The Industry

Verizon’s Network Performance

Verizon has been posting a weekly report of how COVID-19 has been impacting their network. The weekly blogs are rather short on facts and it’s clear that the intent of this weekly report is to put investors at ease that the company’s networks are coping with the burst of traffic that has come as a result of the pandemic. With that said, the facts that are discussed are interesting.

Verizon lead off the weekly entry for 5/21 saying that voice and text traffic are starting to return to pre-COVID levels. On the most recent Monday Verizon saw 776 million voice calls, down from 860 million calls at the peak of COVID-19. That falls under the category of interesting fact, but heavier telephone call volumes are not the cause of undue stress on the Verizon network. Telephone calls use tiny amounts of broadband – 64 kbps. Thirty telephone calls will fit into the same-size data path as one Netflix stream. Additionally, once voice calls reach a Verizon hub, telephone calls are routed using a separate public switched telephone network PSTN to transport calls across the country. Text messages use much less data than a telephone call and are barely noticed on telco networks.

The bigger news is that some other traffic is staying at elevated levels. Verizon reported for 5/21 that gaming is still up 82% over pre-pandemic levels and VPN connections used to connect to school and work servers are up 72%. The use of collaborative tools like Zoom and Go-to-Meeting are up ten times over pre-COVID levels (1,000%).

One of the more interesting statistics is that network mobility (people driving or walking and switching between cell towers) has increased in recent weeks and that one-third of states now have higher levels of mobility than pre-COVID. At first that’s a little hard to believe until you realize that in pre-COVID time students and employees were largely stationary at the school or office much of the day – any roaming by stay-at-home people is an increase.

Reading back through the weekly statistics shows that most web activities are at higher levels than pre-COVID. Fir example, in the 4/22 report the volumes of downloading, gaming, video usage, VPNs, and overall web traffic were higher than normal, with the only decrease being the volumes used for social media.

What none of these reports talk about is the stress put on the Verizon networks. It’s easy in reading these reports to forget that Verizon wears many hats and operates many networks. They are still a regulated telco in the northeast and still have a lot of telephone customers. That also means they still operate a sizable DSL network. The company, through Verizon FiOS is still the largest fiber-to-the-home provider. The company also owns and extensive enterprise and long-haul fiber network. Verizon also operates one of the largest cellular networks in the world.

When Verizon says all is well, they can’t mean that for each of these networks. The web is full right now of complaints from DSL customers (Verizon’s and other big telcos) complaining how inadequate DSL is for working at home. The Verizon DSL network was already overstressed in evenings and has to be near the point of collapse due to the big increases in VPNs and collaboration connections. Any Verizon DSL customer reading this Verizon blog that says everything is fine is probably spitting fire.

By contrast, Verizon’s FiOS networks are likely handing the pandemic traffic with ease. Verizon FTTH products have offered symmetrical data for years, with the upload data path was lightly utilized. The big uptick in VPN connections and collaboration connections ought to be handled well in that network. Any glitches might come from older FiOS neighborhoods where the backhaul oaths out of neighborhoods are too small.

What Verizon or AT&T haven’t talked about is the different impact on their various networks. For example, what’s the overall change in data usage on their cellular networks compared to other networks? The big telcos have been moot on this kind of detail, because admitting that some of the networks are handing the pandemic well might lead to an admission that other parts of the company are not doing so well. Instead we get the very generic story of how everything is fine with the company and their networks.

These companies probably do not have any obligations to report about their various networks in detail. Verizon DSL customers don’t need company pronouncements to know that their broadband experience has nearly collapsed since the pandemic. FiOS customers are likely happy that their broadband has weathered the storm. One of these days I’ll hopefully have a beer with some Verizon engineer who can tell me what really happened – both good and bad – behind the scenes.

The Industry

Verizon to Retire Copper

Verizon is asking the FCC for permission to retire copper networks throughout its service territory in New York, Massachusetts, Maryland, Virginia, Rhode Island and Pennsylvania. In recent months the company has asked to kill copper in hundreds of exchanges in those states. These range from urban exchanges in New York City to exchanges scattered all over the outer suburbs of Washington DC and Baltimore. Some of these filings can be found at this site.

