Looking Back at Looking Forward

I find it interesting to sometimes look backward a few years to see what predictions were made about the future of the telecom industry. Five years ago I went to an NTCA conference where several speakers made predictions about the industry, particularly as it would impact rural America. It’s interesting to look at what was predicted about today just a few years ago. Some predictions were dead on and others fizzled. Following are some of the more interesting misses.

Broadband Technologies. There were predictions that by 2020 that we’d see upgrades to G.Fast in rural copper networks and to next-generation PON equipment for fiber deployments. Neither of these happened for various reasons. US telcos have never accepted G.Fast, although there is widespread adoption in Europe where copper networks are delivering 300 Mbps speeds to customers. The big telcos in the US are making no investments in rural copper unless the FCC fully funds it. Many smaller telcos have taken advantage of changes in the Universal Service Fund to upgrade from copper to fiber rather than upgrade DSL. Next-generation PON electronics are still waiting for one big ISP to buy enough gear to lower prices.

Widespread 5G. It’s not hard to understand why this would have been believed in 2014 since the big carriers were already in hype mode even then. One prediction was that as many as 60% of cellphones would be 5G by 2020. There were several predictions that 5G was going to enable autonomous vehicles and that building fiber along highways would be routine by 2020. There was a prediction that we’d see small cells everywhere, with deployments every 3,000 feet.

The timing of 5G is far behind those predictions. I see where Cisco recently estimated that only 3% of cellphones worldwide would be 5G enabled by 2022. Most experts today believe that the cellular networks will still predominantly rely on 4G LTE even a decade from today. The idea of building a cellular network for autonomous vehicles died – it was always hard to imagine the revenue stream that would have supported that network. We may still get to a dense small cell network someday, but calling for a small cell every 3,000 feet still sounds incredibly aggressive even decades from now.

IoT and LPWAN. There was a prediction that by 2020 that we’d have deployed low bandwidth networks using 900 MHz spectrum that would connect to huge numbers of outdoor IoT sensors. The prediction was that there is a huge revenue opportunity to charge $1 monthly for each sensor. There are still those calling for these networks today, but it’s still not getting any widespread traction.

Widespread Adoption of Augmented and Virtual Reality. Those technologies were on everybody’s future list in 2014. Oculus Rift was the leader in developing virtual reality and Magic Leap had raised several rounds of funding to develop augmented reality. There is now a sizable gaming deployment of virtual reality, but virtual reality has not yet touched the average person or moved beyond gaming. Magic Leap finally started selling a developer headset at the end of last year.

We Should Be Overrun by Now with Robots and Drones. In 2014 there was a prediction of robots everywhere by 2020. New factories are manned today by robots, but robots are still news when they are used in a public-facing function. A few hotels are trying out a robot concierge. There are a few automated fast food restaurants. There are a few hospitals with robots that transport meals and medicines. Robots deliver take-out food in a few city centers and university towns.

Drones are quietly being used for functions like mapping and inspecting storm damage. Flying small drones is now a popular hobby. Amazon keeps experimenting with drone delivery of packages but it’s still in the trial stage. Commercial use of drones is still in its infancy.

Use of Data. My favorite prediction was that by 2020 we’d have software systems that can deliver data at the right place, at the right time, to the right person, on the right device. This harkens back to the old AT&T promise that someday we’d be able to watch any movie we wanted, the minute we wanted. To some degree that old promise came to pass, although it was implemented by somebody other than AT&T.

Some businesses are meeting parts of this prediction today. These are custom platforms that send trouble tickets to technicians, notify employees to connect a new customer, automate ordering of inventory, etc. However, nothing close to that promise has yet made it into our everyday lives. In fact, except for Candy Crush most of us probably still have the same apps on our smartphones we used in 2014. Many of us are still waiting for the digital assistant we were first promised a decade ago.

Got Some Things Right. It’s easy to pick on predictions that never came to pass and I’ve made plenty of those myself. There was some great prediction in 2014. One presenter said we’d continue to see the explosive growth of residential data usage, that would continue to grow at 24% per year – that’s still a dead-on prediction. There was a prediction that businesses would migrate employees to mobile devices and it is routine today to see employees in all sorts of businesses operating from a tablet. There was a prediction of explosive growth of machine-to-machine data traffic, and today this one of the areas fastest traffic growth.

5G For Rural America?

