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 The big ISPs have been surprisingly quiet and have not loudly violated those rules, even though they are no longer in effect.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!

COVID-19 Boosts 1Q 2020 Broadband Subscribers

Leichtman Research Group recently released the broadband customer statistics for the end of the first quarter of 2020 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. Leichtman says this group of companies represents 96% of all US landline broadband customers.

The big news is that additions in the first quarter were up nearly 85% over the number of customers added in the fourth quarter of 2019.  For the quarter, these large ISPs collectively saw growth that annualizes to 4.8%. This was the biggest quarterly overall subscriber growth since early 2015.

3/31/20 1Q Change % Change 4Q 19 Adds
Comcast 29,106,000 477,000 1.7% 443,000
Charter 27,246,000 582,000 2.2% 339.000
AT&T 15,315,000 (74,000) -0.5% (186,000)
Verizon 6,982,000 26,000 0.4% (5,000)
Cox 5,230,000 60,000 1.2% 25,000
CenturyLink 4,667,000 (11,000) -0.2% (36,000)
Altice 4,237,300 50,100 1.2% 7,000
Frontier 3,480,000 (33,000) -0.9% (55,000)
Mediacom 1,349,000 21,000 1.6% 12,000
Windstream 1,067,300 18,000 1.7% 9,300
WOW 797,600 16,100 2.1% 7,600
Cable ONE 793,000 20,000 2.6% 83,862
Consolidated 786,125 1,960 0.2% 14
TDS 460,000 4,800 1.1% 17,500
Atlantic Broadband 457,233 5,770 1.3% 5,326
Cincinnati Bell 427,500 1,800 0.4% 1,600
Total 102,401,158 1,166,530 1.2% 669,788
Total Cable 69,216,233 1,231,970 1.8% 922,788
Total Telco 33,184,925 (65,440) -0.2% (253,586)

We know that a lot of the growth was due to COVID-19, which drove employees and students to work from homes. A lot of homes likely purchased broadband for this purpose. These big ISPs also pledged to the FCC that they wouldn’t disconnect customers for non-payment during the pandemic. However, the real impact of that policy won’t show up until the second quarter.

Comcast and Charter continue to dominate the rest of industry, and accounted for 86% of total net growth for the quarter. The large cable companies collectively gained over 922,000 subscribers, which their biggest quarterly growth since 2007. The telcos collectively still lost customers for the quarter, but losses are significantly less than in 2019. The biggest telco loser was AT&T which lost 186,000 customers for the quarter. Frontier continued to lose the biggest percentage of its customer base and lost nearly 1% of its broadband customer base during the quarter.

This growth is impressive, and much of the boost has to be due to an increased need for home broadband. We’ll have to wait until later in the year to see the impact of having over 36 million people file for unemployment and for potentially millions of small businesses to close. There has been a long-running debate in the industry about whether broadband is recession-proof. Arguments can be made that homes out of work will hang onto broadband as long as they can in the hopes it can help them find work. In a few quarters, we’ll find out.

It’s Hard to Like AT&T

Over the last year, I’ve said some nice things about AT&T. It was nice to see AT&T wholeheartedly embrace their commitment to build fiber past 12 million homes as they had promised as part of the conditions of buying DirecTV. In the past, they might have shrugged that obligation off and faked it, but they’ve brought fiber to pockets of residential neighborhoods all over the country. It seemed that they were unenthusiastic about this requirement at first, but eventually embraced when somebody at the company realized that new fiber could be profitable.

I also thought that AT&T was by far the most responsible wireless carrier in terms of not ridiculously exaggerating the supposed coming of 5G, although they finally gave in to their marketing arm and started labeling the latest version of 4G LTE as if it is 5G.

But overall, AT&T is hard to like as a company. AT&T puts stock prices and Wall Street above everything else and is probably as good of an example as any of large corporations gone amuck. AT&T clearly values the bottom line over employees, customers, and the public good.

