Tag: Dish Networks

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The Industry

Fearing the Competition

Over the last six months, practically every big carrier in the industry has made a formal announcement that they are not worried about specific competitors. The latest one I read was in LightReading where Nick Jeffery of Frontier said he’s not worried about competition from the cable companies upgrading to DOCSIS 4.0 or from cellular carriers offering FWA home broadband. Frontier is building a lot of fiber, and Jeffery was commenting that he thinks fiber is a superior technology compared to the alternatives. To be honest, this might be the only claim I read where the ISP was being truthful. Frontier has been at the bottom of the heap in the industry for many years and led in the percentage lost broadband and cable TV customers quarter after quarter. It’s got to be refreshing for the company to be deploying a technology that gives it a fighting chance to succeed.

I’m not citing all of the other CEOs that said the same thing – but these announcements were pretty much across the board – basically, no carrier is afraid of other competitors.

I’ve seen all of the big cable companies quoted as saying they aren’t afraid of FWA cellular broadband. And yet, in the second quarter of this year, T-Mobile and Verizon added over 800,000 new customers, while the large cable companies collectively lost 150,000 customers during the quarter. The cable companies rightfully say they have superior technology when competing against 100 Mbps download speeds, but the FWA cellular carriers have much lower rates and are attracting customers who think that cable broadband costs too much.

The big telcos that are building fiber have all made the same claim about not fearing FWA wireless. The big telcos collectively lost less than 100,000 customers in the second quarter of this year, the best they’ve done in ages. The small loss disguises the fact that the telcos continue to lose DSL customers but are largely replacing them with fiber customers – except Lumen, which had a net customer loss for the quarter of 93,000.

I’ve seen most of the big fiber overbuilders scorning cable company broadband and saying they aren’t worried about DOCSIS 4.0 – like Frontier said. That’s a fairly easy thing not to fear for now since we’re a number of years away from any conversions to DOCSIS 4.0. But Comcast and others are talking about soon introducing some of the higher split technologies on DOCSIS 3.1 to boost upload speeds sooner. Will fiber overbuilders fear the cable companies more after some upgrades?

The WISPs that will be installing new versions of fixed wireless, including some technologies that claim to be able to deliver speeds up to a gigabit, say they are not afraid of competing against rural fiber networks built with grant funding. That’s an interesting claim since the general public seems to have grasped that fiber is better. It will be interesting to see what happens in places where rural fiber competes against fast rural broadband.

The big three cellular carriers all claim they are not afraid of Dish Network becoming the fourth major cellular carrier. It’s an odd claim to make since Dish says the only way for it to gain market share is to be extremely aggressive with prices. The cellular industry is already highly competitive, and it can’t be good for any of the bigger carriers to have to lower rates.

I get a chuckle every time I read one of these statements because when a carrier goes out of its way to mention a competitor, it is worried. The reality is that every carrier in a competitive situation has to be concerned about competitors. In the end, this is a battle that is going to be fought at the local level, market by market. I can picture that the various technologies will get a different reception depending on local factors. But for now, apparently, nobody fears the competition.

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The Industry

Cable Company Cellular Growing

Cable companies are starting to quietly build a significant cellular business to bundle with broadband and other products. Consider the most recent customer count from the eight largest U.S. cellular carriers:

Verizon 143.0 M
T-Mobile 110.2 M
AT&T 101.6 M
Dish 8.5 M
US Cellular 4.9 M
Comcast 4.6 M
Charter 4.3 M
C-Spire 1.2 M

It’s worth noting that AT&T has over 200 million cellular customers worldwide, which makes them the eleventh largest cellular carrier in the world, with China Mobile first with over 851 million customers.

Comcast’s Xfinity Mobile added 317,000 customers in the second quarter of this year to bring the company to a total of 4.6 million customers. Comcast mostly uses the Verizon network to complete calls. However, Comcast demonstrates the major benefit of a cable company being in the cellular business since the company is able to offload a large portion of its outgoing mobile traffic to its WiFi network. Comcast has been experimenting with the use of 600 MHz spectrum to carry some of its cellular traffic. The company purchased $1.7 billion of spectrum in the 2017 incentive auction that freed up spectrum formerly used by television channels. Comcast also purchased $458 million of CBRS spectrum in 2020. The company says it may selectively offload traffic onto licensed spectrum in places where that is cheaper than buying wholesale minutes.

