Are There Any Level Playing Fields?

If you follow regulatory filings, one of the most common arguments you will encounter from the big ISPs is the concept of a level playing field. The idea behind the level playing field is that every competitor in the industry should be working from the same set of rules and nobody should have a market advantage due to regulatory rules. AT&T and Verizon have both rolled out the argument many times when arguing to tighten rules against potential competitors.

There are several good examples of the level playing field argument anywhere that the big ISPs fight to keep municipal entities from building fiber networks. They argue, for example, that municipal entities have an unfair market advantage because they don’t pay state and federal income taxes. But this argument falls apart quickly under examination. First, many municipal ventures such as electric or broadband entities pay in lieu of taxes. This is a tax-like fee that the local government charge to a municipal business. While it’s not really a tax, the fees ac like taxes and can be substantial.

Even more importantly, I can remember many years when AT&T or Verizon made the news due to paying no federal income taxes. Big corporations have numerous tax shelters that allow them to shield income from taxes, and the telcos have gotten numerous favorable rules into the tax code to allow them to walk away from most of their expected tax obligations. You can’t really fault a big corporation for legally avoiding taxes (unless you fault them for the lobbying that slanted the tax codes in their favor to begin with). It’s dishonest for these big ISPs to claim that a municipality has an advantage due to their tax-free status when they pay little or no taxes themselves. Under deeper examination, a municipal fiber venture paying 5% of revenues for in lieu of taxes is often paying a larger percentage of taxes than the big ISPs.

The big ISPs also claim that municipalities have an unfair advantage due to being able to finance fiber networks with municipal bonds. While it’s true that bonds often have a lower interest rate, I have compared bond and bank financing side-by-side many times and for various reasons that are too long to discuss in a blog, bond financing is usually more expensive than commercial loans. It’s also incredibly difficult for a municipality to walk away from a bond obligation while we have numerous examples, such as the Charter bankruptcy a few years back that let a big ISP walk away from repaying the debt used to build their networks.

The big ISPs don’t only use this argument against municipal competitors. AT&T is using the argument as a way to justify hanging 5G wireless devices on poles everywhere. They think there should be a level playing field for pole access, although at this early stage they are one of the few companies looking to deploy 5G small cells. Interestingly, while AT&T wants the right to easy and cheap pole access everywhere, in those places where they own the poles they fight vigorously to keep competitors from getting access. They effectively stopped Google Fiber plans to build in Silicon Valley by denying them access to AT&T poles.

Every time I hear the level playing field argument my first thought is that I would love it if we really had a level playing field. I look at the way that the current FCC is handing the big ISPs their wish list of regulatory rule changes and wish that my clients could get the same kind of favorable regulatory treatment.

A good case in point is again the 5G small cell deployment issue. The FCC has already said that they are in favor of making it cheap and easy for wireless carriers to deploy 5G cell sites. It seems likely that the FCC is going to pass rules to promote 5G deployments unless Congress beats them to the punch. Yet these regulatory efforts to make it easier to deploy 5G conveniently are not asking to make it easier to deploy fiber. If things go in favor of the big ISPs they will have a market advantage where it’s easier to deploy last mile 5G instead of last mile fiber. This will give them a speed-to-market advantage that will let them try to squash anybody trying to compete against them with a FTTP network.

The FCC is supposedly pro-competition, and so if we really had a level playing field they would be passing rules to make it easier to deploy all broadband technologies. They have had decades to fix the pole attachment issues for fiber deployment and have not done so. But now they are in a rush to allow for 5G deployments, giving 5G ISPs a market advantage over other technologies. The consequences for this will be less competition, not more, because we’ve already seen how AT&T and Verizon don’t really compete with the cable companies. In markets where we have both Verizon FiOS and Comcast cable networks both companies charge high prices and are happy with high-margin duopoly competition. There is no reason to think these big ISPs won’t do the same with 5G.

I look around and I don’t see any level playing fields – particularly not any that give small competitors any advantages over the big ISPs. I do, however, so scads of regulatory rules that provide unequal protection for the big ISPs, and with the current FCC that list of advantages is expanding quickly. The big ISPs don’t really want a level playing field because they don’t want actual competition. There are many reasons why other countries have far more last-mile fiber deployed than the US – but one of the biggest reasons are regulatory rules here that protect the big ISPs.

Using Gigabit Broadband

Mozilla recently awarded $280,000 in grants from its Gigabit Communities Fund to projects that are finding beneficial uses of gigabit broadband. This is the latest set of grants and the company has awarded more than $1.2 million to over 90 projects in the last six years. For any of you not aware of Mozilla, they offer a range of open standard software that promotes privacy. I’ve been using their Firefox web browser and operating software for years. As an avid reader of web articles I daily use their Pocket app for tracking the things I’ve read online.

