious thing that jumps out from these numbers is that cord cutting is real and is here to stay. Within two short years after the start of the cord cutting phenomenon the big cable providers are on track to lose over 4% of total traditional cable subscribers in a year. That’s a lot of lost revenue for these companies and a lot of lost revenues for the programmers.

Getting Militant for Broadband

My job takes me to many rural counties where huge geographic areas don’t have broadband. I’ve seen a big change over the last two years in the expectations of rural residents who are now demanding that somebody find them a broadband solution. There have been a number of rural residents calling for better broadband for a decade, but recently I’ve seen the cries for broadband grow into strident demands. As the title of this blog suggests, people are getting militant for broadband (but not carrying guns in doing so!)

The perceived need for broadband has changed a lot since the turn of this new century. In 2000 only 43% of homes had a broadband connection – and in those days that meant they had a connection that was faster than dial-up. In 2000 DSL was king and a lot of homes had upgraded to speeds of 1 Mbps. There have always been homes that require broadband, and I’m a good example since I work from home, and when I moved fifteen years ago my offer on a new house was contingent on the home having broadband installed before closing. My real estate agent at the time said that was the first time she’d ever heard about broadband related to home ownership.

As I’ve cited many times, the need for broadband has continued to grow steadily and has been doubling every three years. By 2010 the number of homes with broadband grew to 71%, and by then the cable companies were beginning to dominate the market. By then DSL speeds had gotten better, with the average speeds at about 6 Mbps, but with some lucky customers seeing speeds of around 15 Mbps. But as DOCSIS 3.0 was implemented in cable networks we started seeing speeds up to 100 Mbps available on cable systems. It was a good time to be a cable company, because their rapid revenue growth was fueled almost entirely by adding broadband customers.

Broadband in urban areas has continued to improve. We’re now seeing Comcast, Charter, Cox and other cable company upgrade to DOCSIS 3.1 and offer speeds of up to 1 Gbps. DSL that can deliver 50 Mbps over two bonded copper lines is becoming old technology. Even urban cellular speeds are becoming decent with average speeds of 12 – 15 Mbps.

But during all of these upgrades to urban broadband, huge swaths of rural America is still stuck at 2000 or earlier. Some rural homes have had access to slow DSL of 1 – 2 Mbps at most. Rural cellular speeds are typically half of urban speeds and are incredibly expensive as a home broadband solution. Satellite broadband has been available the whole time, but the high prices, gigantic latency and stingy data caps have made most homes swear off satellite broadband.

Rural homes look with envy at their urban counterparts. They know urban homes who have seen half a dozen major speed upgrades over twenty years while they still have the same lousy choices of twenty years ago. Some rural homes are seeing an upgrade to DSL due to the CAF II program of speeds of perhaps 10 Mbps. While that will be a relief to a home that has had no broadband – it doesn’t let a home use broadband in the same way as the rest of the country.

To make matters feel worse, rural customers without broadband see some parts of rural America get fiber broadband being built by independent telephone companies, electric cooperatives or municipalities. It’s hard for them to understand why there is funding that can make fiber work in some places, but not where they live. The most strident rural residents these days are those who live in a county where other rural customers have fiber and they are being told they are likely to never see it.

This disparity between rural haves and have nots is all due to FCC policy. The FCC decided to make funds available to rural telcos to upgrade to better broadband, but at the same time copped out and handed billions to the giant telcos to instead upgrade to 10 Mbps DSL or wireless. To make matters worse, it’s becoming clear that AT&T and Verizon are intent in eventually tearing down rural copper, which will leave homes with poor cellular coverage without any connection to the outside world.

The FCC laments that they cannot possibly afford to fund fiber everywhere. But they missed a huge opportunity to bring fiber to millions when they caved to lobbyists and gave the CAF II funding to the big telcos. Recall that these funds were originally going to be awarded by a reverse auction and that numerous companies had plans to ask for the funding to build rural fiber.

It’s no wonder that rural areas are furious and desperate for better broadband. Their kids are at a big disadvantage to those living in towns with broadband. Farmers without broadband are competing with those using agricultural IoT. Realtors report that they are having a hard time selling homes with no broadband access. People without broadband can’t work from home. And rural America is being left behind from taking part in American culture without access to the huge amount of content now available on the web.

360-degree Virtual Reality

South Korea already has the fastest overall broadband speeds in the world and they are already working towards the next generation of broadband. SK Broadband provides gigabit capable fiber to over 40% of households and has plans to spend over $900 million to increase that to 80% of households by 2020.

