Tag Archives: Fiber

Can WISPs Compete Against fiber?

I already know that when certain WISP readers see this blog headline that they are going to say, “There goes that damned Dawson again. This is going to be another anti-WISP rant”. I think they might be surprised if they read past the headline.

I know WISP operators who are some of the best ISPs in the country. When I rate them as best, I’m talking about how they deliver products their customers are happy with and how they provide great customer service and timely repairs. They are the kind of ISP that builds customer loyalty. I fully expect high-quality WISPs to be able to compete against fiber networks. While the industry lately seems to be fixated on broadband speeds, there are customers that value other aspects of being an ISP, such as trust and reliability.

I’ve never built a business plan that assumes that any fiber ISP will sweep the market and get every customer, so there will always be room for other ISPs. There is some portion of customers in any market that will switch immediately to fiber. There has been so much hype about fiber that many folks accept it as the gold standard. But the penetration rate of a new fiber network builder is going to depend on who builds and operates the network.

I think WISPs (and every other ISP) will have a hard time competing against a cooperative that builds fiber, particularly one that sets low prices like $50 or $60 for a gigabit. But not all coops will have affordable rates, and not all coops are loved by their members.

WISPs will have a much easier time competing against big telcos that win broadband grants. My firm does a lot of surveys, and a lot of the public has a massive dislike of big telcos like Frontier, CenturyLink, Windstream, AT&T, and some others. The public rightfully blames these big ISPs for walking away from rural America. I don’t think that folks will flock to these big ISPs just because they build fiber – particularly in cases where there is already a high-quality WISP that customers like. I will not be surprised in the future to find some markets where a great WISP will outsell a big ISP with a fiber network. A WISP might survive and thrive in such a market for a long time.

WISPs should also do well against a cable company that builds rural fiber if the cable company charges the same high rates as in cities. There are a lot of homes that can’t or won’t pay $90 – $100 per month for broadband.

But not all WISPs will be able to compete. There is a quiet truth that you will never hear WISPA talk about. There are some absolutely dreadful WISPs in the country. Lousy WISPs come in all sizes, but some of the largest WISPs are among the worst. Our broadband surveys often show rural folks who despise some of the WISPs in their neighborhood and either refuse to use them or plan to drop them with the first better broadband alternative. These are the WISPs that are not upgrading technology. These are the WISPs that will sell broadband to customers who are too far away from a tower where a WISP might deliver only 1 Mbps broadband but still charge full price. These are the WISPs that build long chains of wireless backhaul through tower after tower until there is not enough bandwidth for customers. These are the WISPs that have terrible customer service.

Interestingly, the most pointed critcism I hear about these poor WISPs comes from the high-quality WISPs. Good WISPs complain about how some WISPs cheat by exceeding power limits or constantly changing channel assignments just to goof up competing WISPs. There are WISPs who might read that as an anti-WISP statement, but these folks have not been reading my blog. I have been complaining about the big telcos non-stop for the last ten years. Small telcos that do a great job have spent the last few decades explaining how they are different from the big telcos. Great WISPs have to point out that they are different than the lousy WISPs that are poisoning the WISP brand name.

WISPA often responds to my blogs by saying I have a fiber bias and am anti-WISP. I admittedly think fiber should be the first choice for grant funding, but that’s a topic for another blog. But I am not anti-WISP, and I have WISP clients that are terrific. I know many other wonderful WISPs. I fully expect some of these WISPs will be around and thriving a decade from now. WISPs who thrive will do so for the same reasons as any other successful ISP – they will deliver a reliable product, priced reasonably, and will provide great customer service.

Who’s On First?

I saw a short article in Business Wire that said that Comcast Business had landed a project to provide a private wireless network for the guests of The Sound Hotel Seattle Belltown. This is an example of the continuing convergence in the industry where the big cable companies, ISPs, and wireless carriers are freely competing on each other’s turf. For decades we’ve neatly categorized companies as telcos, cable companies, or wireless carriers, but this convenient categorization is starting to fray around the edges, and its getting a lot harder to distinguish between the big industry players.

If we look back ten or fifteen years, the distinctions between these companies were clearly defined. The big telcos served residences and small businesses using DSL. The big telcos were clearly structured in silos. There was practically no interface between the wireless companies at Verizon and AT&T and the broadband business. Verizon went so far as to set up Verizon FiOS, its fiber business, separately in every aspect from the copper and DSL business.

The cable companies had faster broadband than DSL after the upgrades were made to DOCSIS 3.0. Speeds up to 300-400 Mbps blew away the capabilities of DSL. Once those upgrades were completed, the cable companies took market share in cities from the telcos year after year until the cable companies had a near-monopoly in many markets.

