2.5 GHz – Spectrum for Homework

As part of the effort to free up mid-band spectrum, the FCC is taking a fresh look at the 2.5 GHz spectrum band. This band of spectrum is divided into 33 channels; the lower 16 channels are designated as EBS (Educational Broadband Service) with the remainder as BRS (Broadcast Radio Service).

The EBS band was first granted to educational institutions in 1963 under the designation ITFS (Instructional Television Fixed Service) and was used to transmit educational videos within school systems. It became clear that many schools were not using the spectrum and the FCC gave schools the authority to lease excess capacity on the spectrum for commercial use. In urban markets the spectrum was leased to networks like HBO, Showtime and the Movie Channel which used the spectrum to delivery content after the end of the school day. In the late 1990s the spectrum was combined with MMDS in an attempt to create a wireless cable TV product, but this use of the spectrum never gained commercial traction.

In 1998 the FCC allowed cellular companies to use the leased spectrum for the new 3G cellular. In 1998 the FCC also stopped issuing new licenses for the spectrum band. Companies like Craig McCaw’s Clearwire leased the spectrum to deliver competitive cellular service in many urban areas. In 2005 the FCC cemented this use to allow the spectrum to be used for two-way mobile and fixed data.

Today the technology has improved to the point where the spectrum could help to solve the homework gap in much of rural America. The spectrum can be used in small rural towns to create hot spots that are tied directly to school servers. The spectrum can also be beamed for about 6 miles from tall towers to reach remote students. The spectrum has nearly the same operating characteristics as the nearby 2.4 GHz WiFi band, meaning that long-distance connections require line-of-sight, so the spectrum is more useful is areas with wide-open vistas than in places like Appalachia.

A group of educational organizations including the Catholic Technology Network, the National EBS Association, the Wireless Communications Association International and the Hispanic Information and Telecommunications Network petitioned the FCC to expand the EBS network and to grant new EBS licenses to fully cover the country. The FCC has been considering a plan that would strengthen the educational use of the spectrum and which would also auction the rest of the spectrum for use as wireless broadband.

The use of the spectrum for rural educational uses could be transformational. Rural students could get a small dish at their homes, like is done with the fixed wireless deployed by WISPs. Students would them have a direct connection to the school systems servers for doing homework. Interestingly, this would not provide a home with regular Internet access, other than what might be granted by schools for links needed for doing homework.

The disposition of the spectrum band is complicated by the fact that Sprint holds much of the spectrum under long-term lease. Sprint holds licenses to use more than 150 MHz of the spectrum in the top 100 markets in the country, which currently provides them with enough spectrum to simultaneously support both 4G LTE and 5G. The speculation is that the FCC is working on a plan to free up some of this spectrum as a condition to the merger of Sprint and T-Mobile.

This is the only current spectrum band where the FCC is envisioning different urban and rural uses, with rural parts of the country able to use the spectrum to connect to students while in urban areas the spectrum is used to support 5G. This divided use was only made possible by the historic educational component of the spectrum. If the FCC tries to give all of this spectrum to the cellular carriers they’d have to reclaim the 2,200 licenses already given to school systems – something they are politically unwilling to tackle.

However, this solution points to a wider solution for rural residential broadband. The FCC could order the same type of rural/urban bifurcation for many other bands of spectrum that are used primarily in urban settings. We need to find creative ways to use idle spectrum, and this spectrum bank provides a roadmap that ought to be applied to other swaths of spectrum.

Freeing the spectrum for full use by rural education offers big potential, but also creates challenges for rural school systems which will have to find the money to build and deploy wireless networks for homework. But solving the rural homework gap is compelling and I’m sure many school districts will tackle the issue with gusto.

5G Cellular for Home Broadband?

Sprint and T-Mobile just filed a lengthy document at the FCC that describes the benefits of allowing the two companies to merge. This kind of filing is required for any merger that needs FCC approval. The FCC immediately opened a docket on the merger and anybody that opposes the merger can make counterarguments to any of the claims made by the two companies.

The two companies decided to highlight a claim that the combined Sprint and T-Mobile will be able to roll out a 5G network that can compete with home broadband. They claim that by 2024 they could gain as much as a 7% total market penetration, making them the fourth biggest ISP in the country.

The filing claims that their 5G network will provide a low-latency broadband product with speeds in excess of 100 Mbps within a ‘few years’. They claim that customers will be able to drop their landline broadband connection and tether their home network to their unlimited cellular data plan instead. Their filing claims that the this will only be possible with a merger. I see a lot of holes that can be poked into this claim:

Will it Really be that Fast? The 5G cellular standard calls for eventual speeds of 100 Mbps. If 5G follows the development path of 3G and 4G, then those speeds probably won’t be fully met until near the end of the next decade. Even if 5G network can achieve 100 Mbps in ideal conditions there is still a huge challenge to meet those speeds in the wild. The 5G standard achieves 100 Mbps by bonding multiple wireless paths, using different frequencies and different towers to reach a customer. Most places are not receiving true 4G speeds today and there is no reason to think that using a more complicated delivery mechanism is going to make this easier.

