AT&T’s CAF II Solution

We now know the details of AT&T’s fixed broadband solution being installed to satisfy the FCC’s CAF II plan.

Let me start with some numbers to explain the FCC funding from the FCC. In the second round of the CAF II proceeding AT&T accepted a payment from the Universal Service Fund of about $428 million per year for six years, or over $2.5 billion dollars. That money is to be used to bring broadband to about 1.1 million homes. That works out to $2,300 per home.

I saw news last week about an AT&T CAF II ‘trial’ in Georgia. AT&T plans on using existing cellular spectrum to deliver a fixed broadband product. This will require the installation of a small exterior antenna at a customer site as well as the use of an AT&T modem inside of the home.

We’ve known for a while that AT&T planned to utilize their cellular spectrum rather than build or try to upgrade any copper plant, so this is no surprise. What is a bit of a surprise to me is the speeds being offered in the trial. AT&T will be providing a 10 Mbps download speed, which is the bare minimum required by the FCC’s CAF II program. We know from other trials AT&T has had around the country that this technology is capable of delivering at least twice that much bandwidth.

And the service won’t be cheap. The product is priced at $60 per month if a customer will sign a contract, and $70 per month with no contract. It’s a pretty interesting comparison between this and Verizon’s announcement of now offering gigabit speeds throughout its fiber footprint for $70 per month. I didn’t see any mention of a fee for use of the AT&T modem, but most ISPs charge for such devices, so that is probably going to be added to the price.

The AT&T product also comes with severe data caps. It comes with a monthly data cap of 160 gigabytes of total download. Overages will cost $10 for each additional 50 gigabytes, up to a maximum of $200 per month. I suspect a lot of rural homes that buy this as their first broadband product are going to be shocked at their first bill when they splurge on watching Netflix for the first time. My 3-person household uses about 700 gigabytes per month, which under this plan would cost $170 per month for somebody with a contract.

Like with all ISPs, I’m sure that the 10 Mbps data speed is undoubtedly best effort, meaning that at peak times (or if customers are too far away from a cellular tower) the speeds will be slower. That slow speed is going to severely hamper the ability for customers to use huge amounts of data since they aren’t easily going to be able to watch many simultaneous video streams.

I can’t be entirely negative, because for many households this will be their first broadband product, other than perhaps satellite data, which is largely unusable. And so to these homes it’s going to feel great to finally be able to stream data or have their kids able to do on-line homework from their homes.

But what is irksome about this product is that the federal government handed AT&T the money to do this. Certainly they will use some of the $2,300 per customer to build some new towers or to build a little fiber to towers. But the equipment to serve a customer is going to cost a lot less than this. I would bet that most customers will be served from existing towers using existing spectrum. This means that the federal government is paying for the full cost of implementing this product, but for which AT&T will reap all of the revenues and profits. That’s a pretty handsome return on investment for AT&T and amounts to an unneeded handout to one of the richest companies in the country.

Customers are going to quickly understand that, while they now have a minimal broadband capability, they don’t have anything close to the same broadband that much of the rest of the country has. Almost all of the big cable companies now sell broadband with minimum speeds of at least 50 Mbps download, often more. As households keep needing more data capacity over time – with the average household use of data doubling every three years – this AT&T product will become the broadband equivalent of dial-up within a decade.

The worst thing about this whole fiasco from my perspective is that the FCC is take big credit for bringing broadband to the parts of the country who get this kind of CAF II product, and they will probably count this as a job well done. Instead the FCC will have spent many billions on foisting broadband into rural America that is obsolete before it’s even launched. The shame is that this same money could have been used to seed matching grants in rural America that would have built fiber to a lot of these same homes. Small ISPs and telcos got excited when they first heard of the reverse auctions for the CAF II funding. But then, rather than holding those auctions, the FCC just handed this money to the big telcos with no competition for the funding – and this AT&T product is the end result of that bad decision.

Rural America is not going to be long fooled and will quickly recognize this as inferior broadband, but they are going to have no real alternatives. There is the small hope that there might be an infrastructure program from the current administration and Congress, but there is no assurance that such money might not also go to the big ISPs to do more of the same.

The Customer WiFi Experience

Every broadband provider is familiar with customer complaints about the quality of broadband connections. A lot of these complaints are due to poorly performing WiFi, but I think that a lot of ISPs are providing broadband connections that are inadequate for customer needs. Making customers happy means solving both of these issues.