FCC Chairman Ajit Pai recently addressed the NTCA-The Rural Broadband Association membership and said that he saw a bright future for 5G in rural America. He sees 5G as a fixed-wireless deployment that fits in well with the fiber deployment already made by NTCA members.

The members of NTCA are rural telcos and many of these companies have upgraded their networks to fiber-to-the-home. Some of these telcos tackled building fiber a decade or more ago and many more are building fiber today using money from the ACAM program – part of the Universal Service Fund.

Chairman Pai was talking to companies that largely have been able to deploy fiber, and since Pai is basically the national spokesman for 5G it makes sense that he would try to make a connection between 5G and rural fiber. However, I’ve thought through every business model for marrying 5G and rural fiber and none of them make sense to me.

Consider the use of millimeter wave spectrum in rural America. I can’t picture a viable business case for deploying millimeter wave spectrum where a telco has already deployed fiber drops to every home. No telco would spend money to create wireless drops where they have already paid for fiber drops. One of the biggest benefits from building fiber is that it simplifies operations for a telco – mixing two technologies across the same geographic footprint would add unneeded operational complications that nobody would tackle on purpose.

The other business plan I’ve heard suggested is to sell wholesale 5G connections to other carriers as a new source of income. I also can’t imagine that happening. Rural telcos are going to fight hard to keep out any competitor that wants to use 5G to compete with their existing broadband customers. I can’t imagine a rural telco agreeing to provide fiber connections to 5G transmitters that would sit outside homes and compete with their existing broadband customers, and a telco that lets in a 5G competitor would be committing economic suicide. Rural business plans are precarious, by definition, and most rural markets don’t generate enough profits to justify two competitors.

What about using 5G in a competitive venture where a rural telco is building fiber outside of their territory? There may come a day when wireless loops have a lower lifecycle cost than fiber loops. But for now, it’s hard to think that a wireless 5G connection with electronics that need to be replaced at least once a decade can really compete over the long-haul with a fiber drop that might last 50 or 75 years. If that math flips we’ll all be building wireless drops – but that’s not going to happen soon. It’s probably going to take tens of millions of installations of millimeter wave drops until telcos trust 5G as a substitute for fiber.

Chairman Pai also mentioned mid-range spectrum in his speech, specifically the upcoming auction for 3.5 GHz spectrum. How might mid-range spectrum create a rural 5G play that works with existing fiber? It might be a moot question since few rural telcos are going to have access to licensed spectrum.

But assuming that telcos could find mid-range licensed spectrum, how would that benefit from their fiber? As with millimeter wave spectrum, a telco is not going to deploy this technology to cover the same areas where they already have fiber connections to homes. The future use of mid-range spectrum will be the same as it is today – to provide wireless broadband to customers that don’t live close to fiber. The radios will be placed on towers, the taller the better. These towers will then make connections to homes using dishes that can communicate with the tower.

Many of the telcos in the NTCA are already deploying this fixed wireless technology today outside of their fiber footprint. This technology benefits from having towers fed by fiber, but this rarely the same fiber that a telco is using to serve customers. In most cases this business plan requires extending fiber outside of the existing service footprint – and Chairman Pai said specifically that he saw advantage for 5G from existing fiber.

Further, it’s a stretch to label mid-range spectrum point-to-multipoint radio systems as 5G. From what numerous engineers have told me, 5G is not going to make big improvements over the way that fixed wireless operates today. 5G will add flexibility for the operator to fine-tune the wireless connection to any given customer, but the 5G technology won’t inherently increase the speed of the wireless broadband connection.

I just can’t find any business plan that is going to deliver 5G in rural America that takes advantage of the fiber that the small telcos have already built. I would love to hear from readers who might see a possibility that I have missed. I’ve thought about this a lot and I struggle to find the benefits for 5G in rural markets that Chairman Pai has in mind. 5G clearly needs a fiber-rich environment – but companies who have already built rural fiber-to-the-home are not going to embrace a second overlay technology or openly allow competitors onto their networks.

Subsidizing Rural Broadband

In a rare joint undertaking involving the big and small telcos, the trade groups USTelecom and NTCA—The Rural Broadband Association sponsored a whitepaper titled, Rural Broadband Economics: A Review of Rural Subsidies.

The paper describes why it’s expensive to build broadband networks in rural areas, with high costs mostly driven by low customer density. This is something that is largely universally understood, but this describes the situation for politicians and others who might not be familiar with our industry.