Cellphone Coverage is Wonky.  What is never discussed when talking about 5G is how wonky all wireless technologies are in the real world. Distance from the cell site is a huge issue, particular with some of the higher frequencies that might be used with 5G. More important is local interference and propagation. As an example, I live in Asheville, NC. It’s a hilly and wooded town and at my house I have decent AT&T coverage, but Verizon sometimes has zero bars. I only have to go a few blocks to find the opposite situation where Verizon is strong and AT&T doesn’t work. 5G is not going to automatically overcome all of the topographical and interference issues that affect cellular coverage.

Would Require Significant Deployment of Small Cell Sites. To achieve the 100 Mbps in enough places to be a serious ISP is going to require a huge deployment of small cell sites, and that means the deployment of a lot of fiber. This is going to be a huge hurdle for any wireless company that doesn’t have a huge capital budget for fiber. Many analysts still believe that this might be a big enough hurdle to quash a lot of the grandiose 5G plans.

A Huge Increase in Wireless Data Usage. Using the cellular network to provide the equivalent of landline data means a magnitude increase in the bandwidth that will be carried by the cellular networks. FierceWireless along with Strategic Analytics recently did a study on how the customers of the major cellular companies use data. They reported that the average T-Mobile customer today uses 18.4 GB of data per month with 5.3 GB on the cellular network and the rest on WiFi. Sprint customers use 18.2 GB per month with 4.4 GB on the cellular networks. Last year Cisco reported that the average residential landline connection used over 120 GB per month – a number that is doubling every three or four years. Are cellular networks really going to be able to absorb a twenty or thirty times increase in bandwidth demand? That will require massive increases in backhaul bandwidth costs along with huge capital expenditures to avoid bottlenecks in the networks.

Data Caps are an Issue.  None of the cellular carriers offers truly unlimited data today. T-Mobile is the closest, but their plan begins throttling data speeds when a customer hits 50 GB in a month. Sprint is stingier and is closer to AT&T and Verizon and starts throttling data speeds when a customer hits 23 GB in a month. These caps are in place to restrict data usage on the network (as opposed to the ISP data caps that are meant to generate revenue). Changing to 5G is not going to eliminate network bottlenecks, particularly if we see millions of customers using cellular networks instead of landline networks. All of the carriers also have a cap on tethering data – making it even harder to use as a landline substitute – T-Mobile caps tethering at 10 GB per month.

Putting it all into Context. To put this into context, John Legere already claims today that people ought to be using T-Mobile as a landline substitute. He says people should buy a multi-cellphone plan and use one of the phones to tether to landline. 4G networks today have relatively high latency and 4G speeds today can reach 15 Mbps in ideal conditions but are usually slower. 4G also ‘bursts’ today and offers faster speeds for the first minute or two and then slows down to a crawl (you see this when you download phone apps). I think we have to take any claims made by T-Mobile with a grain of salt.

I’m pretty sure that concept of using the merger to create a new giant ISP is mostly a red herring. No doubt 5G will eventually offer an alternative to landline broadband for those homes that aren’t giant data users – but it’s also extremely unlikely that a combined T-Mobile / Sprint could somehow use 5G cellular to become the fourth biggest ISP starting ‘a few years from now’. I think this claim is being emphasized by the two companies to provide soundbites to regulators and politicians who want to support the merger.

Spectrum and 5G

All of the 5G press has been talking about how 5G is going to be bringing gigabit wireless speeds everywhere. But that is only going to be possible with millimeter wave spectrum, and even then it requires a reasonably short distance between sender and receiver as well as bonding together more than one signal using multiple MIMO antennae.

It’s a shame that we’ve let the wireless marketeers equate 5G with gigabit because that’s what the public is going to expect from every 5G deployment. As I look around the industry I see a lot of other uses for 5G that are going to produce speeds far slower than a gigabit. 5G is a standard that can be applied to any wireless spectrum and which brings some benefits over earlier standards. 5G makes it easier to bond multiple channels together for reaching one customer. It also can increase the number of connections that can be made from any given transmitter – with the biggest promise that the technology will eventually allow connections to large quantities of IOT devices.

Anybody who follows the industry knows about the 5G gigabit trials. Verizon has been loudly touting its gigabit 5G connections using the 28 GHz frequency and plans to launch the product in up to 28 markets this year. They will likely use this as a short-haul fiber replacement to allow them to more quickly add a new customer to a fiber network or to provide a redundant data path to a big data customer. AT&T has been a little less loud about their plans and is going to launch a similar gigabit product using 39 GHz spectrum in three test markets soon.

