No Takers for Faster DSL

It’s been obvious for over a decade that the big telcos have given up on DSL. AT&T was the last big telco to bite on upgraded DSL. They sold millions of lines of U-verse connections that combined two pairs of copper and using VSDL or ADSL2 to deliver up to 50 Mbps download speeds. Those speeds were only available to customers who lived with 3,000 – 4,000 feet from a DSL hub, but for a company that owns all of the copper, that was a lot of potential customers.

Other big telcos didn’t bite on the paired-copper DSL and communities served by Verizon, CenturyLink, Frontier and others are still served by older DSL technologies that delivers speeds of 15 Mbps or less.

The companies that manufacture DSL continued to do research and have developed faster DSL technologies. The first breakthrough was G.fast that is capable of delivering speeds near to a gigabit, but for only short distances up to a few hundred feet. The manufacturers hoped the technology would be used to build a fiber-to-the curb network, but that economic model never made much sense. However, G.fast is finally seeing use as a way to distribute high bandwidth inside apartment buildings or larger businesses using the existing telephone copper without having to rewire a building.

Several companies like AdTran and Huawei have continued to improve DSL, and through a technique known as supervectoring have been able to goose speeds as high as 300 Mbps from DSL. The technology achieves improved bandwidth in two ways. First it uses higher frequencies inside the telephone copper. DSL works somewhat like an HFC cable network in that it uses RF technology to create the data transmission waves inside of the captive wiring network. Early generations of DSL used frequencies up to 8 MHz and the newer technologies climb as high as 35 MHz. The supervectoring aspect of the technology comes through techniques that can cancel interference at the higher frequencies.

In the US this new technology is largely without takers. AdTran posted a blog that says that there doesn’t seem to be a US market for faster DSL. That’s going to be news to the millions of homes that are still using slower DSL. The telcos could upgrade speeds to as much as 300 Mbps for a cost of probably no more than a few hundred dollars per customer. This would provide for another decade of robust competition from telephone copper. While 300 Mbps is not as fast as the gigabit speeds now offered by cable companies using DOCSIS 3.1 it’s as fast as the cable broadband still sold to most homes.

This new generation of DSL technology could enable faster broadband to millions of homes. I’ve visiting dozens of small towns in the country, many without a cable competitor where the DSL speeds are still at 6 Mbps speeds or less. The big telcos have milked customers for years to pay for the old DSL and are not willing to invest some of those earnings back into another technology upgrade. To me this is largely due to deregulating the broadband industry because there are no regulators pushing the big telcos to do the right thing. Upgrading would be the right thing because the telcos could retain millions of DSL customers for another decade, so it would be a smart economic decision.

There is not a lot of telephone copper around the globe it was only widely deployed in North America and Europe. In Germany, Deutsche Telekom (DT) is deploying the supervectoring DSL to about 160,000 homes this quarter. The technical press there is lambasting them for not making the leap straight to fiber. DT counters by saying that they can deliver the bandwidth that households need today. The new deployment is driving them to build fiber deeper into neighborhoods and DT expects to then make the transition to all-fiber within a decade. Households willing to buy bandwidth between 100 Mbps and 300 Mbps are not going to care what technology is used to deliver it.

There is one set of companies willing to use the faster DSL in this country. There are still some CLECs who are layering DSL onto telco copper, and I’ve written about several of these CLECs over the last few months. I don’t know any who are specifically ready to use the technology, but I’m sure they’ve all considered it. They are all leery about making any new investments in DSL upgrades since the FCC is considering eliminating the requirement that telcos provide access to the copper wires. This would be a bad regulatory decision since there are companies willing to deliver a faster alternative to cable TV by using the telco copper lines. It’s obvious that none of the big telcos are going to consider the faster DSL and we shouldn’t shut the door on companies willing to make the investments.

Getting Militant for Broadband

My job takes me to many rural counties where huge geographic areas don’t have broadband. I’ve seen a big change over the last two years in the expectations of rural residents who are now demanding that somebody find them a broadband solution. There have been a number of rural residents calling for better broadband for a decade, but recently I’ve seen the cries for broadband grow into strident demands. As the title of this blog suggests, people are getting militant for broadband (but not carrying guns in doing so!)

The perceived need for broadband has changed a lot since the turn of this new century. In 2000 only 43% of homes had a broadband connection – and in those days that meant they had a connection that was faster than dial-up. In 2000 DSL was king and a lot of homes had upgraded to speeds of 1 Mbps. There have always been homes that require broadband, and I’m a good example since I work from home, and when I moved fifteen years ago my offer on a new house was contingent on the home having broadband installed before closing. My real estate agent at the time said that was the first time she’d ever heard about broadband related to home ownership.

