FCC Whacking the Lifeline Program

A few weeks ago the FCC took steps a few weeks ago that are going to significantly cut back on the Lifeline program. This is a program that has historically provided a subsidy of $9.25 per month off phone service, but which was expanded under the Tom Wheeler FCC to to also be able to cover broadband.

We had a strong hint that this was coming when one of the first acts of new FCC Chairman Ajit Pai was to halt new carriers from becoming eligible to participate in the Lifeline program.

One of the primary stated reasons for the changes are that the Lifeline program is full of fraud and waste. This is something that was identified by the FCC over two years ago and they put in place a remedy to fix the fraud issues. Lifeline goes to households that qualify for various federal welfare programs. The main reasons for fraud was providing the subsidy to those that weren’t eligible or continuing eligibility after people no longer qualified for welfare.

The obvious fix for this was for the FCC to maintain a database of those that are eligible and require providers to verify eligibility for each customer each month. That fix was started two years ago and is apparently still two years from being implemented. I find it astounding that it would take four years to put together what is basically a database lookup, especially for an industry that maintains numerous complex databases. This sounds like something a corporate IT team could implement in a few months and failure to make this work in a timely manner speaks mostly about the failure of government to be able to implement technical systems. Since the fix would largely eliminate the fraud I find it disingenuous for the FCC to still be looking for changes to the program due to fraud issues – this is something they should have fixed long ago.

There are a few changes to the program to be implemented immediately along with a list of proposed future changes. The immediate change to the Lifeline program include the following:

  • Limit Lifeline on Indian reservation to only carriers that are facility-based. This eliminates resellers, who are the primary providers of cellular service in rural areas and on tribal lands. Since AT&T and Verizon don’t actively promote Lifeline this likely means that many eligible customers will lose the subsidy. Even where a customer can change to a facility-based option, it’s often more expensive, which effectively would eliminate any savings from lifeline.
  • Eliminated Lifeline plans that rely on WiFi networks instead of cellular networks. In cities there a number of carriers today that sell WiFi only plans, which are affordable and effective where there is widespread WiFi. These phones use VoIP over WiFi instead of cellular and it seems odd to eliminate based upon the technology used.

The big changes are those proposed for the future. As we’ve seen often in the past, specific changes proposed by the FCC tend to get implemented unless there is big pushback by the industry. The proposed changes include:

  • Requiring people to pay a percentage of their phone bill. Today there are cellular carriers willing to only charge $9.95 for a barebones Lifeline plan that has limited minutes, and the FCC wants all Lifeline customers to pay a share of the cost of the service.
  • Extending the requirement that Lifeline is only available for facility-based carriers. In the cellular world that means AT&T, Verizon, T-Mobile and Sprint. It would eliminate the many cellular resellers from participating in the program. Today over 70% of Lifeline recipients are through resellers.
  • Setting some kind of cap on the whole Lifeline program to stop it from growing.

It seems clear to me that this FCC would eliminate Lifeline completely if they could. Since the program was created by Congress it would be impossible to eliminate it without additional Congressional action. But all of the FCC’s proposed changes will significantly cut back on eligibility and make it harder to households to take part in the program.

I will be honest in that I never gave Lifeline a lot of thought in the past. But a few years ago I was introduced to a program that supplied Lifeline phones to the homeless. The carriers provide the phone and the service for $9.25 per month with no cost to the homeless. These are not smart phones, but very basic older-technology phones. And the plans were not lavish, but provides users with some limited minutes during the month plus some basic texting and web connection. The homeless people participating in the program said that it was transformational in that it allowed them to use the phone to connect to social services, to search for work and to communicate with loved ones. The FCC’s proposal would largely eliminate programs like this one, to the benefit of nobody.

The Impact of the End of Net Neutrality

Charter has given us a peek at how the big ISPs are likely to take advantage of the end of net neutrality. Charter is in the middle of a lawsuit filed by New York Attorney General Eric Schneiderman. The suit attacks Charter for promising to deliver Internet speeds as part of the purchase of Time Warner that the company knew it couldn’t deliver. There are other allegations in the suit and I covered it in this earlier blog.

While the FCC won’t formally vote to end Title II regulation for another week it’s largely a foregone conclusion that they will do so. Charter is assuming that it’s a done deal and they have filed paperwork trying to dismiss the New York lawsuit based upon the assumption that the FCC will end net neutrality.

