Data Caps Again?

My prediction is that we are going to see more stringent data caps in our future. Some of the bigger ISPs have data caps today, but for the most part the caps are not onerous. But I foresee data caps being reintroduced as another way for big ISPs to improve revenues.

You might recall that Comcast tried to introduce a monthly 300 GB data cap in 2015. When customers hit that mark Comcast was going to charge $10 for every additional 50 GB of download, or $30 extra for unlimited downloading.

There was a lot of public outcry about those data caps. Comcast backed down from the plan due to pressure from the Tom Wheeler FCC. At the time the FCC probably didn’t have the authority to force Comcast to kill the data caps, but the nature of regulation is that big companies don’t go out of their way to antagonize regulators who can instead cause them trouble in other areas.

To put that Comcast data cap into perspective, in September of 2017 Cisco predicted that home downloading of video would increase 31% per year through 2021. They estimated the average household data download in 2017 was already around 130 GB per month. You might think that means that most people wouldn’t be worried about the data caps. But it’s easy to underestimate the impact of compound growth and at a 31% growth rate the average household download of 130 GB would grow to 383 gigabits by 2021 – considerably over Comcast’s propose data cap.

Even now there are a lot of households that would be over that caps. It’s likely that most cord cutters use more than 300 GB per month – and it can be argued that the Comcast’s data caps would punish those who drop their video. My daughter is off to college now and our usage has dropped, but we got a report from Comcast when she was a senior that said we used over 600 GB per month.

So what are the data caps for the largest ISPs today?

  • Charter, Altice, Verizon and Frontier have no data caps.
  • Comcast moved their data cap to 1 terabyte, with $10 for the first 50 GB and $50 monthly for unlimited download.
  • AT&T has almost the stingiest data caps. The cap on DSL is 150 GB, on U-verse is 250 GB, on 300 Mbps FTTH is 1 TB and is unlimited for a Gbps service. They charge $10 per extra 50 GB.
  • CenturyLink has a 1 TB cap on DSL and no cap on fiber.
  • Cox has a 1 TB cap with $30 for an extra 500 GB or $50 unlimited.
  • Cable One has no charge but largely forces customers who go over caps to upgrade to more expensive data plans. Their caps are stingy – the cap on a 15 Mbps DSL connection is 50 GB.
  • Mediacom has perhaps the most expensive data caps – 60 Mbps cap is 150 GB, 100 Mbps is 1 TB. But the charge for violating the cap is $10 per GB or $50 for unlimited.

Other than AT&T, Mediacom and Cable One none of the other caps sound too restrictive.

Why do I think we’ll see data caps again? All of the ISPs are looking forward just a few years and wondering where they will find the revenues to increase the demand from Wall Street for ever-increasing earnings. The biggest cable companies are still growing broadband customers, mostly by taking customers from DSL. But they understand that the US broadband market is approaching saturation – much like has happened with cellphones. Once every home that wants broadband has it, these companies are in trouble because bottom line growth for the last decade has been fueled by the growth of broadband customers and revenues.

A few big ISPs are hoping for new revenues from other sources. For instance, Comcast has already launched a cellular product and also is seeing good success with security and smart home service. But even they will be impacted when broadband sales inevitably stall – other ISPs will feel the pinch before Comcast.

ISPs only have a few ways to make more money once customer growth has stalled, with the primary one being higher rates. We saw some modest increases earlier this year in broadband rates – something that was noticeable because rates have been the same for many years. I fully expect we’ll start seeing sizable annual increases in broadband rates – which go straight to the bottom line for ISPs. The impact from broadband rate increases is major for these companies – Comcast and Charter, for example, make an extra $250 million per year from a $1 increase in broadband rates.

Imposing stricter data caps can be as good as a rate increase for an ISPs. They can justify it by saying that they are charging more only for those who use the network the most. As we see earnings pressure on these companies I can’t see them passing up such an easy way to increase earnings. In most markets the big cable companies are a near monopoly and consumers who need decent speeds have fewer alternative as each year passes.Since the FCC has now walked away from broadband regulations there will be future regulatory hindrance to the return of stricter data caps.

The Newest Battle of Copyright Infringement

For years the big ISPs have paid lip service to complaints about customers who violate copyrights by sharing content on the web for music and video. Every big ISP has had a process in place that was intended to police violation of the Digital Millennium Copyright Act (DMCA).

