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.

Some Unexpected News

In an attempt to stop the massive bleeding of traditional cable TV customers AT&T has cut the prices for cable on both the DirecTV and U-verse platforms. The company lost almost 400,000 linear TV customers in the recent third quarter.

As an example, DirecTV’s ‘Select’ bundle of 150 channels will now be priced for a two-year contract at $35 for the first year and $76 for the second year, compared to the recent prices of $50 for the first and $90 for the second. All of the other packages have similar drops of $10 to $15 in the first year and lower second year prices.

I call this unexpected news because it goes against every trend in the rest of the industry. The average monthly revenue for the 2-year Select contract just fell from $70 per month to $55.50 per month – more than a 20% discount. From what I know about programming prices it’s hard to think that AT&T has any margin at the new prices and they are clearly under water for the first year, spending more for programming than what they will collect in revenue.

This price reduction brings a couple of different ideas to mind. First, it’s clear that AT&T still wants to have traditional linear cable TV customers. Even at little or no margin they see value in that, although I honestly can’t see what that benefit might be. Certainly, one benefit might be to prop up DirecTV through sheer volumes of customers. I think AT&T envisions the future of cable TV to be more in line with the smaller on-line packages being sold as DirecTV Now. But the general public largely is not yet ready to make the shirt to totally online and so perhaps AT&T wants to keep people using its products until that is a more likely shift.

But this price drop also talks about the market elasticity of cable TV. We’ve known for years that customers that cut the cord almost all say they are leaving traditional cable TV because of the cost. That was already happening before the plethora of new on-line alternatives like Sling TV and Playstation Vue. These new alternatives products have created what is called in economic terms as a substitute. Over 900,000 households changed to one of these online cable products in the most recent third quarter, and so it’s obvious that many people now view a skinny bundle like Sling TV to be a reasonable substitute for the big cable packages.

And this makes sense. We know that most households don’t watch many different channels even on a 200-channel cable offering, and so as long as a smaller lineup has channels a household is comfortable with then skinny bundles become economic substitutes for the traditional big cable bundle.

And of course, all of this is compounded by OTT providers like Netflix, Hulu and Amazon prime that provide a huge array of online content that is another competitor to cable TV. I can tell you personally that I am far happier with having one skinny bundle (currently Playstation Vue) and access to OTT content than I ever was with the big cable bundle. I remember channel surfing through the big cable packages at 3:00 in the morning (a time I am often awake) and finding nothing but bad programming and infomercials. The choice from online programming are far better for my tastes and style of watching TV.

This change makes me wonder if we aren’t seeing the end of the tolerance of the public towards costly cable TV products. If the idea that traditional cable TV packages are no longer worth the price we could be seeing a watershed moment in the industry – one where a huge cable provider makes a last stab to keep customers.

It will be interesting to see if any of the other cable providers react the same way. This is a bold move by AT&T and one would think that those seeking a cheaper alternative might be attracted to these new bundles. But of course, every customer that takes one of these packages will probably be bailing on a traditional package from one of the cable companies. This is going to be an interesting battle to watch.

Big Telcos and Broadband

A recent article in Telecompetitor reports that analysts at Moffett Nathanson expect the big telcos to start making inroads into the near-monopoly for broadband currently enjoyed by the cable companies. The article focused specifically on AT&T, but some other big telcos like CenturyLink are also aggressively expanding fiber networks.

I would have to assume that the analysts got the following goals directly from AT&T because I can’t find any other references to these specific goals. But each of these is in line with statements made by AT&T executives over the last year. According to the article, AT&T broadband goals over the next few years are as follows:

  • Offer broadband speeds below 50 Mbps to 30 million passings using DSL;
  • Offer broadband speeds between 50 – 100 Mbps to 20 million passings using paired copper VDSL;
  • Offer ‘near gigabit’ speeds to 10 million passings using via 5G wireless;
  • Offer gigabit speeds using FTTH technology to 14 million residential passings and 8 million business passings.