Charter has sent a letter to the courts and is making the following claims:

Federal law preempts state and local laws. Charter is arguing that the planned FCC order will preempt state and local laws concerning broadband. This is an aspect of the proposed FCC order that has not gotten much attention. The proposed FCC order contains a long discussion that talks about the role of federal versus state regulations and comes to the conclusion that federal low should override state and local broadband laws. It’s sort of an ironic position for the FCC to take since they are actually eliminating the FCC’s role in regulating broadband – but they interpret that to mean that states and localities also have no right to regulate broadband.

Charter specifically says that New York can’t criticize the company for delivering slow Internet speeds. They argue that since the FCC will no longer regulate broadband and Internet speeds that New York also does not have the right to do so.

Paid Prioritization. Charter is also arguing that New York has no right to regulate paid prioritization. This is one of the three principles of net neutrality that currently is in effect. Charter is arguing that the FCC’s proposed ‘light-touch’ regulation means that the FCC will be eliminating the net neutrality principles and this means that these principles can no longer be used to judge Charter’s products.

The New York lawsuit had attacked Charter for not maintaining a robust enough network that could deliver the speeds customers need. Specifically, New York alleged that people were unable to watch Netflix and that Charter’s network failures amount to throttling of the Netflix data stream.

The new FCC rules aren’t even in effect yet, but this tells a lot about how the big ISPs are viewing the change in rules. Charter wants to use these rules to protect themselves against any fines for not delivering advertised broadband speeds to customers. They also are openly acknowledging that they have no obligations against violations of the current net neutrality rules – and that they have no obligations to ever try to meet them.

Charter’s arguments in the case erase any doubt about how the big ISPs intend to act once they are not regulated. While they will probably generally try to deliver a decent broadband product, they feel under no legal obligation to do so. If you go back and look at the facts in this case you will see customers in New York who have been paying for clearly inferior broadband for years – broadband that is far slower than advertised and that is even too slow to deliver Netflix. Charter promised to fix the network issues that are causing the slow broadband, but it’s clear from the New York lawsuit that no upgrades have been implemented. Lack of broadband regulations might mean that the Charter customers in New York might never get good broadband – the company doesn’t think they have any obligation to provide it.

Charter’s response to this lawsuit largely validates all of the consumer fears that have been expressed as part of the net neutrality debate. The FCC is washing their own hands of anything having to do with broadband regulation, and are also preempting states and localities for doing anything. This leaves the consumer with no place to go to remedy, or even protest bad ISP behavior.

One hopes that the big ISPs want to deliver a decent broadband product – but the facts in this case show a blatant disregard for both customers and regulators. Charter has promised to improve the condition of the Time Warner networks as part of the merger but then failed to do so. The sad fact is that many of the customers with the shoddy Charter service have no real alternative. DSL is dying and the cable companies are becoming virtual monopolies in most of the markets in the country. If Charter prevails with these arguments it will show that there is no regulatory body with the ability to police the ISPs.

FCC’s Net Neutrality Myths

We’ve been having the policy debate over creating net neutrality since at least 2005. During that time there have been a lot of arguments made on both sides of the issue. But overall it’s been a policy debate that is similar to the many other issues discussed in the telecom regulatory world. Both sides make their arguments and eventually a decision is made to regulate or not regulate according to the arguments. Politics has always played a role in these debates and issues tend to slew a bit according to the political leanings of the FCC at any given time.

FCC Chairman Ajit Pai recently released a document that argues strenuously for the end of net neutrality. This document lists various ‘myths’ associated with net neutrality and then describes why each myth is untrue. If you look back at the history of the net neutrality debate you’ll see that his list is a summary of the arguments being made over time by the big ISPs. This is a document that one would expect from AT&T, Comcast, USTA or ALEC – but not from the Chairman of the FCC.

I have a problem with the Chairman’s list because most of the conclusions drawn are factually incorrect. It’s expected for the big ISPs to make arguments in their favor, even if those arguments are not wholly true – but it’s disturbing to see these same arguments coming from the FCC, which is supposed to be the arbiter for telecom policy issues.