The owners of copyrighted materials have long complained that the ISP response to violators has been weak and ineffective. And they are right in that most ISPs notify customers that they are accused of violating copyrights, but there has been little or no consequences for violators.

However, that might now be changing due to a lawsuit that’s been in the courts for a few years. Music label BMG sued Cox Communications for not providing adequate protection of it’s copyrighted music. Recently the 4th Circuit Court, on appeal, reversed the original verdict against Cox. However, in doing so the court threw out Cox’s primary defense, which was that they were protected by the ‘safe harbor’ laws that are part of DMCA.

The safe harbor rules protect ISPs like Cox against damages from customer theft of copyrighted materials. Removing the safe harbor means that the owners of copyrighted materials can seek and win damages against ISPs if they don’t take adequate steps to protect copyrights. In the specific case against Cox, the BMG issue was that Cox didn’t do anything to deter repeat offenders.

There are apparently a lot of repeat offenders – customers who share a lot of copyrighted material – so this ruling instantly got the attention of other big ISPs. Comcast responded last week by notifying customers of a new policy for repeat offenders of copyright theft. The new policy has several progressive stages of severity:

  • Customers notified of DMCA violations might be forced to log in fresh to their broadband account, and in doing so will probably have to agree to abide by the company’s DMCA policy before getting access. Customers might also have to talk to Comcast customer service before they can log into their broadband account.
  • Customer that continue to violate DMCA policies after this first stage face termination of their broadband and all other Comcast services.

This is going to have a chilling effect on those that share copyrighted materials. A majority of people live in markets where the cable company offers the best broadband, and losing the home broadband connection is drastic. I have to assume that telcos will come up with similar policies, meaning that DSL also won’t be a refuge for anybody who continues to violate copyrights.

There has always been people who share content. The old public bulletin boards were full of copyrighted songs and pictures that could be shared. Over time this morphed into Napster and other file-sharing services. Today there are still a number of sharing sites on Tor and other places on the web. And people have figured out how to use Kodi and other technologies to capture and share copyrighted video files.

Although they don’t want to play the role of policeman, I suspect the big ISPs will be forced to at least somewhat enforce policies like the one Comcast just initiated. There has always been a big tug of war between ISPs and content owners. This new response from Comcast shows that content owners now have the upper hand. It certainly means that those who continue to share copyrighted materials will face eventually losing their broadband. In today’s world that’s a severe penalty.

Smaller ISPs need to pay attention to this and watch what the big companies are doing. I wouldn’t be surprised to see BMG or some other content owner sue a smaller ISPs to make a point that this applies to everybody – and nobody wants to be that ISP. If the big ISPs really enforce this, then small ISPs need to follow suit and figure out an effective way to police and deter repeat copyright violators.


Are There any Cable Companies Left?

Today I ask the question if there are really any cable companies left in the US. This was prompted by seeing an article that the Shrewsbury Electric and Cable Operations (SELCO), the municipal cable provider in Shrewsbury, Massachusetts announced to the Board of Selectmen that they are no longer a ‘cable company’. They have always been a traditional cable company in that they deliver their signals to customers over a coaxial cable network. They originally only used that network to deliver the cable product. But over the years they added telephone and broadband service, and from a customer perspective they look the same as any other triple play provider which delivers these same services over copper or fiber.

This announcement was prompted by two facts. First, the company sells broadband to more homes and businesses than it sells cable TV service. And that is due, in part, to the fact that it is seeing customers abandon cable service in favor of watching streaming video over the Internet.

Shrewsbury is not unique and most of my other small triple play clients are in this same position. SELCO is unique only in that they announced it formally, which made it into the press and onto my desk. Except for some tiny rural cable companies that only sell cable service, it’s hard to imagine that every other cable company is not in the same position. And you can’t find a telco that doesn’t sell more broadband than telephone. In fact, it’s hard to find a telco any more where more than half of the customers have a landline – only in places where the cellular coverage is terrible.

The biggest company to make this announcement was Comcast. Over a year ago CEO Brian Roberts announced that Comcast was no longer a cable company. A quarter earlier their number of broadband customers had surpassed their cable customers, and since then broadband penetration is still growing steadily while cable customers are shrinking.

