Broadband Stats for 2019

Leichtman Research Group recently released the broadband customer statistics for the end of 2019 for the largest cable and telephone companies. Leichtman compiles most of these numbers from the statistics provided to stockholders other than Cox, which is estimated.

The numbers are lower than broadband customers these same companies report to the FCC, and I think that most of the difference is due to the way many of these companies count broadband to apartment buildings. If they provide a gigabit pipe to serve an apartment building, they might count that as 1 customer, whereas for FCC reporting they are likely to count the number of apartment units served.

4Q 2019 2019 Change % Change
Comcast 28,629,000 1,407,000 5.2%
Charter 26,664,000 1,405,000 5.6%
AT&T 15,389,000 (312,000) -2.0%
Verizon 6,956,000 (5,000) -0.1%
Cox 5,170,000 110,000 2.2%
CenturyLink 4,678,000 (134,000) -2.8%
Altice 4,187,300 71,900 1.7%
Frontier 3,500,000 (235,000) -6.3%
Mediacom 1,328,000 64,000 5.1%
Windstream 1,049,300 28,300 2.8%
Consolidated 784,165 5,195 0.7%
WOW 781,500 21,900 2.9%
Cable ONE 773,000 39,000 5.3%
TDS 455,200 31,800 7.5%
Atlantic Broadband 451,463 25,857 6.1%
Cincinnati Bell 426,700 1,100 0.3%
101,222,628 2,525,052 2.6%

Leichtman says this group of companies represents 96% of all US broadband customers. For the year these large ISPs collectively saw growth that annualizes to 2.6%.

The customer additions for 2019 for these large ISPs are just slightly higher than customers additions for 2018. The cable companies performed a little better in 2019 while the losses continue to accelerate for the big telcos. The big telco losers for the year are Frontier, which lost 6.3% of its customer base, AT&T (lost 2.0 %) and CenturyLink (lost 2.8%). AT&T claims to have added 1.1 million customers to fiber for the year, so they are still losing a lot of customers on DSL. Frontier is a total disaster and there may be no recovery for the company if they keep losing broadband customers at a pace of over 6% annually.

‘                                        2018                 2019

Cable Companies        2,987,721        3,144,657

Telcos                           ( 472,124)        ( 619,605)

Total                             2,425,597        2,525,052

The two best-performing companies were again Comcast and Charter, which each added over 1.4 million customers for the year while the rest of the ISPs, including cable companies, collectively lost half a million customers.

One note on the above numbers – the TDS and Cable One numbers include adjustments due to small acquisitions).

Breaking up AT&T?

Craig Moffett of MoffetttNathanson was on CNBC recently and said that he eventually expected AT&T to be broken up. This caught my eye since I was at Southwestern Bell and have strong memories of the first divestiture of AT&T into separate companies.

The AT&T divestiture happened on January 1, 1984, when the AT&T parent long-distance company was separated from seven ‘baby Bells’ that operated the last-mile networks. That divestiture was government ordered by judge Harold H. Greene and was aimed to break up the monopoly that AT&T held in the long-distance market. The divestiture had the desired effect and long-distance rates tumbled in ensuing years to the point that people today make unlimited long distance calls on a cellphone without giving it a second thought. But pre-divestiture, long-distance rates average more than 10 cents per minute and were a major hindrance to interstate commerce.

In proof that you can’t hold a monopoly down, AT&T gathered back a lot of the pieces from divestiture over time, acquiring BellSouth, Ameritech, Southwestern Bell, and Pacific Telesis – four of the seven Baby Bells. However, it is not those acquisitions that led Craig Moffett to predict the second breakup of AT&T. Since Divestiture AT&T, along with Verizon has come to dominate the cellular business. AT&T did that through organic growth, but also by acquiring Cellular One and Leap Wireless. In 2011 AT&T tried unsuccessfully to merge with T-Mobile. The company has also bought into the satellite business with the acquisition of DirecTV. AT&T expanded its fiber network through the acquisition of Centennial. The biggest new venture for the company was the acquisition of the content creator Time Warner, that included Turner Broadcasting and Warner Bros. Studios.