If you look back a few years, you can find numerous times where AT&T lobbied against net neutrality and broadband regulation. The company repeatedly said that unfair regulation was stopping them from making capital investments and promised that if the government would lift regulations that they would invest more. The FCC handed them even more than they had publicly asked for when the agency eliminated Title II regulation along with net neutrality.

AT&T didn’t react to the end of regulation by increasing capital investment as promised. They instead laid off a lot of employees and in the year after net neutrality was eliminated spent about the same for capital – only due to big spending on their sole-source First Net contract. Then in 2019, capital spending dropped by $1.9 billion and they are planning to cut an additional $3 billion this year. The drop in capital spending is hard to reconcile with the supposed 5G race that we are supposedly waging against China.

AT&T also joined with other large corporations and publicly pledged that if the government would lower the corporate tax rate that they’d hire thousands of new high-paying tech jobs and again promised to increase capital spending.  The unions that work for AT&T claim that since the enactment of the 2017 tax act that AT&T has laid off nearly 38,000 employees and are down to under 248,000 employees. Rather than investing in new capital and people, AT&T has been spending billions to buy back their stock to help keep stock prices high. The company used excess cash to buy back almost $2 billion of its stock in the fourth quarter of 2019 and had announced $4 billion of additional buybacks this year that was just recently put on hold due to the COVID-19 pandemic.

Meanwhile the company significantly raised consumer prices. There were moderate rate increases for broadband and cellular customers, and larger ones for video customers. But the biggest increases came when AT&T ended promotional pricing on video and expected customers to pay full price at the end of contracts. This move raised video rates significantly and led 4.1 million customers to drop DirecTV, U-verse TV, and the online AT&T TV in 2019. The company has said they were glad to be rid of low-margin customers.

In the summer of 2019, AT&T was sued in a class-action suit alleging that the company was selling real-time customer location data for cellular customers, even though the company had repeatedly told customers that they were not doing so. A series of reports by Motherboard showed that AT&T, Sprint, and T-Mobile had continued selling customer data even after promising to stop the practice.

AT&T recently made headlines by dropping data caps during the COVID-19 crisis. What’s worth noting is that the company has perhaps the most restrictive data caps in the country, particularly on DSL and fixed-wireless. The data caps at AT&T are clearly in place to make money over and above any rates promised to subscribers. Hopefully, there will be a huge public outcry when the company quiets puts the data caps back in place.

During all of the above, the company has significantly increased compensation for its CEO Randall Stephenson. His salary in 2019 was more than $32 million, up from $29 million the year before. However, much of that number is based upon stock bonuses, and shares of AT&T closed under $29 last week, down from over $39 at the start of this year. The company announced a new CEO last week and we’ll have to wait to see how he is compensated.

It’s honestly hard to say much nice about AT&T these days. I think back to when I worked at the company pre-divestiture, when the company made a steady, but unspectacular monopoly profit. The company and employees in those days were proud of the US communications network which was second to none in the world. It’s been clear for a long time that none of that old Ma Bell thinking is left in the company that now is driven to maximize stock price over everything else.

Another FCC Disaster?

Anybody thinking of filing an RDOF grant needs to pay a lot of attention to the challenges being made to the $16.4 billion RDOF grant footprint. The FCC invited ISPs to notify them if there are any Census blocks where the ISP has added broadband of at least 25/3 since June 30, 2019. Even though the RDOF is covering the most remote households that supposedly don’t have even 10/1 Mbps broadband, you’d expect that some ISPs have built into the RDOF footprint over the last 9 months. However, that’s not the response that the FCC got. While there were a number of ISPs that claimed to have built into a few Census blocks, the large incumbent telcos are claiming to have built into a huge numbers of blocks since last June. Frankly, the responses of the of large telcos are not credible and the FCC needs to take a pause and challenge these results.

Here’ what the big telcos claimed:

  • AT&T claims about 1,500 Census blocks that have been upgraded to at least 25/3 since June 30, 20198.
  • Frontier claims over 16,000 Census blocks have been upgraded.
  • CenturyLink claims over 5,400 Census blocks have been upgraded.
  • Windstream claims 1,713 upgraded Census blocks.
  • Consolidated claims over 7,300 Census blocks.