And yet the industry still refers to Comcast as a cable company. We still refer to AT&T as a telco even though they are primarily a wireless company. The use of these monikers comes from the technology being used – the technology, and the vendors that support each technology are different for those operating telephone copper networks, cable company HFC (hybrid Fiber Coax) networks or fiber. Yet, from a customer perspective these different kinds of companies sell the same thing – with the differentiator being their broadband speeds.

I struggle with this as a blogger since there are a lot more similarities between Comcast and AT&T than there are differences. Calling one a telco and the other a cable company no longer makes much sense. When taking about the whole industry I usually refer to triple play providers as ISPs or carriers.

We don’t have a good short word to describe companies that use their networks to sell the triple play services, and which now also other services like security, smart home, managed WiFi, etc. The word ISP really isn’t adequate because there are plenty of companies around that only sell Internet access. Those are ISPs in the strictest sense.

And carriers is an inadequate description. That’s an old telecom phrase that was used mostly to denote the bigger companies in the traditional telephone industry. But size of company is no longer a differentiator – from a product perspective, many smaller companies today have a more robust product offering than large companies like Frontier or Windstream.

What really starts making this difficult is that a lot of smaller ISPs are abandoning or thinking about abandoning cable TV service. They are finding that they can barely buy the raw programming for the retail prices offered with the smaller satellite cable packages. Small ISPs are quickly becoming double play providers, and they won’t fit into any description that includes the triple play.

So please bear with me when you see me referring to companies in this industry with descriptors that don’t really fit what they do for a living. If any of you have a better idea of what to call these companies I’m open to suggestion.

Big ISPs Raise Broadband Prices

As the new year dawns we are starting to see big ISPs raise broadband prices. One of the more interesting increases is by Comcast. They increased two rates – the rate of standalone broadband and the price of renting a cable modem.

The company now charges $75 per month for a standalone broadband connection that meets the FCC’s definition of broadband of being at least 25/3 Mbps. In many of their markets the minimum speed offered to new customers is faster than this, making the $75 entry price for standalone broadband.

For now it doesn’t look like Comcast increased the cost of bundled broadband, although they just announced that all bundled packages are increasing by $5 per month. But that increase can largely be attributed to increased programming costs. The price for standalone broadband was $65 a year ago, was raised by $5 during 2017 and just went up by $5 again.

The standalone price increase is aimed squarely at cord cutters. This price punishes customers who don’t want to pay for the other services in the various Comcast bundles. This is their way to still extract a lot of margin from somebody who elects to watch video online. I wrote a blog a few months ago that cited a Wall Street analyst that suggested that the company ought to charge $90 for standalone broadband, and it looks like the company is heeding that advice.

To put that price into perspective, Google Fiber and a few others are charging $70 for a standalone symmetrical gigabit connection – 20 times the speed for a lower price. But to really make a fair comparison you also have to consider the Comcast cable modem. They just raised that rate from $10 to $11 per month. The company makes it a challenger for customers who won’t use the Comcast modem, and so the real standalone price for the minimal Comcast broadband product is $86 per month.  It’s not hard to understand why households are beginning to find broadband unaffordable.

The $11 fee for a cable modem is outrageous. Comcast gets these directly manufactured and I am doubtful that they are spending more than $100 per device, and probably less. The $1 price increase adds roughly $300 million to Comcast’s bottom line. In total, the company is billing roughly $3.3 billion per year for all customers for an inventory of modems that probably costed them less than $2.5 billion. And since people tend to keep the modems for a number of years, this rate is mostly margin. Even for a new customer Comcast recovers the cost of the modem within 9 months.

Frontier also has introduced a troubling new price increase for broadband. Rather than increase the advertised price of the product they are adding a $1.99 per month ‘Internet Infrastructure Surcharge.’ This is strictly an increase in broadband rates, and the company is clearly hoping that most people don’t notice or don’t understand this new charge on their bill. For the last few years we have seen cable companies sneak in rates that look like taxes or external fees but which are just a piece of the cable TV bill. It’s disturbing to see this happening with broadband and I suspect other ISPs will begin copying this concept over the next few years.

Cox has also increased data prices, and unlike the above two companies which are trying to mask the broadband price increases, Cox raised all packages that include broadband from $2 to $4 per month.

Broadband prices have never been regulated. There was a minimal threat of price regulation under Title II authority at the FCC, but that’s now gone. I’ve seen a few articles blaming these latest price increases on the end of Title II regulation, but there has never been anything stopping an ISP from raising rates other than market forces. In fact, the FCC has never threatened to regulate broadband rates.

