Tag Archives: AT&T

AT&T to Add Rural Broadband?

Satellite_dish_(Television)There is one part of the AT&T and DirecTV proposed merger that really has me scratching my head. Buried within the announcement was a statement that AT&T would use this merger to add 15 million broadband subscribers over the next four years, mostly in rural areas. That goes in the opposite direction of what AT&T has been saying for the last several years. For instance, AT&T told the FCC last year that it was going to be asking for permission to cut down the copper lines from millions of rural customers.

And it goes against the trend of AT&T’s broadband sales. Let’s look at the numbers. In 2011 AT&T reported 16,427,000 data customers. At the end of 2013 it was virtually the same number at 16,425,000. So overall, AT&T has been totally flat in the total number of data customers. But looking beneath those numbers we see something else. During that same two years AT&T added almost 1.5 million customers to its U-Verse product, a bundled data and cable product using two bonded copper wires. Assuming that most of these new U-Verse customers are buying data, then AT&T lost a lot of traditional DSL customers at the same time it was growing the U-Verse product.

So AT&T has been losing traditional DSL customers and it has plans to cut down millions of copper wires. And yet the DirecTV merger is going to somehow help it almost double its data customers, particularly in rural areas? How might they do that? I can think of a couple of scenarios.

One possibility is that this part of the announcement is all fluff intended to help get the merger through the FCC. Nothing gets a better ear these days at the FCC than the promise to bring broadband to rural customers. So AT&T might be blowing smoke and hoping that this helps to get the merger approved. But let’s suppose they are serious about this and that they really are going to vigorously chase data customers again. How might they do that? I can think of two scenarios.

First, they could use the DirecTV merger as a reason to reinvigorate their investment in copper. The fact is that AT&T has always had it within its power to do better in rural broadband. Most of its rural DSL electronics are first or second generation equipment, and for a relatively moderate investment they could beef up rural DSL to become competitive. Perhaps bundling it with a TV product that brings a profit stream from numerous rural homes changes the business plan and makes DSL look attractive again as a long-term investment. But I have a hard time believing this. Their rural copper plant is old and I believe them when they say they want to tear it down and get out of the landline business.

The only other option that makes sense to me is that they use a DirecTV bundle to entice people off their copper and onto wireless data. In doing so they would also be furthering their goal of getting out of the copper business. I have written a number of blogs talking about how rural cellular systems cannot take the place of landlines for the delivery of data. Cellular systems are great at delivering bursts of data, especially after being upgraded to 4G, but they are not designed, nor can they be designed to support multiple people watching streaming video. It doesn’t take many video customers to lock up the typical cell site. And this is a matter of physics as much as anything, so there is no easy way to fix this other than to move to really small cell sites with a few customers on each cell. And that would require a big investment in rural fiber.

So I am skeptical of the AT&T announcement. This announcement might have made sense if AT&T wanted to buy Dish Networks, which owns a significant amount of spectrum that could be used to deliver point-to-multipoint data in rural areas. But DirecTV has no broadband assets or plans. My best guess is that they will use this merger as an excuse to move people off copper, something they are already working hard at. But there is also the chance that this is all smoke and mirrors to help get the FCC to approve the merger.

A Solution for Net Neutrality?

Network_neutrality_poster_symbolToday Mozilla filed comments with the FCC with a clever solution that would fix the net neutrality fiasco. Attached is the Mozilla filing. I call the solution clever, because if the FCC wants to solve net neutrality Mozilla has shown them a path to do so.

Mozilla has asked to split Internet traffic into two parts. First is the traffic between ISPs and end-user customers. Mozilla is suggesting that this part of the business can remain under the current regulatory rules. The second portion is the traffic between ISPs like Comcast and AT&T and content providers like Facebook, NetFlix, etc. Mozilla recommends that the FCC reclassify this as transport under Title II of the Telecommunications Act of 1996.

