The Looming Backhaul Crisis

I look forward a few years and I think we are headed towards a backhaul crisis. Demand for bandwidth is exploding and we are developing last-mile technologies to deliver the needed bandwidth, but we are largely ignoring the backhaul network needed to feed customer demand. I foresee two kinds of backhaul becoming a big issue in the next few years.

First is intercity backhaul. I’ve read several predictions that we are already using most of the available bandwidth on the fibers that connect major cities and the major internet POPs. It’s not hard to understand why. Most of the fiber between major cities was built in the late 1990s or even earlier, and much of that construction was funded by the telecom craze of the 90s where huge money was dumped into the sector.

But there has been very little new fiber construction on major routes since then, and I don’t see any carriers with business plans to build more fiber. You’d think that we could get a lot more bandwidth out of the existing fiber routes by upgrading the electronics on those fiber, but that’s not the long-haul fiber network operates. Almost all of the fiber pairs on existing routes have been leased out to various entities for their own private uses. The reality is that nobody really ‘owns’ these fiber routes since the routes are full of carriers that each have a long-term contract to use a few of the fibers. As long as any of these entities has enough bandwidth for their own network purposes they are not going to sink the big money into upgrading to terabit lasers, which are still very expensive.

Underlying that is a problem that nobody wants to talk about. Many of those fibers are aging and deteriorating. Over time fiber runs into problems and gets opaque. This can come from having too many splices in the fiber, or from accumulated microscopic damage from stress during fiber construction or due to temperature fluctuations. Fiber technology has improved tremendously since the 1990s – contractors are more aware of how to handle fiber during the construction period and the glass itself has improved significantly through improvements by the manufacturers.

But older fiber routes are slowly getting into physical trouble. Fibers go bad or lose capacity over time. This is readily apparent when looking at smaller markets. I was helping a client look at fibers going to Harrisburg, PA and the fiber routes into the city are all old and built in the early 90s and are experiencing regular outages. I’m not pointing out Harrisburg as a unique case, because the same is true for a huge number of secondary communities.

We are going to see a second backhaul shortage that is related to the intercity bandwidth shortage. All of the big carriers are talking about building fiber-to-the-home and 5G networks that are capable of delivering gigabit speeds to customers. But nobody is talking about how to get the bandwidth to these neighborhoods. You are not going to be able to feed hundreds of 5G fixed wireless transmitters using the existing bandwidth that is available in most places.

Today the cellular companies are paying a lot of money to get gigabit pipes to the big cell towers. Most recent contracts include the ability for these connections to burst to 5 or 10 gigabits. Getting these connections is already a challenge. Picture multiplying that demand by hundreds and thousands of new cell sites. To use the earlier example of Harrisburg, PA – picture somebody trying to build a 100-node 5G network there, each with gigabit connections to customers. This kind of network might initially work with a 10 gigabit backhaul connection, but as bandwidth demand keeps growing (doubling every three years), it won’t take long until this 5G networks will need multiple 10 gigabit connections, up to perhaps 100 gigabits.

Today’s backhaul network is not ready to supply this kind of bandwidth. You could build all of the fiber you want locally in Harrisburg to feed the 5G nodes, but that won’t make any difference if you can’t feed that whole network with sufficient bandwidth to get back to an Internet POP.

Perhaps a few carriers will step up and build the needed backhaul network. But I don’t see that multi-billion dollar per year investment listed in anybody’s business plans today – all I hear about are plans to rush to capture the residential market with 5G. Even if carriers step up and bolster the major intercity routes (and somebody probably will), that is only a tiny portion of the backhaul network that stretches to all of the Harrisburg markets in the country.

The whole backhaul network is already getting swamped due the continued geometric growth of broadband demand. Local networks and backhaul networks that were vigorous just a few years ago can get overwhelmed by a continuous doubling of traffic volume. If you look at any one portion of our existing backhaul network you can already see the stress today, and that stress will turn into backhaul bottlenecks in the near future.

The Lack of Broadband Competition

There is one statistic from the FCC annual report on the state of broadband that I’ve been meaning to write about. There is still a massive lack of broadband competition at speeds that most households are coming to think of as broadband.

Here are the key statistics from that report:

  • 13% of all households can’t get broadband that meets the FCC’s definition of 25/3 Mbps
  • 31% of homes have access to 25/3 Mbps, but not speeds of 100 Mbps
  • 15% have access to 100 Mbps from more than one provider
  • 41% have access to 100 Mbps from only one provider

It’s the last statistic that I find astounding. The current FCC declared with this report that the state of broadband in the country is healthy and that the market is taking care of the country’s broadband needs. I’ve written number blogs about the households in the bottom 13% that have little or no broadband, but I want to look closer at the top two categories.