There are two real drivers of these and future broadband price increases. First, broadband is no longer growing explosively since most homes now have a broadband connection. And the publicly traded ISPs are feeling earnings pressure while the loss of cable TV and telephone customers leaves broadband as the only place to increase bottom line margins.

The second major factor is the absence of real broadband competition. In markets where a real competitor like Google shows up the big ISPs come close to matching the lower prices of the competitor. But as houses need faster broadband, the residual competitive pressure from DSL is waning, meaning that in most cities the cable companies are becoming a virtual monopoly. Big ISPs like Comcast will lower rates where they have a good competitor, but they are more than making up for it in markets where they have the only fast broadband.

One consequence of the kind of prices that Comcast is now charging is that, over time, they will induce more competitors to enter the market. But the only real threat on the horizon for the big cable companies is point-to-multipoint 5G. It will be interesting to see if that technology can really work as touted. If 5G is successful it will be interesting to see the pricing philosophy of the ISPs offering the service. They could price low like Google Fiber or else ride the coat strings of the cable companies with higher prices.

DOJ Opposes AT&T / Time Warner Merger

The US Department of Justice filed an antitrust lawsuit against AT&T opposing the upcoming merger with Time Warner. The filing was surprising since it came so late in the merger process with the proposed merger on the table for much of 2017.

There are those saying that the DOJ objections are political, but the DOJ objections are all legitimate. Some of the major concerns of the DOJ include:

  • The merger could disadvantage AT&T rivals like Comcast and Charter by forcing them to pay hundreds of millions more for access to Time Warner programming.
  • The merger will slow the industry transition to online video through OTT and MVPD providers.
  • The vertical integration of last-mile network and programming gives AT&T the ability to create an unfair advantage over competitors.

I don’t think AT&T or anybody can dispute these objections with a straight face, and in fact, these findings are exactly what AT&T has in mind. AT&T already has major synergies between its various business lines. For example, the latest expansion of the AT&T FTTP network is largely taking advantage of fiber routes that are already in place to support the cellular network. It’s something that AT&T probably should have taken advantage of long before now. AT&T also is starting to take advantage of the synergies between its large acquired DirecTV customer base and its cellular products. It’s also the existing programming contracts of DirecTV that have enabled the successful launch of the MVPD offering DirecTV Now.

What this DOJ suit does not acknowledge is that AT&T is just trying to keep pace with Comcast. Comcast has already integrated programming with a last-mile network when the DOJ and FCC let the company buy NBC Universal in 2009. And now that Comcast is entering the cellular business I have a hard time seeing any real difference between what Comcast has today and what AT&T is trying to become with this merger.

The question that must be asked is if the DOJ is going to block the AT&T merger, then shouldn’t their next step be to ask for the divestiture of the Comcast business lines? If they are not going to pursue that, then this filing is largely political. But if the concern is monopoly abuse, as the DOJ document indicates, then they should pursue the only fully-integrated monopoly like the one that AT&T is asking to create.  In fact, Comcast has already gone far past where AT&T is headed and also bundles in smart home, security and even solar panels with other telecom services.

There is no question that Comcast, and AT&T, if they are able to complete the merger, will have a competitive advantage over any other last-mile network provider. Any other ISP that wants to offer video will have to pay significant amount of money to these two companies as part of competing with them. It can be argued that Comcast cable also has to buy the various Comcast programming – but the fact is that when calculating earnings all intercompany purchases cancel out, so whatever Comcast pays itself for programing is largely funny money. And this gives these big conglomerates an instant $5 / $10 advantage per month in costs over any rival.

It’s an interesting filing, and if the DOJ sticks to its guns this is likely to end up at the Supreme Court. My gut tells me that the courts are going to have a hard time saying no to AT&T for trying to create the same synergies that their primary rival Comcast already has.

We haven’t even seen the full power of the new Comcast bundle yet. The company has so many possible ways to tie down a customer and make it hard to break the bundle. Once Comcast has millions of cellular customers and millions of smart home customers they are going to be a fierce competitor against any newcomer. Combine this with the fact that they will soon have gigabit broadband available everywhere and they can match broadband speeds in any market (while keeping prices higher in non-competitive markets). That is the real power of the big conglomerate ISPs – the ability to compete unfairly in any one market by charging more elsewhere.