But there are also a number of announcements for using 5G with other spectrum. For example, T-Mobile has promised to launch 5G nationwide using its 600 MHz spectrum. This is a traditional cellular spectrum that is great for carrying signals for several miles and for going around and through obstacles. T-Mobile has not announced the speeds it hopes to achieve with this spectrum. But the data capacity for 600 MHz is limited and binding numerous signals together for one customer will create something faster then LTE, but not spectacularly so. It will be interesting to see what speeds they can achieve in a busy cellular environment.

Sprint is taking a different approach and is deploying 5G using the 2.5 GHz spectrum. They have been testing the use of massive MIMO antenna that contain 64 transmit and 64 receive channels. This spectrum doesn’t travel far when used for broadcast, so this technology is going to be used best with small cell deployments. The company claims to have achieved speeds as fast as 300 Mbps in trials in Seattle, but that would require binding together a lot of channels, so a commercial deployment is going to be a lot slower in a congested cellular environment.

Outside of the US there seems to be growing consensus to use 3.5 GHz – the Citizens Band radio frequency. That raises the interesting question of which frequencies will end up winning the 5G race. In every new wireless deployment the industry needs to reach an economy of scale in the manufacture of both the radio transmitters and the cellphones or other receivers. Only then can equipment prices drop to the point where a 5G capable phone will be similar in price to a 4GLTE phone. So the industry at some point soon will need to reach a consensus on the frequencies to be used.

In the past we rarely saw a consensus, but rather some manufacturer and wireless company won the race to get customers and dragged the rest of the industry along. This has practical implications for early adapters of 5G. For instance, somebody buying a 600 MHz phone from T-Mobile is only going to be able to use that data function when near to a T-Mobile tower or mini-cell. Until industry consensus is reached, phones that use a unique spectrum are not going to be able to roam on other networks like happens today with LTE.

Even phones that use the same spectrum might not be able to roam on other carriers if they are using the frequency differently. There are now 5G standards, but we know from practical experience with other wireless deployments in the past that true portability between networks often takes a few years as the industry works out bugs. This interoperability might be sped up a bit this time because it looks like Qualcomm has an early lead in the manufacture of 5G chip sets. But there are other chip manufacturers entering the game, so we’ll have to watch this race as well.

The word of warning to buyers of first generation 5G smartphones is that they are going to have issues. For now it’s likely that the MIMO antennae are going to use a lot of power and will drain cellphone batteries quickly. And the ability to reach a 5G data signal is going to be severely limited for a number of years as the cellular providers extend their 5G networks. Unless you live and work in the heart of one of the trial 5G markets it’s likely that these phones will be a bit of a novelty for a while – but will still give a user bragging rights for the ability to get a fast data connection on a cellphone.

Cellphone Data Usage

I’ve never seen any detailed information about the amount of data that customers use on cellphones. We have the global statistics from Akamai and others that look at the big picture, but I’ve always wondered how much data the average cell phone user really uses. This is something that is important to understand for ISPs because cellphone usage on home WiFi can be a big chunk of bandwidth these days.

FierceWireless has now partnered with Strategic Analytics to look in more detail at how people use their cellphone data and how they pay for it. The data used in the analysis comes from 4,000 android phone users who agreed to allow their usage to be studied.

Following is a comparison on an average month for the amount of Cellular and WiFi bandwidth used by customers with different kinds of data plans:

‘                                                               Cellular             WiFi               Total

No Data Plan (pay-as-you-go)              0.9 GB              8.8 GB            9.7 GB

Monthly Data Cap                                 2.8 GB            14.0 GB          16.8 GB

Unlimited Data Plan                             5.3 GB            12.3 GB          17.8 GB

Interestingly, there is not that much difference in the total bandwidth used by customers with unlimited data plans versus those with caps. But the unlimited customers obviously feel freer to use data on the cellular network, using twice as much cellular data per month as those with monthly caps.

What is surprising to me is the small amount of data used by unlimited plan customers. There are truly unlimited plans like T-Mobile, but even the quasi-unlimited plans from AT&T and Verizon allow for over 20 Gigabytes of download per month on cellular. But these statistics show that customers, on average, are not using much of that data capability. It looks like many people are buying the unlimited plans for the peace-of-mind of not exceeding their data caps. This reminds me a lot of the days when telcos talked people into buying unlimited long distance plans, knowing that most of them would never use the minutes.

These statistics also show that unlimited data customers are not putting a lot of pressure on cellular networks, as the carriers would have you believe. They have always used the excuse of network congestion as the excuse for charging a lot for cellular data and for having stingy data caps. These statistics show just the opposite and show that, in aggregate that customers are not using cellular data at even a tiny fraction of the bandwidth they use on their home broadband connections.

These statistics also indicate that there are not a lot of people using cellphones to watch video. T-Mobile may give access to Netflix, but it looks like people are either watching the video on WiFi or on a device other than their cellphone. It doesn’t take much video to get to 5 GB per month in download.