The current dilemma we are facing with net neutrality is that FCC lacked the courage to classify the Internet network as common carrier business. Instead, in 2002, when broadband was growing explosively, the FCC classified all Internet traffic as an information service. And that decision is why we are even having the debate today about net neutrality. If the FCC had originally decided to regulate the Internet then it would have full authority to enforce the net neutrality rules it passed a few years ago.

But even in 2002 the FCC was a bit cowed by the political pressure put on them by lobbyists. The argument at the time was that the FCC needed to keep hands off the burgeoning Internet so as to not restrict its growth. It’s hard for me to see how classifying the Internet business as common carrier business would have changed the growth of the Internet and I believe it all boiled down to the fact that the cable companies did not want to be further regulated by the FCC.

The net neutrality rules written a few years ago by the FCC basically say that ISPs have an obligation to deliver all packets on the Internet without discrimination. Mozilla is suggesting that there is an additional legal obligation between ISPs and content providers to deliver their traffic without discrimination.

This argument might seem a bit obscure to somebody not in the industry, but it removes the dilemma of not being able to regulate the traffic between ISPs and content providers. The suggested change is to not classify data packets at the carrier level as information services, but to recognize it by its normal network function – that is the transporting of data from one place to another. Today transport is regulated in the sense that if a carrier sells a data pipe of a certain amount of bandwidth to another carrier they are obligated to deliver the bandwidth they have charged for. By putting the gigantic data pipes that extend between companies like NetFlix and Comcast under the transport regime it would treat Internet traffic like any other data pipe.

This change makes a lot of sense from a network perspective. After all, it’s hard to think of the transaction where NetFlix hands a huge data pipe to Comcast or AT&T as an information service. Comcast is doing no more than taking the data on that pipe and moving that data where it is supposed to go. That is the pure definition of transport. It only becomes an information service on the last mile of the network where the data traffic is handed off to end-user customers. There are already millions of other data circuits today that are regulated under the transport rules. It make logical sense to say that a 10 gigabit Internet circuit is basically the same, at the carrier level, as a 10 gigabit circuit carrying voice or corporate data. Data pipes are data pipes. We don’t peer into other data pipes to see what kind of traffic they are carrying. But by classifying the Internet as an information services that is exactly what we do with those circuits.

This idea gives the FCC an out if they really want net neutrality to work. I personally think that Chairman Wheeler is thrilled to death to see net neutrality being picked apart since he spent years lobbying against it before taking the job. So I am going to guess that the Mozilla suggestion will be ignored and ISPs will be allowed to discriminate among carriers, for pay. I hope he proves me wrong, but if he ignores this suggestion then we know he was only paying lip service to net neutrality.

The Story of the Numbers

I ran across some interesting statistics from the Leichtman Research Group. They track a lot of basic industry statistics and the ones I found most interesting are summaries showing the number of cable and data customers at all of the largest carriers in the industry. Consider the following table that I have created from their statistics:

Data Customers 2013 2012 2011
Comcast 20,662,000 19,366,000 18,143,000
Time Warner 11,606,000 11,395,000 10,909,000
Charter 4,640,000 4,269,000 3,946,000
Cablevision 2,740,000 2,723,000 2,633,000
Suddenlink 1,059,500 1,002,100 948,700
MediaCom 965,000 915,000 851,000
Cable One 472,631 459,235 451,082
Major Cable 42,145,131 40,129,335 37,881,782
AT&T 16,425,000 16,390,000 16,427,000
Verizon 9,015,000 8,795,000 8,670,000
CenturyLink 5,991,000 5,851,000 5,659,000
Frontier 1,836,000 1,724,000 1,702,000
Windstream 1,170,900 1,214,500 1,207,800
FairPoint 329,766 324,977 312,745
Cincinatti Bell 268,400 259,400 257,300
Major Telco 35,036,066 34,558,877 34,235,845
Major Carriers 77,181,197 74,688,212 72,117,627
Cable Customers 2013 2012 2011
Comcast 21,690,000 21,995,000 22,331,000
Time Warner 11,393,000 12,218,000 12,743,000
Charter 4,342,000 4,158,000 4,314,000
Cablevision 2,813,000 3,197,000 3,250,000
Suddenlink 1,177,400 1,211,200 1,249,000
Mediaom 945,000 1,000,000 1,069,000
Cable One 538,894 593,615 621,423
Major Cable 42,899,294 44,372,815 45,577,423
DirecTV 20,253,000 20,084,000 19,885,000
Dish 14,057,000 14,056,000 13,967,000
DBS 34,310,000 34,140,000 33,852,000
AT&T 5,460,000 4,536,000 3,983,000
Verizon 5,262,000 4,726,000 3,981,000
Major Telco 10,722,000 9,262,000 7,964,000
Major Carriers 87,931,294 87,775,815 87,394,423