Charter’s Spectrum Mobile added 344,000 mobile customers in the second quarter of the year to bring the company to 4.3 million customers. Spectrum also uses the Verizon network. Charter purchased $464 million of PAL licenses in the CBRS spectrum in 2020. Charter says it intends to place its own radios in high-traffic areas where that will save money. Charter’s CEO Brian Roberts said a few months ago that Charter saw $700 million in new revenues from cellular over the past twelve months.

Altice has been selling mobile services branded as Optimum Mobile for several years and added 33,000 customers in the second quarter, bringing the company to 231,000 total mobile customers. Altice uses the T-Mobile network.

Cox announced the launch of a mobile pilot program on August 29, launching Cox Mobile in Hampton Roads, Virginia, Omaha, Nebraska, and Las Vegas.

All of these companies have a huge potential upside. For example, the mobile customer penetration rate for both Comcast and Charter is under 10%, and both companies believe they can become major mobile players in their markets.

The cable companies face an unusual marketing challenge since each cable company is only in selected urban markets, meaning that a lot of nationwide advertising goes to waste.

The primary reason that Comcast first entered the mobile market was to develop another product that would create a stickier bundle. Comcast figured it would be hard for a customer to leave if that meant finding a new cellular carrier along with a new ISP. Cable companies are still only selling to their own broadband customers, which is a good indication bundling is still a key reason for doing this. It’s also less costly to sell cellular to households that can offload cellular traffic to the cable company broadband network.

The big three cellular carriers have continued to grow in recent years, but the cable companies have definitely made a dent in the market with almost ten million retail mobile customers. The real test for the cellular industry is going to come when Dish finally gets its act together and offers low-cost mobile service in most markets. That’s going to put price pressure on everybody else. If Dish starts a price war, as promised, we’re going to see a real shake-up.

 

 

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Current News The Industry

CBRS Auction Winners

The FCC held a recent auction for the  3.5GHz Citizens Band Radio Spectrum (CBRS). The auction went for 76 rounds and raised over $4.5 billion for the FCC. This auction was unique in that spectrum was licensed at the county-level awarding up to seven licensed 10 MHz channels in each county. Each PAL (Priority Access License) is good for 10 years.

CBRS spectrum can be used in several applications. The spectrum has good field operating parameters and falls in the middle between the two existing blocks of spectrum used for WiFi. This makes the spectrum ideal for rural point-to-multipoint fixed wireless broadband since it can carry a decent amount of bandwidth for a decent distance. The best aspect of this spectrum is that it’s licensed and will largely be free from interference. For the same reasons, this is also a good spectrum for cellular data.

The biggest winner in the auction was Verizon which spent $1.89 billion on the spectrum. The company landed 557 PALs licenses in 57 counties. The company needed this spectrum to fill-in mid-range spectrum for 5G. Verizon has also recently announced a fixed cellular broadband product for rural homes and this spectrum could provide an interference-free way to deliver that product from rural cell sites.

As expected, Dish networks was also a big winner and will be paying $913 million for CBRS spectrum. As the newest nationwide cellular carrier, the company needed this spectrum to fill in the holes in the cellular spectrum it already controls. The other traditional cellular companies were a no-show. AT&T didn’t buy any of the CBRS spectrum. T-Mobile only purchased 8 PALs licenses in six counties.

The largest cable companies scored big in the auction. Charter bought $464 million of spectrum, Comcast is paying $458 million for spectrum, and Cox purchased $212 million of spectrum. As the newest entrants in the cellular business, Comcast and Charter have been buying wholesale cellular broadband from Verizon – this spectrum will let them shift to their own cell sites for a lot of cellular traffic. There is also speculation that cable companies might be planning on using the new spectrum to launch a fixed-wireless product in the rural areas surrounding their cable properties. Both Charter and Cox have entered the upcoming RDOF auction that is awarding $16.4 billion for rural broadband and the companies might be planning on using this spectrum to cover any areas they can win in that reverse auction.

One of the smaller cable companies, Midcontinent Communications, spent over $8.8 million for PALs licenses. Midco already won sizable rural grants to deploy 100 Mbps broadband in Minnesota and the Dakotas. This spectrum will help the company meet those grant pledges and perhaps allow it to pursue RDOF grants.