To put the total usage numbers in perspective, the average landline broadband connection uses around 120 GB per month according to several ISPs. I’ve seen numerous articles over the last year talking about how cellular data use is exploding, but these numbers don’t back that up. This shows that consumers still go to landline data connections when they want to do something that is data intensive.

These numbers also counterbalance the predictions I keep reading that cellular data will eclipse landline data in a few years. That might true around the world since there are a number of places where almost all ISP connections are through cellphones. But in the US the landline data usage still dwarfs cellphone data usage and is itself still growing rapidly.

The usage by cellular carrier was also reported, as follows:

‘                                                          Cellular             WiFi                Total

AT&T                                                 2.4 GB            11.4 GB          13.6 GB

Sprint                                                4.4 GB            13.8 GB          18.2 GB

T-Mobile                                           5.3 GB            13.1 GB          18.4 GB

Verizon                                             3.6 GB            14.4 GB          18.0 GB

My one take-away from these numbers is that Sprint and T-Mobile customers feel freer to use their smartphone for video and data downloading – but even they mostly do this on WiFi. These numbers also show that the stingy monthly data caps from AT&T and Verizon have trained their customers to not use their cellphones – even after those companies have increased the monthly caps.

Regulation and Capital Spending

At the recent Mobile World Congress, FCC Chairman Ajit Pai said that one of his reasons he wants to reverse Title II regulation is that it has had a drastic impact on capital spending by ISPs. He says that the new regulations have been a disincentive for the ISPs to invest in broadband.

The Chairman bases that position on statistics provided by USTelecom which are based upon work done by Hal Singer, a Senior Fellow at GW Institute for Public Policy. Mr. Singer created the following table that shows the domestic capital spending for the big ISPs for 2014 through 2016. And indeed, this table shows a 5.6% drop, or $3.6 billion a year from 2014 to 2016 – which Mr. Singer attributes to Title II regulation.

2014

2015

2016

AT&T $21.1 $17.3 $17.8
Verizon $17.2 $17.8 $17.1
Comcast $6.4 $7.1 $7.7
Sprint $3.8 $3.9 $1.4
Time Warner Cable $4.1 $4.4 $3.8
T-Mobile $4.3 $4.7 $4.7
CenturyLink $3.0 $2.9 $3.0
Charter $2.2 $1.9 $3.1
Cablevision $0.9 $0.8 $0.6
Frontier $0.6 $0.7 $1.3
US Cellular $0.6 $0.5 $0.5
Suddenlink $0.3 $0.4 $0.3
   Total $64.6 $62.4 $61.0

But like with all statistics, it’s not hard to draw different conclusions from the same set of numbers. For example, all of the drop in capital spending can be attributed to AT&T and Sprint. Taking those companies out of the table shows that capital spending for the other big ISPs is up $2.1 billion or 5% from 2014 to 2016.

So what’s going on with AT&T? There are a number of reasons for their change in capital spending:

·         During these same years the company made massive capital investments in DirecTV ($3 billion over the last few years) and also on the company’s purchase and expansion of its cellular network into Mexico ($3 billion over 4 years). Those numbers are not included in the above table and it’s easy to argue that the company just set different priorities and diverted normal domestic capital to these two giant ventures. If you add those capital expenditures into the table then AT&T’s capital spending has grown – just not their ‘domestic’ spending on traditional broadband.

·         AT&T has been making a huge effort to update its cellular network using software defined networking (SDN) as described at this AT&T website. They have been decommissioning traditional hardware at cell sites and installing much less expensive, off-the-shelf routers that can now control the cell sites from centralized data centers. They have already converted over half of their cell sites and this upgrade means vastly reduced spending on traditional cell site electronics. The company has been bragging about this shift to investors for several years.

·         AT&T has also retracted from expanding traditional big tower cell sites. For a number of years AT&T has been spending money to get fiber to its more remote cell sites, and that upgrade is largely done.

Sprint can also be easily explained. This is a company in trouble and that has been well documented over the last few years. A number of attempts to find a buyer has fallen through. What’s not shown on this table is that in 2013 (the year before the table begins) Sprint spent $6.4 billion on capital in a massive system-wide upgrade to LTE. Since then the company has very publicly stated that they are cutting capital spending to conserve cash. The company is only expanding now with carefully selected small cell deployments. But the company is clearly in network maintenance mode and is spending only what is needed to keep the cell sites functioning. Also included in the drop in spending is a change in the way that Sprint treats leased cellphones – they used to capitalize the phones and they now expense them.

There are going to be further decreases in future telecom capital spending across the industry. I expect capital spending for all four big wireless companies to keep decreasing due to efficiencies from SDN. We are now seeing a burst of spending from cable companies due to upgrades to DOCSIS 3.1, but when that’s done I would expect a significant decline in their capital spending as well. We are entering a time when improvements in software will lower the need for new hardware – not just in telecom, but in many other sectors as well.