The paper goes on to describe how other kinds of public infrastructure – such roads, electric grids, water and natural gas systems – deal with the higher costs in rural areas. Both natural gas and water systems share the same characteristics as cable TV networks in this country and they are rarely constructed in rural areas. Rural customers must use alternatives like wells for water or propane instead of natural gas.

The electric grid is the most analogous to the historic telephone network in the country. The government decided that everybody should be connected to the electric grid, and various kinds of government subsidies have been used to help pay for rural electric systems. Where the bigger commercial companies wouldn’t build a number of rural electric cooperatives and municipal electric companies filled the gap. The federal government developed subsidy programs, such as low-cost loans to help construct and maintain the rural electric grids. There was no attempt to create universal electric rates across the country and areas lucky enough to have hydroelectric power have electric rates that are significantly lower than regions with more expensive methods of power generation.

Roads are the ultimate example of government subsidies for infrastructure. There are both federal and state fuel taxes used to fund roads. Since most drivers live in urban areas, their fuel taxes heavily subsidize rural roads.

The paper explains that there are only a few alternatives to fund rural infrastructure:

  • Charge higher rates to account for the higher costs of operating in rural areas. This is why small town water rates are often higher than rates in larger towns in the same region.
  • Don’t build the infrastructure since it’s too expensive. This is seen everywhere when cable TV networks, natural gas distribution and water and sewer systems are rarely built outside of towns.
  • Finally, rural infrastructure can be built using subsidies of some kind.

Subsidies can come from several different sources:

  • Cross-subsidies within the same firm. For example, telephone regulators long ago accepted the idea that businesses rates should be set higher to subsidize residential rates.
  • Cross subsidies between firms. An example would be access rates charged to long distance carriers that were used for many years to subsidize local telephone companies. There are also a number of electric companies that have subsidized the creation of broadband networks using profits from the electric business.
  • Philanthropic donations. This happens to a small extent. For example, I recently heard where Microsoft had contributed money to help build fiber to a small town.
  • Government subsidies. There have been a wide range of these in the telecom industry, with the latest big ones being the CAF II grants that contribute towards building rural broadband.

Interestingly the paper doesn’t draw many strong conclusions other than to say that rural broadband will require government subsidies of some kind. It concludes that other kinds of subsidies are not reasonably available.

I suspect there are no policy recommendations in the paper because the small and large companies probably have a different vision of rural broadband subsidies. This paper is more generic and serves to define how subsidies function and to compare broadband subsidies to other kinds of infrastructure.

Highlights from the NTCA PPP Panel

ppp_logoI was just on a panel at the NTCA Spring Convention looking at the topic of Public Private Partnerships (PPPs). The audience was mostly independent telephone companies and cooperatives. I was one the panel with Curtis Dean of Smart Source Consulting, and Dan Olsen and Ben Humphrey of Finley Engineering. Together this particular group has a lot of day-to-day operational experience working with or for municipal telecom companies.  Following are a few of the major points made during the presentation and the follow-up questions:

Cities are Different. Cities don’t think the same way as commercial companies. They have different goals. They have a number of issues that make working with them a challenge such as slow decision making, open records laws, public purchasing practice, and of course, politics. They even have a different idea of what a successful venture looks like and any business that can cover costs and not need a subsidy is considered successful.

A Good Partnership Can be Harder to Maintain than a Good Marriage. In general, it’s hard to find a good partner, commercial or municipal, that you will feel comfortable with working over a long period of time. The recommendation was to take the time up front to ask the right questions to make sure that you understand the differences in working with a city, and to figure out an operating structure that will let both sides be comfortable with the differences over many years.

Don’t be Afraid of PPPs. There is no reason to be afraid of PPPs. There are numerous examples of successful PPPs already in existence and the parties in those ventures found ways to make it work. While cities and commercial companies are very different, if you do the hard work up front in creating a sustainable partnership it can work.

Shield a PPP from Politics. Probably one of the most harmful things that can happen in a PPP is for politics to influence decision-making after it’s up and running. You need to find a governance structure that isolates the business to some extent from direct political interference. A PPP should not require government approval to raise rates or to make operational changes needed in the business.