The company also just kicked off a trial of next generation fiber technology to improve bandwidth delivery to customers. Customers today have an option of 1 Gbps service. SK Broadband just launched a trial with Nokia in an apartment building to increase end-user bandwidth. They are doing this by combining the current GPON technology with both XGSPON and NG PON2 to increase the overall bandwidth to the apartment complex from 2.5 Gbps to 52.5 Gbps. This configuration allows a customer to run three bandwidth-heavy devices simultaneously with each having access to a separate 833 Mbps symmetrical data path. This particular combination of technologies may never be widely implemented since the company is also considering upgrades to bring 10 Gbps residential service.

The big question is why SK Broadband thinks customers need this much bandwidth? One reason is gaming and over 25 million people, or a little over half the population of the country partake in online gaming today. There is not another country that is even a close second to the gaming craze there. The country also has embraced 4K video and a large percentage of programming there uses the format, which can require data streams as large as 15 Mbps for each stream.

But those applications don’t alone the kind of bandwidth that the company is considering. The architect of the SK Broadband network cites the ability to deliver 360-degree virtual reality as the reason for the increase in bandwidth. At today’s compression techniques this could require data streams as much as 6 times larger than a 4K video stream, or 90 Mbps.

What is 360-degree virtual reality and how does it differ from regular virtual reality? First, the 360-degree refers to the ability to view the virtual reality landscape in any direction. That means the user can look behind, above and below them in any direction. A lot of virtual reality already has this capability. The content is shot or created to allow viewing in any direction and the VR user can look around them. For example, a 360 virtual reality view of a skindiver would allow a user to follow an underwater object as the diver approaches, and look back to watch is as they pass by.

But the technology that SK Broadband sees coming is 360-degree immersive VR. With normal virtual reality a user can look at anything within sight range at a given time. But with normal virtual reality the viewer moves with the skindiver – it’s strictly a viewing experience to see whatever is being offered. Immersive virtual reality let’s a user define the experience – in an immersive situation the VR user can interact with the environment. They might decide to stay at a given place longer, or pick up a seashell to examine it.

SK Broadband believes that 360-degree VR will soon be a reality and they think it will be in big demand. The technology trial with Nokia is intended to support this technology by allowing up to three VR users at the same location to separately enter a virtual reality world together yet each have their on experience. Immersive VR will allow real gaming. It will let a user enter a 3D virtual world and interact in any manner they wish – much like the games played today with game machines.

This is a great example of how broadband applications are developed to fit the capacity of networks. South Korea is the most logical place to develop high-bandwidth applications since they have so many customers using gigabit connections. Once a mass of potential users is in place then developers can create big-bandwidth content. It’s a lot harder for that to happen in the US since the percentage of those with gigabit connections is still tiny. However, an application developer in South Korea can get quick traction since there is a big pool of potential users.

 

Working From Home

Governments are starting to catch onto to the idea that one of the most dynamic parts of the new economy is people working from home. Governor Phil Scott of Vermont just signed legislation that provides an incentive for people who want to move to Vermont and work from their homes.

The program consists of grants of up to $5,000 per year, not to exceed $10,000 to help cover the cost of relocating to the state. To qualify for the grants a worker must already be employed by an out-of-state company, work primarily from home and move to the state after January 1, 2019.

The overall program isn’t large, set at $125,000 for 2019, $250,000 for 2020 and back to $125,000 in 2022. If awards are made at the $5,000 level this would cover moving 100 new workers to the state.

In economic development terms, landing 100 new full-time families using a $500,000 tax subsidy is a bargain. Governments regularly provide tax incentives of this size to attract factories or other large employers. The impact on the economy from 100 new high-income families is gigantic and over time time the taxes and other local benefits from these new workers will greatly exceed the cost of the program.

Vermont is like many states and finds itself with an aging population while also seeing an outflow of young people seeking work in New York, Boston and other nearly cities. These grants create an opportunity for young families to move back to the state.

One key aspect of the work-at-home economy is good broadband. Many companies are now insisting that employees have an adequate broadband connection at a home before agreeing to allow a worker to work remotely. I’ve talked to a few people who recently made the transition to home work and they had to certify the speed and latency of their broadband connection.

One reason that this program can work in Vermont is there are areas of the state with fiber broadband. The City of Burlington built a citywide fiber network and local telcos and other cities in the state have built fiber in more rural parts of the state. But like most of America, Vermont still has many rural areas where broadband is poor or non-existent.