Households in the 15% category are in markets where there is a fiber provider in addition to the incumbent cable company. The biggest fiber provider is still Verizon FiOS, but there are numerous others building fiber like AT&T, CenturyLink, Google Fiber, smaller telcos, small fiber overbuilders and municipalities.

This means that 41% of households (51 million homes) only have one option for fast broadband – the cable company. I see numerous problems related to this huge monopoly that has been won by the big cable companies. Consider the following:

  • The US already has some of the most expensive broadband in the developed world. The high prices are directly the result of the lack of competition.
  • This lack of competition is likely the driving factor for why most of the big ISPs in the US are rated at the bottom of all US corporations in terms of customer service. We know that customer service improves in markets where is broadband competition, but the big ISPs don’t make the same effort elsewhere.
  • We also know that competition between a cable company and a smaller fiber overbuilder lowers broadband prices. For example, there are markets where competitors like Google have set the price of a gigabit connection at $70, and the cable companies generally come close to matching the lower price. But preliminary pricing from Comcast and Charter for their new gigabit products where there are no competitors will be significantly north of $100 per month.
  • Even where there are competing networks, if both networks are owned by large ISPs we see duopoly competition where the big ISPs don’t push each other on price. For example, Comcast largely is able to offer the same prices when competing against Verizon FiOS as it does in markets where there is no fiber provider.
  • Industry analysts expect the big ISPs to start raising broadband rates for various reasons. The ISPs continue to lose telephone and cable customers and the national penetration rate for broadband is nearing a market saturation point. In order to satisfy Wall Street the big ISPs will have little choice other than raising broadband prices to maintain earnings growth.

I’m sure that the households in the bottom 13% of the market that can’t get good broadband are not sympathetic to those who can only buy fast broadband from one provider. But these statistics say that 41% of the whole market are dealing with a monopoly situation for fast broadband. Telecom is supposed to be a competitive business – but for the majority of the country the competitors have never showed up. For the FCC to declare that we have a healthy broadband market astounds me when so many households are hostage to a broadband monopoly.

There is always the chance that over the next decade that fixed 5G will bring more broadband competition. My guess, however, is that at least for a few years that this is going to be a lot more competition by press release than real competition. Deploying gigabit 5G like the big ISPs are all touting is going to require a lot more fiber than we have in place today. Deploying 5G without fiber backhaul might still result in decent broadband, but it’s not going to be the robust gigabit product that the ISPs are touting. But even poorly deployed 5G networks might bring 100+ Mbps broadband to a lot more homes after the technology gets a little more mature.

Unfortunately there is also the risk that 5G might just result in a lot more duopoly competition instead of real competition. If 5G is mostly deployed by big ISPs like Verizon and AT&T there is no reason to think that they will compete on price. Our only hope for real market competition is to see multiple non-traditional ISPs who will compete on price. However, it’s so tempting for ISPs to ride the coattails of the big ISPs in terms of pricing that 5G might bring more of the same high prices rather than real competition.

Charter’s Plans for 6G

It didn’t take long for somebody say they will have a 6G cellular product. Somebody has jumped the gun every time there has been migration to a new cellular standard, and I remember the big cellular companies making claims about having 4G LTE technology years before it was actually available.

But this time it’s not a cellular company talking about 6G – it’s Charter, the second largest US cable company. Charter is already in the process of implementing LTE cellular through the resale of wholesale minutes from Verizon – so they will soon be a cellular provider. If we look at the early success of Comcast they might do well since Charter has almost 24 million broadband customers.

Tom Rutledge, the Charter CEO made reference to 5G trials being done by the company, but also went on to tout a new Charter product as 6G. What Rutledge is really talking about is a new product that will put a cellular micro cell in a home that has Charter broadband. This hot spot would provide strong cellular coverage within the home and use the cable broadband network for backhaul for the calls.

Such a network would benefit Charter by collecting a lot of cellular minutes that Charter wouldn’t have to buy wholesale from Verizon. Outside of the home customers would roam on the Verizon network, but within the home all calls would route over the landline connection. Presumably, if the home cellular micro transmitters are powerful enough, neighbors might also be able to get cellular access if they are Charter cellular customers. This is reminiscent of the Comcast WiFi hotspots that broadcast from millions of their cable modems.

This is not a new idea. For years farmers have been buying cellular repeaters from AT&T and Verizon to boost their signal if they live near the edge of cellular coverage. These products also use the landline broadband connection as backhaul – but in those cases the calls route to one of the cellular carriers. But in this configuration Charter would intercept all cellular traffic and presumably route the calls themselves. There are also a number of cellular resellers who have been using landline backhaul to provide low-cost calling.