There were a few other large bidders. One was Nextlink which provides fixed wireless broadband today in Texas, Oklahoma, Kansas, Nebraska, Iowa, and Illinois. Windstream purchased over 1,000 PALs and the traditional telco is likely going to replace aging rural copper with wireless service, while also possibly be expanding into new service territories with fixed wireless. SAL Spectrum LLC won 1,569 PALs. This company owns numerous other blocks of spectrum and it’s not clear who the user of this new spectrum might be.

The biggest news is that the auction allowed smaller bidders to win licensed spectrum. There were 228 different winners in the auction, most of which are small WISPs, telcos, and electric cooperatives. These entities benefited by the FCC’s willingness to auction the spectrum at the county level. Most previous wireless spectrum was allocated using much larger footprints, which kept small bidders from acquiring spectrum.

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The Industry

Dish – the Newest Cellular Carrier

One of the primary reasons that the T-Mobile and Sprint merger got approved was the agreement that Dish Networks will become the fourth nationwide cellular carrier. Now that the merger has been completed, Dish is off and running to take the steps needed to launch a new nationwide 5G network.

Dish is preparing to launch the cellular business with a lot of spectrum. The company is already sitting on 600 MHz and 700 MHz spectrum that covers most of the country. The company also owns blocks of 1,700 MHz AWS spectrum that is the workhorse in cellular networks. As part of the merger arrangement, Dish is purchasing Sprint’s 800 MHz spectrum.

The company envisions a new ‘virtual’ network that will be 100% software-driven, which would give the company the most modern cellular network in the country. If the network can be built quickly enough, the company should have an advantage for speed-to-market as new 5G features are introduced into the cellular network.

Like with any new venture, the company’s biggest challenge is going to be cash. Dish already paid T-Mobile $1.4 billion for the prepaid cellular company Boost Mobile. Dish is also paying $3.6 billion for the 800 MHz spectrum from Sprint. Meanwhile, Dish’s existing core satellite business continues to lose customers and revenues – the company lost 511,000 customers in 2019, and another 132,000 in the first quarter of this year – that’s 6.5% of its customer base.

Dish faces an immediate liquidity problem that has become complicated by the COVID-19 crisis. The company had enough cash on hand to pay off debt of $1.1 billion that will be due in May. But the company still faces debt retirements of $2 billion due in both June 2021 and 2022. Additionally, the company needs to raise an estimated $9 billion to build the new cellular network. The company needs to raise at least several billion in equity in a hurry if it wants to attract the needed new debt. That will be challenging due to the COVID-19 crisis as many big investors are sitting on the sidelines waiting for the markets to stabilize.

To really complicate things, Dish is operating under a tight time clock. As part of the merger agreement, Dish agreed to build over 15,000 cell sites by June 2023 that will cover 70% of the US population. That commitment not only requires Dish to raise the needed funds, but to get major construction started while the country is dealing with the COVID-19 crisis. The company faces fines of up to $2 billion for failure to meet that commitment. Dish has been battling with the FCC for years due to its failure to use its spectrum holding, so the deal comes with the tight timeline to ensure that the spectrum finally gets used to serve customers.

One of the interesting challenges the company faces is getting onto existing towers. Many of the most desirable urban towers are already full. It seems logical that T-Mobile will be decommissioning duplicative Sprint tower space over time, but that’s not something that will happen overnight, particularly with the COVID-19 crisis. It also seems likely that Dish will get caught up by the various supply chain issues that are cropping up everywhere in the industry due to the coronavirus.

Anybody who has ever launched a new broadband venture knows the other challenges facing the company. All of this growth much be done by a company that is just now hiring the staff who will pull it off. Deploying to 15,000 cellular sites in two years would be an intimidating challenge for any existing cellular company, and the idea of being nimble with a company that is adding the needed staff during the build-out period is frankly scary. Dish will obviously have to rely on outsourcing a lot of the cell site acquisition and construction – but in an industry that already has full employment, there aren’t hordes of skilled technicians sitting on the sidelines waiting for work. One of the key positions that is massively short-handed nationwide is experienced tower climbers.

