Categories
The Industry

Big Telcos and the BEAD Grants

We’re finally starting to gain a picture of the plans of the big telcos for the upcoming BEAD grants. The bottom line is that some of the big telcos seem to be prepared to pursue the upcoming grants in a major way. Consider the following:

  • At a recent industry conference, Frontier’s CFO said that Frontier has ambitious plans to pursue grants for all of the three to four million rural homes that it serves today with DSL.
  • When the BEAD grants were first announced, AT&T added five million new passings to its goal for 2025, all due to pursuing rural grants. AT&T hasn’t said much about grants since that early announcement.
  • Brightspeed, which purchased twenty states of copper networks from CenturyLink, has made it clear that it will be seeking state and federal grants to build as much fiber as possible. CenturyLink has been aggressively pursuing grants in the states sold to Brightspeed, for the obvious benefit of the new company.
  • Windstream was a big winner in the RDOF reverse auction and has been aggressively pursuing ARPA funding. It seems obvious that the company will also pursue BEAD grants.

The two big telcos that have not said much about grants are CenturyLink and Verizon. There are rumors that CenturyLink is seeking somebody to buy the rest of its copper lines, but it also would not be surprising to see the company come out swinging for grant funding if a sale isn’t forthcoming. Verizon abandoned a rural strategy years ago, and it would be surprising but not impossible to see the company tackle grant funding if the math is good.

The other big ISP that has aggressively been pursuing grant funding is Charter. It would make sense for the company to pursue BEAD grants to fill in around where it has already won the RDOF auctions.

This is an interesting dilemma for rural communities. The telcos all say they will be building rural fiber with grant funding – which is what rural America most desires. But a lot of rural folks blame the big telcos for the current miserable state of rural broadband. It’s the big telcos that stopped maintaining copper, reduced staffing drastically, and basically walked away from rural America. I know a lot of folks who hope that anybody other than the big telcos wins the grant funding in their area.

There are several big fears that I hear voiced about the big telcos winning the grant funding. One is that the big telcos will not follow through after winning the grant funding. Many communities remember how some of these telcos walked away with huge amounts of CAF II funding without doing the promised DSL upgrades. I think the fear is that the big telcos might cut corners and not build to the most remote households in a grant award area. I’ve also heard the fear that the big telcos will accept grants and then decide not to build some areas in a state.

Perhaps the biggest fear about big telcos building rural fiber networks is that we’ll see a repeat of the past. They will build the new network as funded. But if the telcos don’t hire enough technicians or cut corners on maintenance, the fiber networks will deteriorate over time.

This is a real concern because there is a big difference between copper networks and fiber networks. It’s been possible to keep a copper network limping along for decades with minimum maintenance. This is due to the relative simplicity of the DSL technology. There are twenty-year-old DSL cards still limping along, long past the expected economic life. But fiber networks are not likely to be so tolerant. Fiber technology is complicated and precise, and when a card starts going bad, it most commonly means the fiber will go dark. I think the big fear in rural America is that the big telcos will build fiber but let it go dark in 10 or 15 years if they can’t get additional subsidies. This is an impossible scenario to imagine the big telcos demanding future subsidies to keep networks working.

One of the most important aspects of the BEAD grants will be community approval and partnerships with the grant applicants. It will be curious to see if the big telcos seriously court local support for grant applications or do little more than ask for a letter of support when it’s time to file grants. If a community really wants to keep out the big telcos, the best strategy is to partner with somebody you trust more.

Categories
Regulation - What is it Good For?

The CHIPS Act and Wireless

The recently enacted CHIPS and Science Act of 2022 is providing a lot of funding to bring more chip manufacturing back to the U.S. This funding fills a big hole in the U.S. supply chain. We have some chip manufacturing in the U.S., but we only make about 12% of the chips that we use in cellphones, cars, computers, and broadband technology.

