Tag: AT&T

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The Industry

The Increasing Cost of Building fiber

Diana GoovaErts recently cited Pascal Desroches, the CFO of AT&T, as saying that the cost of building fiber has increased. He said that increased costs are getting close to hitting the company’s goal of not spending more than $900 – $1,000 per new fiber passing.

Any time I see an ISP talking about fiber costs, my first question is what is included in the costs. Does AT&T’s number cover only the fiber on the street? Does it also include a fiber drop, customer electronics including Wii, and installation labor? AT&T operates a PON fiber network – does the cost include field splitters, cabinets and other such costs? We don’t have any context to judge AT&T’s number and that makes it impossible to compare to costs claimed by other ISPs.

To put the AT&T numbers into perspective, I work with ISPs that are building aerial fiber in county seats that hope to hold all-in costs to $2,000 per passing when building to everybody, but often go higher. That number includes all of the costs I listed above. But it also differs from AT&T because the higher number includes the cost of building to everybody in a community. We know that AT&T only builds to small pockets of customers, and it probably rarely builds to any parts of a city that are challenging or expensive.

The other big difference is that AT&T is mostly overlashing fiber onto its existing copper. That is a construction method that is not available to other overbuilders who have to pay for make-ready on poles. The only times when costs are low for other ISPs is when the poles are in great shape, with minimal make-ready work needed. AT&T’s low target number highlight two things – its advantage from being able to overlash, and a willingness to skip neighborhoods with higher costs.

AT&T’s low target price also highlights that AT&T is shooting for a higher margin goal than most overbuilders. There is a big difference in the short-term return between an ISP paying $1,000 and one paying $2,000 per passing. AT&T is clearly under pressure to make fiber profitable as quickly as possible. Interestingly, when looking out at a ten-year horizon, there is very little difference in the cash flow generated for the low or higher cost build. Most ISPs that overbuild fiber recognize that the business has relatively low-returns for the short run but eventually cranks a lot of cash flow.

The $1,000 top target of cost also tells us a lot about AT&T’s market plan. To stay under that number means being very careful about where the company builds. This explains why AT&T is building to small pockets of customers in its markets and not building to everybody. The low target cost number also tells us that there is very little buried fiber in AT&T’s plans.

To some degree, AT&T is following the model established fifteen years ago by Verizon FiOS. Local communities were incensed when the Verizon built some streets but not the ones a block away, or when Verizon built fiber in one subdivision but not the one immediately next door. I don’t recall Verizon in those days ever mentioning a target price for construction, but it was clear that it had a cost metric that was driving where the company decided to build.

Desorches also said that AT&T is only forging ahead because the company is seeing higher than expected customer penetration rates on fiber. That fact must be creating a chill in cable company board rooms. It explains why cable companies are moving as quickly as possible to boost broadband speeds through upgrades. Cable companies are hoping that matching the speeds on fiber will fend off fiber overbuilders. That’s going to be an interesting marketing challenge because it seems to me that a lot of the public now believes that fiber is superior to other broadband technologies.

Desroches said that AT&T is still holding to its goal to pass 30 million homes by the end of 2025. The company closed 2022 with 24 million passings and will need to pass 2 million new homes per year to meet that target.

It seems likely to me that inflation isn’t the only reason that AT&T’s costs are rising. I would guess that the company has already constructed to the locations with the lowest cost per passing and that the remaining 6 million passings  likely have higher costs than the places already built.

It’s going to be interesting to see what AT&T does when it hits 30 million passings. The company could do what Verizon did with FiOS and sit on the fiber portfolio and generate a lot of cash. It’s anybody’s guess if the company will roll any of those profits back into building more fiber.

AT&T announced recently that it is interested in pursuing some of the $42.5 billion BEAD grant funding to build in rural markets. I don’t foresee the company finding any grant opportunities where its cost for matching funds will be under its $1,000 target per passing. But I think all the big telcos are considering that a higher out-of-pocket cost for grant areas will be offset by the benefits of creating a virtual monopoly in those places.

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The Industry

Should DSL Cost Less Than Fiber?

As I was going through my pile of unread articles, I found an article from the Associated Press that asked how big ISPs can get away with charging the same prices in urban areas for both slow and fast broadband. The article was about Shirley Neville, in New Orleans, who found that she was paying the same price for 1 Mbps DSL from AT&T as other city residents are paying for a fiber connection.