What surprises me is that many communities with fiber networks don’t take advantage of this same opportunity. It’s easy for a community with good broadband to not recognize that much of America today has lousy broadband. Communities with fiber networks should consider following Vermont’s example.

I know of one community that is doing something similar to the Vermont initiative. The City of Independence, Oregon has benefitted from a municipal fiber network since 2007, operating under the name of MINET and built jointly with the neighboring city of Monmouth. The city has a new economic development initiative that is touting their fiber network. Nearby Portland is now a hotbed for technology companies including a lot of agricultural technology research.

Independence has one major benefit over Portland and the other cities in the state – gigabit broadband. The new economic development initiative involves getting the word out directly to workers in the agricultural research sector and letting them know that those that can work at home can find a simpler and less expensive lifestyle by moving to a small town. They hope that young families will find lower housing prices and gigabit fiber to be an attractive package that will lure work-at-home families. Independence is still close enough to Portland to allow for convenient visits to the main office while offering faster broadband than can be purchased in the bigger city.

How to Talk to Bankers

I spend a lot of time assisting clients in finding financing and in doing do I’ve learned a lot about what bankers are looking for from any prospective borrower. Here are some of the key takeaways I’ve learned over the years from talking to bankers:

Be Ready with a Worst Case Scenario. Borrowers invariably create a rosy best-look business plan to demonstrate how well they will perform with the borrowed money. But bankers have learned from hard experience that things often don’t go as well as planned. While bankers certainly want to see the optimistic business projection they are more interested in your worst case scenario, so a smart borrowers will prepare a worst case scenario along with the best case one.

The bankers wants to hear about everything that might go wrong with your plan – project delays, slow sales, higher than expected cost of construction – and then to understand how the borrower plans to cope with each potential snag. They want to be shown that the borrower will be able to repay the loan even if things go wrong. A banker is going to be far more impressed to see ta plan that considers the challenges and has a solution for every contingency. I’ve seen bank loan applications fail when the borrower was unable to answer simple questions about how their plan might fail.

Don’t Talk in Acronyms. Telecom borrowers are invariably highly technical people who understand the nuances of building and operating complex networks. The banker can understand this by looking at your credentials, experience and references. Most bankers don’t want to hear about the detailed nuts and bolts about how the technology works, and they are going to care a lot more about the products to be sold on the network and the plan to effectuate those sales.

I’ve sat on meetings and calls between borrowers and bankers where the response to a simple technical question elicits a fifteen minute spiel on the nuances of the technology. Bankers are not impressed with this, and in fact it can be worrisome if it they perceive the borrower as somebody who can’t explain their business in plain English – because the banker will know that’s what customers are going to want to hear. My advice is to tone down the technology unless the banker specifically wants to hear the details.

Understand the Market. I’ve had numerous clients over the years who have had the philosophy of “build it and they will come,” meaning that they were so positive of the superiority of their proposed network that they just assumed that people will buy their products. The vast majority of the business failures I’ve seen over the years were due to this blindness of the market.

Bankers are going to want to see evidence that people are ready to buy from the new network. In larger markets that might mean a statistically valid survey. In smaller ventures that is going to mean pre-sales and having a list of customers who are ready to buy service. Bankers also want to see a comparison of proposed prices and the prices of the competition  – I am often surprised by proposed new ventures that haven’t taken the time to look at actual customer bills in their proposed market. Do the homework and make the effort to understand the market before asking for funding.

Understand What Bankers are Looking For. Every lender is different and early in the process you need to ask them how they will judge your loan application. I recommend a two-stage process for getting a loan. The first meeting should be to understand what the bank is looking for. Have the banker describe the borrowing process and then use a second meeting to make a formal presentation of the business plan in a way that meets their requirements.

If the bank is interested primarily in collateral, then walk into the presentation ready to talk about that. If they are more focused in seeing a business plan that meets some set of financial metrics like debt service coverage ratio, then walk into the presentation ready to answer those questions.

Bankers talk in lingo just like our industry, and it’s vital to make sure that you understand what they want from you. I’ve seen many borrowers who don’t understand a bank’s requirements and who then never answer the basic questions the bank asks of them. It’s not uncommon for a borrower to be intimidated by the banking process and to be afraid to show that they don’t understand the banking lingo. In the end, if you don’t understand what your banker wants, then it’s likely you won’t be making the right proposal and the chance of getting a loan are greatly diminished.

Another New Broadband Technology

There is another new broadband technology on the horizon. It involves lighter-than-air blimps operating at about 65,000 feet. A recent filing at the FCC by the Elefante Group, in conjunction with Lockheed Martin describes the technology, referred to as Stratospheric-Based Communications Service (SBCS).

