AT&T’s Broadband Trials

John Donovan, the chief strategy officer for AT&T, spoke at the Mobile World Congress recently and said that the company was trying five different technologies for the last mile. This includes WLL (wireless local loop), G.Fast, 5G, AirGig and fiber-to-the-premise. He said the company would be examining the economics of all of different technologies. Let me look at each one, in relation to AT&T.

Wireless Local Loop (WLL). The technology uses the companies LTE bandwidth but utilizes a point-to-multipoint network configuration. By using a small dish on the house to receive the signal the company is getting better bandwidth than can be received from normal broadcast cellular. The company has been doing trials on various different versions of the technology for many years. But there are a few recent trials of the newest technology that AT&T will be using for much of its deployment in rural America as part of the CAF II plan. That plan requires the ISP to deliver at least 10/1 Mbps. AT&T says that the technology is delivering speeds of 15 to 25 Mbps. The company says that even at the edge of a cellular network that a customer can get 10 Mbps about 90% of the time.

G.Fast. This is a technology that uses high frequencies to put more bandwidth on telephone copper wire. Speeds are reported to be as high as 500 Mbps, but only for very short distances under 200 feet. AT&T recently announced a G.Fast trial in an apartment building in Minneapolis. The technology is also being tested by CenturyLink and Windstream. All of these trials are using existing telephone copper inside of existing apartment buildings to deliver broadband. So this is not really a last mile technology. AT&T brings fiber to the apartment complex and then uses G.Fast as an inside wire technology. If they find it to be reliable this would be a great alternative to rewiring apartments with fiber.

5G. AT&T recently announced a few trials of early 5G technologies in Austin. They are looking at several technology ideas such carrier aggregation (combining many frequencies). But these are just trials, and AT&T is one of the companies helping to test pre-5G ideas as part of the worldwide effort to define the 5G specifications. These are not tests of market-ready technologies, but are instead field trials for various concepts needed to make 5G work. There is no doubt that AT&T will eventually replace LTE wireless with 5G wireless, but that transition is still many years in the future. The company is claiming to be testing 5G for the press release benefits – but these are not tests of a viable last mile technology – just tests that are moving lab concepts to early field trials.

AirGig. This one remains a mystery. AT&T says it will begin trialing the technology later this year with two power companies. There has been a little bit of clarification of the technology since the initial press release. This is not a broadband over powerline technology – it’s completely wireless and is using the open lines-of-sight on top of power poles to create a clear path for millimeter wave radios. The company has also said that they don’t know yet which wireless technology will be used to go from the poles into the home – they said the whole range of licensed spectrum is under consideration including the LTE frequencies. And if that’s the case then the AirGig is a fiber-replacement, but the delivery to homes would be about the same as WLL.

FTTP. Donovan referred to fiber-to-the-home as a trial, but by now the company understands the economics of fiber. The company keeps stretching the truth a bit about their fiber deployments. The company keeps saying that they have deployed fiber to 4 million homes, with 8 million more coming in the next three years. But the fact is they have actually only passed the 4 million homes that they can market to as is disclosed on their own web site. The twelve million home target was something that was dictated by the FCC as part of the settlement allowing the company to buy DirecTV.

We don’t know how many fiber customers AT&T has. They are mostly marketing this to apartment buildings, although there are residential customers around the country saying they have it. But they have not sold big piles of fiber connections like Verizon FiOS. This can be seen by looking at the steady drop in total AT&T data customers – 16.03 million in 2014, 15.78 million in 2015 and 15.62 million at the end of the third quarter of 2016. AT&T’s fiber is not really priced to be super-competitive, except in markets where they compete with Google Fiber. Their normal prices elsewhere on fiber are $70 for 100 Mbps, $80 for 300 Mbps and $99 for a gigabit.

OTT News, March 2017

There is a lot of activity going on with web-based video. There are offerings that are starting to look like serious contenders to traditional cable packages.

Comcast Integrates YouTube. Comcast has made a deal with Google to integrate YouTube into the Comcast X1 settop box. This follows last year’s announcement that Comcast is also integrating Netflix. Comcast also says they are working to integrate other SVOD platforms.

Comcast is making a lot of moves to keep themselves relevant for customers and to make the X1 box a key piece of electronics in the home. The box also acts as the hub for their smart home product, Xfinity Home.

One has to think that Comcast has worked out some sort of revenue sharing arrangements with Google and Netflix, although all details of these arrangements have not been reported. The most customer-friendly aspect of these integrations is that the Comcast X1 box is now voice-activated and customers can surf Netflix and YouTube by talking to the box.