I doubt that the DOJ petition will hold up. We don’t really need another company with the same market power as Comcast – but stopping the second big conglomerate is already too late.

A Further Muddying for Pole Attachments

The issue of putting fiber on poles just got a little more complicated. A U.S. District Court recently overturned a One Touch Make Ready law that had been passed in Nashville, Tennessee to enable easier access to poles by Google Fiber.

The Nashville Metro Council passed the One Touch ordinance last year, and the new law was immediately challenged by AT&T and Comcast, the two large incumbent providers in the area. The law suit is complicated because it looks at two sets of poles – the 20% of the poles in the market owned by AT&T and the 80% of poles owned by Nashville Electric Service (NES), a municipal electric provider.

For the AT&T poles the judge ruled that the law violated federal pole attachment rules. The Telecommunications Act of 1996 gave states the optional authority to regulate poles, but the State of Tennessee never took on that responsibility, so the poles in the state are still subject to FCC pole attachment rules. This differs from an earlier lawsuit in Louisville, Kentucky where that state had preempted FCC pole attachment rules. Here it seems pretty clear that the Metro Council doesn’t have the authority to override FCC rules.

The lawsuit also claimed that the ordinance was in violation of local rules. AT&T claimed that the city charter did not explicitly give the Metro Council the authority to set rules for the NEC poles. The court said that NES had the exclusive right by charter to regulate public rights-of-ways. The court said it agreed with the AT&T allegations but did not make a firm ruling since NES was not a named party in the lawsuit.

The Metro Council originally passed the One Touch ordinance because AT&T and other pole attachers like Comcast were slow-rolling Google Fiber requests to get onto poles. Even today, a few years later, there are thousands of outstanding requests by Google Fiber to get onto poles. The One Touch ordinance would have given Google Fiber the ability to attach to poles and to then handle the paperwork retroactively.

This suit got resolved at a time when the FCC is considering One Touch rules concerning wireless connections. The FCC is thinking about granting the same rights to wireless carriers that this ordinance would have given to Google Fiber and other fiber overbuilders. The FCC recognizes that pole attachments are perhaps the major impediment for the promised coming implementation of 5G networks.

Incumbent pole owners have been able to thwart fiber overbuilders for the last few decades. They can deploy numerous delaying tactics that still fit within the FCC pole attachment guidelines. It’s not clear if the contemplated FCC rules will also make it easier for fiber overbuilders – but my guess is that they won’t. This FCC is clearly favoring the big ISPs and wireless carriers – and so they are likely to grant the rules that the big companies want.

This potential dichotomy between the treatment of wireless attachers and fiber attachers is ironic, because 5G networks are going to require a lot of new fiber. The wireless companies are not going to be building all of the needed new fiber and are hoping for others to build for them. But if those fiber builders encounter the same resistance seen by Google Fiber, then One Touch rules for wireless transmitters will not alone solve the 5G deployment issues.

One of the most interesting aspect of the pole attachment issue is that Verizon and AT&T are two of the largest builders of fiber. These companies scream bloody murder when they encounter the kinds of delays in building fiber that AT&T is causing for Google Fiber in numerous markets around the country. But AT&T clearly wears two hats and they argue for easy pole attachments where they are building fiber and for maintaining barriers to other fiber overbuilders when they own the poles.

None of this is going to be easily solved without Congressional action. There are still going to be states that can preempt federal pole attachment rules if they so choose. And the FCC is going to find themselves unable to overcome the state/federal jurisdictional issue when they try to make a nationwide One Touch rule for 5G. Expect a lot more lawsuits before this gets resolved.

The San Francisco Broadband Experiment

The City of San Francisco seems poised to tackle building fiber to everybody in the city. They have conducted several studies looking at the cost of building fiber. The city also created a Blue Ribbon Panel that has recommended in this recent report that the city should construct a fiber network.

The city is proposing to finance a fiber network in a new way. The city is looking at fiber connections in the same way as any other utility like electricity or water. The concept is that everybody in the city would pay a monthly utility fee that would fund the construction and operation of a fiber network. The number that was tossed around earlier this year was an average monthly fee of $26 per month to be charged to every household and business in the city. It’s hard to tell from the various reports if that’s the number still being considered. The Blue Ribbon report does recommend that the city seek private investment which would be used to lower that number.