As I’ve cited many times, the need for broadband has continued to grow steadily and has been doubling every three years. By 2010 the number of homes with broadband grew to 71%, and by then the cable companies were beginning to dominate the market. By then DSL speeds had gotten better, with the average speeds at about 6 Mbps, but with some lucky customers seeing speeds of around 15 Mbps. But as DOCSIS 3.0 was implemented in cable networks we started seeing speeds up to 100 Mbps available on cable systems. It was a good time to be a cable company, because their rapid revenue growth was fueled almost entirely by adding broadband customers.

Broadband in urban areas has continued to improve. We’re now seeing Comcast, Charter, Cox and other cable company upgrade to DOCSIS 3.1 and offer speeds of up to 1 Gbps. DSL that can deliver 50 Mbps over two bonded copper lines is becoming old technology. Even urban cellular speeds are becoming decent with average speeds of 12 – 15 Mbps.

But during all of these upgrades to urban broadband, huge swaths of rural America is still stuck at 2000 or earlier. Some rural homes have had access to slow DSL of 1 – 2 Mbps at most. Rural cellular speeds are typically half of urban speeds and are incredibly expensive as a home broadband solution. Satellite broadband has been available the whole time, but the high prices, gigantic latency and stingy data caps have made most homes swear off satellite broadband.

Rural homes look with envy at their urban counterparts. They know urban homes who have seen half a dozen major speed upgrades over twenty years while they still have the same lousy choices of twenty years ago. Some rural homes are seeing an upgrade to DSL due to the CAF II program of speeds of perhaps 10 Mbps. While that will be a relief to a home that has had no broadband – it doesn’t let a home use broadband in the same way as the rest of the country.

To make matters feel worse, rural customers without broadband see some parts of rural America get fiber broadband being built by independent telephone companies, electric cooperatives or municipalities. It’s hard for them to understand why there is funding that can make fiber work in some places, but not where they live. The most strident rural residents these days are those who live in a county where other rural customers have fiber and they are being told they are likely to never see it.

This disparity between rural haves and have nots is all due to FCC policy. The FCC decided to make funds available to rural telcos to upgrade to better broadband, but at the same time copped out and handed billions to the giant telcos to instead upgrade to 10 Mbps DSL or wireless. To make matters worse, it’s becoming clear that AT&T and Verizon are intent in eventually tearing down rural copper, which will leave homes with poor cellular coverage without any connection to the outside world.

The FCC laments that they cannot possibly afford to fund fiber everywhere. But they missed a huge opportunity to bring fiber to millions when they caved to lobbyists and gave the CAF II funding to the big telcos. Recall that these funds were originally going to be awarded by a reverse auction and that numerous companies had plans to ask for the funding to build rural fiber.

It’s no wonder that rural areas are furious and desperate for better broadband. Their kids are at a big disadvantage to those living in towns with broadband. Farmers without broadband are competing with those using agricultural IoT. Realtors report that they are having a hard time selling homes with no broadband access. People without broadband can’t work from home. And rural America is being left behind from taking part in American culture without access to the huge amount of content now available on the web.

Buying a Home with No Broadband

A few weeks ago attended a public meeting at one of my clients and I met a guy there who recently purchased a house in the area that has no broadband. He was told by both customer service at bth the cable company and the local telco that broadband was available – but when he showed up they would not serve him.

It seems like everywhere I travel today I hear this or similar stories and it makes me realize the gigantic value difference between homes with and without broadband. This particular guy works from home and is now scratching his head looking for a solution. He’s not unique and most families with school kids and even most families without look at broadband today as a necessity. Buying a house without broadband is starting to feel a lot like buying a house without electricity or running water – it’s not a home that most people would willingly buy.

Unfortunately, people like this guy, who are not familiar with rural broadband are often told there is broadband when there isn’t. People who move from urban areas often have no clue about the atrocious state of broadband in rural America. They can’t imagine a world where there isn’t even DSL and where folks have to somehow get by on cellular data or satellite data to have connection to the outside world.

I purchased several homes over the last few decades and I’ve always made proof of broadband a contingency in my purchase offer. I then contacted the ISPs and placed an order to be sure that the broadband was real. Sadly, like the guy in this story, one often gets the wrong answer from a call to customer service and I’ve always gone a step further and placed an order. Even that is not always a great solution – when I moved to Florida I was in the house for over a month before Comcast finally connected my home – even though there was a Comcast pedestal at the end of my driveway!

I’ve spoken to a number of rural real estate agents over the last few years and they say almost universally that home broadband is now at or near to the top of homebuyer’s wish these days. They are often surprised by homebuyers who don’t understand the lack of rural broadband. They all have stories about buyers who quickly abandon searches in all parts of a county that don’t have broadband.