Making domestic chips became a national priority when we saw during the pandemic that international chipmakers took care of regional demand before U.S. demand. U.S. automakers are still largely on hold due to a lack of chips, and there has been a rumor floating around the broadband industry that we’re going to see another round of chip shortages for broadband gear. It will take some years to turn this new funding into chip factories, but in the long run, this is one of the more sensible things Congress has done in many years.

The CHIPs Act approved $52 billion to bring chip manufacturing back to the U.S. But like all big legislation, not all of the money appropriated goes to the main goal. For example, there is funding in the bill for new research and development in the technical sciences. Today’s blog looks at funding from the CHIPs Act that is being used for the mobile industry. Specifically, the CHIPS legislation:

Appropriates $1.5 billion for the Public Wireless Supply Chain Innovation Fund, to spur movement towards open-architecture, software-based wireless technologies, funding innovative, ‘leap-ahead’ technologies in the U.S. mobile broadband market. The fund would be managed by the National Telecommunications and Information Administration (NTIA), with input from the National Institute of Standards and Technology, Department of Homeland Security, and the Intelligence Advanced Research Projects Activity, among others.

This sounds like funding for wireless product research to find new market uses for 5G. I’m a big believer that the federal government should have a large role in funding basic science research and development. One of the reasons that the U.S. has had technological success in the past is that we funded the basic research that has made the breakthroughs that turned into our current technology industries. National funding for pure research has fallen in recent years to woefully low levels.

But I’m not a big fan of the U.S. government undertaking product research. That is something that ought to be left to the industries that will benefit from the research. This $1.5 billion feels like a handout to the big wireless companies – and they don’t need this money.

Consider dividends. Verizon paid out $10.4 billion in dividends to stockholders in 2021, or almost $2.50 for every outstanding share. In recent shareholder meetings, the company says the goal is to increase dividends in the coming years. AT&T most recently paid $8 billion per year in dividends or $1.11 per share in recent quarters.

T-Mobile is the most cash-flush of the big cellular carriers and told shareholders earlier this year that the company plans to spend $60 billion by the end of 2025 to buy back its own stock.

These three companies don’t need a $1.5 billion government handout, but as often happens, the industries that lobby the hardest often get rewarded with funding. If the $1.5 billion is spent wisely, it might turn into future profits for these companies. But this is research that these companies should be routinely funding directly.

This feels like a residual benefit to these companies from all of the effort they put into persuading the government that we were losing an imaginary 5G war with China. That discussion is still not completely dead, and we still occasionally hear a politician talking about our 5G crisis.

I love the concept behind the CHIPS Act, and I hope it spurs 100,000 new permanent manufacturing jobs and greatly expands the domestic chip supply. But I am not a fan when big legislation is used to pay back industries that spend huge money to lobby politicians.

Categories
The Industry

Here Comes FWA

Broadband industry statistics have been compiled by the Leichtman Research Group which provides an interesting new narrative for the industry. The biggest ISPs added just over one million new broadband customers in the first quarter of 2022, but half of the new customers went to the FWA products from Verizon and T-Mobile.

FWA stands for Fixed Wireless Access and is home broadband delivered using cellular frequencies. T-Mobile and Verizon are aggressively marketing the product, which is touted to have download speeds over 100 Mbps. The market is going to get hotter when Dish gets its launch underway soon. AT&T has also been promising a major new marketing effort to sell the product.

 1Q 2022 1Q Change % Change
Comcast 32,163,000 262,000 0.8%
Charter 30,274,000 185,000 0.6%
AT&T 15,533,000 29,000 0.2%
Verizon 7,400,000 35,000 0.5%
Cox 5,560,000 30,000 0.5%
Lumen 4,470,000 (49,000) -1.1%
Altice 4,373,200 (13,000) -0.3%
Frontier 2,819,000 20,000 0.7%
Mediacom 1,468,000 5,000 0.3%
Windstream 1,176,000 11,300 1.0%
Cable ONE 1,057,000 11,000 1.1%
T-Mobile FWA 984,000 338,000 52.3%
Breezeline 719,608 2,830 0.4%
TDS 495,200 4,900 1.0%
Verizon FWA 433,000 194,000 81.2%
Consolidated 380,150 (850) -0.2%
   Total 109,305,158 1,065,180 1.0%
Total Cable 75,614,808 482,830 0.6%
Total Telco 32,273,350 50,350 0.2%
FWA 1,417,000 532,000 60.1%

