Loving to Hate Our Big ISPs

The American Customer Satisfaction Survey (ACSI) was released earlier this summer that ranks hundreds of companies that provide services for consumers. Historically cable companies and ISPs have fared poorly in these rankings compared to other businesses in the country. The running joke reported in numerous articles about this survey is that people like the IRS more than they like their cable company (and that is still true this year).

But something interesting happened in this year’s survey and the ranking for cable companies collectively improved by 3% and consumer confidence in ISPs climbed 5%. There is no easy way to understand a national satisfaction survey, but those trends are interesting to contemplate.

Let’s start by looking at the numbers. Consumers still rank cable TV providers as the least liked group of companies in the country across all industries, joined at the bottom by ISPs. The ACSI ranks each company and each industry segment on a scale of 1 to 100. The top-rated industries are breweries (84%), personal care and cleaning products (82), soft drinks (82), and food manufacturing (81).

By contrast, cable providers are ranked the lowest at 64 followed closely by ISPs at 65. Joining these companies at the bottom are local governments (65.5), video-on-demand providers (68), and the federal government (68.1).

The overall ranking for cable providers grew from a 62 in 2019 to a 64 in 2020. I can only speculate why people like cable companies a little more this year. This could be due in part to huge growth in cord-cutters who no longer watch traditional cable TV and who might perhaps no longer rate a product they don’t use. Or perhaps folks have come to appreciate the cable product more during the pandemic when people are going out less, and likely watching TV more.

The cable providers at the bottom of the rankings continue to get low satisfaction ratings, with Suddenlink (56), Frontier (58), and Mediacom (60). Just above these companies are two of the largest cable providers – Charter (60) and Cox (61). But all of these companies had a slightly improved satisfaction ranking over 2019. The highest-ranked cable providers continue to be Verizon FiOS (70) and AT&T U-verse (70), now relabeled as AT&T TV.

ISPs didn’t fare much better. It’s worth noting that this list contains many of the same companies on the cable provider list, but consumers are asked to rank cable services separately from broadband services. The overall satisfaction for ISPs grew from a 62 in 2019 to a 65 in 2020. The same three providers are at the bottom – Frontier (55), Suddenlink (57), and Mediacom (59). At the top are the same two providers – Verizon FiOS (73) and AT&T Internet (68).

Part of the explanation of the change in approval ratings for the industries might be little more than statistical variance within the range of sampling. The rankings of individual ISPs vary from year to year. Consider Charter, ranked as an ISP. The company was ranked highest in 2013 and 2017 at a 65 ranking and lowest in 2015 (57) and 2019 (59). This year’s increase might just be variance within the expected range of sampling results.

What matters a lot more is that our cable companies and ISPs are generally consumer’s least favorite companies. This has always benefited smaller ISPs that compete against the big companies. One of the most common forms of advertising for smaller ISPs is, “We are not them”.

People don’t rate cable companies and ISPs so low due because they deliver technical products. Other technology sectors have much higher satisfaction ratings such as landline telephones (70), cellphones (74), computer software (78), internet search engines (76), and social media (70). Consumers are also like electric utilities a lot more than cable companies and ISPs – electric coops (73), and investor-owned and muni electric companies (72).

It’s always been somewhat disheartening to work in an industry that folks love to hate. But I’ve always been comforted by the fact that my smaller ISP and cable clients generally fare extremely well when competing against the big ISPs and cable companies. I have to assume this means people like small ISPs more than the big ones – or perhaps hate them a little less. That’s something every small ISP should periodically consider.

Walking Away from Copper

It’s been clear for many years that the big telcos are looking for ways to walk away from legacy copper networks. Big telco copper is getting old and most was built in the 1950s and 1960s. All of this copper is far past the 40-year expected lives that the telcos claimed when they built the networks. Even old copper can be made to work if it was well-maintained, but the big telcos stopped doing routine maintenance on copper decades ago. For years, the big telco maintenance policy has been to patch problems without improving or fixing network issues.

In some cases, the big telcos have gone through the formal FCC process of formally retiring copper. This requires giving customers a 90-day notice that copper will be deactivated and providing customers an alternative to copper.  For example, Verizon posts notices of copper retirement on this web site. There have been no announced retirements this year, likely due to the COVID-19 pandemic, but Verizon was active last year, like in this September notification for Massachusetts. CenturyLink has made similar notices in parts of Arizona, Colorado, Minnesota, Nebraska, Oregon, Utah, and Washington.

