AT&T’s Broadband Trials

John Donovan, the chief strategy officer for AT&T, spoke at the Mobile World Congress recently and said that the company was trying five different technologies for the last mile. This includes WLL (wireless local loop), G.Fast, 5G, AirGig and fiber-to-the-premise. He said the company would be examining the economics of all of different technologies. Let me look at each one, in relation to AT&T.

Wireless Local Loop (WLL). The technology uses the companies LTE bandwidth but utilizes a point-to-multipoint network configuration. By using a small dish on the house to receive the signal the company is getting better bandwidth than can be received from normal broadcast cellular. The company has been doing trials on various different versions of the technology for many years. But there are a few recent trials of the newest technology that AT&T will be using for much of its deployment in rural America as part of the CAF II plan. That plan requires the ISP to deliver at least 10/1 Mbps. AT&T says that the technology is delivering speeds of 15 to 25 Mbps. The company says that even at the edge of a cellular network that a customer can get 10 Mbps about 90% of the time.

G.Fast. This is a technology that uses high frequencies to put more bandwidth on telephone copper wire. Speeds are reported to be as high as 500 Mbps, but only for very short distances under 200 feet. AT&T recently announced a G.Fast trial in an apartment building in Minneapolis. The technology is also being tested by CenturyLink and Windstream. All of these trials are using existing telephone copper inside of existing apartment buildings to deliver broadband. So this is not really a last mile technology. AT&T brings fiber to the apartment complex and then uses G.Fast as an inside wire technology. If they find it to be reliable this would be a great alternative to rewiring apartments with fiber.

5G. AT&T recently announced a few trials of early 5G technologies in Austin. They are looking at several technology ideas such carrier aggregation (combining many frequencies). But these are just trials, and AT&T is one of the companies helping to test pre-5G ideas as part of the worldwide effort to define the 5G specifications. These are not tests of market-ready technologies, but are instead field trials for various concepts needed to make 5G work. There is no doubt that AT&T will eventually replace LTE wireless with 5G wireless, but that transition is still many years in the future. The company is claiming to be testing 5G for the press release benefits – but these are not tests of a viable last mile technology – just tests that are moving lab concepts to early field trials.

AirGig. This one remains a mystery. AT&T says it will begin trialing the technology later this year with two power companies. There has been a little bit of clarification of the technology since the initial press release. This is not a broadband over powerline technology – it’s completely wireless and is using the open lines-of-sight on top of power poles to create a clear path for millimeter wave radios. The company has also said that they don’t know yet which wireless technology will be used to go from the poles into the home – they said the whole range of licensed spectrum is under consideration including the LTE frequencies. And if that’s the case then the AirGig is a fiber-replacement, but the delivery to homes would be about the same as WLL.

FTTP. Donovan referred to fiber-to-the-home as a trial, but by now the company understands the economics of fiber. The company keeps stretching the truth a bit about their fiber deployments. The company keeps saying that they have deployed fiber to 4 million homes, with 8 million more coming in the next three years. But the fact is they have actually only passed the 4 million homes that they can market to as is disclosed on their own web site. The twelve million home target was something that was dictated by the FCC as part of the settlement allowing the company to buy DirecTV.

We don’t know how many fiber customers AT&T has. They are mostly marketing this to apartment buildings, although there are residential customers around the country saying they have it. But they have not sold big piles of fiber connections like Verizon FiOS. This can be seen by looking at the steady drop in total AT&T data customers – 16.03 million in 2014, 15.78 million in 2015 and 15.62 million at the end of the third quarter of 2016. AT&T’s fiber is not really priced to be super-competitive, except in markets where they compete with Google Fiber. Their normal prices elsewhere on fiber are $70 for 100 Mbps, $80 for 300 Mbps and $99 for a gigabit.

Is Altice Really Bringing FTTP?

suddenlink-truckLate last week Altice released a press announcement that said they are going to bring fiber-to-the-home to all of their newly acquired US properties within five years. For those not familiar with Altice, the company is now the fourth biggest cable company in the US and was created through the recent acquisitions of Suddenlink Communications for $9.1 billion and of Cablevision for $17.7 billion. These acquisitions bring the company about 4.6 million customers.

But there are parts of the press release that have me scratching my head. The headlines announce ‘A full-scale fiber-to-the-home network investment plan’ which will bring ‘large scale fiber-to-the-home deployment across its footprint.’ That sure sounds like the company will give everybody FTTP.

But deeper in the press release are several statements that have me wondering what the company is really planning to do. For example, they say they will ‘drive fiber deeper into our infrastructure.’ Deeper into the infrastructure is not necessarily the same as providing fiber the whole way to the home. That is the same kind of language that Comcast used when they announced their mostly-imaginary 2 gigabit broadband product.

Even more puzzling is the statement that “the new architecture will result in a more efficient and robust network with a significant reduction in energy consumption. Altice expects to reinvest efficiency savings to support the buildout without a material change in its overall capital budget.’ If Altice has 4.6 million customers then they must have around 6 million passings. They will be able to build a lot of the needed network by overlashing fiber onto existing coaxial cable. But even that will probably cost in the range of $500 per passing, meaning an outlay of $3 billion. And to bring fiber into the home costs in the range of $600 to $800 per customer. Add to that the core FTTP electronics of at least $200 per customer and the cost to converting existing customers to the fiber could cost another $3.7 to $4.6 billion, for a total outlay of at least $6.7 billion to $7.6 billion.