Moffett believes that big diversified companies don’t do as well in the market as would the individual component companies. He also believes that at some point that Comcast will separate from NBC/Universal. When companies like AT&T and Comcast acquired content providers, both touted the huge benefits that could come from being both a content provider and a content purchaser. But those cross-benefits have never materialized to the extent envisioned by the original purchase.

Moffett said that at some point somebody will force AT&T to split off valuable assets like Warner Communications. He believes that likely will be the result of pressure from Wall Street and investors, but it’s also possible that a breakup could be urged by the government. Several Democratic candidates have mentioned breaking up the big telecoms as part of their platform.

Watching big companies over time is a big preoccupation in the telecom industry. Everybody in the industry watches the big corporations buy and sell companies like moving chess pieces. The acquisitions are always big news, but the impact in the industry mostly involves the employees affected by the mergers and acquisitions and not the rest of us.

Companies like AT&T seem to have little choice but to grow through acquisition. Wall Street drives companies to continue to increase earnings and it was a big shock for AT&T management when they were dropped from the Dow Industrial average in 2015. AT&T’s core business is still telecom. The company ignored the landline business for a long time, and you could barely find mention of the business in their annual reports a decade ago. The company has lately been touting the advantages or expanding its last-mile fiber network. For many years AT&T thought of itself as a cellular company, but that business has gotten more competitive and prices have dropped. Much of the company’s core business now earns infrastructure level returns – which are nice and steady and spinoff cash, but which don’t create the kind of returns that stockholders want to see.

Moffett’s prediction reminds us that the stories of the big corporations are never finished. They merge and buy companies to grow, and over time split or retract when they get too large. Big companies reinvent themselves when their industries undergo big changes. It wouldn’t be surprising to see AT&T repeat this cycle several times over the rest of this century.

AT&T’s Fiber Play

AT&T has quietly become a major player in the fiber-to-the-home market. It’s reported that AT&T added 1.1 million customers on fiber in 2019, bringing its base of homes on fiber to 3.1 million. This puts the company in clear second place for residential fiber behind Verizon’s FiOS deployment.

AT&T got prompted to build fiber due to an agreement with the government as part of the approval for the merger with DirecTV. The company agreed in the summer of 2015 to build fiber to pass 12.5 million homes within four years.

AT&T has been in the fiber business for many years. Like all of the big telcos, AT&T built fiber to large businesses over the last couple of decades. AT&T got dragged into the FTTH business in a few markets when it reacted to the Google Fiber overbuild in markets like Atlanta and the North Carolina research triangle. AT&T has been selectively bringing fiber to large apartment complexes for much of the last decade.

In the first few years of the mandated buildout, AT&T seemed to be only halfheartedly going along with the mandated expansion. They claimed to have passed millions of homes with fiber builds, but there was no press or chatter from customers having received AT&T fiber service. For the first few years after the mandate, AT&T was meeting its mandate by counting passed apartment complexes – many which were likely already within range of AT&T fiber.

But it looks like everything changed at AT&T a few years ago and fiber suddenly appeared in pockets of the many cities where AT&T is the incumbent telephone provider. There were several changes in the industry that likely prompted this turnaround at AT&T. First, they won the FirstNet contract to provide modern connectivity to all first responders nationwide. In many cases this requires building new fiber – financed by the federal government. Second, AT&T needs to connect to huge numbers of small cell sites – something that was not predicted in 2015.

It seems that AT&T management looked at those two opportunities and decided that they could best capitalize on the new fiber by adding residential and small businesses to the fiber network. That was a big change at AT&T. They had long refused to follow in the wake of Verizon and their FiOS network. They instead took the path of beefing up urban DSL with their U-verse business where they paired two copper wires to offer DSL speeds as fast as 48 Mbps. I think the company was likely surprised about how quickly that offering became obsolete as cable companies now routinely offer two to four times that speed.

For the past several years AT&T has been losing DSL customers in droves to the cable companies. For example, in the year ending in the third quarter of 2019, AT&T had lost a net of 123,000 broadband customers, even with the big gains during that period for fiber. The company will likely continue to lose DSL customers as copper networks age and the speeds fall further behind cable company offerings. AT&T has been petitioning the FCC to tear down copper wires, particularly in rural areas, further killing the DSL business.

