A New Cellular Technology

Steve Perlman and his company Artemis are experimenting with a new form of cellular transmission they are calling pCell. Perlman is an inventor who sold his company WebTV to Microsoft for half a billion dollars. Perlman also helped to create Apple QuickTime that brought video to the Macintosh.

His new invention completely changes the way that cell sites function. Today the cellular network is comprised of large cell sites that purposefully don’t overlap too much. These big cell sites then divvy up the available bandwidth to the users inside each cell. As everyone has experienced, data capacity can get overwhelmed in a busy cell site resulting in slow data speeds or an inability to even make a connection.

Perlman’s pCell technology takes a radically different approach. His technology would deploy numerous tiny transmitters using home and business IP connections. The pCell technology then combines connections from multiple tiny transmitters to create a ‘personal cell’ around each cellular phone or device. The personal cell is small, in the range of a centimeter and follows a phone’s location. On the Artemis web site is both a short video showing how this works along with an incredibly detailed whitepaper for those who want to really dig into the technology.

Perlman proposes to increase the bandwidth available to his pCells by connecting the tiny transmitters to existing landline data connections. This would offload pCell traffic from the cellular network, which would eliminate the bandwidth constraints from today’s big cell sites. Perlman has proposed that Google connect pCells to all customers that have Google Fiber in Kansas City as a way to create a network of tiny transmitters. Each Google Fiber customer would be encouraged to place a small transmitter on their roof. At the cellphone end, each pCell customer would have to swap to a new SIM card that recognizes the pCell connections.

In practice, if enough small transmitters are spread around a local area, then every pCell customer could make a connection that would use the maximum bandwidth allowed by the particular spectrum being deployed. Perlman describes this as each person getting all of the bandwidth of one cell site.

And that’s where I think Perlman gets into both market and regulatory trouble. He basically wants to introduce an alternative cellular technology, and cellular companies are unlikely to scrap the big cell networks in favor of this new technology. Unfortunately for Perlman the large cellular carriers license the spectrum they use today for 4G LTE and that gives them exclusive rights to that spectrum. I can’t imagine the cellular companies are going to allow Perlman to swap SIM cards and run an alternate network using their licensed spectrum.

Perlman likens this concept to the idea of using a cellular repeater to get a stronger data signal. There are a lot of such repeaters in place, mostly either to strengthen cellular signals in large buildings or to boost the signals in rural areas for those located near the outer edge of a cell site. But those repeaters are sanctioned by the cellular companies, and therein lies the difference from a regulatory perspective.

Perlman’s pCell technology could be a giant leap forward in cellphone technology. In fact, it looks like a great alternative to 5G. Perlman’s tiny transmitters are smaller and far less less expensive than the small cell sites that the cellular companies are now installing. The pCell technology would disperse hundreds of tiny transmitters in a neighborhood instead of the handful of expensive small cells that are envisioned by the cellular providers.

But if no cellular company is willing to try the technology then this is going to be a hard sale in the US. Customers don’t have any automatic right to intercept and reroute cellular traffic that uses licensed spectrum. And there probably isn’t enough usable public spectrum in urban areas to make this work with unlicensed spectrum. Perlman envisions this as the ‘Uberization’ of cellular and envisions that everybody with a transmitter would receive some small compensation from the cellular traffic carried by their landline connection. This truly sounds wonderful in that it would mean much faster connections and high-quality connections in crowded urban environments. But I’m highly skeptical that such a network would ever be allowed in practice unless sufficient public spectrum is available to make this work.

Opportunity Abounds

English: colorful fiber light

English: colorful fiber light (Photo credit: Wikipedia)

I am often asked about ideas for building a fiber network that can make money. Right now in this country there is a huge opportunity that almost nobody is taking advantage of. There have been tens of thousands of miles of middle mile fiber built in the last five years using federal stimulus grants. Additionally there are other networks around the country that have been built by state or other kinds of grants. And there has also been fiber built to thousands of rural cell phone towers.