Sling TV Adds More Sports. Sling TV has made another move that will make it attractive to more customers by adding the Comcast regional sports networks (RSNs) to their line-up. This includes CSN California, CSN Bay Area, CSN Chicago and CSN Mid-Atlantic. These networks carry a lot of unique sports content that is not easily available anywhere else on-line today. The networks carry pro basketball, pro baseball and a number of college sports. For example, CSN Bay Area is the home station for the popular Golden state Warriors. CSN Mid-Atlantic is the home station for the Baltimore Orioles.

I know in talking to my sports-centric friends that the narrow sports content on-line is the number one issue holding them back from switching to an OTT package. There are still other networks that Sling TV would need to add, like the Big Ten Network and the NFL Channel, to be a totally rounded sports provider. But they have already added a credible sports line-up that includes all the ESPN channels, the SEC Network, the ACC Network, NBA TV, the NHL Channel, the PAC12 Network and a few other sports networks like Univision TDN.

YouTube Launching an OTT Line-up. Cable TV just got another new OTT competitor. The new service is called YouTube TV and brings a fourth major OTT competitor along with Sling TV, PlayStation Vue, and DirecTV Now. The platform is going to launch sometime in the next few months, with no firm release date yet. The basic product will be $35 per month and allows customers to turn the service off and on at will.

YouTube TV will carry the typical network channels as well as ESPN, Disney, Bravo and Fox News – a line-up that sounds similar to its competition. The service will come with unlimited cloud DVR storage. It will allow 3 simultaneous streams per account and 6 user profiles per account. They will first launch in a few major urban markets (probably due to the availability of the local channels for various network channels).

If YouTube has any advantage in the marketplace it’s that they are becoming the preferred content choice for a lot of millennials. The company says they now are delivering over a billion hours per day of content. Millennials are leading the trend of cord cutters (and even more so of cord nevers), and if YouTube can tap that market they should do great.

Dish Network Predicts OTT will Replace Traditional TV. For the first time, Dish Networks Chairman and CEO said he thought that OTT programming is the real future of video. Until now the company, which owns Sling TV, has said that their product was aimed at bringing video to cord cutters.

But Sling TV and the other OTT products are getting a lot better. Sling TV now has over 100 channels that provide a wide set of options for customers. And these channels are not packed into a giant must-take line-up like traditional cable packages, and instead provide a number of smaller packages that a customer can add to the Sling TV base package. Sling TV and the other providers also make it easy for customers to add or subtract packages or come and go from the whole platform at will – something that can’t be done with cable companies.

Certainly Sling TV has made a difference for Dish. The company has been bleeding satellite customers and had customer losses for the last ten quarters. But the company had a small customer gain of 28,000 customers in the fourth quarter due to the popularity of Sling TV. The company does not report customers by satellite and OTT, so we don’t know the specific numbers.

Regulation and Capital Spending

At the recent Mobile World Congress, FCC Chairman Ajit Pai said that one of his reasons he wants to reverse Title II regulation is that it has had a drastic impact on capital spending by ISPs. He says that the new regulations have been a disincentive for the ISPs to invest in broadband.

The Chairman bases that position on statistics provided by USTelecom which are based upon work done by Hal Singer, a Senior Fellow at GW Institute for Public Policy. Mr. Singer created the following table that shows the domestic capital spending for the big ISPs for 2014 through 2016. And indeed, this table shows a 5.6% drop, or $3.6 billion a year from 2014 to 2016 – which Mr. Singer attributes to Title II regulation.

2014

2015

2016

AT&T $21.1 $17.3 $17.8
Verizon $17.2 $17.8 $17.1
Comcast $6.4 $7.1 $7.7
Sprint $3.8 $3.9 $1.4
Time Warner Cable $4.1 $4.4 $3.8
T-Mobile $4.3 $4.7 $4.7
CenturyLink $3.0 $2.9 $3.0
Charter $2.2 $1.9 $3.1
Cablevision $0.9 $0.8 $0.6
Frontier $0.6 $0.7 $1.3
US Cellular $0.6 $0.5 $0.5
Suddenlink $0.3 $0.4 $0.3
   Total $64.6 $62.4 $61.0

But like with all statistics, it’s not hard to draw different conclusions from the same set of numbers. For example, all of the drop in capital spending can be attributed to AT&T and Sprint. Taking those companies out of the table shows that capital spending for the other big ISPs is up $2.1 billion or 5% from 2014 to 2016.

