Universal Internet Access

navigator_globe_lgWhile many of us are spending a lot of time trying to find a broadband solution for the unserved and underserved homes in the US, companies like Facebook, Google, and Microsoft are looking at ways of bringing some sort of broadband to everybody in the world.

Mark Zuckerberg of Facebook spoke to the United Nations this past week and talked about the need to bring Internet access to the five billion people on the planet that do not have it. He says that bringing Internet access to people is the most immediate way to help lift people out of abject poverty.

And one has to think he is right. Even very basic Internet access, which is what he and those other companies are trying to supply, will bring those billions into contact with the rest of the world. It’s hard to imagine how much untapped human talent resides in those many billions and access to the Internet can let the brightest of them contribute to the betterment of their communities and of mankind.

But on a more basic level, Internet access brings basic needs to poor communities. It opens up ecommerce and ebanking and other fundamental ways for people to become engaged in ways of making a living beyond a scratch existence. It opens up communities to educational opportunities, often for the first time. There are numerous stories already of rural communities around the world that have been transformed by access to the Internet.

One has to remember that the kind of access Zuckerberg is talking about is not the same as what we have in the developed countries. Here we are racing towards gigabit networks on fiber, while in these new places the connections are likely to be slow connections almost entirely via cheap smartphones. But you have to start somewhere.

Of course, there is also a bit of entrepreneurial competition going on here since each of these large corporations wants to be the face of the Internet for all of these new billions of potential customers. And so we see each of them taking different tactics and using different technologies to bring broadband to remote places.

Ultimately, the early broadband solutions brought to these new places will have to be replaced with some real infrastructure. As any population accepts Internet access they will quickly exhaust any limited broadband connection from a balloon, airplane, or satellite. And so there will come a clamor over time for the governments around the world to start building backbone fiber networks to get real broadband into the country and the region. I’ve talked to consultants who work with African nations and it is the lack of this basic fiber infrastructure that is one of the biggest limitations on getting adequate broadband to remote parts of the world.

And so hopefully this early work to bring some connectivity to remote places will be followed up with a program to bring more permanent broadband infrastructure to the places that need it. It’s possible that the need for broadband is going to soon be ranked right after food, water, and shelter as a necessity for a community. I would expect the people of the world to expect, and to then push their governments into making broadband a priority. I don’t even know how well we’ll do to get fiber to each region of our own country, and so the poorer parts of the world face a monumental task over the coming decades to satisfy the desire for connectivity. But when people want something badly enough they generally find a way to get what they want, and so I think we are only a few years away from a time when most of the people on the planet will be clamoring for good Internet access.

 

Europe Has the Right Goals

The European Commission issued a press release yesterday that announced that 100% of the households in Europe now have access to broadband.

Most households have some sort of wired access with 96.1% of homes having access to copper, coax or fiber. Wireless coverage with 2G, 3G or 4G covers 99.4% of houses. And all remote homes are now covered by satellite broadband using a network of 148 satellites.

Before anybody argues that we have the same thing here in the US due to satellite, we need to distinguish between the satellite broadband that is available here and what is available in Europe. Basic satellite service in Europe is only $13 per month. I can’t find the speed for but assume this is a few Mbps download speeds. But customers can get 20 Mbps download from satellite for $33 per month.

In the US there are two major satellite providers. ViaSat Exede offers a 12 Mbps download service. The amount you pay is based upon the usage cap you choose. For $50 per month you can get 10 GB per month, for $80 you can buy 15 GB and for $130 you can get 25 GB. Hughesnet offers 5 Mbps down and 1 Mbps up for $50 per month, 10 Mbps down and 1 Mbps up for $60, 10 Mbps down and 2 Mbps up for $80 and 15 Mbps down and 2 Mbps up for $130. The four Hughesnet products also have data caps of 10 GB, 20 GB, 30 GB and 40 GB respectively.

Speed isn’t everything and the caps matter. Just to put those data caps into perspective, a 2-hour HD movie will range between 3 and 4.5 GB. So homes in the US using satellite are very limited in using their satellite connection to view video.