The grants this year went to projects in five cities: Lafayette, LA; Eugene, OR; Chattanooga, TN; Austin, TX; and Kansas City. Grants ranged from $10,000 to $30,000. At least four of those cities are familiar names. Lafayette and Chattanooga are two of the largest municipally-owned fiber networks. Austin and Kansas City have fiber provided by Google Fiber. Eugene is a newer name among fiber communities and is in the process of constructing an open access wholesale network, starting in the downtown area.

I’m not going to recite the list of projects and a synopsis of them is on the Mozilla blog. The awards this year have a common theme of promoting the use of broadband for education. The awards were given mostly to school districts and non-profits, although for-profit companies are also eligible for the grants.

The other thing these projects have in common is that they are developing real-world applications that require robust broadband. For example, several of the projects involve using virtual reality. There is a project that brings virtual reality to several museums and another that shows how soil erosion from rising waters and sediment mismanagement has driven the Biloxi-Chitimacha-Choctaw band of Indians from the Isle de Jean Charles in Louisiana.

I clearly remember getting my first DSL connection at my house after spending a decade on dial-up. I got a self-installed DSL kit from Verizon and it was an amazing feeling when I connected it. That DSL connection provided roughly 1 Mbps, which was 20 to 30 times faster than dial-up. That speed increase freed me up to finally use the Internet to read articles, view pictures and shop without waiting forever for each web site to load. I no longer had to download software updates at bedtime and hope that the dial-up connection didn’t crap out.

I remember when Google Fiber first announced they were going to build gigabit networks for households. Gigabit broadband brings that same experience. When Google Fiber announced the gigabit fiber product most cable networks had maximum speeds of perhaps 30 Mbps – and Google was bringing more than a 30-times increase in speed.

Almost immediately we heard from the big ISPs who denigrated the idea saying that nobody needs gigabit bandwidth and that this was a gimmick. Remember that at that time the CEO of almost every major ISP was on the record saying that they provided more than enough broadband to households – when it was clear to users that they didn’t.

Interestingly, since the Google Fiber announcement the big cable companies have decided to upgrade their own networks to gigabit speeds and ISPs like AT&T and Verizon rarely talk about broadband without mentioning gigabit. Google Fiber reset the conversation about broadband and the rest of the industry has been forced to pay heed.

The projects being funded by Mozilla are just a few of the many ways that we are finding applications that need bigger broadband. I travel to communities all over the country and in the last year I have noticed a big shift in the way that people talk about their home broadband. In the past people would always comment that they seemed to have (or not have) enough broadband speed to stream video. But now, most conversations about broadband hit on the topic of using multiple broadband applications at the same time. That’s because this is the new norm. People want broadband connections that can connect to multiple video streams simultaneously while also supporting VoIP, online schoolwork, gaming and other bandwidth-hungry applications. I now routinely hear people talking about how their 25 Mbps connection is no longer adequate to support their household – a conversation I rarely heard as recently as a few years ago.

We are not going to all grow into needing gigabit speeds for a while. But the same was true of my first DSL connection. I had that connection for over a decade, and during that time my DSL got upgraded once to 6 Mbps. But even that eventually felt slow and a few years later I was the first one in my area using the new Verizon FiOS and a 100 Mbps connection on fiber. ISPs are finally facing up to the fact that households are expecting a lot of broadband speed. The responsive ISPs are responding to this demand, while some bury their heads in the sand and try to convince people that their slower broadband speeds are still all that people need.

A Further Muddying for Pole Attachments

The issue of putting fiber on poles just got a little more complicated. A U.S. District Court recently overturned a One Touch Make Ready law that had been passed in Nashville, Tennessee to enable easier access to poles by Google Fiber.

The Nashville Metro Council passed the One Touch ordinance last year, and the new law was immediately challenged by AT&T and Comcast, the two large incumbent providers in the area. The law suit is complicated because it looks at two sets of poles – the 20% of the poles in the market owned by AT&T and the 80% of poles owned by Nashville Electric Service (NES), a municipal electric provider.

For the AT&T poles the judge ruled that the law violated federal pole attachment rules. The Telecommunications Act of 1996 gave states the optional authority to regulate poles, but the State of Tennessee never took on that responsibility, so the poles in the state are still subject to FCC pole attachment rules. This differs from an earlier lawsuit in Louisville, Kentucky where that state had preempted FCC pole attachment rules. Here it seems pretty clear that the Metro Council doesn’t have the authority to override FCC rules.