The market with more balanced competition has been the large business market. This is the market where fiber quickly became king. At one point the telcos controlled most of this market, with their fiercest competition coming from a handful of big CLECs. Verizon responded to this competition by buying MCI, XO, and others in the northeast. CenturyLink become one of the nationwide market leaders through the acquisition of Qwest and then Level 3. The big cable companies cautiously launched fiber ventures for this market twenty years ago and have picked up a decent market share.

But those simple explanations of the business plans of the big ISPs is now history. As the Business Wire announcement showed, the big companies are crossing technology barriers in new ways. Comcast

Providing a private wireless network for a large hotel is emblematic of a new trend in competition. In doing this, Comcast is crossing technical lines that it would never have considered years ago. From a business perspective, Comcast is going after the full suite of services for businesses like this hotel, not just the wireless network. The newest word in the competitive market is stickiness, and Comcast is likely tying down this hotel as a customer for a long time, assuming it does a great job.

These crossovers are even more evident in the residential and small business markets. Comcast, Charter, and other cable companies are bundling cellular service with broadband and the triple play, something that the telcos have never managed to pull off. Telcos have decided to reclaim urban market share by building huge amounts of fiber. And the cable companies are reacting to that threat by rushing some early versions of DOCSIS 4.0 to the market in order to fix the upload bandwidth issues. The big wireless companies have joined the fray with the FWA cellular wireless broadband products. While these products can’t compete with the bandwidth on fiber or cable networks, the product is still adequate for many homes and hits the market at a much lower price.

This has to be confusing to the average residential consumer. Consumers who abandoned DSL years ago are being lured back by to the telcos by fiber. Folks who have been paying far too much for cellular service are moving to the more affordable cable company wireless service. And people who can’t afford the high price of cable broadband are seemingly flocking to the more affordable FWA wireless. I have to imagine that the customer service desks at the various ISPs are being flooded by customers canceling service to try something different.

Markets always eventually reach an equilibrium. But for now, both the residential and business markets in many cities are seeing a fresh new marketing efforts. A decade from now, it’s likely that we’ll reach a predicable mix of the various technologies. We know this from having watched the markets where Verizon FiOS battled with the cable companies for several decades. But much of the country is just now entering the era of refreshed competition.

Unfortunately, this new competition isn’t everywhere. There is already evidence that new investments are not being made at the same pace in lower-income neighborhoods. Some cities are seeing widespread fiber construction while others are seeing almost none. There will still be a lot of work to do to make sure that everybody gets a shot at the best broadband – but the obvious convergence in the industry shows that we’re headed in the right direction.

Measuring Sustainability

I’ve seen folks around the country suggesting that State Broadband offices ought to put a priority on sustainability when selecting winners of broadband grant funding. It’s a concept that has instant appeal, but I immediately asked myself what it means. How do you measure sustainability in a way that can be used to score grant requests?

It’s likely that most folks would agree on the definition of sustainability. If we are going to use government grant money to build a broadband network, we want that network to be providing broadband service for as long as possible. We expect sustainability for other kinds of infrastructure, such as roads, bridges, and buildings, so why shouldn’t we expect the same thing from a grant-funded broadband network?

But what does sustainable mean for a broadband network? The first test of sustainability is the expected life of the assets being constructed.

  • The longest-lived asset that is being constructed with grants is conduit. There is no reason why a well-maintained conduit system shouldn’t still be fully functional a century from now.
  • There are big debates about the economic life of fiber. If you go by the economic lives allowed by IRS depreciation, then the expected life of fiber is 25 or 30 years. We know that’s ridiculous because there is plenty of forty-year-old fiber still chugging along in the field. We also know that fiber constructed today is far better than fiber built forty years ago. The manufacturers have learned to make higher-quality glass with less impurities. But the big change in the industry is that the folks that install fiber have learned techniques that minimize damage during construction. Poor handling of fiber manifests twenty years later as micro-fissures – and that means cloudy glass. Nobody will give an expected life for well-maintained fiber, but scientists at some of the manufacturers have privately told me that they think it’s at least 75 years – we’ll just have to wait to find out.
  • The assets that cause the most concern for sustainability are electronics – be that fiber electronics or fixed wireless electronics. All electronics must periodically be replaced. I’ve seen some fiber electronics last fifteen years – but that seems to be near the upper end of economic life. The general industry wisdom is that fixed wireless systems have to be replaced every 7 to 10 years.
  • We largely eliminated some ISPs from grant eligibility due to poor sustainability. For example, low-orbit satellites like Starlink are designed to only last 5 to 7 and then fall from orbit. It’s hard to make an argument that grant funding buys great value with this kind of asset.