So what’s going on with AT&T? There are a number of reasons for their change in capital spending:

·         During these same years the company made massive capital investments in DirecTV ($3 billion over the last few years) and also on the company’s purchase and expansion of its cellular network into Mexico ($3 billion over 4 years). Those numbers are not included in the above table and it’s easy to argue that the company just set different priorities and diverted normal domestic capital to these two giant ventures. If you add those capital expenditures into the table then AT&T’s capital spending has grown – just not their ‘domestic’ spending on traditional broadband.

·         AT&T has been making a huge effort to update its cellular network using software defined networking (SDN) as described at this AT&T website. They have been decommissioning traditional hardware at cell sites and installing much less expensive, off-the-shelf routers that can now control the cell sites from centralized data centers. They have already converted over half of their cell sites and this upgrade means vastly reduced spending on traditional cell site electronics. The company has been bragging about this shift to investors for several years.

·         AT&T has also retracted from expanding traditional big tower cell sites. For a number of years AT&T has been spending money to get fiber to its more remote cell sites, and that upgrade is largely done.

Sprint can also be easily explained. This is a company in trouble and that has been well documented over the last few years. A number of attempts to find a buyer has fallen through. What’s not shown on this table is that in 2013 (the year before the table begins) Sprint spent $6.4 billion on capital in a massive system-wide upgrade to LTE. Since then the company has very publicly stated that they are cutting capital spending to conserve cash. The company is only expanding now with carefully selected small cell deployments. But the company is clearly in network maintenance mode and is spending only what is needed to keep the cell sites functioning. Also included in the drop in spending is a change in the way that Sprint treats leased cellphones – they used to capitalize the phones and they now expense them.

There are going to be further decreases in future telecom capital spending across the industry. I expect capital spending for all four big wireless companies to keep decreasing due to efficiencies from SDN. We are now seeing a burst of spending from cable companies due to upgrades to DOCSIS 3.1, but when that’s done I would expect a significant decline in their capital spending as well. We are entering a time when improvements in software will lower the need for new hardware – not just in telecom, but in many other sectors as well.

I have always been annoyed when statistics are used to falsely justify public policy. There is no evidence that the big ISPS have changed their spending habits in any drastic way due to Title II regulations. The argument that Title II has affected capital spending comes directly from constant press releases from USTelecom, and the FCC Chairman should be above repeating arguments from lobbyists. If the FCC wants to undo Title II then it should just do it – there are a number of valid reasons why this might be good policy. But it’s disingenuous to cook up false reasons for why the change is needed.

Standards for 5G

itu_logo_743395401Despite all of the hype that 5G is right around the corner, it’s important to remember that there is not yet a complete standard for the new technology.

The industry just took a big step on February 22 when the ITU released a draft of what it hopes is the final specification for 5G. The document is heavy in engineering detail and is not written for the layman. You will see that the draft talks about a specification for ‘IMT-2020’ which is the official name of 5G. The goal is for this draft to be accepted at a meeting of the ITU-R Study Group in November.

This latest version of the standard defines 13 metrics that are the ultimate goals for 5G. A full 5G deployment would include all of these metrics. What we know that we will see is commercial deployments from vendors claiming to have 5G, but which will actually meet only some parts of a few of these metrics. We saw this before with 4G, and the recent deployment of LTE-U is the first 4G product that actually meets most of the original 4G standard. We probably won’t see a cellular deployment that meets any of the 13 5G metrics until at least 2020, and it might be five to seven more years after that until fully compliant 5G cellular is deployed.

The metric that is probably the most interesting is the one that establishes the goal for cellular speeds. The goals of the standard are 100 Mbps download and 50 Mbps upload. Hopefully this puts to bed the exaggerated press articles that keep talking about gigabit cellphones. And even should the technology meet these target speeds, in real life deployment the average user is probably only going to receive half those speeds due to the fact that cellular speeds decrease rapidly with distance from a cell tower. Somebody standing right next to a cell tower might get 100 Mbps, but even as close as a mile away the speeds will be considerably less.

Interestingly, these speed goals are not much faster than is being realized by LTE-U today. But the new 5G standard should provide for more stable and guaranteed data connections. The standard is for a 5G cell site to be able to connect to up to 1 million devices per square kilometer (a little more than a third of a square mile). This, plus several other metrics, ought to result in stable 5G cellular connections – which is quite different than what we are used to with 4G connections. The real goal of the 5G standard is to provide connections to piles of IoT devices.

The other big improvement over 4G are the expectations for latency. Today’s 4G connections have data latencies as high as 20 ms, which accounts for most problems in loading web pages or watching video on cellphones. The new standard is 4 ms latency, which would improve cellular latency to around the same level that we see today on fiber connections. The new 5G standard for handing off calls between adjoining cell sites is 0 ms, or zero delay.