I don’t think I have any bias that makes me see these statements as false. Anybody whose been reading my blogs knows that I am as biased as anybody else in the industry. My bias is towards policies that allows smaller ISPs to compete. And I am strongly in favor of policies that try to solve the rural broadband gap and the overall digital divide. But other than that I am largely neutral on other telecom policies and am receptive to hear all arguments on the various issues. Other than as a consumer I have no strong bias in the net neutrality debate because I don’t believe that small ISPs will violate net neutrality even if there aren’t any rules. The net neutrality argument really only concerns the behavior of the largest and most powerful ISPs in the telecom market. I could go through the document and discuss each ‘myth’ – but that doesn’t lend itself to a blog-length discussion. But I think every one of the Chairman’s arguments is stretching the truth.

For example, the document rolls out the old big-ISP argument that broadband investments have dropped due to Title II regulation. This argument goes back to shoddy work done by one researcher on the big ISP payroll and has been debunked numerous times. The numbers tell a different story and investments have not dropped. So do the actions of the big ISPs – AT&T, Verizon, Comcast and most of the other big ISPs are all undertaking aggressive expansion and upgrades. Look at what each of these companies is telling their stockholders and you don’t see an industry in retreat. Title II regulation has had almost zero impact on investment decisions (and regulation rarely has ever done so).

Chairman Pai also argues that the Internet was free and open before we had Title II regulation. That’s not the way I remember it. The net neutrality debate has been going on since 2005 and the ISPs have been held in check by the threat of net neutrality regulation. Even without Title II regulations in place the FCC was able in the past to pressure the ISPs on practices like data caps and zero-rating by the threat of future regulation – and for the last decade this has largely worked. Title II regulation didn’t just appear out of thin air with the FCC order in 2014 – the net neutrality principles were the backbone of FCC regulation and actions for a decade before then.

This FCC document also argues that the Federal Trade Commission is well equipped to police unfair, deceptive and anticompetitive behavior from ISPs. That gives the FCC cover to duck out of regulating broadband. What this doesn’t mention is that the big ISPs are now attacking the FTC’s right to regulate broadband (a blog will be coming on this soon). I find it extraordinary that the FCC would declare that it should have no role in regulating broadband – the most important telecommunications product. Regulating broadband seems to be their role in the industry almost by definition.

I guess more than anything else this document disappoints me. While there have always been some politics involved in the decisions made in our industry, past FCCs have largely decided issues on their merits. My own business was founded largely due to the Telecommunications Act of 1996 which unleashed much-needed competition into the industry. But I look at this current FCC and see that the pendulum has swung to one far extreme and the merit of issues aren’t even part of policy discussions. That saddens me.

How Do You Plan?

Today’s blog is not specifically about a telecom topic, but is something that affects every one of my clients. Today I ask the question: how do you plan for the future of your business? I ask this question because it’s something I see many of my clients struggle with.

What do I mean by planning? To me it means having a process for identifying and setting goals and then having a process for implementing the goals. Goals can be anything, but most of the goals that my clients identify are either to fix existing problems or else to implement something new in their broadband business.

I know this is a problem for many broadband companies because I see them facing the same problems year after year or I see them taking a really long time to implement a new product or build into a new market. I have many clients that are frustrated by this.

It’s usually fairly easy to diagnosis the reasons why plans don’t get implemented. One of the major reasons that plans go awry is that companies get wrapped up in the day-to-day operation of the business and taking the time to make planned changes slips to the bottom of the priority list. I also often see that companies try to tackle too many changes at the same time. I have clients who hold an annual strategy session and then try to implement a dozen changes in the company. This rarely works and half of the changes fall to the floor and end up on the to-do list the following year. And for some companies, plans don’t get implemented because the company doesn’t have any real planning process and good ideas just hang in the air.

I will be the first to tell you that planning is hard. I am sometimes as guilty of not taking the time to plan as my clients and it’s easy to fall into the trap of reacting to fires every day rather than taking the time to plan for the future. But I have a few clients who are really good at the planning process, and interestingly. In observing companies who are good at planning, I notice the following similarities:

  • The planning process is formal. There are scheduled planning sessions that are a top priority for the company. There are planning or implementation meetings held regularly to help set goals and then to make sure that the goals are being met.
  • The planning process is mandatory. I’ve seen companies set planning meetings only to have half of the planned attendees beg off to take care of daily fires. If planning is not mandatory then the planning process tends to fizzle out over time.
  • It includes the whole company. This is not just something that the top few guys in a company should do. Since it generally takes all parts of the company to implement new ideas or to fix problems, then every group ought to have some input to the process. The top people night have the biggest role in choosing the direction of the business, but if the whole company doesn’t feel vested in the process then plans tend to slip in importance to the daily work routine.
  • Goals are published. Everybody in the company ought to know what the short and long-term goals are, and they should understand their role in implementing solutions.
  • The process needs to be organized. Companies that are good at planning keep a running list of tasks they want to accomplish. This is essentially a company to-do list. They list will include both major and minor goals. A major goal might be something like entering a new market or implementing a new product. Minor goals might include things like developing a needed new management report or finding a way to streamline a specific process.
  • Plan for successes. The best way to keep a formal planning process going is by getting wins. Just like it feels good to cross something off your personal to-do list, a company benefits organization-wide if there are constant small wins by crossing things off the company to-do list. This means setting quarterly goals for minor tasks along with longer time frames for major tasks.

As a matter of disclosure, this blog is not intended to drum up work. While I often help companies set goals and priorities, our firm does not offer a formal product for establishing a planning process. There are plenty of firms I know who offer this service and I’d be glad to make a recommendation. I’ve seen that bringing in an outsider to help create a formal process can be money well spent. If your company struggles with setting and implementing goals then seeking help might be one of the best investments you can make – it’s really investing in yourself.

 

 

The Recent ALEC Letter to the FCC

Every once in a while I see an idea in this industry that makes me shake my head. Recently ALEC (the American Legislative Exchange Council) wrote a letter to the FCC asking them to override all state and local laws pertaining to making broadband connections. They specifically cite the issues associated with the placement of small cell sites. They urge the FCC to declare broadband to be an ‘interstate’ service and use that as the basis for setting nationwide rules.

It’s easy to understand where ALEC is coming from. It’s an organization that is funded by the largest corporations in the county and the biggest telcos and cable companies help to fund ALEC. Over the years the organization has drafted proposed legislation that benefits the large ISPs, and in recent years ALEC was behind many of the state legislative initiatives to block municipalities from building broadband networks. ALEC has also commissioned various white papers that espouse the positions of the big ISPs. The white papers are generally intended to be used to lobby with state and federal legislators.

I don’t think anybody in the industry is unsympathetic to some of the worst stories being told about locating small cell sites. There certainly are cases where local rules are definitely a barrier to deployment. But this is an area where states and cities are allowed to create local rules.

And it’s not hard to understand why ALEC would petition the FCC. This has to be the most big-carrier friendly FCC in the last century. It’s clear that this FCC would grant the ISPs many of the things on their wish list. If the FCC adopted what ALEC is asking for then the big ISPs could solve their problems in this area in one fell swoop – and they could stop the expensive lobbying effort at the state and local level.

But there are a few flaws in ALEC’s arguments. First, many of the FCC’s rules are the result of legislation passed by Congress. For instance, the FCC has no authority to override anything that was required by the Telecommunications Act of 1996 or many other congressional laws, and that law provided states and localities the right to make local rules concerning rights-of-ways and connections on poles or in conduits. I find it doubtful that the FCC can arbitrarily preempt those specific parts of that Act.

But the most important reason this makes no sense is that it comes just a few weeks before the FCC is likely to reverse Title II regulation of broadband. Once the FCC does that they will have effectively taken themselves out of the broadband regulation business. They will be handing off things like broadband privacy to the Federal Trade Commission, but many areas of broadband will become purely unregulated. The FCC can’t declare broadband to be an interstate service if they don’t regulate broadband.

It’s kind of ironic that the only way the FCC could try to do what ALEC is asking would be by maintaining Title II regulation – the only tool they have for regulating broadband. But once they renounce Title II authority the FCC is greatly weakened in making any regulations concerning broadband. I’ve always asserted that the big ISPs need to be regulated in some manner and this is a perfect example why. A friendly FCC with the authority to regulate broadband could give the big ISPs the things they most want – but the trade-off of being regulated is that it also means accepting things the ISPs don’t want . This request by ALEC is the perfect example of the ISPs wanting things both ways – they want to be regulated where they need it and unregulated where they don’t – but there is no logical ways to have it both ways.

The ISPs biggest fear with having Title II regulation is that some future FCC could use the authority to impose rules they don’t like. They particularly fear a future FCC that tries to regulate broadband prices. The ISPs don’t really have a lot of concerns about this FCC, but these companies have seen the FCC change over time with changes in administrations and they know that the pendulum always eventually swings the other way.