This all means that the sustainability of electronics must be a concern for all technologies. Any ISP that wins grant funding will likely be replacing some electronics within a decade. One test of any ISP on sustainability is the financial ability and willingness to replace those electronics. That’s hard to judge.

There is another measure of sustainability that is even harder to measure. A big factor in sustainability is the operating philosophy of the ISP that owns the networks. We know there is a big range of what I would call corporate responsibility between ISPs.

If we go strictly by the past, then the ISPs that have the most likely chance of operating a sustainable network for the long term are cooperatives or other ISPs that expect to still be serving the same customers fifty years from now. But not all cooperatives are the same. We see this when looking at how some electric cooperatives have allowed their poles to deteriorate badly over time.

Next in line in trustworthiness might be small telcos that have been around for as long as a hundred years. But over the last few decades, a large percentage of these companies sold to larger ISPs – so, the question for a grant reviewer is if the small telco that gets a broadband grant today will be the same owner of the network a decade or two from now?

A big question mark for many folks is the large ISPs. We saw the big telephone companies let copper and DSL networks rot in place by basically ceasing all maintenance years ago. This was clearly done as a cost savings measure. These companies will argue that there was no sense in continuing to support a dying technology, but we know that is nonsense. The copper networks in places like Germany were well-maintained and still offer DSL today with speeds in many places over 100 Mbps. The big telcos decided to unilaterally cut costs at the expense of customers. Should a grant office award funding to a company that has already failed the public once before? I’m guessing that grant offices will make awards to the big companies by reasoning that fiber networks will last a long time, so maintenance doesn’t matter. But I would argue just the opposite. I think a fiber network can deteriorate even faster without good maintenance than a copper network because the technology is less forgiving. There is still 20-year old DSL cards chugging away, something that likely won’t happen with fiber. If an ISP ignores and doesn’t maintain fiber network electronics, a fiber network could quickly turn into a brick.

I’ve not said anything above that is not common knowledge. But I am at a loss of how to turn what we’ve learned from the past behavior of ISPs in a way to consider sustainability when awarding grants. If sustainability was the most important factor in awarding a grant, I personally would give all of the money to cooperatives and none to big ISPs. And I wouldn’t fund technologies that must be largely replaced within a decade. This is probably why nobody is asking me to award grants!

AT&T in the News

AT&T has not been in the headlines a lot this year, but recently I’ve seen the company’s name everywhere.

In the recently released financial results for the third quarter, AT&T noted that it now has more fiber broadband customers than non-fiber customers. At the end of the quarter, AT&T had 6.93 million fiber customers compared to 6.86 million remaining non-fiber customers. Non-fiber customers are predominantly U-Verse customers served by two pairs of telephone copper. The company still also has 340,000 DSL customers served by a single copper pair. There are also some rural fixed-wireless customers.

In the third quarter, AT&T added 338,000 fiber customers. The company lost 367,000 non-fiber customers in the second quarter – although counting them as lost is probably a misnomer since many were likely upgraded to fiber.

Upgrading to fiber is good for the company’s bottom line. For the quarter, the average revenue per user (ARPU) was $62.62 for fiber customers compared to only $54.60 for non-fiber customers. AT&T has also been saying for years that the cost of maintenance for copper is a lot higher, so the company is likely shedding costs as it sheds customers served on copper.

We also got a peek at market AT&T’s penetration. AT&T says it passes 18.5 million potential customers with fiber, meaning the company has achieved an overall 37% market penetration on fiber. In the third quarter, the company added fiber to pass 500,000 new locations.

I saw another interesting news blurb about AT&T. Bloomberg reported that AT&T is looking for an equity partner to invest in a major expansion of fiber. That would be a big departure from the past since AT&T has always funded its own capital expenditures and networks.

But it’s not hard to see from the third quarter results why AT&T might be seeking additional funding. In the third quarter, the company generated $9.87 billion of cash. It invested $4.71 billion in new infrastructure and paid $3.75 billion in dividends – leaving only $1.41 billion in free cash.

I would conjecture that AT&T wants to invest more heavily in fiber immediately since it’s clear that there is a mad rush nationwide to build fiber in cities. Fiber overbuilders hope that if they are the first to a market with fiber that it might dissuade other fiber overbuilders – so we are currently seeing a fiber land grab. In the long run, sharing fiber profits with an investor will decrease future AT&T earnings. The calculus that the company is betting on is that the market share gained by building first to markets outweighs the cost of sharing profits.

AT&T is currently debt-heavy. AT&T hasn’t had a recent track record of making good investment decisions. It’s been reported that AT&T lost as much as $50 billion from its purchase of DirecTV. In almost the same time frame, the company lost as much as $42 billion from its purchase and sale of WarnerMedia. The company might not be able to easily borrow the money, particularly at current interest rates.

