Say No to Data Caps

Last week I had a blog that asked why the FCC is seemingly supporting data caps by allowing caps on broadband built with federal grant money. The FCC has established grants that place premium value on fast broadband speeds and low latency but that ignores one of the most important aspects of broadband today – usability.

A broadband connection that doesn’t let homes partake in the same online world as the rest of America is inferior broadband – and there is no better example of an unusable data plan than one a low data cap. The FCC’s RDOF rules support monthly data caps of 250 gigabytes for plans offering 25/3 or 50/5 Mbps. The FCC is clearly saying to rural America – we’ll give grant money to ISPs to bring you better broadband, but we’re going to let the ISPs cripple that broadband so that they can bill you an extra $50 or $100 per month if you want to use that broadband like everybody else in the country.

Recall that ISPs that win the RDOF grants have six years to build the new networks. How will a 250 GB data caps look by the time these networks are built? OpenVault says that the average home used 274 GB per month in 2018 – already higher than the FCC’s proposed data cap. By the end of 2019 average usage had grown to 344 GB for the average home and exploded to 402 GB by March due to people and students working from home during the pandemic. Trending household usage forward until 2026 would suggest that the average home will be using more than a terabyte of data each month by then. That’s not a big stretch since more than 10% of homes are already using a terabyte or more of data today.

The FCC is not the only one to point a finger at. There are plenty of state broadband programs that have awarded grants to ISPs that have data caps. This has happened because policymakers have not viewed data caps as providing inferior broadband. This is easy to understand since just a few years the vast majority of homes used a lot less broadband than the data caps. You might recall in 2015 when there was big public pushback when Comcast tried to introduce a 300 GB data cap. At that time, Comcast said that only a tiny number of customers used more data than 300 GB per month – but in five short years, the national average data usage is significantly higher than the cap Comcast wanted to impose in 2019.

We need a new policy at the state and federal level that says that ISPs with data caps are not welcome to broadband grant funding. Not only should they not be able to impose data caps on grant-funded networks – an ISP that has routine data caps for others should be prohibited from participating in any grant funding anywhere.

There are still ISPs that say that data caps help to protect the integrity of their network. This argument went out the door when most ISPs stopped billing for data caps during the pandemic – the one time when protecting the network would have been important.

What hasn’t been said enough is that a broadband connection with a data cap is an inferior broadband connection. A home with data caps faces the monthly choice of either curtailing broadband usage or else spending a lot more for broadband. Are we going to fix the rural broadband gap by transitioning rural homes with slow broadband connections to ones with tiny data caps that cost a lot more than everybody else in the country?

It’s always been clear that data caps are mostly about greed. There is no better example of this than the AT&T rural hotspot that has a data cap that allows for as much as an extra $200 in monthly fees to a subscriber. It’s outrageous that the FCC gave grant money last year to Viasat which has tiny monthly data caps. The whole proposed 5G Fund is outrageous if billions of federal money will allow the cellular carriers to sell more rural hotspots with tiny data caps and huge monthly fees.

It’s time for broadband policymakers at all levels to categorically say no to data caps. Shame on the FCC for allowing data caps into the discussion of the RDOF grant. But also shame on Congress for not issuing a new telecom bill to stop all of this nonsense. And shame on any state policymaker or regulator who has allowed state resources to be used to support broadband with data caps. It’s time to say no.

Why Does the FCC Support Data Caps?

Most people may not have noticed that the upcoming RDOF grants allow, and even encourage ISPs to enforce data caps on customers. I have a hard time thinking of even one reason why the FCC would suggest that ISPs use data caps.

The RDOF grants have four performance tiers for ISPs, with the auction rules weighted to give preference to faster data speeds. Each of these performance tiers comes with a suggested monthly usage allotment – which means a data cap. ISPs that will deliver speeds of either 25/3 Mbps or 50/5 Mbps can introduce a data cap of 250 gigabytes or the U.S. average, whichever is higher. ISPs offering speeds of 100/20 Mbps or 1 Gbps/500 Mbps can set a data cap at 2 terabytes.