FWA was originally touted as the replacement for rural DSL. However, both T-Mobile and Verizon report having success selling the product in urban areas and competing with cable companies. This means that FWA success is going to bring down customer counts for other ISPs.

Over the past several years, Comcast and Charter have been accounting for most of the growth in broadband customers. In the first quarter, the two FWA providers and Comcast and Charter together account for 92% of net increases in broadband customers.

There are some interesting numbers inside this report.

  • Frontier has clearly turned it around after steady losses for several years and saw growth of 0.7% for the quarter.
  • The big loser is now Lumen, which lost over 1% of its broadband customers in the quarter.
  • We know that AT&T has been selling fiber connections at a hot pace but is still seeing significant losses of DSL customers to net out at a small positive growth.
  • The biggest percentage gainer among landline companies for the quarter is CABLE ONE, with quarterly growth of 1.1%.
  • Altice continues to struggle and lost broadband customers for the quarter.
Categories
The Industry

The Upcoming Marketing Wars

In April 2019 my daughter and I were watching the NCAA final between Virginia and Texas Tech (and rooting for her school TTU). We noticed about halfway through the game that practically every ad we had seen was about 5G. Verizon was busy showing us speed tests from millimeter-wave cellphones receiving gigabit speeds. Not to be outdone, there were a ton of commercials also from T-Mobile and AT&T.

I found it extraordinary that the cellular carriers would spend that much money to buy premium-rate ads for a major sports event. We now know this was part of an all-out blitz on 5G to put pressure on Congress and the FCC to give them more spectrum.

I think that by this fall we’re going to wish we could go back to the 2019 level of ads because I’m predicting by this fall that all we’re going to hear about is cellular and broadband. A lot has changed in the industry since 2019. In more recent sporting events, I noticed that a lot of the ads were from the cable companies touting low-cost cellular service. The cable companies view bundling with cellular as one of the best ways to retain broadband customers – bundling means that when a customer drops broadband they will also lose cheap cellular service.

Dish network will be hitting the market sometime this summer, promising a rollout in a hundred smaller markets and 25 large markets in June. The company already owns Boost Mobile, but Dish is going to spend a lot of money to convince America to consider it for cellular service. This means mountains of advertising to make us aware that Dish is now a cellular company. Dish promises to be aggressive with pricing, so expect this advertising effort to set off a price war from the other carriers.

T-Mobile has already been blitzing the air this year in an attempt to sell its cellular broadband product. The company picked up 400,000 new cellular broadband customers in 2021, most at the end of the year. T-Mobile has a goal to pick up several million new broadband customers this year. T-Mobile’s ultimate goal is to reach 6 to 7 million FWA customers by 2025.

Verizon is also selling fixed wireless broadband and plans to hit the market hard later this summer. The company has a goal to reach 4 to 5 million FWA customers by 2025.

AT&T isn’t going to hit the national market with a push for FWA until some time in 2023, but there is no way that the company is going to sit by and watch the other cellular carriers lure away its customers. Expect AT&T to also be on the air nonstop.

It’s hard to think that national advertising this fall will be much more than cellular and political ads. I’m warning you now to find an outdoor hobby if you don’t want to hear any more about 5G.

We’re also going to see an unprecedented marketing blitz from cable companies and fiber overbuilders. All of the big telcos are furiously building fiber this year. There are aggressive plans to build fiber underway from AT&T, Verizon, Frontier, Windstream, Consolidated, Ziply, Lumen, and many smaller fiber builders. Much of the construction this year will be in cities and county seats, and that is going to mean a whole lot of advertising.

