A Doubling of Broadband Prices?

In what is bad news for consumers but good news for ISPs, a report by analyst Jonathan Chaplin of New Street Research predicts big increases in broadband prices. He argues that broadband is underpriced. Prices haven’t increased much for a decade and he sees the value of broadband greatly increased since it is now vital in people’s lives.

The report is bullish on cable company stock prices because they will be the immediate beneficiary of higher broadband prices. The business world has not really acknowledged the fact that in most US markets the cable companies are becoming a near-monopoly. Big telcos like AT&T have cut back on promoting DSL products and are largely ceding the broadband market to the big cable companies. We see hordes of customers dropping DSL each quarter and all of the growth in the broadband industry is happening in the biggest cable companies like Comcast and Charter.

I’ve been predicting for years that the cable companies will have to start raising broadband prices. The companies have been seeing cable revenues drop and voice revenues continuing to drop and they will have to make up for these losses. But I never expected the rapid and drastic increases predicted by this report. Chaplin sets the value of basic broadband at $90, which is close to a doubling of today’s prices.

The cable industry is experiencing a significant and accelerating decline in cable customers. And they are also facing significant declines in revenues from cord-shaving as customers elect smaller cable packages. But the cable products have been squeezed on margin because of programming price increases and one has to wonder how much the declining cable revenue really hurts their bottom line.

Chaplin reports that the price of unbundled basic broadband at Comcast is now $90 including what they charge for a modem. It’s even higher than that for some customers. Before I left Comcast last year I was paying over $120 per month for broadband since the company forced me to buy a bundle that included basic cable if I wanted a broadband connection faster than 30 Mbps.

Chaplin believes that broadband prices at Comcast will be pushed up to the $90 level within a relatively short period of time. And he expects Charter to follow.

If Chaplin is right one has to wonder what price increases of this magnitude will mean for the public. Today almost 20% of households still don’t have broadband, and nearly two-thirds of those say it’s because if the cost. It’s not hard to imagine that a drastic increase in broadband rates will drive a lot of people to use broadband alternatives like cellular data, even though it’s a far inferior substitute.

I also have to wonder what price increases of this magnitude might mean for competitors. I’ve created hundreds of business plans for markets of all sizes, and not all of them look promising. But the opportunities for a competitor improve dramatically if broadband is priced a lot higher. I would expect that higher prices are going to invite in more fiber overbuilders. And higher prices might finally drive cities to get into the broadband business just to fix what will be a widening digital divide as more homes won’t be able to afford the higher prices.

Comcast today matches the prices of any significant cable competitor. For instance, they match Google Fiber’s prices where the companies compete head-to-head. It’s not hard to foresee a market where competitive markets stay close to today’s prices while the rest have big rate increases. That also would invite in municipal overbuilders in places with the highest prices.

Broadband is already a high-margin product and any price increases will go straight to the bottom line. It’s impossible for any ISP to say that a broadband price increase is attributable to higher costs – as this report describes it, any price increases can only be justified by setting prices to ‘market’.

All of this is driven, of course, by the insatiable urge of Wall Street to see companies make more money every quarter. Companies like Comcast already make huge profits and in an ideal world would be happy with those profits. Comcast does have other ways to make money since they are also pursuing cellular service, smart home products and even now bundling solar panels. And while most of the other cable companies don’t have as many options as Comcast, they will gladly follow the trend of higher broadband prices.

Decommissioning Rural Copper, Part 2

In the last blog I wrote about my belief that AT&T and Verizon want out of the rural wireline business. They both have plans to largely walk away from their rural copper networks and replace landline copper services with cellular service. Today I want to talk about what regulators ought to do with those networks.

When these two giant telcos walk away from rural copper they will inevitably harm rural America. While many homes will get the ‘privilege’ of now buying highly-priced cellular-based broadband, other homes are going to find themselves without telephone service if they happen to live in one of the many cellular dead zones. Such homes will not only be unable to benefit from cellular broadband, but if they have poor cell service they will find themselves cut off from voice communications as well.