The natural question is to ask why the FCC is setting any data cap at all? Remember, this is an FCC that no longer regulates broadband, and yet they are suggesting rules that encourage ISPs that win the grant funding to introduce data caps. Past experience says that if the rules allow for data caps, the ISPs that win the money are likely to implement them.

I find the data caps for the 25/3 Mbps and 50/5 Mbps to be intriguing since ISPs can’t set the data caps at less than the US average. Who is going to measure that? The FCC doesn’t gather the kind of data needed to measure data caps around the country. Further, there are companies like CenturyLink that have data caps but that often don’t enforce them. I haven’t the foggiest idea how anybody would measure the national average data cap.

It’s important to put these data caps into perspective. The data caps on the slower products are incredibly stingy at 250 gigabytes per month.  OpenVault reported earlier this year that the average US home used 344 gigabytes of data per month in December 2019, up from 274 gigabytes a year earlier. Due to the impact of COVID-19, that number exploded to 402.5 gigabytes by the end of March. Homes being limited to using 250 gigabytes of data are being told not to use their broadband like everybody else. It’s nearly impossible for a home that has people working from home or students doing schoolwork at home to limit themselves to only 250 gigabytes of data per month.

Even the 2 terabyte data caps for faster broadband will become problematic is a few years. OpenVault says that over 10% of homes were already using more than 1 terabyte of data as of the end of the first quarter of 2020 and 1.2% were using over 2 terabytes. By the time these networks are built with RDOF money it wouldn’t be surprising for 10% of homes to be using more than the 2-terabyte cap.

With these grant rules the FCC is actively supporting ISP to introducing data caps that are smaller than the national average broadband usage at the end of 2018 and that will easily be less than half of the national average usage by the time the networks funded by the RDOF grants are constructed.

It seems like the FCC never learns any lessons. Every grant program they have administered has some major flaws. The FCC is handing out billions of dollars to provide broadband to home that don’t have it today. This program is a major boon for the rural communities that get broadband because of the grants. But with these rules, the RDOF money will be used to bring broadband to homes for the first time and immediately cripple homes from using that broadband due to data caps. For the federal government to support a 250-gigabyte data cap is an incredibly bad policy. They are saying to folks – here, we funded broadband, but don’t use it. I can’t conceive of any reason why data caps are even mentioned in the grant rules unless this is another case of bowing to the lobbyists from the big ISPs or the satellite broadband providers.

Looking at the bigger picture, it’s somewhat surprising that the FCC would take any position on things like data caps since they have given away their authority to regulate broadband. What these grant rules tells us is that this FCC would heartily support data caps if they still had that authority. This provision in this grant program provides tacit support to Comcast and AT&T to bill customers huge amounts of extra money for exceeding arbitrary and stingy data caps.

The Quiet Growth of the Quad Play

A few years ago, some of the largest cable companies announced they were getting into the cellular business. At the time, this got a tiny amount of press but overall the press didn’t take these companies seriously or consider them to be potential major players in the cellular business.

Comcast Charter and Altice have quietly been adding cellular customers over the last three years.

  • Comcast recently reported that the company added 216,000 cellular lines during the first quarter of 2020, bringing their total lines to 2.3 million.
  • Charter added 290,000 customers in the first quarter, bringing the company to 1.4 million mobile lines.
  • Altice added 41,000 customers in the first quarter, bringing them to 110,000 mobile lines.

These growth and total customer numbers may not sound spectacular but consider that in the first quarter saw AT&T add a small number of net customers and Verizon lose a small number of net customers. These three cable companies are definitely eating into the market growth of the big carriers. Craig Moffett, the leading analyst for the communications sector declared last December that the cable companies must be considered as serious players in the cellular space.

For now, all three companies are acting as MVNOs and are purchasing wholesale cellular minutes and data from the big cellular carriers. But that won’t last forever. Comcast has made it clear that the company is in the wireless game for the long-haul. The company purchased $1.7 billion in white space spectrum in the Philadelphia market in 2017 and said that it will be bidding in the upcoming CMRS auction.