There have been numerous studies done that show that a home with broadband is worth more than one without. But I don’t buy the results of those studies any more. We are now at an overall 84% national penetration for broadband and a huge majority of people don’t want a home without broadband. Those studies show an increase of a few thousand dollars in value for home without broadband – but what is value of broadband if you are unable to find a buyer for a home that doesn’t have it? That’s the story that real estate agents tell me today – the inability to sell rural homes without broadband.

One of the interesting things about rural broadband is that the people in rural areas know exactly where the broadband line stops. They know the home closest to them with cable service, they know where DSL becomes too slow to be relevant, and they know where cell phones lose their bars for broadband connectivity. Many rural customers are irate because many of them live just past the broadband dividing line. I hear it all of the time, “The home two houses away has cable TV”, “I’m within a quarter of a mile of good DSL”, “The people on the other side of that hill have a good WISP”, “I can walk to the fiber”.

I remember when I was house-hunting here in Asheville. I live a mile from center city and I can look out my window and see homes with no broadband. My wife had assembled a list of homes to check out and I recall saying a lot, “This area has no broadband, turn the car around”. It is often surprising how close you can be to a town and have no broadband. I think this area is not untypical of a rural county seat where broadband extends only sporadically past the city limits. Folks who don’t know how to look at the wires on poles often don’t realize how broadband often ends at, or just past the city boundary.

This issue is going to get more severe over the next decade and I predict that we’ll start seeing people walk away from rural homes due to lack of willing buyers. I keep expecting to see a lawsuit from a homebuyer who sues a realtor for not telling them the truth about lack of broadband. Such a suit will inevitably bring another piece of paper into home disclosures – a broadband disclosure – which most people care more about than termites and the dozen other things we check off before buying a home.

Tearing Down Rural Copper

In his FCC blog, FCC Chairman Ajit Pai is touting the June 7 open FCC meeting as his own version of “Avengers: Infinity War”. He says the FCC is taking on familiar headliners like “freeing up spectrum, removing barriers to infrastructure buildout, expanding satellite services, modernizing outdated rules, eliminating waste, improving accessibility, protecting consumers—and rolling them into one, super-sized meeting.”

I want to focus on the agenda item “removing barriers to infrastructure buildout”. The Chairman goes on in his blog to say the following about that topic:

Removing regulatory barriers to encourage the deployment of next-generation networks and close the digital divide certainly fits that bill. That’s something that consumers strongly support; as I’ve traveled from the Mountain West to the Gulf Coast, I’ve heard many of them say that they want to benefit from modern, more resilient technologies like optical fiber instead of limping along with slower services like DSL provided over old, often-degraded copper. To respond to that desire, I’ve shared an order with my colleagues that would make it easier for companies to discontinue outdated, legacy services and transition to the networks of the future. These reforms would enable the private sector to stop spending scarce dollars propping up fading technologies of the past and promote investment in technologies of the future. They will also make it easier to restore service in the aftermath of natural disasters and other catastrophic and unforeseen events. 

The Chairman’s rhetoric sounds great and anybody in rural America would love for the FCC to help them “benefit from modern, more resilient technologies like optical fiber”. However, this is another false narrative coming from the Chairman. Rather than promoting fiber or fast broadband, the FCC will be voting on the attached order which authorizes the following:

  • Expedites the ability of telcos to discontinue broadband services slower than 25/3 Mbps;
  • Streamlines the process for discontinuing legacy voice services.
  • Eliminates the notice periods that telcos must give to customers before discontinuing legacy services or tearing down copper;
  • Extends streamlined notice period during force majeure events, meaning telcos can walk away from a legacy network that gets damaged from a natural disaster, like happened a few years ago on Fire Island after hurricane Sandy.

This order makes it a lot easier for AT&T and the other giant telcos to walk away from their copper technology, their DSL networks and their legacy copper services. This comes straight from the wish list of the big telcos and is another example of how this FCC is is handing the reins to the big ISPs.

The premise behind the Chairman’s rhetoric is that we must be able to discontinue the old copper networks if we are to make the investments in newer broadband technologies. This sounds like a reasonable premise except for one thing: the big telcos are not going to be bringing fiber or technologies like 5G to rural America today, tomorrow or ever.

This docket does nothing more than make it easier for the big telcos to kill copper and DSL networks and walk away from rural America. We all know those networks are dying and eventually have to come down. What bothers me about the Chairman’s rhetoric is that he is hiding the truth about this agenda item behind a lie – that tearing down the old networks somehow makes it easier to build new networks. There will be many rural households hurt by this docket. The farm with no broadband and no cellular coverage is going to see their copper lines torn down and will lose their landlines, their last remaining connection to the outside world, and the Chairman doesn’t want to publicly say that he thinks that is okay. The big telcos would like nothing more than to completely wash their hands of rural markets and this FCC is making it easier for them to walk away.