These networks are largely rural and in most cases the networks have only been used to connect small rural towns and to serve anchor institutions, or built to go only to cell towers. If you look at these networks closely you will see miles and miles of fiber that goes from county seat to small town to county seat with a few spurs serving schools, health facilities, junior colleges, city halls and cell towers. But for the most part the fiber has not been used to serve anything else.

The whole stimulus grant was cooked up quickly and was not a well-planned affair. They tried to make awards in every state and we ended up with a true hodge-podge of networks being built. In some cases it looks to me like networks to nowhere were built, but a large percentage of the stimulus grants went through rural areas where there are nice pockets of customers.

For years I have advocated a business plan that builds fiber in short spurs in situations where there is guaranteed success. For example, one might build to one large business whose revenue will pay for the fiber route. Or these days that is most likely going to be a cell tower. And so building to that single guaranteed customer can be a successful business plan.

However, any carrier who stops with that one customer is missing the real profit opportunity in such a build. The best business plan I can find today is to build to an anchor tenant and then doing everything possible to sign every customer that is passed to get to that new tenant customer. In economic terms you can think of the cost of the fiber build as a sunk cost. Generally in any business when you make a sunk-cost investment the goal is then to maximize the revenue that can be generated by the sunk cost.

And so, if the anchor tenant you have found can justify the fiber build and pay for the sunk-cost investment, then adding additional customers to that same fiber investment becomes a no-brainer in economic terms. The extra customers can be added for the cost of a drop and fiber terminal device, and in terms of return, adding a home or small business might have a higher margin than the original anchor tenant.

They key to making this business plan work is to keep it simple. You don’t need to be in the triple play business to add residential customers. Offering a very high-speed data connection for a bargain price is good enough to get a good long-term customer with very little effort required by the carrier. If you happen to already be in the triple play business and have all of the back-office support for such customers then you can consider this as an option, but offering only data is a profitable business.

And so the business plan is to look around you and see where there are facilities built but underutilized. The key to making this work is to get cheap transport to reach the new pocket of customers. By law the stimulus grants need to give cheap access to somebody willing to build the last mile. But commercial network owners are going to make you a good offer also for transport if you can bring them a new revenue opportunity in a place they didn’t expect it. So the key is to first work with the network providers and then look at specific opportunities.

And you possibly don’t even need much, if any staff to do this. There is already somebody maintaining the backbone fibers and they will probably be willing to support your fiber spurs. And it’s quite easy today to completely outsource the whole ISP function. The only thing that is really needed is the cash needed to build fiber spurs and connect customers. The more you have the better you can do, but you could build a respectable little business with only a few hundred thousand dollars.

If you are in a rural area there are probably dozens, and maybe hundreds of these opportunities around you if you look for them with the right eye. As the header of this blog says, opportunities abound.

Doing Away With Regulations

Seal of the United States Federal Communicatio...

Seal of the United States Federal Communications Commission. (Photo credit: Wikipedia)

In a process that most carriers probably don’t know about, any carrier can petition the FCC to get rid of or modify any regulation that it no longer thinks is necessary. This is an ongoing process and so the FCC issues a biennial report and every two years produces a summary of the requests that have been made as well as the FCC response to those requests. The latest biennial report DA-13-1708A1 was issued yesterday.

For the most part this is pretty dry regulatory stuff, but some of the changes that carriers request are significant and affects a lot of carriers. While many of the requests are to eliminate reports to the FCC, many requests are more substantial. In reading through this year’s report one will notice that Verizon appears more than any other carrier and one must imagine that they have somebody on staff dedicated to removing regulation.