The standard increases the demand potential capacity of cell sites and provides a goal for the ability of a cell site to process peak data rates of 20 Gbps down and 10 Gbps up. Of course, that means bringing a lot more bandwidth to cell towers and only extremely busy urban towers will ever need that much capacity. Today the majority of fiber-fed cell towers are fed with 1 GB backbones that are used to satisfy upload and download combined. We are seeing cellular carriers inquiring about 10 GB backbones, and we need a lot more growth to meet the capacity built into the standard.

There are a number of other standards. Included is a standard requiring greater energy efficiency, which ought to help save on handset batteries – the new standard allows for handsets to go to ‘sleep’ when not in use. There is a standard for peak spectral efficiency which would enable 5G to much better utilize existing spectrum. There are also specifications for mobility that extend the goal to be able to work with vehicles going as fast as 500 kilometers per hour – meaning high speed trains.

Altogether the 5G standard improves almost every aspect of cellular technology. It calls for more robust cell sites, improved quality of the data connections to devices, lower energy requirements and more efficient hand-offs. But interestingly, contrary to the industry hype, it does not call for gigantic increases of cellular handset data speeds compared to a fully-compliant 4G network. The real improvements from 5G are to make sure that people can get connections at busy cell sites while also providing for huge numbers of connections to smart cars and IoT devices. A 5G connection is going to feel faster because you ought to almost always be able to make a 5G connection, even in busy locations, and that the connection will have low latency and be stable, even in moving vehicles. It will be a noticeable improvement.

Content Finally is King

One of the more common memes in our industry is the phrase “content is king.” This was first said by Sumner Redstone of Viacom in 1994 but made more famous by Bill Gates in 1996. The phrase has been used since then to describe how the creators of content have the power in our industry – be that programming or web content.

John Stankey, the CEO of AT&T Entertainment, recently emphasized this same concept in talking about the company’s planned merger with Time Warner. At the recent Mobile World Congress in Barcelona he said, “We just cannot envision a future where AT&T is relevant if we don’t directly participate in some of the water flowing through our pipes.”

All of the big ISPs have decided that content is key to their survival. Comcast already owns a mountain of programming, and after the merger with Time Warner, AT&T will be a content powerhouse as well. Verizon has climbed into the game with the acquisitions of AOL and Yahoo. There are web companies with the same philosophy. Netflix has built a new industry by creating new content. Google is pushing content heavily through YouTube. Amazon has started to create unique content and recently said they are going to make that a priority. Facebook is becoming a content force through Facebook Now.

I remember having this conversation with Derrel Duplechin of CCG back in 2000. We were asked by several clients to speculate about the future of the carrier industry and we foresaw that most carriers were likely on the path to eventually become what we called “dumb pipe” providers. I remember that this was a story that many of our clients did not want to hear.

We lived in a different carrier world in 2000. Most homes still had telephones and voice was the most profitable product for most carriers. The cable TV product that many of our clients sold then also had decent margins. But we predicted that both products would eventually sink in importance and in margins and that eventually most of our clients would earn most of their profits from broadband. We thought this would happen to all carriers, small and large, and we figured that the most profitable future companies would be those that found some other line of business other than just selling data pipes to end users.

We had some clients take this to heart and some of them have made a really good living by providing extra value to customers. For example, we have several clients who thrive by bringing a suite of products to businesses other than just plain connectivity. But for the most part, the majority of the ISP industry sells dumb pipes today. They compete with the speed of those pipes and with price and with good customer service – but the primary products (and the driver of most of the profits) are now data pipes.

The big companies like AT&T, Verizon and Comcast looked at that future and it scared them. It’s pretty obvious that if your only product is dumb pipes that your earnings are not going to continue to grow fast enough to satisfy Wall Street. This is probably what convinced Verizon to stop expanding their FiOS network. Both AT&T and Verizon got huge earnings boosts from expanding their cellular businesses, but that industry also seems to be heading towards the same plateau as landline ISPs – cell service is becoming a commodity.

So these big companies are now pursuing content because it looks to be the last area in our industry with the potential for significant bottom line growth. It’s going to be an interesting race to watch. Content providers have succeeded or failed over the years according to their ability to find smash hits. A huge hit movie or TV series can mean huge returns to the bottom line. But content providers that don’t create what the public wants to watch suffer badly in terms of stock prices and earnings. Being a content provider is not predictable in the same way as telecom.