The real news here is in the last two bullet points. AT&T accepted the goal from the FCC for passing 12.5 million customers with FTTH from the merger with DirecTV. It’s big news if they intend to extend that to 22 million passings. And the goal of using millimeter wave radios to reach another 10 million potential customers is something new.

If AT&T meets these goals they will be bringing serious competition to the cable companies. AT&T and the other telcos have been bleeding DSL customers for over a decade and handed the cable companies a near-monopoly on fast broadband in most urban and suburban markets. According to Moffett Nathanson the telco expansion will bring near-gigabit speeds on telco networks to 32% of the country.

It’s important to understand where the new AT&T broadband is being built. The majority of the new coverage is in three market niches – apartment buildings, new greenfield housing developments and business districts. AT&T’s expansion has largely focused on these specific market niches and is likely to continue to do so. AT&T is not proposing to duplicate what Verizon did with its FiOS network and bring broadband to older single family home neighborhoods. They are instead focusing on buildouts where the the cost of construction per customer is the lowest – the ultimate cherry-picking network.

This means that the AT&T coverage will bring the opportunity for gigabit broadband to a much larger footprint, but that’s not always going to bring customer choice. In the MDU market many landlords are still allowing only one ISP into their apartment complexes. As telcos like AT&T compete with the cable companies for this market the broadband speeds in apartments and condos will get much faster, but many customers will still only have the option to buy from whatever ISP that landlord has allowed.

I have to admit that this market shift to bring broadband to MDUs caught me a bit by surprise. Many years ago Verizon showed that there is a successful business plan for building fiber to older residential neighborhoods. In the northeast Verizon still carries significant market share in its FiOS neighborhoods, and customers consistently rate them as having better customer service than the cable companies. Other telcos like CenturyLink are copying the Verizon model and are building swaths of fiber in residential neighborhoods.

The traditional wisdom was that it is too costly to bring fast broadband to apartments. A decade ago bringing fiber to an apartment meant rewiring the whole building with fiber – and for many apartments that is prohibitively expensive. But there have been technology advances that have made this more feasible. For example, much of the ‘near-gigabit’ speeds can be achieved by using G.Fast technology over existing coaxial or telco cable in older apartments. There have also been big improvements for indoor fiber deployments that include small flexible fibers and techniques for installing fiber inconspicuously in hallways. Many buildings that seemed too costly to serve years ago now make economic sense. Finally, the potential to deliver backhaul to an MDU using millimeter wave radios is going to eliminate the need to build as much fiber.

The real big unknown is how successful any of these big companies will be with 5G. As I’ve been writing lately there are still a lot of barriers that might make it difficult for AT&T to use the wireless technology to cover 10 million passings. We’re going to have to wait to see some real deployments over the next few years to see if the technology works as promised and if the cost of deployment is as cheap as anticipated. But the one thing that these analysts have gotten right is that the big telcos are finally fighting back against the cable monopolies they helped to create by sticking with DSL too long. It’s going to be interesting to see how well they do in winning back customers that they lost over the last two decades.

Big ISPs and Elections

Before you stop reading, this blog isn’t about party politics – the elections I am talking about are those where citizens vote on building a fiber optic network in their community. The incumbents don’t seem able to pass up the chance to turn an election their way when competition is put onto the ballot.

The latest example of this is the upcoming election on November 7 in Ft. Collins, Colorado. Voters in that community will be voting on whether to amend the city charter to allow the city to build and operate a fiber optic network in the city. Colorado law makes this elections mandatory, but I’ve seen other cities hold voluntary elections on the issue so that they are certain that the citizens are behind their efforts to build fiber. A positive vote in Ft. Collins would allow the city to take the next step to investigate if they want to build a fiber network in the city.

Ft. Collins is a community of 59,000 homes and Comcast and the other incumbent ISPs have spent over $200,000 so far in advertising against the ballot measure – a phenomenal amount of money spent on a local election and the most ever seen in Ft. Collins.

As is usual for fiber ballot initiatives, the incumbents are fighting against the passage of the measure by spreading lies and misinformation. For example, in Ft. Collins they are saying that voting for the measure would preclude the city from making other infrastructure upgrades for things like roads. In fact, this ballot measure just gives the city the legal authority to explore fiber and it’s likely that they would have another election to approve a bond measure if they decide to float a bond for fiber – a decision that would be some time in the future.