This table only looks at the major carriers, but in this country that is almost everybody. For example, missing from the table of cable customers are all of the other providers, who altogether only have 7% of the total cable market.

There are some interesting things to notice about these statistics:

  • The number of high-speed data customers continues to grow and the major providers added 2.5 million more customers in both 2012 and 2013.
  • The major cable companies either have or soon will have more data customers than cable customers. This explains why they now view themselves as ISPs who happen to sell cable.
  • The cable companies lost 2.7 million cable customers from 2011 to 2013. This may have more to do with service and competition than anything else since AT&T and Verizon picked up 2.7 million cable customers during that same time period.
  • The Comcast / Time Warner proposed merger is gigantic since those two firms are two of the top three data providers today and two of the top four cable providers.
  • As much effort as the satellite companies expend in advertising they are barely growing. Dish Networks, for example added a net 1,000 customers in 2013.
  • A few companies are really bleeding cable customers and Cablevision and Cable One both lost 14% of their cable subscribers over a two year period. Even Time Warner lost 11%.
  • As well as AT&T and Verizon have done in cable, together they have only grown to be 12% of the cable market.
  • The fastest growing ISPs over the two-year period are Charter (17%), Comcast (13%) and MediaCom (13%).

Are They Really Digital Trials?

A800px-OSU_Bucket_TruckT&T is now doing two ‘digital trials’ in West Del Ray Beach, FL and Carbon Hill, AL. The supposed purpose of these ‘trials’ is see if there is any way to bring all customers onto an all-IP network. But that is bosh. The only purpose of these ‘trials’ is for AT&T to prove to the FCC that it’s okay to kick people off copper networks.

This is all being done as part of the IP transition where we move away from a legacy TDM-based phone network into an Ethernet world. But that transition is supposed to be about the network that is used to move calls from one town to another, and somehow AT&T twisted this to become about moving people off of copper. And it ignores the fact that anybody served by DSL or cable modem is already on an IP and digital network.

AT&T doesn’t want to kick everybody off the copper network. They have their U-Verse products into millions of homes, which requires two pairs of copper. But U-Verse has been sold in large cities and suburbs and not in the small towns like the ones in these tests. It’s apparent in these smaller places that AT&T would rather find a way to force people off the copper than upgrade it.

And this is a bit ironic because for years AT&T has been heavily subsidized to help them pay for the copper wires. They were a rate-of-return carrier, meaning that they were guaranteed for decades to make a profit in each state they operated in. One would have thought that they would have rolled some of those profits back into taking care of the copper wires, and in the metropolitan areas they did. But AT&T walked out of the rural towns many years ago. They closed offices and cut back rural staff and have slowly let those copper networks deteriorate.

So now they want a ‘trial’ to figure out how they can best walk away from rural America. They want to go to all of the small towns on America and force people to move to wireless or move to the cable company. The problem with this idea is that there are a whole lot of rural places where the wireless coverage is awful and where the cable companies have not made any investments also.

A few years ago the FCC had estimated that there was 19 million US households with no broadband. People who work in rural America know that this was a bogus estimate based upon facts fed to them by AT&T and Verizon, and that there are a lot more houses with no broadband. But there has been a lot of effort to get broadband to some of these areas, so one would think that there are fewer households without broadband today, regardless of the actual number.