The energy savings they are talking about would be due to shutting down the existing hybrid fiber-coaxial cable network. To achieve that savings they would have to convert every customer to fiber – since it take as much electricity to run a network for a handful of customers as it does to run it for everybody. But I have a hard time believing they can save enough in power costs to pay for an expensive new fiber network without having to increase capital budgets. I have a number of clients operating HFC networks and they do not have gigantic power bills of anywhere the magnitude needed to produce that kind of savings.

This FTTP plan also has to be compared back to Altice’s promises to their shareholders. They promised to bring significant cost savings after the acquisition of Suddenlink and Cablevision and it’s already hard to see how they are going to do that. For example, their largest property is in New York and they promised the PUC there not to eliminate any customer-facing jobs (technicians and customers service reps) for five years.

They also talk about their fiber rollouts in Portugal and France. In Portugal fiber is being deployed mostly due to heavy subsidies from the government which is hoping that fiber will boost a poor economy. And in France their business plan is different than the US and Altice benefits greatly from a quad play that includes cellular service. My quick analysis of their financial performance shows that wireless drives a big piece of their profitability there, and it’s unlikely they are going to figure out a profitable wireless play here in the US.

Finally, the company seems to have spent heavily this past year on upgrading existing HFC cable networks. I’ve read a dozen local press releases in Suddenlink markets that talk about completing digital conversions and upping data speeds to as much as a gigabit using DOCSIS 3.0. It’s curious they would pour that much money into their HFC networks if they are getting ready to abandon them for fiber.

I hope I am wrong about this and I hope they bring fiber everywhere. That would certainly highlight Comcast and Charter’s decision to milk their HFC networks for decades to come. But the press-release as a whole sets off my radar and is reminiscent of similar press releases in recent years from AT&T and Comcast talking about gigabit deployments. There are just too many parts of this press release that don’t add up.

The Last Bell Company

Bell_logo_1969Cincinnati Bell is the only company in the US still using the Bell name. Founded in 1873 as a telegraph company, even before the invention of the telephone, the company has been serving a small 3-state area around Cincinnati since the founding of telephony. The company operated independently from the old Bell system because AT&T only owned a 32.6% share of the company.

The company abandoned the Bell name for a while in the 90s, changing its corporate name to the Broadwing Corporation, but changed its name back to Cincinnati Bell after a few years. The company has ventured outside its small footprint over the years. It bought IXC communications, a nationwide fiber network, and also spread out at one point as a CLEC to many parts of Ohio. The company’s biggest non-traditional offering was its wireless business which it sold to Verizon last year for $194 million. Like all independent wireless operators it was feeling the pinch of competition from the price wars going on in the wireless industry.

The company has seen the same drop-off of its traditional line of business as all telcos. The company’s traditional voice business of selling telephone lines fell from $520 million per year in 2004 to $203 million in 2014 and now represents only 16% of the company’s revenues. As homes and businesses ditched voice, the successful telcos have had to look elsewhere to replace those revenues.

Cincinnati Bell has undertaken a number of new business lines, and its most successful is its Fioptics business of building fiber to homes and businesses. The company reported at the end of 2014 that it had FTTP service in 91,000 homes and businesses, up from 11,000 in 2009. The company has also put a big emphasis on building fiber to businesses districts and has connected 5,800 commercial buildings in the region, compared to roughly 500 by main rival Time Warner.

In 2014 the company’s fiber business generated $310 million and expects those revenues to grow significantly as they expand the fiber network. The company plans on using the cash from the sale of its wireless business to further expand the fiber business, planning to spend $210 million on fiber expansion in 2015. At the end of 2014 the company had covered about 40% of the region with fiber and expects that to nearly double by the end of 2016.

The company has also done well serving the large corporations in their footprint like Proctor&Gamble and General Electric. The company has a full suite of large company products, such as cloud services, which it has now pushed down to smaller businesses. This business line generated $168 million in 2014 and is growing by double digits.

This effort makes Cncinnati Bell one of the largest fiber builders after Verizon FiOS. And like many fiber companies, they now offers a residential gigabit product priced at $89.99 per month for the first year and then going to $99.99. This is in a market where today Time Warner’s fastest product is 50 mbps download priced at a promotional price of $64.99 and reverting to $107.99 at the end of the promotion. Of course, we’ve seen Time Warner get much faster and become price competitive in other fiber markets like Austin.

For a company to reinvent itself is not easy or without risk. Like many companies that ventured into the CLEC business in the late 90s, Cincinnati Bell’s CLEC business came up a big bust. The company racked up $3 billion in debts and the business badly underperformed, threatening bankruptcy in 2003.

But the company made the right calls and changed directions again towards fiber and now seems to be on a solid path. The company has clearly reinvented itself again to be a fiber ISP. Companies who have been able to make that transition seem to be thriving. Offering the fastest data speeds of fiber in a given market seems to be a winning strategy and is letting companies like Cincinnati Bell benefit from the continuing growth of broadband services.

The company’s history is a good object lesson for others in the industry. The company foresaw the eventual death of voice as a viable business and took chances on launching into other areas. It fared poorly as a CLEC, a little better but not spectacularly as a wireless carrier, and seems to have hit a home run with fiber.

No company in this space can ever stop reinventing itself. The fiber business has thrived in part due to the continually growing demand for broadband, which has now achieved around 75% nationwide penetration of all households. But when that growth tops out, and as cable companies offer faster speeds, even fiber companies will need to stay nimble and creative to protect their revenues. Cincinnati Bell seems like a company that is always willing to take a fresh look at itself, and that’s a good lesson for all carriers.