This would be the first time that somebody has ever contemplated this on a large scale. One can picture large volumes of Charter cellular micro sites in areas where they are the incumbent cable company. When enough homes have transmitters they might almost create a ubiquitous cellular network that is landline based – eliminating the need for cellular towers.

It’s an interesting concept. A cable company in some ways is already well positioned to implement a more traditional small cell cellular network. Once they have upgraded to DOCSIS 3.1 they can place a small cell site at any pole that is already connected to the cable network. For now the biggest hurdle to such a deployment is the small data upload speeds for the first generation of DOCSIS 3.1, but cable labs has already released a technology that will enable faster upload speeds, up to synchronous connections. Getting faster upload speeds means finding some more empty channel slots on the cable network and could be a challenge in some networks.

The most interesting thing about this idea is that anybody with a broadband network could offer cellular service in the same way if they can make a deal to buy wholesale minutes. But therein lies the rub. While there are now hundreds of ‘cellular’ companies, only a few of them own their own cellular networks and everybody else is reselling. Charter is large enough to probably feel secure about having access to long-term cellular minutes from the big cellular companies. But very few other landline ISPs are going to get that kind of locked arrangement.

I’ve always advised clients to be wary of any resell opportunity because the business can change on a dime when the underlying provider changes the rules of the game. Our industry is littered with examples of companies that went under when the large resale businesses they had built lost their wholesale product. The biggest such company that comes to mind was Talk America that had amassed over a million telephone customers on resold lines from the big telcos. But there are many other examples of paging resellers, long distance resellers and many other telco product reselling that only lasted as long as the underlying network providers agreed to supply the commodity. But this is such an intriguing idea that many landline ISPs are going to look at what Charter is doing and wonder why they can’t do the same.

Spectrum and 5G

All of the 5G press has been talking about how 5G is going to be bringing gigabit wireless speeds everywhere. But that is only going to be possible with millimeter wave spectrum, and even then it requires a reasonably short distance between sender and receiver as well as bonding together more than one signal using multiple MIMO antennae.

It’s a shame that we’ve let the wireless marketeers equate 5G with gigabit because that’s what the public is going to expect from every 5G deployment. As I look around the industry I see a lot of other uses for 5G that are going to produce speeds far slower than a gigabit. 5G is a standard that can be applied to any wireless spectrum and which brings some benefits over earlier standards. 5G makes it easier to bond multiple channels together for reaching one customer. It also can increase the number of connections that can be made from any given transmitter – with the biggest promise that the technology will eventually allow connections to large quantities of IOT devices.

Anybody who follows the industry knows about the 5G gigabit trials. Verizon has been loudly touting its gigabit 5G connections using the 28 GHz frequency and plans to launch the product in up to 28 markets this year. They will likely use this as a short-haul fiber replacement to allow them to more quickly add a new customer to a fiber network or to provide a redundant data path to a big data customer. AT&T has been a little less loud about their plans and is going to launch a similar gigabit product using 39 GHz spectrum in three test markets soon.

But there are also a number of announcements for using 5G with other spectrum. For example, T-Mobile has promised to launch 5G nationwide using its 600 MHz spectrum. This is a traditional cellular spectrum that is great for carrying signals for several miles and for going around and through obstacles. T-Mobile has not announced the speeds it hopes to achieve with this spectrum. But the data capacity for 600 MHz is limited and binding numerous signals together for one customer will create something faster then LTE, but not spectacularly so. It will be interesting to see what speeds they can achieve in a busy cellular environment.

Sprint is taking a different approach and is deploying 5G using the 2.5 GHz spectrum. They have been testing the use of massive MIMO antenna that contain 64 transmit and 64 receive channels. This spectrum doesn’t travel far when used for broadcast, so this technology is going to be used best with small cell deployments. The company claims to have achieved speeds as fast as 300 Mbps in trials in Seattle, but that would require binding together a lot of channels, so a commercial deployment is going to be a lot slower in a congested cellular environment.

Outside of the US there seems to be growing consensus to use 3.5 GHz – the Citizens Band radio frequency. That raises the interesting question of which frequencies will end up winning the 5G race. In every new wireless deployment the industry needs to reach an economy of scale in the manufacture of both the radio transmitters and the cellphones or other receivers. Only then can equipment prices drop to the point where a 5G capable phone will be similar in price to a 4GLTE phone. So the industry at some point soon will need to reach a consensus on the frequencies to be used.

In the past we rarely saw a consensus, but rather some manufacturer and wireless company won the race to get customers and dragged the rest of the industry along. This has practical implications for early adapters of 5G. For instance, somebody buying a 600 MHz phone from T-Mobile is only going to be able to use that data function when near to a T-Mobile tower or mini-cell. Until industry consensus is reached, phones that use a unique spectrum are not going to be able to roam on other networks like happens today with LTE.