A company like Comcast doesn’t need to worry about rolling out a big national network like Dish Networks is tackling. Comcast can improve margins on the cellular business by selectively deploying cell sites in parts of markets where they have the highest traffic volumes. Comcast should be able to deploy small cells selectively in their major urban markets and be able to peel a lot of minutes off the MVNO arrangements where it makes sense. That would significantly increase their margins.

The cable companies have something in their favor that the cellular companies can’t match – the ability to bundle inexpensive cellular service in with products that customers value like home broadband. Each of the three cable companies is only offering cellular to existing customers.

Consider the Comcast plan. It’s only available to Comcast broadband customers. Customers have a choice of four data plans 1 GB for $15 per month, 3 GB for $30 per month, $10 GB for $60 per month, or unlimited data for $45 per phone. All of these plans include unlimited calling and texting. A customer can add up to 5 devices for a plan, and that can include phones for multiple family members, tablets, etc.

I have a friend who bought the Comcast plan when it first came out and it cut her family’s cellphone bills in half. The quality is as good as when they were AT&T subscribers, and their usage is likely still riding the AT&T network.

The big cellular companies have stopped growing. They’ve seen cellular prices drop over the last two years and their revenue per customer is dropping. AT&T and Verizon will start feeling real pain if the cellular companies continue to take more than half a million customers per quarter. The two companies are faced with T-Mobile greatly expanding its number of cell sites to meet the terms of the merger with Sprint. And both companies have to worried about seeing Dish Networks hit the market in two years or so with the most modern 5G network that will be software-driven.

Americans love bundles and it’s likely that the word will continue to spread that cable companies can save them money on their cellular plan. As word of mouth continues to spread that the cable companies are in the business to stay, these companies are likely to accelerate customer acquisition. The FCC was worried about losing Sprint from the market and made the T-Mobile merger contingent upon having Dish enter the cellular business. I’m guessing they didn’t take the competition from the cable companies seriously – but over time we are likely to see real competition for our cellular business.

Cord Cutting Accelerates in 1Q 2020

The largest traditional cable providers collectively lost over 1.7 million customers in the first quarter of 2020 – an overall loss of 2.2% in customers. This is the biggest overall drop in customers ever in a quarter. To put this loss into perspective, the big cable providers lost 18,800 customers every day.

The numbers below come from Leichtman Research Group which compiles these numbers from reports made to investors, except for Cox which is estimated. The numbers reported are for the largest cable providers, and Leichtman estimates that these companies represent 95% of all cable customers in the country.

Following is a comparison of the first quarter subscriber numbers compared to the end of 2019:

1Q 2020 4Q 2019 Change % Change
Comcast 20,845,000 21,254,000 (409,000) -1.9%
Charter 16,074,000 16,144,000 (70,000) -0.4%
DirecTV 15,136,000 16,033,000 (897,000) -5.6%
Dish Networks 9,012,000 9,144,000 (132,000) -1.4%
Verizon 4,145,000 4,229,000 (84,000) -2.0%
Cox 3,820,000 3,865,000 (45,000) -1.2%
AT&T U-verse 3,440,000 3,440,000 0 0.0%
Altice 3,137,500 3,179,200 (41,700) -1.3%
Mediacom 693,000 710,000 (17,000) -2.4%
Frontier 621,000 660,000 (39,000) -5.9%
Atlantic Broadband 306,252 308,638 (2,386) -0.8%
Cable One 303,000 314,000 (11,000) -3.5%
Total 77,532,752 79,280,838 (1,748,086) -2.2%
Total Cable 45,178,752 45,774,838 (596,086) -1.3%
Total Satellite 24,148,000 25,427,000 (1,029,000 -4.1%
Total Telco 8,206,000 8,639,000 (123,000) -1.5%

Some observations of the numbers:

  • Note that AT&T no longer reports customers by division, so Leichtman has reflected all of their losses as DirecTV and shown no losses for AT&T U-verse.
  • The big loser is AT&T, which lost nearly 897,000 traditional video customers between DirecTV and AT&T U-verse.
  • The big percentage loser is Frontier that lost almost 6% of its cable customers in the quarter.
  • The big cable companies fared the best, but still lost 1.3% of their customer base in the quarter.
  • Satellite TV continues to dive and lost more than 4% of customers in the quarter.

