Is Ultrafast Broadband a Novelty?

FCC Commissioner Michael O’Reilly recently said that ultrafast broadband is a novelty. He specifically said, “The outcry for things like ultrahigh-speed service in certain areas means longer waits for those who have no access or still rely on dialup service, as providers rush to serve the denser and more profitable areas that seek upgrades to this level. . . Today, ultrafast residential service is a novelty and good for marketing, but the tiny percentage of people using it cannot drive our policy decisions.

These statements are not surprising coming from Commissioner O’Reilly. He voted two years ago against setting the current 25/3 Mbps definition of broadband and thought that number was too high. In a dissent to that ruling he said the 25/3 definition was unrealistically high and said, “While the statute directs us to look at “advanced” telecommunications capability, this stretches the concept to an untenable extreme. Some people, for example, believe, probably incorrectly, that we are on the path to interplanetary teleportation. Should we include the estimated bandwidth for that as well? “

I don’t understand why Commissioner O’Reilly is still taking this position today. Most of the big ISPs have climbed on board the big bandwidth wagon. Comcast and Cox and other cable companies are upgrading their cable networks to DOCSIS 3.1 in order to provide gigabit speeds. CenturyLink built fiber past almost a million homes last year. Altice says they are tearing out their coaxial networks and replacing them with fiber. AT&T claims to have plans to build fiber to pass 12 million homes and businesses. Numerous small overbuilders around the country are offering gigabit speeds.

You don’t have to go back too many years to a time when the big ISPs all agreed with O’Reilly. The big cable companies in particular repeatedly made it clear that people didn’t need any more bandwidth than what the cable companies were delivering. The cable companies fiercely resisted increasing data speeds for many years and many cable networks kept data speeds in the 6 Mbps download range even though their networks were capable of delivering higher speeds without the need for upgrades.

Part of the old reasoning for that position was that the ISPs were afraid that if they gave people faster speeds then they would then use those speeds and swamp the networks. But Google came along and upset the whole ISP world by offering an inexpensive gigabit product. The cable companies in cities like Kansas City and Austin had little choice and increased speeds across the board. And once they increased in those markets they had little choice but to improve speeds everywhere.

The cable companies found the same thing that all of my clients have found when increasing data speeds. Generally a unilateral increase in customer data speeds does not cause a big increase in data usage unless the customers were throttled and constrained before the increase. Most customers don’t use any more data when speeds get faster – they just enjoy the experience more.

Of course, customers want to download more data every year and the amount of total download doubles about every three years. But that phenomenon is separate from data speeds. All of the things we do on the web requires more bandwidth over time. You scroll through a Facebook page today and you encounter dozens of videos, for example. But having faster speeds available does not directly lead to increased data usage. Speed just gets the things done faster and more enjoyably.

Commissioner O’Reilly thinks it would be better if ISPs would somehow invest to bring mediocre data speeds to everybody in the country rather than investing in ultrafast speeds to urban areas. No doubt that would make the FCC’s life easier if rural people all had broadband. But it’s fairly obvious that big ISPs wouldn’t be investing in their urban networks unless those investments made them more money. And it’s just as obvious that the big ISPs have figured out that they can’t make the profits they want in rural America.

I’m not sure what constituency Commissioner O’Reilly is trying to please with these statements. Certainly any urban customers that are happily buying the ultrafast speeds he is referring to. Certainly the ISPs investing in faster data speeds think it’s a good business decision.

I think Commissioner O’Reilly and others at the FCC would like to see the rural broadband issue go away. They hope that the CAF II investments being made by the big telcos will make the rural areas happy and that the issue will evaporate. They want to be able to claim that they fixed the broadband problems in America by making sure that everybody gets at least a little bit of bandwidth.

But it’s not going to work that way. Certainly many rural customers who have had no broadband will be happy to finally get speeds of 10 – 15 Mbps from the CAF II program. Those kind of speeds will finally allow rural homes to take some part in the Internet. But then those folks will look around and see that they still don’t enjoy the same Internet access as folks in the urban areas. Instead of solving the rural broadband problem I think the CAF II program is just going to whet the rural appetite for faster broadband and then rural folks will begin yelling even louder for better broadband.

Michael O’Rielly’s Vision of Broadband Expansion

FCC_New_LogoA whole lot of the telecom industry is anxiously watching the news to see if there will be a federal program to expand rural broadband. We’ve already had new FCC Chairman Pai come out in favor of closing the digital divide and bringing broadband to everyone. And there are those in Congress pushing for money to expand rural broadband.