In all of these cases, Verizon and CenturyLink made the announcements in communities where the carriers can provide fiber-to-the-home. It’s a natural technological progression to replace old copper technology with new fiber, and customers who lose copper to move to fiber have little room to complain.

But what about all of the places where the telcos never plan to offer fiber? There are still huge areas, including big parts of major cities where the telcos have no plans of migrating to fiber. What will happen to folks in regions where the copper is rotting past the point of usefulness, like is described in this article from last year in Fauquier County, Virginia? In that county the copper barely works for voice, which is sadly becoming the norm and not the exception.

There is nothing the big telcos can do with copper that has gone past the point of no return. No telco is going to replace bad copper and none of the big telcos are going to extend fiber into rural America or into urban neighborhoods where construction is too expensive. Verizon might be replacing copper with fiber around Boston, as indicated by the above filing, but the telco has no plans for building fiber in western Massachusetts, Cape Cod, or the many other places in the state where it never built FiOS fiber.

We might have gotten a glimpse into Verizon’s strategy when the company recently unveiled a 4G fixed wireless product. This 4G Home product promises to deliver 25 Mbps broadband using the 4G cellular network and Verizon could point to this product as a justification to abandon DSL over copper.

On paper, the 4G Home product will outproduce rural DSL, which typically has speeds well under 10 Mbps. But the Fauquier County article pointed out another ugly truth – much of rural America has poor cellular coverage to go along with outdated copper. The 4G Home product is not going to work for homes that are more than a mile or two from a cell tower. 4G Home is not going to be a reasonable substitute for DSL in communities like the towns on Cape Cod where the density is too high to support a lot of subscribers using 4G data as a landline data substitute – even a small customer penetration would swamp the 4G LTE network in populated areas.

AT&T has a similar fixed wireless product it introduced during the past year as the solution for meeting the company’s rural CAF II requirements. I’ve been tracking this product on the web and still don’t see local articles or chatter from many folks who have changed to the wireless product. AT&T has implemented this product to satisfy the FCC (and to keep the CAF II grant funding), but for some reason the company doesn’t seem to be pushing the product very hard.

The bottom line is these telcos will have to walk away from copper at some point within the next decade for the simple reason that the networks will stop functioning. From what I can see, both the FCC and many state regulatory commissions refuse to acknowledge that copper is dying and keep pretending that the telcos can somehow make this work. These networks are dying. The telcos might toss a bone to regulators by halfheartedly offering a wireless substitute for DSL. But the telcos are under no obligation to offer a replacement if the copper dies. Sadly, we’re going to look up five years from now and find a lot of rural homes without a telephone line and a cellular connection. There was a time when that was unthinkable, but it’s the coming reality.

AT&T Argues for Broadband Reform

Ed Gillespie, the Senior Executive Vice President of External & Legislative Affairs at AT&T posted a policy position on the AT&T website that argues for major policy reform to better bring broadband to low-income homes and rural areas.

It’s hard for any broadband advocate to not agree with the suggestions Mr. Gillespie is making:

  • He wants Congress to finish funding the new FCC mapping program to identify homes without access to broadband.
  • He supports additional broadband grant funding for programs like the $20 billion RDOF grants.
  • He supports Lifeline reform and says that it should be as easy for low-income homes to apply a Lifeline discount as it is to use a card to buy food from the SNAP program.
  • He thinks funding should be increased for the Lifeline program and should be funded by Congress rather than funded through a 26% tax on interstate telephony.

I hope AT&T is serious about these proposals because having them lobby for these ideas would help to move the needle on digital inclusion. It’s just odd to see these positions from AT&T since they have spent a lot of effort and dollars arguing against some of these policies.

Mr. Gillespie complains that a lot of the current $9.25 Lifeline discount program is used by MVNOs and other carriers that have not built networks. That’s an ironic argument for AT&T to make since the company has done it’s best to walk away from the Lifeline program. AT&T no longer offers Lifeline in 14 states – AL, AR, FL, IN, KS, KY, LA, MS, NC, NV, SC, TN, and WI. AT&T still participates in Lifeline in 6 states, but only because those states refuse to allow the company to exit the Lifeline program.

