Amazon Sharing Your Broadband

Amazon launched its Sidewalk network in June. This is a local network established between Amazon devices in your home and around your neighborhood. This connects devices like the various kinds of Echo devices and Ring cameras. The network will also communicate with Tile devices used to keep track of things like keys and pets.

The network does not use your home WiFi, but instead establishes a new network using a combination of Bluetooth and 900 MHz LoRa signals. While Amazon won’t comment on future plans for this network, it would be a natural way for Amazon to create a smart home network that is apart and separate from WiFi.

Amazon automatically enabled newer Echo and Ring devices to act as bridges in the network. The network can then connect to any other smart home device that has the ability to communicate with the bridges. This doesn’t work with the first few generations of Amazon Echo devices but comes built into fourth-generation Echo and Dot devices. Specifically, the network enables the following kinds of connections:

  • Localized Bluetooth LE connections between the Sidewalk bridges and Sidewalk-enabled devices in your home;
  • Long-range Bluetooth LE and 900MHz connections between your Sidewalk bridges and Sidewalk-enabled devices outside of your home, including other people’s devices;
  • Long-range Bluetooth LE and 900MHz connections between your Sidewalk-enabled devices and Sidewalk bridges outside the home, including other people’s bridges.

The bridges on the network communicate with the Amazon cloud using your home broadband connection. Amazon says that it is limiting an individual connection to no more than 80 Kbps and is capping total data usage from any home at 500 MB of data per month.

If you have one of these devices in your home, this becomes another use of your monthly data. While half a gigabyte may not sound like a lot pf broadband, it is significant to people using cellular hotspots or other data plans with small data caps. This will be one more use of data that contributes to total home usage for anybody saddled with a broadband data cap.

In urban areas where there are a lot of such devices, this creates an interesting network. If you drop your keys while jogging or your dog wanders away, they can be located if connected to a Tile locator device. Amazon is touting the Sidewalk network as something that is good for everybody.

Amazon’s real plans have to be more than making Tile devices work better. The giant retailer probably has visions of selling a range of outdoor sensors that will work as long as homeowners or neighbors have a bridge device. In the future, you might buy an external sensor that makes its broadband connection through your neighbor’s Ring camera.

But this is also a bit troublesome. This creates a free mesh network for Amazon. Over time, it’s likely that many devices sold by the company will be capable of communicating with this network. The richest guy on the planet will have created an incredibly valuable network by taking small amounts of data from anybody using an Echo or Ring device. Users are able to disconnect bridges from the Sidewalk network, but devices are enabled automatically.

Amazon says data is safe on the network. Data is supposed protected by several layers of encryption, and Amazon plans to delete all data every 24 hours.

This reminds me of the WiFi network created by Comcast using home routers. Comcast swears that the network doesn’t use home broadband, but it’s unlikely that somebody would know it if it did. Amazon isn’t making such a claim and is brazenly using a small slice of people’s home broadband for free. Amazon is the only company that could currently pull this off since it has a huge number of Echo and Ring devices already in homes. But there is nothing stopping other smart home device makers from doing something similar and not even telling us about it.

Did the Senate Just Change the Definition of Broadband?

The recently passed Senate infrastructure legislation included a new definition of an underserved household as being a location that lacks access to reliable broadband service offered with a speed of not less than 100 megabits per second for downloads; and 20 megabits per second for uploads, plus a latency sufficient to support real-time, interactive applications. It’s hard to see this as anything other than a new definition of broadband.

Before jumping completely off this cliff, it’s worth revisiting the history of the federal definition of broadband. The FCC is required to establish a definition of broadband. Congress established this obligation in Section 706 of the FCC governing rules that require the agency to annually evaluate broadband availability in the country. The FCC must then report the state of broadband to Congress every year using the established definition. In these reports, the FCC compiles data about broadband speeds and availability and offers an opinion on the state of broadband in the country. Further, the FCC must act if broadband is not being deployed in a timely manner – but no FCC to date has concluded that the agency is not doing a great job with broadband deployment.

