A Hybrid Model for Rural America

Lately I’ve looked at a lot of what I call a hybrid network model for bringing broadband to rural America. The network involves building a fiber backbone to support wireless towers while also deploying fiber to any pockets of homes big enough to justify the outlay. It’s a hybrid between point-to-multipoint wireless and fiber-to-the home.

I’ve never yet seen a business model that shows a feasible model for building rural FTTP without some kind of subsidy. There are multiple small telcos building fiber to farms using some subsidy funding from the A-CAM portion of the Universal Service Fund. And there are state broadband grant programs that are helping to build rural fiber. But otherwise it’s hard to justify building fiber in places where the cost per passing is $10,000 per household or higher.

The wireless technology I’m referring is a point-to-multipoint wireless network using a combination of frequencies including WiFi and 3.65 GHz. The network consists of placing transmitters on towers and beaming signals to dishes at a customer location. In areas without massive vegetation or other impediments this technology can now reliably deliver 25 Mbps download for 6 miles and higher bandwidth closer to the tower.

A hybrid model makes a huge difference in financial performance. I’ve now seen an engineering comparison of the costs of all-fiber and a hybrid network in half a dozen counties and the costs for building a hybrid network are in the range of 20% – 25% of the cost of building fiber to everybody. That cost reductions can result in a business model with a healthy return that creates significant positive cash over time.

There are numerous rural WISPs that are building wireless networks using wireless backhaul rather than fiber to get bandwidth to the towers. That solution might work at first, although I often see new wireless networks of this sort that can’t deliver the 25 Mbps bandwidth to every customer due to backhaul restraints.  It’s guaranteed that the bandwidth demands from customers on any broadband network will eventually grow to be larger than the size of the backbone feeding the network. Generally, over a few years a network using wireless backhaul will bog down at the busy hour while a fiber network can keep up with customer bandwidth demand.

One key component of the hybrid network is to bring fiber directly to customers that live close to the fiber. This means bringing fiber to any small towns or even small pockets of 20 or more homes that are close together. It also means giving fiber to farms and rural customers that happen to live along the fiber routes. Serving some homes with fiber helps to hold down customer density on the wireless portion of the network – which improves wireless performance. Depending on the layout of a rural county, a hybrid model might bring fiber to as much as 1/3 of the households in a county while serving the rest with wireless.

Another benefit of the hybrid model is that it moves fiber deeper into rural areas. This can provide the basis for building more fiber in the future or else upgrading wireless technologies over time for rural customers.

A side benefit of this business plan is that it often involves build a few new towers. Areas that need towers typically already have poor, or nonexistent cellular cover. The new towers can make it easier for the cellular companies to fill in their footprint and get better cellular service to everybody.

One reason the hybrid model can succeed is the high customer penetration rate that comes when building the first real broadband network into a rural area that’s never had it. I’ve now seen the customer numbers from numerous rural broadband builds and I’ve seen customer penetration rates range between 65% and 85%.

Unfortunately, this business plan won’t work everywhere, due to the limitations of wireless technology. It’s much harder to deploy a wireless network of this type in an area with heavy woods or lots of hills. This is a business plan for the open plains of the Midwest and West, and anywhere else with large areas of open farmland.

County governments often ask me how they can get broadband to everybody in their county. In areas where the wireless technology will work, a hybrid model seems like the most promising solution.

Why I am Thankful – 2017

Every year at Thanksgiving I take a pause to look at the positive things happening with the small carrier industry. This is not the easiest year to make a list because we currently have an FCC that clearly is in the pocket of the big ISPs like Verizon, AT&T and Comcast. While some of the new FCC policies supporting those big companies will benefit all ISPs, in many cases the FCC decisions are given the big ISPs a leg up over competition. But there are still things to be thankful about in our industry:

Demand for Broadband Intensifies. In the work I have been doing in rural communities it’s becoming clear that broadband has moved from a nice-to-have feature to a must-have commodity. I see evidence of this in several different ways. First, rural communities and their citizens are making a lot of noise to politicians about not having broadband. The broadband issue has become the top priority in many communities. I also see evidence of rural broadband demand when looking at the high penetration rates that come from projects being built in areas that didn’t have good broadband. Over the last few years I’ve seen such projects getting customer penetration rates between 65% and 85%. I call this a good news topic for rural carriers since it means there are still lots of opportunities for expansion, and enough customer demand to help pay for broadband projects. It’s not a positive that there are still so many communities with no broadband, but the positive here is that communities are making demands, which is the first step towards finding a solution.