The lawsuit also claimed that the ordinance was in violation of local rules. AT&T claimed that the city charter did not explicitly give the Metro Council the authority to set rules for the NEC poles. The court said that NES had the exclusive right by charter to regulate public rights-of-ways. The court said it agreed with the AT&T allegations but did not make a firm ruling since NES was not a named party in the lawsuit.

The Metro Council originally passed the One Touch ordinance because AT&T and other pole attachers like Comcast were slow-rolling Google Fiber requests to get onto poles. Even today, a few years later, there are thousands of outstanding requests by Google Fiber to get onto poles. The One Touch ordinance would have given Google Fiber the ability to attach to poles and to then handle the paperwork retroactively.

This suit got resolved at a time when the FCC is considering One Touch rules concerning wireless connections. The FCC is thinking about granting the same rights to wireless carriers that this ordinance would have given to Google Fiber and other fiber overbuilders. The FCC recognizes that pole attachments are perhaps the major impediment for the promised coming implementation of 5G networks.

Incumbent pole owners have been able to thwart fiber overbuilders for the last few decades. They can deploy numerous delaying tactics that still fit within the FCC pole attachment guidelines. It’s not clear if the contemplated FCC rules will also make it easier for fiber overbuilders – but my guess is that they won’t. This FCC is clearly favoring the big ISPs and wireless carriers – and so they are likely to grant the rules that the big companies want.

This potential dichotomy between the treatment of wireless attachers and fiber attachers is ironic, because 5G networks are going to require a lot of new fiber. The wireless companies are not going to be building all of the needed new fiber and are hoping for others to build for them. But if those fiber builders encounter the same resistance seen by Google Fiber, then One Touch rules for wireless transmitters will not alone solve the 5G deployment issues.

One of the most interesting aspect of the pole attachment issue is that Verizon and AT&T are two of the largest builders of fiber. These companies scream bloody murder when they encounter the kinds of delays in building fiber that AT&T is causing for Google Fiber in numerous markets around the country. But AT&T clearly wears two hats and they argue for easy pole attachments where they are building fiber and for maintaining barriers to other fiber overbuilders when they own the poles.

None of this is going to be easily solved without Congressional action. There are still going to be states that can preempt federal pole attachment rules if they so choose. And the FCC is going to find themselves unable to overcome the state/federal jurisdictional issue when they try to make a nationwide One Touch rule for 5G. Expect a lot more lawsuits before this gets resolved.

A Doubling of Broadband Prices?

In what is bad news for consumers but good news for ISPs, a report by analyst Jonathan Chaplin of New Street Research predicts big increases in broadband prices. He argues that broadband is underpriced. Prices haven’t increased much for a decade and he sees the value of broadband greatly increased since it is now vital in people’s lives.

The report is bullish on cable company stock prices because they will be the immediate beneficiary of higher broadband prices. The business world has not really acknowledged the fact that in most US markets the cable companies are becoming a near-monopoly. Big telcos like AT&T have cut back on promoting DSL products and are largely ceding the broadband market to the big cable companies. We see hordes of customers dropping DSL each quarter and all of the growth in the broadband industry is happening in the biggest cable companies like Comcast and Charter.

I’ve been predicting for years that the cable companies will have to start raising broadband prices. The companies have been seeing cable revenues drop and voice revenues continuing to drop and they will have to make up for these losses. But I never expected the rapid and drastic increases predicted by this report. Chaplin sets the value of basic broadband at $90, which is close to a doubling of today’s prices.

The cable industry is experiencing a significant and accelerating decline in cable customers. And they are also facing significant declines in revenues from cord-shaving as customers elect smaller cable packages. But the cable products have been squeezed on margin because of programming price increases and one has to wonder how much the declining cable revenue really hurts their bottom line.

Chaplin reports that the price of unbundled basic broadband at Comcast is now $90 including what they charge for a modem. It’s even higher than that for some customers. Before I left Comcast last year I was paying over $120 per month for broadband since the company forced me to buy a bundle that included basic cable if I wanted a broadband connection faster than 30 Mbps.

Chaplin believes that broadband prices at Comcast will be pushed up to the $90 level within a relatively short period of time. And he expects Charter to follow.

If Chaplin is right one has to wonder what price increases of this magnitude will mean for the public. Today almost 20% of households still don’t have broadband, and nearly two-thirds of those say it’s because if the cost. It’s not hard to imagine that a drastic increase in broadband rates will drive a lot of people to use broadband alternatives like cellular data, even though it’s a far inferior substitute.