The filings ask to retire the copper wires. Verizon will no longer support copper in these exchanges and will stop doing any maintenance on copper. The company intends to move people who still are served by copper over to fiber and is not waiting for the FCC notice period to make such conversions. Verizon is also retiring the older DMS telephone switches, purchased years ago from the long-defunct Northern Telecom. Telephone service will be moved to more modern softs switches that Verizon uses for fiber customers.

The FCC process requires Verizon to notify the public about plans to retire copper and if no objections are filed in a given exchange the retirement takes place 90 days after the FCC’s release of the public notice to retire. Verizon has been announcing copper retirements since February 2017 and was forced to respond to intervention in some locations, but eventually refiled most retirement notices a second time.

Interestingly, much of the FiOS fiber network was built by overlashing fiber onto the copper wires, so the copper wires on poles are likely to remain in place for a long time to come.

From a technical perspective, these changes were inevitable. Verizon is the only big telco to widely build fiber plan in residential neighborhoods and it makes no sense to ask them to maintain two technologies in neighborhoods with fiber.

I have to wonder what took them so long to get around to retiring the copper. Perhaps we have that answer in language that is in each FCC request where Verizon says it “has deployed or plans to deploy fiber-to-the-premises in these areas”. When Verizon first deployed FiOS they deployed it in a helter-skelter manner, mostly sticking to neighborhoods which had the lowest deployment cost, usually where they could overlash on aerial copper. At the time they bypassed places where other utilities were buried unless the neighborhood already had empty conduit in place. Perhaps Verizon has quietly added fiber to fill in these gaps or is now prepared to finally do so.

That is the one area of concern raised by these notices. What happens to customers who still only have a copper alternative? If they have a maintenance issue will Verizon refuse to fix it? While Verizon says they are prepared to deploy fiber everywhere, what happens to customers until the fiber is in front of their home or business? What happens to their telephone service if their voice switch is suddenly turned off?

I have to hope that Verizon has considered these situations and that they won’t let customers go dead. While many of the affected exchanges are mostly urban, many of them include rural areas that are not covered by a cable company competitor, so if customers lose Verizon service, they could find themselves with no communications alternative. Is Verizon really going to build FiOS fiber in all of the rural areas around the cities they serve?

AT&T is also working towards eliminating copper and offers fixed cellular as the alternative to copper in rural places. Is that being considered by Verizon but not mentioned in these filings?

I also wonder what happens to new customers. Will Verizon build a fiber drop to a customer who only wants to buy a single telephone line? Will Verizon build fiber to new houses, particularly those in rural areas? In many states the level of telephone regulation has been reduced or eliminated and I have to wonder if Verizon still sees themselves as the carrier of last resort that is required to provide telephone service upon request.

Verizon probably has an answer to all of these questions, but the FCC request to retire copper doesn’t force the company to get specific. All of the questions I’ve asked wouldn’t exist if Verizon built fiber everywhere in an exchange before exiting the copper business. As somebody who has seen the big telcos fail to meet promises many times, I’d be nervous if I was a Verizon customer still served by copper and had to rely on Verizon’s assurance that they have ‘plans’ to bring fiber.

Regulation - What is it Good For?

Broken Promises by Big ISPs

One of the most frustrating things for regulators has to be when giant ISPs renege on regulatory deals they’ve negotiated and don’t follow through with their promises. Books could be written listing all of the times when big ISPs have promised to do something and then never did it.

I am reminded of one such deal when I read that New York City is suing Verizon over its broken promise to bring FiOS fiber to the city. The lawsuit states that almost a million households are still unable to get FiOS, although the company had promised full coverage when they got a franchise from the city in 2008. In that agreement Verizon promised to bring fiber service to the whole city by 2014. The agreement with the city required that Verizon bring fiber, in conduit, directly in front of, behind, or otherwise adjacent to every residential building in the City.

Verizon had a similar longstanding dispute with the State of Pennsylvania. Back in 2002 the company made a promise to bring DSL service to cover 80% of the state as a prerequisite for the company being relieved of a lot of regulatory oversight by the state. But Verizon never completed a lot of the needed upgrades and huge parts of rural Pennsylvania still didn’t have DSL a decade later.