The Chairman is painting a picture that killing copper is the first step towards getting faster broadband in rural America and that’s the big lie. The FCC has it within their authority to force the big telcos invest some of their profits back into rural America, but they are instead letting them walk away. Once the copper lines are down there will be nothing to replace them and future regulators will have zero leverage over the telcos after the copper networks are gone.

I find it disturbing that we have regulators without the courage to tell the American public the truth. If this FCC believes that it’s time to start tearing down rural copper, then they should say so. They know there is nothing to replace rural copper and so they are sugarcoating the topic to avoid the wrath of angry citizens. It’s disingenuous to paint the picture that this FCC is going to bring better broadband to rural America when we all know that’s not true.

AT&T’s Fiber Strategy

On the most recent earnings call with investors, AT&T’s EVP and CFO John Stevens reported that AT&T has only 800,000 customers nationwide remaining on traditional DSL. That’s down from 4.5 million DSL customers just four years ago. The company has been working hard to work its way out of the older technology.

The company overall has 15.8 million total broadband customers including a net gain of 82,000 customers in the first quarter. This compares to overall net growth for the year of 2017 of only 114,000 customers. The company has obviously turned the corner and after years of stagnant growth is adding broadband customers again. The overall number of AT&T broadband customers has been stagnant for many years, and if you go nearly a decade the company had 15 million broadband customers, with 14 million on traditional DSL.

The 15 million customers not served by traditional DSL are served directly by fiber-to-the-premises (FTTP) or fiber-to-the-node (FTTN) – the company doesn’t disclose the number on each technology. The FTTN customers in AT&T are served with newer DSL technologies that bond two copper pairs. This technology generally has relatively short copper drops of less than 3,000 feet and can deliver broadband download speeds above 40 Mbps download. AT&T still has a goal to pass 12.5 million possible customers with fiber by the end of 2019, with an eventual goal to pass around 14 million customers.

The AT&T fiber buildout differs drastically from that done by Verizon FiOS. Verizon built to serve large contiguous neighborhoods to enable mass marketing. AT&T instead is concentrating on three different customer segments to reach the desired passings. They are building fiber to business corridors, building fiber to apartment complexes and finally, offering fiber to homes and businesses that are close to their many existing fiber nodes. Homes close enough to one of these nodes can get fiber while those only a block away probably can’t. It’s an interesting strategy that doesn’t lend itself to mass marketing, which is probably why the press has not been flooded with stories of the company’s fiber expansion. With this buildout strategy I assume the company has a highly targeted marketing effort that reaches out only to locations it can easily reach with fiber.

To a large degree AT&T’s entire fiber strategy is one of cherry picking. They are staying disciplined and are extending fiber to locations that are near to their huge existing fiber networks that were built to reach large businesses, cell sites, schools, etc. I work across the country and I’ve encountered small pockets of AT&T fiber customers in towns of all sizes. The cherry picking strategy makes it impossible to map their fiber footprint since it consists of an apartment complex here and a small cluster of homes there. Interestingly, when AT&T reports these various pockets they end up distorting the FCC’s broadband maps, since those maps count a whole census block as having gigabit fiber speeds if even only one customer can actually get fiber.

Another part of AT&T’s strategy for eliminating traditional DSL is to tear down rural copper and replace DSL with cellular broadband. That effort is being funded to a large extent by the FCC’s CAF II program. The company took $427 million in federal funding to bring broadband to over 1.1 million rural homes and businesses. The CAF II program only requires AT&T and the other telcos to deliver speeds of 10/1 Mbps. Many of these 1.1 million customers had slow DSL with typical speeds in the range of 1 Mbps or even less.

AT&T recently said that they are not pursuing 5G wireless local loops. They’ve looked at the technology that uses 5G wireless links to reach from poles to nearby homes and said that they can’t make a reasonable business case for the technology. They say that it’s just as affordable in their expansion model to build fiber directly to customers. They also know that fiber provides a quality connection but are unsure of the quality of a 5G wireless connection. That announcement takes some of the wind out of the sails for the FCC and legislators who are pressing hard to mandate cheap pole connections for 5G. There are only a few companies that have the capital dollars and footprint to pursue widespread 5G, and if AT&T isn’t pursuing this technology then the whole argument that 5G is the future of residential broadband is suspect.