I also have to wonder what price increases of this magnitude might mean for competitors. I’ve created hundreds of business plans for markets of all sizes, and not all of them look promising. But the opportunities for a competitor improve dramatically if broadband is priced a lot higher. I would expect that higher prices are going to invite in more fiber overbuilders. And higher prices might finally drive cities to get into the broadband business just to fix what will be a widening digital divide as more homes won’t be able to afford the higher prices.

Comcast today matches the prices of any significant cable competitor. For instance, they match Google Fiber’s prices where the companies compete head-to-head. It’s not hard to foresee a market where competitive markets stay close to today’s prices while the rest have big rate increases. That also would invite in municipal overbuilders in places with the highest prices.

Broadband is already a high-margin product and any price increases will go straight to the bottom line. It’s impossible for any ISP to say that a broadband price increase is attributable to higher costs – as this report describes it, any price increases can only be justified by setting prices to ‘market’.

All of this is driven, of course, by the insatiable urge of Wall Street to see companies make more money every quarter. Companies like Comcast already make huge profits and in an ideal world would be happy with those profits. Comcast does have other ways to make money since they are also pursuing cellular service, smart home products and even now bundling solar panels. And while most of the other cable companies don’t have as many options as Comcast, they will gladly follow the trend of higher broadband prices.

The Next Big Broadband Application

Ever since Google Fiber and a few municipalities began building gigabit fiber networks people have been asking how we are going to use all of that extra broadband capability. I remember a few years ago there were several industry contests and challenges to try to find the gigabit killer app.

But nobody has found one yet and probably won’t for a while. After all, a gigabit connection is 40 times faster than the FCC’s current definition of broadband. I don’t think Google Fiber or anybody thought that our broadband needs would grow fast enough to quickly fill such a big data pipe. But year after year we all keep using more data, and since the household need for broadband keeps doubling every three years it won’t take too many doublings for some homes to start filling up larger data connections.

But there is one interesting broadband application that might be the next big bandwidth hog. Tim Cook, the CEO of Apple, was recently on Good Morning America and he said that he thinks that augmented reality is going to be a far more significant application in the future than virtual reality and that once perfected that it’s going to be something everybody is going to want.

By now many of you have tried virtual reality. You don a helmet of some kind and are then transported into some imaginary world. The images are in surround-3D and the phenomenon is amazing. And this is largely a gaming application and a solitary one at that.

But augmented reality brings virtual images out into the real world. Movie directors have grasped the idea and one can hardly watch a futuristic show or movie without seeing a board room full of virtual people who are attending a meeting from other locations.

And that is the big promise of virtual reality. It will allow telepresence – the ability for people to sit in their home or office and meet and talk with others as if they are in the same room. This application is of great interest to me because I often travel to hold a few hour meetings and the idea of doing that from my house would add huge efficiency to my business life. Augmented reality could spell the end of the harried business traveler.

But the technology has far more promise than that. With augmented reality people can share any other images. You can share a sales presentation or share videos from your latest vacation with grandma. This ability to share images between people could drastically change education, and some predict that over a few decades that augmented reality would begin to obsolete the need for classrooms full of in-person students. This technology would fully enable telemedicine. Augmented reality will enhance aging in the home since shut-ins could still have a full social life.

And of course, the application that intrigues everybody is using augmented reality for entertainment. Taken to the extreme, augmented reality is the Star Trek holodeck. There are already first-generation units that can create a virtual landscape in your living room. It might take a while until the technology gets as crystal clear and convincing as the TV holodeck, but even having some percentage of that capability opens up huge possibilities for gaming and entertainment.

As the quality of augmented reality improves, the technology is going to require big bandwidth connections with a low latency. Rather than just transmitting a 2D video file, augmented reality will be transmitting 3D images in real time. Homes and offices that want to use the technology are going to want broadband connections far faster than the current 25/3 Mbps definition of broadband. Augmented reality might also be the first technology that really pushes the demand for faster upload speeds since they are as necessary as download speeds in enabling a 2-way augmented reality connection.

This is not a distant future technology and a number of companies are working on devices that will bring the first-generation of the technology into homes in the next few years. And if we’ve learned anything about technology, once a popular technology is shown to work, demand in the marketplace there will be numerous companies vying to improve the technology.

If augmented reality was here today the biggest hurdle to using it would be the broadband connections most of us have today. I am certainly luckier than people in rural areas and I have a 60/5 Mbps connection with a cable modem from Charter. But the connection has a lot of jitter and the latency swings wildly. My upload stream is not going to be fast enough to support 2-way augmented reality.