Leitchman speculated that the magnitude of the losses could be due to the impact of COVID-19. However, the story seems to be a bit more complex than that. Several of the big companies reported about the same level of disconnects as in recent quarters but saw a big drop-off in new customers buying service. It’s worth noting that the above losses were experienced even while these same companies saw an increase of over 1 million new broadband customers in the same quarter- the best growth in broadband since 2015.

The full impact of COVID-19 will likely be seen in the next quarter. There has to be an impact from over 23 million newly unemployed people this year, as of mid-May. Cutting cable is one of the most obvious ways for a household to save money.

There may be evidence that COVID-19 had an impact by the end of March. Leichtman also tracks the subscribers of the online TV services that are owned by the above companies. Collectively, there was a loss of 319,000 customers by Hulu Live, Sling TV, and DirecTV Now. Additionally, Paystation Vue exited the market in the first quarter. However, YouTube TV is reported to be growing and had over 2 million customers by the end of February.

Losses of this magnitude have to be rolling downhill in the industry. These losses mean a lot lower revenues for cable TV networks. It means a lot less franchise revenues for local governments. It means lower advertising revenues from loss of eyeballs.

COVID-19 Boosts 1Q 2020 Broadband Subscribers

Leichtman Research Group recently released the broadband customer statistics for the end of the first quarter of 2020 for the largest cable and telephone companies. Leichtman compiles most of these numbers from the statistics provided to stockholders other than Cox, which is estimated. Leichtman says this group of companies represents 96% of all US landline broadband customers.

The big news is that additions in the first quarter were up nearly 85% over the number of customers added in the fourth quarter of 2019.  For the quarter, these large ISPs collectively saw growth that annualizes to 4.8%. This was the biggest quarterly overall subscriber growth since early 2015.

3/31/20 1Q Change % Change 4Q 19 Adds
Comcast 29,106,000 477,000 1.7% 443,000
Charter 27,246,000 582,000 2.2% 339.000
AT&T 15,315,000 (74,000) -0.5% (186,000)
Verizon 6,982,000 26,000 0.4% (5,000)
Cox 5,230,000 60,000 1.2% 25,000
CenturyLink 4,667,000 (11,000) -0.2% (36,000)
Altice 4,237,300 50,100 1.2% 7,000
Frontier 3,480,000 (33,000) -0.9% (55,000)
Mediacom 1,349,000 21,000 1.6% 12,000
Windstream 1,067,300 18,000 1.7% 9,300
WOW 797,600 16,100 2.1% 7,600
Cable ONE 793,000 20,000 2.6% 83,862
Consolidated 786,125 1,960 0.2% 14
TDS 460,000 4,800 1.1% 17,500
Atlantic Broadband 457,233 5,770 1.3% 5,326
Cincinnati Bell 427,500 1,800 0.4% 1,600
Total 102,401,158 1,166,530 1.2% 669,788
Total Cable 69,216,233 1,231,970 1.8% 922,788
Total Telco 33,184,925 (65,440) -0.2% (253,586)

We know that a lot of the growth was due to COVID-19, which drove employees and students to work from homes. A lot of homes likely purchased broadband for this purpose. These big ISPs also pledged to the FCC that they wouldn’t disconnect customers for non-payment during the pandemic. However, the real impact of that policy won’t show up until the second quarter.

Comcast and Charter continue to dominate the rest of industry, and accounted for 86% of total net growth for the quarter. The large cable companies collectively gained over 922,000 subscribers, which their biggest quarterly growth since 2007. The telcos collectively still lost customers for the quarter, but losses are significantly less than in 2019. The biggest telco loser was AT&T which lost 186,000 customers for the quarter. Frontier continued to lose the biggest percentage of its customer base and lost nearly 1% of its broadband customer base during the quarter.