It’s a great question, and I was surprised that I hadn’t thought to write about it before. I investigate broadband prices around the country, and it’s not unusual to find the price for fiber broadband in a city set close to the price charged for DSL.

It would be easy to justify charging the same price for both technologies if AT&T was in the process of converting everybody in New Orleans to fiber. In fact, if that was the reason, I’d be impressed that AT&T wasn’t charging more for the technology upgrade. But this is not the situation. It’s clear that the AT&T fiber business plan is to build fiber to small pockets of cities, but not everywhere. The chances are high that Shirley Neville’s neighborhood and many others will not be getting fiber soon from AT&T, if ever. For every neighborhood that gets fiber, there will be many that will never see AT&T fiber.

Another possibility is that AT&T’s low price for a fiber connection is an introductory price to lure people to switch from Cox, the cable company. Perhaps when the introductory price expires the fiber price will be higher than DSL. This still doesn’t feel like a great answer to Shirley’s question since AT&T is willing to give a fiber customer a big break.

The most likely answer to the question is the ugliest. AT&T doesn’t feel like it needs to reduce the price of DSL in the city because DSL customers are a captive audience. Cox has some of the highest broadband prices in the country, and that gives cover for AT&T to charge whatever it wants for DSL as long as the price is lower than Cox.

Another reason that AT&T can charge the same for DSL and fiber is that there isn’t anybody to tell the company that it shouldn’t do so. The FCC eliminated broadband regulation and the Louisiana Public Service Commission doesn’t assert any authority over broadband prices. Folks like Shirley Neville don’t have anybody looking out for them, and the big ISPs can overcharge customers with impunity.

As the article points out, Shirley’s question is germane today because of the FCC’s investigation of digital discrimination. The article cites an investigation by The Markup, which analyzed over 800,000 broadband offerings from AT&T, Verizon, Earthlink, and CenturyLink in 38 cities across America and found that the four ISPs regularly offer broadband speeds at 200 Mbps or faster at the same price as broadband with speeds under 25 Mbps.

The Markup analysis shows that the neighborhoods with the worse speed options have lower median household incomes in 90% of the cities studied. Where The Markup could gather the data, it also looks like the big ISPs offered the worst deals to the least-white neighborhoods.

USTelecom responded to the issue by stating that the high cost of maintaining old copper networks justifies high prices for DSL. The article cites Marie Johnson of USTelecom writing that “Fiber can be hundreds of times faster than legacy broadband—but that doesn’t mean that legacy networks cost hundreds of times less. Operating and maintaining legacy technologies can be more expensive, especially as legacy network components are discontinued by equipment manufacturers”.

That’s exactly the response I would expect to defend monopoly pricing. Nobody expects the price of DSL to be hundreds of times less than fiber – but DSL should cost less. The big telcos have argued for decades that it costs too much to maintain copper networks. But they never finish that statement by telling us how much money they have collected over the years from a customer like Shirley Neville – possibly hundreds of times more than the cost of her share of the network.

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The Industry

A Last Gasp at Regulating Copper

The Minnesota Public Utilities Commission recently ordered a series of public hearings to investigate the quality of service on the CenturyLink copper networks. The hearings were prompted by a complaint filed by the Communications Workers of America (CWA). The complaint listed the failures of CenturyLink to meet state service standards due to the deterioration of the copper network. CWA also noted that CenturyLink is planning to eliminate half of the remaining technicians who work on copper.

Similar inquiries by other state regulators have been instituted in the last few years against CenturyLink and Frontier. I feel sorry for any customers left on deteriorating copper networks, but proceedings like this one feel like the last gasp of regulators trying to score points by beating up on the telcos that still operate copper networks.

Not that CenturyLink doesn’t deserve a lot of criticism. Its copper networks are in dreadful condition and are in the process of dying. The poor condition of the networks is due in large part to the decades-long lack of maintenance and repairs. We know this is the case because copper networks of a similar age are still operating much better in Europe. The big telcos like CenturyLink, Frontier, Verizon, and AT&T stopped caring about copper networks back in the 1990s, and the networks have been in a steady decline since then.