I have always been annoyed when statistics are used to falsely justify public policy. There is no evidence that the big ISPS have changed their spending habits in any drastic way due to Title II regulations. The argument that Title II has affected capital spending comes directly from constant press releases from USTelecom, and the FCC Chairman should be above repeating arguments from lobbyists. If the FCC wants to undo Title II then it should just do it – there are a number of valid reasons why this might be good policy. But it’s disingenuous to cook up false reasons for why the change is needed.

Unlimited Cellular Data Pricing

SONY DSCI recently wrote a blog about how all of the cellular companies are now offering unlimited data plans. Today I’m going to look at their plans in some detail to discuss what they really mean by “unlimited.”

AT&T. AT&T now has two unlimited plans. Unlimited Choice starts at $60 for one phone with unlimited voice, text and data. It’s $55 for a second line and $20 each for lines up to ten. There is an extra fee of $5 per month for one line or $10 for multiple lines if the customer doesn’t elect autopay. Data comes with lots of limits. Video is capped at 480p standard resolution. Total download speed is limited to 3 Mbps with video capped at 1.5 Mbps, regardless of the quality of the 4G stream available. And while there is no data cap, AT&T starts throttling data speeds for the month when a customer hits 22 GB of download. And last – and what will be a killer for most potential customers – it doesn’t allow tethering.

The Unlimited Plus plan starts at $90 for the first phone. It also includes a penalty for not using autopay. It undoes all of the speed restriction of the choice plan and can stream HD video. It also allows up to 10 GB per month for tethering. It has the same monthly cap of 22 GB before the data gets throttled. This still is not an alternative for home use because of the 10 GB cap on tethering. But it’s a good business travel plan. And a home user with a tablet might find this to be a good, if expensive, broadband alternative.

Verizon. Verizon’s unlimited plan is $80 for the first phone, $60 for a second, $22 for a third and $18 for a fourth. This also has unlimited voice and text. The data has a very unusual daily cap and speeds get throttled after hitting 500 MB download in a day. There is also a monthly cap of 22 GB, after which all data gets throttled. There is a 10 GB monthly allowance for tethering, with speeds throttled to 3G after hitting that cap. Verizon allows HD video streaming.

T-Mobile. T-Mobile’s plan is priced at $70 for the first phone, $30 for a second, $41 for a third and $19 for a fourth. This also has unlimited voice and text. There is a monthly cap of 28 GB after which data gets throttled. There is a 10 GB monthly allowance for tethering, with speeds throttled to 3G after hitting that cap. T-Mobile allows HD video streaming.

Sprint. Sprint’s plan is priced at $50 for the first phone, $40 for a second. But these are promotion prices and the company warns they will probably price to ‘market’ after March 31. This also has unlimited voice and text. There is a monthly cap of 23 GB after which data gets throttled. There is a 10 GB monthly allowance for tethering, with speeds throttled to 2G (which has been discontinued in much of the country) after hitting that cap. Note that at 2G you can’t even read email, so this is effectively a hard cutoff.  Sprint allows HD video streaming capped at 1080p quality.

Various Issues. There are activation fees to consider with some of the companies. AT&T and Sprint charge $25 and Verizon $30. T-Mobile has no activation fee. T-Mobile also includes all taxes and fees in its price, something that can be fairly expensive in some parts of the country.

None of these plans is truly “unlimited” and I won’t be shocked to see the Federal Trade Commission going after all of these carriers for advertising them that way. Certainly none of these are going to be a good alternative for home broadband, except perhaps for rural customers with no better alternative. But I think even rural users will find the cap on tethering and the throttling after a fairly stingy amount of download to be impossible to live with. It’s a shame because many rural homes using traditional cellular broadband have monthly bills of $500 to $1,000.

Interestingly, I just saw yesterday that some Wall Street analysts are slamming Verizon because they fear that their network cannot handle these new ‘unlimited’ plans. But as you can see these plans are not unlimited. They are effectively capped at 2 – 3 times the size of existing family plans, that that assumes that customers will use all of the allotted data-  which many will not. There is already plenty of excess capacity to handle this at the vast majority of cell sites. And this isn’t going to much hurt the cell sites that are already over-busy.

For customers that routinely go over the current cellular data caps these might be a great alternative. Current cellular data is priced at $10 per gigabyte and these plans have reduced data prices to a more affordable price under $2 – $3 per gigabyte for somebody that uses the full allowance. But compared to traditional plans these plans all have hard monthly caps – and while those caps are at 22 GB or higher, they are effectively hard caps since data gets throttled and becomes largely unusable after hitting the cap. These plans will all tease you into watching a lot of video and then penalize you heavily for watching too much.

Unlimited Cellular Data

SONY DSCAll four major wireless carriers have been in the news recently concerning unlimited wireless data plans. The unlimited plans get even more intriguing when you consider that the upcoming FCC is likely to be hands off and may allow the carriers to have zero-rating plans. With zero-rating the carriers will give customers unlimited data for the carrier’s own content, but put limits on all other data.