AT&T’s new strategy for building fiber is interesting. They are only building FTTH in small pockets where they already have fiber. That fiber might be there to serve a large business, a school, or a cell tower. AT&T extends fiber for two to four blocks around these fiber hubs, only where construction costs look reasonable. AT&T has a big cost advantage of building fiber cheaply in areas where the company already has copper wires on poles – the new fiber is overlashed to the existing copper wires.

Late last year, AT&T announced they had met their government mandate and were taking a pause in building new fiber in neighborhoods. The company is instead focused in selling where it has fiber and has a goal of a 50% market share in those areas. That’s an aggressive goal when considering that Comcast and Charter are likely their most common competitor.

AT&T fiber must be considered by anybody building a new fiber network. If AT&T is already in the market, they will likely have sewn up small pockets of the community. It also wouldn’t be hard for AT&T to expand these small pockets to become larger, making them a real competitor to a fiber overbuilder. This will be an odd kind of competition where AT&T is on some blocks and not others – almost making an overbuilder have two marketing plans, for the neighborhoods with and without fiber.

The Greed of the Programmers

If you use social media you may have noticed a flurry of activity at the end of December warning that small cable TV providers across the country could lose the Fox channels on January 1. That includes Fox News, Fox Business, FX, National Geographic, FS1, FS2, and the Big Ten Network. The dispute was with NCTC, a cooperative that negotiates rates for most of the smaller cable companies in the country.

Fox was asking for what has been described as a 20% rate hike on programming. Fox was seeking a big rate increase to recognize that they have the number one network on cable TV with 1.5 million daily viewers. NCTC finally struck a deal with Fox on December 31 and the channels didn’t go dark – but the cost of buying the Fox networks went up substantially. Back in September, the Fox channels went dark for ten days on Dish Networks when the satellite company refused to accept the same big rate increase.

This is not the first big rate increase from Fox. ALLO Communications, a sizable fiber overbuilder, says that Fox has raised rates 800% since 2004, To put that into perspective, the cost of living in the US has increased by 36% since 2004.

The Fox rate increase is the perfect metaphor for the woes of the cable industry. Fox is not unique, and during the 2000s most cable programmers raised rates much faster than inflation. Cable companies have had little choice but to pass the rate increases along to customers. The programming cost increases have led to a steady annual rate increase for consumers. The soaring price of cable has led to the cord cutting trend and customers are bailing from traditional cable TV by the millions and at an increasing pace.

As a whole, traditional cable TV has probably now entered what economists call a death spiral. Most programming contracts are for 3 – 5 years and the cable TV companies already know of the big programming cost increases coming for the next few years. As cable companies keep raising rates they will lose more customers. The programmers will likely try to compensate by raising their rates even higher, and within a short number of years, cable TV will cost more than what most homes are willing to pay.

A company like Fox can weather the storm of disappearing cable subscribers since they know that all of the online alternative networks like Sling TV, YouTube TV, and others will carry their major networks like Fox News, Fox Business, and the sports networks. The chances are that the primary Fox channels will be solid and steady earners for the company far into the future. However, the same can’t be said for many cable networks.

The online cable products have far smaller channel lineups than traditional cable. There are more than 100 traditional cable channels that are losing subscribers from cable companies and not replacing them with online programming. It’s only a matter of time until many of these networks go dark, as programming revenues won’t cover the cost of operating the network.

It’s easy for people to hate cable companies since that’s who people pay every month. Cable providers like Comcast and AT&T share in the blame since they are both the two largest cable providers and also owners of content. All cable companies share some blame for not yelling bloody murder to the American public for the last decade – and for not fighting back. The cable companies instead started sliding the programming rate increases into hidden fees. However, the fault ultimately lies with the greed of the programmers. These are mostly big publicly traded companies raise rates every year to please stockholders.

It’s no longer good enough for corporations to make money, they are expected to increase bottom line quarter after quarter, year after year. We’ve only been talking about cord cutting for a few years, but the industry has been declining for over a decade. In 2010 there were nearly 105 million subscribers of traditional cable TV, and that number dropped to just over 83 million by the third quarter of 2019. It’s easy to think of cord cutting as a recent phenomenon, but the industry has been quietly bleeding customers for years. Sadly, the programmers are still denying the reality that they exist in a dying industry and are likely to continue to raise rates like Fox just did.