But U.S. copper networks are truly near the end of life. It’s impossible to neglect maintenance for over twenty years and somehow suddenly make the networks perform better. It’s hard to fathom the intentions of having regional hearings on the topic for any purpose other than letting people vent their frustration with CenturyLink. It’s hard to imagine anything changing as a result of these hearings that will improve service. There might be new fines levied on CenturyLink, but that’s less costly for the company than trying to make the copper work.

Some big telcos are working to convert copper networks to fiber. Frontier and Windstream are building a lot of fiber – and I assume they are overlashing the new fiber wires on the old copper. AT&T and Verizon are selectively expanding fiber in neighborhoods where the cost of construction meets some internally set cost test – but these two companies are quietly moving most copper customers onto cellular connections.

CenturyLink has been up and down on the decision to overbuild residential fiber. It currently looks like the company is only building ‘strategic’ fiber, which I interpret to mean business districts and large apartment complexes. It seems unlikely that CenturyLink will overbuild much more of its residential copper in Minnesota or elsewhere with fiber.

I would bet that if CenturyLink could wave a magic wand and be rid of copper, it would do so. It’s harder each year to maintain copper networks, and a move to eliminate half of the remaining copper technicians shows that the company is finally throwing in the towel. But giving up on copper still means walking away from a lot of revenue.

There are still plenty of customers who want to keep using the copper networks. Say what you want about the inadequacies of DSL, but in most urban markets where my firm does surveys, we still find 10% to 20% of households are still using DSL. These are households for whom the price is more important than broadband speed.

CenturyLink and the other big telcos have recaptured the cost of the copper networks many times over and decided many years ago not to reinvest profits back into new and upgraded networks. We’re now reduced to watching the last death throes of copper networks, and it’s not pretty.

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The Industry

AT&T Disses FWA Wireless

In recent Telecompetitor article, AT&T Chief Financial Officer Pascal Desroches was quoted as saying that fixed wireless is “not a great product and the customer ultimately is going to reject it.” By fixed wireless, Desroches was referring to the FWA product being offered by competitors Verizon and T-Mobile. The product takes advantage of excess capacity on cell towers to sell home broadband using the same spectrum used to serve cell phones. For now, the market is embracing the FWA product. In 2022, T-Mobile sold around 2 million connections on the product, while Verizon sold almost 1.2 million.

The new product has some clear advantages in two different markets. In rural areas that don’t have any good broadband connection, the FWA product is likely to be faster than what is available from competitors. I’ve talked to rural customers using the product who say speeds are between 50 and 100 Mbps, although I talked to one customer living near a tower who is getting 200 Mbps. In many of the counties I’ve worked in, these speeds are heads and tails above the existing DSL, cellular hot spots, or more traditional fixed wireless.

In more urban and suburban areas, the attraction is price. These markets have much faster broadband available from cable companies and sometimes by fiber providers. But the faster ISPs charge a lot more than the $60 price of FWA. I think this product makes a great replacement for DSL – it costs about the same but is significantly faster. But T-Mobile and Verizon are not providing any details on who is buying the FWA product. How much of the sales are rural versus urban?

There are noted downsides to the FWA product. The primary one I’ve heard from customers is that it’s not consistent and that speeds vary a lot. This is pretty understandable considering the complex nature of cellular networks, and anybody who watches the bars on their cellphones knows that speeds bounce up and down during the day.

FWA coverage is also limited by the location of cell sites since the FWA broadband doesn’t go far. In most rural counties, only a small portion of the geography is within two miles or so of a cell tower. Hopefully, the cellular carriers will be smart enough not to sell service to folks who are at the outer fringe of a coverage area.

I’m sure that Desroches is talking about the long-term legs of the FWA product. I think he is referencing the ever-increasing demand for broadband. OpenVault recently reported that the average U.S. household is now using 587 gigabytes of data each month, up from 270 gigabytes just four years ago. You don’t have to trend that growth very far into the future when it becomes reasonable to ask if cellular networks can meet that kind of demand. Cellular carriers are using excess capacity today to sell FWA. At what point in the future does the FWA demand exceed the cell phone demand at cell sites?

