AT&T’s 5G Strategy

AT&T recently described their long-term 5G strategy using what they call the 3 pillars of 5G – the three areas where the company is putting their 5G focus. The first pillar is a concentration on 5G cellular, and the company’s goal is to launch a 5G-based cellular service, with some cities coming on board in the second half of 2020. This launch will use frequencies in the sub-6 GHz range. This admission that there won’t be any AT&T 5G until at least 2020 contradicts the AT&T marketing folks who are currently trying to paint the company’s 4G LTE as pre-5G.

The biggest problem for the public will be getting a 5G cellphone. AT&T is working with Samsung to hopefully launch two phones later this year that have some 5G capability. As always with a new generation of wireless technology, the bottleneck will be in handsets. The cell phone makers can’t just make generic 5G phones – they have to work with the carriers to be ready to support the spectific subset of 5G features that are released. You might recall that the 5G cellular specification contains 13 improvements, and only the first generation of a few of those will be included in the first generation 5G cell sites. Cellphone manufacturers will also have to wrestle with the fact that each big cellular carrier will introduce a different set of 5G features.

This is a real gamble for cellphone makers because a 5G phone will become quickly obsolete. A 5G phone sold in late 2019 probably won’t include all of the 5G features that will be on the market by late 2020 – and this is likely to be true for the next 3 or 4 years as the carriers roll out incremental 5G improvements. It’s also a gamble for customers because anybody that buys an early 5G cellphone will have early bragging rights, but those cool benefits can be out of date in six months. I think most people will be like me and will wait a few years until the 5G dust settles.

AT&T’s second pillar is fixed wireless. This one is a head-scratcher because they are talking about the fixed cellular product they’ve already been using for several years – and that product is not 5G. This is the product that delivers broadband to homes using existing low-band cellular frequencies. This is not the same as Verizon’s product that delivers hundreds of megabits per second but is instead a product that delivers speeds up to 50 Mbps depending upon how far a customer lives from a cell tower – with reports that most households are getting 15 Mbps at best. This is the product that AT&T is mostly using to satisfy its CAF II requirements in rural America. All of the engineers I’ve talked to don’t think that 5G is going to materially improve this product.

The final pillar of AT&T’s strategy is edge computing. What AT&T means by this is to put fast processors at customer sites when there is the need to process low-latency, high-bandwidth data. Like other carriers, AT&T has found that not everything is suited for the cloud and that trying to send big data to and from the cloud can create a bandwidth bottleneck and add latency. This strategy doesn’t require 5G and AT&T has already been deploying edge routers. However, 5G will enhance this ability at customer sites that need to connect a huge number of devices simultaneously. 5G can make it easier to connect to a huge number of IoT devices in a hospital or to 50,000 cell phones in a stadium. The bottom line is that the migration to more edge computing is not a 5G issue and applies equally to AT&T’s fiber customers.

There is really nothing new in the three-pillar announcement and AT&T has been talking about all three applications from some time – but the announcement does highlight the company’s focus for stockholders.

In what was mostly a dig at Verizon, AT&T’s CEO Randall Stephenson did hold out the possibility of AT&T following Verizon into the 5G fixed wireless local loop using millimeter wave spectrum – however, he said such a product offering is probably three to five years into the future. He envisions the product as an enhancement to AT&T’s fiber products, not necessarily a replacement. He emphasized that AT&T is happy with the current fiber deployments. He provided some new statistics on a recent earnings call and said the company is seeing customer penetration rates between 33% and 40% within 18 months of new fiber deployment and penetration around 50% after three years. Those are impressive statistics because AT&T’s fiber deployments have been largely in urban areas competing with the big cable companies.

A year ago, Stephenson said that getting sufficient backhaul was his number one concern with deploying high-bandwidth wireless. While he hasn’t repeated that recently, it fits in with his narrative of seeing millimeter wave radio deployments in the 3-5 year time frame. The company recently released a new policy paper on its AirGig product that says that the product is still under development and might play well with 5G. AirGig is the mysterious wireless product that shoots wireless signals along power lines and somehow uses the power lines to maintain focus of the signal. Perhaps the company is seeing a future path for using AirGig as the backhaul to 5G fixed wireless deployments.

AT&T and Net Neutrality

The big ISPs know that the public is massively in favor of net neutrality. It’s one of those rare topics that polls positively across demographics and party lines. Largely through lobbying efforts of the big ISPs, the FCC not only killed net neutrality regulation but they surprised most of the industry by walking away from regulating broadband at all.

We now see states and cities that are trying to bring back net neutrality in some manner. A few states like California are creating state laws that mimic the old net neutrality rules. Many more states are limiting purchasing for state telecom to ISPs that don’t violate net neutrality. Federal Democratic politicians are creating bills that would reinstate net neutrality and force it back under FCC jurisdiction.

