Google and Regulation

Logo of the United States Federal Communicatio...

Logo of the United States Federal Communications Commission, used on their website and some publications since the early 2000s. (Photo credit: Wikipedia)

AT&T said last week that they were not required to give access to Google Fiber to their poles in Austin Texas. AT&T owns about 20% of the poles there with the City owning the rest. And from what I can see, AT&T is right. This all comes down to various regulations, and it appears that Google is doing everything possible to not be regulated in any way. It seems they have set up a business plan that lets them claim to escape regulation. Let me look at the nuances of what they are doing.

There is a federal set of rules that say that pole owners must provide poles to any certified telecommunications provider. According to the Telecommunications Act of 1996, the states have the right to grant certifications to carriers. Every state provides at least two kinds of carrier certifications – CLEC and IXC. CLEC is the acronym for Competitive Local Exchange Carrier and is the federal term used to describe competitive telephone providers. IXC is the acronym for Interexchange Carrier and is the certification given to companies that only want to sell retail long distance.

Some states have other categories. Some states have a certification for a Competitive Access Provider (CAP) or for a Carrier’s Carrier, These two certifications are generally given to companies who only want to sell services to other carriers. They may sell transport, collocation or other services that only carriers can buy.

A company must obtain a CLEC or CAP certification if they want to gain all of the rights that come with such certification. This includes access to poles and conduits of other carriers, the ability to interconnect with other carriers, the ability to collocate equipment in the offices of other carriers. A CLEC certification also grants a company the right to bill ‘telecom’ products to customers, meaning traditional telephone or traditional TDM point-to-point data services. These are generally rights that anybody who is building a network or providing traditional telecom services must obtain before other carriers will talk to them. But along with those rights come some obligations. Certified carriers are subject to paying some regulatory fees and collecting other fees and taxes from their customers. Regulated companies have to follow rules that dictate how they can disconnect non-pay customers. Regulated companies in some states even have some light regulations concerning pricing, although there are very few rules anywhere dictating how a competitive carrier prices their services.

So strictly, AT&T is completely within their rights to not even talk to Google about pole attachments since Google does not have or plan to obtain a certification. As it turns out, AT&T reports that they are talking to Google anyway and are negotiating a deal to let them on the poles. And honestly, that steams me a bit, because this is how big companies treat each other. I am sure that there is enough business between AT&T and Google that AT&T doesn’t see any sense in going to war over this kind of issue. They would also be seen in Austin as holding up progress and further, Google could always get the certification if push came to shove. But if this was any company smaller than Google, then AT&T would be refusing to even open a discussion on pole attachments or any of the other issues associated with being certified. AT&T would insist that any other company jump through all of the regulatory hoops first. This I know because I have experienced it numerous times. I guess it pays to be as big as Google.

AT&T would also be required to provide access to the poles if Google was a cable TV company. This is a designation that is granted by the local community and the City of Austin could negotiate a cable franchise agreement with Google. But Google is taking the stance that they are not a cable TV company. They are claiming instead that they are a video service provider because they deliver two-way cable TV service, meaning that the customer’s settop box can talk back to Google since they offer IPTV. This is taking advantage of a loophole in the law because today every large-city cable system is two-way since customers in those systems have the ability to order Pay-per-view or video-on-demand from their settop boxes.

But Google does not want to be a cable provider, because there is one nuance of the FCC rules that say that anybody getting a franchise agreement would essentially have to sign onto the same rights and obligations as the incumbent cable company. The big catch in those rules is that Google would have coverage obligations to cover the whole City and they instead want to pick and choose the neighborhoods they serve. Google would also have to collect franchise fees from customers for their cable TV product, and such fees are around 3% of the cable bill in most places.

State regulators and cities are both willing to overlook these regulatory nuances for Google because they are so big and because they promise to bring gigabit data speeds. But these same rules never get overlooked for smaller companies, and so I guess regulations only really affect the small guys any more.

Lifeline Accountability

USAC LogoUSAC, the group that administers the Universal Service Funds, has started testing a program that is designed to stop people from requesting multiple subsidies from the Lifeline program.

The lifeline program provides a discount of $9.95 from telephone bills for low-income consumers. A consumer is eligible for Lifeline if they a earn less than 135% of the federal poverty level or if somebody in the household participates in any of a number of assistance programs such as Medicaid, Food Stamps, Section 8 housing, low income home-energy assistance, Head Start and various tribal and state programs.