Every detail of making this work is an intimidating task. For example, the company will need to arrange for 15,000 fiber backhaul connections to provide the needed bandwidth. Dish will have to conduct 15,000 load analyses on towers – something that is unique to each tower and that is done to make sure a tower can safely accommodate the new dishes and that the tower will hold up in windy conditions. Dish also needs to build one or more gigantic network operations centers to operate the new network. I can’t recall any equally ambitious telecom project.

Cellular customers everywhere should be rooting for the company to pull this off. Dish president Charlie Ergan has promised to compete vigorously on price to win market share – something that will be good for customers even if they don’t change to Dish.

The chances are high that the company won’t make its June 2023 deadline. The already overaggressive business plan will be further complicated by COVID-19 issues which likely means it will take longer to raise the needed money while dealing with issues like dealing with social distancing for the staff and supply chain delays. If the company meets some decent percentage of the plan, I hope the FCC will let them off the hook for fines. The country could use a new cellular network, particularly one that is technically superior to the other carriers and that wants to set low prices.

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The Industry

Trusting Big Company Promises

When AT&T proposed to merge with Time Warner in 2016, attorneys at the Justice Department argued against the merger and said that the combined company would have too much power since it would be both a content provider and a content purchaser. Justice Department lawyers and various other antitrust lawyers warned that the merger would result in rate hikes and blackouts. AT&T counterargued that they are good corporate citizens and that the merger would be good for consumers.

In retrospect, it looks like the Justice Department lawyers were right. Soon after the merger, AT&T raised the prices for DirecTV and its online service DirecTV Now by $5 per month. The company raised the rates on DirecTV Now again in April of this year by $10 per month. AT&T accompanied the price increases with a decision to no longer negotiate promotional prices with TV customers. In the first two quarters of this year DirecTV lost over 1.3 million customers as older pricing packages expired and the company insisted that customers move to the new prices. AT&T says they are happy to be rid of customers that were not contributing to their bottom line.

In July of this year, CBS went dark for 6.5 million DirecTV and AT&T U-verse cable customers. AT&T said that CBS wanted too much money to renew a carriage deal. The two companies resolved the blackout in August.

Meanwhile, AT&T and Dish networks got into a dispute in late 2018 which resulted in turning off HBO and Cinemax on Dish Network. This blackout has carried into 2019 and the two sides still have not resolved the issue. The dispute cost Dish a lot of customers when the company was unable to carry the Game of Thrones. Dish says that half of its 334,000 customer losses in the fourth quarter of 2018 were due to not having the Game of Thrones.

I just saw headlines that AT&T is headed towards a rate fight with ESPN and warns there could be protracted blackouts.

It’s hard to fully fault any one of the AT&T decisions since they can be justified to some degree as smart business practices. But that’s how monopoly abuses generally work. AT&T wants to pay as little as possible when buying programming from others and wants to charge as much as possible when selling content. In the end, it’s consumers who pay for the AT&T practices – something the company had promised would not happen just months before the blackouts.

Programming fights don’t have to be so messy. Consider Comcast which is also a programmer and the biggest cable TV company. Comcast has gotten into a few disputes over programming, particularly with regional sports programming. In a few of these disputes, Comcast was leveraging its programming power since it also owns NBC and other programming. But these cases mostly got resolved without blackouts.

Regulators are most worried about AT&T’s willingness to allow prolonged blackouts because during blackouts the public suffers. Constantly increasing programming costs have caused a lot of angst for cable TV providers, and yet most disputes over programming don’t result in turning off content. AT&T is clearly willing to flex its corporate muscles since it is operating from a position of power in most cases, as either an owner of valuable content or as one of the largest buyers of content.

From a regulatory perspective this raises the question of how the government can trust the big companies that have grown to have tremendous market power. The Justice Department sued to challenge the AT&T and Time Warner merger even after the merger was approved. That was an extraordinary suit that asked to undo the merger. The Justice Department argued that the merger was clearly against the public interest. The courts quickly ruled against that suit and it’s clear that it’s nearly impossible to undo a merger after it has occurred.