To put these numbers into perspective, the Census Bureau says that the average Census block contains 40 – 45 people. Rural Census blocks often have fewer residents than urban blocks, and even if the average for these blocks is 40 people, the big telcos are asking to remove about 1/3 of the people out of consideration for RDOF grants. That number is mind-boggling. If the big telcos had been making this kind of progress in expanding 25/3 Mbps rural broadband before June 30, 2019, then we wouldn’t have a rural digital divide.

Consider the individual claims:

  • Frontier lost 235,000 broadband customers in 2019, representing 6.3% of their customer base. The company has been cash-strapped and has not been making rural capital investments. It’s fairly well understood in the industry that the company didn’t even spend much of its CAF II funding to upgrade rural customers to 10/1 Mbps. It’s inconceivable that the company that just entered bankruptcy upgraded over 16,000 Census blocks in the last 9 months.
  • Consolidated Communications is next on the list claiming upgrades in 7,300 Census blocks. The company purchased Fairpoint in July 2017 and has been actively making upgrades since then. But even for a company actively making upgrades, a claim of improvements in this many Census blocks seems hard to believe over a 9-month period that includes the winter months.
  • CenturyLink claims upgrades in 5,400 Census blocks. The company has loudly proclaimed a number of times that it is not making investments that earn ‘infrastructure returns’. It’s frankly hard to believe that they would have spent the money in rural America needed to make these upgrades.
  • Windstream is claiming over 1,700 Census blocks. The company has been flirting with bankruptcy during the last nine months and it’s reasonable to ask if they were really this active in making upgrades in the last 9 months.
  • AT&T claims over 1,500 Census blocks have been upgraded. This is the company that wants badly to get out of the rural wireline business. These upgraded Census blocks need to have come from the AT&T Fixed wireless technology. I’m not aware of AT&T having launched any mass marketing effort aimed at rural census blocks. Consider AT&T’s broadband subscriber numbers for 2019. AT&T lost a little over 300,000 broadband customers during the year. To offset that loss, AT&T claims to have added over 1 million customers on fiber. One would think it would be obvious if AT&T was also out heavily promoting the rural fixed-wireless product.

It’s easy to understand why an incumbent telephone company would make these claims. Any Census blocks that remain in the RDOF grant process are going to be overbuilt by faster technology than the rural DSL offered by these telcos. The incumbents can only remain as the monopoly provider by removing Census blocks from the RDOF footprint.

The FCC needs to investigate these claims. This is reminiscent of the overstated wireless coverage claimed last year by Verizon, T-Mobile, and Sprint that prompted the FCC to delay the rural cellular grants, now labeled as 5G Grants, for a year. It was obvious to the FCC that those wireless carriers were making the erroneous coverage claims to keep out competition. There has to be a whole lot of that going on here as well.

Remember that these claims are being made under the existing rules for the FCC’s 477 process. In the current process an ISP only has to have one customer in a Census block getting the declared speed. The easiest way for the FCC to check these numbers is to require each telco to provide the addresses of customers in each Census block that supposedly now has 25/3 Mbps broadband. The FCC could call and talk to those homes and ask them to take a speed test to see if the telco claims are even remotely plausible. I expect the lists would quickly revised and shrink if the carriers are required to get that specific.

The FCC also needs to allow Census blocks that have only a few 25/3 customers to remain in the RDOF grant. It would be a huge disservice to the other customers in these Census blocks to doom them to remain as monopoly customers for another decade.

These filings are so blatantly suspicious that the FCC has to pause, even if that means delaying the RDOF grants. Considering the hardships being experienced by everybody in these areas during the current COVID-19 crisis, the FCC cannot accept these crazy claims without challenging them. It would have been possible credible if each of these big telcos claimed a few hundred Census block upgrades – but in aggregate this filing looks like a monopoly land grab more than anything else. If these claims prove to be false the FCC needs to fine these telcos into the stone age – such fines deserve to be in the billions.