This is one of the first times that AT&T has clearly described their fiber strategy. Over the last few years I wrote blogs that wondered where AT&T was building fiber, because outside of a few markets where they are competing with companies like Google Fiber it was hard to find any evidence of fiber construction. Instead of large fiber roll-outs across whole markets it turns out that the company has been quietly building a fiber network that adds pockets of fiber customer across their whole footprint. One interesting aspect of this strategy is that those who don’t live close to an AT&T fiber node are not likely to ever get their fiber.

CenturyLink and Residential Broadband

CenturyLink is in the midst of a corporate reorganization that is going to result is a major shift in the focus of the company. The company merged with Level 3 in 2016 and the management team from Level 3 will soon be in charge of the combined business. Long-time CEO Glen Post is being pushed out of day-to-day management of the company and Jeff Storey, the former CEO of Level 3 will become the new CEO of CenturyLink. Storey was originally slated to take the top spot in 2019, but the transition has been accelerated and will happen this month.

It’s a shift that makes good financial sense for the company. Mr. Storey had huge success at Level 3 and dramatically boosted earnings and stock prices over the last four years. Mr. Storey and CenturyLink CFO Sunit Patel have both made it clear that they are going to focus on the more profitable enterprise business opportunities and that they will judge any investments in last-mile broadband in terms of the expected returns. This differs drastically from Mr. Post who comes from a background as an independent telephone company owner. As recently as a year ago Mr. Post publicly pledged to make the capital investments needed to improve CenturyLink’s last-mile broadband networks.

This is going to mean a drastic shift in the way that CenturyLink views residential broadband. The company lost 283,000 broadband customers for the year ending in December 2017, dropping them to 5.7 million broadband customers. The company blames the losses on the continued success of the cable companies to woo away DSL customers.

This size of the customer losses is a bit surprising. CenturyLink said at the end of 2017 that they were roughly 60% through their CAF II upgrades which is bringing better broadband to over 1.1 million rural households. Additionally, the company built FTTP past 900,000 potential business and residential customers in 2017. If the company was having even a modest amount of success with those two new ventures it’s hard to understand how they lost so many broadband customers.

What might all of this mean for CenturyLink broadband customers? For rural customers it means that any upgrades that are being made using CAF II funding are likely the last upgrades they will ever see. Customers in these rural areas are already used to being neglected and their copper networks are in lousy condition due to decades of neglect by former owner Qwest.

CenturyLink is required by the CAF II program to upgrade broadband speeds in the rural areas to at least 10/1 Mbps. The company says that over half of the upgraded customers are seeing speeds of at least twice that. I’ve always had a concern about any of the big telcos reaching the whole CAF II footprint, and I suspect that when the CAF II money is gone, anybody that was not upgraded as promised will never see upgrades. I’ve also always felt that the CAF II money was a waste of money –  if CenturyLink walks away from the cost of maintaining these newly upgraded DSL networks they will quickly slide back into poor condition.

There are already speculation on Wall Street that CenturyLink might try to find a buyer for their rural networks. After looking at the problems experienced by Frontier and Fairpoint after buying rural telco copper networks one has to wonder if there is a buyer for these properties. But in today’s world of big-deal corporate finance it’s not impossible to imagine some group of investors willing to tackle this. The company could also take a shot at selling rural exchanges to independent telcos – something US West did over twenty years ago.

It’s also likely that the company’s foray into building widespread FTTP in urban areas is done. This effort is capital intensive and only earns infrastructure returns that are not going to be attractive to the new management. I wouldn’t even be surprised to see the company sell off these new FTTP assets to raise cash.

The company will continue to build fiber, but with the emphasis on enterprise opportunities. They are likely to adopt a philosophy similar to AT&T’s which has been building residential fiber only to large apartment complexes and to households that are within short distances from existing fiber pops. This might bring fiber broadband to a lucky few, but mostly the new management team has made it clear they are deemphasizing residential broadband.

This management transition probably closes the book on CenturyLink as a last-mile ISP. If they are unable to find a buyer for these properties it might take a decade or more for their broadband business to quietly die. This is bad news for existing broadband customers because the company is unlikely to invest in keeping the networks in operational shape. They only ones who might perceive this as good news are those who have been thinking about overbuilding the company – they are not going to see any resistance.

“But I Live Close to Fiber”

I often hear from people who are excited that fiber is coming to their neighborhood. They see work crews installing fiber and they hope this means that they are finally getting fiber to their homes. But unless folks are in one of the lucky neighborhoods where some ISP is making the big investment in last mile fiber-to-the-home, the chances are good that the new fiber that is tantalizingly close is not going to reach them.