This growth is impressive, and much of the boost has to be due to an increased need for home broadband. We’ll have to wait until later in the year to see the impact of having over 36 million people file for unemployment and for potentially millions of small businesses to close. There has been a long-running debate in the industry about whether broadband is recession-proof. Arguments can be made that homes out of work will hang onto broadband as long as they can in the hopes it can help them find work. In a few quarters, we’ll find out.

A Bad Year for the Cable Industry

The traditional cable TV industry had a miserable 2019. Collectively the biggest cable TV providers lost over 5.9 million subscribers during the year, almost 7% of the total customer base. The impacts of COVID-19, along with the already existing trends in the industry spell bad news for the industry in 2020.

I expect that customer losses will accelerate over 2019 levels. The majority of subscribers leaving traditional cable cite cost as the primary reason, and as millions of people lose their jobs, one of the first things they are going to do is to ditch traditional cable for something less expensive. For years, nationwide surveys of subscriber sentiment have shown that as many as 20% of households each year contemplate dropping traditional cable TV, but for a variety of reasons many households don’t get around to doing so. This year a lot of these homes are finally going to make the change.

The industry has also lost its largest advertising draw in sports. MoffettNathanson predicted that just losing the spring and early summer sports could cost the industry as much as $26 billion in advertising. If COVID-19 carries forward through baseball and into football season those numbers will climb much higher. The MoffettNathanson numbers also didn’t include the impact on Comcast of delaying the Olympics for a year, which are a significant piece of corporate earnings. The impact of sports advertising will be uneven throughout the industry because of contractual relationships. Many contracts require networks to continue to pay for sports rights to the various sports leagues even if the games aren’t played, but contracts also require the leagues to compensate networks for lost advertising revenue. That’s going to mean a lot of lawsuits, but the bottom line is that sports leagues and cable networks will both lose a lot of revenue.

Advertising is taking additional hits. Travel-based advertising has already disappeared. It’s also now obvious that a lot of local advertising is drying up as small businesses feel the pinch from this crisis, affecting both local TV stations and newspapers. A number of small newspapers around the country have already folded, and local television and radio stations are likely to follow.

Another big hit for the industry will come as the production of new content has slowed to a crawl. Movie and television studios have put the production of new content on hold. How long will homes remain happy crawling through the old content on Netflix, Amazon Prime, Hulu, etc?

Sports networks are in big trouble since they have no live content to share. Watching ESPN right now is downright sad for a sports fan. Sports fans might watch old playoff games on ESPN, FS1 and other networks for a few weeks, but that’s going to get quickly lose its appeal.

The programmers have already baked future rate increases into their future contracts with cable providers. With sports programming and new content both dwindling, I expect a lot of small telcos and cable companies will decide that this is a good time to ditch the cable product entirely. Half of my clients that offer cable TV have already been having internal discussions about if and when to walk away from cable – this year might provide the impetus to do so.

If there is any silver lining for the industry, it’s that this is an election year and there promises to be a lot of political advertising between now and November – at least in states with close races for President or with a heavily contested Senate race.

The cable industry was already under stress and this year ought to push it closer to the brink where the traditional cable model breaks. The industry isn’t to that brink yet and over 60% of homes are still subscribing to traditional cable TV. But as that number drops, many of the industry paradigms are going to break and the industry will either have to reinvent itself or undergo the slow death that we saw with residential landlines.

Cable Customers Plummet in 2019

The final numbers are in for 2019 and the largest cable providers collectively lost over 5.9 million customers for the year – a loss of almost 7% of customers. The numbers below come from Leichtman Research Group which compiles these numbers from reports made to investors, except for Cox which is estimated. The numbers reported are for the largest cable providers, and Leichtman estimates that these companies represent 95% of all cable customers in the country.