The final news is that AT&T was fined $23 million to resolve a federal investigation that the company had “unlawfully influenced” the former Illinois Speaker of the House, Michael J. Madigan. AT&T admits that it paid Madigan, through an ally, to promote legislation that would eliminate carrier of last resort in the state – meaning that the company is obligated to serve people who ask for a telephone line. That obligation also comes with legacy regulatory requirements that AT&T wanted to ditch.

What always dismays me, but never surprises me, is that nobody at a big company like AT&T got in trouble for breaking the law – in this case, bribing a government official. The size of the fine might be appropriate for the magnitude of the crime, but I’ve always thought that the folk at big companies would be more likely to hesitate to be unethical if they saw others going to jail for breaking the law. The only real consequence for AT&T, in this case, is that they got caught, and the fine will just be viewed as the cost of doing business.

The NTIA Preference for Fiber

As might be expected when there is $42.5 billion in grant funds available, we are probably not done with the rules for the BEAD grants. There are several areas where heavy lobbying is occurring to change some of the rules established by the NTIA in the NOFO for the grants.

One of the areas with the most lobbying is coming from WISPs that are complaining that the NTIA has exceeded its statutory authority by declaring a strong preference for fiber. The NTIA went so far as to declare that fixed wireless technology that doesn’t use licensed spectrum is not a reliable source of broadband and isn’t eligible for BEAD grants. The wireless industry says that the NTIA is out of bounds and not sticking to a mandate to be technology neutral.

I decided to go back to the Infrastructure Investment and Jobs legislation and compare it with the NOFO to see if that is true. Let’s start with the enabling language in the legislation. The IIJA legislation makes it clear that the NTIA must determine the technologies that are eligible for the BEAD grants. One of the criteria the NTIA is instructed to use is that grant-funded technologies must be deemed to be reliable. Reliable is defined in the Act using factors other than speed and specifically says that the term “reliable broadband service’ means broadband service that meets performance criteria for service availability, adaptability to changing end-user requirements, length of serviceable life, or other criteria, other than upload and download speeds.

I interpret ‘adaptability to end-user requirements’ to mean that a grant-eligible technology must have some degree of what the industry has been calling being future-proofed. A grant-funded technology must be able to meet future broadband needs and not just the needs of today.

‘Length of serviceable life’ refers to how long a grant investment might be expected to last. Historically, broadband electronics of all types typically don’t have a useful life of much more than a decade. Electronics that sit outside in the elements have an even shorter expected life, with components like outdoor receivers for wireless not usually lasting more than seven years. The broadband assets with the longest useful lives are fiber, huts, and new wireless towers. If you weigh together the average life of all of the components in a broadband network, the average useful life of a fiber network will be several times higher than the useful life of a wireless network.

NTIA then used the reliable service criteria to classify only four technologies as delivering a reliable signal – fiber, cable modem hybrid fiber-coaxial technology, DSL over copper, and terrestrial fixed wireless using licensed spectrum. Since DSL cannot deliver the speeds required by the grants, that leaves only three technologies eligible for BEAD grants.

The legislation allows the NTIA to consider other factors. It appears that one of the other factors the NTIA chose is the likelihood that a strong broadband signal will reach a customer. I speculate that fixed wireless using only unlicensed spectrum was eliminated because interference of unlicensed spectrum can degrade the signal to customers. It’s a little harder to understand which factors were used to eliminate satellite broadband. The high-orbit satellites are eliminated by not being able to meet the 100-millisecond requirement for latency established by the legislation. I would speculate that low-orbit satellites are not eligible for grants because the average life of a given satellite is being touted as being about seven years – but I’m sure there are other reasons, such as not yet having any proof of the speeds that can be delivered when a satellite network fills with customers.

From the short list of technologies deemed to be reliable, the NTIA has gone on to say several times in the NOFO that there is a preference for fiber. When looking at the factors defined by the legislation, fiber is the most future-proofed because speeds can be increased drastically by upgrading electronics. Fiber also has a much longer expected useful life than wireless technology.

The accusations against the NTIA seem to be implying that the NTIA had a preference for fiber even before being handed the BEAD grants. But in the end, the NTIA’s preference for fiber comes from ranking the eligible technologies in terms of how the technologies meet the criteria of the legislation. It’s worth noting that there are other parts of the NOFO that do not promote fiber. For example, state broadband offices are encouraged to consider other alternatives when the cost of construction is too high. I think it’s important to note that any NTIA preference for fiber does not restrict a state from awarding substantial awards to fixed wireless technology using licensed spectrum – that’s going to be a call to make by each state.