As somebody who has traveled extensively in rural America I can tell you that there are a lot more cellular dead zones than people realize. And it’s not only farms, and there are county seats in rural America where it’s difficult to get a working cellphone signal inside of buildings.

As part of this transition both companies are going to walk away from a huge amount of existing copper cable. I think this copper cable is an incredibly valuable asset and that regulators ought not to allow them to tear it down.

The copper wire network today goes almost everywhere in rural America. Congressional laws and FCC policies led to most homes in the country getting access the the copper network. These copper wires occupy a valuable space on existing telephone poles – on the majority of rural poles the only two wires are the power lines at the top and the telephone wires at the bottom.

If these copper wires are kept in place they could greatly reduce the cost of building rural fiber. It is far cheaper when building fiber to ‘lash’ the fiber onto an existing set of cables than to hang fiber from scratch. It was this construction technique that allowed Verizon to build a lot of its FiOS fiber network – they lashed fiber onto existing telephone wires. And my guess is that when Verizon decommissions urban copper they are still going to leave a lot of the copper wires in place as a guidewire for their fiber.

If these telcos are going to walk away from these copper wires, then they ought to be required to keep them in place for use by somebody else to hang fiber. Many states might force the big telcos to tear down the copper wires since they will eventually create safety hazards as they break away from poles if they aren’t maintained. But if somebody else is willing to take over that maintenance then it shouldn’t be an issue.

I can picture a regulatory process whereby some other carrier is allowed to come in and ‘claim’ the abandoned wires once they are empty of customers. That would provide fiber overbuilders or rural communities to claim this copper as an asset.

There is some salvage value to copper wires and and it’s possible, but not probable that the value of the copper could exceed the cost to tear it down. So I can see the telcos fighting such an idea as a confiscation of their assets. But these rural wires have been fully depreciated for decades and the telcos have earned back the cost of these copper lines many times over. I believe that by the act of abandoning the wires and depriving some homes of wireline service that the big telcos will have forfeited any rights they might have to the remaining assets.

Anybody claiming the abandoned copper could use it in two ways. First, in many cases there is still existing life left in the copper, as witnessed by Frontier and CenturyLink rehabbing old rural copper with upgraded DSL. Local communities or small carriers could use the copper to bring the better services that the big telcos have refused to do over the last few decades.

But more importantly these wires represent the cheapest path forward for building rural fiber. Anybody taking over the old copper can save a lot of fiber construction costs by lashing fiber onto the existing copper. If our nationwide goal is really to get better broadband to rural America, then offering abandoned copper to fiber builders might be one of the easiest tools available to help the process along.

The big telcos abandoned rural America dacades ago. They stopped doing routine maintenance on rural copper and slashed the number of rural technicians. They now want to walk away from that copper and instead force rural America to buy cellular services at inflated prices. We owe it to the folks who paid for this copper many times over to get some benefit from it and to offer an alternative to the new rural cellular monopolies.

Finally, Unlimited Cellular Data

SONY DSCIn a virtual blink of an eye all of the cellular companies are now offering unlimited data. This probably represents a watershed event for the cellular industry and probably marks the start of the slide of cellular data into a commodity, much as has happened in the past with cellular voice and texting.

Up until now, US cellular data has been the most expensive broadband in the world. They have been selling a gigabyte of download for $10. There are numerous ISPs that will let people download a terabyte of data for between $60 and $120 per month, and that makes cellular data between 80 and 160 times more expensive than landline data.

It’s really impossible to blame this gigantic pricing difference on anything other than greed. Looking back five years ago the cellular companies claimed the high prices were due mostly to a desire to protect their cell sites from being swamped with data usage. Perhaps back when cell sites used traditional TDS backhaul (DS3s mostly), there might have been some truth to this. But today most cell sites have fiber Ethernet backhaul of gigabit or greater capacity.