The misinformation being floated in Ft. Collins is tame compared to some of the other ways that incumbents have tried to stop fiber initiatives. In Lafayette Louisiana the combination of Cox and BellSouth (now AT&T) were extremely aggressive in trying to stop the fiber initiative (including filing several lawsuits to stop the effort). But prior to the election when fiber was going to be on the ballot they called every home in the community with a push poll that asked ludicrous questions about the fiber project. An alert citizen recorded the push poll and it can be found here. This takes 30 minutes to hear the whole thing, but if you are interested in the tactics the big ISPs use to fight it, this is well worth a listen. There are some amazing questions in this poll, and the gall of this push poll might have been what pushed the election to pre-fiber. In Louisiana the city needed to get more than a 65% yes on the fiber initiative, and due to a strong community effort the ballot measure passed easily.

I also remember a similar election in North St. Paul, Minnesota, a small community surrounded by the city of St. Paul. When the city put a fiber initiative on the ballot Comcast sent busloads of people to the city who went door-to-door to talk people out of voting for fiber. They deployed the usual misinformation campaign and scared a community that had a lot of elderly citizens into voting against the fiber initiative, which narrowly lost at the polls.

There was a similar lection recently in Longmont, Colorado. When the city first held a vote on the same ballot measure as Ft. Collins, the money from the big ISPs defeated the ballot measure. The ISPs won using a misinformation campaign that talked about how the fiber effort would raise taxes. But the citizens there really wanted fiber, and so they asked for a second vote and in the second election there was a massive grass-roots effort to inform the community about the facts. The fiber initiative on the second ballot won resoundingly and the city now has its fiber network.

There are several lessons to be learned from these ballot battles. First, the incumbents are willing to make a sizable investment to stop competition. But what they are spending, like the $200,000 in Ft. Collins, is a drop in the bucket compared to what they stand to lose. Second, they always attack fiber initiatives with misinformation, such as scaring people about higher taxes. They don’t fight by telling what a good job they are doing with broadband And finally, we’ve seen the ISP efforts be successful unless there is a strong grass-roots effort to battle against their lies. Cities are not allowed by law to take sides in ballot initiatives during an election cycle and must sit quietly on the sidelines. And so it’s up to citizens to take on the incumbents if they want fiber. The big ISPs will always outspend the pro-fiber side, but we’ve seen organized grass-roots efforts beat the big money almost every time.

Title II Regulation and Investment

As the FCC continues its effort to reversing Title II regulation, I’ve seen the carriers renewing their argument that Title II regulation has reduced their willingness to invest in infrastructure. However, their numbers and other actions tell a different story.

The FCC put broadband under Title II regulation in February of 2015 and revised the net neutrality rules a few months later in April. So we’ve now had nearly three years to see the impact on the industry – and that impact is not what the carriers are saying it is.

First, we can look at annual infrastructure spending for the big ISPs. Comcast spent $7.6 billion upgrading its cable plant in 2016, its highest expenditure ever. Charter spent 15% more in 2016 compared to what was spent on it and the cable companies it purchased. Even Verizon’s spending was up in 2016 by 3% over 2015 even though the company had spun off large fiber properties in Florida, Texas, California and other states. AT&T spent virtually the same amount on capital on 2015 and 2016 as it had done in 2013 and 2014.

I’ve seen a number of articles that focus on the overall drop in investment from the cellular industry in 2015. But that drop is nearly 100% attributable to Sprint, which pulled back on new capital spending due to lack of cash. All of the big cellular companies are now crowing about how much they are going to spend in the next few years to roll-out 5G.

It’s important to remember that what the big ISPs tell their investors is often quite different than what they say when lobbying. As publicly traded companies the ISPs are required by law to provide accurate financial data including a requirement to warn stockholders about known risk factors that might impact stock prices. I’m one of those guys that actually reads financial statements and I’ve not seen a single warning about the impact of Title II regulation in the financial reporting or investor press releases of any of the big ISPs.