This all has the big ISPs nervous. We certainly see this in the way that the big ISPs are talking about net neutrality. Practically all of them have released statements talking about how much they support the open Internet. These big companies already all have terrible customer service ratings and they don’t want to now be painted as the villains who are trying to kill the web.

A great example is AT&T. The company’s blog posted a letter from Chairman Randall Stephenson that makes it sound like AT&T is pro net neutrality. It fails to mention how the company went to court to overturn the FCC’s net neutrality decision or how much they spent lobbying to get the ruling overturned.

AT&T also took out full-page ads in many major newspapers making the same points. In those ads the company added a new talking point that net neutrality ought to also apply to big web companies like Facebook and Twitter. That is a red herring because web companies, by definition, can’t violate net neutrality since they don’t control the pipe to the customers. Many would love to see privacy rules that stop the web companies from abusing customer data – but that is a separate issue than net neutrality. AT&T seems to be making this point to confuse the public and deflect the blame away from themselves.

Stephenson says that AT&T is favor of federal legislation that would ensure net neutrality. But what he doesn’t say is that AT&T favors a bill the big companies are pushing that would implement a feel-good watered-down version of net neutrality. Missing from that proposed law (and from all of AT&T’s positions) is any talk of paid priority – one of the three net neutrality principles. AT&T has always wanted paid prioritization. They want to be able to charge Netflix or Google extra to access their networks since those two companies are the largest drivers of web traffic.

In my mind, abuse of paid prioritization can break the web. ISPs already charge their customers enough money to fully cover the cost of the network needed to support broadband. Customers with unlimited data plans, like most landline connections, have the right to download as much content as they want. The idea of an AT&T then also charging the content providers for the privilege to get to customers is a terrible idea for a number of reasons.

Consider Netflix. It’s likely that they would pass any fees paid to AT&T on to customers. And in doing so, AT&T has violated the principle of non-discrimination of traffic, albeit indirectly, by making it more expensive for people to use Netflix. AT&T will always say that are not the cause of a Netflix rate increase – but AT&T is able to influence the market price of web services, and in doing so discriminate against web traffic.

The other problem with paid prioritization is that it is a barrier to the next Netflix. New companies without Netflix’s huge customer base could not afford the fees to connect to AT&T and other large ISPs. And that barrier will stop the next big web company from launching.

I’ve been predicting that the ISPs are not going to do anything that drastically violates net neutrality for a while. They are going to be cautious about riling up the public and legislators since they understand that Congress could reinstate both net neutrality and broadband regulation at any time. The ISPs are enjoying the most big-company friendly FCC there has ever been, and they are getting everything they want out of them.

But big ISPs like AT&T know that the political and regulatory pendulum can and will likely swing the other way. Their tactic for now seems to be to say they are for net neutrality while still working to make sure it doesn’t actually come back. So we will see more blogs and newspaper ads and support for watered-down legislation. They are clearly hoping the issue loses steam so that the FCC and administration don’t reinstate rules they don’t want. But they realistically know that they are likely to be judged by their actions rather than their words, so I expect them to ease into practices that violate net neutrality in subtle ways that they hope won’t be noticed.

The End of Satellite TV?

Randall Stephenson, the CEO of AT&T, recently announced that the company will be working to replace their satellite TV (DirecTV) with an OTT offering over the web. The company plans to launch the first beta trials by the end of this year. The ultimate goal will be for the online offering to eventually replace the satellite offering.

He didn’t provide any specific details of the planned offering other than comparing it to the current DirecTV Now offering that carries about 100 channels and is a direct competitor to landline cable TV.

Obviously the company has a lot of details to work out. DirecTV currently has over 20 million customers and along with Comcast is the only other cable provider that added customers over the last year ending in the second quarter. The biggest online live broadcast offering today is Dish Network’s Sling TV with around 2 million customers. AT&T faces numerous technical challenges if they want to transfer their huge customer base onto the web.

People always speculate why AT&T bought DirecTV and perhaps now we finally have the answer. The product will be marketed nationwide, not just in the AT&T footprint. The big advantage for AT&T is that they are not saddled with FCC rules that create the large cable bundles of 200 channels, and so perhaps they have found a way to make online bundles of cable channels profitable again. It seems that there are probably more profits in a 100-channel line-up than in traditional cable offerings. The same may not be true for skinny bundles and there is a lot of speculation that low-price OTT offerings like Sling TV at $20 don’t make any money.

This move would enable AT&T to leap forward and to easily keep up with the latest video technology. Almost all legacy video is using dated technology like the satellite DBS, the QAM on cable networks and even AT&T’s own first-generation IPTV headends. With an online product the company can get completely out of the settop box and the installation business for TV. They can also easily keep up with new formats and standards, such as the ability to immediately be able to offer 4K video everywhere. Going online makes it a lot easier to meet future customer demands as the industry continues to change rapidly.