This change seemed inevitable. The cellular companies have all started offering zero-rated plans where they offer some content (often their own) on an unlimited basis while still counting other content against their stingy data caps. That stark contrast pointed out the hypocrisy of their pricing. And while the current FCC is backing away from enforcing these kinds of net neutrality issues – the price contrast is so large that it might have brought eventual scrutiny from Congress during any Telecom Act re-write.

Possibly the biggest impact of this change is that it’s going to change how people use cellphones and other mobile devices like tablets and laptops. Cellphone data speeds in the US are not the best in the world, but they are good enough in most places to be able to watch a single video stream. It’s not much of a stretch of the imagination to foresee wide usage of apps that will use cellphones to capture and transfer video images to televisions. And that could make cellular data an economic substitute for landline broadband.

There is already a lot of talk about younger people preferring cellular data to landline data – mostly due to the mobility aspect. But this has largely meant that cell phone users had to stay close to WiFi most of the time in order to avoid large cellular bills. But unlimited data plans will free users to go anywhere there is a strong enough cell signal to get the connection speeds they need. Over time this could lead to an erosion of landline broadband connections, where households that have unlimited cellular data will find that to be good enough.

The upside to this, though, might be that poorer households might finally get better access to the Internet. Until now, unless a user was able to sit at home behind a landline WiFi signal, cellular data has been too expensive to use in urban areas for things like homework. Since most people now see a cellphone as mandatory to daily life, poorer households will probably be able to get by with only a cellular data plan. This might be the last nail in the coffin for urban DSL.

This change will really make a difference in rural America. I have heard from many rural households that use their cellphone data plan for their household broadband and it’s not unusual to hear of families with schoolkids spending $500 or more per month for totally inadequate cellular broadband. These households are going to be relieved to be able to buy a $100 unlimited plan instead.

Of course, in a lot of rural America there is not the same kind of cellular service that those in cities take for granted. There are very few rural places that have more than one major cellphone carrier with decent signal. And there are a lot of rural households that live too far from a cell tower to get decent cellular speeds. But unlimited plans will probably be a good band-aid to cover for the lack of affordable broadband for millions of rural homes. It won’t be too many years when this won’t be enough speed, but for today cellular broadband is a whole lot better than no broadband.

We’ll have to wait a bit to see if these plans really are unlimited, and what it means if they aren’t. Obviously the plans will be a lot less useful if they somehow preclude tethering. But however they are priced, we are probably not going backwards to the day when your $60 cell plan includes 2 gigabytes of download with every additional gigabyte costing an additional $10. Teens ten years from now will think anybody who remembers being careful how we used our cellphones is an ancient dinosaur!

The FCC’s Latest Statistics on Internet Speeds

FCC_New_LogoThe FCC recently released their annual report that looks at the number of nationwide broadband customers and data speeds. As always, this is an interesting snapshot in time of where broadband is at in the US. The data is gathered from carriers on FCC Form 477 and captures connections that are at least 200 kbps in one direction, meaning it is leaving out dial-up and other extremely slow connections to the web. I would note that these numbers are self-reported by the carriers, meaning it represents the speeds that ISPs say they are delivering, which is not the same as what customers are actually receiving.

The statistics show that overall broadband connections continue to grow. Total landline connections grew from 97.8 M in 2014 to 102.2 M in 2015. Cellular data connection grew from 223.5 M to 253.0 M. Together that’s an annual growth rate of 11%, with cellular continuing to grow faster that landlines. The 102 M landline connections in 2015 includes 84 M residential and 18 M business connections.

The latest breakdown of download speeds delivered to households show that 4.9% have less than 3 Mbps, 15.4% have between 3-10 Mbps, 23.9% have between 10–25 Mbps, 39.9% have between 25-200 Mbps and 15.9% have over 100 Mbps. Again, these are carrier reported numbers which is most important at the lower end of the scale. My work in rural areas, for example, shows that a lot of households that are being sold 3 Mbps or 6 Mbps connections are often actually only getting slower speeds like 1 Mbps.