There is a lot of lobbying going on the expand the NTIA’s list to include fixed wireless using unlicensed spectrum and satellite broadband. I’ve even heard of rumors of lawsuits to force the expansion of the available technologies. That’s the primary reason I wrote this blog – as a warning that lobbying and/or lawsuits might delay the BEAD grants. I think the NTIA has done what the legislation required, but obviously, anybody who is being excluded from the grants has nothing to lose by trying to get reinstated in the grants. When there is this much money at stake, I don’t expect those who don’t like the NTIA rules to go away quietly.

Broadband Now or Later?

I just heard about a County that is using its ARPA funds to build fixed wireless broadband. This is a traditional fixed wireless broadband technology that will probably deliver speeds of 100 Mbps to those close to the towers, slower speeds to homes further away, and which will not reach all homes in the County.

I understand why they did this. The County is listening to residents who want a broadband solution right now – and an ISP knocked on their door and offered a quick solution. I can’t fault them for this decision. But the wireless company they are partnering with is one of the larger ones and is not known for great customer service. The WISP doesn’t have any customers in the area today, and one hopes the WISP will hire a few local technicians to make this work.

The County had an alternative. It could follow the lead of other counties and used its ARPA money to instead attract an ISP to build fiber to everybody in the rural parts of the county. There are several regional ISPs close to this county that would probably jump at the chance to build a fiber network that is funded by both BEAD grants and local matching grants. It’s my firm belief that counties that form such a partnership with an ISP and also bring local cash to the deal will be the ones that will win the BEAD grants.

But this is not an easy choice. For an area that doesn’t have broadband today, the BEAD grants sound like a far distant opportunity. It’s hard to think that any recipients of BEAD grants will be constructing networks any sooner than 2024 – assuming by then that they’ll be able to get the needed fiber and electronics. Building fiber to a whole county can easily take two or three years, meaning that the last household in this county might not see fiber broadband until late 2026 – or even later with supply chain issues.

The BEAD grant program is feeling agonizingly glacial to anybody in the industry. To some degree, it’s good that the grants weren’t awarded right away since most communities needed time to prepare for grants. To win the grants, somebody has to estimate the cost of building a new network, and the community must choose an ISP partner to fulfill the broadband goal. These are not things that can happen overnight.

But the processes described in the legislation to release BEAD funding are slow and cumbersome. The cynical part of my brain suspects that some of the slow pace of the BEAD grant program was inserted into the legislation through influence from some of the big ISPs. I’ve heard that lobbying is why the grant process insists on using only the FCC maps to determine areas with grant availability. Color me cynical, but a big ISP can use that rule to show poor broadband to the FCC in areas where it wants to pursue grants and show good broadband in areas it would rather protect against competition.

The decision is easy for some counties that have already been approached by local ISPs they know and trust, like small telcos or cooperatives. Such counties know that they are going to get a solution they like, provided by somebody they know will do a good job. But even for these counties, having to wait for fiber construction is torturous. What does a county official say to the family of an eighth-grader who needs home broadband now but may not see it until senior year?

And what about all of the counties that don’t have these trustworthy local ISP partners? Can they just assume that somebody will step in and ask for the BEAD grant funds for their area? What if the ISP winning BEAD grants is one of the giant telcos they don’t trust or some new venture capital firm that is only chasing grants to build and flip the networks? Can a county even assume that anybody will be funded in their area? $42.5 billion sounds like a lot of money, but I’m certain that there are still going to be areas with no broadband solution after all of the smoke clears from the grant awards.

There will be great long-term benefits for a county that is willing to wait to get a fiber network. It’s an asset that is going to be good for the rest of the century, and that can provide as much broadband as homes and businesses are ever going to need. I know some of the WISPs are telling communities to let them build wireless now and that they’ll take the profits and roll that back into fiber eventually. If the ISP telling you that is somebody other than an electric or telephone cooperative, the chances of them self-funding the future conversion to fiber is basically zero. It takes about five minutes of math to show that there will ever be enough profits to fund that promise.

What makes the decision harder is that there will be some WISPS who will do a great job. They’ll start with the best electronics on the market, will build fiber backhaul to towers, and will invest in every coming decade to upgrade radios to keep up with the state of the art. A county that gets this kind of WISP probably is in great hands and made a good decision to get broadband now and not wait. But there are other WISPs who will take the grant money and never invest another dime. It’s hard for a community to know what to believe since both kinds of WISPs will likely make the identical sales pitch.

AT&T Feels Sorry for Cable Companies

In a recent interview given to Diana Goovaerts of FierceTelecom, Chris Sambar, the AT&T EVP of Technology Operations said that the company is not worried about competition from cable companies. He said that AT&T’s fiber technology, which is capable of symmetrical 10-gigabit speeds is far beyond the capability of the cable companies.

