Is AT&T Violating Net Neutrality?

I got a text on my AT&T cellphone last month that told me that my wireless plan now includes sponsored data. Specifically they told me that I could now stream movies and other content from DirecTV or U-Verse TV without the video counting against my monthly data cap. This has been available to AT&T post-paid customers for a while, but now is apparently available to all customers. What I found most interesting about the message was that it coincided with the official end of net neutrality.

AT&T is not the first cellular company to do this. Verizon tried this a few years ago, although that attempt was largely unsuccessful because they didn’t offer much content that people wanted to watch. T-Mobile does something similar with their Binge-on program, but since most of their data plans are unlimited, customers can watch anything on their phones, not just the Binge-on video.

The sponsored data from AT&T would be a direct violation of net neutrality if it was still in effect and is a textbook example of paid prioritization. By excusing the DirecTV content from cellular data caps they have created an advantage for DirecTV compared to competitors. It doesn’t really matter that AT&T also happens to own DirecTV, and I imagine that AT&T is now shopping this same idea around to other video providers.

So what is wrong with what AT&T is doing? Certainly their many customers that buy both AT&T cellphones and DirecTV will like the plan. Cellular data in the US is still some of the most expensive data in the world and letting customers watch unlimited video from a sponsored video provider is a huge benefit to customers. Most people are careful to not go over monthly data limits, and that means they carefully curtail watching video on cellphones. But customers taking advantage of sponsored video are going to watch video that would likely have exceeded their monthly data cap – it doesn’t take more than a handful of movies to do that.

AT&T has huge market power with almost 140 million cellphones users on their network at the end of last year. Any video provider they sponsor is going to gain a significant advantage over other video providers. AT&T customers that like watching video on their cellphones are likely to pick DirecTV over Comcast or any other video provider.

It’s also going to be extremely tempting for AT&T to give prioritized routing to DirecTV video – what means implementing the Internet fast lane. AT&T is going to want their cellular customers to have a quality experience, and they can do that by making sure that DirecTV video has the best connections throughout their network. They don’t necessarily have to throttle other video to make DirecTV better – they can just make sure that DirectTV video gets the best possible routing.

I know to many people the AT&T plan is going to feel somewhat harmless. After all, they are bundling together their own cellular and video products. But it’s a short step from here for AT&T to start giving priority to content from others who are willing to pay for it. It’s not to hard to imagine them offering the same plan to Netflix, YouTube or Facebook.

If this plan expands beyond AT&T’s own video, we’ll start seeing the negative impacts of paid prioritization:

  • Only the biggest companies like Netflix, Facebook or Google can afford to pay AT&T for the practice. This is going to shut out smaller video providers and start-ups. Already in the short history of the web we’ve seen a big turnover in the popular platforms on the web – gone or greatly diminished are earlier platforms like AOL, CompuServe and Prodigy. But with the boost given by paid prioritization the big companies today will get a step-up to remain as predominant players on the web. Innovation is going to be severely hampered.
  • This is also the beginning of a curated web where many people only see the world through the filter of the predominant web services. We already see that phenomenon a lot today, but when people are funneled to only using the big web services this will grow and magnify.
  • It’s not hard to imagine the next step where we see reduced price data plans that are ‘sponsored’ by somebody like Facebook. Such platforms will likely make it a challenge for customers to step outside their platform. And that will lead to a segmentation and slow death of the web as we know it.

Interestingly, the Tom Wheeler FCC told AT&T that this practice was unacceptable. But through the change of administration AT&T never stopped the practice and is now expanding it. It’s likely that courts are going to stay some or all of the net neutrality order until the various lawsuits on the issue get resolved. But AT&T clearly feels emboldened to move forward with this, probably since they know the current FCC won’t address the issue even if net neutrality stays in effect.

Progress of the CAF II Program

If readers recall, the CAF II program is providing funds to the largest telcos to upgrade rural facilities in their incumbent operating territories to broadband speeds of at least 10 Mbps down and 1 Mbps up. The CAF II deployment began in the fall of 2015 and lasts for 6 years, so we are now almost 2.5 years into the deployment period. I was curious about how the bigger telcos are doing in meeting their CAF II build-out requirements. The FCC hasn’t published any progress reports on CAF II deployments, so I found the following from web searches:

AT&T. The company took $427 million annually for the six years ($2.56 billion) to bring broadband to 2.2 million rural customers. The company has said they are going to use a combination of improved DSL and fixed wireless broadband using their cellular frequencies to meet their build-out requirements. From their various press releases it seems like they are planning on more wireless than wireline connections (and they have plans in many rural places of tearing down the copper).