The city wants to build the fiber network to everybody in the city, which differs from the typical ISP demand model that only builds to those that buy a broadband connection. The city does not want to be an ISP and wants to emulate some of the large cities in Europe which open up their fiber networks to multiple ISPs. The hope is that multiple ISPs using the network for a minimal charge will create competition and low-price broadband.

It’s an interesting concept. There are smaller municipalities in the country that are financing fiber with municipal bonds – but in most cases the expectation is that the fiber project will generate enough revenue to repay the bonds. But fiber construction is expensive in big cities and the utility fee is needed to finance a network that will cost more than $1 billion in San Francisco.

The city’s rationale for considering this is to provide world-class broadband to everybody. This is a city that is in direct economic competition with cities in Japan, Taiwan and South Korea – and the city views fiber as a necessary component to long-term financial success. Comcast is the biggest ISP in the city and they have fast broadband today with speeds now up to a gigabit download. AT&T offers DSL plus has built fiber to large businesses and MDUs. Sonic has been building some fiber to residences in the Bay Area. And like in every large city there has been some fiber built by ISPs and CLECs to selected locations in the city.

But the city is concerned that a significant percentage of the public can’t afford fast broadband access today. The Blue Ribbon Panel notes that the government-sponsored fiber network in Singapore reduced broadband prices from $90 per month down to $30 – $40 today while speeds leaped to a symmetrical gigabit connection.

No NFL city has yet tried to build fiber and this proposal is going to meet a lot of resistance. Certainly Comcast, AT&T and other big ISPs will do everything possible to derail such an effort. The city says that they don’t want to directly compete with commercial ISPs, but if the fiber network really lowers gigabit prices to $30 – $40 that will clearly get most of the customers in the city.

I foresee all sorts of attempts to try to stop this project. The big ISPs are enjoying unprecedented support today in Congress and the FCC, and one ISP tactic might be to legislate against the project – either at the federal or state level. My fear is that a legislative approach might also stop more traditional municipal broadband projects. I would also expect to see numerous lawsuits from ISPs challenging the project. It’s such a new concept that it’s hard to envision the basis for such lawsuits, but I fully expect them. I can also envision a few citizen lawsuits trying to stop a mandatory new utility fee – picture forcing Comcast employees to pay to construct a competing network.

The final big hurdle will be in getting enough quality ISPs on the network to offer real customer choice. The few open access networks in this country have not attracted the many quality ISPs. The open access model works in Europe because the old state-monopoly telcos and cable companies have been forced into competing with each by the formation of the European Union. And perhaps quality ISPs will take a chance on a network in an NFL city. But in this country there seems to be agreement among cable companies to not compete with each other and it’s unlikely that we would see Charter, Mediacom or others stepping in to compete against Comcast.

This is a really interesting idea and it could be a viable way to get gigabit broadband to everybody in a big city. The city has not made the decision to take the leap forward, and if they do they will certainly face an uphill battle to make it work. But this could be the first trial in trying to bring the European open access model to the US.

Big ISPs and Elections

Before you stop reading, this blog isn’t about party politics – the elections I am talking about are those where citizens vote on building a fiber optic network in their community. The incumbents don’t seem able to pass up the chance to turn an election their way when competition is put onto the ballot.

The latest example of this is the upcoming election on November 7 in Ft. Collins, Colorado. Voters in that community will be voting on whether to amend the city charter to allow the city to build and operate a fiber optic network in the city. Colorado law makes this elections mandatory, but I’ve seen other cities hold voluntary elections on the issue so that they are certain that the citizens are behind their efforts to build fiber. A positive vote in Ft. Collins would allow the city to take the next step to investigate if they want to build a fiber network in the city.

Ft. Collins is a community of 59,000 homes and Comcast and the other incumbent ISPs have spent over $200,000 so far in advertising against the ballot measure – a phenomenal amount of money spent on a local election and the most ever seen in Ft. Collins.

As is usual for fiber ballot initiatives, the incumbents are fighting against the passage of the measure by spreading lies and misinformation. For example, in Ft. Collins they are saying that voting for the measure would preclude the city from making other infrastructure upgrades for things like roads. In fact, this ballot measure just gives the city the legal authority to explore fiber and it’s likely that they would have another election to approve a bond measure if they decide to float a bond for fiber – a decision that would be some time in the future.