The economic benefits from augmented reality are gigantic. The ability for business people to easily meet virtually would add significant efficiency to the economy. The technology will spawn a huge demand for content. And the demand to use the technology might be the spur that will push ISPs to build faster networks.

The Louisville Pole Attachment Lawsuit

There has been a major legislative push lately to make it easier for wireless companies to get onto poles in order to deploy the small cell sites needed for 5G deployment. AT&T and Verizon have been leading the fight for easier access and there have been attempts at both the federal and state level to enact ‘one-touch’ rules. Proposed legislation not only sets a low price for compensating pole owners, but proposed legislation also removes the ability for pole owners or municipalities to slow down wireless deployments.

There is a lot of debate in the industry about the one-touch issue. As I have discussed in various blogs, issues with getting onto poles is still one of the major roadblocks to many fiber deployments. And from the examples cited by the cellular carriers they are seeing huge delays in deploying urban small cell sites.

Like any debate there are legitimate issues to be considered on both sides of the issues. Proponents of one-touch cite the extraordinary costs of wading through the paperwork-heavy pole attachment process as well as the dollar and cents costs of delaying construction projects.

But on the other side are pole owners and current networks hung on wires. Carriers are legitimately worried about safety issues for their technicians if large boxes the size of refrigerators are hung on poles without constraint. They legitimately worry about how such devices could cause problems during repairs from storm damage. And carriers are also worried about network outages if a new attacher is allowed and able to move their wires without their knowledge or permission.

A court decision a few weeks ago might be a first step into putting some clarity to the issue. In that suit AT&T had sued the City of Louisville in order to stop them from passing a one-touch make-ready ordinance. The ordinance was aimed at making it easier for Google Fiber and other competitive providers to get onto poles in the City. The City of Louisville owns most of the poles in the city and the City has been working with Google Fiber to deploy a fiber network to everybody in the City.

You have to let the irony of AT&T’s lawsuit sink in for a minute. This is a company that is spending millions right now lobbying for one-touch rules. AT&T not only wants to deploy small cell sites, but they are also in the process of building a huge amount of fiber to support those sites. And yet AT&T felt compelled to fight against the very kind of ordinance they are promoting because it would help one of their competitors.

It turns out that not all one-touch ordinances are the same. The ordinances that AT&T and Verizon are pushing are crafted very carefully to help them while still not making it quite so easy for their competitors. The Louisville ordinance made it easier for any new attacher to get onto poles, including AT&T.

The US District Court Judge of Kentucky completely rejected all of AT&T’s claims and tossed the lawsuit. The court basically said that all of AT&T’s claims in the suit were false. It’s ironic that many of the issues raised by the City in defense of the suit sound the same as the claims that AT&T makes elsewhere when lobbying for one-touch legislation.

I’ve always said that being in the regulatory department at AT&T has to be the hardest job in our industry. It’s a company that wears too many hats. AT&T owns a huge monopoly landline network and wants to protect itself from competitors. In some markets AT&T is a major pole owner. AT&T is also a huge wireless company that now wants access to poles. And AT&T is a huge builder of fiber, much of it now outside of its monopoly telco territory.

Any regulatory position the company takes to benefit one of these business lines is likely to not be in the best interest of other parts of the company. When looking at the big picture one has to think that AT&T will get far more benefit than harm from one-touch rules. Such rules will make it a lot easier to build more fiber and to deploy cell sites. And yet, a company with this many tentacles in the industry could not restrain itself from filing a lawsuit that probably was not in its own best long-term interest. The monopoly side of the company felt it could not sit back and let a competitor like Google Fiber build without the company taking steps to slow them down.

5G Needs Fiber

I am finally starting to see an acknowledgement by the cellular industry that 5G implementation is going to require fiber – a lot of fiber. For the last year or so the industry press – prompted by misleading press releases from the wireless companies – made it sound like wireless was our future and that there would soon not be any need for building more wires.

As always, when there is talk about 5G there is a need to make sure which 5G we are talking about, because there are two distinct 5G technologies on the horizon. One is high-speed wireless loops send directly to homes and businesses as a replacement for a wired broadband connection. The other is 5G cellular providing bandwidth to our cellphones.

It’s interesting to see the term 5G being used for a wireless microwave connection to a home or business. For the past twenty years this same technology has been referred to as wireless local loop, but in the broadband world the term 5G has marketing cachet. Interestingly, a lot of these high-speed data connections won’t even be using the 5G standards and could just as easily be transmitting the signals using Ethernet or some other transmission protocol. But the marketing folks have declared that everything that uses the millimeter wave spectrum will be deemed 5G, and so it shall be.