Last week FCC member Michael O’Rielly entered the fray with a blog post about funding rural broadband expansion. There are things in that blog I heartily agree with, and others that I disagree with (as you might expect).

O’Rielly warns that the government should not shovel money at a rural solution in such a way as to drastically overspend to get a solution. I completely agree and I wrote a series of blogs last year (1, 2, 3, and 4) that make the same point. The government wasted a lot of money when handing out stimulus grants in the past and I’d hate to see them make the same mistakes again. There is a long list of things that were done poorly in that grant program, but a lot of this was because it was cobbled together quickly. Hopefully, if we give out new federal money to help deploy broadband we can take the time to get it right.

O’Rielly suggests that any rural broadband expansion program be handled through the Universal Service Fund. No matter which part of government tackles this there will be a need to staff up to implement a major broadband expansion program. But I agree it makes more sense to hand this to an existing program rather than to hand it to somebody like the NTIA again.

He stated one thing that has me scratching my head. He stated that he has heard of ‘countless’ examples of where stimulus middle-mile fiber routes hurt commercial providers. I have hundreds of clients, most of them commercial ISPs, and I have never once heard anyone complain about this. Many of my clients instead are enjoying lower-cost rural transport on the BTOP networks. These complaints have to be coming from AT&T and Verizon who don’t like lower-cost alternatives to their massively overpriced special access. Special access transport is one of the biggest killers of rural business plans.

It’s clear that O’Rielly has a bias towards having commercial solutions for broadband rather than government ones. I don’t know anybody that disagrees with that concept. But by now it’s pretty obvious that the big commercial ISPs are never going to invest in rural America and it’s disingenuous to keep pretending that if government funds rural broadband that it will somehow harm them. The big ISPs have been working hard to withdraw from rural America and the providers that are left – the independent telcos, cooperatives, and rural governments – are the ones we should trust to deploy the broadband we know is needed.

I take major exception to his contention that “ultra-fast residential service is a novelty and good for marketing, but the tiny percentage of people using it cannot drive our policy decisions.” This statement has two glaring omissions. First, there are many households that need fast speeds today for home-based businesses, education, and reasons beyond just watching videos or playing games. When 10% of homes in the US don’t have broadband those homes are excluded from participating in the benefits of the digital economy. It’s hard to put a dollar value on what that is costing our economy – but it’s huge.

But second – and more importantly – this ignores the inevitable increase in demand over time. US households have been doubling their need for speed and the amount of total download every three years since 1980 – and there is no sign that growth in demand is over. This means any network that is just adequate today is going to feel obsolete within a decade – and this also means you don’t make policy for today’s demands, but for demands that we already know will be here in another decade. This is why there has to continue to be a focus on fiber first. As much as O’Rielly might hate some of the worst practices of the stimulus grants, his FCC approved the disastrous giveaway of billions to the big telcos to expand rural DSL in the CAF II program. We can’t take that path again.

Finally, O’Rielly says that the government should not be picking broadband winners and losers. That sounds like a great political sentiment, but if the government is going to supply funding to promote rural broadband that money has to go to somebody – and by definition that is picking winners. But O’Rielly does temper this statement by saying that funding shouldn’t just go to the ‘well-connected’. I hope he really means that and gets behind a plan that doesn’t just hand federal broadband funding to AT&T, Verizon and CenturyLink.

Improving Our Digital Infrastructure, Part 1

FCC_New_LogoLast week the FCC published a document that is their vision of a roadmap to improve the nation’s digital infrastructure. Today’s blog is going to look at the positive aspects of that roadmap and tomorrow I will look at some of the FCC’s ideas that I find to be troublesome.

I find this to be an interesting document for several reasons. First, it was published on Ajai Pai’s first day as FCC Chairman. It’s obvious that this paper has been under development for a while, but it clearly reflects the new Chairman’s views of the industry.

This paper is not so much a complete broadband plan as it is a roadmap of principles that the FCC supports to get broadband to rural areas. The FCC recognizes that they only have the power today to institute a few of the goals of this plan and that Congress would need to act to implement most of the suggestions in the plan.