The fact is that companies with monopoly power almost always eventually abuse that power. It’s incredibly hard for a monopoly to decide not to act in its own best interest, even if those actions are considered as monopoly abuses. Corporations are made up of people who want to succeed and it’s human nature for people to take any market advantages their corporation might have. I have to wonder if AT&T’s behavior will make regulators hesitate before the next big merger. Probably not, but AT&T barely let the ink dry on the Time Warner merger before doing things they promised they wouldn’t do.

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The Industry

Cord Cutting Picking Up Steam

Cord cutting continued to pick up speed in the second quarter of this year. The numbers below come from Leichtman Research Group which compiles these numbers from reports made to investors.

The numbers reported are for the largest cable providers and Leichtman estimates that these companies represent 93% of all cable customers in the country.

The overall penetration rate of households buying traditional cable has dropped to 67.4% at the end of the second quarter of the year. The penetration rate had dropped just under 70% at the end of 2018.

For the quarter the cable companies lost 1.7% of subscribers which would equate to a trend of losing 6.7% for the year. However, that number needs to be put into context. The biggest drop of customers came from AT&T / DirectTV which lost over 1.3 million customers so far this year. The company decided to end discount plans to customers and has been letting customers go who won’t agree to pay full price after the end of discount plans. The company says they are glad to be rid of customers who are not contributing to the bottom line of the company. At some point soon that purge should end, and the company should return to a more normal trajectory. Normalizing for AT&T, the whole industry is probably still losing customer currently at a rate between 4% and 5% of total market share annually.

4Q 2018 2Q 2019 1Q Change 2Q Change 2Q
Comcast 21,986,000 21,641,000 (121,000) (224,000) -1.0%
AT&T / DirecTV 22,926,000 21,605,000 (543,000) (778,000) -3.5%
Charter 16,606,000 16,320,000 (145,000) (141,000) -0.9%
Dish TV 9,905,000 9,560,000 (266,000) (79,000) -0.8%
Verizon 4,451,000 4,346,000 (53,000) (52,000) -1.2%
Cox 4,015,000 3,940,000 (35,000) (40,000) -1.0%
Altice 3,307,500 3,276,500 (10,200) (20,800) -0.6%
Mediacom 776,000 747,000 (12,000) (17,000) -2.2%
Frontier 838,000 738,000 (54,000) (46,000) -5.9%
Cable ONE 326,423 308,493 (5,812) (12,118) -3.8%
Total 85,136,923 82,481,993 (1,245,012) (1,409,918) -1.7%

These same companies have lost over 5 million traditional cable subscribers since the end of the second quarter in 2018.

Some other observations:

  • This is the first time that Comcast has lost 1% of cable customers in a quarter. Until recently the company was holding steady with cable customer counts due to the fact that the company has continued to add new broadband customers, many who bought cable TV.
  • Frontier is bleeding both cable customers and broadband customers, and the company lost 71,000 broadband customers in the second quarter to go with the loss of 46,000 cable customers.
  • The only other companies that lost more than 2% of their cable customer base in the quarter are Mediacom and Cable ONE.
  • The loss of 79,000 customers is the smallest quarterly loss for Dish Networks since 2014.

The biggest losers in the industry are likely the programmers. They are losing millions of monthly subscriptions that were paying for their programming. A few networks are recovering some of these losses by selling programming to providers like SlingTV or PlayStation Now – but overall the programmers are losing a mountain of paying households.

The big question for the industry is if there is some predictable path for cord cutting. Will it continue to accelerate and kill the industry in a few years or will losses be slow and steady like happened with landline telephones?

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The Industry

A New Cellular Carrier?

One of the most interesting aspects of the proposed merger of Sprint and T-Mobile is that the agreement now includes selling some of Sprint’s spectrum to Dish Networks to enable them to become a 5G cellular provider. This arrangement is part of the compromise required by the Department of Justice to preserve industry competition when the major wireless carriers shrink from four to three.

This agreement would have Dish Networks paying $5 billion for the spectrum assets, which complement the spectrum already owned by Dish. The agreement also includes an MVNO agreement between Dish Networks and T-Mobile that would let Dish enter the cellular market immediately before having to build any network. As part of that arrangement, Dish would purchase Boost Mobile from T-Mobile for $1.4 billion, providing them with an immediate base of cellular customers.