These fixed broadband connections are going to require a lot of fiber close-by to customers. The current millimeter radios are capable of deliver speeds up to a gigabit on a point-to-point microwave basis. And this means that every 5G millimeter wave transmitter needs to be fiber fed if there is any desire to offer gigabit-like speeds at the customer end. You can’t use a 1-gigabit wireless backhaul to feed multiple gigabit transmitters, and thus fiber is the only way to get the desired speeds to the end locations.

The amount of fiber needed for this application is going to depend upon the specific way the network is being deployed. Right now the predominant early use for this technology is to use the millimeter wave radios to serve an entire apartment building. That means putting one receiver on the apartment roof and somehow distributing the signal through the building. This kind of configuration requires fiber only to those tall towers or rooftops used to beam a signal to nearby apartment buildings. Most urban areas already have the fiber to tall structures to support this kind of network.

But for the millimeter technology to bring gigabit speeds everywhere it is going to mean bringing fiber much closer to the customer. For example, the original Starry business plan in Boston had customers receiving the wireless signal through a window, and that means having numerous transmitters around a neighborhood so that a given apartment or business can see one of them. This kind of network configuration will require more fiber than the rooftop-only network.

But Google, AT&T and Verizon are all talking about using millimeter wave radios to bring broadband directly into homes. That kind of network is going to require even more fiber since a transmitter is going to need a clear shot near to street-level to see a given home. I look around my own downtown neighborhood and can see that one or two transmitters would only reach a fraction of homes and that it would take a pole-mounted transmitter in front of homes to do what these companies are promising. And those transmitters on poles are going to need to be fiber-fed if they want to deliver gigabit broadband.

Verizon seems to understand this and they have recently talked about needing a ‘fiber-rich’ environment to deploy 5G. The company has committed to building a lot of fiber to support this coming business plan.

But, as always, there is a flip side to this. These companies are only going to deploy these fast wireless loops in neighborhoods that already have fiber or in places where it makes economic sense to build it. And this is going to mean cherry-picking – the same as the big ISPs do today. They are not going to build the fiber in neighborhoods where they don’t foresee enough demand for the wireless broadband. They won’t build in neighborhoods where the fiber construction costs are too high. One only has to look at the hodgepodge Verizon FiOS fiber network to see what this is going to look like. There will be homes and businesses offered the new fast wireless loops while a block or two away there will be no use of the technology. Verizon has already created fiber haves and have-nots due to the way they built FiOS and 5G wireless loops are going to follow the same pattern.

I think the big ISPs have convinced politicians that they will be solving all future broadband problems with 5G, just as they made similar promises in the past with other broadband technologies. But let’s face it – money talks and these ISPs are only going to deploy 5G / fiber networks where they can make their desired returns.

And that means no 5G in poorer neighborhoods. It might mean little or limited 5G in neighborhoods with terrain or other similar issues. And it certainly means no 5G in rural America because the cost to build a 5G network is basically the same as building a landline fiber network – it’s not going to happen, at least not by the big ISPs.

Cable Company Gigabit

We are starting to get a look at what a gigabit product from the cable companies might look like. Late last year Comcast rolled out a gigabit product in parts of Atlanta, Detroit, Nashville and Chattanooga. They are now rolling implementation across the country and the company says that gigabit speeds will be available in all markets by 2018.

Comcast has elected to make the upgrades by implementing DOCSIS 3.1 technology on their networks. This technology allows the network to bond together numerous empty channels on the cable system to be used for broadband.

In markets where there is competition with Google Fiber or another fiber provider, the Comcast product is being sold at an introductory price of $70 per month with a 3-year contract. Month-to-month pricing without the contract is $140 per month. In reading group discussion websites where Comcast customers chat it sounds like there are already many markets where the $70 contract price is not available. I have read some customers say they have gotten prices at $110 to $120 per month, so perhaps the company is flexible with those willing to wade through the customer service maze and willing to sign a term contract.  

The current Comcast product delivers up to 1 Gbps download and 35 Mbps upload. You can expect Comcast to make future upgrades that will improve the upload speeds – but that upgrade is not included in this first generation of DOCSIS 3.1 technology. For now the upload speeds will be a barrier to any application that needs fast upload speeds.

The new technology also requires new hardware, meaning a new cable modem and a new WiFi router capable of handling the faster data speeds. So expect the price to be bumped higher to rent the hardware.