The supply and demand side of any sane industry would have gotten together years ago and figured out a way for the industry to be sustainable. However, the combined greed of the programmers and the big cable companies has resulted in the runaway rate increases that will doom traditional cable. It’s hard to know where the tipping point will be, but we’ll be there when cable networks start going dark – it’s just a matter of time.

Taking Advantage of the $9B 5G Fund

The FCC will be moving forward with the $9 billion 5G Fund – a new use of the Universal Service Fund – that will be providing money to expand cellular coverage to the many remote places in the US where 4G cell coverage is still spotty or nonexistent. There is a bit of urgency to this effort since the big cellular companies all want to shut down 3G within a year or two. This money will be made available to cellular carriers, but the funding still opens up possible benefits for other carriers and ISPs.

Some of this funding is likely to go towards extending fiber into rural places to reach cell towers, and that opens up the idea of fiber sharing. There are still a lot of places in the country that don’t have adequate fiber backhaul – the data pipes that bring traffic to and from the big hubs for the Internet. In the last six months alone I’ve worked with three different rural projects where lack of backhaul was a major issue. Nobody can consider building broadband networks in rural communities if the new networks can’t be connected to the web.

By definition, the 5G Fund is going to extend into rural places. If the FCC was maximizing the use of federal grant funds, they would demand that any fiber built with this new fund would be available to others at reasonable rates. This was one of the major provisions of the middle mile networks built a decade ago with stimulus funding. I know of many examples where those middle mile routes are providing backhaul today for rural fixed wireless and fiber networks. Unfortunately, I don’t see any such provisions being discussed in the 5G Fund – which is not surprising. I’m sure the big cellular companies have told the FCC that making them share fiber with others would be an inconvenience, so this idea doesn’t seem to be included in the 5G Fund plan.

I think there is a window of opportunity to partner with wireless carriers to build new fiber jointly. The cellular carriers can get their portion of new fiber funded from the 5G Fund and a partner can pick up new fiber at a fraction of the cost of building the route alone. This could be the simplest form of partnership where each party owns some pairs in a joint fiber.

This is worth considering for anybody already thinking about building rural fiber. The new routes don’t have to be backhaul fiber and could instead be a rural route that is part of a county-wide build-out or fiber being built by an electric cooperative. If somebody is considering building fiber into an area that has poor cellular coverage, the chances are that there will be 5G Fund money coming to that same area.

It has always been challenging to create these kinds of partnerships with AT&T and Verizon, although I am aware of some such partnerships. Both Sprint and T-Mobile have less rural coverage than the other carriers and might be more amenable to considering partnerships – but they might be consumed by the possibility of their merger.

There are a lot of other cellular carriers. The CTIA, the trade association for the larger cellular carriers, has thirty members that are facility-based cellular providers. The Competitive Carriers Association (CCA) has over one hundred members.

Ideally, a deal can be made to share fiber before the reverse auction for the 5G Fund. Any carrier that has a partner for a given route will have a bidding advantage since cost-sharing with a partner will lower the cost of building new fiber. It might be possible to find partnerships after the auction, but there could be restrictions on the newly built assets as part of the grants – we don’t know yet.

My recommendation is that if you are already planning to build rural fiber that you look around to see if one of the cellular carriers might be interested in serving the same area. Both parties can benefit through a cost-sharing partnership – but the real winners are rural customers that gain access to better cellular service and better broadband.

Ho, Ho, Holy Rate Increase!

It’s that time of year when customers get an unwanted Christmas present from cable companies in the form of a rate increase. The largest providers – Comcast, Charter, and AT&T have all announced rate increases. A few others like Cox and Mediacom generally announce price hikes in January. Altice typically raises rates in June.

The cycle of raising rates routinely has gone on for so many years that it feels routine. To give some credit to the cable companies, programmers continue to increase the cost of buying content every year. In fact, most programming contracts last 3 – 5 years and annual rate hikes are usually baked into the contracts.

What’s becoming mystifying is why the programmers and cable companies can’t sit down and find a way to control costs. The rate of cord cutting is climbing at a dizzying rate and with each rate increase, the industry is losing millions of customers.