In 2015, the FCC established the current definition of broadband as 25/3 Mbps (that’s 25 Mbps download and 3 Mbps upload). Prior to 2015, the FCC definition of broadband was 4/1 Mbps, set a decade earlier. The FCC didn’t use empirical evidence like speed tests in setting the definition of broadband in 2015. They instead conducted what is best described as a thought experiment. They listed the sorts of functions that a “typical” family of four was likely to engage in and then determined that a 25/3 Mbps broadband connection was enough speed to satisfy the broadband needs of a typical family of four.

The FCC asked the question again in 2018 and 2020 if 25/3 Mbps was still an adequate definition of broadband. The Commission took no action and concluded that 25/3 Mbps was still a reasonable definition of broadband. There were comments filed by numerous parties that argued that the definition of broadband should be increased.

Unfortunately, as happens with many regulatory requirements, the FCC has not been an honest broker in looking at the definition of broadband. There are political consequences for any FCC that increases the definition of broadband because doing so means declaring that millions of households would suddenly classified as not having adequate broadband. If the FCC changes the definition of broadband from 25/3 to 100/20 Mbps, then every home with speeds between 25/3 and 100/20 Mbps suddenly be considered to not have adequate broadband. No FCC wants to be the one that increases the number of homes without broadband.

All of this is politics, of course, and homes and businesses know if broadband is adequate without the FCC setting some arbitrary speed as magically being broadband. Is the home that gets 27 Mbps all that different than one that’s getting 23 Mbps? Unfortunately, when it comes to being eligible for federal grant monies it matters.

I think there is a good argument to be made that the Senate just preempted the FCC in setting the definition of broadband. Declaring that every home or business with speeds less than 100/20 Mbps is underserved is clearly just another way to say that speeds under 100/20 Mbps are not good broadband.

Of course, the FCC could continue to use 25/3 Mbps as the definition of broadband for the purposes of the annual report to Congress. But Congress just changed the definition of broadband that matters – the one that comes with money. If the infrastructure legislation become law it will allow states to use the huge $42.45 billion of federal funding to upgrade the broadband in places that have broadband speeds under 100/20 Mbps.

Of course, the Senate legislation has not yet been enacted because the House of Representatives needs to now pass fresh infrastructure legislation, and then the two versions of new law must be reconciled before going into effect. But the Senate legislative language couldn’t be clearer – 25/3 Mbps is no longer the definition of broadband that matters.

Charter Foresees the End of Traditional Cable

An article by Ben Munson in Fiercevideo quotes Chris Winfrey, the CFO of Charter, as saying that the breaking point for traditional cable TV is approaching.  While Charter is still making money on selling video, all of the industry trends make it hard to think that traditional TV has a lot of legs.

Traditional video has a lot of competition. The most obvious are paid online video services like Netflix, YouTube TV, Hulu, sling TV, and others. But Winfrey cites a big threat from free programming. There are numerous free ad-supported programming sources like IMDb TV, Crackle, Vudu, Tubi TV, and Pluto TV that offer mountains of programming. Winfrey also cites the millions of people who watch for free by using the passwords of a paid subscriber to online content.

Another huge factor is the ever-increasing cost of buying programming. Winfrey says that Charter has absorbed some of the programming costs in recent years but says that in the future, he sees no alternative to passing the programming increases to customers. Price is already a huge factor in driving customers from traditional cable TV, and continued price increases are bound to drive many more millions from the paid subscriptions.

A final issue cited in the article is the high price of carrying local network stations. The fees to carry ABC, CBS, FOX, and NBC have climbed steadily and are a huge factor in the cost of cable packages.

Winfrey thinks the only hope for companies like Charter to keep offering a cable product is to allow cable companies to package programming in different and creative ways – something the programmers don’t see interested in considering – because it likely means trimming channels.

This is an industry segment in crisis. The largest dozen traditional cable providers, including the satellite TV companies, lost almost 6 million customers in 2020 – and the rate of loss looks to be accelerating.

Many smaller ISPs have either dropped cable entirely or are strongly considering it. Other smaller ISPs are now buying alternatives like smaller packages of programming from bundlers of content. Windstream started bundling last year with online providers like Sling TV.

My firm does surveys, and we’ve seen a huge uptick in the last two years of homes that have gone back to rabbit ears to receive local content for free. As recently as three or four years ago, we’d sometimes do a survey and find practically nobody watching over-the-air.