I wrote a blog a few months back about Charter in New York. There the state had found that the cable modems deployed by the company were not technically capable of delivering anything close to the speeds that the company was advertising. Charter agreed to fix the problem, but five years later had made almost no upgrades and was recently sued by the State.

I could list more examples all day long and there have been disputes all across the country with major telcos and cable companies that have made deals with regulators and then either ignored the agreements or only implemented them in a half-hearted manner.

The problem is that there are really no regulatory penalties that are big enough to penalize an ISP for not doing what it promised. There have been fines levied, but those fines are never nearly as big as the profits or savings realized by the ISPs for ignoring the agreements with regulators. For example, it’s unlikely that lawsuits or penalties will be able to force Verizon to finish the FiOS build in New York City. I am sure the company built to the parts of NYC that made economic sense and decided, for whatever reason, that there is not sufficient payback to justify building to the remaining parts of the city.

And that’s what regulators fail to recognize – big ISPs make decisions based upon the anticipated return for stockholders. I think it’s likely that in many of these cases that the big ISPs had no intention of complying with their agreements from the start. The cynical side of me says that they are often willing to take the upsides associated with these kinds of deals – be that decreased regulation or the ability to complete a merger – while knowing up front that they are unlikely to ever complete whatever they have agreed to do.

I think we are likely to see another round of broken promises in a few years as we start moving towards the end of the FCC’s CAF II program. The big telcos accepted over $9 billion over six years to improve rural broadband to speeds of at least 10 Mbps. I’ve been getting feedback from a lot of areas in the country that those deployments seem to be behind schedule. It will certainly come as no surprise if one or more of the big telcos spends the CAF II funding without bringing broadband to the promised households, or else will deliver speeds under the promised levels. The FCC recently issued a warning to carriers telling them that it expects them to fulfill the CAF II commitments – and I suspect that warning is due to the same kind of rumblings I’ve been hearing.

But ultimately the FCC doesn’t really have any way to make these telcos complete the builds. They might withhold future funding from the telcos, but as the FCC keeps eliminating regulation it is going to have very little ability to enforce the original CAF II agreements or to take any steps to really penalize the telcos.

The saddest part of these various broken promises is that millions of real people get hurt. It’s been reported that there are significant pockets of residents in urban areas like New York City that still don’t have even one broadband provider. There are huge rural swaths of the country that are desperate for any kind of broadband, which is what CAF II is supposed to deliver for the first time. But I think we need to be realistic in that big ISPs often do not meet their promises – whether deliberately or not. And perhaps it’s finally time to stop making these big deals with companies that have a history of broken promises.

The Industry

Verizon Bringing Fiber to Boston

Every once in a while something in the industry comes as a true surprise and that happened last week when Verizon announced that it was going to invest $300 million to build FiOS in Boston. There hasn’t been any new FiOS constructed for many years and the company had announced at the end of 2011 that it was done with FiOS expansion. Then the company went on to sell a lot of customers to Frontier including a big chunk of the FiOS fiber network and it looked like Verizon was inching their way out of the residential landline business.

There was never any doubt that Verizon was interested in fiber to serve large businesses and to serve its own cellular towers. And this desire was emphasized a few months ago when the company announced the intention to buy XO Communications from Carl Icahn. That will provide a vast new fiber network throughout downtowns and business districts around the country.

Verizon says that there are a few reasons it wants to build Boston. Probably first on the list is a shift in the cellular business to add smaller neighborhood cell sites. The whole industry has started the migration from relying mostly on the big cell towers to smaller cell sites dispersed where there is demand. But these mini-cell sites need fiber. And so expanding the FiOS network in Boston will give the company fiber everywhere in the City and give it a competitive advantage over AT&T for providing cellular data.

Verizon also says that it wants to get into the ‘smart city’ business and it views Boston as an attractive market to pursue that goal. Verizon announced a smart city initiative last October and is working on plans to build things like smart traffic grids in cities. Again, this kind of big dollar business requires fiber throughout a city.

Verizon also says that it would like to tear down all of the copper in Boston. Of course, Boston’s copper is not older or in worse shape than the copper in other east coast cities and this justification doesn’t seem like a reasonable reason to invest $300 million in fiber. I’m betting that management took a new look at their existing FiOS business and saw how profitable it is now that broadband penetration rates keep climbing. Broadband is a very high margin business.