FWA is never going to more than an interesting footnote for cellular companies. Even if they sell to ten million FWA customers, that’s barely noticeable compared to the hundreds of millions of cell phone customers. I can’t picture any scenario where a cellular company will endanger its cellular business by trying to meet the demands of FWA. They’ll selectively cancel FWA service at overloaded cell sites before doing that.

Interestingly, AT&T will be offering some FWA service. Desroches characterizes AT&T view of FWA as a temporary product and will treat it accordingly.

I doubt that Desroches set out to be negative about his competitors. I have to imagine that AT&T is constantly being asked why it isn’t emulating the rapid deployment of FWA, and I would guess he was responding to one of these queries. But it is interesting to see his response because it sounds like an honest assessment of the FWA business case. It’s a new broadband product that fills some interesting market niches today. But it’s reasonable to ask if it be relevant a decade from now. I would tend to agree with Desroches that FWA will have a relatively short shelf life compared with faster broadband technologies.

Categories
The Industry

Is Fiber Growth Slowing?

In a recent article in LightReading, Mike Dano cites data from industry analyst Cowan that shows that some of the largest fiber builders in the country have already trimmed back their construction plans for 2023.

AT&T has the largest retrenchment and is trimming 2023 plans from 3.5 to 4 million passings back to 2 to 2.5 million. The company says that it is not changing its long-term goal to reach 30 million passings with fiber, but a cutback of this size means it won’t likely reach that target in 2025.

Lumen’s new CEO Kate Johnson said the company is taking a pause while it rethinks its path forward. In doing so, the company trimmed 2023 fiber expansion plans from 1.75 million passings to something under 1 million.

Cowen says other big ISPs will also trim plans a bit. Frontier is probably trimming 2023 plans from 1.6 million to 1.4 million passings. Altice is cutting expectations back from 1.6 million to 1.5 million. Consolidated is reducing 400,000 planned new passings to 350,000.

There are other fiber builders that don’t seem to be cutting plans. Brightspeed, Metronet, and others still seem to be on track for their 2023 plans.

But cutbacks of the size of the AT&T and Lumen plans raise some questions about the trajectory of fiber overbuilding. If construction plans announced two years ago had held steady, there was a massive push to build fiber networks to compete with cable companies. Do these cuts mean that fiber competition won’t materialize as planned?

There have been big external changes affecting the entire industry. Fiber material costs are up, as evidenced by the recent price hike announced by Corning. Prices of fiber components are up across the board for everything from conduit, handholes, drop wires, etc. A bigger cost impact is the cost of labor, with technicians labor rates rising across the industry.

Fiber construction is also not immune from interest rate increases. I already have some clients thinking of shelving fiber expansion projects until interest rates come back to earth.

All of this adds up to a lower return for fiber builders. I was always a bit mystified by the frenetic planned pace of fiber expansion craze in cities since the returns have never been spectacular. I’ve always assumed the push to build fiber has been more of a land grab as big ISPs see other fiber builders encroach on areas they want as markets. I think much of the fiber construction craze has been about either building now or getting locked out of markets in the future.

Any level of cutbacks is good news for cable companies, since the above cutbacks mean several million fewer fiber passings to compete with by the end of 2023. Any relaxing of the competitive pressure gives cable companies more time to upgrade upload speeds over the next three years. I have to wonder if the cable company’s plans to increase upload speeds play into any of the decisions to cut back on fiber expansion. It would be really interesting to sit inside the Board rooms as the big ISPs debate these strategies. The broadband environment is getting more complex by the day.

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Regulation - What is it Good For?

Hidden Unserved Locations

There is a mountain of complaints to be made about the new FCC maps. In some parts of the country there are a lot of missing rural locations, including entire subdivisions. Various ISPs have continued to exaggerate both coverage areas and broadband speeds. But even with all of the flaws there is a lot of interesting information in the new maps.

I live in Asheville, North Carolina. In the previous version of the FCC mapping the whole city and a lot of the surrounding areas were shown as having broadband available from Charter. There is also parts of the city that have fiber provided from AT&T. As you might imagine, the old maps didn’t tell the real story. The FCC mapping protocol showed an entire Census block covered by a given ISP that has even one customer in the Census block. It’s mostly this mapping rule that showed everybody here able to buy broadband from Charter.