The obviously good news about this document is that it clearly lays forward the principle that rural America deserves to have real broadband that meets or exceeds the FCC’s definition of 25 Mbps. This is a clear break from the FCC’s decision just a few years ago to fund the CAF II program which is spending $19 billion to fund rural broadband that only has to meet a 10/1 Mbps standard. One of my first thoughts in reading this document is that it seems likely that if this new roadmap is implemented that the FCC would have to cancel the remainder of the CAF II deployment. It’s really too bad the that FCC didn’t support real bandwidth for rural America before tossing away money on the CAF II plan.

The FCC plan looks at bringing broadband to the 14% of the households in the country that don’t have broadband today capable of delivering 25/3 Mbps. The FCC estimates that it will cost roughly $80 billion to bring broadband to these areas. Interestingly, they estimate that it would take only $40 billion to reach 12 out of the 14%, and that the last little sliver of the country would cost the remaining $40 billion. But the FCCs goal is to find a way to get broadband to all of these places (except I’m sure for the most remote of the remote places).

The paper calls for aggressive federal assistance in funding the rural broadband. They recognize that there has not been commercial deployment in these areas because commercial providers can’t justify the investments due to the high cost of deployment. And so they suggest that the government should provide grants, loans and loan guarantees that are aggressive enough to improve the returns for private investment. They suggest that grants could be as high as 80% of the cost of deployment in the most remote places.

The paper suggests that most of the areas will have enough customer revenue to support the properties without further federal support. In looking at some of the business plans I have built for rural counties I think that they are probably right. What sinks most rural business plans is not the ongoing maintenance costs, but rather the heavy burden of debt and a return on equity during the first 10 years of deployment. Rural fiber deployment will look like better financial opportunity if the government can find a way to provide enough up-front funding support. The FCC does recognize that most rural markets in the country will require ongoing federal support to be viable. They suggest it will require about $2 billion per year in ongoing support that will probably be similar to how the Universal Service Fund works today.

The roadmap document also suggests other financial incentives to fiber builders such as faster depreciation, tax credits, and changes to the IRS rules which require today that grant funding be considered as income. That provision stopped a number of companies from accepting the stimulus funding a few years ago and is a definite roadblock to accepting grant funding.

Overall these are great goals. It’s going to require significant fiber in rural areas to meet the stated speed goals. It’s great to see the FCC change direction and suggest that rural America deserves real broadband. I just wish they had adopted this policy a few years ago rather than supporting the CAF II program that is throwing money at propping up rural DSL.

Is there a Right to Broadband?

canada_flag-1920x1080The CRTC in Canada (their version of the FCC) just took a step that is bound to reopen a discussion of best definition of broadband – they defined broadband to now be 50 Mbps down and 10 Mbps up. But they went even further and said that broadband is now a ‘basic telecommunications service’, meaning that everybody in the country ought to have access to broadband. In today and tomorrow’s blog I will look at the two issues raised by the CRTC – if there should be a right to broadband, and the role of governments in defining broadband.

Has broadband grown to become a ‘right’? I put the word in quotes because even I don’t think that is what the CRTC did. What they did was declare that the government of Canada officially blesses the idea that their citizens ought to have access to broadband. Over time that decree should prompt other parts of the Canadian government to help make that happen.

But even the CRTC does not think that every home in the country should be wired with fiber. I’ve traveled north of the arctic circle and there are plenty of remote places there that are not connected to the electric grid. And there are remote homes on top of mountains and deep in the woods where homeowners have purposefully withdrawn from civilization. The CRTC is not guaranteeing broadband to such places.

But the CRTC has made a strong statement to recognize the importance of broadband. This is not without precedent. During the last century the US government made similar statements about the right of Americans to electricity. The government then went on to create programs that would help to realize that right. This meant the formation of the Rural Utility Service to provide funding to create rural electric grids, and it mean the creation of government-sponsored electric generation such as with the Tennessee Valley Authority.

These government programs worked well and the vast majority of US homes were connected to the electric grid within a few decades. The investments made in these programs paid back the US government many times over by bringing numerous communities into the modern world. The electrification of America was probably the most profitable undertaking ever undertaken by the US government.

The action taken by the CRTC will be an empty gesture unless it pushes the Canadian government to take the steps needed to get broadband everywhere. The latest statistics show that nearly 20% of homes there, mostly rural, don’t have access to landline broadband. That’s an even larger percentage of homes than in the US and probably reflects the vast rural stretches in central and northern Canada.