But if AT&T is allowed to progress past this test and start knocking people off copper there is going to be a whole lot of new homes without broadband. A whole lot more.

I am sure that the FCC has no comprehension of what ‘broadband’ is like in the typical small rural town. The phone company will have first generation DSL that they market at 3 Mbps download (to qualify with the FCC as broadband), but which probably gets half of that. The little town might or might not have a cable company, and even if they do they either don’t offer cable modem or it is also first generation technology and very slow. And you don’t need to go very far outside town until there is no broadband. The cable companies generally stop around the town borders. DSL carries a little further, but since DSL quality decreases with distance, you don’t have to go far until DSL is no better than dial-up.

I have no doubt that AT&T is going to play very nice in these trials. They will find a solution for everybody in these two small towns, even though for many that solution is going to be inferior to what they have today. But then, if the FCC is dumb enough to give them the permission, they are going to mail out notices to millions of homes in small towns and tell them to go find broadband elsewhere.

Software Defined Networks

The InternetAT&T announced last week that they are going to implement software defined networking (SDN) in their network and that over a few years they will replace other kind of telecom gear. They say that over time this is going to save them billions on hardware costs. This announcement probably is a watershed moment for the telecom industry and is going to have huge implications for the way we build our networks and the vendors we use for routers and switches.

For those who are not familiar with the term, SDN is an idea that got started at UC Berkeley in 2008 and is now starting to hit the market. Its core concept is to use generic low cost routers, switches and other network hardware and to control them with specialized and centralized software. Today the routers that operate our networks come as packages of combined hardware and software, of which software is the more expensive component. Each vendor has their own way of doing things and you will find networks that are Cisco centric or Juniper centric, and network technicians become proficient with a specific brand of equipment.

But SDN is going to change all of that. With SDN a company like AT&T will be able to buy one set of centralized software and control their devices all over the network. The equipment becomes secondary in this configuration and AT&T could mix and match different brands of equipment. The biggest obvious savings will come in that they are not having to buy the software again each time they buy a router.

But there are even bigger savings promised with SDN over time. The promise of the technology is that companies can tailor their networks on the fly by making a software change rather than swapping or upgrading hardware systems. For a company that is as decentralized and huge as AT&T this could be transformational. I am sure many of you have waited before for AT&T to make facilities available because they were in the middle of a network upgrade. AT&T says that it is not unusual today for them to take 18 months to effectuate complex network changes. With SDN they could do it on the fly, and even after taking time with testing and double checks, they will be able to effectuate major changes in weeks instead of many months. And if circumstances dictate it, such as in an emergency, they could make changes on the fly.

SDN will give a whole new set of tools to network engineers. Today traffic is forwarded using industry standards such as MPLS, BGP or OSPF. With SDN a network engineer will be able to get extremely granular with traffic. For example, they might shuttle all traffic that is experiencing jitter to a specific place in the network. Since an SDN network is programmable it is going to give them flexibility they never have had.

This announcement has to be putting fear into the large telecom vendors like Cisco, Juniper and Alcatel. These companies supply the majority of the gear to the large network providers and the companies who are pioneering SDN are much smaller start-ups. Cisco and others are already climbing onto the SDN bandwagon and developing products, but there is no doubt that SDN will hurt these vendors. The billions of dollars of savings envisioned by AT&T has to come from somewhere. Carriers will be buy cheap generic switches and routers, will be able to keep them longer and are not likely to be as loyal to specific vendors as they were in the past.

This announcement should not send you out quite yet to change your own network to SDN. The industry is still in its infancy and the cost of the master SDN software is really steep today. But like every change of this magnitude the product will eventually get cheaper and work its way down into the rest of the industry. Let’s let AT&T figure out the bugs and at some point this will become the industry norm.