It’s hard to imagine that many customers are going to pony up more than $150 per month to get a gigabit connection and modem. When Google Fiber first introduced $70 gigabit to Kansas City (and when that was their only product), there were reports that there were neighborhoods where as many as 30% of the households subscribed to the gigabit product. But Google has a true $70 price tag and didn’t layer on fees for a modem or any other fees, like Comcast is surely going to do. It’s hard to imagine many customers agreeing to a 3-year contract for the gigabit product in competitive markets if they can buy it from somebody else without the contract. But perhaps Comcast will offer bundling incentives to pull the real cost under $70.

But we know when there are more choices that most customers will opt for the lowest-price product that they think is adequate for their needs. For example, when Google Fiber came to Atlanta they also had a 100 Mbps product for $50 per month and it’s likely that most customers chose that product rather than paying extra for the gigabit.

The Comcast pricing might reflect that Comcast doesn’t want to implement too many high-bandwidth customers at the same time. While DOCSIS 3.1 increases the size of the data pipes available to customers, it doesn’t make any significant improvements in the last mile network. To the extent that high-bandwidth customers use a lot more data, too many gigabit customers in a cable company node could degrade service for everybody else. But it’s likely that most gigabit customers don’t use a lot more data than 100 Mbps subscribers – they just get things done more quickly. But I am sure that Comcast still has worries about having too many high-bandwidth customers in the network.

Comcast and other cable companies are seeing more competition. For example, CenturyLink is selling $85 gigabit service in many western cities and passed about 1 million homes with fiber last year. Verizon FiOS just increased their data speeds in their fiber markets – not quite to a gigabit yet, but at ranges up to half a gigabit. But in the vast majority of the country the cable companies are not going to have significant competition with any foreseeable future.

FCC Commissioner Michael O’Reilly said a few weeks ago that ultrafast broadband is a marketing gimmick. While he was even referring to 100 Mbps broadband as a gimmick, it’s hard to not agree with him that a residential gigabit bandwidth product priced above $150 per month is more gimmick than anything else. There can’t be that many households in any market willing to pay that much extra just for the prestige of saying they have a gigabit.

But over time the prices will drop and the demand for bandwidth will grow and a decade from now there will be a significant portion of the market clamoring for an affordable gigabit product. Remember that we’ve seen this same thing happen a number of times in the past. I remember the big deal the cable companies made when they first increased speeds to 15 Mbps. The funny thing is that the market has a way of filling faster data pipes, and the day will come sooner than we expect where many households will legitimately want and need gigabit data pipes.     

Who Will Win the Telecom Battle?

facebookNow that Google has pulled back with expansion of Google Fiber it’s easy to see that the cable companies and telcos think they have won the broadband war. But I think if you look a little closer this might not really be the case.

Tech companies like Google, Facebook and Amazon are still focused on making sure that people have enough bandwidth to take advantage of the many products these giant companies offer or plan to offer in the future. And all three companies are growing in importance as content providers.

Consider first the strength of these companies as content providers. Google owns YouTube which is becoming the most important video destination for the younger generation – and those kids are growing up. We’ve seen young millennial households largely reject traditional cable TV offerings. While Amazon Prime is not nearly as big as Netflix it is a strong second and is continuing to grow. Amazon is also reported to be pouring big money into producing original content for its platform. Facebook is on a trajectory to become the preferred source of news and information. And their Facebook Live is also quickly becoming a huge content platform.

But content isn’t everything. Consider that these companies have amassed an enormous private fiber network. Google doesn’t talk about it’s network, but way back in 2013 it was reported that Google had assembled a network consisting of 100,000 miles of dark fiber. We also don’t know the size of the networks, but both Amazon and Facebook have also built large private networks. We know that Google and Facebook have partnered to build a massive undersea fiber to China and are looking at other undersea fiber routes. Amazon has built a huge network to support its cloud services business. It would not be surprising if these companies have already together amassed a larger fiber network than the telcos and cable companies. If they are not bigger yet, they are on a trajectory to get there soon. With these networks the tech companies could hurt the big ISPs where it most hurts – by taking a huge bite out of their special access and transport businesses.

These companies are also not done with the ISP business. Google Fiber has retracted from expanding FTTH networks for now, but they acquired Webpass and are looking to expand as an ISP using wireless last mile. And we saw in Huntsville that Google is not afraid to use somebody else’s fiber network – something we have never seen any of the telcos or cable companies consider. It would not be surprising to see Google make deals with other private networks to expand its ISP business to avoid spending the upfront capital. But perhaps Google’s biggest foray into providing data services is Google Fi, their service that provides unlimited cellular data using WiFi first rather than cellular. It’s been rumored that Google is looking for partnerships to expand WiFi access in many markets. And it’s been reported that Amazon is strongly considering becoming an ISP. I’ve not heard any details about how they might do this, but the company has shown the ability to succeed in everything it’s tackled – so it’s an intriguing possibility.