But the statistics show an increase of speeds over time. For example, the number of connections sold that are 100 Mbps or faster rose from 9.5 M in 2014 to 15.4 M. The number of connections between 25 Mbps and 100 Mbps grew from 34.0 M in 2014 to 39.3 M. And the slowest connections under 3 Mbps shrank from 8.1 M in 2014 to 5.8 M. The FCC bases nationwide performance on these numbers and they put out a proud press release when they estimated that more than 50% of households in the country had speeds greater than 25 Mbps, their definition of broadband.

The report also looks annually at the state of competition, which might be the most important statistic for households since we know that competition generally means lower prices. One interesting statistic is the number of census blocks that have 3 or more providers competing at various speeds. The statistics count all satellite providers as if they were one provider. The FCC shows that 78% of census blocks nationwide have at least three ISPs offering 3 Mbps. 66% of census blocks have 3 providers offering at least 10 Mbps. But the numbers drop drastically when looking at higher speeds and only 4% of census blocks have 3 or more providers offering 25 Mbps  or faster. Less than 1% of census blocks have three providers offering 100 Mbps or higher – and that has to be a handful of places like Kansas City or Austin TX.

At the other end of the scale, 29% of all census blocks don’t have any ISPs offering 25 Mbps or faster. And a gigantic 53% of all census blocks have no ISP offering 100 Mbps or faster.

The report also looks at landline broadband by technology. The number of households by technology are: 59.7 M on cable modem, 28.2 M on DSL, 10.5 M on fiber, 2.1 M on satellite and 1.0 M on fixed wireless. The fiber number is up 1.3 M since 2014. I was surprised by the DSL number since the FCC shows DSL connections dropping only 400,000 since 2014. Other industry sources show DSL is bleeding customers.

The final FCC statistic tracked is the number of ISPs offering the various technologies. There are 958 providers of DSL, 390 cable companies, 984 FTTP providers, 969 fixed wireless providers, 11 satellite providers, and 97 cellular companies. It should be noted that some companies operate more than one kind of network.

A Last Gasp Technology for Copper?

Copper wireGenesis Technical Systems of Canada has announced an improvement to an existing technology that might breathe some life into rural copper networks. The technology is called DSL rings. The technology is not entirely new and I can recall seeing it being discussed fifteen years ago, but the company has added a twist that improves on the concept.

DSL rings are essentially shared DSL. Currently deployed DSL technology can bond together two pairs of copper and in real-life networks can get as much as 50 Mbps speeds.  Under current DSL architecture, the bonded pairs are dedicated to a single home/business. DSL rings instead allows for the bonding of multiple pairs of copper that are then shared among multiple homes. In that bonding process there is a little less new bandwidth available from each pair added, so there is a natural limit on the number of copper pairs that can be bonded.

From the neighborhood device in a pedestal, the “ring” is created by using one copper pair “into” each home and one copper pair “out”. This architecture is looped repetitively through all of the homes in the ‘ring’ so that they are on one continuous copper ‘ring’. For example, in a neighborhood where there are ten homes that can currently each get 10 Mbps using standard DSL,  this technology might create a 80 Mbps pipe that would be shared by all ten homes. But at peak times when all of the homes are using a lot of bandwidth this might not be much faster than today. But by sharing all of the bandwidth with everybody, customers would have access to more bandwidth when the network isn’t busy. A single customer would have access to the whole 80 Mbps pipe. The technology is an improvement on traditional DSL – it uses the same bandwidth-sharing concept as fiber and cable TV nodes where customers in neighborhoods share bandwidth rather than each getting a separate bandwidth pipe.