It’s also my guess that Verizon might be getting more realistic about the future of its cellular business. That business has thrived for a few decades due to astronomically high prices and margins compared to the cost of providing the service. And those margins are under attack throughout the industry as alternate cellular companies are offering cheaper rates. Even the new discounted rates are high margin, but they have forced Verizon and AT&T to bring their prices down out of the stratosphere. So perhaps the company is quietly going to build up the landline data business as a way to insure future profits.

One has to wonder what this means for other east coast cities. Verizon largely built FiOS in the suburbs and to a large extent ignored the downtowns of the major northeast cities. If there was any downtown fiber built it was spotty and only to neighborhoods where the construction costs were the lowest. There certainly would be a big sigh of relief if other cities could know that they were also going to finally get a fiber network to compete with Comcast.

One thing we’ve always known about big companies is that they can change strategies at will and something they say they will never do one day can end up as a major corporate initiative a few years later. Verizon gave every sign for the last few years that it was walking away from landline networks. One has to go many pages deep into their annual reports to even see that business mentioned.

But this Boston initiative is no small deal and requires a major investment. And the reasons why this benefits Verizon are just as true for many other cities. Verizon says that one reason they are willing to do this now is that city hall in Boston was receptive to making it easier to build fiber – something that has not been true in the past. Just like many cities are bending the old rules for Google, I imagine that there are discussions going on today in many east coast cities about what they might be able to do to get Verizon fiber too.

The Industry

AT&T – Building Fiber by Press Release

It seems like every few months AT&T makes a new announcement about markets where it’s going to bring its GigaPower broadband service. Just a week ago they announced more than three dozen new markets that include places like Memphis, San Francisco, and Detroit. And they supposedly already have this product available in over twenty markets today.

The trouble is that there is very little evidence anywhere that AT&T is actually building much, if any, new fiber. I’ve seen several reports that suggest that AT&T is offering the product only in those handful of places where they already have fiber – upscale high-rises and new housing developments where they decided to deploy new fiber rather than new copper.

The AT&T press releases make it sound like AT&T is undertaking a massive fiber building project in these cities similar to what Google is doing. Google pre-sells to neighborhoods and then follows up those pre-sales by building fiber past everybody in that neighborhood. I have my reservations about whether it’s really good for a city to let a carrier build to only select parts of their community, but at least Google is out spending the capital dollars on fiber.

In the communities where Google is building you find all sorts of evidence of the construction. There are tons of consumer reviews of the Google products. There are local news articles mentioning construction issues and warning people to stay away from certain streets on certain days. There are tons of local articles in each Google community speculating about who is going to get fiber and what it’s going to mean. The web becomes awash with local news of Google Fiber as it is being deployed.

And yet there is virtually nothing similar in the press in AT&T gigabit cities other than in Austin. In Austin, AT&T built fiber-to-the-home to some neighborhoods as a way to counteract Google, and so in that city the local news is awash with news of AT&T fiber. But there is almost nothing on the web from the other AT&T markets. I can only find a small handful of customer reviews about the AT&T GigaPower product outside Austin.

And other than corporate press releases there doesn’t seem to be big local advertising push by AT&T in the GigaPower markets. Verizon FiOS got their initial fiber customer base by an aggressive door-to-door campaign, a tactic also employed by Google. These campaigns also generate web noise and I can’t see any evidence that AT&T is doing this.

One would also expect that if AT&T was really out building fiber that there would be a big bump in spending on the landline side of the business. It’s not easy to decipher the AT&T annual reports to figure out landline versus wireless capital spending, but there are several wireless analysts who think that the vast majority of AT&T’s capital budget goes to the wireless business. When Verizon was building FiOS there was a huge uptick in capital spending that had all of the telecom analysts buzzing.

The funny thing is that AT&T seems to be using the illusion of building fiber to gain regulatory favor. For instance, one of the ways they got approval of the DirecTV deal was by promising to bring fiber broadband to many millions of homes. In the net neutrality debate they threatened at one point to stop their largely non-existent fiber buildout if the FCC ordered Title II regulation of broadband.