Interestingly. AT&T, Verizon, and Comcast are now direct competitors of Facebook, Google, Amazon and Netflix. Content certainly is king, but content also brings the risk from competition. The companies that fall behind in this race are likely to be gobbled up by their more successful competitors. I find it extremely unlikely that all of these big companies will still be in existence in 10 years.

There is no real barrier to entry into the world of content creation other than having a pile of money. It’s likely that other big companies will join the content fray. But all of these companies are entering a world that is in big flux. For example, traditional video and web content might well be replaced by virtual and enhanced reality. The companies that succeed in content will have to spend a lot of money staying one step ahead of the competition, and my money is on the more nimble technology companies. Twenty years ago I would have been shocked to know that someday AT&T would have a CEO of Entertainment – and that may turn out to be the most important job in the corporation.

Unlimited Cellular Data Pricing

SONY DSCI recently wrote a blog about how all of the cellular companies are now offering unlimited data plans. Today I’m going to look at their plans in some detail to discuss what they really mean by “unlimited.”

AT&T. AT&T now has two unlimited plans. Unlimited Choice starts at $60 for one phone with unlimited voice, text and data. It’s $55 for a second line and $20 each for lines up to ten. There is an extra fee of $5 per month for one line or $10 for multiple lines if the customer doesn’t elect autopay. Data comes with lots of limits. Video is capped at 480p standard resolution. Total download speed is limited to 3 Mbps with video capped at 1.5 Mbps, regardless of the quality of the 4G stream available. And while there is no data cap, AT&T starts throttling data speeds for the month when a customer hits 22 GB of download. And last – and what will be a killer for most potential customers – it doesn’t allow tethering.

The Unlimited Plus plan starts at $90 for the first phone. It also includes a penalty for not using autopay. It undoes all of the speed restriction of the choice plan and can stream HD video. It also allows up to 10 GB per month for tethering. It has the same monthly cap of 22 GB before the data gets throttled. This still is not an alternative for home use because of the 10 GB cap on tethering. But it’s a good business travel plan. And a home user with a tablet might find this to be a good, if expensive, broadband alternative.

Verizon. Verizon’s unlimited plan is $80 for the first phone, $60 for a second, $22 for a third and $18 for a fourth. This also has unlimited voice and text. The data has a very unusual daily cap and speeds get throttled after hitting 500 MB download in a day. There is also a monthly cap of 22 GB, after which all data gets throttled. There is a 10 GB monthly allowance for tethering, with speeds throttled to 3G after hitting that cap. Verizon allows HD video streaming.

T-Mobile. T-Mobile’s plan is priced at $70 for the first phone, $30 for a second, $41 for a third and $19 for a fourth. This also has unlimited voice and text. There is a monthly cap of 28 GB after which data gets throttled. There is a 10 GB monthly allowance for tethering, with speeds throttled to 3G after hitting that cap. T-Mobile allows HD video streaming.

Sprint. Sprint’s plan is priced at $50 for the first phone, $40 for a second. But these are promotion prices and the company warns they will probably price to ‘market’ after March 31. This also has unlimited voice and text. There is a monthly cap of 23 GB after which data gets throttled. There is a 10 GB monthly allowance for tethering, with speeds throttled to 2G (which has been discontinued in much of the country) after hitting that cap. Note that at 2G you can’t even read email, so this is effectively a hard cutoff.  Sprint allows HD video streaming capped at 1080p quality.

Various Issues. There are activation fees to consider with some of the companies. AT&T and Sprint charge $25 and Verizon $30. T-Mobile has no activation fee. T-Mobile also includes all taxes and fees in its price, something that can be fairly expensive in some parts of the country.

None of these plans is truly “unlimited” and I won’t be shocked to see the Federal Trade Commission going after all of these carriers for advertising them that way. Certainly none of these are going to be a good alternative for home broadband, except perhaps for rural customers with no better alternative. But I think even rural users will find the cap on tethering and the throttling after a fairly stingy amount of download to be impossible to live with. It’s a shame because many rural homes using traditional cellular broadband have monthly bills of $500 to $1,000.

Interestingly, I just saw yesterday that some Wall Street analysts are slamming Verizon because they fear that their network cannot handle these new ‘unlimited’ plans. But as you can see these plans are not unlimited. They are effectively capped at 2 – 3 times the size of existing family plans, that that assumes that customers will use all of the allotted data-  which many will not. There is already plenty of excess capacity to handle this at the vast majority of cell sites. And this isn’t going to much hurt the cell sites that are already over-busy.