Public Private Partnerships are Thriving. Very few government entities want to be an ISP and they are instead hoping to find commercial partners to bring better broadband to their communities. In just this last year I’ve worked with half a dozen local governments that have contributed funding to public private partnerships, where the government acts like the bank and the ISP owns and operates the network. Since rural broadband projects are often a challenge to finance this is a promising new trend.

ACAM Money is Financing Fiber. The ACAM money from the Universal Service Fund is being used to expand fiber and advance broadband in rural areas all over the country. The fact that some rural communities are getting fiber is helping to drive the demand for other who want the same thing. We’ll have to wait until next year to see of the CAF II reverse auctions drive similar results.

Wireless Technology Getting a Lot Better. I have a lot of clients who are now deploying point-to-multipoint radios for broadband deployment. Over the last three years these radios have improved dramatically. They are more reliable, almost approaching plug-and-play. By combining multiple frequency bands they deliver bigger broadband pipes, faster speeds and a much-improved customer experience. Depending on customer density the networks can be designed to deliver 25 Mbps to a lot of customers with some speeds as fast as 100 Mbps. There are still big issues with the technology in heavily wooded or hilly areas, but there are a lot of places where the technology is now delivering a great broadband connection.

New Revenue Opportunities Materializing. While voice revenues continue to decline and many of clients are getting clobbered on cable TV, I see a number of them doing well with new products. I have clients getting decent penetration rates with managed WiFi. I have some clients doing well with security. And I have clients making some good margins on smart home technologies. Selling new products is out of the comfort zone for many small ISPs and it requires some new thinking to successfully sell a new product – but I’ve seen enough success stories to see that it can work.

CAF II and Wireless

Frontier Communications just announced that they are testing the use of wireless spectrum to complete the most rural portions of their CAF II build-out requirement. The company accepted $283 million per year for six years ($1.7 billion total) to upgrade broadband to 650,000 rural homes and businesses. That’s a little over $2,600 per location passed. The CAF II program requires that fund recipients increase broadband to speeds of at least 10 Mbps down and 1 Mbps up.

Frontier will be using point-to-multipoint radios where a transmitter is mounted on a tower with the broadband signal then sent to a small antenna at each customer’s location. Frontier hasn’t said what spectrum they are using, but in today’s environment it’s probably a mix of 2.4 GHz and 5 GHz WiFi spectrum and perhaps also some 3.65 GHz licensed spectrum. Frontier, along with CenturyLink and Consolidated told the FCC a year ago that they would be interested in using the spectrum in the ‘citizens’ radio band’ between 3.7 MHz and 4.2 MHz for this purpose. The FCC opened a docket looking into this spectrum in August and comments in that docket were due to the FCC last week.

I have mixed feelings about using federal dollars to launch this technology. On the plus side, if this is done right this technology can be used to deliver bandwidth up to 100 Mbps, but in a full deployment speeds can be engineered to deliver consistent 25 Mbps download speeds. But those kinds of speeds require an open line-of-sight to customers, tall towers that are relatively close to customers (within 3 – 4 miles) and towers that are fiber fed.

But when done poorly the technology delivers much slower broadband. There are WISPs using the technology to deliver speeds that don’t come close to the FCC’s 10/1 Mbps requirement. They often can’t get fiber to their towers and they will often serve customers that are much further than the ideal distance from a tower. Luckily there are many other WISPs using the technology to deliver great rural broadband.

The line-of-sight issue is a big one and this technology is a lot harder to make work in places with lots of trees and hills, making it a difficult delivery platform in Appalachia and much of the Rockies. But the technology is being used effectively in the plains and open desert parts of the country today.

I see downsides to funding this technology with federal dollars. The primary concern is that the technology is not long-lived. The electronics are not generally expected to last more than seven years and then the radios must be replaced. Frontier is using federal dollars to get this installed, and I am sure that the $2,600 per passing is enough to completely fund the deployment. But are they going to keep pouring capital into replacing radios regularly over time? If not, these deployments would be a sick joke to play on rural homes – giving them broadband for a few years until the technology degrades. It’s hard to think of a worse use of federal funds.

Plus, in many of areas where the technology is useful there are already WISPs deploying point-to-multipoint radios. It seems unfair to use federal dollars to compete against firms who have made private investments to build the identical technology. The CAF money ought to be used to provide something better.

I understand Frontier’s dilemma. In the areas where they took CAF II money they are required to serve everybody who doesn’t have broadband today. My back-of-the envelope calculations tells me that the CAF money was not enough for them to extend DSL into the most rural parts of the CAF areas since extending DSL means building fiber to feed the DSLAMs.