Of course, this would not be an AT&T policy paper if the company didn’t pat itself on the back a bit. Mr. Gillespie brags that the ISP networks in the country weathered the big increase in web traffic due to the pandemic even though predictions were made that networks would collapse. He claims that AT&T made it through the pandemic due to light touch regulation. The fact is, once it was understood that the new traffic on the web was coming during the daytime when the network wasn’t busy, I don’t know any network engineer who thought that the web would collapse. I also wonder why AT&T would claim to have weathered the pandemic well – I would challenge AT&T to bring forth happy customers using AT&T DSL and ask for their testimonials on how the AT&T network enabled multiple people to work from home at the same time.

Mr. Gillespie is also calling for an expansion of the concepts used in the RDOF grants. Those grants provide funding for new broadband networks in rural areas that have the worse broadband. Before supporting an expansion of that grant program, I think many of us are holding judgment on the RDOF reverse auction process. While I think it’s likely that there will be beneficial grants given to those willing to build rural fiber networks, I also fear that a huge amount of these grants are going to be wasted on satellite broadband or other technologies that don’t bring rural broadband in line with urban broadband. I’m not ready to bless that grant program until we see how the reverse auction allocates money. I also can’t help being suspicious that AT&T’s position in favor of more grants reflects a hope to win billions of new grant dollars.

Interestingly, even though he never says it, the reforms that Mr. Gillespie is asking for require new broadband regulation. I’m sure that Mr. Gillespie must realize that bills needed from Congress for these reforms are not likely to stop with just AT&T’s wish list. We are long overdue for a new telecommunications act that brings broadband regulation in line with today’s reality. The last such law was passed at a time when people were flocking to AOL for dial-up access. It’s highly likely that new telecom legislation is going to go beyond what AT&T is calling for. It’s likely that new legislation will give some broadband regulating authority back to the FCC and will likely include some version of net neutrality. It’s ironic to see arguments for a stronger FCC when the FCC walked away from regulating broadband at the urging of AT&T and the other giant ISPs. Perhaps even AT&T knows it went too far with deregulation.

Where is Net Neutrality When we Need it?

Just in the last two weeks two stories hit the press that highlight behavior from ISPs that would have likely have violated the Net Neutrality rules that were killed by Ajit Pai’s FCC. The big ISPs have been surprisingly quiet and have not loudly violated those rules, even though they are no longer in effect. The industry speculation is that the big ISPs are treading lightly because they don’t want to trigger a regulatory overreaction should there be a chance of party in the administration or Congress.

The first headline says that AT&T is excluding HBO max from the calculation of any data caps. This is a big deal for AT&T cellular customers and not insignificant for AT&T landline broadband customers that face data caps.

AT&T defends this by referring to other ‘sponsored data plans’ in the industry, like the one offered by T-Mobile that lets premium customers exclude usage from YouTube, Netflix, Hulu, HBO, Sling YV, ESPN, Showtime, Starz and other sources of video.

I don’t know enough to know if T-Mobile is violating the old net neutrality rules. Net neutrality rules would allow an ISP to exempt all video from data caps and would not violate any rules because the ISP wouldn’t be discriminating against any particular source of video. However, if T-Mobile is being paid by those companies to exclude their data from data caps, then T-Mobile would also be violating the spirit of net neutrality. AT&T’s exclusion of HBO Max from data caps is more blatant since AT&T owns HBO – the policy is clearly being made to benefit HBO over Disney, Netflix or other competitors of HBO.

It was easy to predict that sponsored data is something that carriers would be pushing the envelope on, even if net neutrality was still in effect. It’s something that customers like, and so it’s hard to fire the public up that sponsored data is bad for the industry. But it is. AT&T is clearly disadvantaging other video services in favor of their own. If T-Mobile doesn’t exclude all video from data caps they are doing the same thing – just not to advantage their own video product. The original FCC net neutrality order pointed out that sponsored data can make it hard for a new market entrant, and they could be right – we don’t see a lot of new names of companies that stream video.

The second headline is one that broadband customers everywhere will hate. Jon Brodkin in arstechnica describes a situation where Cox is slowing down the upload path to a customer for using too much broadband – and even worse is openly admitting to capping the upload speeds for an entire neighborhood.