For customers that routinely go over the current cellular data caps these might be a great alternative. Current cellular data is priced at $10 per gigabyte and these plans have reduced data prices to a more affordable price under $2 – $3 per gigabyte for somebody that uses the full allowance. But compared to traditional plans these plans all have hard monthly caps – and while those caps are at 22 GB or higher, they are effectively hard caps since data gets throttled and becomes largely unusable after hitting the cap. These plans will all tease you into watching a lot of video and then penalize you heavily for watching too much.

The State of New York vs. Charter

Scale_of_justice_2_newEvery once in a while in this industry you come across a story about one of the big cable companies that just makes you shake your head. There is such a story right now where the New York State attorney general, Eric Schneiderman, has sued Charter on behalf of its 2.5 million data customers in the state.

The issue goes back to 2012 when the company was still Time Warner Cable. At that time there were a lot of complaints from customers saying that they were not getting the data speeds they were paying for. In 2013, in association with Internet speed tests conducted by the FCC, it was determined that Time Warner had widely deployed cable modems and WiFi routers that were not capable of delivering speeds of even 20 Mbps.

In July of 2013, Time Warner promised the FCC that it would replace and upgrade all customer modems in the state and would also make other system upgrades that would increase speeds, such as reducing the size of the neighborhood nodes.

Here is where the puzzling part comes in. The FCC never retested, which is normal, and instead relied on Time Warner’s promise that they would fix the problems and increase speeds. But it turns out that Time Warner didn’t make any of the promised upgrades. They didn’t replace customer modems. In fact, they routinely recycled the bad modems back into service when they were returned by customers.

Since then Time Warner (and now Charter) has advertised even faster speeds, yet none of the customer modems are able to deliver the speeds that the company is selling. The lawsuit says there are now over 250,000 customers who are paying for speeds between 200 Mbps and 300 Mbps, but who still have the old inadequate modems that get speeds under 20 Mbps.

To add insult to injury, the company has been charging $10 per month to customers to lease the old modems (at least that’s the current lease rate). Considering that these modems don’t generally cost the cable company even $100, these customers have paid enough to have replaced these modems multiple times since the problem was first caught.

Time Warner is also being accused in the lawsuit of manipulating the FCC speed tests in 2013 to show faster results. They did this by taking speed tests at times when there was not much demand on their networks, like the middle of the night.

Finally, the company has been accused of purposefully providing inadequate backbone so that Internet traffic was delayed and slowed down getting onto their network. This means they did not provide big enough data connections to the outside world for things like Netflix or for general Internet access.

Here is the lawsuit filing. It’s an interesting and easy read and is not overly technical. I know that big companies hate to spend capital dollars that they don’t think are necessary. But in this case they got caught providing old and inadequate modems five years ago and since then did nothing to fix the problems. We know from experience that even when companies are caught like this that they don’t usually undertake a crash repair program. But if Time Warner would have implemented some reasonable plan to upgrade the network and to replace the bad modems over time there probably would not be this big lawsuit today. What’s puzzling is how the whole management chain at the company decided to do nothing. They denied a direct FCC order and also continued to get piles of customer complaints.

The lawsuit does not name a specific amount of damages, but one has to think it’s going to be a big number. The lawsuit asks for ‘injunctive and equitable relief’, meaning the return of customer payments, as well as civil penalties, meaning extra damages. If Charter has the same kind of customer penetrations we see elsewhere with cable companies – 60% to 70% of the market – it’s going to be interesting to see how they find a jury for this trial.

The Big ISPs and Regulation

FCC_New_LogoLast week Chairman Ajit Pai halted the impending implementation of the new privacy rules that were to stop the big ISPs from monetizing customer data without customer permission. The Chairman’s stated reason is that he didn’t want to see different rules applied to the big ISPs than to big web companies like Facebook and Google. That argument sounds like a valid reason, but as you will see below, there is no easy path towards treating all of these companies the same.

The stay applied to FCC rules covering a wide variety of privacy issues. The rules were to require the big ISPs to get customer permission to use their data. The rules also created specific security requirements at the ISPs defining how ISPs have to protect customer data and how and when they had to disclose data breaches to customers.

So here is where the confusion starts. The FCC clearly has no authority to regulate the web and what it calls edge-providers – companies like Facebook and Google. It would take an Act of Congress to give the FCC any authority to regulate the web – something that neither Democratic nor Republican administrations have had an appetite for.

Chairman Pai did suggest that perhaps the easiest solution is to hand ISP security issues to the Federal Trade Commission. But the new head of the FTC said this the agency would have no authority to regulate ISPs as long as Title II authority gives this authority to the FCC. So perhaps this action is an indicator that Chairman Pai intends to reverse Title II regulation. He’s said that he is against net neutrality and the FCC used the tool of Title II regulation to implement it. So killing Title II regulations would also get rid of net neutrality.