The US government has not made the same kind of firm statement like the one just issued by the CRTC, but we’ve clearly taken official steps to promote broadband. There were billions poured into building middle-mile fiber in rural America with the stimulus grants. And the $19 billion CAF II fund is promoting broadband for areas that have none – although it’s still puzzling to understand the bandaid approach of that program that is pouring money into building infrastructure that doesn’t even meet the FCC’s definition of broadband. But the official goal of CAF II program is that US homes deserve broadband.

The CRTC statement is more pointed because it was paired with a new and higher definition of broadband at 50/10 Mbps. The only technologies that can meet those speeds are cable company HFC networks and fiber – and nobody is building new cable networks. The CRTC has really taken a position that rural Canada ought to have fiber.

It will be interesting to see over the next few years how the rest of the Canadian government responds to this gesture. Without funding this could be nothing more than a lofty goal. But this could also be viewed as a government imperative – much like happened in the US with electricity. And that can drive funding and initiatives that will bring broadband to all of Canada – and is something we here in the US ought to be watching and emulating.

An Effective Federal Broadband Program, Part 3

outdoor-indoor-cable-161This is the third in my series of blogs looking at the best way to administer a federal broadband construction program. Since there is talk of having an infrastructure program that might include money for broadband, I hope that the folks at places like the NTIA are giving these issues some thought. The last time around the stimulus grants caught them and the whole industry by surprise. But this time, with some advanced thought and planning we can do better and get more bang from any federal dollars. After all, if there is a broadband program, it ought to have the number one goal of bringing broadband to as many people as possible. Following are some additional thoughts on structuring a federal program:

Consider Local Conditions More. The stimulus grants included a simplistic formula that offered different levels of grant funding to served and underserved communities. We need to get more sophisticated this time around and realize that the cost of broadband networks has a lot more to do with terrain and density than it does with whether customers are served or unserved. There is a huge difference in the cost to reach an unserved customer in the open plains of the Midwest compared to Appalachia. And other local conditions like the state of poles can make a big difference in cost. The CAF II funding took a stab at the differences by using proxy cost models to try to reflect the relative cost to construct in different parts of the country. But even those models are too simplistic and we can do better.

This also means that there should be no predetermined formula that determines of the amount of matching funds that are available for any project. Sparsely populated areas might require more than 50% federal matching to make the numbers work. I know it’s difficult to not be formulaic, but ideally each proposal for funding should be analyzed on its own and the appropriate funding award made according to the circumstance.

Be Open to Funding All Qualified Providers. The stimulus grants (particularly the ones awarded by the RUS) had a built in bias to give the money to existing RUS borrowers. For broadband that means basically small telcos and some electric coops. If we want to get broadband to the most rural places, then anybody willing to step to the plate with a good business plan and some experience needs to have an equal chance. This might mean ISPs, municipalities, cooperatives, cable companies or fiber overbuilders. There is angst among smaller carriers that any federal funding will go to the largest telcos and that smaller providers won’t get an opportunity to try for the money, as was done with CAF II.

Takes Time to have Shovel Ready Projects. At any given point in time there are not many shovel ready projects that are positioned to take funding immediately. My fear is that any federal program is going to come with a built-in clock ticking and will try to give out the money in a relatively short amount of time like was done with the stimulus grants. It can easily take a year to create a shovel ready project even for a community that is highly motivated. There are a lot of steps that must be undertaken before completing a grant application. And if there is a requirement that the matching funding must be in place in order to participate then that time frame can easily be a lot longer. So my hope is that any program gives the industry enough time to get ready. If the funds are going to be awarded within a year then it’s going to be a disaster and a lot of bad projects will get funded just because they were able to scratch together the funding request quickly. This can be successful if broadband money can be awarded over a two to four-year period rather than all at once. The longer the time frame, the better the proposed projects will be.

Don’t Break the System. There are a limited number of firms available to help put together business plans and to make engineering estimates. If a federal program tries to give out a lot of money too quickly there are not enough qualified engineers and financial consultants available to get the work done – and it’s not easy for these firms to staff up with people that have the necessary existing knowledge. We also saw shortages with fiber cable and electronics right after the stimulus plan. All segments of the industry are staffed and geared to an anticipated level of demand and it’s hard for the whole industry to pivot and react quickly to a massive new demand for services and components.

Make the Grant Forms Understandable. I have been doing telecom accounting since the 1970s and there were things on the stimulus grants forms that I didn’t understand. Bring in a panel of industry experts early to make sure that the forms used to ask for money are done in a way that the industry understands. A format that asks for financial input in the manner that the industry keeps their books will provide a lot more consistency between grants requests.