The mainstream press seems to have been duped by the AT&T press releases. As an example, there was just an article last week by Brian Fung of the Washington Post that praised AT&T for entering so many new markets and which chided Google for going slowly. I don’t really want to criticize Brian too much because his tech reporting is usually on point, but he missed this one. Google is spending the millions of capital dollars needed to bring fiber to urban neighborhoods while AT&T seems to largely be building fiber by press release and by increasing speeds in the tiny percentage of their network already on fiber.

For a company that is crowing so loudly about fiber, AT&T is not reporting GigaPower customers separately, nor are they likely to. They do report ‘broadband customers’ which is a combination of fiber customers and customers added to the U-Verse DSL network. In the third quarter the company added 172,000 broadband customers, most of whom were regular DSL customers upgraded to U-Verse. That does not look like a statistic of a company that is aggressively rolling our fiber to almost sixty markets and which is supposedly going to add millions of customers to fiber.

Current News

Cities Blast Verizon

In the attached letter the mayors of twelve northeast cities with populations over 12 million blasted Verizon for not expanding FiOS. In some of the cities the complaint is that Verizon never finished the expansion they had promised. But in other cities on the list the complaint is that Verizon never came to their cities at all.

You certainly can understand the pain felt by these mayors. Verizon was first on the scene in the US with fiber and at one point in time most of these cities felt like it was just a matter of time until Verizon brought fiber to their cities. But to a large degree Verizon built in suburbs more than in cities, and last year they announced that they were done expanding FiOS. These mayors, like mayors in cities all across the country, have citizens demanding a broadband solution.

But I think these mayors are barking up the wrong tree; perhaps they know this and the letter is just a way for them to demonstrate their frustration to their constituents. I have been watching Verizon for many years and I am not so sure that Verizon even wants to be in the landline business any longer. There are numerous signs of this:

  • First is the fore-mentioned end of the FiOS expansion. One has to consider that broadband penetration rates are much higher than when Verizon first started fiber expansion and they are surrounded by money-making expansion opportunities that would land them large number of new high-margin fiber customers.
  • They recently sold a large swath of landlines, including a sizable number of FiOS lines, to Frontier. Verizon has been selling copper lines to Frontier for a number of years, but these were the first sizable FiOS sales.
  • One only has to look at their annual report to see that all that they talk about to investors is their cellular business. The entire landline business is buried deep inside the report and gets no emphasis.
  • They are the only major telco to refuse large amounts of free money from the FCC to help expand rural DSL. The Connect America funds gives telcos six years to upgrade rural DSL, and Verizon’s indifference to this money tells me that they hope to not own those properties before the end of six years.
  • There are numerous documented complaints, including from their employee’ unions, that Verizon is spending the bare minimum needed to keep their copper networks functional. I’m not sure that this makes them very different than AT&T or CenturyLink. Until the recent Connect America Fund money, rural copper has largely been neglected by every large telco.
  • All of their negative press comes from the landline business. This letter from the majors is just another in a long line of complaints about the way Verizon is ignoring their landline business. Their press from the cellular business is much more positive.

I don’t have any inside information, but it’s my bet that if somebody offered to buy their entire landline business Verizon would take it. They have been selling chunks of landlines to Frontier over the last decade, but I doubt that Frontier can put together the funding to buy the rest of the Verizon landline business. I am not sure that anybody other than AT&T could pull off such a large purchase, and AT&T certainly would not want to inherit all of the copper markets that Verizon has been neglecting for decades.

I doubt that these mayors think that this letter, or any political pressure, is going to change Verizon’s behavior. Verizon has been ignoring these same cities now for literally decades, and in my estimation they will continue to do so. These cities all want better broadband and it’s probably time for them to consider some other solution than Verizon, as is being done by cities all over the rest of the US. The cities with the biggest problems are the ones that Verizon has only partially built – those markets are not very attractive to Google or any other fiber overbuilder. The cities with no FiOS are basically in the same position as thousands of other cities around the US, all of which are pondering if they need to find their own broadband solution.

The Industry

Large Telcos and DSL

There has been a spate of articles recently talking about how the number of cable customers at the large cable companies took their first big dip last quarter. This was the first time when the cable industry as a whole saw an overall significant customer loss, and this raises the question the question if cord cutting is real.