Comcast

Comcast is raising rates on Basic cable, their smallest packages from $30 to $35, a 17% rate increase. The company is also raising the broadcast TV fee from $10 to $14.95 per month, a 50% increase.

Comcast is also raising the rate of Internet access by $3. I’ve been warning for a few years that annual broadband rate increases will become routine, even though there is no underlying cost of offering broadband that can be pointed to in the same manner. The big cable companies are raising broadband rates to increase earnings to satisfy Wall Street. A $3 rate increase may not seem like a lot, but for a company with over 28 million broadband customers, $3 translates to $1 billion to the bottom line.

Comcast also made changes to other fees. For example, the fee for a returned payment (bad check or credit card number) went from $10 to $30.

Charter

The Charter rate increases already went into effect in November. Charter raised the rates on the three most popular tiers of cable TV – Spectrum Select, TV Silver, and TV Gold by $7.50 per month. Charter also raised the rate for the broadcast fee by from $12.00 to $13.50. The company raised the rate on a settop box by 50 cents, from $7.50 to $8.00. A customer with one settop box saw an overall increase of $9.50 per month.

Charter raised the price of its basic Internet package (100 Mbps – 200 Mbps) from $65 to $70.

AT&T   

AT&T announced rate increases that take effect in January. AT&T raised cable rates for customers using U-verse by $3 to $7 per month. The U-family package increases by $3 while the largest U400 package increases by $7. The broadcast TV fee will increase up to $2, depending upon the market. AT&T also will increase the Federal Regulatory Recovery Fee by $0.07, and for the life of me, I have no idea what this is. I’m not aware of any FCC charges on cable TV and this is something AT&T pockets.

AT&T raised rates on DirecTV customers yet again, after having a rate increase in August. The new increases range from $1 per month for basic choice up to $8 per month for the Premier package. AT&T is also raising the regional sports fees by as much as $2, depending upon the market.

The largest rate increase at AT&T went unannounced as the company has decided to cut back and not renew promotional rates. As promotional plans have ended, AT&T is moving customers to full rates. In just the third quarter of this year, DirecTV lost almost 1.1 million customers as customers have balked at paying full rates.

AT&T Cutting Capital Spending

AT&T announced it will be reducing capital spending in 2020. That news is significant for several reasons. AT&T’s capital plans are always big news because they have the largest annual capital budget of the big telcos and cable companies. The AT&T capital budget for 2019 was $23 billion. It’s big news when they are only planning on spending $20 billion in 2020.

It’s worth noting that some of AT&T’s capital spending is not being done with their own money. In 2020 they will be receiving the final installment of $428 million for the sixth year of the CAF II program. AT&T recently announced that they are 75% finished the construction of the FirstNet network for first responders, so the company should be receiving the last 25% of the $6.5 billion of federal funding next year. In future years AT&T will likely be collecting some significant share of the recently announced $9 billion 5G Fund paid out of the Universal Service Fund to bring better cellular service for the most rural parts of the country.

There are ripples throughout the telecom sector when AT&T increases or decreases its capital budget. For example, a significant slash of AT&T spending has a significant impact on the various major electronics vendors that will now have to lower their revenue expectations for 2020. While the whole telecom sector is busy, this still means lower revenues for the major telecom vendors.

This reduction in AT&T spending makes me wonder about the 5G war we are supposedly having with China. If you listen to the carrier-driven rhetoric in Washington DC, you would think that there is an urgent need to spend huge amounts of capital immediately on 5G infrastructure. It was that rhetoric that gave the FCC cover to double the size of the recently announced 5G Fund to $9 billion.

It’s hard to imagine that AT&T would be cutting its capital budget if 5G implementation was truly a national priority and a crisis. The truth about 5G can be seen by how the cellular carrier CEOs communicate with their stockholders – the big carriers are struggling right now to find an immediate business case that justifies huge spending on 5G. It turns out that much of the public isn’t willing to pay more for faster cellular broadband. Every carrier has a list of future benefits from 5G, but there are no applications that will create the quick revenues that would prompt AT&T to keep spending capital at historic levels.