It’s the rare customer these days that still only has a wired connection to a computer and almost the whole residential market has shifted to WiFi. As I have covered in a number of blogs, there are numerous reasons why WiFi is not the greatest distribution mechanism in many homes. I could probably write three of four pages of ways that WiFi can be a problem, but here are a few examples of WiFi issues:

  • Customers (and even some ISPs) don’t appreciate how quickly a WiFi signal loses strength with distance. And the losses are dramatically increased when the signal has to pass through walls or other impediments.
  • Many homes have barriers that can completely block WiFi. For instance, older homes with plaster walls that contain metal lathe can destroy a WiFi signal. Large heating ducts can kill the signal.
  • Most ISPs place the WiFi router at the most convenient place that is nearest to where their wire enters the home. Most homes would benefit greatly by instead placing the router somewhere near the center of the house (or whatever place makes the most sense with more complicated floor plans). Customers can make things worse by placing the WiFi router in a closet or cupboard (happens far too often).
  • There are a lot of devices today, like your cellphones, that are preset to specific WiFi channels. Too many devices trying to use the same channels can cause havoc even if there is enough overall WiFi bandwidth.
  • A WiFi network can experience the equivalent of a death spiral when multiple devices keep asking to connect at the same time. The WiFi standard causes the transmission to pause when receiving new requests for connection, and with enough devices this can cause frequent stops and starts of the signal which significantly reduces effective bandwidth. Homes are starting to have a lot of WiFi capable devices (and your neighbor’s devices just add to the problem).

A number of ISPs have begun to sell a managed WiFi product that can solve a lot of these WiFi woes. The product often begins by a wireless survey of the home to understand the delivery barriers and to understand the best placement of a router. Sometimes just putting a WiFi router in a better place can fix problems. But there are also new tools available to ISPs to allow the placement of multiple networked WiFi routers around the home, each acting as a fresh and separate hotspot. I live in an old home built in 1923 and I bought networked hotspots from Eero which solved all of my WiFi issues. And there is more help coming in the future, with the next generation of home WiFi routers offering dynamic routing between the 2.4 and 5 GHz WiFi spectrum to better make sure that devices are spread around the usable spectrum.

But managed WiFi alone will not fix all of the customer bandwidth issues. A surprising number of ISPs are not properly sizing bandwidth to meet customer’s needs. Just recently I met with a client who still has over half of their customers on connection speeds of 10 Mbps or slower, even though their network is capable of gigabit speeds. It is a rare home these days that will find 10 Mbps to always be adequate. One of my other clients uses a simple formula to determine the right amount of customer bandwidth. They allow for 4 Mbps download for every major connected device (smart TV, laptop, heavily used cellphone, gaming device, etc). And then they add another 25% to the needed speed to account for interference among devices and for the many smaller use WiFi devices we now have like smart thermostats or smart appliances. Even their formula sometimes underestimates the needed bandwidth. But one thing is obvious, which is that there are very few homes today that don’t need more than 10 Mbps under that kind of bandwidth allowance.

It’s easy to fault the big cable companies for having lousy customer service – because they largely do. But one thing they seem to have figured out is that giving customers faster speeds eliminates a lot of customer complaints. The big cable companies like Comcast, Charter and Cox have unilaterally increased customer data speeds over the past few years. These companies now have base products in most markets of at least 50 Mbps, and that has greatly improved customer performance. Even customers with a lousy WiFi configuration might be happy if a 50 Mbps connection provides enough bandwidth to push some bandwidth into the remote corners of a home.

So my advice to ISPs is to stop being stingy with speeds. An ISP that still keeps the majority of customers on slow data products is their own worst enemy. Slow speeds make it almost impossible to design an adequate WiFi network. And customers will resent the ISP who delivers poor performance. I know that many ISPs are worried that increasing speeds will mean a decrease in revenue – but I find many of those that think this way might be selling six or more speeds. I’ve been recommending to ISPs for years to follow the big cable companies and to set your base speed high enough to satisfy the average home. A few years ago I thought that base speed was at least 25 Mbps, but I’m growing convinced that it’s now more like 50 Mbps. It seems like the big cable companies got this one thing right – while many other ISPs have not.

New Connect America Funds

auction-845x321Our regulatory world is messed up sometimes – that’s the only way to describe it. The FCC last week announced that there would be an auction for the Connect America Fund to provide $2 billion of funding to build rural broadband. The funds are for places where the large telcos elected to not take the Connect America Funds. Verizon seems to have largely just decided that they aren’t interested in upgrading their rural networks. But I have to imagine that places that were not selected by the other large telcos like Windstream have to be because the cost of building those places is too high.