Even phones that use the same spectrum might not be able to roam on other carriers if they are using the frequency differently. There are now 5G standards, but we know from practical experience with other wireless deployments in the past that true portability between networks often takes a few years as the industry works out bugs. This interoperability might be sped up a bit this time because it looks like Qualcomm has an early lead in the manufacture of 5G chip sets. But there are other chip manufacturers entering the game, so we’ll have to watch this race as well.

The word of warning to buyers of first generation 5G smartphones is that they are going to have issues. For now it’s likely that the MIMO antennae are going to use a lot of power and will drain cellphone batteries quickly. And the ability to reach a 5G data signal is going to be severely limited for a number of years as the cellular providers extend their 5G networks. Unless you live and work in the heart of one of the trial 5G markets it’s likely that these phones will be a bit of a novelty for a while – but will still give a user bragging rights for the ability to get a fast data connection on a cellphone.

5G is Fiber-to-the-Curb

The marketing from the wireless companies has the whole country buzzing with speculation that the whole world is going to go wireless with the introduction of 5G. There is a good chance that within five years that a good and reliable and pole-mounted technology could become the preferred way to go from the curb to homes and businesses. When that happens we will finally have wireless fiber-to-the-curb – something that I’ve heard talked about for at least 25 years.

I remember visiting an engineer in the horse country of northern Virginia in the 1990s who had developed a fiber-to-the-curb wireless technology that could deliver more than 100 Mbps from a pole to a house. His technology was limited in that there had to be one pole-mounted transmitter per customer, and there was a distance limitation of a few hundred feet for the delivery. But he was clearly on the right track and was twenty years ahead of his time. At that time we were all happy with our 1 Mbps DSL and 100 Mbps sounded like science fiction. But I saw his unit functioning at his home, and if he had caught the attention of a big vendor we might have had wireless fiber-to-the-curb a lot sooner than now.

I have to laugh when I read people talking about our wireless future, because it’s clear that this technology is going to require a lot of fiber. There is a lot of legislative and lobbying work going on to make it easier to mount wireless units on poles and streetlights, but I don’t see the same attention being put into making it easier to build fiber – and without fiber this technology is not going to work as promised.

It’s easy to predict that there are going to be a lot of lousy 5G deployments. ISPs are going to come to a town, connect to a single gigabit fiber and then serve the rest of the town from that one connection. This will be the cheap way to deploy this technology and those without capital are going to take this path. The wireless units throughout the town will be fed with wireless backhaul, with many of them on multiple wireless hops from the source. In this kind of network the speeds will be nowhere near the gigabit capacity of the technology, the latency will be high and the network will bog down in the evenings like any over-subscribed network. A 5G network deployed in this manner will not be a killer app that will kill cable networks.

However, a 5G fiber-to-the-curb network built the right way is going to be as powerful as an all-fiber network. That’s going to mean having neighborhood wireless transmitters to serve a limited number of customers, with each transmitter fed by fiber. When Verizon and AT&T talk about the potential for gigabit 5G this is what they are talking about. But they are not this explicit because they are not likely today to deploy networks this densely. The big ISPs still believe that people don’t really need fast broadband. They will market this new technology by stressing that it’s 5G while building networks that will deliver far less than a gigabit.

There are ISPs who will wait for this technology to mature before switching to it, and they will build networks the right way. In a network with fiber everywhere this technology makes huge sense. One of the problems with a FTTH network that doesn’t get talked about a lot is abandoned drops. Fiber ISPs build drops to homes and over time a substantial number of premises no longer use the network for various reasons. I know of some 10-year old networks where as many as 10% of fiber drops have been abandoned as homes that buy service from somebody else. A fiber-to-the-curb network solves this problem by only serving those who have active service.

I also predict that the big ISPs will make every effort to make this a customer-provisioned technology. They will mail customers a receiver kit to save on a truck roll, because saving money is more important to them than quality. This will work for many customers, but others will stick the receiver in the wrong place and never get the speed they might have gotten if the receiver was mounted somewhere else in the home.

There really are no terrible broadband technologies, but there are plenty of terrible deployments. Consider that there are huge number of rural customers being connected to fixed wireless networks. When those networks are deployed properly – meaning customers are not too far from the transmitter and each tower has a fiber feed – the speeds can be great. I know a colleague who is 4-miles from a wireless tower and is getting nearly 70 Mbps download. But there are also a lot of under-capitalized ISPs that are delivering speeds of 5 Mbps or even far less using the same technology. They can’t afford to get fiber to towers and instead use multiple wireless hops to get to neighborhood transmitters. This is a direct analogue of what we’ll see in poorly deployed 5G networks.