The new maps are far more granular. If you search the map throughout the city you can find homes, businesses, and whole streets where Charter doesn’t claim to offer broadband. The AT&T coverage on the new maps shows how AT&T typically builds small fiber networks that cover only a few blocks in a given area.

Close analysis of the map shows what folks in the broadband world have always known, but were unable to prove, that the big cable companies and telcos don’t cover everybody. It is these unserved folks in the middle of cities that I call the hidden unserved locations. Such locations cannot buy the same broadband as nearby neighbors.

These little pockets came about for a variety of reasons. Some are costly to serve and the cable company decided not to reach them when the initial network was built. The cable company might not have been unable to obtain the needed rights-of-way for some reason. A house might be sitting inside of a park or other land that makes it complicated to pursue an easement. ISPs also don’t always automatically build to reach newly constructed homes, which can be a real shock to the new tenants.

In many of these cases where the cost to connect a drop is high, and an ISP often refuses to connect the location unless the customer pays for the cost of the connection. Everybody in the industry has heard the horror stories where an ISP quotes a cost of thousands, or even tens of thousands of dollars to make a connection, even inside of a city. Many homes and businesses in this situation cannot afford the big connection fee.

It’s not always the ISPs fault that the broadband isn’t available. It’s not unusual for the owners of privately-owned road not to give permission to an ISP or others to dig up the streets. There are apartment buildings where the owner decided not to allow a given ISP into the building. There are homes where the owner doesn’t want a connection and refuses to provide an easement.

In looking around Asheville I found a surprising number of such locations. I found individual homes or pockets of homes that are not claimed as served by Charter. But the real surprises came when looking at the outer portions of the city. There are parts of neighborhoods that have been bypassed for some reason, even though homes further outside of the city have service. It also looks like neighborhoods with large lots and long driveways have been selectively bypassed.

This version of the FCC maps likely still has a lot of reporting errors. Some of the homes shown as not being served might have a connection available, while some homes shown as having broadband might not be able to get it. Over time it’s hopeful that a lot of these local issues will be resolved as people use the FCC map challenge to fix the maps. But I think a lot of these situations are real. It’s not worth the effort yet with this first iteration of the maps to dig too deeply. But cities are going to be able at some point to make an inventory of locations that don’t have good broadband. At that point cities will be able to work to close the gap of the hidden unserved locations.

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Uncategorized

AT&T in the News

AT&T has not been in the headlines a lot this year, but recently I’ve seen the company’s name everywhere.

In the recently released financial results for the third quarter, AT&T noted that it now has more fiber broadband customers than non-fiber customers. At the end of the quarter, AT&T had 6.93 million fiber customers compared to 6.86 million remaining non-fiber customers. Non-fiber customers are predominantly U-Verse customers served by two pairs of telephone copper. The company still also has 340,000 DSL customers served by a single copper pair. There are also some rural fixed-wireless customers.

In the third quarter, AT&T added 338,000 fiber customers. The company lost 367,000 non-fiber customers in the second quarter – although counting them as lost is probably a misnomer since many were likely upgraded to fiber.

Upgrading to fiber is good for the company’s bottom line. For the quarter, the average revenue per user (ARPU) was $62.62 for fiber customers compared to only $54.60 for non-fiber customers. AT&T has also been saying for years that the cost of maintenance for copper is a lot higher, so the company is likely shedding costs as it sheds customers served on copper.

We also got a peek at market AT&T’s penetration. AT&T says it passes 18.5 million potential customers with fiber, meaning the company has achieved an overall 37% market penetration on fiber. In the third quarter, the company added fiber to pass 500,000 new locations.

I saw another interesting news blurb about AT&T. Bloomberg reported that AT&T is looking for an equity partner to invest in a major expansion of fiber. That would be a big departure from the past since AT&T has always funded its own capital expenditures and networks.

But it’s not hard to see from the third quarter results why AT&T might be seeking additional funding. In the third quarter, the company generated $9.87 billion of cash. It invested $4.71 billion in new infrastructure and paid $3.75 billion in dividends – leaving only $1.41 billion in free cash.