This trend is not a surprise and we’ve been watching the wheels fall off the traditional cable industry for years. But as rates keep climbing, and as more free alternatives appear, it seems likely that cord cutting will continue to the point where some big cable companies will throw up their hands and consider alternatives.

It’s hard to picture any big ISPs with millions of traditional cable customers a decade from now. At some point, I guess we’re going to have to stop using the label of cable company for Comcast, Charter, and others.

State versus Federal Regulation

I’m often asked questions by clients about specific federal or state regulations, and my clients often don’t understand how or why certain regulations apply to them. One of the things I’ve always relied on in understanding a specific regulation is something that I learned many years ago in a class on regulatory theory. Regulatory theory defines five different ways that the federal government and states can impose regulations. I often understand a regulation better when I understand how that regulation was created.

Sometimes federal regulations clearly preempt all state regulatory action. Such federal rules generally stem from a law passed by Congress that is interpreted by a regulatory agency like the FCC. A simple example is CALEA rules that allow federal law officials to wiretap or gain access to customer ISP data through a valid subpoena. Congress passed the Communications Assistance for Law Enforcement Act (CALEA) in 1994, with some modifications that can from the Patriot Act. The FCC followed Congressional action with a list of specific procedures that ISPs must follow to comply with the law. I’m not aware of any cases of state regulatory rules trying to modify the CALEA requirements, so this is a federal mandate that applies in all states, without question or challenge.

More common are federal mandates that preempt less stringent state laws but permit states to establish more stringent standards. A good example of this is pole attachment rules. There have been requirements since the Telecommunications Act of 1934 that pole owners must allow attachers onto poles. These rights were further reinforced by the Telecommunications Act of 1996. The FCC followed the 1996 Act with revised federal pole attachment standards and rules. Thirty states still follow those federal rules, but another twenty states have gone on to clarify and require even stricter pole attachment rules. All states are still governed by the general principles established in the federal rules, but the FCC explicitly invited states to get more specific as they see fit.

We are currently seeing the third example of federal regulation that comes in the form of rules included in federal grants or other forms of assistance. Every federal broadband grant program has included a different definition of broadband and the geographic areas that might be funded by that grant. This is confusing to most people because they want to know the federal definition for terms like unserved and underserved. The FCC has never set a definition of these terms, so there is no federal standard. The confusion comes since every grant program is free to redefine these terms. Sometimes grant programs have no choice – for example, many of the rules used by the USDA for the ReConnect grants were established when Congress provided the money for that program. But the rules used for Reconnect grants have no bearing on grants issued by other agencies. Even when there are Congressional rules for a given grant, the agency issuing the grant always has leeway in setting specific rules that were not mandated by Congress. Anybody who has ever applied for a federal grant knows that the grant rules are unique to each grant and also immutable – you either follow the rules or you don’t get the grant.

We sometimes see regulations established by a cooperative program in which voluntary national standards are formulated by federal and state officials working together. The best historical example of this in the telecom world has been the Federal-State Joint Board. The Joint Board is a cooperative effort by FCC and state regulators to create rules. When I first joined the industry, the Joint Board established many of the rules relevant to cost separations and settlements between carriers. In more recent years, the Joint Board has focused on Universal Service Fund issues.

Finally, some regulations are clearly in the state domain, either from common practice or because the federal government never chose to regulate an issue. There are a number of common state regulations that affect telecom carriers. Some common examples are the establishment of a state Universal Service Fund, annual reporting rules for carriers to a State Commission, state rules that might prohibit municipalities from becoming ISPs, and state rules for specific taxes and levies.

The Big Questions

I took a pause the other day to think about the big issues facing the telecom industry. When I’ve done that in past years I always came up with a few major issues and more smaller ones. But we are in such turmoil right now that I rattled off the following list quickly. I can’t remember a time when our industry was wrangling with so many major issues at the same time. The performance of the industry over the next decade is going to depend upon how we handle these issues.