I think it’s time that we stop using the term 5G as a shortcut for meaning gigabit networks. 5G is going to vary widely depending upon the frequencies used and will vary even more widely depending on how the ISP builds their network. There will be awesome 5G deployments, but also a lot of so-so and even lousy ones. I know I will be advising my clients on building wireless fiber-to-the-curb – and that means networks that still need a lot of fiber.

Gigabit LTE

Samsung just introduced Gigabit LTE into the newest Galaxy S8 phone. This is a technology with the capability to significantly increase cellular speeds, and which make me wonder if the cellular carriers will really be rushing to implement 5G for cellphones.

Gigabit LTE still operates under the 4G standards and is not an early version of 5G. There are three components of the technology:

  • Each phone has as 4X4 MIMO antenna, which is an array of four tiny antennae. Each antenna can make a separate connection to the cell tower.
  • The network must implement frequency aggregation. Both the phone and the cell tower must be able to combine the signals from the various antennas into one coherent data path.
  • Finally, the new technology utilizes the 256 QAM (Quadrature Amplitude Modulation) protocol which can cram more data into the cellular data path.

The amount of data speeds that can be delivered to a given cellphone under this technology is going to rely on a number of different factors:

  • The nearest cell site to a customer needs to be upgraded to the technology. I would speculate that this new technology will be phased in at the busiest urban cell sites first, then to busy suburban sites and then perhaps to less busy sites. It’s possible that a cellphone could make connections to multiple towers to make this work, but that’s a challenge with 4G technology and is one of the improvements promised with 5G.
  • The amount of data speed that can be delivered is going to vary widely depending upon the frequencies being used by the cellular carrier. If this uses existing cellular data frequencies, then the speed increase will be a combination of the impact of adding four data streams together, plus whatever boost comes from using 256 QAM, less the new overheads introduced during the process of merging the data streams. There is no reason that this technology could not use the higher millimeter wave spectrum, but that spectrum will use different antennae than lower frequencies.
  • The traffic volume at a given cell site is always an issue. Cell sites that are already busy with single antennae connections won’t have the spare connections available to give a cellphone more than one channel. Thus, a given connection could consist of one to four channels at any given time.
  • Until the technology gets polished, I’d have to bet that this will work a lot better with a stationary cellphone rather than one moving in a car. So expect this to work better in downtowns, convention centers, etc.
  • And as always, the strength of a connection to a given customer will vary according to how far a customer is from the cell site, the amount of local interference, the weather and all of those factors that affect radio transmissions.

I talked to a few wireless engineers and they guessed that this technology using existing cellular frequencies might create connections as fast as a few hundred Mbps in ideal conditions. But they could only speculate on the new overheads created by adding together multiple channels of cellular signal. There is no doubt that this will speed up cellular data for a customer in the right conditions, with the right phone near the right cell site. But adding four existing cellular signals together will not get close to a gigabit of speed.

It will be interesting to see how the cellular companies market this upgrade. They could call this gigabit LTE, although the speeds are likely to fall far short of a gigabit. They could also market this as 5G, and my bet is that at least a few of them will. I recall back at the introduction of 4G LTE that some carriers started marketing 3.5G as 4G, well before there were any actual 4G deployments. There has been so much buzz about 5G now for a year that the marketing departments at the cellular companies are going to want to tout that their networks are the fastest.

It’s always an open question about when we are going to hear about this. Cellular companies run a risk in touting a new technology if most bandwidth hungry users can’t yet utilize it. One would think they will want to upgrade some critical mass of cell sites before really pushing this.

It’s also going to be interesting to see how faster cellphone speeds affect the way people use broadband. Today it’s miserable to surf the web on a cellphone. In a city environment most connections are more than 10 Mbps today, but it doesn’t feel that fast because of shortfalls in the cellphone operating systems. Unless those operating systems get faster, there might not be that much noticeable different with a faster connection.

Cellphones today are already capable of streaming a single video stream, although with more bandwidth the streaming will get more reliable and will work under more adverse conditions.

The main impediment to faster cellphones really changing user habits is the data plans of the cellular carriers. Most ‘unlimited’ plans have major restrictions on using a cellphone to tether data for other devices. It’s that tethering that could make cellular data a realistic substitute for a home landline connection. My guess is until we reach a time when there are ubiquitous mini-cell sites spread everywhere that the cellular carriers are not going to let users treat cellular data the same as landline data. Until cellphones are allowed to utilize the broadband available to them, faster cellular data speeds might not have much impact on the way we use our cellphones.