So I sit here and just scratch my head over this. ALEC is asking this FCC, which wants to reduce regulations, to create new regulations. And they want the FCC to use their authority to regulate this issue while at the same time they don’t want the FCC to use that same authority to regulate any other broadband issues. I don’t know if I’ve ever seen a better example of somebody that ‘wants their cake and eats it too’!

The San Francisco Broadband Experiment

The City of San Francisco seems poised to tackle building fiber to everybody in the city. They have conducted several studies looking at the cost of building fiber. The city also created a Blue Ribbon Panel that has recommended in this recent report that the city should construct a fiber network.

The city is proposing to finance a fiber network in a new way. The city is looking at fiber connections in the same way as any other utility like electricity or water. The concept is that everybody in the city would pay a monthly utility fee that would fund the construction and operation of a fiber network. The number that was tossed around earlier this year was an average monthly fee of $26 per month to be charged to every household and business in the city. It’s hard to tell from the various reports if that’s the number still being considered. The Blue Ribbon report does recommend that the city seek private investment which would be used to lower that number.

The city wants to build the fiber network to everybody in the city, which differs from the typical ISP demand model that only builds to those that buy a broadband connection. The city does not want to be an ISP and wants to emulate some of the large cities in Europe which open up their fiber networks to multiple ISPs. The hope is that multiple ISPs using the network for a minimal charge will create competition and low-price broadband.

It’s an interesting concept. There are smaller municipalities in the country that are financing fiber with municipal bonds – but in most cases the expectation is that the fiber project will generate enough revenue to repay the bonds. But fiber construction is expensive in big cities and the utility fee is needed to finance a network that will cost more than $1 billion in San Francisco.

The city’s rationale for considering this is to provide world-class broadband to everybody. This is a city that is in direct economic competition with cities in Japan, Taiwan and South Korea – and the city views fiber as a necessary component to long-term financial success. Comcast is the biggest ISP in the city and they have fast broadband today with speeds now up to a gigabit download. AT&T offers DSL plus has built fiber to large businesses and MDUs. Sonic has been building some fiber to residences in the Bay Area. And like in every large city there has been some fiber built by ISPs and CLECs to selected locations in the city.

But the city is concerned that a significant percentage of the public can’t afford fast broadband access today. The Blue Ribbon Panel notes that the government-sponsored fiber network in Singapore reduced broadband prices from $90 per month down to $30 – $40 today while speeds leaped to a symmetrical gigabit connection.

No NFL city has yet tried to build fiber and this proposal is going to meet a lot of resistance. Certainly Comcast, AT&T and other big ISPs will do everything possible to derail such an effort. The city says that they don’t want to directly compete with commercial ISPs, but if the fiber network really lowers gigabit prices to $30 – $40 that will clearly get most of the customers in the city.

I foresee all sorts of attempts to try to stop this project. The big ISPs are enjoying unprecedented support today in Congress and the FCC, and one ISP tactic might be to legislate against the project – either at the federal or state level. My fear is that a legislative approach might also stop more traditional municipal broadband projects. I would also expect to see numerous lawsuits from ISPs challenging the project. It’s such a new concept that it’s hard to envision the basis for such lawsuits, but I fully expect them. I can also envision a few citizen lawsuits trying to stop a mandatory new utility fee – picture forcing Comcast employees to pay to construct a competing network.

The final big hurdle will be in getting enough quality ISPs on the network to offer real customer choice. The few open access networks in this country have not attracted the many quality ISPs. The open access model works in Europe because the old state-monopoly telcos and cable companies have been forced into competing with each by the formation of the European Union. And perhaps quality ISPs will take a chance on a network in an NFL city. But in this country there seems to be agreement among cable companies to not compete with each other and it’s unlikely that we would see Charter, Mediacom or others stepping in to compete against Comcast.

This is a really interesting idea and it could be a viable way to get gigabit broadband to everybody in a big city. The city has not made the decision to take the leap forward, and if they do they will certainly face an uphill battle to make it work. But this could be the first trial in trying to bring the European open access model to the US.