Supply Chain. AT&T said recently that it wasn’t going to make its targeted fiber builds this year due to supply chain issues. A few large telcos like Frontier and Windstream said that the supply chain is not a bad issue right now, but I have small ISP clients that are already seeing some dreadful delivery times on fiber and electronics, probably because they are last in priority in the industry. Regardless of the state of today’s supply chain, there is no doubt that the supply chain collapses if we come close to meeting RVA’s estimate that the collective industry plans to build 61 million fiber passings by the end of 2025. How badly might the big telcos miss targets within a few years if there isn’t enough fiber? How will the huge government grants deal with awarded projects that can’t find the materials or crews needed to construct in a timely manner?

Cable Companies and Competition. If the ISPS collectively build fiber past 61 million homes and businesses, the cable companies are going to start seeing some significant competition. Cable companies have enjoyed unprecedented growth while they’ve been killing DSL, but competing against fiber is a different story. How will Wall Street react if cable companies start losing customers? Will cable companies react by upgrading to DOCSIS 4.0, migrating to fiber, or biding their time and doing nothing?

New Technologies. We see the birth of new technologies like low orbit satellites and millimeter-wave broadband (like Starry). How disruptive will these technologies be? Which new technologies will have the legs to thrive and survive?

Future of Cable TV. How long will it take the big cable companies to walk away from traditional cable TV? The industry lost almost 6 million traditional cable households last year. Traditional cable TV viewing has dropped significantly to now be only 39% of the total hours of video viewing.

Gigabit Applications. OpenVault reported at the end of the first quarter than 10% of all US households are subscribing to a gigabit broadband product. Does this finally create the market for developing products that use huge bandwidth like telepresence? The bigger question is how ISPs will handle large-bandwidth streaming – networks have not been designed to handle a lot of large simultaneous streams?

Digital Divide. The Senate infrastructure bill provides huge new funding to subsidize low-income broadband. This will transform the urban ISP market and could attract investments in poor neighborhoods if ISPs feel confident that the subsidies will continue long enough to cover the borrowing costs to build infrastructure. This is as close as we’ve ever come to solving the urban digital divide – but how can we give assurances to ISPs to enable them to make investments to modernize inner-city broadband networks?

Gigantic Grants. We are probably looking at a one-time opportunity to upgrade broadband across the country. The federal government has never shown the capacity to efficiently hand out huge amounts of broadband money, and there were a lot of problems with the ARRA and the RDOF programs, the two biggest funding programs to date. Will we spend this money efficiently so that broadband gets to everywhere it’s needed, or will there still be significant pockets of homes that get bypassed by the funding?

Video Streaming Continues to Grow

ISPs all know firsthand that the use of video streaming grew significantly during the pandemic. Nielsen tracks video usage better than anybody else in the industry, and they report that 26% of all the time spent watching content is now done through streaming. Streaming has surpassed broadcast TV (watching TV from through-the-air reception).

The latest breakdown of the way that people receive content is as follows:

  • Cable TV – 39%
  • Streaming – 26%
  • Broadcast – 25%
  • Other – 9%

The 9% other category represents gaming, streaming through a cable settop box, and watching DVDs. It’s worth recalling that watching gaming is done online and is one of the fastest-growing segments of video consumption.

These percentages show perhaps better than any other way how far traditional cable TV has dropped in importance to households. A decade ago, households spent nearly double the time as today watching cable TV.

Nielsen has also quantified the time spent watching various streaming services. Following is the percent of total video time watching spend with the various streaming services:

  • Netflix – 6%
  • YouTube – 6%
  • Hulu – 3%
  • Amazon Prime – 2%
  • Disney – 1%
  • All other streaming services – 8%

These statistics show the market power of the largest streaming services. It’s almost mindboggling to think that Netflix and YouTube have grown to each represent 6% of all of the time spent nationally watching video.

While these latest statistics show how large streaming video has grown, it also provides a warning of how much it can still grow. As cord-cutting continues, the percentage of hours using broadband to watch video will continue to grow. It wouldn’t be surprising if a decade from now we see a doubling in the percentage of time spent streaming.

This is a caution to network engineers that the crazy growth in average household broadband usage is going to continue to grow as more and more video is consumed online. OpenVault recently reported that the average US home now uses 563 gigabytes of broadband per month – and that number is going to continue to climb significantly just from increased video consumption online. Add to that the gigantic usage coming from people working and schooling remotely and the new phenomenon of video conference calling, and it’s not hard to imagine average home broadband usage doubling again in just a few short years.