An Effective Federal Broadband Program, Part 2

CCG LogoI wrote a blog last week that talked about the things the feds ought to avoid if they design a huge program to build rural broadband. The industry has been buzzing with the possibility that large amounts of federal money might become available for this purpose. But it’s not good enough just to avoid pitfalls. If we really want an effective plan to construct and operate rural broadband there are some positive steps that need to be taken. This series of blogs looks at how to best design a federal broadband construction program to bring broadband to areas that currently don’t have it.

Build for the Future. It would be a huge mistake if a rural broadband expansion builds only to meet today’s definition of broadband. Cisco recently said that the average home today needs about 24 Mbps to meet their needs, which is nearly identical to the FCC’s current definition of broadband. Historically we have seen broadband speeds for customers double about every three years. But Cisco’s latest broadband report suggests this might have slowed down to about every four years. Cisco predicts by 2020 that households will need almost 50 Mbps. Look out a decade from now and the math says that households will need over 140 Mbps.

It would be totally irresponsible to spend billions of federal dollars to build infrastructure that will be inadequate by the time it’s installed. The current CAF II program is a travesty because it is spending billions on DSL and cellular data to achieve 10/1 Mbps speeds and won’t even be completed until 2021. CAF II is not building broadband infrastructure – it’s spending gold-plated federal money to build a lead solution for rural broadband. It’s not going to be very long before all of the rural people getting CAF II networks will be screaming again for something better.

This means a federal broadband program should not be used to fund cellular wireless, point-to-point fixed wireless or DSL. Those technologies all have a place in the marketplace today, but they can’t come close to meeting tomorrow’s needs, so let’s not toss away billions of tax dollars on the wrong technologies.

Use Federal Loan Guarantees. A federal broadband program does not have to rely only on matching grants. The federal government has several loan guarantee programs that can be expanded to bring banks into the funding process. Banks love loan guarantees because they greatly reduce the risk of projects by having the federal government act as the backstop for bad loans. If the review process is done well and funding is only given to companies with a good chance of success, then there should be few loan defaults and the loan guarantee program would cost the federal government very little.

Don’t Forget the Small Towns. It’s easy when looking to fund a rural broadband solution to concentrate only on areas that are categorized as either unserved or underserved. But business plans to serve only the neediest customers are hard to make work. Rural business plans work best if they can also incorporate the small towns and county seats.

The stimulus grants ignored these towns because they are considered to have adequate broadband. That is shortsighted because small towns do not have networks that are up to snuff with urban networks. For example, they may have cable modems, but these little towns are unlikely to get upgraded to the next generation of cable electronics for a long time, if ever. If we want to have successful business plans then the funding needs to also cover the small towns in the middle of the unserved areas to help the service providers achieve an economy of scale.

Don’t Try to Serve Every Home. Any broadband program ought to have the goal of reaching the most homes as possible with the funding available. This means that there should not be rules that require that every customer within a Census block get broadband. Rural Census blocks can be large and can cover diverse topology. A census block might have most customers along a river valley with a few high up nearby mountains, or on the other side of a lake or river. In my experience when designing rural networks the hardest-to-reach 10% of the customers can easily represent 40% of the cost to build. If we want to stretch federal dollars we need flexible rules that allow for realistic business plans. There comes a point where the guy who built on the top of a mountain shouldn’t get broadband, just like it’s hard for him to get electricity or city water or other utilities. What matters more is stretching federal dollars smartly to serve as many homes as possible.

AT&T’s CAF II Plans

att-truckWe’ve known all along that AT&T was likely to use its cellular network to satisfy CAF II requirements to bring broadband to rural America. But we are now starting to see it happening. AT&T presented its plan recently in California and is probably in the process of doing so elsewhere.

In California AT&T proposes to provide fixed cellular broadband. Many of the rural areas affected by CAF II have not yet been upgraded to 4G LTE, and so AT&T’s first step will be to upgrade cell sites to the higher bandwidth capability. Once that is done, AT&T will offer fixed data to homes and businesses in the effective area using the LTE bandwidth. They will provide a receiver about the size of a dinner plate that will receive LTE data in the same way that cell phones do today. This wireless router will be connected to the home’s broadband network, probably a WiFi router provided by customers.