I won’t recount all of the details of the story. In a nutshell, there is a customer that is backing up huge amounts of data each night from midnight until 8:00 am. It takes that long to complete the backup because the upload speed available to the customer is only 35 Mbps. If this customer was on symmetrical fiber this backup could be done quickly. Apparently, this customer has been doing the same thing for years, but they have recently been notified by Cox that they need to stop the practice or be kicked from the network. Cox also threatened by cut the upload bandwidth available to the whole neighborhood.

This particular customer uses over 8 terabytes of data per month, which is an extraordinary amount of usage on a home broadband line. But if the usage is all really late at night, it’s unlikely that this is very disruptive to the neighborhood.

What’s extraordinary about this is that the customer doesn’t seem to be violating the Cox terms or service. The customers is already paying extra to avoid the data cap to get unlimited data. Cox is basically saying to the customer that there is some secret usage threshold that they associate with ‘unlimited’ data – yet they won’t give the customer a targeted usage threshold.

Where Cox really crosses the line is when they threaten to penalize an entire neighborhood for using too much data. According to Brodkin this one customer is not the only example of this same behavior by Cox.

If we had an FCC that regulated broadband they would likely slap Cox for this behavior. What’s odd is that Cox doesn’t have to be so arbitrary. They could easily have established rules in the terms of service and their products that could have legally handled this situation. Instead, the sold unlimited data and decided afterwards that there really is a limit on the amount of data they are willing to provide. The fault for this situation seems to lie mostly in the legal department at Cox rather then with the customer who has had the same usage for years.

ISPs ought to realize that the regulatory pendulum always swings the other way. Ajit Pai has completely deregulated one of the largest industries in the country that touches almost everybody. That pushes the regulatory pendulum as far as it can go towards the ‘unregulated’ side, and it’s inevitable that a future Congress or FCC is going to bring back regulation again at some point. When they do, all of the bad behavior by ISPs during this time of deregulation will be used as examples of why regulation is necessary. If the ISPs push the envelope too far they regulatory pendulum will swing a lot further in the regulated direction than they are going to like.

Work-at-Home as a Product

Even before COVID-19, we were headed towards a future with more people working at home, at least part-time. I’ve seen estimates pre-COVID that as many as 10% of office workdays are done from home – that number has currently skyrocketed and it’s likely that working from home will never return to the old levels.

For working at home to be most effective, employees must have easy access to the same software and the same data as when they work in the office. Employers still have the same goals for data security and for protecting sensitive company data and customer data. Workers at home need to be protected from phishing, malware, and other attempts to gain access to customer data.

This all comes at a time when we’ve undergone a transition to security that is based upon building walls around sensitive data. Companies have made data more secure by restricting access to data from outside the company buildings. Twenty years ago it was common for companies to allow workers to dial-in to company servers, but over time those connections have proven to be the easiest path for hackers to gain access to company data. Companies have built data fortresses to protect data from external access, and suddenly, companies are being asked to poke holes in those walls to allow employees to gain access to company systems from home.

To complicate matters even further, in the last five years many mid-sized companies shed IT staff as they moved everything to the cloud. Many companies are not staffed or equipped to make the shift to allow working from home, meaning that opening up their networks to home-based employees has automatically opened new risks to hacking.

The question I ask today is if there is a broadband solution that smaller ISPs can offer to make it safer for companies to support employees working from home. The biggest carriers already have such solutions, at least for their largest corporate clients. For example, AT&T and Verizon have had products that allow for guaranteed secured data connections for corporate or government cell phones. Fortune 500 companies and the military have been able to buy similar products to provide for safe remote wireline broadband connections.

AT&T just announced a new product called AT&T Home Office Connectivity that will work on DSL, fiber, or AT&T wireless. The product essentially creates a carrier-class VPN between employees and a virtual gateway to connect to a company WAN. The AT&T solution makes the multitude of connections to employees in the AT&T cloud while only creating one path between AT&T and the company servers.

It’s still questionable if the big carriers can scale these kinds of products to meet the need of smaller corporations and local governments. The big intense security platforms are incredibly expensive and are out of price reach of the average business.

However, there is a real need for guaranteed safe connections between office and home. Companies have to find a way to trust that data exchanged with employees working outside the office is as safe as data moved around inside the business. I’m guessing the explosion of people working at home is going to result in some spectacular data breaches that will scare all of the companies that have sent employees home to work.

In addition to security, those working at home need easy solutions for all of the other routine functions performed at the office including things like spam filtering, and secure data backup and disaster recovery.