The US satellite companies are also limited since they only have a few satellites capable of delivering the above products. If those satellites get oversubscribed then actual speeds will be slower than advertised in the same way that a cable modem system can bog down in the evening hours. But with more satellites in Europe the speeds can be faster and there is a lot less chance of congestion and oversubscription.

The Europeans also have goals to speed up Internet access. They have the goal by 2020 of getting all citizens the ability to have 30 Mbps download speeds, with at least half of them having access to 100 Mbps.

This is pretty easy to contrast with the US where the current national definition for terrestrial  broadband is 4 Mbps down and 1 Mbps up. Both stimulus grants and borrowing from the RUS have recently financed networks that are able to deliver those speeds.

If we don’t set high goals in the US, and if we are content to finance rural broadband that delivers slow speeds when it is brand new, we are relegating the rural areas to having slow broadband for decades to come.

In the US we are more given to grand announcements that don’t come with any funding or mandates. For example, earlier this year the FCC set a goal of having a Gigabit City in every state of the country. That means a network that is capable of delivering a gigabit of download speeds to customers.

Don’t get me wrong, I would love to live in one of those few places where you can get a gigabit. But this is a completely voluntary system, and a Gigabit City might only be actually selling that much speed to a few customers to be given the designation. Rather than trying to get one City in each state to provide a few customer with a gigabit download speed we ought to instead be concentrating on making our basic broadband a lot faster than 4 Mbps. When that lowly speed is our national goal, we are telling rural America to not expect anything better.

The Europeans have it right and we have it wrong. And a decade from now when we are far behind them in terms of productivity we can look back on the crappy national goals we set for ourselves.

What Happened to the Digital Divide?

Internet Access Here Sign

Internet Access Here Sign (Photo credit: Steve Rhode)

There was hardly a time in the late 90’s and early 00’s when broadband was discussed that the topic of digital divide was not mentioned. Government entities, policy people and even service providers talked about solving the digital divide to make sure that everybody had access to the Internet. There were committees and commissions formed in many communities to help solve the digital divide and to make sure that every child had a computer and an internet connection.

From what I can see the topic has disappeared from discussion and I rarely seeing the topic discussed any more. Does this mean that the digital divide has been solved? Certainly there are a lot more households with Internet access today than a decade ago, but do the poorest households now subscribe to the Internet?

Before one can even answer the question we need to define what broadband is. The FCC defines broadband as the ability to get a landline service with a download speed of at least 4 Mbps and an upload speed of 1 Mbps. In most markets that is one of the lower-speed products available and speeds in metropolitan and suburban areas are now much faster than that. According the numbers released by the FCC in August of 2012 there were 19 million people in the US with no access to broadband and another 100 million with access to broadband but who do not purchase it. But there are many who dispute the way that the FCC counted the 19 million figure and think that the real number is much larger.

Another way to look at the market is by households and the Leichtman Research Group did a study in 2012 that showed that there are almost 81 million homes with broadband, or just at 70% of all households. That same study said that broadband penetration rates in homes with average household incomes under $30,000 had only a 52% broadband penetration rate while homes with incomes over $50,000 had a 97% penetration rate. Obviously there are a lot of households who feel they cannot afford broadband.

Today one has to ask if landline broadband is the only kind of broadband. For example comscore reports that 133 million people owned smartphones as of February 2013, or 57% of everybody over 13 years old. Certainly there are many people whose only Internet access is with a smartphone.

A Pew Research Center study released a study earlier this year of the Internet usage of teenagers between 12 and 17. This group uses the Internet more than any other age group and 95% of teenagers access the Internet at least one per month. But 25% of teenagers only have a smartphone to use for Internet access. One has to question if smartphone usage is really broadband. Certainly you can read news, update Facebook and play games on a smartphone. But it’s sheer torture to use a smartphone to write something even as long as this blog and it’s hard to see smartphones being a broadband substitute for school kids trying to do various types of homework. The smartphone wasn’t really designed to handle files in the same way as a laptop or computer.