Here are some of the issues investigated by the FCC in this latest report:

  • CenturyLink and Verizon advocate eliminating continuing property records (CPRs) contained in Part 32. These are detailed asset logs showing the cost, age and type of each asset in a company and must be updated each year for both additions and retirements. For even small LECs the cost of producing CPRs can be expensive.  The FCC has now eliminated the requirement for CPRs for price cap carriers but still require them for rate-of-return carriers.
  • Verizon asked that the Eligible Telecommunications Carrier (ETC) rules in Part 54 b modified so that an ETC is no longer required to serve customers in areas where the carrier gets no USF support, and also in areas where it is unprofitable to serve with landline but where customers have a competitive alternative. Verizon asks to get rid of its lifeline responsibilities in such areas, and effectively be able to walk away from serving customers. The FCC did not agree to removing these rules but instead wrapped the request into the Connect America Fund and the Lifeline and Link-up Reform and Modernization proceedings.
  • USTelecom asked the FCC to remove the requirement to notify the FCC when a carrier wants to replace legacy technology with an IP broadband technology covered by Part 63. For example, this would allow a carrier to stop offering copper services if they offer something else, such as what Verizon wants to do on Fire Island sue to hurricane damage. The FCC declined to accept this request.
  • USTelecom asked that ILECs not be required to have separate subsidiaries for offering in-region long distance as required by Part 64. The FCC concluded that this requirement no longer applied to ILECs subject to price caps. But the rules remain in effect for rate-of-return carriers.
  • Verizon asked the FCC to complete access reform by eliminating originating access charges as required by Part 69. The FCC noted that this was more properly addressed in the ongoing USF/ICC Transformation FNPRM.
  • NTCH asked that the FCC eliminate requirements to notify the FCC of temporary cell phone towers as required by Part 17. Temporary towers are often used during the process of relocating existing towers or when repairing towers after a disaster. The FCC responded by forebearing the existing rules for towers that would be in place for less than 60 days and that which met other conditions.
  • Verizon asked the FCC to eliminate the requirement that it notify the FCC within 120 minutes for major network outages per Part 4. Verizon noted that they have as many as 1,000 such outages every year. The FCC did not agree to the request.
  • The Telecommunications Industry Association (TIA) asked that some of the rules concerning standards for hearing aids and volume controls for hard-of-hearing sets in Part 68 be eliminated due to new TIA standards. The FCC responded by issuing a Public Notice and asking if there should be a rulemaking for the issue.

As you can see by just this sample of the issues that were covered in this docket that the FCC is always being challenged by carriers to eliminate regulations. Any carrier can make such a request and there were dozens of such requests considered in this latest two-year cycle. Sort of like sausage-making, regulation is not always a pretty picture, but the FCC does eliminate regulatory requirements every year that it deems are no longer in the public benefit.

Supreme Court Backs FCC in Cell Tower Dispute

English: Antonin Scalia, Associate Justice of ...

English: Antonin Scalia, Associate Justice of the Supreme Court of the United States (Photo credit: Wikipedia)

On Monday the Supreme Court ruled in favor of the FCC in a dispute about rules concerning permits for new cellular towers. The Supreme Court ruling is here: Arlington vs. the FCC.

The dispute arose over the FCC’s interpretation of their powers. The Telecommunications Act of 1996 had granted some local rights for zoning and placement of cellular towers. But the Act also said that local jurisdictions had to act “within a reasonable amount of time” in acting on requests for new tower sites. The FCC got a number of complaints from cellular providers over the years that local jurisdictions were dragging their feet and not responding to requests for new towers. The FCC responded by issuing a ruling that local jurisdictions had to act within 90 days to process a collocation application to add to an existing tower and within 150 days for a request for placing a new cellular tower.

The City of Arlington, TX, joined by San Antonio, San Diego, Los Angeles and other cities then sued to block this regulation, making the argument that the FCC was overstepping its authority in making the ruling.

The Supreme Court ruled 6 – 3 in favor of the FCC with an opinion written by Justice Antonin Scalia. This leaves in place the Fifth Circuit’s ruling that the FCC was within its jurisdiction to issue these rules. The FCC original ruling had said that a local jurisdiction could not reject a cell tower application due to the presence of another carrier, and that it also had to act within the above-mentioned time frames.