Drone Research in North Carolina

The Platform for Advanced Wireless Research (PAWR) program, funded by the National Science Foundation, recently expanded the footprint for a wireless research trial in North Carolina. Labeled as the Aerial Experimentation and Research Platform for Advanced Wireless (AERPAW), a wireless testbed has been created in and around Cary, NC to also include the Lake Wheeler Field Laboratory and the Centennial Campus of NC State in Raleigh.

The wireless testbed is one of four created in the country. There will be a number of participants in the experiments, including NC State University, the Wireless Research Center of North Carolina, Mississippi State University, the Renaissance Computing Institute of the University of North Carolina at Chapel Hill, the town of Cary, the City of Raleigh, Purdue University, and the University of South Carolina.

The AERPAW program has been seeded with $24 million of grants from the National Science Foundation. The primary purpose of the North Carolina testbed is to explore the integration of drones with 5G wireless technology and to accelerate the development and commercialization of promising technologies.

The recent expansion came when the FCC named the area as an Innovation Zone as part of its Program Experimental Licenses. These licenses give the qualified research institutions the ability to conduct multiple and unrelated experiments over a range of frequency bands without having to ask permission from the FCC each time. The combination of the PAWR grants and the FCC Innovation Zone means an accelerated timeline for gaining access to the spectrum needed for experiments.

The North Carolina experiments are just getting underway and should be in full swing by 2023. There are already some interesting experiments being contemplated:

  • There will be an experiment to explore the feasibility of using drones to temporarily act as cell sites after the damage caused by hurricanes and other disasters. As our society becomes more reliant on 5G connectivity, there will be an urgency in restoring damaged cell sites quickly. The experiments will also consider the use of 5G cell sites mounted on cars, buses, and golf carts.
  • This same concept might be able to make a portion of a cellular network mobile, meaning the network could be shifted to serve increased demand when people and traffic are unexpectedly busy. Picture 5G drones flying over a football stadium.
  • There will be experiments to try to improve and guarantee the accuracy and ability of drones to delivery key packages such as medicines or commercial deliveries.
  • Research is contemplated to use drones to collect data from IoT sensors on nearby farms.
  • There is also an experiment envisioned that will look at ways to improve the ability of air traffic control to track and account for drones.

The PAWR platform is interesting in that commercial companies can request research into specific applications. In this case, a corporation could fund research into a specific use of drones, and the Innovation Zone means that any spectrum issues associated with trying new ideas can be accommodated. As might be expected, several wireless vendors are part of the platform. For example, Ericsson has installed 4G/5G RAN equipment at the Lake Wheeler site to initiate experimentation. Thirty-five vendors plan to participate in the four wireless testbeds around the country and might likely be the major beneficiaries of any technologies that prove to be viable.

This kind of research is vital if we are to develop wireless technologies for widespread use. There is only so much experimentation that can happen in labs, and this kind of testbed allows researchers to quickly identify both issues and benefits of 5G drone applications.

Update on RDOF

The RDOF reverse auction was completed in December 2020, and since then, the FCC has been silent about the disposition of any of the winning bidders. Part of the quiet period has been due to the FCC processing the long-form applications where grant winners demonstrate that they have the technical, managerial, and financial capability of fulfilling the RDOF buildouts. The FCC’s silence came to an end recently with several actions taken by the agency.

The FCC first published a list of almost 11,000 Census blocks where RDOF grant winners have elected to reject funding totaling over $78.5 million. The defaults came for a variety of reasons. For example, there are some cases where investigation showed that an ISP was already offering fast broadband in a grant area. Other defaults come from the bidders deciding they couldn’t make an economic case for the Census block clusters won in the auction. The FCC has the ability to fine grant winners that default on winning grants, and the agency will likely consider the fines on a case-by-case basis.

Next, the FCC sent letters to dozens of RDOF winners asking them to voluntarily give up the RDOF funding for specific Census blocks. These are places that should never have been included in the auction. The list included such places as large metropolitan airports and big parking lots. Starlink alone was asked to give up funding to 6,500 Census blocks.