The only big public announcement of a wireless buildout for AT&T is a test in Georgia initiated last year. On their website the company says their goal at the end of 2018 is to offer improved broadband to 440,000 homes, which would mean a 17% CAF II coverage at just over the mid-point of their 6-year build-out commitment.

On a side note, AT&T had also promised the FCC, as a condition of the DirecTV merger that they would be pass 12.5 million homes and business with fiber by mid-2019. They report reaching only 4 million by the end of 2017.

CenturyLink. CenturyLink accepted $500 million annually ($3 billion) in CAF II funding to reach 1.2 million rural homes. In case you’re wondering why CenturyLink is covering only half of the homes as AT&T for roughly the same funding – the funding for CAF II varies by Census block according to density. The CenturyLink coverage area is obviously less densely populated than the areas being covered by AT&T.

FierceTelecom reported in January that CenturyLink has now upgraded 600,000 CAF II homes by the end of last year, or 37% of their CAF II commitment. The company says that their goal is to have 60% coverage by the end of this year. CenturyLink is primarily upgrading rural DSL, although they’ve said that they are considering using point-to-multipoint wireless for the most rural parts of the coverage areas. The company reports that in the upgrades so far that 70% of the homes passed so far can get 20 Mbps download or faster.

Frontier. The last major recipient of CAF II funding is Frontier. The company originally accepted $283 million per year to upgrade 650,000 passings. They subsequently acquired some Verizon properties that had accepted $49 million per year to upgrade 37,000 passings. That’s just under $2 billion in total funding.

FierceTelecom reported in January that Frontier reached 45% of the CAF II area with broadband speeds of at least 10/1 Mbps by the end of 2017. The company also notes that in making the upgrades for rural customers that they’ve also upgraded the broadband in the towns near the CAF II areas and have increased the broadband speeds of over 900,000 passings nationwide.

Frontier is also largely upgrading DSL, although they are also considering point-to-multipoint wireless for the more rural customers.

Other telcos also took major CAF II funding, but I couldn’t find any reliable progress reports on their deployments. This includes Windstream ($175 million per year), Verizon ($83 million per year), Consolidated ($51 million per year), and Hawaiian Telcom ($26 million per year).

The upcoming reverse auction this summer will provide up to another $2 billion in funding to reach nearly 1 million additional rural homes. In many cases these are the most remote customers, and many are found in many of the same areas where the CAF II upgrades are being made. It will be interesting to see if the same telcos will take the funding to finish the upgrades. There is a lot of speculation that the cellular carriers will pursue a lot of the reverse auction upgrades.

But the real question to be asked for these properties is what comes next. The CAF II funding lasts until 2021. The speeds being deployed with these upgrades are already significantly lower than the speeds available in urban America. A household today with a 10 Mbps download speed cannot use broadband in the ways that are enjoyed by urban homes. My guess is that there will be continued political pressure to continue to upgrade rural speeds and that we haven’t seen the end of the use of the Universal Service Fund to upgrade rural broadband.

Broadband Regulation in Limbo

The recent ruling earlier this week by the US Court of Appeals for the 9th Circuit highlights the current weak state of regulations over broadband. The case is one that’s been around for years and stems from AT&T’s attempt to drive customers off of their original unlimited cellphone data plans. AT&T began throttling unlimited customers when they reached some unpublished threshold of data use, in some cases as small as 2 GB in a month. AT&T then lied to the FCC about the practice when they inquired. This case allows the FTC suit against AT&T to continue.

The ruling demonstrates that the FTC has some limited jurisdiction over common carriers like AT&T. However, the clincher came when the court ruled that the FTC only has jurisdiction over issues where the carriers aren’t engaging in common-carrier services. This particular case involves AT&T not delivering a product they promised to customers and thus falls under FTC jurisdiction. But the court made it clear that future cases that involve direct common carrier functions, such as abuse of net neutrality would not fall under the FTC.

This case clarifies the limited FTCs jurisdiction over ISPs and contradicts the FCC’s statements that the FTC is going to be able to step in and take their place on most matters involving broadband. The court has made it clear that is not the case. FCC Chairman Ajit Pai praised this court ruling and cited it as a good example of how the transition of jurisdiction to the FTC is going to work as promised. But in looking at the details of the ruling, that is not true.