Interestingly, the company’s filings at the FCC seem to go out of their way to avoid calling these blimps or airships – but that’s what they are. Each floating platform would have the capacity for a terabyte in capacity, both upload and download. At a 65,000 altitude the blimps would avoid weather issues and airplanes and one platform would be able to cover a 6,000 square mile area. That sounds like a large area, but the US has just less than 3.8 million square miles. Since these are circular coverage areas, total coverage means areas will overlap and my math says it might take nearly 1,000 blimps to cover the whole country – but there is a lot of empty space in the western states so some lower number would practically cover most of the country.

The company proposes a range of products including cellular backhaul, corporate WAN, residential broadband and monitoring IoT sensors. There is no mention of the possible speeds that might be offered with home broadband and I have to wonder if that’s been thrown into the filing to gain favor at the FCC. While a terabyte of broadband sounds like a lot, it could quickly get gobbled up on a given platform delivering gigabit pipes to cell towers. Top that off with creating private corporate networks and I have to wonder what might be left over for the residential market. It’s a lot easier building a business selling to cellular carriers and large businesses than building the backoffice to support the sale and support of residential broadband.

The company plans to launch the first test blimp in 2020 and a following one in 2021. By using airships and solar power the blimps can carry more electronics than the proposed low-orbit satellite networks that several companies are planning. It’s probably far cheaper to replace the units and one can imagine plans for bringing the blimps back to earth for periodic upgrades

The project faces one major hurdle. They have tested various frequencies and found the sweet-spot for this particular application to be at 26 GHz. The company is asking the FCC to set aside that bandwidth for SBCS. That request will be challenged by terrestrial broadband providers. It’s a really interesting tug-of-war with higher frequencies since frequencies above 20 GHz have been used only sporadically in the past. However, now that this spectrum is being opened for 5G there are numerous technologies and companies vying to carve out chunks of millimeter wave spectrum.

The company probably has an uphill climb to grab such a significant swath of spectrum. I would think that using it in the fashion contemplated from the blimps would make the spectrum unavailable for other uses. The FCC has hard decisions to make when looking at spectrum use. For example, similar ventures – blimps from Google and large gliders from Facebook – have been quietly discontinued and there is no guarantee that this technology or the companies behind it will prosper. A nightmare scenario for the FCC would be a weak deployment of the technology with only a few platforms deployed over major cities – effectively ruining the spectrum for other uses.

If the technology works as Elefante promises, it would be a major competitor to rural long-haul fiber providers. This technology would allow placement of small cell sites anywhere and would compete with the expensive fiber already built to provide service to rural cell sites. The satellite technologies would give me pause if I was building a new rural fiber long-haul network – but then again, these may never materialize or work as touted.

It’s certainly possible that one or more of the new promised technologies like this or like the low-orbit satellites could provide a viable broadband alternative for rural America. But just having the technologies able to serve that market doesn’t mean these companies will chase the market hard – there is a lot more money to be made in serving cell sites and creating private corporate networks. Chasing millions of rural homes is a much more complicated business and I’ll believe it when I see somebody doing it.

Generation Z as Customers

There has been a lot written about how Millennials are not buying telecom products at nearly the same rate as old generations. A large percentage of new Millennial homes reject both traditional cable TV and telephone service. They seem to be buying home broadband at about the same rate as those in Gen X. I remember seeing a study a few years back that suggests that people’s telecom buying habits are heavily influenced by what they did as teenagers, and the buying habits of the Millennials seems to bear that out.

But now we’re starting to see studies of the next generation – Generation Z, born between 1995 and 2012. This is the first generation that was handed smartphones at an early age and it can be argued that this makes them the first generation that has been immersed in computer technology for their whole life.

CommScope has been doing an annual report of the technology behavior of Generation Z, and this year’s report can be downloaded here. The study is not for the whole generation, just those 13 and older. It’s fascinating and takes an in-depth look at how this young generation uses technology. Some of the more interesting takeaways of this year’s study include:

  • First, this is a large generation. In 2015 they were 26% of worldwide population, which will increase to 33% by 2020.
  • Already today this generation accounts for 25% of consumer spending which is expected to increase to 40% in ten years.
  • 96% of Generation Z in advanced countries own smartphones.
  • This generation is nearly always online and spend 74% of their time online outside of school and work. According to the report this is the “first generation that appears to live equally in the digital world and the real world”.
  • 60% of Generation Z will not use an app or website that is too slow.
  • 2/3 of Generation Z are interested in buying things directly from social media sites.
  • The generation’s use of technology is increasing year-over-year. 80% say they are using their smart phone more than last year. Plus there is an increase of 42% for usage of laptops/desktops, 24% for tablets, 10% for smart watches.
  • 44% of the generation expect to buy a new smartphone every two years.
  • Their most popular apps are YouTube (56%), WhatsApp (47%), Facebook (38%), Instagram (30%), Twitter (22%), Snapchat (20%) and Google Apps (19%).
  • The generation expects performance from devices and services. They want fast bandwidth, long-lasting batteries, efficient and easy-to-use apps. They are likely to be demanding consumers.
  • 70% of the generation are satisfied with their bandwidth at home, and far less satisfied with bandwidth elsewhere like school (41%), shopping (38%), or outdoor public spaces (36%).
  • I don’t know how this compares with older generations, but a lot of Generation Z is interested in new technologies – virtual reality (44%), AI (41%), driverless cars (39%).
  • This generation is the first where more than half are content creators. 52% share content they have created with others. 43% create content weekly.
  • 2/3 of Generation Z agree with the sentiment that the age of personal privacy is over.
  • The generation is split on cellphone choice with 51% preferring Android to 49% for iOS.
  • 63% of Generation Z say that they would be lost without their smartphone.

What does all of this mean for an ISP? I think there are a few key takeaways.

  • This generation values high speed broadband. They also value mobility more than anything else. They are likely buyers of home broadband products unless future cellphone data products get fast and affordable enough to be a reasonable substitute.
  • Generation Z will be even less likely than Millennials to buy traditional cable TV, and practically none will buy landline telephones. This generation is not going to be buying the bundle.
  • This generation grew up with the small cellphone screen and will be happy with that format for much that they do.
  • Generation Z is going to be more demanding than past generations in terms of bandwidth and product performance and will quickly bail on providers that don’t live up to their expectations. This is not going to be a generation of loyal customers, but one that will switch to something better.
  • They are far more likely to be early technology adapters, particularly for technologies that will save them time, like driverless cars.

Who Owns Customer Data?

Our homes are starting to get filled with Internet-enabled devices. I recently looked around my own home, and in addition to the expected devices like computers, printers, tablets and smartphones we have many other devices that can connect to the Internet. We have a smart TV, an eero WiFi network, three Amazon Echos, several fitness trackers, and a smart watch. Many homes have other Internet-connected devices like smart burglar alarms, smart thermostats, smart lighting and even smart major appliances. Kids can have smart toys and game consoles these days which have more computing power than most PCs.

Every one of these devices gathers data on us and a good argument can be made that we are all being spied on by our devices. Each device witnesses a different part of our lives, but add them all together and they paint a detailed picture of the activity in your home and of each person living there.

There are numerous examples of companies that we know are using our data:

  • Last year it was revealed that Roomba was selling detailed information about the layouts of homes to data brokers.
  • The year before we found out that Samsung smart TVs were capable of listening to conversations in our living rooms and also had backdoor connections to the Internet.
  • There has been an uproar about smart talking toys that not only interact with kids but also listen and essentially build profiles on them.
  • Smart devices like smart phones, tablets and computers come with software that is aimed at gathering data on us for marketing purposes. This software generally is baked in and can’t be easily removed. Some companies like Lenovo (and their Superfish malware) went even further and hijacked user web traffic in favor of vendors willing to pay Lenovo.
  • Buyers of John Deere tractors found out that while they own the tractor they don’t own the software. The company penalizes customers who try to repair their tractor by anybody other than an authorized John Deere repairperson.

Probably the most insidious result of all of this spying is that there are now data brokers who gather and sell data that can paint a detailed profile of us. These data profiles are then used to market directly to us or are sold to politicians who can target those most sympathetic to their message. It’s also been reported that smart criminals are using this data to choose victims for their crimes.

I’m sure by now that everybody has searched for something on the web, and then noticed that for the next few weeks they are plastered with ads trying to sell them the subject of their search. This happened to me a few years ago when I was looking at new pick-up trucks on the web. But today this goes a lot farther and people complain about getting medical ads after they have searched the web about an illness.

To make matters worse, we have a government regulatory policy in this country that benefits the corporations that are spying on us. Last year Congress passed privacy rules that let ISPs and anybody else gathering raw digital data off the hook. There are essentially no real privacy rules today. Data privacy is now under the purview of the Federal Trade Commission. They might intervene in a particularly egregious case of invasion of privacy, but their rules are not proactive and only can be used to find companies that have already broken the rules. Unless fines grow to be gargantuan it’s unlikely that the FTC will change much of the worst practices using our data.