The way this works is that the telephone company providing the service gives the discount to the consumer and then collects the funds from USAC out of the Universal Service Fund.

A consumer can elect to get the discount from either a home telephone or a cellular phone account, but cannot collect from both. Apparently there is a lot of concern in Washington that people are collecting the discounts for both a landline and a cell phone, because the FCC has instructed USAC to put together a program to make certain that people don’t collect multiple benefits.

And so USAC is currently implementing the National Lifeline Accountability Database (NLAD). Carriers who participate in the lifeline program are required to input data about each lifeline customer including the last four digits of their social security number or their tribal ID and their date of birth. The carrier also has to provide the full address for each customer and this address will then be verified by USAC using the USPS database of valid addresses. Expect big problems in this area because rural addresses are often very erratic in the USPS databases.

As you might imagine, many carriers don’t ask for things like the date of birth when somebody gets telephone service, so they are now scrambling to get the needed information from their customers.

States are being added to the NLAD in groups. The first group of states now entering data includes Arkansas, Maryland, Louisiana, Oklahoma and Washington. Already some states have opted out of the NLAD database including Puerto Rico, Oregon, Texas, California and Vermont. Those states are going to have to come up with some version of this database of their own or else carriers in those states will lose Lifeline funding.

There is no fee to use the database, but use of it is mandatory if a carrier wants to collect from the Lifeline fund. The real cost is in the effort of each carrier to implement and keep this database current – another unfunded mandate.

I suppose that this process will turn up some cheaters and they will be asked to pare back to just one Lifeline subsidy. But one has to wonder how many customers might have been given the discount by multiple carriers without even knowing that this is not allowed? And one might suspect that there are somewhat shady carriers who are collecting the payments from the Lifeline fund without giving the discount to a customer, or possibly even having a customer. I would not be surprised to find some carriers collecting Lifeline for customers who died years ago.

I hope the FCC publishes the result of what they find through this database. As much as I hate waste and fraud, one has to wonder of the cost of implementing this kind of red-tape process is worth it compared to any savings that will be achieved through eliminating duplicate payments. These kind of processes end up becoming permanent new requirements for carriers and make it just that much harder to do business.

Where are the Verizon Profits?

Verizon Wireless "Rule the Air" Ad C...

Verizon Wireless “Rule the Air” Ad Campaign (Photo credit: Wikipedia)

I’ve been reading over the last few weeks about the controversy surrounding Verizon’s profitability in its wireless versus wireline business. Verizon has been claiming that it is not making very much money from its landline business while critics are charging that Verizon is cooking the books to make the wireline business look bad.

This link is a report on Verizon’s 3rd quarter earnings. In the third quarter Verizon had total revenues of $30.3 billion. This was comprised of $20.4 billion for the wireless segment and $9.7 billion for the wireline businesses. The profit story is quite skewed and they show profits of $6.9 billion for the wireless business but only $155 million for the total wireline business. If you take out depreciation to get operating margins, the wireless business made $8.9 billion for the quarter while the landline business made $2.2 billion.

In looking at these numbers as an outsider I ask myself if they make sense. I probably have more ability to judge these numbers than most people because I am privy to the books of hundreds of telecom companies that are in the same business lines as Verizon.

Verizon claims their losses for landline are so big because of all of their continuing losses of landlines. But all of my clients have been losing landlines and yet many of them are still quite profitable. Let’s look at some of the piece parts of the company to kick the tires on Verizon’s claim of low profitability:

  • Verizon has 5.2 million video subscribers. It’s a pretty well-known industry fact that these are low margin customers.
  • Verizon has 5.9 million FiOS data customers and another 3.0 million DSL customers. And 40% of the FiOS customers were buying the faster speeds of between 50 Mbps and 500 Mbps. Universally, data is a high margin business.
  • Verizon had 4.1 million voice customers on FiOS and 6.8 million voice customers on copper. While voice lines are dropping, and Verizon lost a net 432,000 customers over the last year, the margins on voice should be high.
  • Landline revenues include $3.6 billion in core and strategic services and another $1.7 billion in global wholesale. These product lines include what are the most profitable business lines for most telcos – such things as selling special access circuits, internet backbone connections and fiber connections to cell towers. Most of my clients report these business lines to be very highly profitable.

The overall operating margin for the landline business, at 23% ($2.2 billion of margin compared to $9.7 billion of costs) is very low compared to almost all of my customers. Much smaller telephone companies than Verizon have margins that are somewhere in the 30% – 40% range.