This court ruling makes it clear that there is no regulatory body now in charge of direct common carrier issues. For instance, if Netflix and one of the ISPs get into a big fight about paid prioritization there would be nowhere for Netflix to turn. The FCC would refuse to hear the case. The FTC wouldn’t be able to take the case since it involves a common carrier issue. And while a court might take the case, they would have no basis on which to make a ruling. As long as the ISP didn’t break any other kinds of laws, such as reneging on a contract, a court would have no legal basis on which to rule for or against the ISPs behavior.

That means not only that broadband is now unregulated, it also means that there is no place for some body to complain against abuse by ISPs until the point where that abuse violates some existing law. That is the purest definition of limbo that I can think of for the industry.

To make matters worse, even this jumbled state of regulation is likely to more muddled soon by the courts involved in the various net neutrality suits. Numerous states have sued the FCC for various reasons, and if past practice holds, the courts are liable to put some or all of the FCC’s net neutrality decision on hold.

It’s hard to fathom what that might mean. For example, if the courts were to put the FCC’s decision to cancel Title II regulation on hold, then that would mean that Title II regulation would still be the law of the land until the net neutrality lawsuits are finally settled. But this FCC has made it clear that they don’t want to regulate broadband and they would likely ignore such a ruling in practice. The Commission has always had the authority to pick and choose cases it will accept and I’m picturing that they would refuse to accept cases that relied on their Title II regulation authority.

That would be even muddier for the industry than today’s situation. Back to the Netflix example, if Title II regulation was back in effect and yet the FCC refused to pursue a complaint from Netflix, then Netflix would likely be precluded from trying to take the issue to court. The Netflix complaint would just sit unanswered at the FCC, giving Netflix no possible remedy, or even a hearing about their issues.

The real issue that is gumming up broadband regulation is not the end of Title II regulation. The move to Title II regulation just became effective with the recent net neutrality decision and the FCCs before that had no problem tackling broadband issues. The real problem is that this FCC is washing their hands of broadband regulation, and supposedly tossed that authority to the FTC – something the court just made clear can’t work in the majority of cases.

This FCC has shown that there is a flaw in their mandate from Congress in that they feel they are not obligated to regulate broadband. So I guess the only fix will be if Congress makes the FCC’s jurisdiction, or lack of jurisdiction clear. Otherwise, we couldn’t even trust a future FCC to reverse course, because it’s now clear that the decision to regulate or not regulate broadband is up to the FCC and nobody else. The absolute worst long-term outcome would be future FCCs regulating or not regulating depending upon changes in the administration.

My guess is that AT&T and the other big ISPs are going to eventually come to regret where they have pushed this FCC. There are going to be future disputes between carriers and the ISPs are going to find that the FCC can not help them just like they can’t help anybody complaining against them. That’s a void that is going to serve this industry poorly.

AT&T and Net Neutrality

The big ISPs know that the public is massively in favor of net neutrality. It’s one of those rare topics that polls positively across demographics and party lines. Largely through lobbying efforts of the big ISPs, the FCC not only killed net neutrality regulation but they surprised most of the industry by walking away from regulating broadband at all.

We now see states and cities that are trying to bring back net neutrality in some manner. A few states like California are creating state laws that mimic the old net neutrality rules. Many more states are limiting purchasing for state telecom to ISPs that don’t violate net neutrality. Federal Democratic politicians are creating bills that would reinstate net neutrality and force it back under FCC jurisdiction.

This all has the big ISPs nervous. We certainly see this in the way that the big ISPs are talking about net neutrality. Practically all of them have released statements talking about how much they support the open Internet. These big companies already all have terrible customer service ratings and they don’t want to now be painted as the villains who are trying to kill the web.

A great example is AT&T. The company’s blog posted a letter from Chairman Randall Stephenson that makes it sound like AT&T is pro net neutrality. It fails to mention how the company went to court to overturn the FCC’s net neutrality decision or how much they spent lobbying to get the ruling overturned.

AT&T also took out full-page ads in many major newspapers making the same points. In those ads the company added a new talking point that net neutrality ought to also apply to big web companies like Facebook and Twitter. That is a red herring because web companies, by definition, can’t violate net neutrality since they don’t control the pipe to the customers. Many would love to see privacy rules that stop the web companies from abusing customer data – but that is a separate issue than net neutrality. AT&T seems to be making this point to confuse the public and deflect the blame away from themselves.

Stephenson says that AT&T is favor of federal legislation that would ensure net neutrality. But what he doesn’t say is that AT&T favors a bill the big companies are pushing that would implement a feel-good watered-down version of net neutrality. Missing from that proposed law (and from all of AT&T’s positions) is any talk of paid priority – one of the three net neutrality principles. AT&T has always wanted paid prioritization. They want to be able to charge Netflix or Google extra to access their networks since those two companies are the largest drivers of web traffic.