The FCC also sent a different letter to 197 RDOF grant winners asking them to reevaluate taking funding in specific blocks where the FCC now believes that one or more ISP already delivers speeds of 25/3 or faster. The FCC acknowledges that most of these areas were erroneously included in the action due to bad mapping data. These grant winners were warned that if they don’t relinquish these Census blocks that the FCC will look hard at blocking the funding for these areas – an action that could delay approval of overall funding for an ISP.

The FCC also announced that it was rejecting some of the claimed areas for LTD Broadband. The FCC killed funding for the company in California, Kansas, and Oklahoma due to the company not getting regulatory approval in those states to become an Eligible Telecommunications Carrier. This rejection killed $187.5 million in California to serve 76,856 locations, $81.1 million in Oklahoma to reach 39,889 locations, and $3.2 million in Kansas to reach 2,122 locations.

There has been some question of what happens to the Census blocks that are now back in play. Some have speculated that these areas would roll into the next RDOF auction. However, the FCC has no power to claim or reserve Census blocks, and any of the areas that fall out of RDOF becomes eligible for the many other grant programs now underway.

Finally, the FCC started making RDOF awards. It awarded $311 million to these companies that have made it successfully through the long-form review process. This will bring broadband to over 200,000 homes. This is only a small fraction of the $9 billion that was claimed in December. But for these companies and these Census blocks, the 10-year clock will soon be started to fulfill whatever technology was promised in the winning bid.

The FCC still has a long way to go. These actions clear up some of the messes caused by the FCC using bad mapping in setting grant areas. There are industry analysts that say that this effort is not complete and that additional areas are yet to be identified. But the FCC has disposed of less than $1 billion of the $9 billion in awards, so expect to hear periodic awards for more grant winners.

The FCC still has to wrestle with a few huge issues. There have been numerous complaints saying that grant winners like LTD Broadband should not have been allowed to participate in the auction in a big way. There are other grant winners that claimed the ability to deploy gigabit rural wireless – a technology that nobody I know thinks exists. There are likely ISPs that will not make it through the long-form review for some other reason, such as the inability to guarantee funding. The agency is likely a long way from resolving these many issues.

Satellite Broadband and Farming

An article in Via Satellite discussed John Deere’s interest in using low-orbit satellite broadband as the platform to expand smart farming. This makes perfect sense because there is no quicker way to bring broadband coverage to all of the farms in the world.

There are only a few other technologies that might be able to fill the farm broadband gap. The one we’ve been thinking about for the last decade is cellular, but there is a major reluctance of the big cellular companies to invest in the needed rural cellular towers and to constantly upgrade electronics for cell sites that have only a few customers. If you’ve ever traveled to the upper Midwest, you’ve stood on farm roads where agricultural fields stretch to the horizon in every direction. Standing in such a place makes you realize that cellular is not the answer. No carrier will invest in a cell tower where the potential customers are a few farms and the farm machinery. No farmer wants to pay a cellular bill large enough to support a single cell tower.

There is also experimentation with the use of permanent blimps that can provide broadband coverage over a several-county area. I wrote a blog last year about a trial with blimps in Indiana. It’s an interesting idea, and it may be a good way to support self-driving equipment. But the big downside to blimps is the ability to handle millions of sensors and to process huge amounts of data in real-time, like the monstrously large data files created by surveying fields for a wide variety of soil conditions. I also have to wonder about the ability to replicate this technology outside of prosperous farming areas in the US.

Before John Deere or anybody decides that satellites are the answer to smart agriculture, we need to know more about the real-life capabilities of satellites constellations. Big data users like cell sites and farms could bog down a satellite network and lower the usefulness for retail ISP services.

I think we’re going to quickly find out if satellite technology has a limited capacity – something we learned with earthbound networks a long time ago. An individual satellite is the equivalent of a broadband node device like a DSLAM for DSL or an OLT used in FTTP. Local broadband devices are subject to being overwhelmed by a few heavy data users. There is a reason that we use separate networks today to support cell towers and home broadband – because both would suffer by being on the same node.