There are solutions available to solve at least some of these issues today, but again they are complicated for companies without a sizable IT staff. Some of the solutions include things like:

  • Cloud-based security software is a set of software and technologies that help companies meet regulatory compliance (like with the new California privacy laws) and that are designed to protect company and customer data in a wide variety of circumstances. This differs from traditional security software in that every transaction with the cloud can be assigned different levels of privacy and access to data. For example, this is the kind of software that allows customers to review their data and nobody else’s.
  • Microsegmentation is software that can create secure zones inside data centers and cloud deployments to enable companies to isolate different parts of their workload. For example, remote employees could be given access to more limited data than those working in the office, and everything they do remotely can be blocked from having any access to core servers.
  • Cloud SD-WAN is a technology that has been used for companies that operate multiple branches. Each remote employee can be treated as a separate branch of the business and be provided with an individual firewall and other standard security protocols.

Smaller ISPs ought to find some way to explore these kinds of products to offer to customers with remote workers. This is likely to be beyond the capability of most ISPs and might best be tackled by trade associations or other groups where ISPs collaborate.

This is a product that could be sold in large quantities today if it was ready as an off-the-shelf application that could be sold to an individual user. It’s unlikely the need for supporting working from home is going to go away, so ISPs ought to do what they’ve always done and find trustworthy solutions their customers need and want.

Can LTE Fixed Wireless Solve the Rural Digital Divide?

I’ve been working in rural counties all over the US and have found that a lot of rural homes are using a fixed 4G LTE wireless product for home broadband. All three big cellular companies have a fixed LTE product for the home. The product typically involves installing a small dish outside of a home that receives broadband using 4G LTE broadband from a nearby cell tower.

The big cellular companies have bombarded the press for the last several years touting how 5G cellular might solve rural broadband gaps. The way the wireless companies price and market these products is a precursor for what they will likely do with 5G (assuming 5G even comes to rural places). I haven’t looked into the LTE products in a while and so I researched the LTE broadband products intended as home broadband. I knew these products were expensive, but I had forgotten how stingy these plans are with broadband.

Verizon. Verizon’s hotspot product has four available pricing tiers based upon the monthly data allowance. The 10 GB plan is $60, the 20 GB plan is $90, the 30 GB plan is $120, and the 40 GB plan is $150. The real cost killer is that Verizon bills additional gigabits for $10 each.

Verizon says that broadband speeds average from 5 – 12 Mbps download and 2 – 5 Mbps upload. I recently talked to a customer using this plan who told me that when a customer doesn’t agree to pay the overage charges that Verizon throttles speeds to a crawl once the monthly data limit has been reached.

T-Mobile. T-Mobile has six hotspot pricing plans based upon the monthly data usage. The 2 GB plan is $10. The 6 GB plan is $25, the 10 GB plan is $40, the 14 GB plan is $55, the 18 GB plan is $70, and the 22 GB plan is $85. Each plan offers a $5 discount for customers who authorize autopay. The killer with this plan is that speeds revert to 3G speeds when the cap has been met. The plans also include unlimited texting.

It’s worth noting that T-Mobile will offer a plan that provides 100 GB of monthly data to qualified students for the next 5 years as one of the promises made to merge with Sprint. I haven’t seen the definition of eligible households, but the company estimated 10 million homes would be eligible.

AT&T. AT&T has two plans. In areas where AT&T is the incumbent telephone provider and accepted CAF II funding, the company decided to provide 4G LTE fixed cellular broadband to satisfy their CAF II requirements. The company had accepted $2.56 billion from the FCC’s Universal Service fund with payments spread over six years. That funding covered 1,117,806 rural homes, providing AT&T with a subsidy of $2,296 per home.

That CAF II product is priced at $50 per month and comes with a 250 GB data cap. AT&T says that speeds are at least 10/1 Mbps (since that was the FCC requirement). The killer with this plan is that customers pay $10 for each additional 50 GB block of data, and payments aren’t capped until a customer spends $200 extra.

Outside of the CAF II areas, AT&T has three hotspot plans. That includes 3 GB of data for $25, 10 GB of data for $50, and 18 GB of data for $75. Extra data ranges from $10 for 1 GB with the $25-dollar plan to $10 for 2 extra GBs with the $72 plan.