In my mind, abuse of paid prioritization can break the web. ISPs already charge their customers enough money to fully cover the cost of the network needed to support broadband. Customers with unlimited data plans, like most landline connections, have the right to download as much content as they want. The idea of an AT&T then also charging the content providers for the privilege to get to customers is a terrible idea for a number of reasons.

Consider Netflix. It’s likely that they would pass any fees paid to AT&T on to customers. And in doing so, AT&T has violated the principle of non-discrimination of traffic, albeit indirectly, by making it more expensive for people to use Netflix. AT&T will always say that are not the cause of a Netflix rate increase – but AT&T is able to influence the market price of web services, and in doing so discriminate against web traffic.

The other problem with paid prioritization is that it is a barrier to the next Netflix. New companies without Netflix’s huge customer base could not afford the fees to connect to AT&T and other large ISPs. And that barrier will stop the next big web company from launching.

I’ve been predicting that the ISPs are not going to do anything that drastically violates net neutrality for a while. They are going to be cautious about riling up the public and legislators since they understand that Congress could reinstate both net neutrality and broadband regulation at any time. The ISPs are enjoying the most big-company friendly FCC there has ever been, and they are getting everything they want out of them.

But big ISPs like AT&T know that the political and regulatory pendulum can and will likely swing the other way. Their tactic for now seems to be to say they are for net neutrality while still working to make sure it doesn’t actually come back. So we will see more blogs and newspaper ads and support for watered-down legislation. They are clearly hoping the issue loses steam so that the FCC and administration don’t reinstate rules they don’t want. But they realistically know that they are likely to be judged by their actions rather than their words, so I expect them to ease into practices that violate net neutrality in subtle ways that they hope won’t be noticed.

Are There any Cable Companies Left?

Today I ask the question if there are really any cable companies left in the US. This was prompted by seeing an article that the Shrewsbury Electric and Cable Operations (SELCO), the municipal cable provider in Shrewsbury, Massachusetts announced to the Board of Selectmen that they are no longer a ‘cable company’. They have always been a traditional cable company in that they deliver their signals to customers over a coaxial cable network. They originally only used that network to deliver the cable product. But over the years they added telephone and broadband service, and from a customer perspective they look the same as any other triple play provider which delivers these same services over copper or fiber.

This announcement was prompted by two facts. First, the company sells broadband to more homes and businesses than it sells cable TV service. And that is due, in part, to the fact that it is seeing customers abandon cable service in favor of watching streaming video over the Internet.

Shrewsbury is not unique and most of my other small triple play clients are in this same position. SELCO is unique only in that they announced it formally, which made it into the press and onto my desk. Except for some tiny rural cable companies that only sell cable service, it’s hard to imagine that every other cable company is not in the same position. And you can’t find a telco that doesn’t sell more broadband than telephone. In fact, it’s hard to find a telco any more where more than half of the customers have a landline – only in places where the cellular coverage is terrible.

The biggest company to make this announcement was Comcast. Over a year ago CEO Brian Roberts announced that Comcast was no longer a cable company. A quarter earlier their number of broadband customers had surpassed their cable customers, and since then broadband penetration is still growing steadily while cable customers are shrinking.

And yet the industry still refers to Comcast as a cable company. We still refer to AT&T as a telco even though they are primarily a wireless company. The use of these monikers comes from the technology being used – the technology, and the vendors that support each technology are different for those operating telephone copper networks, cable company HFC (hybrid Fiber Coax) networks or fiber. Yet, from a customer perspective these different kinds of companies sell the same thing – with the differentiator being their broadband speeds.

I struggle with this as a blogger since there are a lot more similarities between Comcast and AT&T than there are differences. Calling one a telco and the other a cable company no longer makes much sense. When taking about the whole industry I usually refer to triple play providers as ISPs or carriers.

We don’t have a good short word to describe companies that use their networks to sell the triple play services, and which now also other services like security, smart home, managed WiFi, etc. The word ISP really isn’t adequate because there are plenty of companies around that only sell Internet access. Those are ISPs in the strictest sense.

And carriers is an inadequate description. That’s an old telecom phrase that was used mostly to denote the bigger companies in the traditional telephone industry. But size of company is no longer a differentiator – from a product perspective, many smaller companies today have a more robust product offering than large companies like Frontier or Windstream.

What really starts making this difficult is that a lot of smaller ISPs are abandoning or thinking about abandoning cable TV service. They are finding that they can barely buy the raw programming for the retail prices offered with the smaller satellite cable packages. Small ISPs are quickly becoming double play providers, and they won’t fit into any description that includes the triple play.