I would conjecture that AT&T wants to invest more heavily in fiber immediately since it’s clear that there is a mad rush nationwide to build fiber in cities. Fiber overbuilders hope that if they are the first to a market with fiber that it might dissuade other fiber overbuilders – so we are currently seeing a fiber land grab. In the long run, sharing fiber profits with an investor will decrease future AT&T earnings. The calculus that the company is betting on is that the market share gained by building first to markets outweighs the cost of sharing profits.

AT&T is currently debt-heavy. AT&T hasn’t had a recent track record of making good investment decisions. It’s been reported that AT&T lost as much as $50 billion from its purchase of DirecTV. In almost the same time frame, the company lost as much as $42 billion from its purchase and sale of WarnerMedia. The company might not be able to easily borrow the money, particularly at current interest rates.

The final news is that AT&T was fined $23 million to resolve a federal investigation that the company had “unlawfully influenced” the former Illinois Speaker of the House, Michael J. Madigan. AT&T admits that it paid Madigan, through an ally, to promote legislation that would eliminate carrier of last resort in the state – meaning that the company is obligated to serve people who ask for a telephone line. That obligation also comes with legacy regulatory requirements that AT&T wanted to ditch.

What always dismays me, but never surprises me, is that nobody at a big company like AT&T got in trouble for breaking the law – in this case, bribing a government official. The size of the fine might be appropriate for the magnitude of the crime, but I’ve always thought that the folk at big companies would be more likely to hesitate to be unethical if they saw others going to jail for breaking the law. The only real consequence for AT&T, in this case, is that they got caught, and the fine will just be viewed as the cost of doing business.

Categories
Regulation - What is it Good For?

Regulating Hidden Fees

Some of the big telcos and almost every large cable company uses what the industry calls hidden fees. These are fees that are not mentioned when advertising for a service but are put onto customer bills. The cable companies have the most egregious fees, in many cases over $20 per month for new video subscribers.

There is a class action lawsuit in California that shows why ISPs are not worried about using hidden fees. In times past, when the big companies were regulated, they might have been ordered to make a 100% refund of a fee that regulators decided was questionable. But the only realistic remedy against ISPs that misbill customers is a class action lawsuit or the rare ruling against a single ISP by the Federal Trade Commission.

There has been a class action lawsuit in California about the ‘administrative fee’ that AT&T charges to wireless customers. That fee started at $1 per month in 2013 and was raised to $1.99 in 2018. There is no basis for this fee – it’s just a portion of the cost of service split off into a separate charge. This lets AT&T advertise rates for $2 less than the actual fee charged to customers. Somebody buying a $60 advertised plan will actually pay $61.99 because of this fee.

The Verge reported earlier this summer that AT&T and the plaintiffs in a class action lawsuit reached an agreed settlement, and AT&T is refunding $14 million to California wireless subscribers who make a claim. The class action lawsuit claimed that AT&T billed the fee without notifying the public or advertising the fee. But even in agreeing to the settlement, AT&T refused to admit any wrongdoing and says it fully disclosed all fees.

This award shows why big carriers can bill hidden fees with impunity. The typical settlement for a customer that makes a claim under this lawsuit will be between $15 and $29, which is far less than the average amount of this fee collected by AT&T in California at $180 per subscriber. The worst part of the settlement is that AT&T will continue to bill the fee, so they’ll recover any settlement from customers over the next year. AT&T also knows that most eligible customers won’t make a claim. It was reported that AT&T notified customers of the possible claim by text – which many people assume is spam. The settlement only applies to California customers and not folks in the rest of the country. This is a minuscule slap on the wrist to AT&T.

Class action lawsuits are not a great tool for punishing bad behavior by carriers. Lawyers taking on these issues are taking a big chance that they will lose. Anybody filing such a suit has to spend a lot of time on discovery, made worse because carriers will typically drown plaintiffs with mountains of documents in response to data requests. The lawyers employed by large corporations are generally the best around, and many class action suits never reach completion. In this case, the class action lawyers will receive $3.5 million from the settlement – but they likely spent a lot of money over many years to get the case to a settlement.