The misinformation being floated in Ft. Collins is tame compared to some of the other ways that incumbents have tried to stop fiber initiatives. In Lafayette Louisiana the combination of Cox and BellSouth (now AT&T) were extremely aggressive in trying to stop the fiber initiative (including filing several lawsuits to stop the effort). But prior to the election when fiber was going to be on the ballot they called every home in the community with a push poll that asked ludicrous questions about the fiber project. An alert citizen recorded the push poll and it can be found here. This takes 30 minutes to hear the whole thing, but if you are interested in the tactics the big ISPs use to fight it, this is well worth a listen. There are some amazing questions in this poll, and the gall of this push poll might have been what pushed the election to pre-fiber. In Louisiana the city needed to get more than a 65% yes on the fiber initiative, and due to a strong community effort the ballot measure passed easily.

I also remember a similar election in North St. Paul, Minnesota, a small community surrounded by the city of St. Paul. When the city put a fiber initiative on the ballot Comcast sent busloads of people to the city who went door-to-door to talk people out of voting for fiber. They deployed the usual misinformation campaign and scared a community that had a lot of elderly citizens into voting against the fiber initiative, which narrowly lost at the polls.

There was a similar lection recently in Longmont, Colorado. When the city first held a vote on the same ballot measure as Ft. Collins, the money from the big ISPs defeated the ballot measure. The ISPs won using a misinformation campaign that talked about how the fiber effort would raise taxes. But the citizens there really wanted fiber, and so they asked for a second vote and in the second election there was a massive grass-roots effort to inform the community about the facts. The fiber initiative on the second ballot won resoundingly and the city now has its fiber network.

There are several lessons to be learned from these ballot battles. First, the incumbents are willing to make a sizable investment to stop competition. But what they are spending, like the $200,000 in Ft. Collins, is a drop in the bucket compared to what they stand to lose. Second, they always attack fiber initiatives with misinformation, such as scaring people about higher taxes. They don’t fight by telling what a good job they are doing with broadband And finally, we’ve seen the ISP efforts be successful unless there is a strong grass-roots effort to battle against their lies. Cities are not allowed by law to take sides in ballot initiatives during an election cycle and must sit quietly on the sidelines. And so it’s up to citizens to take on the incumbents if they want fiber. The big ISPs will always outspend the pro-fiber side, but we’ve seen organized grass-roots efforts beat the big money almost every time.

FCC Wants to Change 3.5 GHz Spectrum Rules

The FCC voted last week to re-examine the rules for the deployment of 3.5 GHz spectrum for wireless broadband. This is the spectrum that has generally been referred to as Citizen’s Band Radio. This change clearly favors large carriers over the small carriers which were the targeted users from the existing rules.

The specific changes proposed by the rules include:

  • Lengthened the length of a license from 1 year to 10 years.
  • Eliminate the rules that the exclusivity of a license expires at the end of the first license term. Exclusivity can now extend into a license renewal.
  • Increase the size of the geographic footprint of a license. The license area before was a census tract, which is generally an area encompassing 2,500 to 8,000 people. The Census views a tract as the equivalent of a ‘neighborhood’. The new licenses areas are proposed to be something larger like entire counties or else Partial Economic Areas (PEAs). PEAs were defined in the recent incentive auctions and subdivide the country into 416 PEA regions.
  • Allows license holders to partition and disaggregate licenses between adjacent geographic areas.
  • Eliminated the rules that limited the number of licenses that can be held by one entity in an area. This also would allow license holders to bid on the use of individual channels.

What does all of this mean? This is largely a shift to allow big wireless carriers to obtain and use the spectrum for cellular service. Before the spectrum rules were aimed at benefiting small rural broadband providers. They would have been able to get a license for a small geographic area and they then got a 1-year head-start to deploy the spectrum before anybody else. The first licensee then had an advantage because future deployments had to be synchronized to not interfere with them.

The old rules made it difficult, but not impossible, for the bigger companies to use the spectrum. A cellular provider was not likely to invest in small license footprints and only be protected for a year from competition and interference. But the new rules allow for a much bigger footprint, similar to that used for other cellular spectrum. And the ten-year license provides a long-term opportunity for no competition, as well as a chance to renew the original license.

Basically this is a spectrum grab by the cellular providers to use for LTE or 5G cellular. Two of the big proponents of these changes include Comcast and Charter which want their own spectrum to support their new cellular businesses.

This change will make it much harder for rural deployments by WISPs and other ISPs willing to serve customers with wireless connections. The original rules also envisioned that this spectrum would enable smaller carriers to deploy various small-cell technologies and not just point-to-multipoint radios.