But the lobbying side of these businesses is a different story. The big ISPs started complaining about the risks of Title II regulations as far back as 2013 when it was first suggested. The big companies and their trade associations have written blogs warning about Title II regulation and predicted that it would stifle innovation and force them to invest less. And they’ve paid to have ‘scholarly’ articles written that come to the same conclusion. But these lobbying efforts are aimed mostly at the FCC and at legislators, not at stockholders.

The fact that big corporations can get away with having different public stories has always amazed me. One would think that something published on the AT&T or Comcast blog would be under the same rules as documents formally given to investors – but it’s obviously not. AT&T in particular tells multiple stories because the company wears so many different hats. In the last year the company has taken one position as an owner of poles that is diametrically opposed to the position it takes as a cellular company that wants to get onto somebody else’s poles. Working in policy for the big ISPs has to be a somewhat schizophrenic situation.

It seems almost certain that this FCC is going to reverse Title II regulation. The latest rumor floating around is that it will be on their agenda on the day before Thanksgiving. That may lead you to ask why the ISPs are still bothering cranking out the lobbying arguments against Title II if they have already won. I think they are still working hard to get a legislative solution through Congress to kill Title II regulation and net neutrality, even if the FCC kills it for now. I think they well understand that a future FCC under a different administration could easily reinstate Title II regulation – particularly now that it has passed muster through several court challenges. The ISPs understand that it will be a lot harder to get a future Congress to reverse course than it might be if Democrats are back in charge of the FCC.

Until recently I always wondered why the ISPs are fighting so hard against Title II regulation. All of the big companies like Comcast, AT&T and Verizon have told stockholders that their initial concerns about Title II regulation did not materialize. And it’s obvious that Title II hasn’t changed the way they invest in their own companies.

But recently I saw an article and wrote a blog about an analyst who thinks that the ISPs are going to drastically increases broadband prices once Title II regulation is gone. Title II is the only tool that the government can use to investigate and possibly act against the ISP for rate increases and for other practices like data caps. If true, and his arguments for this are good ones, then there is a huge motivation for the big ISPs to shed the only existing regulation of broadband.

The Battle Over Small Cell Deployment

Governor Jerry Brown of California recently vetoed a bill, SB 649, that would have given wireless carriers cheap and easy access to poles. He said the bill was too much in the favor of the wireless companies and that a more balanced solution is needed.

This law highlights the legislative efforts of the cellular industry and the big telcos working to deploy 5G networks who want cheap and fast access to poles. There were similar pushes in many state legislative bodies this past year including in Texas, Florida and Washington. I think we can expect this to appear in many more state legislatures next year. This is obviously a big priority for the carriers who reportedly spent tens of millions of dollars lobbying for this in the recent legislative sessions.

It’s not hard to understand why the carriers want a legislative solution, because the alternative is the regulatory path. This is a complicated issue and the carriers know that if they try to get this through state regulatory commissions that it will take a long time and that regulators are likely to provide a balanced solution that the carriers don’t want.

There is one regulatory push on the issue and the FCC is considering it. The FCC voted in May to begin an investigation on the issues involved. One of the things they are examining are the regulatory impediments at the state and local levels that affect the issue. But the carriers know that the FCC path is a slow one. First, any FCC decision is likely to be challenged in court, a tactic that the carriers themselves often use to slow down the regulatory process. But there is also a big jurisdictional question, because today the states have the authority to override FCC rules concerning pole issues.

The issue is important because it’s at the heart of the hottest area of telecom growth in the deployment of mini-cell sites and the upcoming deployment of the various kinds of 5G. Not only do the carriers need to deploy millions of such connections to implement the networks they are promising to stockholders, but they also will have to be building a lot of new fiber to support the new wireless deployments.