So it looks like AT&T will use the CAF II money to upgrade cell sites to LTE (something they were certainly going to do anyway). They also might build a few new rural cell sites and build some fiber to feed them. Finally, they will buy the customers the LTE receivers. My guess is that they are going to have a very hard time showing that they spent all of the CAF II money and so I expect some overinflated reporting of CAF II costs to the FCC. But these upgrades are far less costly than the rural DSL upgrades being contemplated by CenturyLink and Frontier.

AT&T promises that the bandwidth will meet the 10 Mbps down and 1 Mbps up speeds required by the FCC’s CAF II order. They also promise that there will be no monthly data caps smaller than 150 gigabits, also a threshold set by the CAF II rules. They have not yet specified specific prices, but say that prices will be at ‘market rate’ for broadband.

Even though we’ve seen this coming, this is a giant disappointment. Already today a 10/1 Mbps connection is inadequate for a large percentage of households. Cisco recently published statistics showing that the average home in the US today wants 24 Mbps to meet their needs, just a hair under the FCC definition of broadband. Cisco predicts that by 2020 that the average household demand is going to grow to 54 Mbps. That means the 10/1 speeds are going to feel really slow even by the end of the CAF II period ending in 2021.

These upgrades will improve broadband in the affected areas, but only by a small amount. Some residents in these areas today can get very slow DSL, under 1 Mbps. There are also numerous WISPs operating in the area offering speeds under 5 Mbps. And everybody always has the option of satellite broadband, which is universally disliked due to the latency and data caps.

The really bad news for these areas is that this upgrade is going to be in place for a long time. The FCC is probably not going to think about the CAF II areas again until well past the end of the CAF timeline, perhaps not until 2025. By 2025 the average household in the country is going to probably want a 100 Mbps connection if the current broadband growth trends continue. The folks in these areas will be just as far behind the rest of the country by then as they today. This whole CAF II program seems like a political sham that pretends to be bringing broadband to rural America, but it’s really nothing more than a temporary bandaid that only makes a marginal change in bandwidth delivery.

I also have no doubt that AT&T is going to use the CAF II upgrades as the excuse to walk away from the copper lines in the affected area. The FCC recently created rules for disconnecting copper, and once the CAF II wireless network is in place people are going to be forced onto the wireless network if they still want landline service.

This is all such a shame. We’ve seen in states like Minnesota that even modest government investments in broadband can bring amazing results. There are dozens of rural fiber networks being built in the state due to modest amounts of grant money from the state’s DEED grant program. The FCC could have used this CAF money to seed huge amounts of rural fiber construction – a solution that would have provided broadband for the next century. Instead they are helping AT&T pay for cellular upgrades that they would have done anyway and are abetting them in cutting down the rural copper networks. As I’ve said a number of times, I don’t know that I’ve ever seen a more wasteful use of federal money.

Fixed Wireless and CAF II

USF-logoBill Smith, the President of Technology Operations at AT&T just announced that the company will use fixed wireless to meet CAF II requirements when it is ‘uneconomical to build wireline’. The CAF II requirements are that AT&T (and every other large telco that took the funding) must provide 10/1 Mbps broadband to everybody within defined rural geographical areas. The FCC awarded the telcos billions of dollars over 6 years to complete the upgrades.

On the day I first read of the CAF II awards I expected that AT&T and some of the other telcos would use wireless to fulfill the obligations. I am very familiar with a lot of the rural areas where the CAF II money was awarded and I know it would take a lot more money than what the FCC was providing to build broadband to these areas that have little or no broadband today.

There are only a few technological approaches that can be considered in the rural areas covered by CAF II:

  • Fiber is the ultimate broadband delivery mechanism, but there is no chance that any of the big telcos will build rural last-mile fiber to satisfy this requirement. I’ve looked at some rural counties recently where the cost to build fiber can be 5 – 10 times more than what CAF II is providing.
  • Expanded DSL. Most of the CAF II areas have either no DSL or incredibly slow DSL where the customers are too far from the DSL hub. The only way to bring 10/1 DSL to rural America is to build a lot of fiber deep into rural areas and then initiate the DSL out in the hinterlands. This is also expensive, but because it keeps the existing copper lines it costs a lot less than building fiber everywhere.
  • Point-to-Multipoint Wireless. In this technology transmitters are put onto towers and where the 3.65 GHz spectrum is available can deliver 10 Mbps or more up to perhaps 6 miles. The distance are only out to about 4 miles at most if using WiFi spectrum. There are several problems with this technology. First, existing towers are sometimes scarce in rural areas and this means building new towers. Second, this isn’t a great solution where there are a lot of trees or a lot of hilly terrain. It’s a great solution in the plains, not so great in Appalachia. Finally, this equipment has a life-cycle of perhaps 7 – 10 years before it has to be replaced. After the CAF II funds are spent and this equipment wears out it might mean that in decade that customers on this technology will revert to no broadband.
  • Cellular Data. This is data delivered using licensed spectrum and AT&T has a mountain of it, and in rural areas this spectrum is largely unused. But to get 10/1 speeds everywhere means building new towers, and probably fiber to reach those towers.