There have been a number of disputes about the location of cell towers. People all want good cell service, but nobody seems to want a tower in their back yard (or within sight of their back yard). The original cell tower systems were designed for a very different world than what we live in today. The originally sited towers in many places are far apart and were designed to handle a far smaller volume of voice traffic. And the original siting of towers is not at all adequate for data coverage since the strength of the data signal from a tower decreases quickly as you get further from a tower. To make the cellular networks do what customers want today, cell phone companies have to build additional towers within the boundaries of the older towers to create smaller ‘cells’ around each tower site. Each ‘cell’ can serve the same number of voice and data customers, so with more ‘cells’ a cellular company can accommodate more customers and provide better coverage and faster data. This problem is just going to get worse as more and more people rely on data for their mobile devices and we need more and more cell sites.

Eventually in the future the large ‘big stick’ towers will probably go away and be replaced by numerous small cellular transmitters dispersed throughout a neighborhood. But a full transition to that kind of technology is at least several decades away. And even after that is introduced the existing tall towers will probably be kept in service for an additional decade or two simply because they work well.

The ruling will have only a minor impact on the cell phone industry. Cities will no longer be able to use administrative delays as a passive-aggressive tool to say no to a new cell tower. Cities will still have the power to say no to a request for a new tower as long as they do it within the FCC timeline.

The real impact of the ruling is that the Court has backed the FCC and other federal agencies in the way that the agencies make their rulings. Most of the Court’s discussion centered around a doctrine known as the Chevron doctrine. That has meant that whenever a Court has been asked whether a federal agency has interpreted a ruling from a federal agency the Court has first asked if the underlying law was clear, generally being some law passed by Congress. If the law was not clear, under the Chevron doctrine the Courts have then generally deferred to agency’s interpretations of the law and have found in the past that federal agencies had the authority to interpret ambiguity in the law.

The Cities in this case had argued that the deference that Courts had granted to federal agencies could not constitutionally apply if the agency had no authority to act at all. They argued that this interpretation of the law effectively gives federal agencies the ability to define their own powers. This ruling addresses that question and says that Chevron does not apply to jurisdictional questions about the authority of an agency to make rulings. The Court did concede that their ruling does not give an agency the right to regulate as it pleases and that Courts interpreting Chevron in the future must do so by “taking seriously, and applying rigorously, in all cases, statutory limits on agency authority.”

Justice Roberts, joined by Justices Alito and Kennedy, wrote a dissent and he argued that the jurisdictional test that the cities had proposed was correct and that federal agencies are widely overstepping their authority.

While the ruling doesn’t do much for the cell phone companies it is a victory for the FCC and other federal agencies. I don’t follow what goes on at too many other agencies, but it seems like almost every major decision made by the FCC in the last decade has been challenged in terms of the agency even having the authority to issue rules. This Court ruling bolsters the FCC’s ability to interpret their own authority within the bounds of the specific laws they are implementing. But it does not give them unlimited authority and they still must act reasonably. Courts will still be able to review complaints against the FCC and other agencies, but they will have to do so by applying the Chevron test.

Is Wireless a Substitute for Wireline?

English: A cell phone tower in Palatine, Illin...

Last week in GN Docket 13-5 the FCC issued an update that asked additional questions about its planned transition of the historic TDM telephone network to all-IP network. This docket asked for comments on several topics like having a trial for transitioning the TDM telephone network to all-IP, for having a trial to go to enhanced 911 and for making sure that a switch to IP would not adversely affect the nationwide telephone databases.

But the docket also asks for comments on whether the FCC should grant telephone companies the right to substitute wireless phones for wireline phones and abandon their copper network. The docket mentioned two companies that wanted to do this. For example, Verizon said they intend to put wireless on Fire Island off New York City as they rebuild it from the devastation of hurricane Sandy. But AT&T has told the FCC that they are going to request permission to replace “millions of current wireline customers, mostly in rural areas, with a wireless-only product”.