There are a lot of fiber networks in the country that are being used for purposes other than serving homes. Consider some of the following reasons why fiber might be close to you, but unavailable:

  • Electric companies have private fiber networks to connect substations and other electric company facilities. In the last few years we’ve seen some of the biggest electric companies pull back from sharing fiber with others because of security concerns for the electric grid. It’s not uncommon for the electric company to be the only tenant on such fibers.
  • Telcos have fiber networks that connect their central offices in various towns. They have more extensive local fiber networks that are built to supply neighborhood DSL cabinets. If your neighborhood has DSL speeds greater than 15 Mbps, the chances are good that there is telco fiber close to you.
  • Cable companies have fiber for similar reasons. Cable networks are subdivided into neighborhood nodes. These nodes used to be large and served upwards of a thousand homes, but cable companies have reduced node sized to eliminate the problem of their broadband slowing down in the evenings. Nodes might now be as small as a hundred homes – and since each node is fiber fed there is cable company fiber somewhere near to every cluster of homes.
  • A large number of cities have built fiber networks to connect city hall, libraries, firehouses, water utility facilities and other city locations. This has largely been done to reduce the high payments to ISPs to connect these locations with broadband. While many municipal FTTH projects got started by expanding these networks, the vast majority of the municipal fiber networks serve only the city. There’s a decent chance that there is fiber at the library, firehouse or other city facility near your neighborhood.
  • Similarly there are a number of states that have built state-wide fiber networks to connect their own facilities. These networks are often shared with anchor institutions like city halls and other local and state government buildings. Most of these networks are prohibited by state law from sharing the fiber with last-mile fiber builds, even municipal ones.
  • Many school districts have fiber networks to connect schools to provide gigabit speeds. While some of these networks can be shared with other providers, the majority of these networks are used only for the school district.
  • Various companies including telcos, cable companies, and big ISPs build fiber to reach large businesses or industrial parks. The larger downtown buildings in most cities now also have fiber.
  • There is now a major push for building fiber to large apartment complexes. For example, a lot of the push by AT&T to pass millions of locations with fiber is mostly being done by reaching apartment complexes.
  • Today every cell tower is fed with fiber. There will be a lot of new fiber built to reach the smaller cell sites we’ll see on utility and light poles.
  • There are long-haul fiber networks that only function to connect cities and major markets. These networks rarely allow any connections to the network other than at major network nodes.
  • Many cities now have fiber networks that feed traffic signals and traffic cameras. Because of the way that these networks are funded with highway money, these fiber networks are often inexplicably separate from other municipal fiber networks.
  • State highway departments also now operate a lot of fiber networks for their own use to feed the signs that provide traffic information and to feed cameras that are used to monitor traffic.

The chances are that if you live in any kind of populated area, even in rural counties, that there are several of these fiber networks close to you. If you live in a city it’s likely that you can easily walk to half a dozen different fiber networks – none which are being used to bring fiber to your home.  The chances are high that the new fiber you see being built is not being built for you.

Progress of the CAF II Program

If readers recall, the CAF II program is providing funds to the largest telcos to upgrade rural facilities in their incumbent operating territories to broadband speeds of at least 10 Mbps down and 1 Mbps up. The CAF II deployment began in the fall of 2015 and lasts for 6 years, so we are now almost 2.5 years into the deployment period. I was curious about how the bigger telcos are doing in meeting their CAF II build-out requirements. The FCC hasn’t published any progress reports on CAF II deployments, so I found the following from web searches:

AT&T. The company took $427 million annually for the six years ($2.56 billion) to bring broadband to 2.2 million rural customers. The company has said they are going to use a combination of improved DSL and fixed wireless broadband using their cellular frequencies to meet their build-out requirements. From their various press releases it seems like they are planning on more wireless than wireline connections (and they have plans in many rural places of tearing down the copper).

The only big public announcement of a wireless buildout for AT&T is a test in Georgia initiated last year. On their website the company says their goal at the end of 2018 is to offer improved broadband to 440,000 homes, which would mean a 17% CAF II coverage at just over the mid-point of their 6-year build-out commitment.

On a side note, AT&T had also promised the FCC, as a condition of the DirecTV merger that they would be pass 12.5 million homes and business with fiber by mid-2019. They report reaching only 4 million by the end of 2017.

CenturyLink. CenturyLink accepted $500 million annually ($3 billion) in CAF II funding to reach 1.2 million rural homes. In case you’re wondering why CenturyLink is covering only half of the homes as AT&T for roughly the same funding – the funding for CAF II varies by Census block according to density. The CenturyLink coverage area is obviously less densely populated than the areas being covered by AT&T.

FierceTelecom reported in January that CenturyLink has now upgraded 600,000 CAF II homes by the end of last year, or 37% of their CAF II commitment. The company says that their goal is to have 60% coverage by the end of this year. CenturyLink is primarily upgrading rural DSL, although they’ve said that they are considering using point-to-multipoint wireless for the most rural parts of the coverage areas. The company reports that in the upgrades so far that 70% of the homes passed so far can get 20 Mbps download or faster.