One thing that is clear in the figures is that the lower the income the less likelihood that a household will find broadband to be affordable. And to me that says that we still have the digital divide. But for some reason, nobody is talking about it anymore.

One statistic that I found interesting is that the Leichtman report said that 90% of households with computers have broadband. When you compare that to the statistics that say that only 52% of households with household incomes under $30,000 have broadband it is also easy to say that an awful lot of those homes don’t have computers.

I remember a decade ago there were major programs developed to get computers into households, particularly households with children. I just did a Google search and found a few such programs are still active, like one in Chicago, but getting computers into homes was a major focus for my clients and the country as a whole a decade ago. And that seems to have basically dwindled away as a priority.

I don’t know the reasons for this, but I can postulate. Broadband access seems to be ubiquitous in middle class neighborhoods and it is now the rare house that doesn’t have a computer and Internet access. Perhaps everybody just assumes that this is now true everywhere, while it is not. If the FCC numbers are to be believed there are still 119 million people without Internet access. Back the babies out of that number and there are still a whole lot of people without broadband.

It seems to me that the digital divide hasn’t gone away at all. We have just stopped talking or caring about it. Maybe it’s time to put this back on the agenda.

A Look into my Crystal Ball

Technology of the FutureI have spent quite a bit of time recently reading futurist books and articles that think about the most likely future. I’ve done this to the point where my wife asked me if I am unhappy with the present! After chuckling, I told her that I am happy now. But thinking about the future is a worthwhile effort when one is engaged in a technology-based industry. Everything I have read tells me that selling to residences is going to change a lot over the next few decades. And I believe that those who understand where the trends are taking us can begin preparing for that future today.

So what will the future residential customer want from a telecom company? Everything I have read tells me that traditional telephone service and cable TV service as we know it today will not be around. Voice will have become a total commodity. You will probably be able to put a phone in your house if you insist, but it will be an IP device and very few people will still have a traditional telephone.

Within twenty years voice will be a commodity for cellular service also and the cell phones we carry today will also be a thing of the past. There will be devices far smarter than our ‘smart’ phones. Many of these devices will be somehow integrated into our body and will be far more sophisticated than the first generation of Google glass. I am not enough of a futurist to predict the specific technology that will win the battle, but we will not be carrying around a device whose primary purpose is to talk to people.

Cable TV is headed down the same path and there will no longer be a subscription to hundreds of channels for a high price. Video will be available ubiquitously on any device you want to watch it on. People will subscribe to the programming they want and will not pay for what they don’t want.

But people will still want bandwidth at their homes – lots of bandwidth. As we move towards the Internet of Everything, where multitudes of devices will include cheap chips and will be networked together to make our lives easier, the average house will want a lot of bandwidth.

And there will be two kinds of bandwidth providers – dumb pipe providers and service providers. There are already dumb pipe providers today. I live in the country and I get my Internet access through a wireless link from a nearby tower. And that wireless link is all that my ISP sells. They don’t offer any other services over that link and I doubt I would buy them if they did. I have my smart phone to give me everything else.

Many of today’s networks will morph over time to become dumb pipe providers. They will raise the price of bandwidth until it is high enough to compensate them for their network. They will have much smaller staffs than today who will be needed just to install and maintain the network.

But there will be another kind of provider that I call a full-service provider. They will also deliver a bandwidth pipe to the house, but they will also provide a host of services. And mostly these services are going to look like a future version of today’s Geek Squad. These companies will send technicians into people’s houses to help them make everything work together. When there is an Internet of everything it is going to get complicated. People who are not very technological are going to want lots of help to customize the many options to get just what they want. And so when a technicians visits he might be asked to help a customer get a medical monitor working right, find some programming they had trouble locating, fiddle with the controls for the lighting, and put a different personality on the home AI. The service-oriented provider will build customer loyalty and will be perceived as something very different from the dumb pipe provider.