But what is not being talked about is that the FTC has never contemplated privacy rules as sweeping as the ones implemented by the FCC. The FTC already could impose these rules on Facebook, Google and everybody else on the web, but has never taken any serious steps towards doing so.

Because of that, halting the privacy rules feels like Chairman Pai is just letting the big ISPs off the hook. The big ISPs have been lobbying against these rules from the second they were passed. The ISPs are jealous of the giant revenues that the web companies are making from data mining of consumer data. And the ISPs want to protect what they’ve already been doing. It’s been well known, for example, that AT&T has been monetizing customer data. The leaks from Edward Snowden showed that AT&T has been supplying far more data to the NSA than is required by the Patriot Act. There are reports of a lucrative multi-billion dollar AT&T product line called ‘Hemisphere’ that has been selling customer phone and internet records to the federal government and to local law enforcement agencies.

What I think all of this means is that we have seen the end, for a while of any government agency trying to provide privacy protection for customers. This mainly bothers me as a consumer more than as a consultant. I work entirely with smaller ISPs and none of them have the ability to use customer data in the same way that the big companies do. This latest FCC action only immediately affects perhaps the dozen largest ISPs.

There is a big functional different between ISPs and edge-providers like Facebook. An ISP can see every keystroke a customer makes on the web, except for those that are made inside some encrypted program. But almost nobody uses encryption and so your ISP knows every web site you visit, the contents of every email you write, and every query you make to a search engine. And they know even more about you from your cellphone records – where you traveled and when.

But the difference between Facebook and the ISPs is that nobody makes you use Facebook. I really hate the way that the big companies like Facebook and Google track everything you do inside their platforms. I dropped off Facebook last year partly for this reason.  I also rarely use Google as a search engine and don’t use Gmail or Google’s Chrome web browser. I can largely avoid the big web companies, but I can’t avoid my ISP. And like most Americans I don’t have any real option but to use a big ISP for broadband access.

I’m probably like most Americans and don’t feel like I have a lot to hide. But that still does not mean that I want big companies following my every movement, my every purchase, my every email and every web site I visit. That has far too much “big brother” about it for my liking. I know today that this data is mostly being used to develop targeted marketing, but this information could also easily be used for nefarious purposes, and some of that is starting to happen.

As much as this reversal of the privacy rules bothers me as a consumer, the big picture here is that, for now, the big ISPs finally have the FCC they want. This FCC has already said it’s going to reverse or gut net neutrality. This FCC just said they aren’t going to review the AT&T and Time Warner merger. Killing the privacy rules is final proof, only a month after the new Chairman has been in charge, that the big ISPs are likely to get everything they want. And I don’t think that is a healthy thing for the industry or for consumers.

A New WiFi Standard

Wi-FiThere is a new version of WiFi coming soon that ought to solve some of the major problems with using WiFi in the home and in busy environments. The new standard has been labeled as 802.11ax and should start shipping in new routers by the end of this year and start appearing in devices in early 2018.

It’s the expected time for a new standard since there has been a new one every four or five years. 802.11a hit the market in 1999, 802.11g in 2003, 802.11n in 2009 and 802.11ac in 2013.

One of the most interesting thing about this new standard is that it’s a hardware upgrade and not a real change in the standards. It will be backwards compatible with earlier versions of 802.11, but both the router and the end devices must be upgraded to use the new standard. This means that business travelers are going to get frustrated when visiting hotels without the new routers.

One improvement is that the new routers will treat the 2.4 GHz and 5 GHz spectrums as one big block of spectrum, making it more likely to find an open channel. Most of today’s routers make you pick one band or the other.

Another improvement in 801.11ax is that the routers will have more antennas in the array, making it possible to connect with more devices at the same time. It’s also going to use MIMO (multiple input, multiple output) antenna arrays, allowing it to identify individual users and to establish fixed links to them. A lot of the problems in current WiFi routers come when routers get overwhelmed with more requests for service than the number of antennas that are available.

In addition to more signal paths the biggest improvement will be that the new 801.22ax routers will be able to better handle simultaneous requests for use of a single channel. The existing 802.11 standards are designed to share spectrum and when a second request is made to use a busy channel, the first transmission is stopped while the router decides which stream to satisfy – and this keep repeating as the router bounces back and forth between the two users. This is not a problem when there are only a few requests for simultaneous use, but in a crowded environment the constant stopping and starting of the router results in a lot of the available spectrum going unused and in nobody receiving a sustained signal.