There has also been a lot of talk this year in the industry that people are dropping landline data plans and migrating back to cellphone data. But when you look at the plans available to customers it’s hard to see any of these plans being competitive with good landline data (emphasis on good). Here are the unlimited data plan options of the four big wireless carriers:

Verizon is the easiest to understand and they hate unlimited data plans. They had unlimited plans years ago and worked hard to migrate customers off unlimited data. But about 1% of Verizon customers are still on these plans. The company recently notified customers who actually use their unlimited data that they are going to be disconnected unless they migrate to a suitable plan. And by suitable, the company offers a plan with 100 GB of download for $450 per month. This means that only a customer who doesn’t use their unlimited plan will be allowed to keep it.

AT&T introduced a new unlimited data plan this year, but it has a lot of strings attached. For example, customers of this plan are not allowed to create mobile hotspots for their laptop or tablets. For anybody that travels a lot like me, this is my primary use of mobile data and there are still many hotels around where the bandwidth is barely adequate to read emails. The AT&T unlimited plan also allows the company to throttle customers in two instances – if they are in a congested area or if they exceed 22 GB per month of download. To put that into perspective, my family of three cord-cutters used 660 GB of data last month – so it’s hard to think of 22 GB as ‘unlimited.’ AT&T’s plan is not cheap and costs $60 for the data plus $40 per phone, meaning it costs $100 per month for a single user.

Sprint and T-Mobile both came out with unlimited plans at the end of the summer. Sprint’s ‘Unlimited Freedom’ plan costs $60 for the first line, $40 for the second and $30 per additional line up to ten lines. Sprint’s unlimited plan doesn’t allow HD video and streams all video in standard definition. They also restrict music steaming to 500 kbps and gaming to 2 Mbps.

T-Mobile’s unlimited plan costs $70 for the first user, $50 for the second and $20 after that up for to eight users. T-Mobile is probably the least restrictive of the four companies. Their only restriction on the unlimited data is that they stream video in standard definition. But for $25 more per month customers can get HD video.

The big caveat on all of these plans is that LET data speeds in the US are among the slowest among developed countries. The OpenSignal report this year ranked the US at 55th in the world, placed between Russia and Argentina, at an average speed just under 10 Mbps.

I read a lot of news articles on my phone when traveling using Flipboard – a news site that lets me customize my news feed. Reading articles on my smartphone is the one part of my digital world that is still agonizingly slow. I often have to wait for 30 seconds or more for a news article to open – and it reminds me of the days when trying to open files back in the dial-up days.

The restrictions on these plans really highlight the hypocrisy of zero-rating. These carriers don’t want you to use their cellular data because they say it harms their network. And yet they are perfectly okay with letting customers view company-supplied content all day without restriction. This, more than anything, tells us that cellular data caps and other restrictions are all about making money and not about the network.

It’s still hard to think of any of these plans as a substitute for a landline connection. A cellular data plan like T-Mobile’s might make sense for somebody who is always on the go and not physically in one place very often. These plans are not cheap and I can certainly see households having to make a choice between a landline connection and a cellular plan. My gut tells me that any migration of landline customers to mobile-only data is probably a lot more about family economics than it is about being happy with one of these cellular data plan.

Google’s Experiment with Cellular Service

Wi-FiAs I’m writing this (a week ago), Google opened up the ability to sign-up for its Project Fi phone service for a 24-hour period. Until now this has been by invitation only, limited I think by the availability of the Google Nexus phones. But they are launching the new Nexus 5X phone and so they are providing free sign-up for a 24-hour period.

The concept behind the Google phone plan is simple. They sell unlimited voice and text for $20 per month and sell data at $10 per gigabit as it’s used. The Google phone can work on WiFi networks or will use either the Sprint or T-Mobile networks when a caller is out of range of WiFi. And there is roaming available on other carriers when a customers in not within the range of any of the preferred networks.

Cellular usage is seamless for customers and Google doesn’t even tell a customer which network they are using at any given time. They have developed a SIM card that can choose between as many as 10 different carriers although today they only have deals with the two cellular carriers. The main point of the phone is that a customer doesn’t have to deal with cellular companies any longer and just deals with Google. There are no contracts and you only pay for what you use.

Google still only supports this on their own Nexus phones for now although the SIM card could be made to work in numerous other phones. Google is letting customers pay for the phones over time similar to what the other cellular carriers do.

Google is pushing the product harder in markets where it has gigabit networks. Certainly customers that live with slow or inconsistent broadband won’t want their voice calls routing first to WiFi.

The main issue I see from the product is that it is an arbitrage business plan. I define anything as arbitrage that relies on using a primary resource over which the provider has no control. Over the years a lot of my clients are very familiar with other arbitrage plans that came and went at the whim of the underlying providers. For example, there have been numerous wholesale products sold through Sprint like long distance, dial tone, and cellular plans that some of my clients used to build into a business plan, only to have Sprint eventually decide to pull the plug and stop supporting the wholesale product.