Dish already owns spectrum valued at several billion dollars. The company has been under pressure from the FCC to deploy that spectrum, and Dish recently began building a nationwide narrowband network to support IoT sensors. The company admits they are not happy with the IoT sensor business plan but didn’t want to lose their spectrum. Perhaps the best aspect of this deal from Dish’s perspective is that they are being given a new time clock to use existing spectrum in a more profitable way.

This deal has plenty of critics who don’t believe that Dish can turn into a viable competitor. This includes numerous consumer groups as well as a group of state Attorney Generals who have filed to block the merger. The merger is far from a done deal and is going to court, although it has crossed the major hurdles of getting DOJ approval and informal approval from the FCC.

Dish Chairman Charlie Ergen says the company is ready to become the fourth facility-based cellular carrier in the market. He thinks that launching with a new 5G network will provide some advantages over carriers that will be upgrading older networks. The company faces some significant challenges such as gaining access to tower space in crowded markets. The other cellular carriers have also been busy and have invested significant amounts of capital in building fiber to support cellular small cell sites.

The challenge of building a new nationwide cellular network from scratch is intimidating. As a satellite provider, the company does not already operate an extensive landline network. The logistics of hiring the needed talent and constructing the core network infrastructure is a major challenge. A few years ago Dish had estimated the cost to build a nationwide cellular network at $10 billion. The company says they have already released an RFI and an RFP to start the process of hiring contractors to build the new network.

Ergen says the company could build the core network in 2020 and could construct a network to cover 70% of the homes in the country by 2023. As far as being competitive, Dish says they would enter the market with ‘disruptive’ pricing to capture market share.

Dish needs something like this if it is to survive. The company lost over 1.1 million satellite TV customers last year, a little over 10% of its customer base. It looks like cord cutting is accelerating this year and one has to wonder how long they will remain as a viable business.

Interestingly, Dish won’t be the only new competitor in the cellular market. Comcast recently spent over $1.7 billion on spectrum. The company has been reselling cellular service and offering low-price broadband as part of its bundle for the last few years. The company reporting hitting 1.2 million cellular customers at the beginning of this year. While Comcast is not likely to tackle building a nationwide network, they could become a formidable competitor in the urban markets where they are already the cable provider. Other cellular companies like Charter and Altice are considering a similar path.

Categories
The Industry

The End of Satellite TV?

DirecTV launched their most recent satellite in May of 2015. The company has launched 16 satellites in its history, and with twelve remaining in service is the largest commercial satellite company in the world. AT&T, the owner of DirecTV announced at the end of last year that there would be no more future satellite launches. Satellites don’t last forever, and that announcement marks the beginning of the death of DirecTV. The satellites launched before 2000 are now defunct and the satellites launch after that will start going dark over time.

AT&T is instead going to concentrate of terrestrial cable service delivered over the web. They are now pushing customers to subscribe to DirecTV Now or WatchTV rather than the satellite service. We’ve already seen evidence of this shift and DirecTV was down to 19.6 million customers, having lost a net of 883,000 customers for the first three quarters of 2018. The other satellite company, Dish Networks lost 744,000 customers in the same 9-month period.

DirecTV is still the second largest cable provider, now 2.5 million customers smaller than Comcast, but 3 million customers larger than Charter. It can lose a few million customers per year and still remain as a major cable provider for a long time.

In much of rural America, the two satellite companies are the only TV option for millions of customers. Households without good broadband don’t have the option of going online. I was at a meeting with rural folks last week who were describing their painful attempts to stream even a single SD-quality stream over Netflix.

For many years the satellite providers competed on price and were able to keep prices low since they didn’t have to maintain a landline network and the associated technician fleet. However, both satellite providers looked to have abandoned that philosophy. DirecTV just announced rate increase that range from $3 to $8 per month for various packages. They also raised the price for regional sports networks by $1. Dish just announced rate increases that average $6 per month for its packages. These are the two largest rate increases in the history of these companies and will shrink the difference between satellite and terrestrial cable prices.

These rate increases will make it easier for rural cable providers to compete. Many of them have tried to keep rates within a reasonable range of the satellite providers, and these rate increases will shrink the differences in rates.

In the long run the consequences of not having the satellite option will create even more change in a fast-changing industry. For years the satellite companies have been the biggest competitor of the big cable companies – and they don’t just serve in rural America. I recently did a survey in a community of 20,000 where almost half of the households use satellite TV. As the satellite companies drop subscribers, some of them will revert to traditional cable providers. The recent price increases ought to accelerate that shift.