Do These Products Solve the Rural Digital Divide? I think not – the core hotspot products define the digital divide. Rural customers who have no other options are paying for some of the most expensive broadband in the world. You have to look at distressed third world countries to see similarly high prices per gigabyte. Recall in looking at these prices that these products are for home broadband – not for cellphones.

  • Verizon’s plans range from $3.75 to $6.00 per gigabyte. Additional gigabytes are $10 each.
  • T-Mobile data prices range from $3.86 to $5 per gigabyte. After hitting the data cap, the company throttles customers rather than provide more expensive data.
  • AT&T hotspots are the most expensive and range from $4.16 to $8.22 per gigabyte. Extra gigabytes on AT&T range between $5 and $10 per gigabyte.
  • AT&T’s CAF II product is much more affordable. However, customers can still spend up to $250 per month. Additionally, AT&T charges $100 for installation, which is outrageous considering the company collected $2,296 from the FCC for each of the 1.1 million potential customers. The CAF II money had to have gone almost entirely to AT&T’s bottom line.

What is somewhat ironic is that the cellular companies don’t aggressively advertise the product in rural America, even at these incredibly high prices. I guess that the cellular carriers don’t want to sink any money into rural cell sites or pay for more backhaul, so they are reluctant to sell very much of these products in any one location.

Why Does the FCC Support Data Caps?

Most people may not have noticed that the upcoming RDOF grants allow, and even encourage ISPs to enforce data caps on customers. I have a hard time thinking of even one reason why the FCC would suggest that ISPs use data caps.

The RDOF grants have four performance tiers for ISPs, with the auction rules weighted to give preference to faster data speeds. Each of these performance tiers comes with a suggested monthly usage allotment – which means a data cap. ISPs that will deliver speeds of either 25/3 Mbps or 50/5 Mbps can introduce a data cap of 250 gigabytes or the U.S. average, whichever is higher. ISPs offering speeds of 100/20 Mbps or 1 Gbps/500 Mbps can set a data cap at 2 terabytes.

The natural question is to ask why the FCC is setting any data cap at all? Remember, this is an FCC that no longer regulates broadband, and yet they are suggesting rules that encourage ISPs that win the grant funding to introduce data caps. Past experience says that if the rules allow for data caps, the ISPs that win the money are likely to implement them.

I find the data caps for the 25/3 Mbps and 50/5 Mbps to be intriguing since ISPs can’t set the data caps at less than the US average. Who is going to measure that? The FCC doesn’t gather the kind of data needed to measure data caps around the country. Further, there are companies like CenturyLink that have data caps but that often don’t enforce them. I haven’t the foggiest idea how anybody would measure the national average data cap.

It’s important to put these data caps into perspective. The data caps on the slower products are incredibly stingy at 250 gigabytes per month.  OpenVault reported earlier this year that the average US home used 344 gigabytes of data per month in December 2019, up from 274 gigabytes a year earlier. Due to the impact of COVID-19, that number exploded to 402.5 gigabytes by the end of March. Homes being limited to using 250 gigabytes of data are being told not to use their broadband like everybody else. It’s nearly impossible for a home that has people working from home or students doing schoolwork at home to limit themselves to only 250 gigabytes of data per month.

Even the 2 terabyte data caps for faster broadband will become problematic is a few years. OpenVault says that over 10% of homes were already using more than 1 terabyte of data as of the end of the first quarter of 2020 and 1.2% were using over 2 terabytes. By the time these networks are built with RDOF money it wouldn’t be surprising for 10% of homes to be using more than the 2-terabyte cap.

With these grant rules the FCC is actively supporting ISP to introducing data caps that are smaller than the national average broadband usage at the end of 2018 and that will easily be less than half of the national average usage by the time the networks funded by the RDOF grants are constructed.

It seems like the FCC never learns any lessons. Every grant program they have administered has some major flaws. The FCC is handing out billions of dollars to provide broadband to home that don’t have it today. This program is a major boon for the rural communities that get broadband because of the grants. But with these rules, the RDOF money will be used to bring broadband to homes for the first time and immediately cripple homes from using that broadband due to data caps. For the federal government to support a 250-gigabyte data cap is an incredibly bad policy. They are saying to folks – here, we funded broadband, but don’t use it. I can’t conceive of any reason why data caps are even mentioned in the grant rules unless this is another case of bowing to the lobbyists from the big ISPs or the satellite broadband providers.