Cellular is Not the Rural Broadband Solution

Cell-TowerI’m often asked why we can’t let cellular 4G bandwidth take care of the bandwidth needs for rural America. When you look at the ads on TV by Verizon and AT&T you would assume that the cellular data network is robust and is being built everywhere. But there are a lot of practical reasons why cellular data is not the answer for rural broadband:

Rural areas are not being upgraded. The carriers don’t make the same kinds of investments in rural markets that they do in urban markets. To see a similar situation in a related industry, consider how the large cable companies are upgrading cable modems in the metropolitan areas years before they upgrade rural areas. It seems that urban cellular technology is being upgraded every few years while rural cell sites might get upgraded once a decade.

Rural networks are not built where people live. Even where the cellular networks have been upgraded, rural cellular towers have been historically built to take care of car traffic, referred to in the industry as roaming traffic. Think about where you always see cellular towers and they are either on the top of tall hills or else along a highway not close to many homes and businesses. This matters because like all wireless traffic, the data speeds drop drastically with distance from the tower. Where a 3G customer in a City might get 30 Mbps download speed because they are likely less than a mile from a transmitter, a customer who is 4 miles from a tower might now get 5 Mbps. And in a rural area 4 miles is not very far.  

The carriers have severe data plans and caps. Even when customers happen to live close to a rural transmitter and can get good data speeds, the data plans for the large carriers are capped at very skimpy levels. One HD movie uses around 1.5 gigabits, meaning that a cap of 2 to 4 gigabits is a poor substitute for landline broadband. There are still a few unlimited data plans around but they are hard to get and dwindling in availability. And it’s been widely reported that once a customer reaches a certain level of usage on an unlimited plan that the speeds are choked to go very slow for the rest of the month.

Voice gets a big priority on the network. Cellular networks were built to deliver vice calls to cell phones and voice calls still get a priority on the network. A cell phone tower is limited to a finite amount of bandwidth. And so, once a few customers are downloading something big at the same time, the performance for the rest of the cell site gets noticeably worse. 3G networks are intended to deliver short bursts of fast data, such as when a cell phone user downloads an app. But there is not enough bandwidth at a cell phone tower to support hundreds of ‘normal’ data customers who are watching streaming video and using bandwidth like we use in our homes and businesses.

The plans are really expensive. Cellular data plans are not cheap. For example, Verizon will sell you a data plan for an iPad at $30 per month and a 4 gigabit total usage cap. Additional gigabits cost $10 to $15 each. To get the same plan for an iPhone is $70 per month since the plan requires voice and text messaging. Cellular data is the most expensive bandwidth in a country that already has some of the most expensive bandwidth in the world. 

There are no real 4G deployments yet. While the carriers are all touting 4G wireless, what they are delivering is 3G wireless. By definition the 4G wireless specification allows for gigabit data download speeds. What we now have, in engineering terms can best be described as 3.5 G and real 4G is still sometime in the future. There are reports of current cellular networks in cities getting bursts of speed up to 50 Mbps, which is very good, but is not close to being 4G. But most realized speeds are considerably slower than that.

Sponsored Data . . Huh . . What is it Good For?

Internet_Explorer_e_and_Nuvola_red_XAdmit it, your mind finished that headline with ‘absolutely nothin’. And rightfully so. AT&T Wireless announced last week that they are starting a new program they are calling Sponsored Data. This is a plan that let’s content providers pay for data usage for their customers, and any data used by a sponsored plan would not count against their data caps.

Of course, this announcement came along with the promise that this does not violate Network Neutrality. In fact, AT&T swears that they are big fans of Network Neutrality. Nothing could be farther from the truth. You know the big network providers have always wanted to get into the revenue streams from content providers. After all, they spend a lot of money always upgrading their networks to be faster and each time those nasty content providers find content that makes customers use the new bandwidth. It must be very frustrating to be a huge network owner.

Of course this idea violates Network Neutrality. One has to wonder how long the AT&T marketers had to work to spin this to sound like a good idea. And they have done so. What they want to do is to let large app providers pay for the bandwidth for customers who use their app. What customers isn’t going to think this is a great idea?