He rightfully identified that cable companies must spend a lot on DOCSIS 4.0 to come close to catching up with fiber. What he didn’t mention is that the new cable technology is probably five years away from being market-ready. His zinger in the interview was when he said, “I almost feel bad for them (the cable companies)”.

This is interesting because we haven’t seen any real trash-talking between telcos and cable companies in decades. There was a lot of noise when DSL and cable modems both had 1 Mbps download capabilities, and then again when Verizon first launched FiOS. This quote is going to be talked about in every cable company board room in the coming months because it encapsulates an industry of fiber providers that are not afraid of tackling the cable companies head-on.

The cable companies have had an unprecedented run of clobbering DSL in the market and becoming near-monopolies in most urban markets. My firm hasn’t done a survey in several years where the cable company hasn’t captured at least two-thirds of broadband customers in an urban market.

But as AT&T and other telcos undertake an aggressive fiber overbuilding program, the industry is about to change. AT&T alone plans to pass an additional 15 million homes and businesses by the end of 2025. We also see aggressive buildouts planned by Verizon, Frontier, Windstream, Consolidated, and many others.

AT&T’s CEO John Stankey was quoted last year saying that the company believes that it will gain at least a 50% market share within three years after building fiber in a neighborhood. Some of those customers will be AT&T DSL customers converted to fiber, but a lot of the customers are going to be coming from the cable companies.

If the broadband world only consisted of the cable companies and the big telcos, we could pass off this latest episode as posturing by two industries that intend to continue to share duopoly market power. Telcos will win back customers with fiber, but if the two big incumbents were the only competitors in markets, then after a few years, we’d see a new equilibrium with telcos bigger than today. That’s what we’ve seen in the Northeast in the years since Verizon built its FiOS fiber – Verizon and the cable companies reached an equilibrium where each enjoys high prices and where both are profitable.

But the world is changing around the two big sets of incumbents. There are other competitors edging into urban broadband markets. For example, in the fourth quarter of 2021, T-Mobile added 224,000 customers to its fixed cellular home broadband. While this is being offered in rural areas, T-Mobile says most of its gains are coming from suburban and urban markets where the product offering of decent 100 Mbps speeds and low prices is peeling customers from both the cable companies and the telcos. While 224,000 new customers may not sound like a lot, the whole rest of the broadband industry only added 632,000 net customers in the third quarter of last year. T-Mobile has quickly grown to 646,000 total home broadband customers and will soon break into the top ten list of ISPs.

If T-Mobile was the only competitor, there still wouldn’t be much concern from the big companies. But both AT&T and Verizon are getting ready to unleash a nationwide rollout of a fixed wireless product similar to T-Mobile’s. We’re also seeing the rudimentary beginnings of other wireless providers like Starry, which said it plans to grow to 1.4 million customers by 2026. As mentioned earlier, there are millions of lines of fiber being built each year by Frontier, Windstream, Consolidated, TDS, and many other smaller players – all of these ISPs have the cable companies in their crosshairs.

AT&T has thrown down the gauntlet for the cable companies. The cable companies can watch customers erode while waiting for DOCSIS 4.0. Or the cable industry could follow the lead of smaller cable companies like Altice and start converting to fiber now. But unlike AT&T, which will get new revenues to help pay for fiber, the cable companies already have a large majority of customers in most markets. Building fiber will be harder to justify for the cable companies if they are losing customers.

Comcast and Charter still see the lion’s share of the growth of cable customers each quarter. We’ll really know the cable companies are in trouble when we see that metric slip. If everything AT&T says comes to pass, we ought to see cable companies losing customers a few years from now.

The Working-from-home Migration

Upwork, a platform that supports freelancers conducted a major survey of more than 20,000 adults to look at the new phenomenon of people moving due to the pandemic, with questions also aimed at understanding the motivation for moving. Since Upwork supports people who largely work out of their homes, the survey concentrated on that issue.

What the survey verified what is already being covered widely by the press – people are moving due to the pandemic in large numbers. The survey found that the rate of migration is currently three to four times higher than the normal rate from recent years.

The key findings from the survey are as follows:

  • Between 6.9% and 11.5% of all households are considering moving due to the ability to work remotely. That equates to between 14 and 23 million people. It’s a pretty wide range of results, but likely a lot of people that want to move will end up not moving.
  • 53% of people are moving to find housing that is significantly less expensive than their current home.
  • 54% of people are moving beyond commuting distance and are moving more than a two-hour drive away from their current job.
  • People are moving from large and medium cities to places with lower housing density.