So, is Verizon just very inefficiently operated or are they cooking their books? I consider the following:

  • There is a lot of corporate leeway in assigning costs between operating divisions. I help my clients make these kinds of cost allocations all of the time and there is a wide variety of ways that you can allocate costs that will still fly with an external auditor. So Verizon has a lot of leeway to change the relative profits between the two operating divisions.
  • Verizon publicly has been trying to convince the FCC that they ought to be able to transition customers from copper to wireless. The most visible controversy has been about Fire Island off New York City that got devastated by hurricane Sandy. But Both Verizon and AT&T have made it clear that they would like to find a way to walk away from maintaining older copper.
  • On the surface the profits look too small. This either has to be the result of very inefficient operations or of allocating costs to slew profits. If the wireline business really only has a 20% margin then Verizon would be far better off to spin those businesses off to standalone regional companies who could probably double the margins within a few years.

It’s obviously very hard to know all of the facts within the books of a company as big as Verizon. But my gut tells me that they ought to be making more money on the wireline business. While Verizon claims the poor profitability is due to loss of landlines, that only comprises a small percentage of the landline business. A lot of that business comes from the very profitable business lines of supplying transport for the Internet and for cell sites.

So are they cooking the books? Probably.

Regulatory Alert: Rural Call Completion

Seal of the United States Federal Communicatio...

Seal of the United States Federal Communications Commission. (Photo credit: Wikipedia)

The FCC took action on October 28 to address a growing problem of calls that are not completed to rural areas. The Commission adopted new rules that are aimed to remedy a growing problem of calls that are not completed.

The FCC noted that the situation was “serious and unacceptable” and that every call that is placed should be terminated. The FCC note that “Whatever the reason, the consequences of failed calls can be life-threatening, costly, and frustrating. Rural businesses have reported losing customers who couldn’t call in orders, while families attempting to contact elderly relatives have worried when they hear a ring – but no one picks up on the other end because the call never actually went through.”

The FCC surmises several reasons for uncompleted calls:

  • They think that some providers are not routing to rural areas to avoid higher than average terminating access charge rates. The access rates in rural areas are still much higher than rates for major metropolitan areas, which reflects the higher cost of doing business in rural areas. Terminating rates can still be as much as two cents per minutes higher. However, the FCC has always said that it insists that every call must go through, and if they ever got evidence of a specific carrier boycotting an area due to high rates I suspect they would levy high fines.
  • They think that much of the problem is due to the fact that calls can be routed through multiple carriers. They note that the best industry practice is to limit to two the number of intermediate carriers involved in routing a call. I know there are a lot of new carriers in the market today, such as multiple new companies marketing voice services like IP Centrex who search for the lowest cost way to route calls. One has to suspect that the long distance carriers beneath some of these carriers have gotten very creative in terms of routing calls to save costs.
  • Some carriers have been sending a ring tone to the calling party before the call has actually been completed. One has to suspect that this is done so that the caller can’t hear all of the intermediate switching going on to get the call completed. The problem with doing this is that the caller will hang up after a few unanswered rings, often before the call has even been completed.

The FCC took several concrete steps to fix the problem. These new rules will be effective in a few weeks once the final rules are published. The new rules are:

  • False audible ringing is prohibited, meaning that a telephone provider cannot send a ringtone to the caller until the call has actually been answered.
  • Carriers with over 100,000 voice lines, and who are the carrier that determines how calls are routed must collect and retain calling data for a six month period.
  • Carriers who can certify that they follow best industry practices, such as not routing calls through more than two intermediate carriers, will be able to get a waiver for some or all of the storage and reporting requirements.
  • Carriers who can demonstrate that they have all of the mechanisms in place to complete rural calls can also ask for a waiver from the storage and reporting requirements.

The End of Special Access?

Image representing EarthLink as depicted in Cr...

Image via CrunchBase

For those not familiar with the term, special access refers to selling traditional data pipes on the TDM telecom networks. These are circuits like T1s and DS3s. While one might think the world had transitioned to ethernet circuits there are still huge numbers of these traditional circuits being sold in the world.

In many cases the traditional circuits, especially T1s are being sold because of lack of fiber in the distribution plant. TDS data circuits can still be delivered over copper in many cases and often are the only way for a business stuck on copper to get faster data speeds.