So please bear with me when you see me referring to companies in this industry with descriptors that don’t really fit what they do for a living. If any of you have a better idea of what to call these companies I’m open to suggestion.

A-CAM – A Subsidy that Works

Yesterday I compared the broadband grant programs in California and Minnesota. There are currently two federal broadband funding programs that are producing drastically different results that are worth a comparison. I’ve written a number of blogs complaining about the inadequacies of the FCC’s CAF II program for the largest telcos in the country. Companies like AT&T, Verizon, Frontier and other big telcos accepted the federal subsidies to upgrade the rural parts of their service territories. That program requires the carriers to upgrade rural facilities to be able to deliver broadband speeds of at least 10 Mbps download and 1 Mbps upload. The upgrades also need to have latency less than 100 ms (which is a dreadful latency if near to that threshold).

AT&T and Verizon say that they plan to mostly meet their obligations by converting rural copper lines to cellular connections. Most of the other telcos, which aren’t in the cellular business plan instead to upgrade rural DSL. A few, like Frontier Communications say that they plan to upgrade some customers using point-to-multipoint wireless networks.

But they key element of all of this is the 10/1 Mbps broadband speeds. The CAF II program is spending $10 billion dollars over six years to upgrade 4 million homes to at least the 10/1 Mbps speed. Since most of these households have had little or no broadband today those speeds are going to be the first time that many of these homes get any kind of a broadband connection. But the 10/1 Mbps speeds are already obsolete for any home that wants to use broadband the same as urban households, allowing multiple users and devices on the network simultaneously.

The FCC also has a lesser-known broadband subsidy program aimed at the smaller telephone companies. This program is called A-CAM (Alternate Connect America Cost Model). The A-CAM program is paying out a little over $1 billion per year for ten years and will support a broadband upgrade to 4.9 million households. Just under half of the money is aimed at upgrades to supply at least 25/3 Mbps, with the rest aimed at the same slower 10/1 threshold as the CAF II program for the bigger telcos.

The A-CAM program gets interesting when you look at what the small telcos are actually doing with this funding. While the big telcos in the CAF II program area upgrading to just enough speeds to get them over the 10/1 Mbps requirement, many small telcos are doing a lot more. All around the country there are small telcos using the A-CAM funding as the seed money to finance and build fiber to small towns, farms and other rural areas. The A-CAM money provides the basis for borrowing the money needed to build a permanent new fiber network. Even where small telcos are only upgrading DSL, I see many of them that upgrading speeds to as much as 40 Mbps.

It’s also interesting that the smaller companies are getting less funding, on average. The big telco CAF II money is providing roughly $2,470 per rural customer while the small company A-CAM money is $2,091 per customer. The amount received by each company differs, but overall the small telcos are doing a lot more with less funding.

I don’t know for sure that the big telcos in the CAF II program aren’t spending some of their own capital dollars to augment the CAF II funding, but everything I see tells me that they are not. They are using the federal money to do whatever upgrades that will fund, and no more.

We are starting to see the differences from the two programs appear in the real world. I was just looking the other day at the map for Otter Tail County, Minnesota. It’s a large county with some farmland, a lot of lakes and recreation areas and a lot of woods, trees and rough terrain. It’s comparable to many other rural places in the country. In Ottertail County it looks like about 2/3 of the rural areas are going to get fiber, much of it due to A-CAM money. These fiber areas will be sitting next door to CenturyLink areas that will get DSL upgrades that meet the 10/1 Mbps requirement.

Customers that get fiber will have seen real benefit from the FCC program that helped to fund it. But the customers in the CenturyLink areas will not see the same benefits, although they will have friends, families and neighbors that have world-class broadband. There isn’t any real difference between the two areas other than the way that the telcos decided to use the federal broadband money. The small telcos have used the federal money as a down payment for fiber while the bigger telco are just tweaking the ancient copper network or converting to cellular.

I’ve said all along that the FCC made a colossal mistake in not creating an auction for the CAF II money. Smaller companies would have leveraged the $10 billion of funding to build a lot of fiber to rural communities. They would have borrowed and expanded their businesses to bring a permanent broadband solution to millions of households.

Instead, the $10 billion CAF II money isn’t buying much of a speed increase. In some cases CAF II is going to make things worse. I think when AT&T and Verizon start tearing down rural copper that there will be homes with lousy cellular coverage that will not only not get broadband but will lose voice service. It’s fairly obvious that the CAF II program funding was a victory for the big telco lobbyists. The big telcos had a lot to lose if that funding went to smaller companies that would have built in their service territories. But this victory for the big companies is a big loss for customers who will not see real broadband because of a poorly designed federal subsidy program.