Frontier. The last major recipient of CAF II funding is Frontier. The company originally accepted $283 million per year to upgrade 650,000 passings. They subsequently acquired some Verizon properties that had accepted $49 million per year to upgrade 37,000 passings. That’s just under $2 billion in total funding.

FierceTelecom reported in January that Frontier reached 45% of the CAF II area with broadband speeds of at least 10/1 Mbps by the end of 2017. The company also notes that in making the upgrades for rural customers that they’ve also upgraded the broadband in the towns near the CAF II areas and have increased the broadband speeds of over 900,000 passings nationwide.

Frontier is also largely upgrading DSL, although they are also considering point-to-multipoint wireless for the more rural customers.

Other telcos also took major CAF II funding, but I couldn’t find any reliable progress reports on their deployments. This includes Windstream ($175 million per year), Verizon ($83 million per year), Consolidated ($51 million per year), and Hawaiian Telcom ($26 million per year).

The upcoming reverse auction this summer will provide up to another $2 billion in funding to reach nearly 1 million additional rural homes. In many cases these are the most remote customers, and many are found in many of the same areas where the CAF II upgrades are being made. It will be interesting to see if the same telcos will take the funding to finish the upgrades. There is a lot of speculation that the cellular carriers will pursue a lot of the reverse auction upgrades.

But the real question to be asked for these properties is what comes next. The CAF II funding lasts until 2021. The speeds being deployed with these upgrades are already significantly lower than the speeds available in urban America. A household today with a 10 Mbps download speed cannot use broadband in the ways that are enjoyed by urban homes. My guess is that there will be continued political pressure to continue to upgrade rural speeds and that we haven’t seen the end of the use of the Universal Service Fund to upgrade rural broadband.

Regulating From Broadband Maps

One of the more bizarre things we do in the US is regulate broadband based upon broadband maps. There are numerous federal grant and subsidy programs that rely upon these maps (and the underlying databases that support them) as well as various state programs. The FCC also uses this same data when reporting broadband penetration in the country to Congress each year, as just occurred on February 9.

The maps are intended to show how many households can purchase broadband of various speeds. Currently the arbitrary speed thresholds tested are download speeds of 10 Mbps, 25 Mbps and 100 Mbps. These speeds are measured due to past decisions by the FCC. For example, the FCC chose a 10/1 Mbps speed goal for any company that accepted CAF II money to upgrade rural broadband. The FCC’s current definition of broadband is still set at 25/3 Mbps.

Anybody that understands broadband networks knows that much of the data included in the databases and the mapping is incorrect, and sometimes pure fantasy. That makes sense when you understand that the speeds in this mapping process are all self-reported by ISPs.

There are numerous reasons why the speeds in these databases are not an accurate reflection of the real world:

  • There are still ISPs that report advertised speeds rather than actual speeds received by customers.
  • Any speeds represented for a whole DSL network are inaccurate by definition. DSL speeds vary according to the size of the copper wires, the condition of the copper cable and the distance from the source of the DSL broadband signal. That means that in a DSL network the speeds available to customers vary street by street, and even house by house. We’ve always known that DSL reported in the mapping databases is overstated and that most telcos that report DSL speeds report theoretical speeds. I’m not sure I blame them, but the idea of any one speed being used to represent the performance of a DSL network is ludicrous.
  • The speeds in the database don’t recognize network congestion. There are still many broadband networks around that bog down under heavy usage, which means evenings in a residential neighborhood. Nobody wants to be told that their network is performing at 10 Mbps if the best speed they can ever get when they want to use it is a fraction of that.
  • The speeds don’t reflect that ISPs give some customers faster speeds. In networks where bandwidth is shared among all users on a neighborhood node, if a few customers are sold a faster-than-normal speed, then everybody else will suffer corresponding slower speeds. Network owners are able to force extra speed to customers that pay a premium for the service, but to the detriment of everybody else.
  • The maps don’t reflect the way networks were built. In most towns you will find homes and businesses that were somehow left out of the initial network construction. For example, when cable companies were first built they largely ignored business districts that didn’t want to buy cable TV. There are lots of cases of apartment and subdivision owners that didn’t allow in the incumbent telco or cable company. And there are a lot of homes that just got missed by the network. I was just talking to somebody in downtown Asheville where I live who is not connected to the cable network for some reason.
  • Not all ISPs care about updating the databases. There are many wireless and other small ISPs that don’t update the databases every time they make some network change that affects speeds. In fact, there are still some small ISPs that just ignore the FCC mapping requirement. At the other extreme there are small ISPs that overstate the speeds in the databases, hoping that it might drive customer requests to buy service.
  • One of the most insidious speed issues in networks are the data bursts that many ISPs frontload into their broadband products. They will send a fast burst of speed for the first minute or two for any demand for bandwidth. This improves the customer experience since a large percentage of requests to use bandwidth are for web searches or other short-term uses of bandwidth. Any customer using this feature will obtain much faster results from a speed test than their actual long-use data speeds since they are actually testing only the burst speed. A rural customer using burst might see 4 Mbps on a speed test and still find themselves unable to maintain a connection to Netflix.
  • Sometimes there are equipment issues. The best-known case of this is a widespread area of upstate New York where Charter has kept old DOCSIS 1.0 cable modems in homes that are not capable of receiving the faster data speeds the company is selling. It’s likely that the faster network speed is what is included in the database, not the speed that is choked by the old modems.
  • And finally, speed isn’t everything. Poor latency can ruin the utility of any broadband connection, to the point where the speed is not that important.