It’s easy to sympathize with the carriers. I’ve herd the horror stories of it taking two years to get a wireless attachment approved in some cities, which is an obvious impediment to any sensible business plan deployment. But as is typical with these carriers, rather than asking for sensible rule changes that everybody can agree on they are promoting plans that are heavily lopsided in their favor. They want to deploy wireless devices using a method they are calling one-touch – which they interpret to mean installing devices on poles and telling the pole owner after it’s done. They also want these connections for dirt cheap. And they don’t want to have to be concerned with the safety issues involved in adding boxes and live electric connections into the mix of wires on existing poles.

The issue is interesting from the perspective of small CLECs and fiber overbuilders because small carriers have been yelling for years about the problems associated with getting access to poles – and nobody has been listening. In fact, one of the big proponents of the legislative process is AT&T, which is still fighting Google and others about getting access to AT&T poles. It’s not surprising to see that the proposed new laws favor wireless deployments without necessarily making it any easier for fiber overbuilders.

Since the carriers are throwing a lot of money at this it certainly seems likely that they will win this issue in some states. There are a number of states where the lobbying money of the big carriers has always gotten the carriers what they wanted. But there are plenty of states where this won’t pass, and so we are likely going to end up with a hodgepodge of rules, state by state, on the issue.

I’m not even sure where I stand on the issue. As a consumer I want to see advanced wireless technologies deployed. But as a homeowner I don’t necessarily want to see an ugly proliferation of big boxes on poles everywhere. And I certainly don’t want to see 120-foot poles deployed in my neighborhood and the trees decimated to accommodate line-of-sight wireless connections to homes. And as somebody who mostly works for smaller carriers I’m naturally biased against anything that benefits the big carriers over everybody else. I don’t know if there is a better indication about how complicated this is when somebody with my knowledge has mixed feelings about the issue.

Cellular WiFi Handoffs

If you use anybody except Verizon you may have noticed that your cellphone has become adept at handing your cellular connections to a local WiFi network. Like most people I keep my smartphone connected to WiFi when I’m at home to save from exhausting my cellular data cap. I have AT&T cellular service and I’ve noticed over the last year that when I’m out of the house that my phone often logs onto other WiFi networks. I can understand AT&T sending me to their own AT&T hotspots, but often I’m logged on to networks I can’t identify.

When I lived in Florida I was a Comcast customers and so when I was out of the house my phone logged onto Comcast hotspots. Even today my phone still does this, even though I’m no longer a Comcast customer and I assume there is a cookie on the phone that identifies me as a Comcast customer. I understand these logins, because after I the first time I logged onto a Comcast hotspot my phone assumed that any other Comcast hotspot is an acceptable network. This is something I voluntarily signed up for.

But today I find my phone automatically logged onto a number of hotspots in airports and hotels which I definitely have not authorized. I contrast this with using my laptop in an airport or hotel. With the laptop I always have to go through some sort of greeting screen, and even if it’s a free connection I usually have to sign on to some terms of service. But my phone just automatically grabs WiFi in many airports, even those I haven’t visited in many years. I have to assume that AT&T has some sort of arrangement with these WiFi networks.

I usually notice that I’m on WiFi when my phone gets so sluggish it barely works. WiFi is still notoriously slow in crowed public places. Once I realize I’m on a WiFi network I didn’t authorize I turn the WiFi off on my phone and revert to cellular data. Every security article I’ve ever read says to be cautious when using public WiFi and so I’d prefer not to use these connections unless I have no other option.

There was a major effort made a few years back to create a seamless WiFi network for just this purpose. The WiFi Alliance created a protocol called Hotspot 2.0 that is being marketed under the name of Passpoint. The purpose of this effort was to allow cellular users to automatically connect and roam between a wide variety of hotspots without having to ever log in. Their ultimate goal was to enable WiFi calling that could hand off between hotspots in the same way that cellular phones hand-off between cell sites.

It’s obvious that AT&T and other cellular carriers have implemented at least some aspects of Hotspot 2.0. In the original vision of Hotspot 2.0 customers were to be given the option of authorizing their participation in the Passpoint network. But AT&T has never asked my permission to log me onto WiFi hotspots (unless it was buried in my terms of service). AT&T has clearly decided that they want to use these WiFi handoffs in a busy environment like an airport to protect their cellular networks from being swamped.