The new 802.11ax routers will use OFDMA (orthogonal frequency division multiplying) to allow multiple users to simultaneously use the same channel without the constant stopping and starting at each new request for service. A hotel with a 100 Mbps backbone might theoretically be able to allow 20 users to each receive a 5 Mbps stream from a single WiFi channel. No wireless system will be quite that efficient, but you get the idea. A router with 802.11ax can still get overwhelmed, but it takes a lot more users to get to that condition.

We’ll have to wait and see how that works in practice. Today, if you visit a busy business hotel where there might be dozens of devices trying to use the bandwidth, the constant stopping and starting of the WiFi signal usually results in a large percentage of the bandwidth not being given to any user – it’s lost during the on/off sequences. But the new standard will give everybody an equal share of the bandwidth until all of the bandwidth is used or until it runs out of transmitter antennas.

The new standard also allows for scheduling connections between the router and client devices. This means more efficient use of spectrum since the devices will be ready to burst data when scheduled. This will allow devices like cellphones to save battery power by ‘resting’ when not transmitting since they save on making unneeded requests for connection.

All these various changes also mean that the new routers will use only about one-third the energy of current routers. Because the router can establish fixed streams with a given user it can avoid the constant off/off sequences.

The most interesting downside to the new devices will be that their biggest benefits only kick in when most of the connected devices are using the new standard. This means that the benefits on public networks might not be noticeable for the first few years until a significant percentage of cellphones, tablets, and laptops have been upgraded to the new standard.

Runaway Retransmission Fees

rabbit earsCBS just announced that they are making over $1 billion per year in retransmission fees. These fees are a big culprit in the continually steep price increases for cable TV.

Retransmission fees are the fees that the major over-the-air networks (ABC, CBS, NBC and FOX) charge to cable companies for the right to air their content. These fees have been allowed in FCC rules for decades, but it’s been in the last ten years or so that the networks woke and up started charging cable companies to carry their content.

There are two slightly different ways that these fees work. The majority of the CBS stations around the country are owned by somebody else and are referred to as affiliate stations. CBS charges these affiliates a fee each year – which the industry calls reverse compensation – to give each station the right to carry the CBS programming. CBS and the other major networks increase these reverse compensation fees every year, and each affiliate station has little choice but to then pass those costs on as increased retransmission fees to cable operators.

CBS also directly owns 14 TV stations in major cities as well as two smaller stations. In these stations CBS directly charges the retransmission fees to the cable companies.

I call these fees runaway in the blog title because there doesn’t appear to be any end in sight for the size of these fees. At the end of 2015 CBS had estimated that these fees would grow to $2 billion by 2020. But they just now upped their estimate to $2.5 billion. To hit those targets from today’s $1 billion revenue figure means we’ll be seeing big increases in cable rates. And if CBS is raising the fees this much you can expect the same thing from the other major networks. This is verified by estimates from SNL Kagan who now estimates total retransmission fees in 2020 of $10.6 billion.

To put that number into perspective, there will roughly be around 90 million cable households by 2020. That means by then that the average retransmission cost per household will be $10 per month. But that average hides the real story. A lot of satellite subscriptions don’t include network channels, or if they carry some they come from one of the major markets like New York City or Chicago. I’ve always figured that the satellite guys are getting a greatly reduced price for those channels, which would benefit both them and the big station that sells bulk subscriptions. There are also many places in the country where the cable systems don’t carry all four networks, or they again carry some remote station at a reduced cost. When you consider all of that I’m guessing that the real cost per household for urban cable systems will be around $15 per household per month.

For years now the major networks have been saying that they deserve to get as much revenue as the most expensive cable networks – and that means ESPN. ESPN now costs over $6 per household per month. If the four major networks climb that high that will be $25 per household per month just for the four major networks. The irony is that most households can receive these networks for free with “rabbit ear” antennas.

But the FCC cable rules require that cable systems carry all local networks that can be received by people with rabbit ears. And that means that cable customers cannot opt out of receiving or paying for these channels in a cable subscription. The only way for a household to avoid these fees is to drop traditional cable packages completely.

A number of cable companies have begun to isolate the retransmission fees on customer bills and call it something like “local network charge.” But I don’t think the cable companies have done a very good job of explaining the retransmission fees to customers.

There are more households every year thinking about dropping cable, and for many of them the primary issue is price. As cable subscription prices keep climbing much faster than inflation my guess is that the cord cutting phenomenon is going to accelerate. There are OTT services now like Sling TV that will sell customers a high quality set of rabbit ears that can be easily incorporated with their content. There are a lot of households that will be happy to avoid paying for local networks if somebody can make it easy for them to do so.