Let me explain what this means. There are now traditional-looking telephone sets that include a cellular receiver. To replace a wireline phone, the telephone company would cut the copper wires, and in place of your existing phones they would put one of these cellular handsets. They would not be making every family member get a cell phone and there would still be a telephone in the house that works on the cellular network.

This make good sense to me for Fire Island. It is mostly a summer resort and there are not many residents there in the winter. It’s a relatively small place and with one or two cell phone towers the whole island could have very good coverage. And if the cell phone tower is upgraded to 4G there would be pretty decent Internet speeds available, certainly much faster than DSL. One would have to also believe that the vast majority of visitors to the island bring along a cell phone when they visit and that there is not a giant demand for fixed phones any longer.

It is AT&T’s intentions, though, that bother me a lot. AT&T wants to go into the rural areas it serves and cut the copper and instead put in these same cellular-based phones. This is an entirely different situation than Fire Island.

Anybody who has spent time in rural areas like I do knows the frustration of walking around trying to find one bar of cellular service to make or receive a call. Cell phone coverage is so good today in urban areas that one forgets that this is not true in many places. I have a client, a consortium of towns and the rural areas of Sibley and Renville Counties in Minnesota. Let me talk about my experience in working with them as an example of why this is a bad idea.

My primary contact works in the small town of Winthrop. I have AT&T cellular service and when I visit him my cellphone basically will not work. I sometimes can move around and find one bar and get a call through, but I can’t coax the phone to get a data connection so that I can check email. And if you go west from Winthrop the coverage gets even worse. AT&T’s coverage maps show that they serve this area, but they really don’t. There are places in the east end of Sibley County that have decent coverage. But there are also plenty of farms where you can get coverage outdoors, but you can’t get coverage in the house.

The traditional cellular network was not built to serve people, but rather cars. Cell phone coverage is so ubiquitous now that we already forget that cellular minutes used to be very expensive, particularly when you roamed away from your home area. The cell phone network was mostly built along roads to take advantage of that roaming revenue stream. If you happen to live near to a tower you have pretty decent coverage. But you only need to go a few miles off the main highway to find zero bars.

And I use the Renville / Sibley County client as an example for a second reason. The people there want fiber – badly. They have been working on a plan for several years to get fiber to everybody in the area. The area is a typical farming community with small hub towns surrounded by farms. The towns have older cable systems and DSL and get broadband, although much slower than is available in the Twin Cities an hour to the east. But you don’t have to go very far outside of a town to get to where there is no broadband. Many people have tried satellite and found it too expensive and too slow. There are any homes still using dial-up, and this is not nearly as good as the dial-up most of you probably remember. This is dial-up delivered to farms on old long copper pairs. And it is to get access to an Internet that has migrated to video and heavy graphics. Dial-up is practically useless for anything other than reading email, as long as you don’t send or receive attachments.

Over 60% of the people in the rural areas in Renville and Sibley Counties have signed pledge cards to say that they would take service if fiber can be built to them. One would expect this would translate to at least a 70% penetration if fiber is built. They refer to the project locally as fiber-to-the farm. There has been a cooperative formed to look at ways to get fiber financed. And any financing is going to require local equity, meaning the people in the County are going to have to invest millions of their own dollars in the project – and they are certain they can raise that money. That is how much they want the fiber. And this same thing is true in rural areas all over the country. Most of rural America has been left behind and does not have the same access to the Internet that the rest of us take for granted.

AT&T’s idea is only going to work if they make a big investment in new rural cell towers. The current cell phone network in rural areas is not designed to do what they are proposing, even for delivering voice. And even if the existing rural cell phone towers are upgraded to 3G or 4G data (which almost none have been), most people live too far from the existing towers to get any practical use from cellular data. Cellular data speeds are a function of how close one is to the tower and, just like with DSL, the speeds drop off quickly as you get away from the hub.

I hope rural America notices this action at the FCC and files comments. Because as crappy as the rural copper wires are today, when the wireline network disappears many rural households are going to find themselves without telephone service. And forget about fast rural data. The AT&T plan is really just a plan for them to abandon and stop investing in rural communities.