Charter Considering RDOF Grants

Charter let the world know that it plans to pursue RDOF grant funding in its most recent 8-K filing with the Securities and Exchange Commission. The company says that it might pursue grant funding to build to ‘multi-million passings’ involving ‘multi-billion investments’. It’s an interesting strategy. Charter already serves rural county seats and other towns across the country which puts them close to many of the areas where RDOF funding is available.

The RDOF grants cover the most rural and remote pockets of customers in the country. While there are some small rural towns included in the RDOF grant footprint, most of the customers covered by the grants are truly rural, consisting of farms and scattered homes in rural counties.

Charter will have to make some technology choices about how to serve rural America. The company can win the most money in the grant process if they file as a gigabit-speed provider. Gigabit speeds are available today with fiber technology and also with the hybrid fiber-coaxial networks operated by Charter and other cable companies. The RDOF grants can be awarded to technologies that support speeds over 25/3 Mbps. However, the grant includes incentives to favor ISPs willing to use faster technologies.

Charter could pursue slower technologies, like fixed wireless, but that funding is harder to win. To date, none of the big cable companies have ventured into wireless technology, other than a few trials. It’s always been a bit of a mystery why Charter and other cable companies haven’t erected wireless antennae at the fringes of their network to cheaply capture customers just out of reach of the HFC networks. My theory has always been that big cable companies are not nimble enough to handle drastically different technology platforms since all of their processes are designed for around coaxial and fiber technologies.

Charter is likely considering building fiber-to-the-home networks if they win RDOF grant funding. The hybrid fiber-coaxial technology that cable companies use in urban areas is poorly suited to serving scattered rural customers. The signal on an HFC network has to be boosted every two miles or so, and every time the signal is amplified some of the effective bandwidth carried on the network is lost. It would be a major challenge to maintain gigabit speeds required by the grants on a rural HFC network. It would only be possible with lots of fiber and tiny neighborhood nodes serving only a few homes. Charter has often cited the technology challenges of uses HFC technology in low-density areas as the reason it doesn’t expand outward from existing markets – and those reasons still hold true.

Charter claims to have expanded to add 1.5 million homes to its existing networks over the last two years, and in the 8-K filing says these are mostly rural customers. However, from what I’ve heard, most of these new Charter neighborhoods are in small subdivisions surrounding existing Charter markets. Charter has not been building rural networks to reach 1.5 million farms.

Charter and the other big cable companies have quietly introduced last-mile fiber technology into their networks. When cable companies build into new subdivisions today, they mostly do so with fiber technology.

It would be interesting if Charter’s strategy is to use the grant money to build fiber to farms. I know plenty of other ISPs considering the same business plan in places where there is enough RDOF grant funding available to make a business case.

There is no guarantee that Charter will ultimately win any grant funding and filing the grant short form on July 15 only gives Charter the option to participate in the auction in October. However, if the company bids in the auction, it will be good news for markets where Charter would build fiber technology. The big downside to the RDOF grant process is that in markets where no ISPs propose to build gigabit technology, the funding could end up going to satellite broadband providers – and there is no rural neighborhood that would prefer Viasat over Charter.

Broadband in China

For years I’ve been hearing how we are losing the broadband battle with China, so I decided to take a look at the current state of broadband in the country. The China Internet Network Information Center (CNNIC) publishes statistics about the state of broadband in the country, and I used the Statistical Report on Internet Development in China from August 2019 in writing this blog.

Here are some of the more interesting statistics about the state of broadband in the country:

  • China is a lot larger than the US with a current population just below 1.4 billion, compared to an estimate of US population of around 327 million.
  • As of June 2019, China had 854 million people connected to the web in some manner, for an overall Internet penetration based on population of 61.2%. It’s not easy to compare that statistic to the US since we track Internet usage using subscriptions to households.
  • China is still rapidly adding people to the internet. In the first six months of 2019, the country added 26 million new Internet users.
  • The Chinese interface with the internet in a variety of ways, with the following statistics for June 2019:

Cellphone        847 million      99%

Desktop           394 million      46%

Laptop             308 million      36%

TV                     283 million      33%

Tablet              242 million      28%

  • As of June 2019, China had 396 million users on fiber-to-the-home. China is adding fiber faster than the US and there were over 67 million customers added for the year ending in June 2019.
  • Chinese speeds for landline connections averaged 31.3 Mbps in June 2019, up 25% since 2018. Mobile speeds in 2019 averaged 23 Mbps, up 7% from 2018.
  • Like the US, China has a rural digital divide. In 2018 the country had 225 million rural Internet users representing a 39% penetration. Urban Internet users were 630 million, a 77% penetration. There are 347 million rural Chinese without access to the Internet, almost 25% of all citizens in the country. It’s hard to compare that statistic to the US since the FCC does such a lousy job of counting households with broadband.
  • China is working to solve the rural digital divide and added 3 million rural Chinese to the Internet in the first half of 2019. However, much like here, that rate of growth is glacial, and at that rate of growth it will take 36 years for the rural population to grow to the same current penetration seen in urban areas.
  • The Chinese are heavy users of instant messaging with 96.5% of Internet users using messaging in 2018.
  • It’s important to remember that Chinese web users are monitored closely and live behind what the west calls the Great Firewall of China. The government tracks how people use broadband, and we don’t have direct statistics for the following:

Watch online video       88.8%

Use online news            80.3%

Shop online                   74.8%

Online bill payment      74.1%

Order meals online       49.3%

Car hailing services       39.4%

  • China’s mobile data traffic is growing even faster than in the US. In the first half of 2018, the Chinese mobile networks carried 266 petabytes of traffic. By the first half of 2019 that traffic had doubled to 554 petabytes. China’s cellular data usage doubled in one year, while here it’s taking two years to double. The numbers are huge, and a petabyte equals 100 billion gigabytes.
  • The average Chinese broadband user spent 27.9 hours online in 2019.
  • The CNNIC tracks why people don’t use the internet. 45% don’t have access to broadband; 37% lack the skills to use broadband; 15% don’t have computers; 11% say they have no need. The interesting thing about the list in China is that nobody said they couldn’t afford Internet access.

There was one interesting thing missing in the Chinese report. There was no mention of 5G. That means, at least to the government agency that tracks broadband usage in China, there is no 5G race. It’s obvious that the Chinese need 5G, probably more badly than here since the volumes of data on their mobile networks are doubling annually. But the topic wasn’t worth a mention in their annual report of the status of broadband.

AT&T’s Fiber Play

AT&T has quietly become a major player in the fiber-to-the-home market. It’s reported that AT&T added 1.1 million customers on fiber in 2019, bringing its base of homes on fiber to 3.1 million. This puts the company in clear second place for residential fiber behind Verizon’s FiOS deployment.

AT&T got prompted to build fiber due to an agreement with the government as part of the approval for the merger with DirecTV. The company agreed in the summer of 2015 to build fiber to pass 12.5 million homes within four years.

AT&T has been in the fiber business for many years. Like all of the big telcos, AT&T built fiber to large businesses over the last couple of decades. AT&T got dragged into the FTTH business in a few markets when it reacted to the Google Fiber overbuild in markets like Atlanta and the North Carolina research triangle. AT&T has been selectively bringing fiber to large apartment complexes for much of the last decade.

In the first few years of the mandated buildout, AT&T seemed to be only halfheartedly going along with the mandated expansion. They claimed to have passed millions of homes with fiber builds, but there was no press or chatter from customers having received AT&T fiber service. For the first few years after the mandate, AT&T was meeting its mandate by counting passed apartment complexes – many which were likely already within range of AT&T fiber.

But it looks like everything changed at AT&T a few years ago and fiber suddenly appeared in pockets of the many cities where AT&T is the incumbent telephone provider. There were several changes in the industry that likely prompted this turnaround at AT&T. First, they won the FirstNet contract to provide modern connectivity to all first responders nationwide. In many cases this requires building new fiber – financed by the federal government. Second, AT&T needs to connect to huge numbers of small cell sites – something that was not predicted in 2015.

It seems that AT&T management looked at those two opportunities and decided that they could best capitalize on the new fiber by adding residential and small businesses to the fiber network. That was a big change at AT&T. They had long refused to follow in the wake of Verizon and their FiOS network. They instead took the path of beefing up urban DSL with their U-verse business where they paired two copper wires to offer DSL speeds as fast as 48 Mbps. I think the company was likely surprised about how quickly that offering became obsolete as cable companies now routinely offer two to four times that speed.