But it’s a dreadful idea. This is exactly the kind of scheme that Network Neutrality is supposed to stop. In reality, under this plan, large wealthy content providers will pay AT&T a big fee to cover the bandwidth that customers use for their apps. This will let them get even more customers, at a cost. But this idea will have two consequences. First, a handful of large companies will do this if they believe it will get them more users. Because user is what creates value on the Internet. The more faces you have, the more billions a company is worth.

But the corollary of this is that small start-up companies won’t be able to afford this. And so the next big app may never get off the ground when competing with companies who can afford the sponsor fees. Over time, getting content providers to pay for bandwidth is going to kill innovation and stop the next generation of companies from getting started. And that benefits nobody.

It’s not like the wireless carriers like AT&T aren’t already getting a fortune for their data. The US already has some of the highest data prices among developed nations and cell phone data is by far the most expensive data in the US. So cellphone companies like AT&T are already gouging their users for their capped data plans.

There is no doubt that customers would like this, at least at first. After all, who wouldn’t like playing the newest game on somebody else’s dime. But we all know that programs and apps on the Internet come and go quickly and over time all users will suffer from lack of new content and new content providers.

It’s also pretty easy to envision that if this is allowed to stand that it won’t be too many years when only large ‘sponsors’ are expected to pay for their users’ data, but that AT&T will have their hand out to all of the app providers on the web.

The whole point of Network Neutrality is to not let content providers and network owners conspire to make some content preferred over others. Because once that barrier is broken then the Internet will stop being a source of innovation and will become the playground of a handful of large wealthy companies who will control the content. The big carriers come up with some scheme to get around Network Neutrality every few months and this is the latest. It’s quite clever, but it can’t be allowed to stand.

Looking Into 2014

Crystal ball Français : Boule de cristal

Crystal ball Français : Boule de cristal (Photo credit: Wikipedia)

As any year comes to a close it’s always fun to look forward to the next year and to make some guesses about the direction of our industry. I have always done this, but this will be the first year I put my guesses out in public with a blog. I plan to come back at the end of next year to see how I did.

More Consolidation of the Big Players. While the new FCC Chairman says that he is pro-competition, I think 2014 is going to see a lot of consolidation among the big players in the industry, which will lead to less competition. It’s likely that there will be major acquisitions in both the cellular and the cable TV space that will reduce the number of major companies in each industry. One has to wonder at what point the FCC will say no to acquisitions, but I don’t think 2014 is going to be that year.

AT&T’s Response in Austin Will Squelch Major Market Competition. I predict that AT&T’s announcement that they will build fiber-to-the-premise to match what Google is doing there is going to kill competition in NFL cities for a while. I don’t expect any new major announcements of plans to build NFL cities in the coming year. There will still be new FTTP overbuilders in smaller markets, but everybody is going to be gun-shy against committing money to major markets.

Network Neutrality Will Erode. The FCC is going to follow the lead of the new Chairman and will support large company initiatives to weaken network neutrality. This might be done through inaction, in that some large carriers may make arrangements to give preferential treatment in the network and the FCC may fail to halt the practice.

Transition to All-IP Network Will Creep Forward. While the large telcos all would like the transition to happen overnight, it’s probably going to take 3 – 4 years for a transition of most of the POTs network to IP. However, there will be some major steps taken in 2014 to start defining the regulatory framework that will go along with an all-IP network.

The Large Telcos Will Continue to Shed Copper Networks. The large telcos have made it clear that they would like to get out of the copper business. AT&T’s recent decision to bail on Connecticut is just the beginning. I think all that is probably stopping telcos from shedding more copper immediately is the lack of companies capable of buying large numbers of customers. But there will be more piles of customers shed in the next year.

The Smart Phone Will Begin to be the Hub For the Internet of Things. The main thing lacking for the Internet of Things to leap forward is consolidated platform to bring devices together. While there is the chance that some sort of home platform could eventually win this battle, I think 2014 is the year when more and more IoT devices are integrated with smartphones as the hub. If smartphones capture this role early they will be the de facto hub for a decade to come.