Nobody has a crystal ball for the cable industry. Just a year ago it seemed like industry-wide consensus that we were going to see a rapid acceleration of cord cutting. While cord cutting gets a lot of headlines, it hasn’t yet grown to nearly the same magnitude of change that we saw with households dropping telephone landlines. Surprisingly, even after nearly a decade of landline losses there are still around 40% of homes with a landline. Will we see the same thing with traditional cable TV, or will the providers push customers online?

Recently I’ve seen a spate of articles talking about how it’s becoming as expensive to buy online programming as it is to stick with cable companies, and if this becomes the public perception, we might see a slowdown in the pace of cord cutting. It’s possible that traditional cable will be around for a long time. The satellite cable companies lost money for many years, mostly due to low prices. It’s possible that after a few more big rate increases that these companies might become profitable and reconsider their future.

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Regulation - What is it Good For?

Reclaiming Spectrum

The FCC recently wrote a letter to DISH Networks warning the company that it had not complied with the FCC’s build-out requirements for its AWS-4 and its E and H blocks of 700 MHz spectrum. The warning was more sternly worded than what we normally see from the FCC, and perhaps they will take steps to reclaim the spectrum if DISH is unable to meet the required deployment of the spectrum. The company has a long history of sitting on spectrum and delaying its use. They recently told the FCC that they want to use the AWS spectrum to launch a nationwide IoT monitoring network and that they are interested in entering the cellular business with the 700 MHz licenses.

Today’s blog is not about DISH specifically. Instead, I want to talk about the FCC reclaiming spectrum. This is an important issue for rural America because the majority of licensed spectrum sits idle in rural America for a number of reasons. We could go a long way towards fixing the rural broadband problem if the unused spectrum could be reclaimed by the FCC and repositioned for rural use. There are a number of reasons why the spectrum sits idle today.

Coverage Rules. Most FCC licenses come with coverage requirements. For instance, a given spectrum might need to eventually be deployed to cover something like 70% of the households in a license area. That rule allows spectrum holders to deploy spectrum to urban areas and legally ignore the surrounding rural areas.

There is nothing wrong with this from a business perspective. Cellular companies only need to use their full inventory of spectrum in urban areas where most customers live, and the FCC rules should not require deployment of spectrum where nobody will use it. But the coverage rules mean that the spectrum will remain unused in rural areas as long as the primary license holder is serving the urban areas – effectively forever. Since the spectrum is licensed, nobody else can use it. This problem is caused by the way that the FCC licenses spectrum for large geographic areas, while the spectrum buyers are interested in serving only a portion of the license areas.

Ideally unused spectrum should be made available to somebody else who can make a business case for it. There are several ways to fix this issue. First, licensed holders could be compelled by the FCC to sub-license the spectrum to others where it sits idle. Or the FCC could reclaim the spectrum in unused geographic areas and distribute it to those who will use it.

Deployment Delays. Other spectrum goes unused due to deployment delays by license holders. The DISH Network spectrum is a perfect example. The company bought this spectrum for a use that they were unable to execute. Since the spectrum is valuable the license holders deploy delaying tactics to stop the FCC from reclaiming the spectrum. The FCC has largely been derelict in enforcing its own rules and I’m sure that DISH was shocked at the FCC response. DISH probably figured that this would be business as usual and that the FCC would grant them more time as had been done in the past. I have no idea if DISH really intends to deploy an IoT network or go into the cellular business – but those are the kinds of new competitive ventures that the FCC has been publicly asking for, so DISH is telling the FCC exactly what it wants to hear. But it’s likely that DISH just wants another delay until they can find a buyer for their sinking satellite business by somebody who will value the spectrum. Regardless of the reasons, the FCC has ignored its own deployment rules numerous times and granted license holders more time.

Spectrum Speculators. There is a class of investors who buy spectrum with the hopes of selling it or licensing it to somebody else. They will buy spectrum and rig up a bogus use of the spectrum to meet the build-out requirements. I’ve seen wireless links deployed that carry no data but that are intended only to prove to the FCC that the spectrum is being used. The FCC ought to do a better job of identifying the fake deployments that are done only to preserve the license.