Unfortunately, most of the errors in the broadband databases and maps overstate broadband speeds rather than under-report them. I’ve worked with numerous communities and talk to numerous people who are not able to get the broadband speeds suggested by the FCC databases for their neighborhoods. Many times the specific issue can be pinned down to one of the above causes. But that’s no consolation for somebody who is told by the FCC that they have broadband when they don’t.

3Q 2017 Broadband Growth

Last Friday’s blog asked if we are nearing the top of the market in terms of broadband penetration. Overall households with some sort of Internet connection have only grown from 83% in 2012 to 84% today, with most of the customers now served with a broadband connection instead of using slower dial-up or satellite. Following are the numbers showing the new broadband connections of the major ISPs during the recent third quarter of this year:

 2Q 2017 3Q 2017 Change
Comcast 25,306,000 25,519,000 213,000 0.8%
Charter 23,318,000 23,603,000 285,000 1.2%
AT&T 15,686,000 15,715,000 29,000 0.2%
Verizon 6,988,000 6,978,000 (10,000) -0.1%
CenturyLink 5,868,000 5,767,000 (101,000) -1.7%
Cox 4,845,000 4,860,000 15,000 0.3%
Frontier 4,063,000 4,000,000 (63,000) -1.6%
Altice 4,004,000 4,020,900 16,500 0.4%
Mediacom 1,185,000 1,194,000 9,000 0.8%
Windstream 1,025,800 1,017,400 (8,400) -0.8%
WOW 727,600 730,000 2,400 0.3%
Cable ONE 521,724 519,062 (2,662) -0.5%
Fairpoint 307,100 301,000 (6,100) -2.0%
Cincinnati Bell 304,193 307,900 3,707 1.2%
94,149,417 94,532,262 382,845 0.4%

These figures come from reports published each quarter by Leichtman Research Group. These large ISPs control over 95% of the broadband market in the country – so looking at them provides a good picture of the industry. Not included in these numbers are the broadband customers of the smaller ISPs, the subscribers of WISPs (wireless ISPs) and customers of the various satellite services. Cable companies still dominate the broadband market and have 60.4 million customers compared to 34.1 million customers for the big telcos.

What do these numbers tell us about broadband growth? If you take the numbers at face value, a growth of 0.4% for the quarter would extrapolate to an annual growth rate over 1.5%, and would suggest that the market is still growing. But is it?

Within these numbers are broadband customers from new housing units. The country is expected to add at least 1 million new homes and apartment units this year, and if the ISPs sell to 84% of them, then 210,000 of the new broadband customers are due to the new housing units and don’t represent an increase in overall market penetration rate for the sector.

Further, we are now in the second year of the FCC’s CAF II program. The telcos in the above list are being given over $8 billion over six years (and 2017 is the second year) to bring broadband to over 5 million rural households. By now these funds should be adding new broadband customers for CenturyLink, AT&T, Frontier, etc. I haven’t seen any reports yet from the FCC quantifying the customer added as a result of CAF II, but it’s not hard to think this won’t mean something like 175,000 new broadband customers per quarter over the last five years of the program.

Assuming that CAF II customers are now coming on board, then the whole industry growth can be attributed to either broadband for new housing units or new rural households getting broadband for the first time. And that would validate that the broadband industry is not growing much otherwise.

The numbers also tell us a few more things. For example, in urban areas the cable companies are still wooing away DSL customers. But even that is slowing down. Cable company customer additions for the 3Q are 540,000, down from 780,000 a year ago. For the first three quarters of 2017 combined the cable companies have added about 2 million customers while the telcos have lost 430,000 broadband customers.