Selling Wholesale 5G

Frontier announced the other day that it was interested in selling off much of the Verizon FiOS networks it had recently acquired in 2016. Apparently, the company is over-leveraged and needs the cash to make a healthier balance sheet. But regardless of the reason, that puts a sizable pile of last mile fiber networks onto the market.

I read a summary of a report by Cowan Equity Research that suggests that there is increasing value for fiber networks now based upon the potential for selling wholesale connections to 5G providers. As I think about this, though, I’m betting that a lot of fiber network owners will be extremely leery about allowing 5G providers onto their networks.

Without looking at the Frontier specifics, consider an existing last mile fiber network that already passes all, or nearly all of the homes and businesses in a community. Every fiber business plan I’ve ever created shows that any last mile fiber network requires a substantial customer penetration in order to be financially viable. The smaller the footprint of the network, the higher the needed customer penetration rate.

Consider how a 5G provider would gain access to an existing fiber network. They’d want to gain access for each 5G transmitter and would pay some fee per unit, or else a fee to lease the whole network. That fee would have to be low enough for the 5G provider to make a profit when selling broadband. I’m guessing that the Cowan group assumes this will provide an attractive second revenue stream for an existing fiber network.

That assumption ignores the fact that the 5G company will be competing directly against the fiber owner for retail broadband customers. It’s not hard for me to envision a scenario where the fiber network owner will lose margin by this transaction. They will be trading high margin retail customers for low-margin 5G wholesale connections.

I saw one market analyst that guessed that a Verizon 5G gigabit offering would capture 30% of the customers in a market. The only way for that to happen would be for the 5G provider to take a big chunk out of the customer base of both the incumbents in the market as well as the fiber owner.

There are markets where selling wholesale 5G might be a good business plan. For example, I’ve seen speculation that Google Fiber and other large overbuilders hope to achieve a 30% market share in large NFL-sized cities. I could foresee a scenario where Google Fiber might increase profits by offering both retail broadband and wholesale 5G connections.

But in smaller markets this could be a disaster. If the fiber network is in a smaller town of 50,000 people, the existing fiber network might need a 45% or 50% customer penetration to be profitable. It’s not hard imagining a 5G scenario that could drive the network owner out of business through loss of higher-margin retail customers. I can’t see why owners of fiber networks in smaller markets would allow a direct competitor onto their network. While the new source of 5G revenue sounds enticing, the losses from retail margins could more than offset any possible gains from the wholesale 5G revenues.

The Frontier example offers yet another possibility. Verizon is famous for cherry-picking with its fiber networks. They will build to one street and not to the one next door. They will build to one apartment or subdivision but not the one next door. Verizon seems to have stayed very disciplined and built only to those places where the cost of construction met their construction cost criterion. I could foresee somebody owning a cherry-picking network to leverage it to get to the homes that are not directly on the fiber routes. We still don’t yet understand the factors that will determine who can or cannot be served from a 5G network, but assuming that such a network will extend the effective reach of fiber this seems like a possible business plan.

But there are fiber networks owned by telcos, municipalities and fiber overbuilders that might look at the math and decide that having a 5G provider on their network is a bad financial idea. I have a difficult time thinking that cable companies will allow 5G competitors access to fiber that’s deep in residential neighborhoods. My gut tells me that while Wall Street foresees an opportunity, this is going to be a lot harder sell to fiber owners than they imagine.

FCC BDAC Removing Regulatory Barriers

One of the sub-committees created by the FCC’s as part of its Broadband Deployment Advisory Committee (BDAC) effort looked at Removing State and Local Regulatory Barriers to broadband deployment. Here is a preliminary draft of their report, which is probably close to the final report. As noted in other blogs on the BDAC, the FCC is not obligated to address any of the issues identified by the sub-committee.

It’s an interesting document in that the sub-committee has made a detailed list of all of the common transgressions imposed by states and localities that have slowed broadband or wireless deployments in the past. It serves as a great primer of the kind of issues that a new network deployment might face. But to be fair, that was the mandate given to this group.

I have zero problems with the list of deployment issues and it seems thorough and accurate. But I don’t think the proposed solution is realistic. They basically recommend that the FCC should preempt states and localities for anything to do with broadband or wireless deployment. That’s not a surprising recommendation since the group was asked to list regulatory hurdles that should be eliminated. But there are numerous reasons why having the FCC preempt all local control of rights-of-ways connectivity is a bad idea. One reason I hate the idea is that this is at the top of the wish list for every DC telecom lobbyist for the big ISPs – and they seem to be getting their way too much these days.

With that said, the complaints listed are valid and I’ve seen many of these issues arise during new network deployments. I’ve worked with a number of communities that have processes or ordinances that are a barrier to broadband, and I always advise them to fix such problems if they are hoping for more broadband deployment in their community. But if I’ve learned anything from working around the country it’s that communities differ significantly, and I don’t favor a one-size-fits-all solution from the FCC that would take everything to do with rights-of-way, permitting and other issues out of the hands of local government.