Looking at the bigger picture, it’s somewhat surprising that the FCC would take any position on things like data caps since they have given away their authority to regulate broadband. What these grant rules tells us is that this FCC would heartily support data caps if they still had that authority. This provision in this grant program provides tacit support to Comcast and AT&T to bill customers huge amounts of extra money for exceeding arbitrary and stingy data caps.

Cord Cutting Accelerates in 1Q 2020

The largest traditional cable providers collectively lost over 1.7 million customers in the first quarter of 2020 – an overall loss of 2.2% in customers. This is the biggest overall drop in customers ever in a quarter. To put this loss into perspective, the big cable providers lost 18,800 customers every day.

The numbers below come from Leichtman Research Group which compiles these numbers from reports made to investors, except for Cox which is estimated. The numbers reported are for the largest cable providers, and Leichtman estimates that these companies represent 95% of all cable customers in the country.

Following is a comparison of the first quarter subscriber numbers compared to the end of 2019:

1Q 2020 4Q 2019 Change % Change
Comcast 20,845,000 21,254,000 (409,000) -1.9%
Charter 16,074,000 16,144,000 (70,000) -0.4%
DirecTV 15,136,000 16,033,000 (897,000) -5.6%
Dish Networks 9,012,000 9,144,000 (132,000) -1.4%
Verizon 4,145,000 4,229,000 (84,000) -2.0%
Cox 3,820,000 3,865,000 (45,000) -1.2%
AT&T U-verse 3,440,000 3,440,000 0 0.0%
Altice 3,137,500 3,179,200 (41,700) -1.3%
Mediacom 693,000 710,000 (17,000) -2.4%
Frontier 621,000 660,000 (39,000) -5.9%
Atlantic Broadband 306,252 308,638 (2,386) -0.8%
Cable One 303,000 314,000 (11,000) -3.5%
Total 77,532,752 79,280,838 (1,748,086) -2.2%
Total Cable 45,178,752 45,774,838 (596,086) -1.3%
Total Satellite 24,148,000 25,427,000 (1,029,000 -4.1%
Total Telco 8,206,000 8,639,000 (123,000) -1.5%

Some observations of the numbers:

  • Note that AT&T no longer reports customers by division, so Leichtman has reflected all of their losses as DirecTV and shown no losses for AT&T U-verse.
  • The big loser is AT&T, which lost nearly 897,000 traditional video customers between DirecTV and AT&T U-verse.
  • The big percentage loser is Frontier that lost almost 6% of its cable customers in the quarter.
  • The big cable companies fared the best, but still lost 1.3% of their customer base in the quarter.
  • Satellite TV continues to dive and lost more than 4% of customers in the quarter.

Leitchman speculated that the magnitude of the losses could be due to the impact of COVID-19. However, the story seems to be a bit more complex than that. Several of the big companies reported about the same level of disconnects as in recent quarters but saw a big drop-off in new customers buying service. It’s worth noting that the above losses were experienced even while these same companies saw an increase of over 1 million new broadband customers in the same quarter- the best growth in broadband since 2015.

The full impact of COVID-19 will likely be seen in the next quarter. There has to be an impact from over 23 million newly unemployed people this year, as of mid-May. Cutting cable is one of the most obvious ways for a household to save money.

There may be evidence that COVID-19 had an impact by the end of March. Leichtman also tracks the subscribers of the online TV services that are owned by the above companies. Collectively, there was a loss of 319,000 customers by Hulu Live, Sling TV, and DirecTV Now. Additionally, Paystation Vue exited the market in the first quarter. However, YouTube TV is reported to be growing and had over 2 million customers by the end of February.

Losses of this magnitude have to be rolling downhill in the industry. These losses mean a lot lower revenues for cable TV networks. It means a lot less franchise revenues for local governments. It means lower advertising revenues from loss of eyeballs.

Finding a Business Case for 5G

We are now more than a year into what the carriers are labeling as 5G. If you read this blog regularly you know by now that I don’t think we’ve seen any 5G yet – what has been introduced so far is new spectrum. A new band of spectrum can improve broadband performance in crowded markets, and so the carriers are getting some praise for this development. But these new spectrum bands are operating as 4G LTE and are not yet 5G.