We’ve not seen a lot of national advertising about home broadband, and the marketing wars will likely be local. That’s going to translate to salespeople knocking on doors and a lot of mailers about fiber broadband.

There was some unexpected growth in cellular customers last year. For example, in the third quarter of last year, there was a net addition of 2.3 million new nationwide cellular customers. Industry analysts are chalking this up to businesses buying cell phones for remote employees and more students buying phones because of remote learning during the pandemic.

This kind of market growth is not sustainable since most people have cell phones. That means that the coming cellular marketing wars will largely be a zero-sum game. The only way for a cellular company to grow will be to take customers from another carrier. That’s going to lead to some real desperation – and even more ads. When you watch the first football game this fall, don’t say I didn’t warn you.

Categories
Technology

What Happened to AirGig?

You might remember press releases from AT&T in 2018 that promised a revolution in rural broadband from a technology called AirGig. The technology was described as using millimeter-wave spectrum to shoot focused radio beams along power lines, with the electric field of the powerlines somehow acting to keep the transmissions focused to follow the wires.

AT&T said at the time that the technology could deliver hundreds of megabits of data to rural homes using a network built from inexpensive plastic components mounted on power lines. The last I heard of the technology was this AT&T video released in 2019.

There had been a field trial of the technology conducted with Georgia Power, and the CEO of the electric company was enthusiastic at the time about the technology. AT&T talked about starting the process of manufacturing hardware. And then . . . crickets. There hasn’t been a word on the web about the technology since then.

I saw articles published by IEEE in 2019 that talked about a different broadband-over-powerline (BPS) technology developed by Panasonic. IEEE amended the standard for BPL to recognize Panasonic’s HD-PLC technology. Panasonic claims to have reached 60 Mbps transmissions using the technology but thought they could goose this to several hundred Mbps.

I always wondered how much of the AT&T announcement on AirGig was hype. Timing-wise, the AT&T AirGig announcement came in the middle of the 5G craze where the cellular carriers were trying to gain major concessions from the government to promote 5G. AT&T and the other carriers wanted a lot more spectrum – and they’ve largely gotten it. Perhaps they were using the AirGig to justify more spectrum. But the video shows that AT&T has gotten a pile of patents for the technology, so it seems to be the real deal.

Today’s blog asked what happened, and I hope somebody who knows will say. Did field trials reveal a fatal flaw in the technology? That’s always possible with any wireless technology. Did the technology just underperform and not deliver the promised broadband speeds? Or will AT&T spring a finished technology on the world one of these days?

Categories
The Industry

AT&T to Chop Copper Networks

In a pronouncement that is news to nobody, AT&T announced at a recent investor day event that it has plans to cut its copper network footprint in half by 2025. This can’t be a surprise from a company that stopped connecting new DSL customers in October 2020. I figured we could start the countdown clock on copper from that date.

However, Jeff McElfish, the CEO of AST&T’s Communications division, said something that is surprising. He said the company isn’t planning to forcibly move customers off copper as they decommission copper. He says customers are naturally migrating off copper. I find that hard to believe.

My consulting firm administers surveys, and we are still seeing DSL penetration rates in cities between 10% and 40%. Our surveys indicate that the people who are staying with DSL are doing so because of price – they largely hate DSL performance, but it’s what they can afford. This is not hard to understand when looking at the rates for broadband from the big cable companies.

In this blog, I’ve often talked about how expensive broadband is from Comcast and Charter, but broadband rates from some of the other cable companies like Cox and Atlantic Broadband are even higher. There are a lot of homes that can’t afford the cable company prices. It’s hard for me to believe that all of these people are going to voluntarily walk away from DSL over the next two or three years. The last estimate I vaguely remember reading was that there is still something like 19 million households still using DSL.