This is not to say that AT&T and the other wireless carriers aren’t spending money on 5G – but AT&T is fitting 5G expansion into its shrinking capital budget. Contrary to everything that the carriers have been telling Washington DC, the carriers are not planning on spending massive amounts of their own money on 5G just yet.

Lower capital spending by AT&T also takes the wind out of the sails of the FCC’s argument that net neutrality was holding back the big ISPs from making capital expenditures. This was the primary reason cited by FCC Chairman Ajit Pai for killing net neutrality and Title II regulation. He argued that overregulation was stopping the big carriers from investing, and he’s still making this same argument today to justify his decision. If Chairman Pai was right, we should be seeing AT&T increase capital spending rather than cutting it.

The idea that there is a direct correlation between capital spending and regulation was always fictional. Big ISPs spend money on capital that they think will increase future returns – it’s hard to imagine regulations that would stop the big companies from pursuing good business ideas. AT&T’s capital spending is much more related to what its competitors like Verizon, T-Mobile, and Comcast are doing. When the FCC killed Title II regulation and net neutrality, the agency was removing the last regulations major from a broadband industry that was already barely regulated. It’s hard to think that change had much impact in the Board room or the business development groups at the big ISPs.

It’s worth noting that AT&T has now joined many other big US corporations and is using free cash to buy back its own stock. The company already announced plans to buy back $4 billion of its own stock in the first quarter of 2020 – retiring roughly 100 million shares. I’m sure that decision had some impact on the capital budget. This might mean that AT&T upper management values stock buy-backs to increase earnings per share more than they value capital spending.

The Upcoming 5G Confusion

Until now the 5G industry has spread a lot of hype, but it hasn’t affected customers. That’s all starting to change as the cellular carriers are starting to offer 5G phones. Many customers who spend extra for 5G phones are going to quickly be frustrated and disappointed as they try to participate in the new 5G world.

Consider both AT&T and T-Mobile. Both companies are introducing both a low-band and a high-band 5G phone and customers who want 5G will have to choose one of the two options because the carriers don’t offer a phone that handles both new sets of spectrum.

In AT&T’s case, the low-band phone will introduce 850 MHz spectrum while the high-band phone will use millimeter wave spectrum. The T-Mobile low-band phone will use 600 MHz spectrum with the high-band phone will use millimeter wave spectrum.

Customers buying any of these phones are likely to be disappointed. The high-band phones only work outdoors and when a customer is within range of a handful of millimeter wave hotspots, which are mostly in downtown areas of major cities. Unless somebody has a job that keeps them outside within a small downtown urban footprint, the new high-band phones will default to 4G LTE. Even where a customer is within range of the millimeter wave spectrum it’s been reported that the signal gets easily blocked when a customer turns a corner around a building or even sometimes when the customer’s body blocks the path to the cell site.

Customers of the low-band phones are also likely to be disappointed. The two new low-band spectrums being used are great at penetrating buildings, and so data coverage might improve indoors. However, low-band spectrum, by definition, doesn’t carry a lot of bandwidth. A customer with a low-band 5G phone will likely get data speeds similar to 4G LTE. That is predicated upon living or working close to cell sites that have been upgraded to the new low-band spectrum – because many cell sites won’t yet carry the new spectrum.

There might be a short period of time where a customer with a low-band phone sees better performance – but that will be because they will be one of the few users of the new spectrum. As the more people use the new spectrum bands, the performance will look like that in similar bands of spectrum. I remember how early customers with 4G LTE praised the fast speeds, but those fast speeds fell back to normal within a short period of time.

The real bang with low-band spectrum will come in a few years after the cellular carriers perfect and integrate dynamic spectrum sharing into the 5G architecture. This is one of the new 5G features that let the cellular carriers combine multiple frequencies into a single data path to a customer. Today, a customer with one of the low-band phones will either be using the new low-band spectrum or traditional 4G LTE spectrum – but not both at the same time. The other benefit of the lower spectrum bands is that the spectrum will travel farther from a cell site, albeit at slower speeds.

The new phones will be confusing to customers for another reason – customers won’t be able to use these new phones to change carriers. A phone that can receive AT&T’s 850 MHz spectrum is not going to receive T-Mobile’s 600 MHz spectrum. A customer changing carriers with one of the new phones is going to only get traditional 4G LTE at a different carrier. This is going to become the new norm for the next decade as the carriers start using drastically different bands of spectrum.