Customers Will Bail on Cable Faster Than Predicted. The phenomenon of households dropping or downsizing cable subscriptions will pick up steam this year and will go faster than predicted by the cable companies. The industry is not going to implode, but it will become obvious by the end of the year that there has to be a new paradigm created for delivery of programming and that traditional cable bundles cannot be the only product offered. It is going to take five years for the current cable model to break, but 2014 will be the year when the erosion becomes obvious.

The Battle for Austin

Official seal of City of Austin

Official seal of City of Austin (Photo credit: Wikipedia)

An interesting battle is shaping up in Austin as AT&T and Google are taking the early steps in head-to-head competition. Both have announced that they will build gigabit networks in the City. The obvious beneficiaries of this business will be the top-end customers in the City. It will be interesting to watch how both companies do there.

Other than a few greenfield tests, this will be AT&T’s first foray into fiber-to-the-premise. They have built their broadband business using DSL over multiple copper lines. It’s obvious that AT&T is drawing a line in the sand with Google and telling them that competition with fiber in AT&T markets is going to be met with competing fiber.

AT&T has announced their pricing for their faster product. Initially they will be offering Internet speeds of up to 300 Mbps, with the promise that those products will be upgraded for to gigabit free once the fiber has been built. This certainly gives them a leg up early since they have the ability to sign customers now.

There are two pricing options for the AT&T data product. For $99 customers will get the full gigabit (after upgrade). But interestingly, customers will be able to get the same gigabit speed for $70 if they agree to let AT&T monitor their Internet usage and give them directed advertising. That makes you pause for a second until you realize that this is the Google model. Every customer who uses a Google product, be that Gmail, Google+ or any of the other host of products is continuously monitored so that Google can know more about them. I think AT&T is being quite clever in that this compares their $70 product directly to Google’s product. What I think AT&T is really offering is a premier-priced product that comes without monitoring.

Both companies offer a handful of cable TV options. At least for now one would think AT&T has a leg up in this area since the word in the industry is that customers like all of the programming options they get with today’s U-Verse offering.

If Google sticks with the same product line they have in Kansas City, then they will also be offering a $70 gigabit offering and a few cable options. So the two companies will have the same basic price for gigabit service and will not be competing on price.

A gigabit product prices at $70 is clearly a product aimed at the more affluent households in the market. A lot of homes are going to find that too pricy regardless of the speeds that come with the product. In Kansas City, Google only rolled out their gigabit product in neighborhoods that guaranteed them at least a 15% take rate. It is going to be interesting in Austin, with two gigabit providers to see if there are many places where Google will be able to achieve that same take rate. If they can’t get that, how much will they build in Austin?

In any market a large percentage of households go for products in the $40 range for Internet, regardless of what other speeds are available. To some degree this is a matter of economics, but it also has a practical aspect. Most likely the households who subscribe to a $40 service in Austin are those homes who have not yet chosen to watch much of their video on the web. House holds with multiple people who are all trying to use the web for video are finding basic Internet products to be inadequate.

There is another competitor in the market, Time Warner, and nobody is talking about them. One has to think that today that they are the predominant ISP in Austin since the cable companies have won that battle almost everywhere over DSL. One would think that if they can offer something relatively fast, say 50 Mbps download for less than $50 that they might hang on to the majority of the market while the other two companies beat up each other going for the top end of the market.

One last point to mention in that I am scratching my head trying to figure out how AT&T is going to deliver speeds today of ‘up to 300 Mbps’ over existing copper. Such speeds over DSL either require the customer to be very close to the DSLAM or else require multiple pairs of copper, far more than the normal bonding of two pairs. From what we know about AT&T’s normal networks, those are not practical alternatives. There are fiber-to-the curb technologies that will deliver 300 Mbps, but those require fiber very close to the home. So that claim has us wondering if that is a real claim or a marketing claim.