McElfish said AT&T plans to have 75% of its footprint covered by fiber or fixed cellular wireless by 2025 – I have to assume that in terms of square miles of footprint that this will mostly be wireless. AT&T is going to have a PR problem with trying to push customers to wireless. For rural customers within reach of a tower, a switch from DSL to fixed cellular wireless will be a no-brainer. The broadband speeds will be faster, and the price still affordable. But the big problem in rural markets is that there are huge parts of rural America where fixed wireless won’t work. The rural cellular coverage maps for all three big cellular companies are a joke, and anybody who drives into rural areas can see that you don’t usually have to go far to run out of bars of service. It’s worth noting that cellular voice covers a much larger footprint than cellular data. At some point, AT&T will have to drop rural DSL customers who might have no other alternative than satellite broadband. Extrapolating from McElfish’s statement of covering 75% of the footprint means that AT&T will be abandoning folks in 25% of its footprint.

Urban areas are a bigger issue for AT&T because that’s where most of the DSL customers remain. It’s clear that AT&T has no goal of overbuilding whole cities with fiber but is building in selected neighborhoods. It’s not clear if those neighborhoods are chosen due to the most affordable construction costs or the best demographics – but AT&T will not be building fiber to cover the majority of its footprint in most cities.

With today’s 4G LTE technology that’s been branded as 5G, AT&T is not prepared to deliver fixed cellular broadband to huge numbers of people in cities. That’s what 5G is supposed to fix, and it’s not here yet. But even when AT&T finally implements real 5G (estimated to be 5 – 7 years in the future), the company would have to install a huge number of small cell sites to have enough broadband capacity to migrate DSL customers to fixed cellular broadband. And that means building more fiber deep into neighborhoods to serve the small cell sites. None of that is happening by 2025, so AT&T must be planning on turning down rural copper markets first.

Perhaps AT&T is really counting on everybody else to pick up its DSL customers. T-Mobile is already aggressively rolling out fixed cellular broadband, and Verizon plans a big push starting in late summer of this year. Dish plans to open 25 major markets with cellular data by June. Smaller wireless player like Starry might be making a dent by 2025.

AT&T is ultimately going to have to force people off DSL. The download speeds on much urban DSL are not dreadful, at 15 – 30 Mbps, although upload speeds are nonexistent. I don’t see millions of people voluntarily abandoning the product so that AT&T can tear down the copper without a public stir.

But maybe there is another motive behind this – as the technicians who understand DSL keep retiring, AT&T might not be able to keep DSL running by 2025. I know that sounds cynical, but I don’t think it’s far from the truth.

Categories
The Industry

Truth in Broadband Advertising

We’re all used to crazy advertising about telecom products that make industry folks shake their heads – many of the ads about 5G come to mind. Most people don’t realize that carriers in the industry routinely challenge the claims made by competitors to force them to modify or drop deceptive ads.

Most of the largest corporations in the country belong to the National Advertising Division (NAD), which is part of the BBB National Programs and arbitrates disputes about advertising between participants in the plan. Participation is voluntary, but corporations join the effort because the arbitration process through NAD is far cheaper than using the courts to settle disputes. Corporations almost always comply with the recommendations of NAD. The NAD monitors national advertising campaigns in all media and tries to enforce standards of truth and accuracy – a high standard for advertising.

Charter recently challenged advertising that claimed AT&T’s business broadband services on fiber are better than business broadband services provided by cable companies. It was an interesting challenge because Charter disputed a number of the claims made by AT&T in the ads.

In the first dispute, AT&T claimed it was ‘up to 20 times faster’ than cable broadband. NAB agreed that the upload speeds on AT&T’s gigabit product are up to 20 times faster than a gigabit product from the cable companies but found that AT&T’s wording of the claim made it sound like all AT&T products are 20 times faster than the equivalent cable company broadband products.

AT&T also claimed that its prices are half the price of cable broadband. The NAB found that the prices for AT&T’s top business products are half the price of the equivalent products from the cable companies but again sided with Charter because it said that the AT&T ad made it sound like all AT&T broadband products are half the price of cable company broadband.