These findings are corroborated by a lot of other evidence. For example, data from Apartments.com show that rental occupancy and rates in cities are falling in the most expensive markets compared to the rest of the country. Realtors in smaller markets across the country are reporting a boom of new residents moving into communities.

Economic disruption often causes big changes in population migration and we saw spikes in people moving during the last two economic downturns. In those cases, there was a big shift in people moving from rural areas to cities and in people moving from the north to the south to follow job opportunities.

Interestingly, this new migration might reverse some of those past trends. Many rural communities have been losing population over the last few decades and the new migration patterns might reverse some of that long-term trend. People have been leaving rural parts of states to get jobs in urban centers and working from home is going to let many of these same people move back to be closer to families.

Of course, one of the issues that a lot of folks moving away from cities are going to face is that the broadband is often not as good where they want to move. The big cable companies have better networks in big cities than in smaller markets. You don’t have to move far outside of suburbs or rural county seats to find homes with little or no broadband. Even cellular coverage is a lot spottier outside of cities. I’ve seen local newspaper stories from all over the country of people who have bought rural homes only to find out that there was no broadband available.

But this isn’t true everywhere. There are some smaller towns with fiber to every home. There are rural areas with fiber to the farms. Rural communities that have fiber ought to be advertising it far and wide right now.

As a thought experiment, I looked at the states around me to see if I could identify areas that have fiber. The search was a lot harder than I thought it should be. States ought to have an easy-to-find map showing the availability of fiber because those communities are going to move to the top of the list for people who want a rural setting and who will be working from home.

I’ve worked from home for twenty years and I’m happy to see this opportunity open for millions of others. It gives you the freedom to live where you want and to choose where to live for reasons other than a job. It’s going to be an interesting decade ahead if people can move to where they want to live. I just have to warn local elected officials that new people moving to your community are going to be vocal about having great broadband.

Frontier’s Lack of Fiber

The primary reason that Frontier cites for going into bankruptcy is the lack of fiber. They are finally acknowledging that customers are bailing on them due to the poor broadband speeds on their copper networks. This is being presented as if this is a sudden revelation – as if the company woke up one day and realized that it’s selling services that nobody wants to buy. I must admit this gave me a chuckle and there are some giant flaws with this argument.

Rural customers don’t hate DSL – they hate DSL that doesn’t work. If Frontier had implemented the CAF II upgrades as had been promised, then rural customers would all be using the 10/1 Mbps or faster rural DSL that would have been created as a result of those upgrades. Instead, customers have gotten disgusted by overpriced DSL that is so slow that they can’t stream video or connect to a school or work server. We’ve been doing speed tests all over the country and it’s rare to find rural DSL in many markets that delivers even 5 Mbps download – much of it is far slower than that, some barely faster than dial-up. If Frontier had provided 10/1 Mbps DSL to millions of homes, those households would gratefully be buying that broadband during the COVID-19 crisis.

Frontier blames its woes on lack of fiber with no mention of their reputation for unconscionably bad customer service. I’ve talked to customers who talk about routine network outages that lasts for many days. Customers complain about losing broadband and having to wait weeks to get it repaired – or worse, are told that the electronics needed to replace a bad DSL modem are out of stock. This is a company that has trimmed, then trimmed again its maintenance staff to the bone. Talk to any rural Frontier technician and they’ll tell you that they don’t have the time or resources available to address routine customer problems.

Frontier complains about lack of fiber, but as recently as 2015 they purchased another huge pile or dilapidated Verizon copper networks as part of a $10.5 billion acquisition. While that acquisition came with some FiOS fiber networks, the company also doubled down on buying non-functional copper networks. The speculation in the industry was that Frontier continued to buy lousy properties because it created opportunities for huge management bonuses – the company never had any plans to make the purchased copper networks any better.

And that’s the real issue with Frontier’s claim – they have no fiber because they’ve made almost no effort to migrate to fiber. The company burned all of its cash on trying to service the debt for overpriced acquisitions rather than rolling cash back into its networks.

It’s interesting to compare Frontier to the many smaller independent telephone companies. The FCC brags about places like the Dakotas that have a huge amount of rural fiber to homes. But that rural fiber didn’t happen all at once. It happened over decades. Most rural telcos went through two rounds of investment where they invested to improve rural DSL. In doing so they built fiber to go deeper into the rural areas, the first build brought fiber within maybe ten miles of homes, the second got fiber to within 3 miles of most homes. When the rural telcos decided to take fiber the rest of the way, it was reasonably achievable because they already had fiber deep into rural neighborhoods.