Google and Regulation

Logo of the United States Federal Communicatio...

Logo of the United States Federal Communications Commission, used on their website and some publications since the early 2000s. (Photo credit: Wikipedia)

AT&T said last week that they were not required to give access to Google Fiber to their poles in Austin Texas. AT&T owns about 20% of the poles there with the City owning the rest. And from what I can see, AT&T is right. This all comes down to various regulations, and it appears that Google is doing everything possible to not be regulated in any way. It seems they have set up a business plan that lets them claim to escape regulation. Let me look at the nuances of what they are doing.

There is a federal set of rules that say that pole owners must provide poles to any certified telecommunications provider. According to the Telecommunications Act of 1996, the states have the right to grant certifications to carriers. Every state provides at least two kinds of carrier certifications – CLEC and IXC. CLEC is the acronym for Competitive Local Exchange Carrier and is the federal term used to describe competitive telephone providers. IXC is the acronym for Interexchange Carrier and is the certification given to companies that only want to sell retail long distance.

Some states have other categories. Some states have a certification for a Competitive Access Provider (CAP) or for a Carrier’s Carrier, These two certifications are generally given to companies who only want to sell services to other carriers. They may sell transport, collocation or other services that only carriers can buy.

A company must obtain a CLEC or CAP certification if they want to gain all of the rights that come with such certification. This includes access to poles and conduits of other carriers, the ability to interconnect with other carriers, the ability to collocate equipment in the offices of other carriers. A CLEC certification also grants a company the right to bill ‘telecom’ products to customers, meaning traditional telephone or traditional TDM point-to-point data services. These are generally rights that anybody who is building a network or providing traditional telecom services must obtain before other carriers will talk to them. But along with those rights come some obligations. Certified carriers are subject to paying some regulatory fees and collecting other fees and taxes from their customers. Regulated companies have to follow rules that dictate how they can disconnect non-pay customers. Regulated companies in some states even have some light regulations concerning pricing, although there are very few rules anywhere dictating how a competitive carrier prices their services.

So strictly, AT&T is completely within their rights to not even talk to Google about pole attachments since Google does not have or plan to obtain a certification. As it turns out, AT&T reports that they are talking to Google anyway and are negotiating a deal to let them on the poles. And honestly, that steams me a bit, because this is how big companies treat each other. I am sure that there is enough business between AT&T and Google that AT&T doesn’t see any sense in going to war over this kind of issue. They would also be seen in Austin as holding up progress and further, Google could always get the certification if push came to shove. But if this was any company smaller than Google, then AT&T would be refusing to even open a discussion on pole attachments or any of the other issues associated with being certified. AT&T would insist that any other company jump through all of the regulatory hoops first. This I know because I have experienced it numerous times. I guess it pays to be as big as Google.

AT&T would also be required to provide access to the poles if Google was a cable TV company. This is a designation that is granted by the local community and the City of Austin could negotiate a cable franchise agreement with Google. But Google is taking the stance that they are not a cable TV company. They are claiming instead that they are a video service provider because they deliver two-way cable TV service, meaning that the customer’s settop box can talk back to Google since they offer IPTV. This is taking advantage of a loophole in the law because today every large-city cable system is two-way since customers in those systems have the ability to order Pay-per-view or video-on-demand from their settop boxes.

But Google does not want to be a cable provider, because there is one nuance of the FCC rules that say that anybody getting a franchise agreement would essentially have to sign onto the same rights and obligations as the incumbent cable company. The big catch in those rules is that Google would have coverage obligations to cover the whole City and they instead want to pick and choose the neighborhoods they serve. Google would also have to collect franchise fees from customers for their cable TV product, and such fees are around 3% of the cable bill in most places.

State regulators and cities are both willing to overlook these regulatory nuances for Google because they are so big and because they promise to bring gigabit data speeds. But these same rules never get overlooked for smaller companies, and so I guess regulations only really affect the small guys any more.