AT&T recently announced that they were going to do away with all of their long-term discounts on these traditional TDM circuits. Customers and other carriers have been used to buying these products with a significant discount for signing up for long periods of time. There have been discounts offered for agreements to buy for up to seven years. And these discounts have teeth since there are significant penalties for breaking the contracts. As of November 9 AT&T will not be signing any contracts with terms longer than three years.

AT&T says the reason they are doing away with the discounts is due to the fact that they are going to be discontinuing TDS special access by 2020. However, that rings untrue since somebody can still sign a 5-year or 7-year contract today and still have that contract finished on or before 2020.

Some of the competitors of AT&T filed a letter of complaint with the FCC this month complaining about the cessation of the term discounts. This included Sprint, tw telecom, CBeyond, EarthLink, Level3 and Megapath. These carriers say that eliminating the discounts is anticompetitive since they are the in direct competition with AT&T and they are the primary purchasers of special access circuits.

Sprint says that eliminating the term discounts will increase the prices they pay and ultimately affect what customers pay. They say that in the worst case examples that their costs will rise 24%.

If you have been following this blog I have reported that AT&T has been positioning itself to get out of the TDM business. They want to convert all data circuits to ethernet as part of their ‘Project VIP’ initiative. But they also want to get homes and small business off of copper and in many cases replace them with cell phones. The FCC has not given AT&T the permission to do this anywhere, yet they keep moving towards that goal.

The biggest problem I see with trying to eliminate TDM data circuits, particularly T1s, is that the customers who use them often are in parts of the network that don’t have fiber alternatives. It’s nice for AT&T to be able to talk about offering only ethernet, but in many cases this is going to result in customers losing what little data they are able to buy today.

There are still huge numbers of T1s that are used to support PBXs and small company WANs for functions like data back-up. It’s hard to picture what a customer will do if the copper goes away and they are expected to somehow perform those functions using cellular data – with data plans that are likely to be capped. We tend to think of a T1 these days as a small data pipe. But if you are using it for data backup, a T1 can transmit a lot of data during a month’s time.

The FCC is in the middle right now of looking at special access issues. They have issued a request for data from the industry that will hopefully help them understand the state of the current TDM data market. I think they are going to find that the market is still a lot larger than AT&T wants them to think.

The Future of Interconnection

A Verizon payphone with the Bell logo.

A Verizon payphone with the Bell logo. (Photo credit: Wikipedia)

AT&T and Public Knowledge both testified yesterday at a House Communications Subcommittee hearing about the transition of today’s PSTN to an all-IP network.

Both parties agreed that there were five areas that must be addressed to maintain a functional telephone network:

  • Service for everybody
  • Interconnection and competition
  • Consumer protection
  • Reliability
  • Public Safety

I want to look a little more at the issue of interconnection and competition. Today a large percentage of my clients have interconnection agreements with the incumbent telephone companies. Most of my clients are CLECs but a few are wireless carriers, and each negotiates interconnection under a different set of FCC rules.

Interconnection is vital to maintain competition. Interconnection basically covers the rules that define how voice traffic gets from one network to another. The agreements are very specific and each agreement defines precisely how the carriers will interconnect their networks and who will pay for each part of the network.

For the most part, the rules of Interconnection adopted as part of the Telecommunications Act of 1996 work well and there are probably over 2,000 companies using these agreements to interconnect with each other.

There is a lot of danger that changing the interconnection rules could harm and force competitive companies out of the market. Let me just revisit a little bit of history to talk about what I mean. A long time ago the FCC decided that interconnection for local calls between incumbents should be free, and so incumbent telephone companies don’t charge each other to exchange local minutes. However, I can think of at least five times during my career when the RBOCs like AT&T tried to put in reciprocal charges for this traffic. That means that both parties would pay each other the same amount for terminating local calls from the other. Sounds okay until you recall that AT&T basically serves all of the metro areas in the country while smaller telcos serve the rural areas. Still today there is a lot more calling made from rural areas into metros than in the other direction, and if such a change was made the rural companies would be sending big checks to the RBOCs for ‘free’ calls

And the RBOCs have tried to do similar things to competitive carriers with interconnection. The FCC’s interconnection rules say that a competitive carrier can choose to interconnect with a larger company at ‘any technically feasible point’, and yet every few years the RBOCs try to change interconnection agreements to force carriers to carry the traffic to the RBOC hubs. Again, this is a matter of money and the RBOCs want the competitive carriers to pay for everything.