Cellphone Data Usage

I’ve never seen any detailed information about the amount of data that customers use on cellphones. We have the global statistics from Akamai and others that look at the big picture, but I’ve always wondered how much data the average cell phone user really uses. This is something that is important to understand for ISPs because cellphone usage on home WiFi can be a big chunk of bandwidth these days.

FierceWireless has now partnered with Strategic Analytics to look in more detail at how people use their cellphone data and how they pay for it. The data used in the analysis comes from 4,000 android phone users who agreed to allow their usage to be studied.

Following is a comparison on an average month for the amount of Cellular and WiFi bandwidth used by customers with different kinds of data plans:

‘                                                               Cellular             WiFi               Total

No Data Plan (pay-as-you-go)              0.9 GB              8.8 GB            9.7 GB

Monthly Data Cap                                 2.8 GB            14.0 GB          16.8 GB

Unlimited Data Plan                             5.3 GB            12.3 GB          17.8 GB

Interestingly, there is not that much difference in the total bandwidth used by customers with unlimited data plans versus those with caps. But the unlimited customers obviously feel freer to use data on the cellular network, using twice as much cellular data per month as those with monthly caps.

What is surprising to me is the small amount of data used by unlimited plan customers. There are truly unlimited plans like T-Mobile, but even the quasi-unlimited plans from AT&T and Verizon allow for over 20 Gigabytes of download per month on cellular. But these statistics show that customers, on average, are not using much of that data capability. It looks like many people are buying the unlimited plans for the peace-of-mind of not exceeding their data caps. This reminds me a lot of the days when telcos talked people into buying unlimited long distance plans, knowing that most of them would never use the minutes.

These statistics also show that unlimited data customers are not putting a lot of pressure on cellular networks, as the carriers would have you believe. They have always used the excuse of network congestion as the excuse for charging a lot for cellular data and for having stingy data caps. These statistics show just the opposite and show that, in aggregate that customers are not using cellular data at even a tiny fraction of the bandwidth they use on their home broadband connections.

These statistics also indicate that there are not a lot of people using cellphones to watch video. T-Mobile may give access to Netflix, but it looks like people are either watching the video on WiFi or on a device other than their cellphone. It doesn’t take much video to get to 5 GB per month in download.

To put the total usage numbers in perspective, the average landline broadband connection uses around 120 GB per month according to several ISPs. I’ve seen numerous articles over the last year talking about how cellular data use is exploding, but these numbers don’t back that up. This shows that consumers still go to landline data connections when they want to do something that is data intensive.

These numbers also counterbalance the predictions I keep reading that cellular data will eclipse landline data in a few years. That might true around the world since there are a number of places where almost all ISP connections are through cellphones. But in the US the landline data usage still dwarfs cellphone data usage and is itself still growing rapidly.

The usage by cellular carrier was also reported, as follows:

‘                                                          Cellular             WiFi                Total

AT&T                                                 2.4 GB            11.4 GB          13.6 GB

Sprint                                                4.4 GB            13.8 GB          18.2 GB

T-Mobile                                           5.3 GB            13.1 GB          18.4 GB

Verizon                                             3.6 GB            14.4 GB          18.0 GB

My one take-away from these numbers is that Sprint and T-Mobile customers feel freer to use their smartphone for video and data downloading – but even they mostly do this on WiFi. These numbers also show that the stingy monthly data caps from AT&T and Verizon have trained their customers to not use their cellphones – even after those companies have increased the monthly caps.

Big Telcos and Rural Customers

Recently, Sunit Patel, the CFO of CenturyLink, told investors that the company would be focusing on expanding their broadband networks only to the most densely populated parts of its footprint. Further, the company will now focus on opportunities that maximize both their retail operations as well as their new wholesale business that comes from the purchase of Level3. This is not surprising, and this has undoubtedly been the Company’s philosophy for many years. However, this is something that you rarely hear said publicly by the large telcos. And that’s because saying it so plainly also means that the company is admitting that they are not spending capital for the less dense parts of the footprint.

The large telcos like CenturyLink, Verizon and AT&T have been ignoring the rural parts of their network for literally decades. And yet they rarely talk about this – no doubt due to a public relations edict inside the companies. It’s refreshing to hear one of them spell it out.