Frontier has done very little of that kind of incremental improvements over the years. They found it more enticing to keep borrowing to buy new rural properties rather than roll cash back into the existing networks. It doesn’t even look like they did all of that much new fiber as part of the CAF II upgrades. I’m sure Frontier would refute that statement and say they are fully compliant with CAF II, but if they had built fiber deep into the network then rural DSL would have gotten better – and for the most part, it hasn’t.

I can’t how the bankruptcy will benefit frontier’s customers. The company will likely get to walk away from a lot of the debt that was provided for the last few acquisitions – and it’s hard to feel bad for lenders who thought it was a good idea in 2015 to lend to buy copper networks. But bankruptcy won’t fix any of the fundamental problems with the Frontier networks. Customers are going to continue to bail on inferior and nonfunctional broadband products. The upcoming RDOF auction is going to give a lot of money to ISPs that are going to overbuild Frontier copper with something better (even though Frontier made a last-minute filing at the FCC to block grant funding by claiming they had magically upgraded 16,000 rural census blocks).

Is Frontier going to somehow start investing in rural fiber? My best guess is that they won’t even after bankruptcy. If they can raise any money for new capital spending they’ll likely try to salvage some of the county seats and other markets where there is a mass of customers. However, in many of those markets they’ve already lost the battle to the cable companies.

Frontier is right in that they are failing from lack of fiber. But that statement doesn’t tell the full story. They are failing because the company decided decades ago to not invest capital into their own networks – and now they are paying the price.

CenturyLink Expanding Fiber

CenturyLink recently announced its fiber plans for 2020 and says it will be building to pass 400,000 homes and businesses with fiber this year as a follow-up to 2019 that saw the company add 300,000 passings. Like with all big telco announcements, a bit of looking behind the scenes is needed to understand what the company is doing.

In 2017 CenturyLink was engaged in a major fiber expansion plan and built that year to pass 900,000 homes and businesses, mostly in large cities and surrounding suburbs in places like Seattle, Phoenix, and Denver. Those expansions plans were put on hold when new CEO Jeff Storey replaced the telco-minded Glen Post. One of Storey’s first announcements as CEO was that the company was no longer going to pursue capital projects with ‘infrastructure returns’ and building FTTH came to a screeching halt.

It was a lot harder than Storey might have hoped to inject the Level 3 mindset into a 100-year-old telco, and the company bogged down and stock prices dropped. Starting last year, the company started talking again about aggressively expanding its fiber network to add large buildings to the network. The company recently said it had connected to over 18,000 buildings last year. In digging deeper into things the company discussed over the last year, it seems that those buildings were a combination of multi-tenant business buildings and apartment complexes. The company also said that it was building a lot of the new fiber in 2019 to reach small cell sites.

The company also recently announced that it had added 300,000 passings as a result of the fiber expansion last year – a number that I can’t find mentioned as a goal last year. This does not mean that the company built fiber to pass 300,000 homes. Many of the passings came from the 18,000 buildings that were added to the network. CenturyLink has also entered into a contract to operate the fiber network in Springfield, MO – a network that is funded, built, and owned by the City. The 85,000 or so passings from that project seem to be included in the fiber passings claimed for 2019 and planned for 2020.

CenturyLink says it plans to add 400,000 fiber passings this year. The company is still aggressively adding buildings to the network and is also still building to small cell sites. The markets on the list for this year’s expansion include Denver, Omaha, Phoenix, Portland., Salt Lake City, Spokane, Springfield, MO, and a few others.

CenturyLink says the fiber expansion is starting to pay off. While the company lost a net of 11,000 broadband customers in the first quarter of this year, they added 60,000 subscribers with speeds of 100 Mbps or faster. Those gains were part of the industry gain of over 1.1 million broadband customers in the first quarter – at least some of which came as a result of the needs of employees and students being forced to work from home.

The company has gotten back into the infrastructure business somewhat reluctantly but now seems to have embraced some aspects of fiber expansion. CenturyLink is still bullish about adding buildings to the network and are at number four in terms of on-net buildings. I would be surprised if the fiber expansion includes any significant construction to reach single-family homes. It seems a lot more likely that the company is picking off low-hanging fruit in places where it is installing fiber to reach small cell sites or lucrative buildings. That’s the same philosophy that helped AT&T add over 12 million fiber passings over the last few years.

Jeff Storey is still adamantly painting a picture of a company that is focused on enterprise services and business applications. Any expansion into residential neighborhoods is likely a by-product of taking advantage of fiber built to pursue the primary goal.

But no matter how they are getting there, it’s good to see CenturyLink building fiber again. In 2018 it looked like they might permanently duck out of fiber construction. However, the stock market disappointment, and perhaps seeing AT&T success with limited fiber expansion convinced management some that fiber can earn more than infrastructure returns.