As I have written many times I find the whole CAF program to be largely a huge waste of federal dollars. Using up to $10 billion to expand DSL, point-to-multipoint, and in the case of AT&T cellular wireless is a poor use of our money. That same amount of money could have seeded matching broadband that could be building a lot of fiber to these same customers. We only have to look at state initiatives like the DEED grants in Minnesota to see that government grant money induces significant private investment in fiber. And as much as the FCC doesn’t want to acknowledge it, building anything less than fiber is nothing more than a Band-aid. We can and should do better.

The WISP Dilemma

For the last decade I have been working with many rural communities seeking better broadband. For the most part these are places that the large telcos have neglected and never provided with any functional DSL. Rural America has largely rejected the current versions of satellite broadband because of the low data caps and because the latency won’t support streaming video or other real-time activities. I’ve found that lack of broadband is at or near the top of the list of concerns in communities without it.

But a significant percentage of rural communities have access today to WISPs (wireless ISPs) that use unlicensed frequency and point-to-multipoint radios to bring a broadband connection to customers. The performance of WISPs varies widely. There are places where WISPs are delivering solid and reliable connections that average between 20 – 40 Mbps download. But unfortunately there are many other WISPs that are delivering slow broadband in the 1 – 3 Mbps range.

The WISPs that have fast data speeds share two characteristics. They have a fiber connection directly to each wireless transmitter, meaning that there are no bandwidth constraints. And they don’t oversubscribe customers. Anybody who was on a cable modem five or ten years ago understands oversubscription. When there are too many people on a network node at the same time the performance degrades for everybody. A well-designed broadband network of any technology works best when there are not more customers than the technology can optimally serve.

But a lot of rural WISPs are operating in places where there is no easy or affordable access to a fiber backbone. That leaves them with no alternative but to use wireless backhaul. This means using point-to-point microwave radios to get bandwidth to and from a tower.

Wireless backhaul is not in itself a negative issue. If an ISP can use microwave to deliver enough bandwidth to a wireless node to satisfy the demand there, then they’ll have a robust product and happy customers. But the problems start happening when networks include multiple ‘hops’ between wireless towers. I often see WISP networks where the bandwidth goes from tower to tower to tower. In that kind of configuration all of the towers and all of the customers on those towers are sharing whatever bandwidth is sent to the first tower in the chain.

Adding hops to a wireless network also adds latency and each hop means it takes longer for the traffic to get to and from customers at the outer edges of one of these wireless chains. Latency, or time lag, in signal is an important factor in being able to perform real-time functions like data streaming, voice over IP, gaming, or functions like maintaining connections to an on-line class or a distant corporate WAN.

Depending upon the brand of the radios and the quality of the internet backbone connection, a wireless transmitter that is connected directly to fiber can have a latency similar to that of a cable or DSL network. But when chaining multiple towers together the latency can rise significantly, and real-time applications start to suffer at latencies of 100 milliseconds or greater.

WISPs also face other issues. One is the age of the wireless equipment. There is no part of our industry that has made bigger strides over the past ten years than the manufacturing of subscriber microwave radios. The newest radios have significantly better operating characteristics than radios made just a few years ago. WISPs are for the most part relatively small companies and have a hard time justifying upgrading equipment until it has reached its useful life. And unfortunately there is not much opportunity for small incremental upgrades of equipment. The changes in the technologies have been significant enough that that upgrading a node often means replacing the transmitters on towers as well as subscriber radios.

The final dilemma faced by WISPs is that they often are trying to serve customers that are in locations that are not ideally situated to receive a wireless signal. The unlicensed frequencies require good line-of-sight and also suffer degraded signals from foliage, rain and other impediments and it’s hard to serve customer reliably who are surrounded by trees or who live in places that are somehow blocked by the terrain.

All of the various issues mean that reviews of WISPs vary as widely as you can imagine. I was served by a WISP for nearly a decade and since I lived a few hundred feet from the tower and had a clear line-of-sight I was always happy with the performance I received. I’ve talked to a few people recently who have WISP speeds as fast as 50 Mbps. But I have also talked to a lot of rural people who have WISP connections that are slow and have high latency that provides a miserable broadband experience.

It’s going to be interesting to see what happens to some of these WISPs as rural telcos deploy CAF II money and provide a faster broadband alternative that will supposedly deliver at least 10 Mbps download. WISPs who can beat those speeds will likely continue to thrive while the ones delivering only a few Mbps will have to find a way to upgrade or will lose most of their customers.