The AT&T ads made the claim that AT&T’s fiber broadband is superior to cable company broadband. NAB found that while there was a big difference in upload speeds between the two products that the download speeds from both technologies are equivalent. NAB felt that most business customers care more about download speed than upload speed and sided against AT&T’s claim that its broadband is superior.

AT&T ads claimed that the upload speeds of cable companies are insufficient to support video conference, surging, streaming, and gaming and the NAB said there was not enough evidence to support that claim. NAD did support AT&T’s claim that fiber is superior for uploading large files.

In the ruling that will rile fiber fans, the NAD said the record did not substantiate a claim that AT&T fiber provides ‘better internet’ than cable broadband. But the NAD supported AT&T’s claim that it provides a consistent speed, even at peak times.

AT&T told the NAD that it respectfully disagreed with all of the negative findings, but the company agreed to stop using the disputed claims. I would guess that AT&T will continue to make many of these claims but will be more specific and less generic.

Many of you might not realize that the big ISPs also often challenge advertising claims made by municipal and other smaller ISPs. Such complaints generally come from counsel for the big ISPs and demand that a smaller ISP stop the disputed advertising. The process is threatening since small ISPs don’t want to engage in expensive legal disputes. I’ve known a few small ISPs that ignored such claims and were never sued, but I don’t know that there is any way to know the motivation of a big ISP in a given complaint. One of my clients who ignored such a claim said that fighting with the big ISP in the papers over an issue was the best advertising he could ever have wished for.

Categories
The Industry

Cable Companies Converting to Fiber

I wrote a recent blog discussing comments from Chris Sambar, AT&T’s EVP of Technology Operations who was quoted as saying that he almost feels sorry for cable companies that compete against AT&T fiber. AT&T is convinced that building fiber is a winning strategy and that the first company that builds fiber in a market will win the majority of broadband customers.

While it’s not yet a giant movement, we do see cable companies that are converting to fiber. One example comes from an announcement by Cox that it will be undertaking a project in the Hampton Roads area to upgrade its networks to 10-gigabit fiber. The build will start this year in Norfolk and will extend over time to the rest of this rapidly-growing area.

Atlantic Broadband recently announced plans to extend fiber to 70,000 passings in New England and West Virginia. This will include the communities of Concord, Dover, Somerset, Durham, and Madbury in New Hampshire and Westover, Morgantown, Granville, and Star City in West Virginia.

Altice recently renewed its pledge to convert all of its 4.4 million customers to fiber. The Chairman of Altice, Patrick Drahi, announced he would convert the company to fiber in 2015 when the company acquired Suddenlink and Cable vision. However, the conversion to fiber slowed and has only covered about one-eighth of the company’s 9.2 million passings. Altice is back in the news with an announcement that it will expand fiber to 1 million new locations in 2022, mostly in the northeast.

We can’t forget Charter, which is planning to build fiber in the suburban and rural areas surrounding its current markets. The company won bids in the RDOF reverse auction for a million rural passings. The company is expected to chase state and federal grants to fill in the pockets won in the RDOF auction.

All of these fiber plans still only represent a relatively small share of the 75.2 million broadband customers served by the eight largest cable companies. But this start of a trend towards fiber raises some interesting questions. It’s hard to tell as someone who works inside the industry, but my sense is that the general public has become convinced that fiber is the superior technology. That perception bodes well for AT&T and anybody that builds fiber to compete against a cable company.

More importantly, a preference for fiber bodes poorly in the long run for any cable company that doesn’t have plans to get faster. Converting to fiber is a tough strategic decision for a cable company to face. Many have been putting their hopes on DOCSIS 4.0 and thought they had plenty of time to make that transition. But the pandemic seems to have moved up the timeline drastically by highlighting the weakness of cable company upload speeds. In the surveys my firm has done in the last two years, we’ve consistently seen 30% of cable customers complaining that they had problems working and schooling from home. That’s a lot of people who are deciding they’d rather have somebody other than the cable companies as an ISP.