Have an Exit Plan. One thing that is often missing in the creation of a PPP (and in the creation of commercial partnerships as well) is for both sides to have an exit strategy. When negotiating a new partnership the two sides should always talk about what happens if things go south, and the contractual arrangement should allow both partners a way out of the partnership if it isn’t working for them.

Rural America is Growing Desperate for Broadband. Towns that don’t have great broadband today are seeing a huge gulf opening between them and neighboring towns that have good broadband. Cities are growing fearful that without broadband they will lose jobs, lose population as kids move elsewhere for work and will not attract new housing or businesses. Broadband has grown from something that is nice to have to an economic necessity and places without broadband are fearful that their towns will become irrelevant and disappear.

Municipalities Need to Put Skin in the Game. Cities are waking up to the fact that in order to get the broadband they want that they are are going to have to help pay for it. The numerous RFPs that are asking somebody to show up and build broadband are falling on deaf ears and they are realizing that they are competing against tens of thousands of other cities in the same situation and with the same need. Cities and citizens are getting more willing to put taxpayer money into the pot to find a good broadband solution. And municipal money can make it easier for a commercial partner to make the desired returns.

Seek Help. If you are considering a PPP, then seek advice from those that have already done this right. There are many things that can wrong, and no partnership is assured of long-term success or harmony. It’s worth the extra time and cost up front to make sure that you are not making one of the fatal mistakes that will be a problem five years down the line.

The Gigasphere

cheetah-993774If you haven’t already heard it, you will soon be hearing the term ‘gigasphere’. This is the marketing term that the large cable companies are adopting to describe their upward path towards having faster data speeds on their cable systems. The phrase is obviously meant as a marketing counter to the commonly used term of gigabit fiber.

The gigasphere term is being promoted by the National Cable Television Association (NTCA) as the way to describe the new DOCSIS 3.1 technology. This is a technology that can theoretically support cable modem speeds up to 10 Gbps download and 1 Gbps upload.

The large cable companies are all starting to feel consumer pressure from fiber, even in markets where fiber is not readily available. Google and other fiber providers have excited the public with the idea of gigabit speeds and I am sure cable companies are being asked about this frequently.

Right now the term gigasphere is largely marketing hype. If you have fiber to your home or business, then with the right electronics you can get gigabit speeds. But cable systems have a long way to go before they can offer gigabit speeds over coaxial cable. There is already talk of cable companies offering gigabit products, such as the recent announcements from Comcast. But these speeds are not being achieved using coaxial cable and DOCSIS 3.1, they are using fiber – something Comcast doesn’t highlight in their marketing.

With enough upgrades and money, the cable systems can eventually achieve gigabit speeds on their coaxial networks. But for now their speeds are significantly less than that. A cable company faces a long and complicated path to be able to offer gigabit speeds over coaxial cable. Their biggest hurdle is that the bandwidth on their cable systems is mostly used by TV channels, and only empty channel spaces can be used for data. DOCSIS 3.1 allows a cable system to join together the spare channels on their network into one larger data pipe.

In order to get to gigabit speeds a cable company has to convert all of the channels on its network to digital, something most of them have already done. But further, they are going to need to treat them the same as TV on the web – transmitting them as raw data instead of as individual channels. Cable systems today use a broadcast technology, meaning they send all of the channels to customers at the same time. But if they convert to IPTV they can send each home just the channels they want to watch, which would massively condense the system bandwidth needed for television.

But this conversion is going to be costly and the equipment to do it is not yet readily available. CableLabs is working on this technology and it ought to be on the market in a few years. But that change alone is not the whole price of conversion. An IPTV system will require all new settop boxes, and in many systems a major reworking of the power taps and other components of the outside cable network. I don’t see many cable companies rushing towards this expensive conversion unless they are in a market where it is competitively necessary.

So for now, the gigasphere is mostly a marketing phrase. But it’s one that you are going to start hearing all of the time in relation to cable system data capabilities. This will obviously confuse the public who will assume that gigasphere means that they will be able to buy gigabit speeds from their cable companies, when they almost certainly cannot.

It’s not like cable companies don’t have fairly fast data capabilities. Most urban systems today are already capable of speeds in excess of 200 Mbps download. And there are systems working to get to 500 Mbps, which is probably about as fast as you can go without converting to IPTV. But it seems the marketing folks in the industry are counting on the fact that customers won’t know the difference between the various flavors of fast and will be happy with their gigasphere products. And they are probably right. Where’s my 500 Mbps cable modem?