Following is a comparison of the end of 2018 and 2019:

4Q 2019 4Q 2018 Change % Change
Comcast 21,254,000 21,986,000 (732,000) -3.3%
Charter 16,144,000 16,606,000 (462,000) -2.9%
DirecTV 16,033,000 19,222,000 (3,189,000) -16.6%
Dish TV 9,394,000 9,905,000 (511,000) -5.2%
Verizon 4,229,000 4,451,000 (222,000) -5.0%
Cox 3,865,000 4,015,000 (150,000) -3.7%
AT&T U-verse 3,440,000 3,704,000 (264,000) -7.1%
Altice 3,179,200 3,286,100 (106,900) -3.3%
Mediacom 710,000 776,000 (66,000) -8.5%
Frontier 660,000 838,000 (178,000) -21.2%
Cable ONE 314,000 318,061 (4,061) -1.3%
Atlantic Broadband 308,638 347,638 (39,000) -11.2%
Total 79,530,838 85,454,799 (5,923,961) -6.9%
Total Cable 45,774,838 47,334,799 (1,559,961) -3.3%
Total Satellite 25,427,000 29,127,000 (3,700,000 -12.7%
Total Telco 8,639,000 8,993,000 (664,000) -7.4%

These losses were offset a bit as the combination of Hulu Live, Sling TV and AT&T TV collectively added just over 1 million customers. Leichtman doesn’t have subscriber numbers for YouTube TV and a few others that are not publicly reported.

Some observations of the numbers:

  • The overall loss of nearly 7% of customers represents a free fall of traditional cable TV. At the worst of the downside, landlines dropped about 5% of market share per year.
  • The big loser is AT&T, which lost nearly 4.1 million video customers between DirecTV and AT&T U-verse, and AT&T TV. The losses were so large at DirecTV that Charter moved up to become the second largest cable provider.
  • The big percentage loser is Frontier that lost 21% of its cable customers for the year.
  • The cable big companies fared the best, but this is partially due to the fact that Comcast and Charter each added 1.4 million broadband customers for the year – and added cable customers as part of that growth.
  • Cable ONE’s losses are small due to the 2019 acquisition of Fidelity.

As large as these losses are, the losses for 2020 are likely to be a lot larger. The primary reason household still give for cutting the cord is the high price of traditional cable TV. My guess is that the uncertainty of household incomes this year are going to drive many more homes to save money by migrating to lower-cost entertainment alternatives.

An End to Data Caps?

All of the major ISPs that were enforcing data caps have lifted those caps in response to the COVID-19 crisis. This includes AT&T, Comcast, Cox, Mediacom, and CenturyLink. All of these companies justified data caps as a network management tool that was in place to discourage overuse of the network. That argument no longer holds water if these ISPs eliminate the during a crisis that is overtaxing networks more than we are likely to ever see again.

These companies eliminated the caps as a result of political pressure and from a mass public outcry. The caps were eliminated to make broadband more affordable in a time when millions of people are becoming unemployed. By eliminating the caps during this crisis, these ISPs have publicly admitted that the caps were about making money and not for any issues related to network traffic.

The lame justification these ISPs gave for data caps was always weak when other large ISPs like Charter, Verizon, Altice, Frontier, and Windstream never implemented data caps. A few ISPs on that list like Frontier and Windstream have some of the weakest networks in the country yet never sought to implement data caps as a traffic control measure.

AT&T has been the king of data caps. They have data caps that kick in as low as 150 gigabytes of monthly broadband usage on DSL lines. AT&T’s fixed wireless product for rural markets has a data cap that kicks in at 250 GB. Interestingly, customers buying the 300 Mbps on fiber have a 1 terabyte data cap while customers buying gigabit broadband on fiber are allowed unlimited usage. This also proves that the data caps aren’t about traffic control – the caps are removed from the largest data users. The AT&T caps are to encourage somebody buying 300 Mbps to upgrade to the faster service. AT&T is also the king of overage charges. For DSL and fixed wireless, the overage charges are $10 for each 50 GB, with a maximum monthly overage of a whopping $200. The monthly dollar cap on 300 Mbps service is $100.

Mediacom had the next lowest data caps at 400 Mbps. Comcast and Cox have had data caps at 1 TB. It’s been reported by customers that the companies aggressively enforce the caps. CenturyLink has mostly not billed the data caps, but the fact that they eliminated the caps during this crisis likely means they were billing it to some customers.