Categories
The Industry

AT&T Feels Sorry for Cable Companies

In a recent interview given to Diana Goovaerts of FierceTelecom, Chris Sambar, the AT&T EVP of Technology Operations said that the company is not worried about competition from cable companies. He said that AT&T’s fiber technology, which is capable of symmetrical 10-gigabit speeds is far beyond the capability of the cable companies.

He rightfully identified that cable companies must spend a lot on DOCSIS 4.0 to come close to catching up with fiber. What he didn’t mention is that the new cable technology is probably five years away from being market-ready. His zinger in the interview was when he said, “I almost feel bad for them (the cable companies)”.

This is interesting because we haven’t seen any real trash-talking between telcos and cable companies in decades. There was a lot of noise when DSL and cable modems both had 1 Mbps download capabilities, and then again when Verizon first launched FiOS. This quote is going to be talked about in every cable company board room in the coming months because it encapsulates an industry of fiber providers that are not afraid of tackling the cable companies head-on.

The cable companies have had an unprecedented run of clobbering DSL in the market and becoming near-monopolies in most urban markets. My firm hasn’t done a survey in several years where the cable company hasn’t captured at least two-thirds of broadband customers in an urban market.

But as AT&T and other telcos undertake an aggressive fiber overbuilding program, the industry is about to change. AT&T alone plans to pass an additional 15 million homes and businesses by the end of 2025. We also see aggressive buildouts planned by Verizon, Frontier, Windstream, Consolidated, and many others.

AT&T’s CEO John Stankey was quoted last year saying that the company believes that it will gain at least a 50% market share within three years after building fiber in a neighborhood. Some of those customers will be AT&T DSL customers converted to fiber, but a lot of the customers are going to be coming from the cable companies.

If the broadband world only consisted of the cable companies and the big telcos, we could pass off this latest episode as posturing by two industries that intend to continue to share duopoly market power. Telcos will win back customers with fiber, but if the two big incumbents were the only competitors in markets, then after a few years, we’d see a new equilibrium with telcos bigger than today. That’s what we’ve seen in the Northeast in the years since Verizon built its FiOS fiber – Verizon and the cable companies reached an equilibrium where each enjoys high prices and where both are profitable.

But the world is changing around the two big sets of incumbents. There are other competitors edging into urban broadband markets. For example, in the fourth quarter of 2021, T-Mobile added 224,000 customers to its fixed cellular home broadband. While this is being offered in rural areas, T-Mobile says most of its gains are coming from suburban and urban markets where the product offering of decent 100 Mbps speeds and low prices is peeling customers from both the cable companies and the telcos. While 224,000 new customers may not sound like a lot, the whole rest of the broadband industry only added 632,000 net customers in the third quarter of last year. T-Mobile has quickly grown to 646,000 total home broadband customers and will soon break into the top ten list of ISPs.

If T-Mobile was the only competitor, there still wouldn’t be much concern from the big companies. But both AT&T and Verizon are getting ready to unleash a nationwide rollout of a fixed wireless product similar to T-Mobile’s. We’re also seeing the rudimentary beginnings of other wireless providers like Starry, which said it plans to grow to 1.4 million customers by 2026. As mentioned earlier, there are millions of lines of fiber being built each year by Frontier, Windstream, Consolidated, TDS, and many other smaller players – all of these ISPs have the cable companies in their crosshairs.

AT&T has thrown down the gauntlet for the cable companies. The cable companies can watch customers erode while waiting for DOCSIS 4.0. Or the cable industry could follow the lead of smaller cable companies like Altice and start converting to fiber now. But unlike AT&T, which will get new revenues to help pay for fiber, the cable companies already have a large majority of customers in most markets. Building fiber will be harder to justify for the cable companies if they are losing customers.

Comcast and Charter still see the lion’s share of the growth of cable customers each quarter. We’ll really know the cable companies are in trouble when we see that metric slip. If everything AT&T says comes to pass, we ought to see cable companies losing customers a few years from now.