The current DSL ring technology wouldn’t do anything useful for today’s rural DSL, since there is not a lot of benefit in bonding together slow connections that are only at 1 or 2 Mbps. But as CAF II is implemented by the big telcos and as faster DSL is built into the rural areas, this idea might make sense.

Genesis Technical Systems’ new twist is that they can use the DSL ring base units as a DSL regeneration site, meaning it can not only serve the nearby homes, but the unit can send out bandwidth to the next DSL ring and start a new 2 – 3 mile delivery circle around the next ring in the chain.

The big drawback to that idea is that the second chain is going to be limited to the amount of bandwidth that can be sent to it up the copper, and so it won’t have nearly as much available bandwidth as a DSL ring that is fed by fiber. I see that as the big limiting factor. But this might allow for a network with one or two DSL ring ‘hops’ that can reach further out into the rural area with faster DSL, with each subsequent ring getting significantly smaller bandwidth.

The ideal configuration would be to feed each DSL ring with fiber. But even without considering the cost of building new fiber the technology is not cheap, in the range of $600 to $800 per home added.

There will be other issues to deal with in the rural areas. Most copper networks are ‘loaded’ meaning that there are equalizers to maximize voice quality and this loading would have to be deactivated to use the DSL technology. In some areas, there might not be enough spare copper pairs to make the ring. These days we all assume that most homes have abandoned landlines for cellphones, but in rural areas where the cellular coverage is bad there are still pockets of homes where most have landlines. But copper pairs could be freed by converting analog voice to VoIP.

In looking at the technology, I see the most promising use of it in rural towns, like county seats. Neighborhood rings could be created that would upgrade DSL to compete with most current small town cable modem systems. Where customers might today be buying DSL that has speeds up to 6 Mbps or 12 Mbps they might be able to get speeds up to 50 Mbps or 100 Mbps. But the big caveat on this would be that these rings would slow down during the busiest evening hours similar to older cable TV networks. Still, it would be a major DSL upgrade.

It’s an interesting technology, but at best it’s the last gasp for an old copper network. If this technology is used to move DSLAMs closer to rural homes they are going to get a lot more bandwidth than they get today. It looks like in the ideal situation the technology would let customers burst faster than the FCC’s broadband definition of 25 Mbps. But to some degree this extra speed is illusory – during peak times the DSL would probably be significantly slower. My guess is that if one of the big telcos adopt the technology they will claim the burst speeds in reporting to the FCC and not the achieved speeds at the busy hours of the day. But customers would quickly figure out the difference.

CAF II Technology Options

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

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

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

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

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

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

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

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

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

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

Can Big ISPs Resist Data Caps?

MagneticMapI think we can expect data caps to continue to be in the news. Comcast was getting a lot of negative press on data caps at the beginning of the year and had generated tens of thousands of complaints at the FCC from their 300 GB (gigabit) monthly data cap. They relieved that pressure by unilaterally raising all of the data caps to 1 TB (terabit) per month. But Comcast has now been quietly implementing the terabit cap across the country and recently activated it in the Chicago region.

In May of this year, AT&T U-verse revised a few of their data caps upward, but at the same time began seriously enforcing them for the first time. Until recently, most AT&T data customers that exceeded the caps paid no extra fees. The AT&T U-verse data caps are much smaller than the new Comcast cap. For traditional single-copper DSL customers the data caps is 150 GB per month. For U-verse speeds up to 6 Mbps the cap is now 300 GB per month. For speeds between 12 Mbps and 75 Mbps the cap is 600 GB, while customers with speeds at 100 Mbps or faster now have the same 1 TB monthly cap as Comcast. AT&T has a kicker, though, and any customer can buy unlimited usage for an additional $30 per month.

The large ISPs, in general, are under a lot of pressure to maintain earnings. They have all profited greatly by almost two decades of continuous rapid growth in broadband customers. But that growth is largely coming to an end. A few of the cable companies are still seeing significant broadband growth, but this is coming mostly from capturing the remaining customers from big telco DSL.