Unfortunately, the cellular companies aren’t being straight with customers and are touting these new phones as high-performance 5G. The phones are not yet 5G since they don’t incorporate the best new features of the 5G standards – instead, they are 4G LTE phones that are adding new choices of spectrum. Perhaps the new phones can be labeled as 4.1 G, but I think even that would be generous.

The other big problem with the first generation of phones is that they will be obsolete once the carriers start adding the new 5G functions. 5G has a lot of great features coming including dynamic spectrum sharing (combines multiple frequencies), frequency slicing (gives each customer a data connection to match what they are trying to do), and the ability to connect to more than one cellular tower. This is going to be a problem between now and the time that 5G is mature – any 5G phone already in use won’t be able to handle any new feature as it’s introduced. Every 5G phone sold for the next decade will almost instantly be obsolete in terms of not being able to use new features.

I’m not sure why anybody would shell out extra to buy a 5G phones today. There might be a few people that have a specific reason to use the new spectrum and who happen to live in the right place to be able to use it. However, the vast majority of people are going to be disappointed since they are likely to have paid extra for a phone that’s still going to be 4G LTE. I know people like bragging rights by having the latest tech toy – but somebody buying a 5G phone is more of a sucker than an innovator. They will have bought into the carriers’ 5G hype – hook, line, and sinker.

A Peek at AT&T’s Fixed LTE Broadband

Newspaper articles and customer reviews provide a glimpse into the AT&T wireless LTE product being used to satisfy the original CAF II obligations. This article from the Monroe County Reporter reports on AT&T wireless broadband in Monroe County, Georgia. This is a county where AT&T accepted over $2.6 million from the original CAF II program to bring broadband to 1,562 rural households in the County.

Monroe is a rural county southeast of Atlanta with Forsyth as the county seat. As you can see by the county map accompanying this blog, AT&T was required to cover a significant portion of the county (the areas shown in green) with broadband of at least 10/1 Mbps. In much of the US, AT&T elected to use the CAF II money to provide faster broadband from cellular towers using LTE technology.

The customer cited in the article is happy with the AT&T broadband product and is getting 30/20 Mbps service. AT&T is cited in the article saying that the technology works best when serving customers within 2 miles of a cell tower, but that the coverage can sometimes extend to 3 miles. Unfortunately, 2 miles or even 3 miles isn’t very far in rural America and there are going to be a lot of homes in the CAF II service area that will be too far from an AT&T cell tower to get broadband.

From the AT&T website, the pricing for the LTE broadband is as follows. The standalone data product is $70 per month. Customers can get the product for $50 per month with a 1-year contract if they subscribe to DirecTV or an AT&T cellular plan that includes at least 1 GB of cellular broadband allowance. The LTE data product has a tiny data cap of 215 GB of download per month. Customers that exceed the data cap pay $10 for each additional 50 GB of data, up to a maximum fee of $200 per month.

The average household broadband usage was recently reported by OpenVault as 275 GB per month. A household using that average broadband would pay an additional $30 monthly. OpenVault also reported recently that the average cord cutter uses over 520 GB per month. A customer using a cord cutter level of data would pay an additional $70 per month. The product is only affordably priced if a household doesn’t use much broadband.

The article raises a few questions. First, this customer had to call AT&T to get the service, which apparently was not being advertised in the area. He said it took a while to find somebody at AT&T who knew about the LTE broadband product. The customer also said that the installer for the service came from Bainbridge, Georgia – which is a 3-hour drive south from the AT&T cell site mentioned in the article.

This highlights one of the major problems of rural broadband that doesn’t get talked about enough. The big telcos all have had massive layoffs over the last decade, particularly in the workforces supporting copper and rural networks. Even should one of these big telcos offer a rural broadband product, how good is that product without technician support? As I travel the county, I hear routine stories of rural folks who wait weeks to get broadband problems fixed.