But there was another significant statistic in these same press releases. AT&T and Verizon together lost 474,000 DSL customers in the second quarter of 2015. The two made up some of these losses by adding 313,000 data customers to their FiOS and U-verse networks, so certainly some of the losses are offset by customers who shifted from DSL to something faster.

But this continues the trend that these two largest telcos are shedding DSL customers. The numbers just keep growing and this is the first time that number approached half a million customers.

Verizon has made it clear for years that they have no love for their copper networks. They have been selling significant chunks of the older networks to Frontier. They have been pestering the FCC for years to be able to turn down the copper in neighborhoods where they already have FiOS fiber.

Perhaps more surprising is that Verizon recently sold a significant number of FiOS customers to Frontier, and I have speculated before that Verizon doesn’t want to stay in any landline business. When you read their annual reports, any mention of their landline business is buried deep inside and they obviously have put all of their emphasis on the wireless business.

AT&T is a bit more perplexing. They have not been selling copper customers. But they have told the FCC a number of times that they would like to walk away from millions of customers on rural copper networks. AT&T recently promised the FCC as part of the DirectTV deal that they would aggressively add new broadband customers. While they have insinuated to the FCC that the new customers would all be on fiber, I would not be surprised to see a lot of them on U-Verse.

Many people speculate why AT&T bought DirectTV. My guess is that they want to get out of the business of delivering video over wires. U-Verse becomes a much better data product  if it doesn’t have to carry video so that all of the bandwidth would be used for data. There must already be a lot of current U-Verse customers bumping up against their bandwidth and wanting faster data connections.

It’s also interesting that AT&T hasn’t divested of rural copper networks in the same manner as Verizon. Again, I am only speculating, but my guess is that they don’t want those networks to be revitalized and then compete against their wireless networks. I think AT&T has a long term plan to serve rural areas with wireless only.

The one shame about cutting down the copper networks, particularly in urban and suburban neighborhoods, is that those networks could be upgraded relatively inexpensively with to deliver much faster speeds. CenturyLink just announced that they are testing 100 Mbps copper in Salt Lake City. Some of the copper networks in Europe are doing this with even faster speeds and the technology is generally referred to there as fiber-to-the-curb.

But obviously both companies have decided that is not a technological path they want to follow, and both are going to be aggressively decommissioning copper over the next five years.

I don’t feel too bad about a customer who is told they have to move from a copper network to a FIOS fiber network. But I am really worried about rural customers if somebody cuts down the only telecommunications wire to their home when the copper comes down. At that point those folks are going to be paying cellphone prices for both voice and data, and for some millions of them there is not enough coverage to provide those services over cellular. I predict we are going to be cutting customers off from communications and moving parts of the country back seventy-five years. I hope I am wrong.

The Industry

Verizon’s Strategy

The news coming out of Verizon lately is really interesting and set me to musing about their long-term strategy.

First, they are selling off $10 billion in landlines in Texas, California, and Florida to Frontier. These properties include 3.7 million voice lines, 2.2 million high-speed data customers, and around 1.6 million FiOS customers. This divests their FiOS service everywhere except the east coast. The 1.6 million customers represents a very significant 24% of the reported 6.6 million FiOS customers at the end of 2014. A few weeks ago Verizon had also announced an end to any further expansion of FiOS.

It’s been clear for years that Verizon has wanted out of the copper business. They first sold off large portions of New England to Fairpoint. Then in 2010 they sold a huge swath of lines in fourteen states to Frontier including the whole state of West Virginia. And now comes this sale. It’s starting to look like Verizon doesn’t want to be in the landline business at all, perhaps not even in the fiber business.

After all, this latest selloff was done to finance another big chunk of wireless spectrum. When Verizon CEO Lowell McAdam announced the landline sale he said that the company would be focusing on its 108 million wireless customers. One can see the emphasis on wireless in the company just by looking at their annual reports. One has to go many pages deep to see a discussion of the landline business and most of the report talk about the wireless business.

McAdam said that the company was going to put its emphasis on selling data and video to LTE customers. McAdam repeated a past announcement that Verizon would be rolling out an online video package later this summer and he hinted that the service would include a significant number of networks when launched. They plan to sell the new video packages to both their wireless customers and to anybody online.