However, we’re getting closer to 5G. Within another few years we will start to see some of the innovations contained in the 5G standards hit the market. This won’t be spectacular at first. Remember that the carrier’s primary short-term goal for 5G is to improve the capacity of cellular networks to get ahead of the exploding demand curve. Cellular data traffic is growing at an astronomical 36% annually and that is stressing cellular networks to keep up with demand. 5G is part of a 3-prong approach to increase capacity – introducing small cells, introducing new spectrum, and finally introducing 5G features. These three changes ought to brace cellular networks for another decade, although eventually, the networks will hit a wall again if growth stays on the current growth curve.

Over the last two and three years, the cellular carriers and the press were full of stories of the wonderful ways that 5G would transform our world. AT&T, Verizon, and T-Mobile spun stories about having gigabit cellular, having fleets of self-driving cars, and having big broadband with us wherever we go. You may not have noticed, but those stories have disappeared. The carriers are not talking much about 5G capabilities other than faster speeds. They are no longer trying to soothe investors with stories of huge future 5G revenue streams.

I think the reason for this is that cellular carriers don’t have any grand visions of future 5G revenues. They still have not built a business case for 5G that justifies the cost of deploying dense networks of small cells.  Consider some of the ideas that were highly touted just a year or two ago.

Millimeter wave spectrum that can deliver gigabit broadband speeds is likely to remain a novelty. The carriers have introduced this in downtown urban neighborhoods to produce a marketing wow factors with TV commercials showing broadband speeds faster than a gigabit. But millimeter wave networks only work outdoors., and even that is funky since everything including a customer’s body can block the signal. There is no business case for spending the money for dense fiber-fed networks since cellphones are not designed for big bandwidth applications. Urban 4G is already pretty good, and there is no benefit other than bragging rights for a customer to shell out extra money for a millimeter wave phone and data plan.

There was talk for a while that 5G would displace WiFi inside homes and businesses. The idea was that 5G could do a better job of keeping data private while also bringing blazing speeds. However, the FCC has approved new WiFi spectrum that when coupled with WiFi 6 technology promises a magnitude improvement in WiFi performance. Once people start using the new WiFi there is going to be little interest in paying a monthly subscription for something that can be done well with off-the-shelf routers.

There still is talk about using 5G in medicine, touting things like the ability of surgeons to perform remote surgery. But is that ever really going to be a thing? It’s taken fifteen years and the COVID-19 crisis to get doctors to finally try telemedicine. There can’t be many doctors ready to tackle performing surgery in another city using robots. It’s also hard to think that insurance companies are going to support surgery that could go off the rails due to a fiber cut or electronics failure. 5G has also been touted as making it easier to monitor patients away from hospitals. But that’s a small bandwidth application that can be handled fine with the ever-improving 4G LTE.

There has been the hope of using 5G technology to help automate factories, and that sounds like a legitimate use of 5G. Factories that need high-precision and low latency are perfect for 5G. This will avoid any interference issues that might come with WiFi. But are there going to be enough new factories using this technology to move the financial bottom line of AT&T or Verizon?

For several years there was a story spun about how self-driving vehicles would communicate with the cloud using 5G. This never made any sense because for this to work there would have to be a dense cellular network built along every road. If the fleets of self-driving cars are developed before the 5G network, they’ll find a solution other than 5G. There also came the ugly realization that networks crash and the image of all the cars coming to a halt in a city because of a broadband outage means this may never become a reality.

Finally, there was talk of how 5G would free people from the monopoly power of the cable companies for broadband. People could have their entertainment with them at all times everywhere. However, most people are smart enough to know that the big cellular companies are also ugly monopolies. They have been engaging in bad behavior such as selling customer location data, even after being told by the FTC to stop the practice. The cellular companies are not going to win an argument that they have the moral high ground.

I have been trying to figure out the 5G revenue stream for several years and I’m no closer to it today than I was three years ago. Some people are willing to pay extra money to get faster cellular broadband speeds, but most customers think they are already paying for this in their cellular subscription. If Dish is successful in launching a new 5G network, the price pressure for 5G will likely be downward rather than increasing. The cellular carriers are going to introduce 5G even without new revenue streams because it’s the only way to keep their networks from crashing in a few years. But what they do after that is still a mystery to me.

 

Just a quick personal note. I’ve now published 1,800 blogs since I started in March 2013. That’s about 1,600 more than I thought I would be able to do. I tell myself once in a while that I’ll stop writing this blog when I run out of topics – but that doesn’t seem like it will be happening any time soon. I thank those of you who have been reading my musings. Onward to 1,800 more!