At the beginning of this year, the Leichtman Research Group reported that 81% of all American homes now have a broadband connection. When you add up rural homes that can’t get broadband and those elsewhere that can’t afford full-price broadband, there are not room for much more growth. Even if a lot of low-income households get broadband through the Lifeline Fund subsidies, those customers will be at low rates and won’t do a lot to the bottom line at the big ISPs.

Meanwhile, the large ISPs are seeing an erosion of cable revenues. While cord cutting is small, it is real and the cable industry as a whole is now slowly losing customers. Probably more significant to their profits is cord-shaving; customers cut back on the cable packages to save money (and because they have alternatives to the big cable packages). Even if cable wasn’t starting to bleed customers, the margins continue to shrink due to the huge increases in programming costs. Even high margin revenue streams like settop boxes are under fire at the FCC.

When I look out five years from now it’s obvious that the ISPs will somehow have to milk more profit out of broadband. There are only two ways to do that – increase rates or find backdoor ways like data caps to get more money from broadband customers.

It’s not hard to understand why the large ISPs fought net neutrality so hard. By putting broadband under Title II regulation the ruling has already started to impact their bottom line. I think Comcast raised their data cap to stop the FCC from investigating data caps. The proposed FCC rules on privacy will largely strip the ISPs of the ever-growing revenues from advertising and big data sales. And it’s certainly possible in the future that the FCC could use the Title II rules to hold down residential data rates if they climb too high.

It’s got to be a bit hard to be a big ISP right now. They look at envy at the big revenues that others are making. The cellular companies are making a killing with their stingy data caps. Companies like Google and Facebook are making huge amounts of money by using customer data for personalized advertising. Meanwhile, the ISPs live in a world where, if they aren’t careful, they will eventually become nothing more than the big dumb pipe provider – the one future they fear the most.

Comcast, and perhaps the new Charter, are large enough to find other sources of revenue. Comcast is now pursuing a cellular product and has done fairly well selling security and smart home products. Comcast also makes a lot of money as a content provider, boosted now by buying DreamWorks. But any ISP smaller than these two companies is going to have a nearly impossible time if they want to continue to match the growth in bottom line they have enjoyed for the last decade.

Shrinking DSL Competition

turtle_backFor a number of years Verizon has been trying to get rid of DSL customers. Verizon just recently increased the price of its older DSL by $7 in an attempt to drive more customers to FiOS, Verizon wireless, or the cable company.

Unlike the other large telcos Verizon never upgraded DSL to the paired copper wire technology used by AT&T U-verse. In that technology, AT&T and other telcos have bonded together two copper wires and also used a later variety of DSL that, together, can increase DSL speeds to as much as 50 Mbps on perfect copper, but even to 25 Mbps on poor copper. Instead, Verizon put all of their investment into FiOS fiber and most of their DSL is from the very early 2000s. The older DSL that is still operating has speeds of up to 3 Mbps, with ‘newer’ DSL with speeds up to about 7 Mbps.

These are the speeds in urban areas and Verizon customers who live outside of towns get far slower speeds, often reported at near-dial-up slowness. And many of these rural customers have to worry about Verizon wanting to tear down their copper lines, leaving them with no wireline broadband alternative. Verizon is the only large telco that largely rejected the FCC’s offer for taking Connect America Funds to upgrade its rural DSL. Verizon has sold large chunks of its rural market to Frontier and the company has made it clear to the FCC that they would like to walk away from the rest.

If you’ve never read the customer reviews at DSL Reports it’s worth a look. This is a site where customers have been posting stories of problems with broadband for years – everything from lack of speed, poor customer service, slow repairs and pricing. For anyone that happens to have a fast broadband connection it’s an eye-opener to hear from homes that do not.

The FCC tries to paint the picture that there are many markets in the US that have at least two competitors. But when one of the two competitors is a telco trying to edge its way out of the DSL business it’s hard not to argue that a lot of the country really has become a cable monopoly for broadband. The households that stubbornly stick with DSL seem to be those that are willing to accept slow speeds for a lower price. But Verizon seems to want these customers to move on to some other alternative.