Categories
Regulation - What is it Good For?

Not Giving Up on CAF II

Brandon Presley, a Commissioner on the Public Service Commission of Mississippi, recently sent a letter to FCC Chairwoman Jessica Rosenworcel asking the FCC to investigate AT&T’s performance under the CAF II program. This FCC program gave AT&T $280 million to improve rural broadband speeds in the state to at least 10/1 Mbps.

Presley’s letter follows a request a year earlier from all three Mississippi Commissioners asking the FCC to conduct a full compliance audit on AT&T. The letter said that the PSC had documented specific examples of where AT&T had not done any upgrades, including listing homes as having improved service that have no broadband service.

This is an issue that I’ve written about many times. My consulting firm helps rural counties across the country undertake large volumes of speed tests – and in some counties, we can’t find any rural DSL customers who are receiving 10/1 Mbps DSL. These counties weren’t just served by AT&T, and we’ve seen the same thing happening in counties served by Frontier, CenturyLink, and Windstream.

To be fair to the telcos, the problem is not universal. We have done speed tests in counties where most rural DSL speeds exceed 10/1 Mbps. But it looks to us like there are a lot of places where the telcos didn’t do much, if anything, with the CAF II funding. In many of our studies, we also do field engineering inspections, and we’ve often found no new fiber construction and rural DSL cabinets still running old DSL technology. We’ve seen in many counties where the DSL speeds in the county seats has improved, and we speculate that the telcos upgraded the town DSL using the CAF II but didn’t spend the money as promised in the rural areas.

We no longer have to rely on our small sample of county speed tests because the recent NTIA maps and the DSL maps created by some states show the same thing. Those maps are often created by huge numbers of speed tests. We know that speed tests are not perfect, but when large-scale speed tests show that nobody is meeting the CAF II 10/1 Mbps target that it’s pretty certain that no upgrades were made.

As you might expect, AT&T denies the allegations in Mississippi. They claim to “have invested billions of dollars, building out our wired and wireless networks across Mississippi, and we are proud of the work we have done as a company to keep communities connected and help fuel Mississippi’s economy. . . We are also proud of the work we have done through federal and state programs that help expand critical connectivity in underserved and unserved areas, including the FCC’s Connect America Fund Phase II program. We have worked closely with the FCC and USAC on this program and any suggestion that we filed false data is patently incorrect.”

The AT&T situation is more complicated than the other big telcos because AT&T largely says it is meeting the CAF II requirements using fixed cellular service. It’s probably true that customers today who are in the range of AT&T towers that have received the new bands of frequency being labeled as 5G can receive faster broadband. But those new cellular networks don’t reach everybody in rural areas, and there are still a lot of cellular dead spots. More importantly, AT&T only started to upgrade the rural cellular networks after the end of the CAF II program.

Hopefully, this issue soon becomes history if the new round of federal grants brings faster broadband to these rural areas. But Commissioner Presley is worried that AT&T and the other big telcos will chase the new funding and will repeat history by underperforming on promises made to regulators.

This also raises the question about whether there should be large penalties against the telcos who didn’t make the upgrades. It would not be hard for the FCC to make a list of counties where upgrades weren’t made. They have access to large amounts of speed tests, and they could also activate local governments to investigate and provide feedback.

I personally think the right remedy is that the telcos must return the full amount of funding in areas where they didn’t make upgrades and that money ought to supplement the BEAD grants and be given to whoever is going to bring better broadband to the affected counties.

Ideally, the FCC or other federal agencies would prohibit any telco that is caught cheating in this manner from getting any further rural subsidies. The big telcos are lining up to pursue the $42.5 billion in BEAD grants that will probably be awarded a year or so from now. AT&T recently announced that these big grants have enticed it to add a goal of 5 million new fiber passings in rural areas. Since those grants are administered by the states, AT&T might have a challenge getting any of the BEAD grants if State officials like Commissioner Presley have any input on the grant winners.

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