The real solution to holding ISPs accountable is strong regulation. In an ideal world, the FCC or the California Public Utilities Commission would have ordered a full refund to customers that were harmed by misdeeds by a carrier. I didn’t do the research in writing this blog, but I assume that neither regulatory body felt it had that authority in this instance – or else they chose not to take it on. That’s certainly not surprising on the Federal side since the FCC under Ajit Pai prided itself on a shift to light-touch regulation – which is a euphemism for basically no regulation at all. When I broke into the industry in the 1970s, regulators would have made a carrier rebate every cent of an overbilling, so carriers were cautious about trying something like the administrative fee.

It is within the purview of the Federal Trade Commission to tackle this sort of issue, but the agency only has the manpower to pursue a limited number of cases against bad behavior of industries of all types. Companies like AT&T know that the risk of having an issue like this brought before the FTC is tiny. And even if it happened, the company would not likely have to return all of the improperly charged fees.

Hidden fees are an interesting issue because it’s clear that hidden fees give carriers a marketing edge when competing against companies that don’t have hidden fees. The intent of carriers is to hide the fees or at least make it hard for a prospective customer to know about the fees. The issue with hidden fees is not that a company divides a fee for service into several pieces – it’s that the full fees are not disclosed. ISPs and carriers are not the only ones using hidden fees, and President Biden said last month that the administration is going to crack down on hidden fees from the airline and travel industry.

Categories
The Industry

Cable Company Cellular Growing

Cable companies are starting to quietly build a significant cellular business to bundle with broadband and other products. Consider the most recent customer count from the eight largest U.S. cellular carriers:

Verizon 143.0 M
T-Mobile 110.2 M
AT&T 101.6 M
Dish 8.5 M
US Cellular 4.9 M
Comcast 4.6 M
Charter 4.3 M
C-Spire 1.2 M

It’s worth noting that AT&T has over 200 million cellular customers worldwide, which makes them the eleventh largest cellular carrier in the world, with China Mobile first with over 851 million customers.

Comcast’s Xfinity Mobile added 317,000 customers in the second quarter of this year to bring the company to a total of 4.6 million customers. Comcast mostly uses the Verizon network to complete calls. However, Comcast demonstrates the major benefit of a cable company being in the cellular business since the company is able to offload a large portion of its outgoing mobile traffic to its WiFi network. Comcast has been experimenting with the use of 600 MHz spectrum to carry some of its cellular traffic. The company purchased $1.7 billion of spectrum in the 2017 incentive auction that freed up spectrum formerly used by television channels. Comcast also purchased $458 million of CBRS spectrum in 2020. The company says it may selectively offload traffic onto licensed spectrum in places where that is cheaper than buying wholesale minutes.

Charter’s Spectrum Mobile added 344,000 mobile customers in the second quarter of the year to bring the company to 4.3 million customers. Spectrum also uses the Verizon network. Charter purchased $464 million of PAL licenses in the CBRS spectrum in 2020. Charter says it intends to place its own radios in high-traffic areas where that will save money. Charter’s CEO Brian Roberts said a few months ago that Charter saw $700 million in new revenues from cellular over the past twelve months.

Altice has been selling mobile services branded as Optimum Mobile for several years and added 33,000 customers in the second quarter, bringing the company to 231,000 total mobile customers. Altice uses the T-Mobile network.

Cox announced the launch of a mobile pilot program on August 29, launching Cox Mobile in Hampton Roads, Virginia, Omaha, Nebraska, and Las Vegas.

All of these companies have a huge potential upside. For example, the mobile customer penetration rate for both Comcast and Charter is under 10%, and both companies believe they can become major mobile players in their markets.

The cable companies face an unusual marketing challenge since each cable company is only in selected urban markets, meaning that a lot of nationwide advertising goes to waste.

The primary reason that Comcast first entered the mobile market was to develop another product that would create a stickier bundle. Comcast figured it would be hard for a customer to leave if that meant finding a new cellular carrier along with a new ISP. Cable companies are still only selling to their own broadband customers, which is a good indication bundling is still a key reason for doing this. It’s also less costly to sell cellular to households that can offload cellular traffic to the cable company broadband network.

The big three cellular carriers have continued to grow in recent years, but the cable companies have definitely made a dent in the market with almost ten million retail mobile customers. The real test for the cellular industry is going to come when Dish finally gets its act together and offers low-cost mobile service in most markets. That’s going to put price pressure on everybody else. If Dish starts a price war, as promised, we’re going to see a real shake-up.

 

 

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.

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