Even where the telcos are trying to make DSL competitive it’s a losing battle. AT&T put a lot of money into upgrading and selling its U-Verse DSL product. This was their alternative to building fiber and AT&T thought they could get a few more decades out of their aging copper.

But AT&T total underestimated the huge increase in household demand for bandwidth. The U-verse product uses the paired DSL product – with speeds generally between 25 Mbps and 40 Mbps – to serve both cable TV and broadband. AT&T quickly found out that this data pipe is too small for homes that want to watch multiple TVs or that today want to watch multiple Netflix streams. AT&T is remedying this by working feverishly to shift TV over to their new DirecTV platform, freeing up the full amount of U-verse bandwidth for Internet access.

We are not too many years away from the time when the myth that most urban markets have at least two broadband competitors will fade away. As household demand for broadband keeps growing there will be fewer and fewer people on DSL, and that exodus will be accelerated by companies like Verizon helping to push DSL customers out the door.

Verizon passes many millions of homes with its fiber-based FiOS. But that network has always been very patchwork in that it will serve one neighborhood while bypassing nearby neighborhoods. There is a slight glimmer in the FiOS story since Verizon recently announced that they are going to greatly expand FiOS in downtown Boston.  Boston is like most east coast cities where Verizon built a lot more fiber in the surrounding suburbs while largely ignoring the more costly construction in the city. But after having not built FiOS for a while the company surprised everybody by announcing this new fiber initiative.

The bottom line is that DSL is in its death throes. But like dial-up (which is still sold to millions of homes) there is likely to be DSL around for as long as the telcos don’t physically tear down the copper or pull the plug on the electronics. But it’s clear that Verizon, at least, is hoping for DSL to fade away sooner rather than later.

Speed Matters

slow-downPark Associates just published the results of a survey that looks at why consumers switch broadband providers. The survey showed that 9% of households changed broadband providers last year. The company surveyed households that had changed and categorized their responses into seven categories.

It turns out that the number one reason that people changed providers was to get faster speeds and 35% of households listed the need for faster speeds as their primary motivation.

Of course, there are still households that care about price. 18% of households that changed broadband providers did so because they could buy comparable speeds at a lower price. But almost nobody changed providers to accept a slower speeds, even with a savings.

The survey results are backed-up by real world statistics. In most markets in the US today there is still duopoly competition between the cable company and the phone company, with the cable company generally having faster speeds. There has been a steady exodus for years from phone company DSL to cable modems and in 2015 alone the cable companies added 3 million new customers, while DSL continued to decline.

There is a lesson to be learned from these statistics. While the news is full of talk of gigabit fiber networks, not all fiber networks offer blazingly fast speeds. I know of a number of owners of fiber networks that offer speeds that are not much faster than the cable modem products they compete against. Those networks are not capitalizing on their technological advantage.

One thing that most of my clients have learned over the years is that increasing customer speeds doesn’t cost them very much. I’ve followed up on hundreds of network speed increases and almost universally ISPs report that customers use the Internet the same after a speed increase than before – but customers always say they love the faster speeds. And so, to the extent that faster speeds don’t cost much to implement, a fiber owner ought to always have speeds faster than their cable competitors – why would you not?

One issue that continues to confound customers is the different between advertised speeds and actual speeds. I have one client whose basic product on fiber is 30 Mbps and they deliver that speed very solidly all of the time. They are competing against a cable modem product advertised as ‘up to 60 Mbps’. And yet, in that market, the fiber product is demonstrably faster than the cable modem product. But this advertising discrepancy creates confusion in the minds of consumers.

There might be some help coming in this area since the FCC will soon be requiring the large broadband providers to disclose more information to customers about their broadband products. But I guess we’ll have to wait to see how truthful they really become.