Most people think of cellular data as something that only works on cellphones. But there are all sorts of devices that can receive cellular bandwidth, such as phones and data modems that work directly from cellular signals.

But the biggest issue with the cellular solution isn’t technological. As long as somebody is close enough to a cell site it will work (with the caveat that if the cell site is too busy a user might get no signal). The real issue is price. If AT&T is going to price fixed data similarly to cellular data, then this is not a broadband solution. Cellular broadband in the US is about the most expensive broadband in the developed world. At an average cost of about $8 per downloaded gigabit of data, it doesn’t take much for a normal household to rack up huge bills.

Comcast recently said that their average customer download is around 100 gigabits per month. At cellular prices that would cost $800 to $1,000 a month, which is not what the FCC had in mind for CAF II. There are many homes in rural America already using their cellphones for data. I recently talked to a rural household that sees bills of $500 per month in the summer when the kids are home all of the time – and that’s with constantly telling the kids to stay off broadband.

AT&T has a dilemma if they sell their cellular data to cellphone users at today’s high prices but sell it to fixed broadband customers at a lower price. Since fixed data customers will use a lot more data if it’s not too expensive, this will kill their argument that cellular data needs to be so expensive due to congestion at the towers. So I’ll be very interested to see how AT&T’s plan is implemented. I hope that if AT&T implements their first CAF II market at cellular data prices that the FCC pulls the plug on the rest of the funding. And if AT&T offers cellular data for CAF II customers at a reduced rate then all of their cellphone customers ought to raise holy hell.

CAF II Technology Options

Copper CableThere has been a lot of speculation on what technologies the big telcos are going to use to meet their CAF II obligations. They have a tall task in front of them trying to bring a least 10 Mbps broadband to large swaths of rural America.

I know a lot of the areas they are being asked to serve. The typical rural county has some broadband in the county seat – often from both a cable company and from the telco. Businesses in county seats can usually get as much broadband as they want if they can afford the high prices offered in these communities for real broadband.

But the cable TV networks’ service areas usually stop near the city boundaries. And DSL that originates within the county seat doesn’t carry very far into the rural areas. To make matters worse, much of rural America still has older DSL technologies that can deliver only 6 Mbps or 12 Mbps for short distances. It’s not unusual to have a few other pockets of broadband in the typical rural county – there will often be a few subdivisions or other small towns that have DSL and perhaps even cable TV.

However, the vast majority of the physical area in most rural counties is served only by long copper telephone lines, which are usually too far from a DSL hub to get any meaningful DSL. Other than those few subdivisions that have DSL hubs, there is probably little if any fiber running to rural areas. There might be long-haul fiber running through the county, but this fiber was not built to serve local customers.

The CAF II companies are facing the goal of bringing broadband to large copper-only areas that have no existing fiber. The options for technologies that can affordably bring broadband to such areas are limited.

One solution is to build a lot of DSL hubs in the rural areas to bring DSL closer to homes. One advantage of a DSL upgrade is that it uses the existing copper wires to deliver the bandwidth. But DSL on copper won’t carry the 10 Mbps speeds required by CAF II, particularly on the older and smaller gauge copper that is found in rural networks. So the DSL option requires building a lot of fiber and a whole lot of DSL cabinets. That is expensive, particularly since in many rural areas there might only be a few potential subscribers within reach of a given DSL cabinet.

The DSL solution also assumes that the telco has maintained the copper network, and we know from experience that there are many rural areas where maintenance has been neglected for decades. Making DSL work on a degraded and compromised network can be a major challenge. We also know from experience that when you try to cram too many DSL signals in small-gauge copper cables that you get cross-wire interference that degrades the speeds.

