Categories
The Industry

Comcast and Charter Losing Broadband Customers

It’s big news that both Comcast and Charter lost broadband customers in the second quarter of this year. Both companies have steadily gained customers every quarter over the last decade. It was not a surprise to me to see this happen, but it happened sooner than I would have guessed.

Comcast lost 10,000 broadband customers for the quarter, a minuscule loss for a company with over 32.1 million broadband customers. To show how surprising this loss is, the company gained 262,000 customers in the first quarter of 2022, more than 1.3 million in 2021, and almost 2 million in 2020.

Charter lost 21,000 customers in the second quarter, again a small fraction of its 30.1 million broadband customers. But the loss is a big turnaround compared to the 185,000 broadband customers the company gained in the first quarter of this year, the 1.2 million customers gained in 2021, and the 2.2 million customers gained in 2020.

Comcast blames the customer loss on two factors. One is the end of the pandemic, which implies that households are now dropping broadband since the pandemic has cooled. This is the first time I’ve heard anybody make that claim. I’d love to hear if any ISPs that read this blog are seeing that same thing. Comcast also blamed the drop on the fact that fewer people than normal moved into new homes and apartments during the second quarter. That’s another claim that we’ll be able to check when the folks who track housing release statistics.

Charter blames the loss of customers on the change in the federal subsidy for low-income homes. Charter said it lost 59,000 customers when the subsidy changed from $50 under the Emergency Broadband Benefit (EBB) program to the $30 discount on the Affordable Connectivity Plan (ACP). That’s interesting, if true, and it provides evidence that many low-income households need a substantial discount in order to afford broadband. I’d also love to hear from any ISPs that are seeing this same customer trend. But I think Charter is being disingenuous to blame the drop on the low-income programs. The math doesn’t add up, and losing 59,000 in a quarter would not drive the company into having a net loss of customers.

There was something that both companies conspicuously didn’t claim – that the customer losses are due to competition. They are apparently not ready to make that claim yet because it makes them seem vulnerable. But it has been clear for some time that competition is nipping at the heels of the big cable companies. Telcos and other ISPs are furiously building fiber in urban areas in direct competition with cable companies. It’s hard to know fact from fiction, but fiber-based ISPs have high expectations – for example, AT&T says it plans to get a 50% penetration rate on fiber in a new neighborhood after three years.

Both companies are not acknowledging competition from the cellular carriers, which are selling unlimited 100 Mbps FWA broadband at an affordable price. Both cable companies have recently said they don’t fear competition from the FWA product. It’s too early to know how much of a threat wireless broadband will be – and it will take some time before we can see if the cellular networks can handle a lot of simultaneous broadband users and still maintain speeds. But for now, Verizon and T-Mobile are picking up a lot of new customers  – together, the two companies gained half of all new broadband customers nationwide in the first quarter of this year.

The stock prices of both cable companies have benefitted for years from continuous growth since analysts could count on each company growing both customers and revenues year after year. It’s going to be interesting to see what a loss of customers means to the long-term stock prices.

This new trend might change a lot of dynamics in the industry. I’ve said for years that the cable companies were on a steady march to have $100 broadband – and they still might be. It might be that raising rates is now the only path for them to increase the bottom line. But will these companies be able to raise rates in an increasingly competitive market? It seems unlikely that they will be able to keep increasing the price for the basic products, but the companies might be hoping for a continuation of the trend of customers upgrading to faster products. Both cable companies are aggressively selling cellular services, and each gained over 300,000 new cellular customers in the second quarter. But we don’t know how much margin the cellular business adds to their bottom lines.

Charter might have an easier path than Comcast to curtail losses and possibly grow again. Charter is aggressively seeking grant funding to expand into the rural areas around existing markets. These are areas that have had poor rural broadband, and Charter is building fiber in these markets – much to the annoyance of its urban customers who are not getting upgraded to Charter fiber. But this expansion should add a lot of new customers over the next four or five years. I think Charter realizes that in these markets, they will benefit by being the only provider of fast broadband – the first time the company will be operating in areas where it will largely be a monopoly.

The fact that the two biggest ISPs lost customers is a bellwether event that shows that the broadband market is now up for grabs. Who will be the big winners that fill the void if Comcast and Charter are not grabbing most of the new customers each quarter?

Categories
The Industry

Who is Using ACP?

The FCC announced on February 14 that 10 million households have enrolled in the new Affordable Connectivity Plan (ACP) that provides a $30 monthly discount off broadband bills. That’s a big number, but I’ve seen estimates that as many as 30 million homes might qualify for the discount. The Universal Service Administration Company (USAC) has released a few high-level details of the program that also bridges back to the predecessor Emergency Broadband Benefit (EBB) program.

The ACP plan is a new version of the EBB plan that was created by the Consolidated Appropriations Act, and that provided a discount of $50 per month for eligible homes as a response to the pandemic. The ACP replaced the EBB plan on December 31, 2021 and the nine million households were largely transitioned to the new plan – some no longer qualified for the new plan.

At the end of January, the ACP had 9,697,257 subscribers. Almost 6.4 million subscribers were getting the ACP discount for cellular plans, over 3.2 million subscribers of fixed broadband (cable, DSL, and fiber) were getting the discount, and only 54,000 subscribers of fixed wireless and satellite were enrolled.

One surprising aspect of the ACP plan is the relatively small number of households subscribing to the plans through traditional ISPs. For the fixed ISP, the 3.2 million ACP customers represent about 3.8% of the subscriber base of these companies collectively. WISP and satellite companies are only slightly behind in ACP subscribers at 3.7% of the customer base. I compare these percentages to 2020 Census data that shows that 11.4% of households live under the poverty level. Since the ACP plan is available to homes with incomes up to 200% of the 2021 Federal Poverty Guidelines, the eligible households are far higher than 11.4% of the population. I haven’t seen any good estimates of the total eligible households.