We’ve heard this same story from both AT&T and Verizon in the past, but couched in different language. They have tried to put a positive spin on their announcements about rural properties by framing them as upgrading customers to wireless instead of wireline. But this is just another way of saying that they want to tear down copper lines in rural areas and charge more to households that happen to live close enough to a cellular tower to serve them. What’s never said is that these rural transitions to wireless will leave a lot of homes that have poor cellular coverage with no broadband and no telephone coverage – a reversal of a hundred-year universal service effort to keep everybody in the country connected.

CenturyLink isn’t in the same position as the other two giant telcos in that they don’t have a cellular option for rural households. The company is in the process of making substantial upgrades to the rural copper network using money provided by the FCC as part of the CAF II program. This upgrade is intended to bring rural DSL speeds up to at least 10/1 Mbps. But this money isn’t covering everybody in rural areas and the company and the FCC excluded millions of the most rural homes from these upgrades. I’ve heard through the grapevine from technicians at some of the big companies that the telcos are using the FCC money to do their best effort and that not everybody will get the promised speeds. The telcos will do what they can with the FCC money until it is all spent.

What this means for rural customer of the big telcos is that good broadband is not coming. Many households are going to be offered somewhat faster DSL or else cellular broadband from the CAF II upgrades – but that’s a one-time upgrade and it’s unlikely that these companies are going to do any more upgrades beyond this one-time shot.

I find it unfortunate that rural households who don’t understand technology and don’t understand these big telcos probably think their broadband speeds will be improved. The press releases from these companies and even from the FCC make it sound like solutions are on the way.

I probably shouldn’t be so cynical, because for a home that doesn’t have any broadband today a 10/1 Mbps connection is going to be a welcome relief. But a connection at that speed is already inadequate today for any home that really wants to use broadband. That kind of speed is not going to easily let different family members use much broadband at the same time. And that speed will grow quickly obsolete as the amount of speed needed and the amount of total annual download for the average family continues to double every three years. Any connection that feels just barely adequate today is going to feel slow in five years and nearly non-functional in a decade.

I have to give credit to Mr. Patel for saying this so directly. There is no clearer signal to rural communities that they need to look for a broadband solution on their own. The big telcos will spend any money they get from the FCC on rural infrastructure, but otherwise the big companies are unlikely to devote any additional capital dollars towards improving rural networks. This is no change from the way it’s been for a long time, but finally we can point to somebody who said out loud what we’ve always known.

DOJ Opposes AT&T / Time Warner Merger

The US Department of Justice filed an antitrust lawsuit against AT&T opposing the upcoming merger with Time Warner. The filing was surprising since it came so late in the merger process with the proposed merger on the table for much of 2017.

There are those saying that the DOJ objections are political, but the DOJ objections are all legitimate. Some of the major concerns of the DOJ include:

  • The merger could disadvantage AT&T rivals like Comcast and Charter by forcing them to pay hundreds of millions more for access to Time Warner programming.
  • The merger will slow the industry transition to online video through OTT and MVPD providers.
  • The vertical integration of last-mile network and programming gives AT&T the ability to create an unfair advantage over competitors.

I don’t think AT&T or anybody can dispute these objections with a straight face, and in fact, these findings are exactly what AT&T has in mind. AT&T already has major synergies between its various business lines. For example, the latest expansion of the AT&T FTTP network is largely taking advantage of fiber routes that are already in place to support the cellular network. It’s something that AT&T probably should have taken advantage of long before now. AT&T also is starting to take advantage of the synergies between its large acquired DirecTV customer base and its cellular products. It’s also the existing programming contracts of DirecTV that have enabled the successful launch of the MVPD offering DirecTV Now.

What this DOJ suit does not acknowledge is that AT&T is just trying to keep pace with Comcast. Comcast has already integrated programming with a last-mile network when the DOJ and FCC let the company buy NBC Universal in 2009. And now that Comcast is entering the cellular business I have a hard time seeing any real difference between what Comcast has today and what AT&T is trying to become with this merger.

The question that must be asked is if the DOJ is going to block the AT&T merger, then shouldn’t their next step be to ask for the divestiture of the Comcast business lines? If they are not going to pursue that, then this filing is largely political. But if the concern is monopoly abuse, as the DOJ document indicates, then they should pursue the only fully-integrated monopoly like the one that AT&T is asking to create.  In fact, Comcast has already gone far past where AT&T is headed and also bundles in smart home, security and even solar panels with other telecom services.