For the past several years AT&T has been losing DSL customers in droves to the cable companies. For example, in the year ending in the third quarter of 2019, AT&T had lost a net of 123,000 broadband customers, even with the big gains during that period for fiber. The company will likely continue to lose DSL customers as copper networks age and the speeds fall further behind cable company offerings. AT&T has been petitioning the FCC to tear down copper wires, particularly in rural areas, further killing the DSL business.

AT&T’s new strategy for building fiber is interesting. They are only building FTTH in small pockets where they already have fiber. That fiber might be there to serve a large business, a school, or a cell tower. AT&T extends fiber for two to four blocks around these fiber hubs, only where construction costs look reasonable. AT&T has a big cost advantage of building fiber cheaply in areas where the company already has copper wires on poles – the new fiber is overlashed to the existing copper wires.

Late last year, AT&T announced they had met their government mandate and were taking a pause in building new fiber in neighborhoods. The company is instead focused in selling where it has fiber and has a goal of a 50% market share in those areas. That’s an aggressive goal when considering that Comcast and Charter are likely their most common competitor.

AT&T fiber must be considered by anybody building a new fiber network. If AT&T is already in the market, they will likely have sewn up small pockets of the community. It also wouldn’t be hard for AT&T to expand these small pockets to become larger, making them a real competitor to a fiber overbuilder. This will be an odd kind of competition where AT&T is on some blocks and not others – almost making an overbuilder have two marketing plans, for the neighborhoods with and without fiber.

The Widening Rural Broadband Gap

FunkstownThe gap between urban and rural broadband is widening quickly these days. Up until the late 1990s access to the Internet was the same for everybody using dial-up. But within a short period of time in the late 90s both DSL and then cable modems hit the market.

I remember back in the early 90s how jealous I was of friends who had Internet access at work using a T1. But then DSL became available and all of a sudden we could all get the equivalent of T1 access at our homes. At the time DSL felt amazingly fast, and it was at 20 – 30 times the speed of dial-up. The big limitation with dial-up was that it took several minutes to see a picture that accompanied a news story and it could take hours to download a software update. But DSL and cable modems fixed those problems and images became much faster and file downloads didn’t take half of the night.

But these new technologies were only available in towns and cities and that was the start of the urban / rural broadband gap. Over the years both technologies got faster. In most big cities it became routine to be able to buy DSL at speeds up to 15 Mbps, a nice improvement over the first generation. But cable modems improved even more and over the last decade became capable of speeds much faster than DSL.

What I found odd was that for the longest time the cable companies didn’t take advantage of their extra capabilities. They offered cable modem speeds that were just slightly faster than DSL. I can remember the CEO of Comcast telling people that they would supply the speed that people ‘needed’. But even at 15 Mbps the speeds were 250 times faster than the dial-up that many people rural people were still stuck with.

But over the last five years the cable companies woke up and started unilaterally raising speeds to be faster than DSL, and in doing so they started capturing the vast majority of the market. It was hard to justify staying on 6 Mbps DSL if you could get a 25 Mbps cable modem for the same price. The cable companies have generally offered speeds over the last five years up to 100 Mbps, although the vast majority of urban customers have opted for something slower. But even 25 Mbps is 450 times faster than dial-up.

Not all rural people have had dial-up as their only option. There have been several satellite companies that offered faster speeds, but the service was really expensive and there was so much latency in the signal that a lot of things other people could do on the Internet are not possible on a satellite connection. So a lot of rural people still use dial-up – or often just go without a connection – because on today’s web, dial-up can do little more than read emails.

In the last year or so the cable companies have really kicked it up a notch and they clearly now are competing with speed – probably as a way to fight off having somebody else build fiber. Late last year Comcast doubled the speed on my home connection from 50 Mbps to 100 Mbps, an eye-opening 1,800 times faster than dial-up.

And the cable companies aren’t finished. They are now talking about upgrading to DOCSIS 3.1 which will enable them to offer speeds up to a gigabit. But that is not the real news concerning the new technology, because Comcast says that they plan to increase speeds across the board again. So my 100 Mbps connection might become 150 Mbps to 200 Mbps. Or 3,500 times the speed of dial-up.