The new funding will be awarded by reverse auction, meaning the company willing to take the least amount of money for a given service area will be awarded the funds. And this is the first area where this whole process is messed up. The FCC handed out $6 billion to the large telcos with no auction and no such low bid requirement and so the big companies get every penny of that FCC funding, without contention.

But any company bidding in this new reverse auction is going to worry that somebody will bid slightly lower than them to get the funding, and so most bidders are likely to bid for less than the full potential funding. The bottom line of this is that the big telcos got every penny of funding available to them without having to worry about somebody else wanting to use it while the remaining companies are likely to get something less.

The original award of funds should have also been a reverse auction. There are plenty of smaller telcos, electric coops and local governments that would have vigorously bid on the original $6 billion, and in doing so would have brought real broadband to the millions of people in those areas that are going to instead get a lousy DSL upgrade to speeds that aren’t even broadband by today’s standards. The FCC is only requiring speeds of 10 Mbps download and 1 Mbps upload, and even then allows the big telcos six years to get this done.

The original $6 billion award of the Connect America Fund was basically a hand-out to the big telcos. There’s really no other way to characterize it. I saw right after these awards that companies like Frontier got a big bump in stock valuation since they are claiming the Connect America Fund as revenue. I know a number of people who speculate that the big telcos will not upgrade everywhere they are supposed with this funding and will just shrug and weakly apologize. And there is likely to be no penalty for that.

To make matters even worse, the new funding (as well as the old) allows carriers to impose a 150 GB monthly data usage cap on customers covered by the funding. This is telling rural people, “Here’s the broadband you’ve been waiting many years for, but now, don’t actually use it”. My many clients report to me that the average residential monthly download is already somewhere between 150 GB and 200 GB per month, so that cap is already too low even by today’s standards. And we all know that broadband usage in homes keeps increasing exponentially and has been doubling every three years.

So there is already $6 billion being used to provide inadequate DSL upgrades from the large incumbent telcos. And when the people in those areas finally get upgraded to 10 Mbps bandwidth sometime during the next five years they will be told there is a 150 GB monthly data cap on monthly usage. We could have instead used that $6 billion to seed hundreds of rural fiber projects that would have brought real broadband to a lot of homes. That is my definition of messed up.

Getting Access to Federally Funded Fiber

Fiber CableWhen billions of the stimulus dollars were spent for telecom, a lot of the money went to projects that built middle-mile fiber. This is fiber that basically runs between towns and from county to county through rural areas. The stimulus money required the builder of these fiber networks to connect the handful of nearby anchor institution – schools, libraries and city halls – but the grant recipients weren’t required to connect anybody else.

One of the requirement of those grants was that any middle-mile fiber built with assistance from federal dollars must be made available at low costs to anybody that wants to use that fiber to serve the last mile. And that is a great policy because the ultimate goal for federal broadband dollars ought to be to solve the rural digital divide where rural homes have no access to broadband.

But before you can serve homes in rural areas there has to be a backbone fiber – a connection from a rural area to affordably connect to the Internet. There are still huge swaths of the country where getting that connection is prohibitively expensive, if it is available at all.

The FCC’s hope was that building these middle-mile fibers would lure other service providers to build the last mile. There has not been nearly as much such construction as was hoped for, but there is some. As an example, a fiber project in Cook County, Minnesota is connected to Minneapolis through a federally-funded middle mile fiber. Before that fiber was built there didn’t seem to be an affordable way to connect that remote county to the Internet. Around the country there are numerous communities that have taken advantage of this opportunity for cheap transport.

And now the FCC has decided to spend even more billions of federal money on fiber with the CAF II funds. This money is being given to ten large telcos, most noticeably CenturyLink, Frontier and AT&T. These companies will be receiving $9 billion to help pay for expanding broadband to rural areas that don’t have it today.

In my opinion this program is mostly a huge boondoogle in that the telcos only have to build broadband connections that reach 10 Mbps download speeds. In today’s world that is not broadband, and it certainly isn’t going to feel like broadband by the end of the six year time frame the companies have to make these expansions.