Changing to an all-IP network is likely to open up the same battles. Rather than maintain a system today of many tandem offices in a state, it is not impossible that the RBOCs will have only one hub in each state, or even only one hub in each region of many states. And if they make that kind of change you can expect that they will then expect competitive carriers to pay to carry all if their traffic to and from such hubs. I can tell you that such a change would devastate the business plan of many competitive carriers and would greatly reduce competition in the country.

The FCC has to be diligent in making the changes to IP. Everybody agrees that the technological change needs to be made. It’s more efficient. But we can’t let a technology change be grounds for a land-grab by AT&T and Verizon in an attempt to quash competition. They will, of course, claim that they are not trying to do that, but during my 35-year career I have seen them try exactly that kind of change a whole lot of times. And there is no doubt in my mind they will try to do it again.

Europe Has the Right Goals

The European Commission issued a press release yesterday that announced that 100% of the households in Europe now have access to broadband.

Most households have some sort of wired access with 96.1% of homes having access to copper, coax or fiber. Wireless coverage with 2G, 3G or 4G covers 99.4% of houses. And all remote homes are now covered by satellite broadband using a network of 148 satellites.

Before anybody argues that we have the same thing here in the US due to satellite, we need to distinguish between the satellite broadband that is available here and what is available in Europe. Basic satellite service in Europe is only $13 per month. I can’t find the speed for but assume this is a few Mbps download speeds. But customers can get 20 Mbps download from satellite for $33 per month.

In the US there are two major satellite providers. ViaSat Exede offers a 12 Mbps download service. The amount you pay is based upon the usage cap you choose. For $50 per month you can get 10 GB per month, for $80 you can buy 15 GB and for $130 you can get 25 GB. Hughesnet offers 5 Mbps down and 1 Mbps up for $50 per month, 10 Mbps down and 1 Mbps up for $60, 10 Mbps down and 2 Mbps up for $80 and 15 Mbps down and 2 Mbps up for $130. The four Hughesnet products also have data caps of 10 GB, 20 GB, 30 GB and 40 GB respectively.

Speed isn’t everything and the caps matter. Just to put those data caps into perspective, a 2-hour HD movie will range between 3 and 4.5 GB. So homes in the US using satellite are very limited in using their satellite connection to view video.

The US satellite companies are also limited since they only have a few satellites capable of delivering the above products. If those satellites get oversubscribed then actual speeds will be slower than advertised in the same way that a cable modem system can bog down in the evening hours. But with more satellites in Europe the speeds can be faster and there is a lot less chance of congestion and oversubscription.

The Europeans also have goals to speed up Internet access. They have the goal by 2020 of getting all citizens the ability to have 30 Mbps download speeds, with at least half of them having access to 100 Mbps.

This is pretty easy to contrast with the US where the current national definition for terrestrial  broadband is 4 Mbps down and 1 Mbps up. Both stimulus grants and borrowing from the RUS have recently financed networks that are able to deliver those speeds.

If we don’t set high goals in the US, and if we are content to finance rural broadband that delivers slow speeds when it is brand new, we are relegating the rural areas to having slow broadband for decades to come.

In the US we are more given to grand announcements that don’t come with any funding or mandates. For example, earlier this year the FCC set a goal of having a Gigabit City in every state of the country. That means a network that is capable of delivering a gigabit of download speeds to customers.

Don’t get me wrong, I would love to live in one of those few places where you can get a gigabit. But this is a completely voluntary system, and a Gigabit City might only be actually selling that much speed to a few customers to be given the designation. Rather than trying to get one City in each state to provide a few customer with a gigabit download speed we ought to instead be concentrating on making our basic broadband a lot faster than 4 Mbps. When that lowly speed is our national goal, we are telling rural America to not expect anything better.

The Europeans have it right and we have it wrong. And a decade from now when we are far behind them in terms of productivity we can look back on the crappy national goals we set for ourselves.

Another Idea for Rural Broadband

An rural area west of Route 41 and Lowell, Ind...

An rural area west of Route 41 and Lowell, Indiana. (Photo credit: Wikipedia)

The Fiber-to-the-Home Council (FTTHC) asked the FCC to give consideration for a new way to fund rural broadband. Their proposal asks the FCC to make available unused portions of the Universal Service Fund to supply grants to build gigabit fiber networks. They would have this done under a competitive process, meaning that the networks that could do this the most efficiently would be at the top of the grant list.