Consolidation of Telecom Vendors

It looks like we might be entering a new round of consolidation of telecom vendors. Within the last year there have been the following announced consolidation among vendors:

  • Cisco is paying $5.5 billion for Broadsoft, a market leader in cloud services and software for applications like call centers.
  • ADTRAN purchased CommScope, a maker of EPON fiber equipment that is also DOCSIS compliant to work with cable networks.
  • Broadcom is paying $5.9 billion to buy Brocade Communications, a market leader in data storage devices as well as a range of telecom equipment.
  • Arris is buying Ruckus Wireless as part of a spinoff from the Brocade acquisition. Arris has a goal to be the provider of wireless equipment for the large cable TV companies.

While none of these acquisitions will cause any immediate impact on small ISPs, I’ve been seeing analysts predict that there is a lot of consolidation coming in the telecom vendor space. I think most of my clients were impacted to some degree by the last wave of vendor consolidation back around 2000. And that wave of consolidation impacted a lot of ISPs.

There are a number of reasons why the industry might be ripe for a round of mergers and acquisitions:

  • One important technology trend is the move by a lot of the largest ISPs, cable companies and wireless carriers to software defined networking. This means putting the brains to technology into centralized data centers which allows cheaper and simpler electronics at the edge. The advantages of SDN are huge for these big companies. For example, a wireless company could update the software in thousands of cell sites simultaneously instead having to make upgrades at each site. But SDN means less costly and complicated gear.
  • The biggest buyers of electronics are starting to make their own gear. For example, the operators of large data centers like Facebook are working together under the Open Compute Project to create cheap routers and switches for their data centers, which is tanking Cisco’s switch business. In another example, Comcast has designed its own settop box.
  • The big telcos have made it clear that they are going to be backing out of the copper business. In doing so they are going to drastically cut back on the purchase of gear used in the last mile network. This hurts the vendors that supply much of the electronics for the smaller telcos and ISPs.
  • I think we will be seeing an overall shift over the next few decades of more customers being served by cable TV and wireless networks. Spending on electronics in those markets will benefit few small ISPs.
  • There are not a lot of vendors left in the industry today, and so every merger means a little less competition. Just consider FTTH equipment. Fifteen years ago there was more than a dozen vendors working in this space, but over time that has cut in half.

There are a number of reasons why these trends could foretell future trouble for smaller ISPs, possibly within the next decade:

  • Smaller ISPs have always relied on bigger telcos to pave the way in developing new technology and electronics. But if the trend is towards SDN and towards large vendors designing their own gear then this will no longer be the case. Consider FTTP technology. If companies like Verizon and AT&T shift towards software defined networking and electronics developed through collaboration there will be less development done with non-SDN technology. One might hope that the smaller companies could ride the coattails of the big telcos in an SDN environment – but as each large telco develops their own proprietary software to control SDN networks that is likely to not be practical.
  • Small ISPS also rely on larger vendors to buy enough volume of electronics to hold down prices. But as the big companies buy fewer standard electronics the rest of us use you can expect either big price increases or, worse yet, no vendors willing to serve the smaller carrier market. It’s not hard to envision smaller ISPs reduced to competing in the grey market for used and reconditioned gear – something some of my clients already do who are operating ten-year old FTTP networks.

I don’t want to sound like to voice of gloom and I expect that somebody will step into voids created by these trends. But that’s liable to mean smaller ISPs will end up relying on foreign vendors that will not come with the same kinds of prices, reliability or service the industry is used to today.

The Net Neutrality Furor

It seems pretty clear now that the FCC is going to reverse the net neutrality decision of a few years ago at their upcoming December meeting. They mechanism they will use to reverse the order is by reversing the decision to place broadband under Title II regulation. That move will take the FCC out of the business of regulating broadband, meaning that not only would net neutrality rules be reversed, but the FCC would no longer regulate things like broadband privacy. The FCC expects that washing their hands of broadband sends privacy and other issues to the Federal Trade Commission.

A lot of the public is up in arms over this FCC direction and the topic is all over the news and social media. But unfortunately, I think the public is fighting to maintain net neutrality for the wrong reasons. People seem to fear that without net neutrality that the ISPs will begin abusing their customers in dreadful ways. I’ve seen social media warnings that the end of net neutrality means that the ISPs will block or throttle any web site that is not under their economic control. People fear that the ISPs will block content they don’t like such as porn or political content they disagree with.