There’s no way to know if the letter to DISH signals a change at the FCC and if they intend to enforce the spectrum rules. Better enforcement of the rules alone won’t help rural America if the spectrum gets re-licensed and the same cycle repeats. We need spectrum rules that free up spectrum in rural areas where the spectrum sits idle. Perhaps this could be done by requiring license holders to sub-license the spectrum to others where it sits idle. The FCC has said numerous time that wireless technology can be the salvation for rural broadband, yet they allow the most valuable spectrum to sit idle while WISPs are relegated to delivering broadband using a few tiny swaths of unlicensed spectrum. This is not a hard problem to solve, but it requires the will to solve it, and an FCC that won’t cave-in to the big spectrum license holders.

Categories
The Industry

Another Alternative to Cable TV

In just the last few years we’ve seen a plethora of alternatives to cable TV. It was only a few years ago in 2014 when the Supreme Court rules against Aereo for offering a product that allowed people to bypass the cable company to watch local channels anywhere within a market. In retrospect is looks like Aereo’s biggest sin was being too early to market, because today Sling TV is offering a product that feels the same to customers.

Sling TV’s product is AirTV. The company provides several options, all which include a settop box that includes an antenna to receive local over-the-air networks. AirTV then integrates the local channels into the Sling TV OTT offering for a seamless mix of local and on-line channels. The box let’s a user watch the local channels on any device within range of the customer’s WiFi network. The box also will upload your local channels to the cloud to watch anywhere else while you are traveling.

The differences between AirTV and Aereo are subtle. Both companies avoided paying retransmission fees for the local networks. Both companies used antennas to receive off-air channels like ABC, CBS, FOX, NBC and PBS. AirTV places the antenna in the home while Aereo had an individual antenna for each customer at the central office and then beamed the shows to an Aereo box in the home. A non-technical customer would probably be hard pressed to describe the difference between the services, because from the end-user perspective the products offer the same end result.

The Supreme Court’s ruling again Aereo was also subtle. They ruled that Aereo had infringed on network copyrighted material by beaming the signal from an Aereo customer antenna located at a hub and the customer site. Now only four years later these same content owners seem to have no issues with AirTV beaming local content over the Internet to reach a customer who is traveling.

The big obvious difference between 2014 and now is the proliferation of numerous other OTT offerings that are using subsets of the traditional cable offerings to compete with cable companies. Some of the biggest ISPs like Comcast and Verizon even have their own OTT offering to compete against their own cable products.

It seems like the genie is out of the bag now and anything goes in the programming world. We recently saw Charter introduce a package that feels like a la carte programming where customers only get the channels they want. We see millions of customers opting for smaller packages by cutting the cord or migrating to smaller packages.

If you go back and read the big cable company complaints against Aereo you could make many of the same arguments against AirTV – and yet they are not being pushed out of business, as happened to Aereo. The cable companies can’t stop anybody from selling rabbit ears, but one would think they would have a valid complaint against a company that bundles the rabbit ears with other programming without paying retransmission fees.

One reason that AirTV might not be getting push-back is because they are owned by Dish Networks. A lot of the alternative programming today is being offered by the biggest players in the industry, and perhaps Aereo was singled out because they were a brash outsider. Clients ask me all of the time about creating their own small packages and I regret having to tell them that the programmers won’t even talk to small companies about the possibility.

Smaller cable operators don’t have the same options as Comcast, Charter, Dish Networks or AT&T. Small cable providers must still follow FCC rules that require traditional cable TV packages and lineups. Any small cable provider that wants to buck these rules probably ends up on the wrong side of a lawsuit or else is threated by the programmers with losing their programming contracts. Small cable operators, who are already losing money on cable TV are not willing to risk a legal battle with one of the big programmers.

I love seeing companies like AirTV blazing new ground because I hope that what they are doing will eventually filter down to the rest of the market. Sling TV has made it clear that they don’t expect to make money on AirTV and their real goal is to create stickiness for the Sling TV product. I know a lot of small cable operators who would be thrilled to reach breakeven with a cable product, and I’m hopeful that in the next few years they might have the option to resale a bundle like Sling TV and AirTV rather than continuing to lose money with traditional cable.

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