One alternative to building fiber to DSL huts would be to instead deliver the bandwidth using point-to-point microwave radios. Microwave radios have been around a long time and are reliable. But the technology requires the use of towers of some sort – something that the telcos don’t own today and that is often not very common in rural areas. Still, there are certainly many places where a microwave radio shot is going to be cheaper than building new fiber, even considering the cost of building some towers.

I have talked to a number of engineers on the topic and they think that the telcos are going to have to introduce some point-to-multipoint wireless radios into the network to reach the most remote customers. I’ve looked at maps of many of the CAF II areas and in most of these areas there are numerous pockets of the network where there might only be a half dozen farms or homes in a large service area – and there is no cheap wireline option to upgrade such sparsely populated areas.

There is one other option that I know of – the telcos might just ignore the most remote customers. Once the networks have been built and the CAF II money spent, I’m not sure what recourse the FCC has to make the telcos finish the job. We certainly have a long history of telcos that have skirted regulatory requirements or that have reneged on promises made to regulators. So I suspect that if the telcos reach some ‘reasonable’ percentage of the people that are supposed to get the CAF upgrade that the FCC will put on its blinders and call it a job well done.

Two Tales of DSL

DSL modemI had to chuckle the other day when I saw two articles about DSL that were going in opposite directions. In the first announcement AT&T announced that they are phasing the TV product out of their U-verse product. The same day I saw an announcement from Frontier that they are entering the video-over-DSL business in a big way.

The technology that is being used in both cases is paired DSL. This means putting DSL onto two copper phone lines and then using them together to create one data path. Under ideal conditions, meaning perfect copper, the technology can deliver about 40 Mbps through about 7,000 feet of copper. But of course, there is very little perfect copper in the real world and so actual speeds are typically somewhat slower than that.

In AT&T’s case this change makes sense. They purchased DirecTV and they are going to use the satellite platform to deliver the cable TV signal. This will free up the DSL pipe to be used strictly for data and VoIP, and this will extend the competitive ability of the DSL technology. In most cases the company can deliver 20 Mbps – 40 Mbps to homes that are close enough to a DSLAM. I’m sure that AT&T has been finding it increasingly difficult to deliver data and cable together on one DSL pipe.

The downside for AT&T is that not everybody can get DirecTV. Some people live where they can’t see the satellite and many people in apartments aren’t allowed to stick up a dish. So this isn’t a perfect solution for AT&T, but the increased data speeds probably mean a bigger potential customer base for the U-verse product.

Frontier is coming at this from a different direction. The company has seen declines in revenue as voice customers continue to drop off the network and as they continue to lose DSL customers to cable companies. The company saw a 1% decline in revenue just in the fourth quarter of 2015.

To try to generate new sales the company just announced this week that they are entering the business that AT&T is abandoning. The company launched IPTV in the 4th quarter of last year and announced that they are going to extend this to 40 other markets and pass 3 million customers with the product. They are going to use the same paired DSL as AT&T U-verse and will offer video on the DSL.

Frontier is hoping that this move, which will give them the triple play bundle will bring in more broadband customers and bolster both revenues and the bottom line. The company also expects to get a nice bump from finally closing on their purchase of Verizon properties in Texas, Florida and California. It is going to be a busy year for the company as they also hope to add 100,000 new broadband customers this year for the first of six years of an expansion funded by the CAF II funds from the FCC.

I have a lot of sympathy for a company like Frontier. They have purchased a lot of rural markets that have been neglected for years by Verizon and which don’t have very good copper. Where many smaller telcos are converting all of their rural areas to fiber, Frontier does not have access to the capital needed to do that, nor would they want to suffer through the earnings hit that comes from spending huge amounts on capital.

But the problem for all DSL providers is that within a few years the demand for broadband speed is going to exceed their capabilities. The statistic that I always like to quote is that household demand for broadband speeds doubles about every three years. This has happened since the earliest days of dial-up. One doesn’t have to chart out too many years in the future when the speeds that can be delivered on DSL are not going to satisfy anybody. The CAF II money is only requiring DSL that will be at least 10 Mbps download, which is already inadequate today for most families. But even the 20 – 40 Mbps paired-DSL is going to feel very slow when cable companies have upgraded to minimum speeds of 100 Mbps or faster. And if that DSL is also carrying video along with the data it’s going to feel really slow. I would not want to be one of the companies still trying to make copper work for broadband a decade from now.