When I heard that AT&T was going to use LTE to satisfy it’s CAF II requirements, my first thought was that their primary benefit was to use the federal funding to beef up their rural cellular networks rather than to start caring about rural broadband customers. In Monroe County, AT&T received almost $1,700 per CAF household, and I wonder if they will all see the benefits of this upgrade.

I’ve always suspected that AT&T wouldn’t aggressively market the LTE broadband product. If they were heavily marketing this by now, at the end of the fifth year of the CAF II buildout, there would be rural customers all over the country buying upgraded broadband. However, news about upgraded broadband is sparse for AT&T, and also for CenturyLink, and Frontier. I work with numerous rural counties where the local government never heard of CAF II since the telcos have done little marketing of improved rural broadband.

The article highlights a major aspect of the plight of rural broadband. We not only need to build new rural broadband infrastructure, but we need to replenish the rural workforce of technicians needed to take care of the broadband networks. The FCC needs to stop giving broadband money to the big telcos and instead distribute it to companies willing to staff up to support rural customers.

Cable Customers Continue to Plummet – 3Q 2019

The number of traditional cable TV subscribers continued to plummet in the third quarter of 2019. 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 93% of all cable customers in the country.

For the quarter, the large cable companies lost 2.1% of subscribers which would equate to a trend of losing 8.4% for the year. However, that number needs to be put into context. The biggest drop of customers came from AT&T / DirectTV which lost nearly 1.3 million customers in the quarter, and 2.6 million customers so far this year. Much of AT&T’s loss comes from the decision to end discount plans to customers and has been letting customers go who won’t agree to pay full price at the end of previously given discount plans. The company says they are glad to be rid of customers who were not contributing to the bottom line of the company. All of the other providers collectively lost 0.9% of market share for the quarter, or a pace of 3.8% annualized. It appears the many of the lost DirecTV customers didn’t reappear at another cable provider and are gone from the industry, and so AT&T seems to be pushing households to cut the cord perhaps earlier than they might have otherwise. The nearly 1.8 million customer loss for the quarter sets a new record for cord-cutting.

Following is a comparison of the second and third quarters of this year:

3Q 2019 2Q 2019 Change % Change
Comcast 21,403,000 21,641,000 (238,000) -1.1%
DirecTV 16,828,000 17,901,000 (1,073,000) -6.0%
Charter 16,245,000 16,320,000 (75,000) -0.5%
Dish TV 9,494,000 9,560,000 (66,000) -0.7%
Verizon 4,280,000 4,346,000 (66,000) -1.5%
Cox 3,900,000 3,940,000 (40,000) -1.0%
AT&T U-verse 3,600,000 3,704,000 (104,000) -2.8%
Altice 3,223,400 3,255,300 (31,900) -1.0%
Mediacom 729,000 747,000 (18,000) -2.4%
Frontier 698,000 738,000 (40,000) -5.4%
Atlantic Broadband 312,555 307,261 5,294 1.7%
Cable ONE 298,063 308,493 (10,430) -3.4%
Total 81,011,018 82,768,054 (1,757,036) -2.1%

Some other observations:

  • Frontier continues to bleed and lost 5.4% of its cable customers along with 71,000 broadband customers in the second quarter.
  • Several other companies – Mediacom, and Cable One lost more than 2% of their cable customer base in the quarter.
  • The rate of loss for Dish Networks continues to shrink, and this might be due to picking up customers that are leaving DirecTV.

I haven’t seen anybody tracking the quarterly performance of all of the online cable equivalent providers – the companies that carry a full line-up online. It seems unlikely from the numbers I have seen that these companies are picking up a lot of the customers leaving traditional cable TV. For example, Leichtman reports that Sling TV picked up 214,000 customers in the third quarter while DirecTV Now lost 195,000 customers.

I have to wonder at what point the cable industry will start to implode? Cord cutting is accelerating. The popular press and social media are full of advice telling people to cut the cord. There are major new online content platforms like Disney+, HBO Plus, and Apple + that are providing additional justification to cut the cord. Advertising revenues are starting to drop along with subscriber revenues.

There must be drastic changes in industry practices if the traditional cable business is to survive. Continued price increases are pushing cable TV out of the range of affordability for most homes. To survive, the cable companies and the programmers would have to get together to reform the industry with affordable products people are willing to buy. At least for now, that possibility seems remote.