It’s an intriguing idea. I have often talked in this blog about the state of broadband in rural America. Consider some of the following rural broadband issues:

  • About a year and a half ago the FCC estimated that there was still about 14 million rural households with no access to any kind of terrestrial broadband. There have been some projects in the last year that now serve some of these customers, but the number is still probably not much smaller.
  • In the FCC’s last three Broadband Progress Reports the agency said that incumbent carriers were not upgrading to the FCC’s minimum definition of broadband fast enough. Those speeds are currently 4 Mbps download and 1 Mbps upload. And the FCC has promised that every few years they will revisit that definition of broadband, and supposedly will increase it over time.
  • There is often a big difference between advertised speeds and actual speeds. Getting 4 Mbps download is barely enough bandwidth for a household to participate in today’s web, and if the actual speeds delivered are less than this then it’s hard to call the service broadband by today’s reality.
  • The availability of rural broadband depends upon where a customer lives. If they live in a large enough rural town then they might have broadband available from either the telco or the cable company, and even sometimes from both. But cable networks rarely extend much past the borders of these small towns and DSL rarely carriers more than a mile or two from the center of town. So there are many rural counties that have some broadband in the towns but practically none outside the towns.
  • Most urban areas now have cable modem service that is advertised at between 10 Mbps and 20 Mbps. And urban broadband keeps improving. Rural areas are permanently falling behind and the gap is going to widen over time. This has huge implications for the long-term economic viability of rural America.

Of course, there are some organizations that have opposed this idea, mostly those organizations funded by incumbent telcos and cable companies. This always has me scratching my head. For the most part the large telcos and cable companies have ignored rural America for one or even two decades. They have not poured new capital into these areas to bring them up to the needed speeds and they spend as little as possible to keep these areas operating. I contrast this to the small independent telcos who generally do an excellent job in rural America, but there are still large swaths of rural area that have been largely ignored. And even while ignoring these areas the large telcos want to protect their revenue streams.

I guess that is good business, but it is poor policy. In my mind broadband is basic infrastructure and homes and businesses need adequate broadband in order to take part in modern society. And this is just about to become much more important as we move into the Internet of things. It’s one thing to not provide enough broadband to a rural home so that they can watch streaming videos. But when we are having our healthcare monitored by the Internet then broadband becomes an essential component of every home’s life.

The rural broadband crisis is already here and the broadband gap is already unacceptable. The FTTHC’s proposal is creative and doesn’t ask for any additional government funds. They are asking that the FCC make an investment today in rural areas as a down-payment to help those areas stay viable as places for people to live in the future. I would assume that any awards of funds are also going to expect the rural communities to chip in a lot of matching funds, and so all that is being asked is to help these communities help themselves. I think it is an idea worthy of FCC consideration.

The Future of Rural Broadband

Verizon Wireless "Rule the Air" Ad C...

Verizon Wireless “Rule the Air” Ad Campaign (Photo credit: Wikipedia)

There were several events this week that are telling rural subscribers the future of rural broadband. It is a bleak picture.

First, at a Goldman Sachs conference on Tuesday, the CEO of AT&T said that he hoped that the new FCC chairman Tom Wheeler would be receptive to AT&T’s desire to begin retiring its copper network in favor of its wireless network. At the end of last year AT&T had said in an FCC filing that they were going to be seeking to retire the copper plant from ‘millions of subscribers’.

In that filing AT&T had asked to move from the copper network to an all-wireless all-IP network. Stephenson said that cost savings from getting rid of the copper network would be dramatic.

On that same day, Verizon CEO Lowell McAdam said that the idea of offering unlimited data plans for wireless customers was not sustainable and defied the laws of physics. Earlier this year Verizon had ended all of its unlimited wireless data plans and now has caps on every plan.

Verizon already has a rural wireless-based landline surrogate product that it calls VzW. This uses the 4G network to deliver a landline phone and data anywhere that Verizon doesn’t have landline coverage. The base plan is $60 per month and includes voice and 10 gigabytes of data. Every extra gigabyte costs $10. There is an option to buy a $90 plan that includes 20 gigabytes or $120 for 30 gigabytes.

Finally, at the same Goldman Sachs conference mentioned above, the CFO of Time Warner said that they saw more room for increasing data rates.