But this has to be scary news for rural America. AT&T and Verizon have both made it clear they would like to tear down legacy copper networks, which will make it hard or impossible for some parts of rural America to make voice calls. If copper wires disappear then Cable TV over satellite is the only other modern telecom product available in a lot of rural America. If it’s phased out then much of rural America falls off the telecom map entirely.

While we have no idea if Dish Networks has similar plans, but the fact that they are migrating customers to Sling TV indicates that they might. This could turn ugly for rural America.

Obviously a quality OTT video product requires a quality broadband connection – something that is not available in millions of rural homes. It’s not hard to envision a future in which a home without good broadband might be isolated from the outside world.

It’s clear that the big companies like AT&T are focused only on bottom-line, and perhaps they should be. But one of the primary benefits of having incumbent regulated providers was that everybody in the country was offered the same choice of products. But unfortunately, the never-ending growth of broadband demand has broken the old legacy system. It was one thing to make sure that everybody was connected to the low-bandwidth voice network, but it’s something altogether different to make sure that rural America gets the same broadband as everybody else.

I can remember a time when I was a kid that a lot of rural homes didn’t have cable TV. Some rural homes were lucky enough to get a few TV stations over the air if they had a tall antenna. But many homes had no TV options due to the happenstance of their location. Satellite TV came along and fixed this issue and one expects when visiting a farm today to see a satellite dish in the yard or on the roof. This might become soon another of those quaint memories that are a thing of the past. But in doing so it will add to the political pressure to find a workable rural broadband solution.

Are We Really Funding More DSL?

DSL modemRecently while speaking at the National Association of Regulatory Utility Commissioners (NARUC), AT&T CEO Randall Stephenson told the attendees that AT&T’s DSL technology is obsolete. This is a rare admission of the truth from AT&T, which has been less than forthcoming over the years about its broadband business.

And it’s a pretty interesting quote from a company that last year accepted $427 million in CAF II funding from the FCC to expand broadband in rural markets. That money is supposedly going to be used to upgrade rural customers to be able to receive at least 10 Mbps download and 1 Mbps upload speeds. CenturyLink and Frontier plan to spend their federal assistance money by expanding DSL. I think it’s widely assumed that AT&T will also use the money for DS. But we can’t be certain that they aren’t planning to instead use that money to bring cellular wireless to rural homes, against the intentions of the FCC.

To be fair to Stephenson, his response was answering a question about how regulators should look at new technology cycles. Stephenson pointed out that technology cycles have shortened over the years. When DSL was first introduced it was expected to be good for about 10 – 15 years, but today the cycles for new technology have shortened to 5 years – with his example being the transition between 3G and 4G wireless.

Stephenson is right about the speed at which broadband technologies are improving. Since the introduction of DSL we have seen cable modems go through several generations of improvements and in 2016 we are seeing the first widespread roll-out of DOCSIS 3.1 and gigabit speeds from cable companies. And in that same time frame we have seen the development and the maturation of fiber technologies for serving homes. From a performance perspective DSL has been left in the dust.

AT&T certainly still has a lot of DSL in service. But it’s hard to decipher AT&T’s broadband statistics because they lump all broadband customers together. This has gotten more confusing since they picked up DirecTV, which sells satellite broadband. AT&T has been further making a distinction between traditional DSL customers and U-verse customers, most of which are served by bonding two pairs of copper together and using two DSL circuits. But supposedly within the U-verse numbers are also customers on fiber, which many analysts suspect are MDUs or small greenfield fiber trials that AT&T has done over the years.

In the fourth quarter of 2015 AT&T announced a net gain of 192,000 IP broadband customers, which is a mix of the three different types of broadband customers. If AT&T is like Verizon and CenturyLink they have been losing traditional DSL customers at a torrid pace, so it’s hard to know what to make of that number. Are they finally adding some FTTP customers?

But back to DSL. Stephenson is right. At best, a DSL service on a single copper line can deliver perhaps 20 Mbps of data – but conditions are rarely ideal and in the real world DSL is generally a lot slower than that. But even if people could get 20 Mbps from new DSL it’s obsolete because that is no longer considered as broadband.

It’s a shame that the FCC is going to invest billions in DSL at a time when the large telcos were never going to make those investments on their own. The CAF II funds will channel billions of dollars to the DSL vendors for one last hurrah before the technology hits the dust heap. Without the CAF II money one can imagine the DSL equipment market fading away.

While CAF II is a huge gift to the companies that sell DSL equipment – it’s going to be a long-term curse to people that will be upgraded with CAF II funding. They are going to get upgraded to DSL in a fiber world and the telcos are going to check these areas off as upgraded and needing no more investment. A lot of the first DSL built in the 90s is still working in the network, and sadly we are probably going to find a lot of CAF II DSL still working in rural America twenty years from now.