I am sure Google has tied down Sprint and T-Mobile for the purchase of wholesale voice and texting for some significant amount of time. But like with any arbitrage situation, these carriers could change their mind in the future and strand both Google and all of their customers. I’m not suggesting that will happen, but I’ve seen probably a hundred arbitrage opportunities come and go in the marketplace during my career and not one of them lasted as long as promised.

It’s been rumored that Apple is considering a similar plan. If they do, then the combined market power of both Google and Apple might make it harder for the underlying carriers to change their mind. But at the end of the day only a handful of companies own the vast majority of the cellular spectrum and they are always going to be the ones calling the shots in the industry. They will continue with wholesale products that make them money and will abandon things that don’t.

There are analysts who have opined that what Google is doing is the inevitable direction of the industry and that cellular minutes will get commoditized much in the manner as long distance in the past. But I think these analysts are being naive. AT&T and Verizon are making a lot of money selling overpriced cellular plans to people. These companies have spent a lot of money for spectrum and they know how to be good monopolists. I still laugh when I think about how households that used to spend $30 to $50 per month for a landline and long distance now spend an average of $60 per family member for cellphones. These companies have done an amazing job of selling us on the value of the cellphone.

Perhaps the analysts are right and Google, maybe with some help from Apple, will create a new paradigm where the carriers have little choice but to go along and sell bulk minutes. But I just keep thinking back to all of the past arbitrage opportunities where the buyers of the service were also told that the opportunity would be permanent – and none of them were.

WiFi to Challenge Cellular?

Wi-FiIt’s a rather new phenomenon, but we are seeing the beginning of a shift to making more voice calls on WiFi networks than on cellular networks. As Americans have become more conscious about making data connections on WiFi they have opened the door to using WiFi for their voice usage.

The trend of using WiFi for voice, as it matures, could really shake up the cellular industry. The AT&T and Verizon cellphone plans are among the most profitable products sold by any corporation and that makes them a target for competitors, and a place for consumers to save money.

It’s funny how the industry has changed so much. I remember twenty years ago going to state commissions and asking, and being rejected, for $2 rate increases in local telephone rates because the regulators feared that people couldn’t afford to pay it. And yet a decade later families went from having a $30 home phone to paying three and four times that much for cell phone plans.

There are several companies that have been selling WiFi calling for the last few years. FreedomPop, which started in 2012, offers a product that uses a network of over 10 million hot spots in places like McDonald’s or Starbucks. FreedomPop’s phones will automatically join WiFi networks much like a normal cellphone automatically connects to a cell tower. Their rates are really low and for $5 a month a customer can have a WiFi-only plan that connects to the network of WiFi hot spots. There are other slightly more expensive plans that use a combination of WiFi hot spots and Sprint’s cellular network when WiFi isn’t available.

Republic Wireless has a similar set of products. For $5 a month, customers can make calls or connect to the Internet solely over WiFi. For $10 a month, they can use both WiFi and Sprint’s cellular network. Republic Wireless has developed a technique that lets customers roam between hot spots (but this roaming is more suited to walking than driving in a car).

Scratch Wireless has an even more aggressive plan and using their WiFi network for voice, text, and data is free as long as you buy their $99 Motorola Photon Q phone. They then sell pay-as-you-go access to voice on Sprint’s cellular network starting as low as $1.99 per month.

These companies are growing rapidly. FreedomPop says it is doubling its customer base roughly every four to six months; Republic Wireless says its customer base is growing 13 percent a month. But both companies are still really tiny compared to the big carriers and are mostly catering to those who live mostly around WiFi and who are cost conscious. From what I can see, both companies get rave reviews from their customers.

Cablevision recently announced a WiFi-only plan for $30 a month for non-cable customers but only $10 for bundled customers. I don’t understand their pricing, which obviously is not going to be very attractive to non-Cablevision customers. Cablevision operates an extensive network of hot spots in New York, New Jersey, and Connecticut.

The real disruptor might be Google. They announced that they are going to be offering cellular phone plans and the industry seems to think that they will be WiFi-based. Certainly in the markets where they have fiber networks they could saturate the market with outdoor WiFi hotspots and offer a true competitor to cellular. Google has always said that they think bandwidth ought to be ubiquitous, and since they don’t own cellular spectrum, they are going to have to go the WiFi route and also make a deal for off-network minutes from Sprint or T-Mobile.

One also has to think that Comcast has their eye on this. They certainly are rolling out a huge WiFi network as they turn customer routers into public hot spots.

And so the phenomenon is starting to grow. The large cellular companies say they aren’t worried about this, but one has to think that in the Boardrooms they are keeping an eye on this trend. For now there are issues with using these products. One is data security as it’s fairly well known that public WiFi hot spots are loaded with danger for users. This has to be the case whether you are hitting a hot spot with a PC or a cellphone.