So what does all of this mean for rural subscribers? First, it means that if you are served by a large incumbent like AT&T that they are going to be working hard to retire your copper and force you onto wireless. And we all know that the wireless data coverage in rural America is not particular fast when you can even get data. The data speeds delivered from a cell tower drop drastically with distance. In urban areas where towers are only a mile or less apart this doesn’t have much practical effect. But in a rural environment a mile is nothing and homes might be a mile apart. People lucky enough to live near to a cell tower can probably get okay data speeds, but those further away will not.

And even if you can get wireless data your usage is going to be capped. Rural landline data usage today may be slow, but it is unlimited. Customers have learned that if they put in WiFi routers that they can channel all of the data usage on their cell phones and tablets to their unlimited landline data connections. But once those connections are wireless, then every byte of data leaving your home, whether directly from a device or though the WiFi router, is going to count against the data caps. So rural America can expect a future where they will have data caps while people in urban areas will not.

Finally, one can expect the price of data to keep climbing. I have been predicting this for a decade. The large telcos and cable companies are facing a future where the old revenues streams of voice and cable TV are starting to decline. The only sustainable product they have is data. And so as voice and cable continue to tumble, expect incumbents to get into the habit of raising data prices every year to make up for those declines. Competition won’t help because the cell company data is already expensive, and both the incumbent cable and telcos will be raising data rates together.

This is not a pretty picture for a rural subscriber. Customers will be forced from copper to wireless. Speeds are not likely to get much faster. Data is going to be capped and prices will probably be increased year after year.

Time for a New Spectrum Plan

The spectrum in this country is a mess. And this is not necessarily a complaint against the FCC because much of the mess was not foreseeable. But the FCC has contributed at least some to the mess and if we are going to be able to march into the future we need to start from scratch and come up with a new plan.

Why is this needed? It’s from the sheer volume of devices and uses that we see coming for wireless spectrum. The spectrum that the wireless carriers are using today is already inadequate for the data that they are selling to customers. The cellular companies are only making it because a large percentage of the wireless data is being handed off to WiFi today. But what happens when Wifi gets too busy or if there are just too many devices?

As of early 2013 there were over half a billion internet connected devices in the US. This is something that ISPs can count, so we know that is fairly accurate. And the number of devices being connected is growing really quickly. We are not device nuts in my house and our usage is pretty normal. And we have a PC, a laptop, a tablet, a reader and two cell phones connected to wireless. And I am contemplating adding the TV and putting in a new burglar alarm system which would easily double our devices overnight.

A huge number of devices are counting on WiFi to work adequately to handle everything that is needed. But we are headed for a time when WiFi is going to be higher power and capable of carrying a lot more data, and with that comes the risk that the WiFi waves will get saturated in urban and suburban environments. If every home has a gigabit router running full blast a lot of the bandwidth is going to get cancelled out by interference.

What everybody seems to forget, and which has already been seen in the past with other public spectrum, is that every frequency has physical limits. And our giant conversion to the Internet of Things will come to a screeching halt if we ask more of the existing spectrum than it can physically handle.

So let’s jump back to the FCC and the way it has handled spectrum. Nobody saw the upcoming boom in wireless data two decades ago. Three decades ago the smartest experts in the country were still predicting that cell phones would be a market failure. But for the last decade we have known what was coming – and the use is wireless devices is coming faster than anybody expected, due in part to the success of smartphones. But we are on the edge of the Internet of Things needing gigantic bandwidth which will make cell phone data usage look tiny.

One thing the FCC has done that hurts the way we use the data is to chop almost every usable spectrum into a number of small channels. There are advantages to this in that different users can grab different discrete channels without interfering with other users, but the downside to small channels is that any given channel doesn’t carry much data. So one thing we need is some usable spectrum with broader channels.

The other way we can get out of the spectrum pinch is to reallocate more spectrum to wireless data and then let devices roam over a large range of spectrum. With software defined radios we now have chips that are capable of using a wide variety of spectrum and can change on the fly. So a smart way to move into the future is to widen the spectrum available to our wireless devices. If one spectrum is busy in a given local area the radios can find something else that will work.

Anybody who has ever visited a football stadium knows what it’s like when spectrum gets full. Practically nobody can get a connection and everybody is frustrated. If we are not careful, every downtown and suburban housing area is going to look like a stadium in terms of frequency usage, and nobody is going to be happy. We need to fix the spectrum mess and have a plan for a transition before we get to that condition. And it’s going to be here a lot sooner than anybody hopes.