I have a hard time buying these arguments. The ISPs have no economic incentive to badly antagonize customers. Removing the net neutrality rules now does not mean that ISPs can’t be regulated again in the future. Congress always has the power to regulate them in any manner desired, and if the ISPs start doing crazy things some future Congress will likely react. The net neutrality rules have only been in place for a few years and the ISPs didn’t abuse customers in these feared ways before these rules. I find it unlikely that would do the extreme things that people are warning about.

But I still think people are right to support net neutrality. But the issue they should care about is not net neutrality, but the basic Title II regulation. That is the framework the FCC used as the basis for passing the net neutrality rules. These rules largely allow the FCC to regulate broadband in the same manner they have regulated telephone service. The ISPs challenged the FCC’s Title II regulations in court and the courts have upheld the FCC’s right to regulate broadband.

The ISPs hate Title II regulation, but not because it imposes the net neutrality principles. Their real fear is that the FCC will use these rules to regulate broadband prices. A lot of analysts think that the big ISPs are planning on significant rate increases over the next few years. While the Wheeler FCC said they would not regulate rates, the Title II rules grants the FCC authority to do so at any future time. And the FCC can regulate more than just prices and has the authority to regulate things like data caps.

The big ISPs have been working hard to repeal the Title II regulation due to the threat of price regulation – not because they don’t want the net neutrality principles. There are numerous quotes from the CEOs of the big ISPs saying that they could live with the net neutrality principles – and I largely believe them.

Interestingly there is already at least one ISP that is completely flouting the net neutrality rules. T-Mobile now includes Netflix for free with its cellular plans. This practice is called zero rating and is in violation of the paid prioritization principle of net neutrality. It’s likely that many T-Mobile customers won’t buy other video content since they are already getting Netflix for ‘free’. This practice clearly puts other OTT providers at a disadvantage on the T-Mobile network. And yet, I don’t hear any public outcry about T-Mobile’s practice and suspect their customers really love this feature. This is what zero net neutrality rules looks like – ISPs are likely to bundle in features that a large percentage of their customers like. But the negative consequence to this is not to directly disadvantage customers, but rather to pick winners and losers among web companies. But my guess is that the ISPs will bundle with platforms a lot of people already like and that this bundling will be largely popular, like the T-Mobile bundling of Netflix.

I honestly believe that the big ISPs are largely laughing at the public on this issue. The ISPs understand that the public has badly interpreted their real reason for attacking Title II regulation. The ISPs want the unfettered ability to raise prices. Without regulation it’s true that the ISPs could probably do the sorts of things the public is so stirred up about – but it would be bad business to do so. Can you imagine the furor if AT&T started blocking web sites? Since the ISPs and the FCC understand the real game they can brush off the public hysteria that is concentrating on the wrong issues, and they can now get down to the business of raising rates.

Why I am Thankful – 2017

Every year at Thanksgiving I take a pause to look at the positive things happening with the small carrier industry. This is not the easiest year to make a list because we currently have an FCC that clearly is in the pocket of the big ISPs like Verizon, AT&T and Comcast. While some of the new FCC policies supporting those big companies will benefit all ISPs, in many cases the FCC decisions are given the big ISPs a leg up over competition. But there are still things to be thankful about in our industry:

Demand for Broadband Intensifies. In the work I have been doing in rural communities it’s becoming clear that broadband has moved from a nice-to-have feature to a must-have commodity. I see evidence of this in several different ways. First, rural communities and their citizens are making a lot of noise to politicians about not having broadband. The broadband issue has become the top priority in many communities. I also see evidence of rural broadband demand when looking at the high penetration rates that come from projects being built in areas that didn’t have good broadband. Over the last few years I’ve seen such projects getting customer penetration rates between 65% and 85%. I call this a good news topic for rural carriers since it means there are still lots of opportunities for expansion, and enough customer demand to help pay for broadband projects. It’s not a positive that there are still so many communities with no broadband, but the positive here is that communities are making demands, which is the first step towards finding a solution.

Public Private Partnerships are Thriving. Very few government entities want to be an ISP and they are instead hoping to find commercial partners to bring better broadband to their communities. In just this last year I’ve worked with half a dozen local governments that have contributed funding to public private partnerships, where the government acts like the bank and the ISP owns and operates the network. Since rural broadband projects are often a challenge to finance this is a promising new trend.