This is another proposed ruling that shows that current FCC is now clearly pro-big business. Almost every ruling they’ve made so far benefits big companies – the big ISPs, the big TV station owners, and the big wireless carriers. This particular ruling is a big give-away to the cellular companies and to Comcast and Charter. Under the rules the spectrum can be licensed inexpensively compared to spectrum that is auctioned. The new rules allowing large coverage areas will greatly disadvantage small carriers that only want to license a small service area – which was the entire purpose of the original rules for the spectrum.

The FCC voted 4-1 to consider the new rules, which is a likely indication that the new rules will be adopted after the required deliberation time required by FCC rules.

Title II Regulation and Investment

As the FCC continues its effort to reversing Title II regulation, I’ve seen the carriers renewing their argument that Title II regulation has reduced their willingness to invest in infrastructure. However, their numbers and other actions tell a different story.

The FCC put broadband under Title II regulation in February of 2015 and revised the net neutrality rules a few months later in April. So we’ve now had nearly three years to see the impact on the industry – and that impact is not what the carriers are saying it is.

First, we can look at annual infrastructure spending for the big ISPs. Comcast spent $7.6 billion upgrading its cable plant in 2016, its highest expenditure ever. Charter spent 15% more in 2016 compared to what was spent on it and the cable companies it purchased. Even Verizon’s spending was up in 2016 by 3% over 2015 even though the company had spun off large fiber properties in Florida, Texas, California and other states. AT&T spent virtually the same amount on capital on 2015 and 2016 as it had done in 2013 and 2014.

I’ve seen a number of articles that focus on the overall drop in investment from the cellular industry in 2015. But that drop is nearly 100% attributable to Sprint, which pulled back on new capital spending due to lack of cash. All of the big cellular companies are now crowing about how much they are going to spend in the next few years to roll-out 5G.

It’s important to remember that what the big ISPs tell their investors is often quite different than what they say when lobbying. As publicly traded companies the ISPs are required by law to provide accurate financial data including a requirement to warn stockholders about known risk factors that might impact stock prices. I’m one of those guys that actually reads financial statements and I’ve not seen a single warning about the impact of Title II regulation in the financial reporting or investor press releases of any of the big ISPs.

But the lobbying side of these businesses is a different story. The big ISPs started complaining about the risks of Title II regulations as far back as 2013 when it was first suggested. The big companies and their trade associations have written blogs warning about Title II regulation and predicted that it would stifle innovation and force them to invest less. And they’ve paid to have ‘scholarly’ articles written that come to the same conclusion. But these lobbying efforts are aimed mostly at the FCC and at legislators, not at stockholders.

The fact that big corporations can get away with having different public stories has always amazed me. One would think that something published on the AT&T or Comcast blog would be under the same rules as documents formally given to investors – but it’s obviously not. AT&T in particular tells multiple stories because the company wears so many different hats. In the last year the company has taken one position as an owner of poles that is diametrically opposed to the position it takes as a cellular company that wants to get onto somebody else’s poles. Working in policy for the big ISPs has to be a somewhat schizophrenic situation.

It seems almost certain that this FCC is going to reverse Title II regulation. The latest rumor floating around is that it will be on their agenda on the day before Thanksgiving. That may lead you to ask why the ISPs are still bothering cranking out the lobbying arguments against Title II if they have already won. I think they are still working hard to get a legislative solution through Congress to kill Title II regulation and net neutrality, even if the FCC kills it for now. I think they well understand that a future FCC under a different administration could easily reinstate Title II regulation – particularly now that it has passed muster through several court challenges. The ISPs understand that it will be a lot harder to get a future Congress to reverse course than it might be if Democrats are back in charge of the FCC.

Until recently I always wondered why the ISPs are fighting so hard against Title II regulation. All of the big companies like Comcast, AT&T and Verizon have told stockholders that their initial concerns about Title II regulation did not materialize. And it’s obvious that Title II hasn’t changed the way they invest in their own companies.

But recently I saw an article and wrote a blog about an analyst who thinks that the ISPs are going to drastically increases broadband prices once Title II regulation is gone. Title II is the only tool that the government can use to investigate and possibly act against the ISP for rate increases and for other practices like data caps. If true, and his arguments for this are good ones, then there is a huge motivation for the big ISPs to shed the only existing regulation of broadband.