I find several things about Verizon’s decisions to be very interesting:

  • One has to wonder how Verizon will deliver a lot of video programming through the cellular network. Certainly LTE has enough speed to deliver video, and most urban LTE network tests come in between 10 Mbps and 20 Mbps. But the issue in the cellular network is not speed, but overall capacity from a given cell site. Perhaps some of the new spectrum they are buying will be used strictly for this purpose to beef up capacity. But I find it a bit ironic that Verizon would now be pushing such a data-heavy network application when just a few short years ago they claimed that network congestion was the reason they needed to impose skimpy monthly data caps.
  • You also have to wonder how they are going to reconcile this product with their existing data caps. An hour of video streaming can use a gigabit of bandwidth and so it won’t take very much video viewing to hit the existing data caps. Verizon stopped selling unlimited data plans in 2012. They throttle the top 5% of unlimited 3G users and threatened last fall to do the same thing to LTE customers, but backed down after a lot of pushback. The majority of their customers have low caps that are not going to match up well with cellular video products.
  • Perhaps they were hoping to exempt their own video product from data caps, but that would violate the impending new net neutrality rules which won’t allow favoring your own product over those from other video providers. So perhaps Verizon is going to go back to unlimited data plans or at least raise the caps significantly. But doing that will allow Netflix and others to compete on cellphones.
  • One also has to wonder how they will keep up with the inevitable trend for bigger bandwidth video. Will wireless networks really be able to deliver 4k video and the even bigger 8k bandwidth products that will inevitably follow?
  • In general, one has to be curious about their obvious desire to be only a wireless company. The general trend in the cellular industry is towards lower prices. I know I was able to cut my own cellphone plan price almost in half this past year, and the trend is for prices to keep going lower. Certainly having companies like Google enter the market is going to push prices lower. Also, Cablevision announced a cellphone plan that mostly uses WiFi and that will only dip into the cellular network as a fallback. Comcast and others are considering this and it could produce significant competition for Verizon.
  • This announcement also tells me that they see profits in selling over-the-top video. It’s well known that nobody makes much money selling the huge traditional cable lineups, but Verizon obviously sees better margins in selling smaller packages of programming. But will margins remain good for online video if a lot of companies jump into that business?

I scratch my head over selling off FiOS. Verizon reports an overall 41% market penetration for its data product on FiOS networks. Data has such a high profit margin that it’s hard to think that FiOS is not extremely profitable for them. The trend has been for the amount of data used by households to double every three years, and one doesn’t have to project that trend forward very far to see that future bandwidth needs are only going to be met by fiber or by significantly upgraded cable networks. Landline networks today deliver virtually all of the bandwidth that people use. There are now more cellular data dips than landline data dips, but people rely on their landline connection for any application that uses significant bandwidth.

Verizon was a market leader getting into the fiber business. FiOS was a bold move at the time. It’s another bold move to essentially walk away from the fiber business and concentrate on wireless. They obviously think that wireless has a better future than wireline. But since they are already at the top of pile in cellular one has to wonder where they see future growth? One has to admit that they have been right a lot in the past and I guess we’ll have to wait a while to see if this is the right move.

The Industry

The Rich Get Richer . . .

Just a few days ago I wrote about the new digital divide. That being the fact that larger and more prosperous places have, or are getting faster broadband while smaller and poorer places are being left behind.

And on the heels of that blog, Google just announced that it has invited talks with 34 new cities to discuss the expansion of its gigabit network. And of course, these are all big places and/or prosperous and growing places including Phoenix, Scottsdale and Tempe in Arizona, Atlanta and surrounding suburbs in Georgia, San Antonio in Texas, Raleigh-Durham, Charlotte and surrounding suburbs in North Carolina, Nashville in Tennessee, San Jose and other growing areas in northern California, Salt Lake City and Portland.

This is great news for those communities. There is certainly no assurance that any of them are going to get fiber and Google will be looking for the places willing to give the biggest handouts. But one would think that a decent number of the cities on that list will be able to give Google what they want to get a fiber network.

But not on this list, as you would expect are smaller towns and counties or the inner cities in the east that were ignored by Verizon FiOS. For the most part the Google list represents communities that are relatively economically healthy. The cities on the list are the ones that are growing while much of the rest of the country, like the northeast and smaller towns are shrinking.