ACAM Money is Financing Fiber. The ACAM money from the Universal Service Fund is being used to expand fiber and advance broadband in rural areas all over the country. The fact that some rural communities are getting fiber is helping to drive the demand for other who want the same thing. We’ll have to wait until next year to see of the CAF II reverse auctions drive similar results.

Wireless Technology Getting a Lot Better. I have a lot of clients who are now deploying point-to-multipoint radios for broadband deployment. Over the last three years these radios have improved dramatically. They are more reliable, almost approaching plug-and-play. By combining multiple frequency bands they deliver bigger broadband pipes, faster speeds and a much-improved customer experience. Depending on customer density the networks can be designed to deliver 25 Mbps to a lot of customers with some speeds as fast as 100 Mbps. There are still big issues with the technology in heavily wooded or hilly areas, but there are a lot of places where the technology is now delivering a great broadband connection.

New Revenue Opportunities Materializing. While voice revenues continue to decline and many of clients are getting clobbered on cable TV, I see a number of them doing well with new products. I have clients getting decent penetration rates with managed WiFi. I have some clients doing well with security. And I have clients making some good margins on smart home technologies. Selling new products is out of the comfort zone for many small ISPs and it requires some new thinking to successfully sell a new product – but I’ve seen enough success stories to see that it can work.

A Managed WiFi Product

A number of my clients are now selling a managed WiFi product. But the product they are offering customers under that name varies widely, and so today I thought I’d discuss a few of the different products being sold under this name.

The simplest product is one that I would call a WiFi network. Historically, ISPs that provided WiFi placed a single WiFi router near to where the broadband connection terminated into the home. And it was typical to include the WiFi functionality directly embedded into the DSL or cable modem router. This product has been around for a while and I got my first WiFi router when Verizon supplied an all-in-one router on my FiOS connection nearly 15 years ago.

But as homes have added numerous connected WiFi devices, a single WiFi router is often inadequate. With today’s greater demand for bandwidth by devices a single WiFi router often can’t reach to all parts of the home or connect smoothly to numerous devices. Most of my clients tell me that WiFi problems are now the biggest cause of customer dissatisfaction and in in many cases have surpassed cable TV issues. Many customers supply their own WiFi routers and ISPs get frustrated when a customer’s inadequate WiFi device or poor router placement ruins a good broadband delivery to the home.

Today there are numerous brands of WiFi network devices available. These systems deploy multiple WiFi routers around the home that are connected with each other to create one ubiquitous network. The routers can be connected wirelessly in a mesh or hard-wired to a broadband connection. These devices are widely available and many customers are now installing these networks – I’ve connected an eero network in my home that has vastly improved my WiFi quality.

I have a number of clients that sell the WiFi networks. They will place the WiFi units in the home in a manner that maximizes WiFi reception. The revenue play for this product is simple equipment rental and they charge each month for the devices. ISPs generally set up the routers so that they can peer into them for troubleshooting since customers inevitably will unplug a router, move one to a less than ideal place or place some big object near one that blocks the WiFi signal. But that’s about all that comes with the product – expert placement of routers and simple troubleshooting or replacement if there are problems.

At the other end of the spectrum are a few clients who really manage the customer WiFi experience. For example, customers can call when they buy a new WiFi device and the NOC technicians will connect the device to the network and maximize the WiFi connection. They will assign devices to different frequencies and channels to maximize the WiFi experience. These ISPs have invested in software that tracks and keep records of all of the devices connected to the WiFi network, meaning they can see a history of the performance of each customer device over time.

The ISPs monitor the WiFi performance and are usually proactive when they see problems, in the same manner than many ISPs track performance of fiber ONTs. The WiFi network moves the ISP deeper into the customer home and allows the ISP to make certain that customers are getting the bandwidth they are paying for.

Nobody know what to charge for this yet and I see monthly rates for the managed WiFi that range from $10 to almost $25 per month. I don’t have enough experience with this to yet suggest the right price. Like any new product the success is going to be due mostly to the marketing effort expended. I have a few clients who have already gotten penetration rates of 25% or more with prices in the $15 – $20 range.

But this product isn’t for everybody. For example, I have clients that don’t want to take on the product due to the extra truck rolls. But almost all of my clients have worries about eventually becoming dumb pipe providers and the managed WiFi product provides a tangible way to maintain contact with a customer to demonstrate the ISPs value proposition. And like with any equipment rental play the revenue stream is good. Once the cost of the hardware and initial installation have been recovered the product is almost all margin.