There is no question that Comcast, and AT&T, if they are able to complete the merger, will have a competitive advantage over any other last-mile network provider. Any other ISP that wants to offer video will have to pay significant amount of money to these two companies as part of competing with them. It can be argued that Comcast cable also has to buy the various Comcast programming – but the fact is that when calculating earnings all intercompany purchases cancel out, so whatever Comcast pays itself for programing is largely funny money. And this gives these big conglomerates an instant $5 / $10 advantage per month in costs over any rival.

It’s an interesting filing, and if the DOJ sticks to its guns this is likely to end up at the Supreme Court. My gut tells me that the courts are going to have a hard time saying no to AT&T for trying to create the same synergies that their primary rival Comcast already has.

We haven’t even seen the full power of the new Comcast bundle yet. The company has so many possible ways to tie down a customer and make it hard to break the bundle. Once Comcast has millions of cellular customers and millions of smart home customers they are going to be a fierce competitor against any newcomer. Combine this with the fact that they will soon have gigabit broadband available everywhere and they can match broadband speeds in any market (while keeping prices higher in non-competitive markets). That is the real power of the big conglomerate ISPs – the ability to compete unfairly in any one market by charging more elsewhere.

I doubt that the DOJ petition will hold up. We don’t really need another company with the same market power as Comcast – but stopping the second big conglomerate is already too late.

A Further Muddying for Pole Attachments

The issue of putting fiber on poles just got a little more complicated. A U.S. District Court recently overturned a One Touch Make Ready law that had been passed in Nashville, Tennessee to enable easier access to poles by Google Fiber.

The Nashville Metro Council passed the One Touch ordinance last year, and the new law was immediately challenged by AT&T and Comcast, the two large incumbent providers in the area. The law suit is complicated because it looks at two sets of poles – the 20% of the poles in the market owned by AT&T and the 80% of poles owned by Nashville Electric Service (NES), a municipal electric provider.

For the AT&T poles the judge ruled that the law violated federal pole attachment rules. The Telecommunications Act of 1996 gave states the optional authority to regulate poles, but the State of Tennessee never took on that responsibility, so the poles in the state are still subject to FCC pole attachment rules. This differs from an earlier lawsuit in Louisville, Kentucky where that state had preempted FCC pole attachment rules. Here it seems pretty clear that the Metro Council doesn’t have the authority to override FCC rules.

The lawsuit also claimed that the ordinance was in violation of local rules. AT&T claimed that the city charter did not explicitly give the Metro Council the authority to set rules for the NEC poles. The court said that NES had the exclusive right by charter to regulate public rights-of-ways. The court said it agreed with the AT&T allegations but did not make a firm ruling since NES was not a named party in the lawsuit.

The Metro Council originally passed the One Touch ordinance because AT&T and other pole attachers like Comcast were slow-rolling Google Fiber requests to get onto poles. Even today, a few years later, there are thousands of outstanding requests by Google Fiber to get onto poles. The One Touch ordinance would have given Google Fiber the ability to attach to poles and to then handle the paperwork retroactively.

This suit got resolved at a time when the FCC is considering One Touch rules concerning wireless connections. The FCC is thinking about granting the same rights to wireless carriers that this ordinance would have given to Google Fiber and other fiber overbuilders. The FCC recognizes that pole attachments are perhaps the major impediment for the promised coming implementation of 5G networks.

Incumbent pole owners have been able to thwart fiber overbuilders for the last few decades. They can deploy numerous delaying tactics that still fit within the FCC pole attachment guidelines. It’s not clear if the contemplated FCC rules will also make it easier for fiber overbuilders – but my guess is that they won’t. This FCC is clearly favoring the big ISPs and wireless carriers – and so they are likely to grant the rules that the big companies want.

This potential dichotomy between the treatment of wireless attachers and fiber attachers is ironic, because 5G networks are going to require a lot of new fiber. The wireless companies are not going to be building all of the needed new fiber and are hoping for others to build for them. But if those fiber builders encounter the same resistance seen by Google Fiber, then One Touch rules for wireless transmitters will not alone solve the 5G deployment issues.

One of the most interesting aspect of the pole attachment issue is that Verizon and AT&T are two of the largest builders of fiber. These companies scream bloody murder when they encounter the kinds of delays in building fiber that AT&T is causing for Google Fiber in numerous markets around the country. But AT&T clearly wears two hats and they argue for easy pole attachments where they are building fiber and for maintaining barriers to other fiber overbuilders when they own the poles.

None of this is going to be easily solved without Congressional action. There are still going to be states that can preempt federal pole attachment rules if they so choose. And the FCC is going to find themselves unable to overcome the state/federal jurisdictional issue when they try to make a nationwide One Touch rule for 5G. Expect a lot more lawsuits before this gets resolved.