But this document creates a great cautionary tale for cities, counties and states. Almost every sized community talks about having better broadband or about having more broadband competition. Many cities have looked at their various processes and rules and streamlined or eliminated rules that would be a barrier for somebody building fiber. Any community that is hoping to attract fiber construction should be proactive and look at these issues now. It’s quite possible that prospective fiber builders have investigated cities and taken them off of their list of potential markets without even talking to the cities.

Some of the issues discussed by this document can be real killers of fiber deployment. Some good examples include:

  • Permitting processes that are onerous, require a lot of paperwork and which have issues that make them hard to use, such as only being effective for a few weeks after issuance.
  • Other city practices that slow down construction. This could be burdensome traffic control processes, slow inspection of finished work, slow marking of existing utilities. One of the big killers for larger cities is an unwillingness to hire enough temporary city staff to process the volumes of paperwork associated with a large fiber project.
  • One interesting issue pointed out is that cities often don’t charge all utilities consistently. They might try to charge more or extract concessions from a new fiber provider that they don’t expect of existing utilities.

The sub-committee also addressed wireless deployments. While many cities have policies for large cell tower deployments, most cities have not developed any processes for dealing with the myriad smaller cell sites and 5G transmitters that carriers are going to want to deploy over the next decade. I would hope that considering the issues listed in this draft report will prompt more cities to develop friendlier policies and not wait until they have requests for connections and rights-of-way. I’ve talked to many cities who have said that they wish they had thought harder about fiber deployment before a network was built – and the time is now to get ahead of the curve for wireless deployments.

This document also ignores one of the biggest issues in the industry. The big ISPs all want rules that make it easier for them to build fiber or deploy new wireless devices – but they don’t necessarily support rules that make it easier for new competitors to build against their existing networks. I’ve repeatedly observed some of the big carriers like AT&T or Verizon argue for different rules on the local level than what they supposedly support at the national level. It will be interesting to see where these companies stand if the FCC tries to implement some of the proposed solutions.

White Houses Identifies 5G as Key Infrastructure

The White House recently released the National Security Strategy paper that lists 5G as one of the key infrastructure goals for the country. The specific language from the paper is:

Federal, state, and local governments will work together with private industry to improve our airports, seaports and waterways, roads and railways, transit systems, and telecommunications. The United States will use our strategic advantage as a leading natural gas producer to transform transportation and manufacturing. We will improve America’s digital infrastructure by deploying a secure 5G Internet capability nationwide. These improvements will increase national competitiveness, benefit the environment, and improve our quality of life.

This is a policy paper and there is no way to tell if anything contained in the report will turn into an actual proposed government program, such as infrastructure grants. But it’s worth noting that this is very different from the language used during the early days of the administration that talked about expanding broadband coverage and that hinted at a $40 billion grant program to expand rural broadband infrastructure. The industry took that to mean some sort of expansion of the FCC’s CAF programs aimed at building fiber and other broadband infrastructure.

It seems that during this last year that the administration has been persuaded by the wireless companies to embrace 5G as the future of broadband. It’s probably not a coincidence that all of the wireless carriers met with the administration in recent months and that all of them refer to 5G as a strategic priority for the country.

In the long run 5G might become the preferred broadband solution, but it’s far too early to tell. We need to see 5G actually working in a number of different environments to understand the strengths, weaknesses and deployment cost of the technology. We already understand that 5G is going to require a significant investment in fiber and very little of the country is fiber-rich enough to support 5G infrastructure.

The priority for the wireless carriers is to make it easier to deploy small cell sites. They are currently supporting numerous state legislative efforts that preempt rights of communities and that force low-cost cell site connections with little or no paperwork or approval process by pole owners. While it takes some reading between the lines, one has to suppose that the administration will be supporting FCC efforts to make this the rule nationwide. However, the FCC is somewhat limited in the ability to force pole attachment rules on states and it will take new legislation from Congress to change the parts of the Telecommunications Act of 1996 that gave states the rights to set their own pole attachment rules.

Listing 5G as an infrastructure priority also makes me think that there will be federal funding available to help fund 5G networks if Congress can get their act together enough to pass an infrastructure plan. For now, only the giant companies are considering 5G deployments, but with federal grant money perhaps smaller entities could consider building the fiber needed to bring 5G to smaller and more rural communities.

But all of this ignores the fact that 5G might never be a cost-effective solution for rural America. The physics of the millimeter wave spectrum used for 5G is going to require getting fiber close to customers, and in rural America that means spending nearly the same amount to build a rural 5G network as it would cost to build a rural FTTP network. Unless the government just hands out the money to build such networks it’s hard to think that any of the big ISPs will ever be interested in serving rural markets.