It’s interesting that Verizon is not doing this. I think one reason for this is that they don’t want to give up control of their customers. Verizon foresees a huge future revenue stream from mining customer data and I’m guessing they don’t want their customer to be shuttled to a WiFi network controlled by somebody else, where they can’t track customer behavior. Verizon is instead pushing forward with the implementation of LTE-U where they can direct some data traffic into the WiFi bands, but all under their own control. While LTE-U uses WiFi frequency, it is not a hotspot technology and is as hard to intercept or hack as any other cellular traffic.

Most new cellphones now come with the Passpoint technology baked into the chipset. I think we can expect that more and more of our cellular data connections will be shuttled to hotspots without notifying us. Most people are not going to be bothered by this because it will reduce usage on their cellular data plans. I’m just not nuts about being handed off to networks without some sort of notification so that I can change my settings if I don’t want to use the selected network. I guess this is just another example of how cellular companies do what they want and don’t generally ask for customer permission.

A Doubling of Broadband Prices?

In what is bad news for consumers but good news for ISPs, a report by analyst Jonathan Chaplin of New Street Research predicts big increases in broadband prices. He argues that broadband is underpriced. Prices haven’t increased much for a decade and he sees the value of broadband greatly increased since it is now vital in people’s lives.

The report is bullish on cable company stock prices because they will be the immediate beneficiary of higher broadband prices. The business world has not really acknowledged the fact that in most US markets the cable companies are becoming a near-monopoly. Big telcos like AT&T have cut back on promoting DSL products and are largely ceding the broadband market to the big cable companies. We see hordes of customers dropping DSL each quarter and all of the growth in the broadband industry is happening in the biggest cable companies like Comcast and Charter.

I’ve been predicting for years that the cable companies will have to start raising broadband prices. The companies have been seeing cable revenues drop and voice revenues continuing to drop and they will have to make up for these losses. But I never expected the rapid and drastic increases predicted by this report. Chaplin sets the value of basic broadband at $90, which is close to a doubling of today’s prices.

The cable industry is experiencing a significant and accelerating decline in cable customers. And they are also facing significant declines in revenues from cord-shaving as customers elect smaller cable packages. But the cable products have been squeezed on margin because of programming price increases and one has to wonder how much the declining cable revenue really hurts their bottom line.

Chaplin reports that the price of unbundled basic broadband at Comcast is now $90 including what they charge for a modem. It’s even higher than that for some customers. Before I left Comcast last year I was paying over $120 per month for broadband since the company forced me to buy a bundle that included basic cable if I wanted a broadband connection faster than 30 Mbps.

Chaplin believes that broadband prices at Comcast will be pushed up to the $90 level within a relatively short period of time. And he expects Charter to follow.

If Chaplin is right one has to wonder what price increases of this magnitude will mean for the public. Today almost 20% of households still don’t have broadband, and nearly two-thirds of those say it’s because if the cost. It’s not hard to imagine that a drastic increase in broadband rates will drive a lot of people to use broadband alternatives like cellular data, even though it’s a far inferior substitute.

I also have to wonder what price increases of this magnitude might mean for competitors. I’ve created hundreds of business plans for markets of all sizes, and not all of them look promising. But the opportunities for a competitor improve dramatically if broadband is priced a lot higher. I would expect that higher prices are going to invite in more fiber overbuilders. And higher prices might finally drive cities to get into the broadband business just to fix what will be a widening digital divide as more homes won’t be able to afford the higher prices.

Comcast today matches the prices of any significant cable competitor. For instance, they match Google Fiber’s prices where the companies compete head-to-head. It’s not hard to foresee a market where competitive markets stay close to today’s prices while the rest have big rate increases. That also would invite in municipal overbuilders in places with the highest prices.

Broadband is already a high-margin product and any price increases will go straight to the bottom line. It’s impossible for any ISP to say that a broadband price increase is attributable to higher costs – as this report describes it, any price increases can only be justified by setting prices to ‘market’.