There is a lesson today from envisioning this future. Far too many service providers today sell products that they treat as commodities, and once they sell them they rarely talk to their customers unless there is a problem. Technology has already gotten complicated for the average household and I think there is already a market for sending technicians into homes to make things work together better. I have clients who do this and they say that changing to a service model is the best change they ever made. They generally sell something new every time a technician visits somebody’s home. But the vast majority of the telecom companies I know look a lot more like the dumb pipe provider. They may sell telephone and cable TV on their data pipes, but what are they going to be left with when those products turn into a commodities and then disappear into the cloud?

What’s Up With Verizon?

1980s Dodge Ram Van Verizon

1980s Dodge Ram Van Verizon (Photo credit: Wikipedia)

I have another story to tell about my friend Danny. He runs an accounting firm in northern Virginia and he looks a lot like a ton of other small businesses. He has half a dozen phone lines and he wants a fast Internet connection. He called me the other day and told me that he had been approached in just the course of one week by three different salespeople who represented Verizon.

His first contact still has me shaking my head. A salesman stopped by and offered to sell him an all-in-one T1. Danny already has FiOS and a symmetrical 35 Mbps Internet connection. This salesperson wanted to sell Danny a T1 from Verizon or from half a dozen other CLECs and resellers. And he could do this for only $1,400 per month, which is 3.5 times what Danny is paying for vastly better service.

I was really surprised by this sales call. This is a flashback to the late 90’s when there were salespeople everywhere selling the all-inclusive T1 that had some channels for voice and the rest of the T1 for data. And in those days since we had all just migrated from the dial-up world, this seemed like fast Internet access. But then DSL and cable modems, and now fiber and 4G have all left T1s far behind and I was surprised that there was a company who would spend the money on a salesperson to go door-to-door with last century’s product. That seems like the telecom’s version of a buggy-whip salesman.

But Danny says that in his CPA practice that he has at least 50 clients who still use T1s. He advises them every year to move to something better, but I guess there are a lot of people in the world who stick with what is comfortable and working. Such customers could save a lot of money moving to something else and would get far faster Internet access to boot. But I guess the fact that these kinds of customers are still out in the market explains the T1 salesman. There is so much profit in a T1 at his prices that one sale per month probably keeps him happy and very profitable.

Next Danny got a visit from Verizon Wireless. They wanted him to ditch his FiOS and go completely wireless with 4G. Danny has had his FiOS for four years and has never had a single problem. During that time Verizon has increased his bandwidth without changing the price. He is completely happy with fiber and he knows that fiber is the ultimate pipe if he wants bigger bandwidth in the future.

4G is an interesting product, but nobody thinks that a wireless network is as reliable as the FiOS fiber. Cell towers sometimes go down or get overwhelmed with service requests. And the 4G speeds vary by how many customers are using it at any given time. 4G is nice, but it is not fiber.

Danny says that the 4G salesperson could not answer some basic questions. For instance, they could not tell him the speeds he could expect at his location but only could talk about a possible range of speeds. And they never asked him any questions about his business. There certainly are going to be businesses where 4G might be the right solution, but Danny is not one of them. His accountants work in the office and clients come to see him. His major concern is reliability and he loves that FiOS stays up and running. Before FiOS he had a Comcast cable modem and had to send employees home several days when the Internet was not working. Danny is a happy Verizon customer and is sold on their fiber. Danny was somewhat amazed that the 4G salesperson did not know that he already had FiOS and it seems like the different parts of Verizon don’t talk to each other.

Finally last week Danny got a call from a FiOS rep. He had not gotten a call about his FiOS since he first bought it, but I guess that the Verizon FiOS group knew that Verizon Wireless was out trying to poach their customers and they called to check on him. So within the span of one week Danny was contacted by three different salespeople, two from Verizon and one who was a Verizon reseller.

This surprised me for a number of reasons. First, I honestly would have thought the day of selling T1s was dead and that visit just has me shaking my head. But the idea that two different parts of Verizon would spend for sales resources to compete for the same customer has me flummoxed. I understand that the Verizon fiber and wireless businesses are separate business units. But at the end of the day their profits all roll up to the same bottom line.