The only way these telcos are going to be able to affordably meet the CAF II goals is by expanding DSL into the rural areas. And to expand DSL they are going to have to build rural fiber routes to support the new DSL. Even if half of this money goes toward DSL electronics, that leaves a lot of federal dollars being spent for rural fiber. Even without considering the telco matching funds, this much money has to be funding more than 200,000 miles of new fiber, almost entirely in rural areas.

It perplexes me why the FCC didn’t impose the same requirements on this new federally-funded fiber as they did the middle-mile fiber built by stimulus funds. Why isn’t this new CAF II fiber being made available at a reasonable price to anybody that can then use it to bring real broadband to the rural areas? This might be the only way to salvage something with long-term value out of this huge waste of federal dollars.

Certainly the large telcos can’t claim any special exemption from such a rule because the many smaller telcos that built middle mile fiber with stimulus funding accepted the last-mile rules as a condition for taking that funding. The large telcos are going to use this free money to do a virtually worthless upgrade to DSL, and people in these rural areas deserve a chance to use these federally-funded facilities to get rural fiber.

This would require nothing more than a policy decision by the FCC. All federally-funded fiber ought to be made available to solve rural broadband. That was true for the stimulus funds. It ought to be made so for fiber built along Interstate highways. And it certainly should apply to the large telcos that are seeing a bump in their stock prices right now due to the ‘revenue’ they are receiving from the CAF II funds.

The Connect America Fund Dilemma

USACI doubt that this is what the FCC had in mind, but they are creating an impediment to building new rural networks with the Connect America Fund. I know that sounds exactly the opposite of what they are intending, but consider the following.

The large telcos get first crack at taking the Connect America Funding in their service territories. Frontier and Fairpoint, for example, have already claimed this money for a lot of their rural service territory. The other large companies must elect this by the end of this month. In the places where they take the funding a large telco will get support for seven years to help pay for broadband upgrades in those areas.

Most of the places that are covered by the Connect America Fund have either abysmal broadband, or no broadband at all. Where they have any semblance of broadband there will be customers on very slow rural DSL, generally 1 Mbps or much slower down to speeds close to dial-up. Customers can also get satellite data or, which surprises me, many rural households are making do with their cellphone data and the associated tiny data caps.

The large telcos are almost universally going to use the Connect America Fund money to upgrade DSL. In order to do that they will have to extend fiber further into the rural areas and then place rural DSLAMs in cabinets that are closer to customers.

That sounds good on the surface and a lot of rural people are going to get faster Internet service. So where is the dilemma? The dilemma is two-fold. First, the incumbents have up to seven years to build all of the new infrastructure. Households at the far end of that timeline are going to view seven years as an interminable future date.

But the real dilemma comes in how this affects rural communities that are looking at their own broadband solutions. Most of the DSL built under the Connect America Fund is going to 10 Mbps or less download speeds, something that is not even broadband by the FCC’s definition. And not every customer in these areas will get that much speed – many of them are going to live at the ends of the new DSL routes and will still get very slow speeds.

The dilemma is that for areas without any broadband today, customers are going to find 10 Mbps to be wonderful. If your house has been living with dial-up or cellular data, then this is going to feel great, particularly since the usage will not be capped. You’ll be able to watch Netflix for the first time and partake in a lot of things you couldn’t do before on the Internet.

But it is not going to take too many years until those speeds feel as slow as dial-up feels today. And this is going to be the last upgrade these areas are ever going to get from the big telcos. And the copper is going to keep aging and the DSL will get worse and worse over time. So while most urban areas today already have download speeds far faster than 10 Mbps, these rural areas are going to be stuck at 10 Mbps while the rest of the world gets faster and faster every year. When other homes in the US have 100 Mbps or a gigabit connection, these rural areas are going to be stuck with something far slower. There will be many future applications that need the higher bandwidth, and so the rural areas will again be shut out from what everyone else has.

But the real killer is that when any area getting these funds is going to have a much harder justifying building a fiber network that is faster than the DSL. I’ve helped rural areas get fiber networks and those business plans often need 60% or more of the homes in an area to take service to work. By creating this bandaid approach the FCC’s program means that there will be be just enough people who are happy with this faster DSL that these areas will probably not be able to get the support needed for a community-based solution. While the FCC has good intentions, they are going to be damning a lot of US counties to having crappy DSL for decades to come using copper wires that are already ancient today. The Connect America Fund money should have been used only for building real broadband rather than letting the big telcos put a bandaid on an aging copper network. The FCC is going to feel good about bringing broadband to rural America, when in fact they will have damned large chunks of the country from getting real broadband.