All of this is driven, of course, by the insatiable urge of Wall Street to see companies make more money every quarter. Companies like Comcast already make huge profits and in an ideal world would be happy with those profits. Comcast does have other ways to make money since they are also pursuing cellular service, smart home products and even now bundling solar panels. And while most of the other cable companies don’t have as many options as Comcast, they will gladly follow the trend of higher broadband prices.

Broadband Regulation is in Limbo

We have reached a point in the industry where it’s unclear who regulates broadband. I think a good argument can be made that nobody is regulating broadband issues related to the big ISPs.

Perhaps the best evidence of this is a case that is now in Ninth Circuit Court of Appeals in San Francisco. This case involves a 2014 complaint against AT&T by the Federal Trade Commission based on the way that AT&T throttled unlimited wireless data customers. The issue got a lot of press at the time when AT&T started restricting data usage in 2011 for customers when they hit some arbitrary (and unpublished) data threshold in a month. Customers got shuttled back to 3G and even 2G data speeds and basically lost the ability to use their data plans. The press and the FTC saw this as an attempt by AT&T to drive customers off their grandfathered unlimited data plans (which were clearly not unlimited).

AT&T had argued at the FTC that they needed to throttle customers who use too much data as a way to manage and protect the integrity of their networks. The FTC didn’t buy this argument ruled against AT&T. As they almost always do the company appealed the decision. The District Court in California affirmed the lower court ruling and AT&T appealed again, which is the current case in front of the Ninth Circuit. AT&T is making some interesting claims in the case and is arguing that the Federal Trade Commission rules don’t allow the FTC to regulate common carriers.

There are FTC rules called the ‘common carrier exemption’ that were established in Part 5 of the original FTC Act that created the agency. These exemptions are in place to recognize that telecom common carriers are regulated instead by the FCC. There are similar carve-outs in the FTC rules for other industries that are regulated in part by other federal agencies.

The common carrier exemption doesn’t relieve AT&T and other telecom carriers from all FTC regulation – it just means that the FTC can’t intercede in areas where the FCC has clear jurisdiction. But any practices of telecom carriers that are not specifically regulated by the FCC then fall under FTC regulations since the agency is tasked in general with regulating all large corporations.

AT&T is making an interesting argument in this appeals case. They argue since they are now deemed to be a common carrier for their data business under the Title II rules implemented in the net neutrality order that they should be free of all FTC oversight.

But there is an interesting twist to this case because the current FCC filed an amicus brief in the appeal saying that they think that the FTC has jurisdiction over some aspects of the broadband business such as privacy and data security issues. It is this FCC position that creates uncertainty about who actually regulates broadband.

We know this current FCC wants to reverse the net neutrality order, and so they are unwilling right now to tackle any major issues that arise from those rules. In this particular case AT&T’s throttling of customers occurred before the net neutrality decision and at that time the FCC would not have been regulating cellular broadband practices.

But now that the FCC is considered to be a common carrier it’s pretty clear that the topic is something that the FCC has jurisdiction of today. But we have an FCC that is extremely reluctant to take on this issue because it would give legitimacy to the net neutrality rules they want to eliminate.

The FCC’s position in this case leads me to the conclusion that, for all practical purposes, companies like AT&T aren’t regulated at all for broadband issues. The prior FCC made broadband a common carrier service and gave themselves the obligation to regulate broadband and to tackle issues like the one in this case. But the new FCC doesn’t want to assert that authority and even goes so far as to argue that many broadband related issues ought to be regulated by the FTC.

This particular case gets a little further muddled by the timing since AT&T’s practices predate Title II regulation – but the issue at the heart of the case is who regulates the big ISPs. The answer seems to be nobody. The FCC won’t tackle the issue and AT&T may be right that the FTC is now prohibited from doing so. This has to be a huge challenge for a court because they are now being asked who is responsible for regulating the case in front of them. That opens up all sorts of possible problems. For example, what happens if the court rules that the FCC must decide this particular case but the agency refuses to do so? And of course, while this wrangling between agencies and the courts is being settled it seems that nobody is regulating AT&T and other broadband providers.