It appears to me that Verizon has missed one of the basic principles of selling – putting the customer first. A lot of my clients are CLECs and they learned a long time ago that the way to get loyal customers is to get to know them and find them a solution that fits what they need. This approach is called consultative sales and involves taking the time to get to know the customers’ needs. In the early days of CLECs they all sold on price and they quickly learned that a customer who changed to them for a lower price would also drop them for the next lowest offer. The CLECs who are still around today are for the most part doing it right and selling in a way to earn trust and loyalty from customers.

It honestly surprises me that Verizon has not learned this simple lesson. Danny says that the wireless salesperson never asked him about his business and only spouted that 4G was the latest and greatest product. It further surprises me that Verizon would put a live sales staff on the street to compete against themselves. Sales teams are expensive and it’s hard to fathom why Verizon would send a wireless salesperson to a place that already has Verizon FiOS. You would think at a minimum they would send salespeople only to those places that don’t already use Verizon. But once they heard he had FiOS they still tried to convert him to wireless.

Why would Verizon compete against itself like this? I know that there are different business units at Verizon and that each group will earn bonuses based upon their own performance, but at the end of the day it is more profitable as a corporation to do this the right way. Verizon ought to be sending out one sales team that can sell their whole product line and who will help the customer find the best solution for their business. In the long run it can’t do Verizon any good having salespeople bashing their own product lines. As a corporation do they really want wireless salespeople telling the public not to use their fiber? That is going to lead customers to pick somebody other than Verizon.

I think Danny has it right. When his receptionist hears the word Verizon now she just tells them, “He doesn’t want to talk to you.” And she is right.

“Dumb Pipe” versus Full-Service Provider

Broadband and cable TV companies have been looking at their long-term strategy and they are going to have to decide if they are going to be what we at CCG call either a “dumb pipe” provider or a full-service provider.

A “dumb pipe” provider is a broadband company that sells a very fast Internet connection as its primary product and not much of anything else. A perfect example of this is what Google is doing in Kansas City. Google is selling a 1 Gbps Internet connection there for $70 per month. That is far more speed than is possible from the competition, but it is also more expensive. The only other product available from Google is one cable TV package that is bundled with the data for $120. Google only offers one other data package for low-income homes. Google doesn’t offer different size cable packages. They don’t offer voice. They don’t offer security, or cloud services or any of the panoply of new services that can be provided over fiber.

In my opinion Google has looked into the future and they believe that most of the other services that they could be selling will be available to customers over the very fast Internet connection that Google is selling them. One of the primary advantages to Google of the dumb pipe strategy is that they have a very simple product mix to sell. Fewer products means less staff needed to market, sell, provision and support customers.

The downside to the dumb pipe provider is that they will have a much lower average revenue per user (ARPU) than the full service provider. But both types of providers have a very similar cost of the network. And this is at the heart of the discussion that many of my clients are having about the long-term trends in the industry.

Most providers in the industry today are full-service providers. They support the full residential triple-play, have multiple options for cable TV, have multiple options for voice. They also sell a wide range of other products and their marketing strategy is aimed at getting the highest ARPU from customers they can.

But the full-service providers are worried when they look at some of the trends in the industry. They have already seen a lot of voice customers drop off the network. They are starting to see cable customers leave the network and they look ten years down the road and see a very different cable market. And so full-service providers are faced with figuring out how to go from where they are today to where they think they must be in the future.

I am starting to see evidence of the shift in the strategy of full-service providers. In the last year I have seen data prices being increased all over the country for the first time. And this is not because the cost of providing data is growing, because the margins on data have grown steadily each year over the last decade and are still growing. I think the service  providers have embarked on a long-term upward shift in data prices so that they will be getting more revenue from the one product that is likely to survive into the future.

The companies with the biggest dilemma are these just entering the market for the first time. Do they make the leap straight to being a dumb pipe provider, like Google, or do they become a full-service provider and enjoy the remaining years of high ARPU before voice and cable TV losses pull those numbers downward? It is a hard decision and a conversation I am now having with every new service provider.