I’m trying to envision what a 5G infrastructure plan would fund. The most likely scenario in my mind would be grants given to the large ISPs to expand 5G to suburbia where the cost per subscriber to expand 5G is probably reasonable. Such an effort would be interesting in that it would bring a second major ISP to compete against the near-monopoly of the cable companies. But this does not feel like the sort of investment that ought to be made with federal dollars.

It’s hard though to see the feds funding the fiber needed to build a rural 5G network. And it’s hard to see the big ISPs wanting to support the operational costs to support such a rural network – AT&T and Verizon are both bailing as fast as they can today from serving rural America.

The language in the policy paper means nothing unless the federal government creates some sort of funded infrastructure plan and calling 5G a priority is just rhetoric without the funding to back it up. But one thing is clear from the language in this policy paper – the administration has bought into the rhetoric from the wireless providers.

Telecom Predictions for 2018

It’s that time of year to pause and look at what the next year might bring us. I see the following as the biggest telecom trends for 2018:

End of Net Neutrality Not a Big Deal. At least during 2018 we aren’t going to see the end of the Internet as predicted by many in the press and on social media. First, there are going to be a series of lawsuits challenging the FCC ruling, and ISPs are generally unwilling to do anything that might be changed by the courts. But I also think the big ISPs are unlikely to immediately do anything that will be unpopular with the general public. We might instead see subtle changes like more zero-rating that the public seems to favor. The big ISPs understand that this FCC ruling is immensely unpopular and they have to be worried about Congress or a new administration reversing a lot of the ruling. For now I think this means we won’t see any drastic changes in ISP behavior in the coming year. The big ISPs want the issue to quietly die away, and the best way for them to accomplish that is to not do anything unpopular right away.

Cable TV Declines Faster as a Product. We are seeing the perfect storm of events attacking the traditional cable market. First, programmers are raising programing rates to cable providers at historically high rates. It’s almost as if they want to get the last drop of profits out of the product before it wanes. This means another round of noticeably high cable rate increases – the primary reason that cord cutters cite for leaving traditional cable. We are also seeing a proliferation of alternate programming choices. The most popular cable networks are now available in lower-priced online alternatives. The growth in OTT alternatives has been significant in 2017 and in 2018 a lot more people are going to be lured into switching to one of the alternatives. The 3rd quarter of 2017 saw the cable providers lose a million customers and losses will accelerate in 2018.

Is 5G Hype or Real? In 2018 we are going to find out if the 5G hype is real. Verizon has been talking about rolling out a residential 5G broadband solution to 30 million homes, with a few specific markets identified in 2018. AT&T has been hyping the near-term roll-out of its AirGig 5G product. I think in 2018 we are going to get a look at how these technologies function in real neighborhoods and we’ll find out the real-life benefits and shortcomings of the technologies.

Networked WiFi Goes Mainstream. Poorly configured home WiFi networks are one of the major culprit for poor broadband experiences. Many homes have decent broadband connections but then lose all of the power by using a poorly placed single WiFi router. Many ISPs are now offering managed WiFi as a way to solve this problem. But there are also numerous inexpensive solutions available directly to consumers. Word of mouth about the benefits of networked WiFi are making this into the preferred home solution.

Voice Controls Become Practical. Until now voice control devices like the Amazon Echo have been novelties. But there are now practical applications with these devices that will make them go mainstream in 2018. Functions like simple web searches, home intercom systems, initiating phone calls or texts, controlling TVs and other devices along with the ability to play music everywhere is going to make most houses try the technology. This will be the year when a lot of people accept the idea of a voice interface to technology as an alternative to computers or smart phones.

Real Cellular Competition. The entrance of Comcast and Charter into the cellular markets is going to be significant. We also see T-Mobile increasing competitive pressure by bundling video with cell service. It’s clear that the cellular market in the US is fully saturated and that everybody has a cell phone. This all adds up to another round of price wars between cellular providers. It also means that the ‘unlimited’ plans introduced by the cellular companies in 2017 will quickly move from a novelty to the become the expected norm.

Explosion in Rural Communities Looking for a Broadband Solution. The digital divide between towns and rural areas is now obvious to everybody. Broadband has grown to become a necessity rather than a nice-to-have commodity. Rural citizens are demanding that their local governments help them find a broadband alternative. This movement is accelerated by the numerous success stories from proactive communities that have found a broadband solution. The most common market solution I see is public-private partnerships, but communities are finding other creative solutions. I also see numerous rural communities willing to talk about bringing public financing to help solve the problem. Expect numerous rural communities to start looking for solutions in 2018.