But there are cities that are really lucky and which have widespread gigabit speeds. Google and a few others are using fiber to provide a real competitor to cable modems. And customers on a gigabit are nearly 18,000 times faster than dial-up.

So rural folks with no broadband alternative have seen the people in the towns and cities around them climb over time from 20 times faster up to many thousands of times faster. I really don’t think most urban people understand how colossally terrible it is to be on dial-up. They remember all of the things that they could do on dial-up in the 90s and they don’t stop to think how the whole web has migrated to video. Imagine trying to look at Facebook or Pinterest or any other popular site on dial-up, or even on 1 Mbps rural DSL and you can quickly understand why rural areas are getting desperate and are willing to do almost anything to get faster broadband.

Choosing the Lesser of Two Evils?

FTTH fiber-to-the-home

FTTH fiber-to-the-home (Photo credit: dvanzuijlekom)

Today our guest blogger is Ron Isaacson, a former employee and still a good friend of CCG’s.

A number of years ago, the large ILEC in our area installed fiber optic lines in our neighborhood and soon started offering their FTTH product line in the area. The cable provider had already been in the neighborhood for a while and was already fiercely pushing their bundled service packages. We finally were going to have the competitive market version of a boxing match. SWEET!!

Our family had “Dish” TV service, satellite access that worked most of the time – except when bad weather interrupted the signal. We had dial-up Internet through a local ISP, back when the bandwidth offered on dial-up was still relatively decent, and we had our telephone service through a local CLEC. Being a telecom consultant I liked splitting services between the different vendors because no one monopolist had their claws fully in my back pocket. I might have been paying a little more for this split service, but it made sense to me.

However, the FTTH offerings changed the whole equation. Cable offered a full package too, so we had a choice.

Having had previous horrendous customer service experiences with both the ILEC and the cable company we were at a quandary as to which 21st Century telecom service to commit to, so I decided to take a poll: I asked a bunch of my neighbors which service they subscribed to and why, and how were the services provided?

The results were a classic case of monopolistic bad reputations! Either a family absolutely hated the ILEC and had signed up with cable, or they absolutely hated the cable company and had signed up with the ILEC. Apparently, no one truly loved either telecom provider and they just chose the company that they hated the least. (It’s been a few years, hopefully this has changed!) I couldn’t help but thinking that both companies are as bad as the worst of the stories about the airlines!

We chose the ILEC, but the notorious nature of the story was just getting started. Our telephone number, which we had for over 25 years, was an exchange-level “FX” number, meaning that all of the customers with that exchange were billed as if the service was down-county, closer to the metro-area. The rep advised that this was not a problem, that they could still do the switch.

Once the FTTH was installed, the Internet and TV service worked beautifully, but it took another 35 days for the phone service to be re-connected because, and this is a quote, “The fiber can’t handle the FX line.” At this point I laughed and replied, “I beg to differ. The fiber doesn’t know the difference, and doesn’t care….it is your systems that are messed up!”

After 35 days, they decided to run the telephone service over the old copper pair, and bill it as if it was on the fiber. This actually proved to be a good thing when the electric power went out due to an electric utility that also possessed byzantine customer service skills.

Years later the ILEC came back and reconfigured the FTTH to include the telephone service on the fiber. Incredibly, the telecom service that was the most troublesome for the telephone company to install….who knew?

Years later, this experience still shades my view of the ILEC, the gang that proved to me beyond a shadow of a doubt that they can and will shoot themselves in both feet.

Thinking of my installation experience with fiber made me think back to something that had happened to me earlier. Many years ago, in the hay-day of the long distance marketplace during a customer service training seminar, the class discussed the results of a poll showing the reasons that customers cancel their service with carriers. A couple of facts stuck with me: First, 3% of customers die and there’s not much one can do about that. Additionally, about 5 to 10% of customers move, or otherwise change locations. Again, not much (at that time) that could be done about that.

However, over 50% of customers cancel because of rudeness or indifference from customer service personnel in reference to a given incident. There were reasons filling in the rest of the 100%, but those three points stuck out to me – two that you can’t do anything about and one that we definitely can.

The bottom line I took away from that training, and my experience with the telephone company is to be sure that every customer is treated as if their service matters, as if their patronage is appreciated.