The article raised this question and quoted a John Deere engineer as saying that the ideal situation would be for John Deer to own a satellite constellation. Putting the cost issue aside, space is going to get to be far too busy if we allow individual corporations to put up fleets of satellites. It’s not hard to imagine a John Deere constellation, a Verizon cellular constellation, a FedEx constellation, etc. The sky could get incredibly crowded.

The alternative is for the handful of satellite companies to sell access to corporations like John Deere. And that means somehow satisfying hugely different broadband needs from a satellite constellation. It’s not hard to imagine Starlink preferring big farms and cell sites over residential subscribers. Farmers and cellular companies are likely willing to spend more than households, but will expect priority service for the higher fees.

I’m sure that the satellite companies are flooded with unique requests for ways to use the satellites. If I owned a satellite constellation, I would likely pursue the most lucrative, highest-margin customers, and it’s hard to think somebody like Starlink won’t do the same. If they do, there will either be a limit on the number of residential customers they can accept or a degraded level of broadband for customers not willing to pay a premium corporate rate.

CenturyLink Selling Copper Assets

I wrote a few weeks ago that Lumen (CenturyLink) was looking to sell a large portion of its copper networks to Apollo Global Management. That rumor became real when the company announced a sale of copper assets in twenty states (the orange areas in the map below). Selling a regulated telco property is never an easy process, and the sale is not expected to close until the second half of 2022.

The sale covers the retail operations in the twenty states, which mostly means DSL customers. The sales announcement says that Apollo is getting 7 million passings but didn’t say how many active customers that is. The areas being sold include 200,000 fiber passings and about 59,000 fiber customers. The sale will cover “CenturyLink-branded assets” which includes “consumer and small businesses, . . . fiber and copper networks, tower site connectivity and central offices”. Lumen will retain its competitive CLEC business, which consists of a national fiber network and selling to business customers mostly in cities. For example, the CLEC business holds the lucrative GSA contract that sells phones and broadband to the federal government.

The sale price is $7.5 billion, which is reported to be 5.5 times adjusted EBITDA. That price and multiple seem high for buying a mostly copper network, and several analysts estimated the value at around $5 billion in recent weeks. The purchase also brings along $1.4 billion in debt, which means cash changing hands ought to be around $6.1 billion.

The Apollo Global Management team is led by three veterans who helped to build Verizon’s FiOS business, including Bob Mudge, Chris Creager, and Tom McGuire. This purchase is another example of telecom businesses being snatched up by giant equity firms. Apollo is on a buying spree and a week earlier announced the $200 million purchase of FirstDigital Telecom, a fiber-based carrier from Lindon, Utah; FirstDigital just recently acquired Veracity Networks. In just the last few months Apollo also recently purchased the Media Assets of Verizon for $5 billion, bought a share of the University of Phoenix for $1 billion, purchased one of the top industrial staffing firms EmployeeBridge, purchased the majority stake in bioenergy producer AS Graanul, and purchased Foundation Home Loans.

It’s going to be interesting to watch the Apollo team works its way through the regulatory approval process because the main goal of the management team is likely to bring fiber to the county seats and towns that come with this purchase. One report of the sale said that 70% of the customers being acquired are in towns and 30% in rural areas. It’s hard to think that the team will want to make any investment in rural copper properties – unless it somehow capitalizes on upcoming infrastructure grants. To gain regulatory approval for the sale, Apollo is going to have to promise regulators that it won’t walk away from rural obligation – a promise that will be hard to keep because CenturyLink stopped maintaining rural properties decades ago in many of these places.

One of the interesting sidenotes of the purchase for industry veterans is that the purchase includes Louisiana, meaning CenturyLink is divesting its original telco property. That will really cut the ties between Lumen and CenturyLink. The purchase likely is also divesting CenturyLink’s one foray into last-mile partnering through selling CenturyLink’s participation on the municipally-owned network in Springfield, MO.

It will be interesting to see if Apollo can do better than other past forays with buying copper networks. I can’t think of one of these mega-deals where buying copper networks has gone well. I think back on the purchases by Frontier, Fairpoint, Iowa Telephone, Windstream, Citizens, and others that never panned out – and those deals were for copper that was ‘t as ancient as is coming in this sale. Some of the rural customers in this sale have seen the name of the incumbent telco change several times – but they haven’t seen improvements in copper for decades.