The most surprising statistic is that the ACP is mostly going to cellular carriers. That mostly means families with traditional cellular data plans, although it looks like the three big cellular companies are now up to almost one million homes using fixed cellular broadband plans with unlimited data.

I looked at how the cellular carriers are marketing ACP, and the AT&T plan is typical of the others. AT&T is offering a phone with unlimited telephone and text and 5 gigabytes of data for $30 per month. For an eligible ACP family that means a free plan – although each household is eligible for only one discount. An ACP customer can upgrade to 15 gigabytes and pay $10 out-of-pocket, or to AT&T’s ‘unlimited’ plan for $20 per month – a plan that is not unlimited and where data speeds are reported to be restricted after hitting 22 GB per month.

I can only speculate why the cellular companies are selling ACP at twice the rate of landline ISPs. It’s fairly obvious that cellular companies are far better at marketing than landline ISPs. My cable company mails me marketing literature every month, and I don’t think we’ve ever opened one. But I hear advertising about the latest cellular plans all of the time, which is perhaps easier to pull off for companies that work nationwide.

I also think there is a demographic issue at play. We know from looking at FCC 477 data that landline penetration rates in the poorest neighborhoods of major cities are far lower than elsewhere. It’s not unusual to find neighborhoods where less than half of homes have a landline broadband connection, and some neighborhoods are far lower than that. The cellular companies have become the de facto ISP in some poor neighborhoods because it’s an easy choice to pick a cellphone for a household budget that can afford both cellular and landline broadband. The ACP plan dollars are going to where the need is. Let’s face it, even after a $30 dollar discount most cable company plans are still unaffordable for low-income homes.

Interestingly, this is not how the plan is being portrayed by policymakers. ACP is being portrayed as helping to solve the digital divide, and I’m not sure that it is. Cellphone data is many things, but it is not a substitute for a landline broadband connection for students trying to do homework. A 5 or a 15-gigabyte cellphone data plan will allow somebody to participate in many of the most important parts of the digital world. But these plans are not a substitute for a landline connection when OpenVault reported recently that the average landline broadband subscriber now uses over half of a terabyte of data per month. Let’s not pretend that 5 gigabytes per month is a reasonable substitute for 500 gigabytes. Giving one family member a discount on a cellphone is also not solving the digital divide – with a 95% national cellular penetration rate, that home almost certainly had the cell phone before the discount plans.

Don’t read these observations as being negative against the ACP program. I think giving a discount to low-income homes for connectivity is a good idea. But just as happened with the Lifeline plan in the past, DC policymakers seem to be declaring ACP a success without looking at how the plan is being deployed. We aren’t going to solve the digital divide by giving $30 discounts to cell phone users.

Categories
Regulation - What is it Good For?

The Affordable Connectivity Program

One of the programs to come out of the Infrastructure Investments and Jobs Act is the Affordable Connectivity Program (ACP) which will replace the Emergency Broadband Benefit (EBB) program as the funding source to provide discounts on broadband for low-income households.  This program is being funded for $14.2 billion, which is part of the $65 billion aimed at broadband issues.

There are differences between the two programs. The biggest change for most participants is that the $50 discount under the EBB plan will be reduced to $30 per month in the ACP. There is also a change in eligibility requirements. The EBB plan was eligible for households with incomes of 135% or less of the federal poverty level. The new ACP plan allows homes with incomes up to 200% of the federal poverty level. To put that into perspective, the ACP discount could be claimed by a household of three with a total household income up to $44,000 (using the 2021 definition of poverty).

The existing EBB plan will stay in effect temporarily. Households can still enroll in the EBB and will get the $50 discount through the end of February 2022. There will be an automatic conversion to the new Affordable Connectivity Plan for those that are eligible for both plans. There are some household that are eligible for the EBB due to being unemployed due to Covid-19 that might not qualify for the new plan.

One of the principles in the new plan is that ISPs must allow households to apply the $30 discount to any broadband product at the same price and terms available to other customers. The new rules have a direct rebuke of Verizon and a few other ISPs and prohibit upselling – forcing customers to buy a more expensive plan to get the discount. The ACP rules also prohibit requiring customers to sign long-term contracts to get the discount.

There are a few new rules that ISPs are not going to like. An ISP may not require a household to submit to a credit check to get the discount. It also appears that the new rules stop ISPs from disconnecting customers for non-payment until after 90 days.

It doesn’t appear that any ISP that enrolled in the EBB program will have to take any extra steps to be part of the new ACP program – it looks like the change will be made automatically on March 1, 2022. ISPs still would have to take the needed steps to join the EBB or ACP.

There is no set ending for the plan, and if not renewed, would expire when the $14.2 billion of funding has been spent. There is also nothing in the new law that defines what happens to the $2.2 billion that remains in the EBB program. There are already a few in Congress lobbying that the leftover funding should be added to the ACP funding.

The big $42.5 billion federal BEAD grant requires that any grant winners have a low-income broadband solution, and joining this program is the easiest way to meet that requirement. ISPs that elect not to join the ACP will need to have some similar internal discount plan to get the federal grants.

A lot of ISPs didn’t enroll in the EBB program because they viewed it as temporary and transitory. While there is no guarantee that the new ACP plan will survive for the long haul, there is enough funding in this plan to last for many years. ISPs really should consider this.

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