It’s a gigantic task to take on companies like AT&T and Comcast head on. I think Google Fiber learned this the hard way. But at the end of the day content is still king. As these companies continue to grow in influence as content providers they present a real challenge to traditional programmers. But they also are a growing threat to the big ISPs. If these tech companies decide that their best strategy is to directly deliver their content to subscribers they have a big enough marketing position to pull along a huge number of customers. It’s clear that consumers like these tech companies far more than they like the big ISPs, and in the end the accumulated animus with customers might be their undoing.

This kind of industry shift won’t happen overnight. But it’s already quietly going on behind the scenes. We may not be as far away as you might imagine when these companies provide more content than the traditional programmers and also carry more bandwidth on their own networks than the big ISPs. From my perspective that looks a lot like winning the battle.

The Google Fiber Rumor

googlefibertruckMy wife went into a Best Buy this week and when she was talking with the salespeople there they found out that we are fiber consultants. The first thing they wanted to know from her was if the rumors were true that Google Fiber was coming to our town early next year. They firmly believed this was the case and they were really excited about the possibility.

I live in a small town halfway between Fort Myers and Sarasota in Florida. Google Fiber had been in talks with Tampa which is about two hours north of here. But I can’t imagine that our community is on anybody’s radar to build fiber. I live in a snowbird community, meaning we are where northerners come to get away from winter. For about six months a year this is a ghost town. Most of the houses in my neighborhood are dark for half the year. It’s hard to think that anybody would build fiber in an area where half the potential customers are gone half the year, and where a lot of the customers are elderly and not particularly interested in fiber broadband speeds.

But I find it intriguing that there is a strong rumor about getting fiber in this area. I am sure that this rumor started from folks in Tampa since Google Fiber has been in talks with the city for the last few years. I guess people assume that if they come there that they will come to the whole region.

But I think this rumor speaks to how much fiber is wanted. These salespeople were young techie guys and would be expected to part of the fiber demographic. There are a number of people in every community that would love to buy fiber and who would sign up for it as soon as it is available. But the big question that still has to be answered is if there are enough people willing to pay a premium price for fiber to even create a business plan.

It certainly doesn’t seem like Google Fiber has been going gangbusters. They don’t release customer numbers, but the general buzz in the industry is that they haven’t picked up as many customers as they had hoped for. And that, possibly more than any other factor has probably led to them taking a ‘pause’ from new fiber expansion.

Building fiber networks is expensive. I create fiber business plans and have studied every size market possible from farmlands to NFL cities. The one common feature of every fiber business is that there is some minimum customer penetration rate needed just to break even – with breaking even meaning being able to cover all of the costs of operations including capital.

When municipalities and cooperatives look to build fiber they want to make sure that they do a little better than breakeven. They will obviously be pleased if a fiber business does even better and spins off cash, but they worry more about having to subsidize a fiber business. And it is this perspective that makes it seem easier in some ways to build fiber to small towns and even to farms than to big cities. For these builders, breakeven is good enough.

But Google Fiber or CenturyLink or any of the other commercial fiber overbuilders want to do much better than breakeven. These big companies are beholden to shareholders who expect a significant increase quarter-over-quarter in profits and returns. And the need for significant profits means they have to get a lot of customers to meet their financial goals.

Frankly, the desire for high profits and high capital costs don’t jive very well. Fiber is infrastructure and it’s a real challenge to get high returns out of any kind of infrastructure. Other utilities like electric or water are a lot more realistic and hope to make a modest, but steady profit and make it for a long time. If fiber overbuilders were being realistic they would have the same perspective – but tech companies are not utilities and their stockholders are not going to be patient with slow steady returns.

Google Fiber is now on hold and will consider expanding again if they can find a way to use wireless technology to build the last connection to customers. Assuming that such a technology lowers costs (not a given), then this would reset the bar and lower the breakeven needed – and also make it easier to make profits. But even then it’s going to cost a huge amount of money to build broadband in a city. Wireless networks like the ones Google is envisioning still require a lot of fiber, and that means they will still be an infrastructure-heavy business.

I think there is a good possibility that Google Fiber will never resume their expansion plans using an infrastructure model. This is going to disappoint millions who have been hoping for fiber like the guys at Best Buy. Google Fiber might still consider opportunities like Huntsville, Alabama where the city paid for the fiber network. But my guess is that the Google parent company doesn’t have a real appetite for infrastructure returns, and that is why Google Fiber is on hold.