The European Union is in the process of enacting rules that will clamp down on data gathering. Their rules that go into effect in a few months will require that customers buy-in to being monitored. That is great in concept, but my guess that it’s going to take a decade of significant fines to get the attention of those companies that gather our data. Unless the fines are larger than the gains from spying on people then companies will continue to monitor us, and they will just work harder to hide evidence of spying from the government.

I think there are very few of us who don’t believe our data should belong solely to us. Nobody really wants outsiders knowing about their web searches. Nobody wants unknown companies tracking their movement inside their homes, their purchases and even their conversations. But for now, the companies that are gathering and using our data have the upper hand and are largely free do nearly anything they want with our data.

Portugal and Net Neutrality

Last week I talked about FCC Chairman Ajit Pai’s list of myths concerning net neutrality. One of the ‘myths’ he listed is: Internet service will be provided in bundles like cable television as has happened in Portugal.

This observation has been widely repeated on social media and has been used as a warning of what would happen to us Internet access without net neutrality. The social media postings have included a screen shot of the many options of ‘bundles’ available from the mobile carrier Meo in Portugal. Taken out of context this looks exactly like mobile data bundles.

Meo offers various packages of well-known web applications that customers can buy to opt the applications from monthly data caps. For example, there is a video bundle that includes Netflix, YouTube, Hulu, ESPN, Joost and TV.Com. There are a number of similar bundles like the social bundle that includes Facebook and Twitter, or the shopping bundle that contains Amazon and eBay.

But the reality is that these bundles are similar to the zero-rating done by cellular carriers in the US. The base product from Meo doesn’t block any use of cellular data. These ‘bundles’ are voluntary add-ons and allow a customer to exclude the various packaged content from monthly data caps. If a customer uses a lot of social media, for example, they can exclude this usage from monthly data caps by paying a monthly fee of approximately $5.

The last FCC headed by Tom Wheeler took a look at zero-rating practices here in the US. They ruled that the zero-ratings by AT&T and Verizon violated net neutrality because each carrier has bundled in their own content. But the FCC found that T-Mobile did not violate net neutrality when they included content from others in their zero-rating package. The current FCC has not followed through on those rulings and has taken no action against AT&T or Verizon.

The Meo bundles are similar to the T-Mobile zero-rating packages, with the difference being that the Meo bundles are voluntary while T-Mobile’s are built into the base product. The FCC is correct in pointing out that Portugal did not create mobile ‘bundles’ that are similar to packages of cable TV channels. If anything, I see these bundles as insurance – in effect, customers spend a small amount up front to avoid larger data overages later.

It is also worth noting that Portugal is a member of the European Union which has a strong set of net neutrality rules. But the EU is obviously struggling with zero-rating in the same way we are in the US. The real question this raises is if zero-rating is really a violation of net neutrality. It’s certainly something that customers like. As long as we have stingy monthly data caps then customers are going to like the idea of excusing their most popular apps from measurement against those caps. If cellular carriers offered an actual unlimited data then there would be no need for zero-rating.

I disagreed with the Wheeler FCC’s ruling on T-Mobile’s zero-rating. That ruling basically said that zero-rating is okay as long as the content is not owned by the cellular carrier. This ignores that fact that zero-rating of any kind has a long-term negative impact on competition. T-Mobile is like Meo in that they exclude the most popular web applications from data ca measurement. One of the major principles of net neutrality is to not favor any Internet traffic, and by definition, zero-rating favors the most popular apps over newer or less popular apps.

If enough customers participate in zero-rating the popular apps will maintain prominence over start-ups apps due to the fact that customers can view them for free. This is not the same thing as paid prioritization. That would occur if Netflix was to pay T-Mobile to exclude their app from data caps. That would clearly give Netflix an advantage over other video content. But voluntary zero-ratings by the cellular carriers has the exact same market impact as paid prioritization

None of this is going to matter, though, if the FCC kills Title II regulations. At that point not only will zero-rating be allowed in all forms, but ISPs will be able ask content payers for payment to prioritize their content. ISPs will be able to create Internet bundles that are exactly like cable bundles and that only allow access to certain content. And cellular carriers like AT&T or Comcast are going to be free to bundle in their own video content. It’s ironic that Chairman Pai used this as an example of an Internet myth, because killing net neutrality will make this ‘myth’ come true.