In this same week the FCC said that they are going to look at eliminating the state barriers that stop municipalities from building fiber networks. There are over twenty states that have either a total ban or severe restrictions on government entities getting into the fiber business.

Let’s face facts. If you are not one of those places that are thriving, like the places on Google’s new list, then the chances are big that nobody is even thinking about building fiber in your neighborhood. You might live close to an independent telephone company or cooperative that is thinking about it. But most of rural America is not on anybody’s radar.

I always tell rural communities to consider two steps. First, you need to look around just to make sure that there is no company nearby who can be enticed to bring you fiber. Because sometimes, with the right incentives there is somebody. But generally there is nobody willing to make such an investment, so the second part of the advice is, if you want fiber you are going to have to step up and build it yourself.

You may need to gather surrounding communities together to get a pile of households large enough to justify a fiber business plan. But your community needs to take the initiative to get fiber or you are going to be left far behind.

Some of the communities Google is targeting were edging towards the wrong side of the new digital divide. I just read this morning that a large portion of Salt Lake City, as an example, still has 3 Mbps DSL for broadband. But they are large enough and thriving enough to have gotten Google’s attention, and good for them. But if you are a rural county seat or a farming community you are not going to get on Google’s or anybody else’s list.

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The New Digital Divide

There was a time, not very many years ago, when the digital divide meant the difference between pockets of people that had dial-up versus places that had something faster. But this is no longer a good definition and I think the digital divide is growing very quickly and is a huge issue again. The new digital divide is between cities and suburbs that have relatively fast broadband and rural areas and urban pockets that have been left a few generations of technology behind. Below when I say rural areas we can’t forget that there are many parts of inner cities in the same condition and that have become broadband deserts.

Today, most of rural America is several generations of technology behind the cities and there is no real expectation that this gap will ever close. A large portion of rural America is served by DOCSIS 2.0 cable modems and first generation DSL. These technologies are delivering anything from 1 Mbps up to maybe 5 Mbps to the average home and business in these communities. The incumbent carriers claim these areas are served by broadband, and they are always careful to claim that these communities have advertised speeds that are about the paltry 4 Mbps used by the FCC to define broadband.

But every community in this situation has now fallen on the wrong side of the new digital divide. The large telcos and cable companies are making big investments in the metropolitan areas. There are numerous affluent parts of the country that have broadband between 50 Mbps and 100 Mbps download if people are willing to pay a premium price. But in these markets even the slower cable modem products are already between 20 – 30 Mbps.

And I am not talking only about place where Verizon has built FiOS. The larger cable companies have upgraded to DOCSIS 3.0 in many large markets and now have fast speeds. AT&T has launched U-Verse using bonded pair DSL in many of these same markets with speeds of around 40 Mbps. And we are on the verge of AT&T and other copper providers having G.Fast which is going to increase speeds on copper to as much as several hundred Mbps. Even the cellular carriers have stepped up their game in the cities, and the latest version of 3.5 G is delivering speeds of 40 Mbps to 50 Mbps in short bursts.

But these new technology upgrades are not being brought to rural America and are unlikely to be brought there. The incumbent cable companies and telcos installed the current technology over a decade ago and have not upgraded it since. Meanwhile there has been several upgrades in the areas with good broadband.

The incumbents are not willing to make the needed upgrade investments in small markets. They aren’t going to get the same kind of returns they can make for the same investment in a big suburb. They have largely ignored the small markets for years and the wires are in bad shape compared to bigger markets. So I think we now on the verge of a permanent new digital divide defined by areas that keep getting new technology upgrades and areas that will be stuck in the past. And the gulf between these two areas is only going to grow.

There are real life repercussions of this gap. Homes on the wrong side of the digital divide can’t use broadband in their homes the same way that people in a City can. But much more importantly, businesses can’t get the same bandwidth that their competitors in the City have. In the long run this is going to squelch innovation in the rural areas. Areas on the wrong side of the digital divide are going to have a really hard time creating jobs that will let their kids stay in the area. The biggest fear in rural communities is that they are going to become economically irrelevant. They won’t be able to create jobs or keep jobs, their kids will move away and over a few decades the communities will die.

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