I know that personally I will probably stick to a bigger company plan. When I travel it is more often to out-of-the-way places than to big cities. And those kind of places generally have coverage of some sort by the big carriers, but are often uncovered by smaller carriers like Sprint and T-Mobile. I would not like to find myself in a small town for a few days with no cellphone coverage. Other than that travel, I work at home and could easily use my own WiFi rather than pay for cellular.

For the product to be competitive, it’s also going to have to be usable on the major phones being sold. Not having this product for the iPhone or Samsung Galaxy limits the target audience. For now the small carriers like Republic load their own proprietary software on the phones they sell to users. But as that turns into a downloadable app I could see this product picking up a lot of traction in cities.

AT&T and Verizon are right to not be worried about this today. But if you look forward a few years this could grow into a significant competitor to cellular. Which, even if it doesn’t mean a loss of a lot of customers for the big companies, will mean overall lower prices for cellphone plans. That is something they ought to be worried about.

 

Will Net Neutrality Kill Telecom Investment?

Numismatics_and_Notaphily_iconThe big telcos keep saying that the proposed net neutrality rules will kill their desire to make investments in broadband networks. Is there anything about the proposed rules that would give them reason to say that, or is this just political maneuvering to try to defeat the ruling?

Verizon is still claiming that net neutrality is going to force them to cut their investments in broadband, even though last month their CFO was quoted as saying that it wouldn’t. AT&T made the same claims in December, even though they have backed off a bit.

But for every company that has complained about Title II regulation there are others who have said it is no big deal. In the fiber world Google has said that the rules don’t seem to give them any problems and they like the fact that it would give them easier access to poles. And Sprint has come out supporting the net neutrality rules as a wireless carrier.

I have a hard time thinking that net neutrality rules are going to somehow make broadband unprofitable. I saw just this past week that Time Warner claimed in their annual report that their broadband product has a 97% margin. That surprised me a bit, since it’s the highest margin I have ever seen claimed, but many of my smaller clients have 90% margins on broadband products. Perhaps Time Warner’s higher margin comes from the economy of scale of having millions of customers. I would think that margins that high would make telcos want to expand their networks regardless of regulatory rules.

Today, the big carriers claim to be making major investments in broadband. For instance, the USTelecom web site says that the wireline, wireless, and cable industries together spent $75 billion on broadband in 2013, which was up 10% over 2012. It’s worth noting that $33.1 billion of that number was spent by the wireless carriers, and we can debate all day if wireless data is really broadband and if that should count as broadband investment.

I took a hard look at the proposed net neutrality rules to see if I could figure out which part of it would make Verizon and AT&T cut back on building infrastructure. Here are a few things the new rules won’t do, and I assume that the ISPs view these as positive:

  • The new rules impose no new taxes on the carriers or on their customers. Broadband will not be taxed by the Universal Service Fund. And there won’t be any future taxes unless Congress someday has a change of heart about taxing the Internet (and note that Congress could decide to tax broadband even without Title II).
  • Broadband won’t be subject to any of the rules that are a regulatory burden for big telcos – no tariffs, no rate approval, no unbundling, no administrative burdens or accounting standards.

But there are a few new rules that will enforced with net neutrality and it must be one of these that makes the carriers not want to not build new networks:

  • No blocking of access to legal content on the Internet.
  • No throttling of Internet traffic on the basis of content, applications, services, or devices.
  • No paid-prioritization which would favor some Internet traffic over other content.

These rules basically stop the big companies from devising schemes to bill customers extra to get access to content that they have already paid for in their base rate. The carriers that are against net neutrality must not be happy with a data product with a 90%+ margin and they want to impose rules that will let them charge customers even more.

There is another rule coming out of the order that they also might not like: the FCC will have the ability to intervene in disputes between ISPs and content providers concerning interconnection. This provision means that ISPs cannot extract extra payments from companies like Netflix to deliver their content. I can see why carriers wouldn’t like this, because they want to charge at both ends of the network – to companies like Netflix when content enters their network and to customers when content leaves their network.

The final rule from the order just reiterates one that was passed a few years ago but that has never been fully enforced. It has to do with transparency. Under these rules ISPs are supposed to disclose things to customers like the real data speeds they are delivering. I can see why carriers don’t like this because it will stop them from advertising one speed but delivering something much slower.

But I don’t see anything in those rules that would stop an ISP from investing. That is of course unless an ISP was counting on making a whole lot of money from charging companies like Netflix for bringing content and then charging customers a lot more to get that same content. Any ISP that delivers the speed that a customer purchases regardless of the source of the content is not going to see drastic changes, or even what I would consider as annoying changes from these new rules. So I guess the ISPs who say the new rules will force them to reduce network investments are the ISPs who were planning to screw their customers. That’s what I always figured, but looking at the proposed rules confirms it.