To put these data caps in context, OpenVault says that at the end of 2019 that the average households used 344 gigabytes of data, up from 275 gigabytes a year earlier. More germane to data caps, OpenVault says that nearly 1% of homes now use 2 terabytes per of data month and 7.7% use over 1 terabyte per month. The percentage of homes using over 1 terabyte climbed from 4% a year earlier. AT&T has likely been cleaning up with data caps charges while Comcast was just starting to see some real revenue from the caps.

What remains to be seen is if these ISPs reintroduce data caps sometime later this year. They can no longer make a straight-faced claim that data caps are in place to dissuade overuse of the network. If data caps had that kind of impact on networks, then during the crisis the ISPs should have tightened the data cap threshold to protect the many new households that are working from home or doing schoolwork remotely. The data caps have always been about money, nothing else.

Unfortunately, we have no recourse other than a loud public outcry if these ISPs renew the data caps. The FCC has completely washed its hands of broadband regulation and killed its authority to do anything about data caps. Most tellingly, when FCC Chairman Ajit Pai released a plea to ISPs to “Keep Americans Connected”, that plea didn’t even mention data caps. Chairman Pai asked ISPs not to disconnect customers for not paying and asked ISPs to provide more public hotspots.

I bet that when this crisis is over that the big ISPs will quietly introduce data caps again. Even before this crisis, almost 9% of homes routinely used more than a terabyte of data, and the data caps are a huge moneymaker for the big ISPs that they are not willingly going to give up. During this crisis, a lot of routine functions are going go virtual and I expect a lot of them will stay virtual when the crisis is over. It wouldn’t be surprising a year from now to see 20% of homes routinely exceeding a terabyte of usage each month.

I think these ISPs will be making a huge mistake if they introduce data caps a few months, or even a year from now. Millions of people found themselves unable to work or school from home due to poor broadband. In the current environment a big public outcry against bad ISP behavior has a high chance of bringing Congressional action. Almost nobody, except the most partisan politicians would vote against a bill that bans data caps. The ISPs should be afraid of other restrictions that might come along with such a bill.

T-Mobile Needs to Step Up

The T-Mobile Sprint merger became official on April 1. Since we are in the middle of the Covid-19 pandemic, the country needs T-Mobile to keep a few of the promises it made that were contingent upon the merger.

First, T-Mobile promised to offer wireless home broadband immediately after the merger for 50% of the people in the US, including many rural subscribers. T-Mobile envisions packaging excess cellular capacity as home broadband, at a reasonable price. The company does not envision putting fixed wireless antennas on homes like the products of AT&T and Verizon. The T-Mobile home product just requires a billing change where people pay less for cellular data usage inside their home. T-Mobile could effectuate this product almost immediately. This product could immediately help millions of homes that are struggling without affordable broadband right now.

The other T-Mobile promise addressed the digital divide and the company promised to serve 10 million homes that don’t have broadband today. This offer came with a promise to provide free devices to homes to receive the broadband. This is a digital divide product and could bring relief to poor households struggling with students trying to work from home. The product had a catch, in that annual usage was limited to 100 GB for free – but that’s enough usage to get students through the rest of this school year. As cellular plans in general go that’s not bad, meaning a monthly data allowance of over 8 GB per month in data allowance.

If T-Mobile is brave enough to launch these products immediately, they will reap mountains of marketing goodwill, which is exactly what the newly merged company needs. They will have created millions of fans who likely would become loyal to the company for helping them during this pandemic.

If T-Mobile doesn’t step up, ideally the FCC would turn the screws hard to make the company meet these promises now, rather than years from now. However, these plans involve broadband data and the feckless FCC has written themselves out of the broadband business. The FCC can huff and puff, but they no longer have the power to blow anybody’s house down.

Unfortunately, the history of the telecom industry is full of broken promises made as part of mergers. One of the biggest wireless mergers in the past was the 2005 merger of Sprint with Nextel. The companies had promised that the merger would allow them to bring Nextel’s popular ‘push to talk’ technology everywhere. The companies also promised they would blanket the country with cellular data, including rural America, using the 2.5 GHz spectrum. None of those promises ever came to pass – which was perhaps the first of many broken promises made for rural broadband. Like with most mergers, this merger also promised a lot of new jobs, but instead cut jobs.