My company conducts surveys and one thing we’ve found is that that only a small percentage of consumers actually know the speed they are supposed to be getting or the speed they are actually getting. But what they do understand is when their speed is not fast enough to do what they are trying to do.

We know that overall that the amount of data used by the average household has been doubling about every three years. What that means is that people will buy a data product and within a relatively short number of years they will start bumping against that speed and realize they need something faster.

I think the cable companies understand this issue. Comcast has upped speeds across the boards for data customers at least twice this decade that I can recall. Increasing speeds periodically stops customers from hitting their speed ceiling and keeps them happy with the product they have. If you are operating a network that can provide faster speeds you should be increasing speeds from time to time also. You don’t want many of your customers to be in the 9% looking for a new broadband provider.

Thinking Exponentially

Exponential GrowthWe are at an interesting point in human history where there is rapid growth in a number of different areas that are all having or will soon have a profound impact on society. And by rapid growth I am talking about exponential growth, because most people assume that even fast growth is straight-line and linear.

Most things around us grow over time with linear growth, which is growth done at a consistent rate. But exponential growth happens with a repeated multiplication of the rate of growth. Linear growth results in straight-line growth while exponential growth results in explosive growth.

An example of exponential growth is the old Chinese story about a man who did a favor for an emperor and asked to be paid in rice. He wanted one grain the first day, two grains the second day, and so on for a month. The emperor though this sounded like a great idea until a few weeks into the process it became clear that he would soon be paying with all of the rice in China.

We’ve had a few examples of exponential growth in the US economy in the past. Consider the growth of televisions in households. These went from being in a very few homes in the late 40’s until practically every home in the country had a TV by the mid-50s.

We have one example of exponential growth in the broadband industry which is that the growth in the amount of data downloaded by the average home, which has been doubling roughly every three years since the late 80s. And we’ve seen the result of this growth manifested by the quickness with which any new broadband technology gets overwhelmed and obsolete within a relatively short time after hitting the market. Consider DSL. When we all got our first 1 Mbps DSL connection it felt extravagantly fast. I remember talking about how wonderful it felt to have a T1 in my house. But that excitement faded quickly when within a few short years that DSL felt inadequate.

The human mind does not easily grasp the idea of exponential growth. I’ve seen this many times with network planning. Engineers will plot out expected network growth linearly and will increase the size of the data electronics on a network only to find out, often within a very short time that the new facilities are full and overloaded. Exponential growth almost always surprises us.

We are now sitting at a time when there are a number of examples of exponential growth happening in different technology areas. Ray Kurzweil was one of the first to identify the impact of exponential growth in today’s world back in 2006 in his book The Singularity is Near. In that book he discussed five paradigms in the computing world that had grown exponentially in the 20th century: electromechanical, relay, vacuum tubes, discrete transistors, and integrated circuits.

Kurzweil has made very good predictions about the last decade and has made the following predictions about the next few decades:

  • Within a decade from now solar power will generate the majority of the world’s electricity;
  • By the late 2010s, glasses will beam images directly onto the retina. Ten terabytes of computing power (roughly the same as the human brain) will cost about $1,000.
  • By the 2020s, most diseases will have been cured by nanobots in our blood stream. Computers will easily pas the Turing test. Self-driving cars will be the norm and people won’t be allowed to drive on highways.
  • By the 2030s, virtual reality will begin to feel 100% real. We will be able to upload our mind/consciousness by the end of the decade.
  • By the 2040s, computers will be a billion times more capable than biological intelligence. Nanotech will enable us to make food out of thin air.
  • By 2045, people will be able to multiply our intelligence a billionfold by linking wirelessly from our brains to the cloud.

These predictions are all amazing and speak about a near-future world that is very different than today. But what they speak about even more is the power of exponential growth. In order for these predictions to be realized there needs to continual exponential growth in the fields of computing, artificial intelligence, biological sciences, etc.