There are plenty of other failed mergers. Consider the 2011 merger of Comcast with NBC Universal. Comcast promised it would offer affordably-priced standalone Internet everywhere – a product that was created but never marketed. Comcast promised to not discriminate against other programmers, but immediately disadvantaged Bloomberg by moving it to an obscure part of the channel lineup since it competed against the newly acquired MSNBC and CNBC. Comcast also promised to not discriminate against rival streaming services, but soon after the merger implemented its data caps, which applied to everybody’s video except Comcast’s.

One of the most blatant examples of carriers that tossed away pre-merger promises came after the 2006 merger of AT&T and BellSouth. Almost none of the promises made were kept. For example, AT&T promised to bring affordable broadband to all rural customers in the 22 states served by the two companies. Ask the folks in Mississippi and Alabama if this promise was fulfilled. AT&T has promised to build wireline networks in at least 30 cities outside its footprint and compete for voice and data – but this never happened. The companies promised to spend $16.5 billion to upgrade broadband in California and instead shut down expansion soon after the merger. The company claimed it would spend $1 billion wiring schools and libraries – another promise never met.

T-Mobile has an opportunity right not to become a legend in the industry by aggressively bringing affordable broadband to the students and workers who were sent home without broadband. This would distinguish them for the next decade as the carrier that met its promises and would likely propel them into the number one position in the industry. Let’s all hope they step up and do what they promised and do it quickly. Unfortunately, history has shown us that pre-merger promises are often forgotten before the ink is dry. But it would be so refreshing to see a company do what it promised, so we can hope.

Broadband Stats for 2019

Leichtman Research Group recently released the broadband customer statistics for the end of 2019 for the largest cable and telephone companies. Leichtman compiles most of these numbers from the statistics provided to stockholders other than Cox, which is estimated.

The numbers are lower than broadband customers these same companies report to the FCC, and I think that most of the difference is due to the way many of these companies count broadband to apartment buildings. If they provide a gigabit pipe to serve an apartment building, they might count that as 1 customer, whereas for FCC reporting they are likely to count the number of apartment units served.

4Q 2019 2019 Change % Change
Comcast 28,629,000 1,407,000 5.2%
Charter 26,664,000 1,405,000 5.6%
AT&T 15,389,000 (312,000) -2.0%
Verizon 6,956,000 (5,000) -0.1%
Cox 5,170,000 110,000 2.2%
CenturyLink 4,678,000 (134,000) -2.8%
Altice 4,187,300 71,900 1.7%
Frontier 3,500,000 (235,000) -6.3%
Mediacom 1,328,000 64,000 5.1%
Windstream 1,049,300 28,300 2.8%
Consolidated 784,165 5,195 0.7%
WOW 781,500 21,900 2.9%
Cable ONE 773,000 39,000 5.3%
TDS 455,200 31,800 7.5%
Atlantic Broadband 451,463 25,857 6.1%
Cincinnati Bell 426,700 1,100 0.3%
101,222,628 2,525,052 2.6%

Leichtman says this group of companies represents 96% of all US broadband customers. For the year these large ISPs collectively saw growth that annualizes to 2.6%.

The customer additions for 2019 for these large ISPs are just slightly higher than customers additions for 2018. The cable companies performed a little better in 2019 while the losses continue to accelerate for the big telcos. The big telco losers for the year are Frontier, which lost 6.3% of its customer base, AT&T (lost 2.0 %) and CenturyLink (lost 2.8%). AT&T claims to have added 1.1 million customers to fiber for the year, so they are still losing a lot of customers on DSL. Frontier is a total disaster and there may be no recovery for the company if they keep losing broadband customers at a pace of over 6% annually.

‘                                        2018                 2019

Cable Companies        2,987,721        3,144,657

Telcos                           ( 472,124)        ( 619,605)

Total                             2,425,597        2,525,052

The two best-performing companies were again Comcast and Charter, which each added over 1.4 million customers for the year while the rest of the ISPs, including cable companies, collectively lost half a million customers.

One note on the above numbers – the TDS and Cable One numbers include adjustments due to small acquisitions).