The Fastest ISPs

PC Magazine has been rating ISPs in terms of speed for a number of years. They develop their rankings based upon speed tests taken at their own speed test site. They had about 124,000 speed tests taken that led to this year’s rankings. The scoring for each ISP is a composite number based 80% on the download speed and 20% of upload speeds. To be included in the rankings an ISP needed to have 100 customers or more take the speed test.

You always have to take these kinds of rankings with a grain of salt for several reasons. For example speeds don’t only measure the ISP but also the customer. The time of day can affect the speed test, but probably the type of connection affects it the greatest. We know these days that a lot of people are using out-of-date or poorly located WiFi routers that affect the speeds at their computer.

Measured speeds vary between the different speed tests. In writing this blog I took four different speed tests just to see how they compare. I took the one at the PC Magazine site and it showed my speeds at 27.5 Mbps down / 5.8 Mbps up. I then used Ookla which showed 47.9 Mbps down / 5.8 Mbps up. The Speakeasy speed test showed 17.6 Mbps down and 5.8 Mbps up. Finally, I took the test from Charter Spectrum, my ISP, which showed 31.8 Mbps down / 5.9 Mbps up. That’s a pretty startling set of different speeds measured just minutes apart – and which demonstrates why speed test results are not a great measure of actual speeds. I look at these results and I have no idea what speed I actually am receiving. However, with that said, one would hope that any given speed test would probably be somewhat consistent in measuring the difference between ISPs.

The results of the speed test ‘contest’ are done for different categories of ISPs. For years the winner of the annual speed test for the large incumbents has been Verizon FiOS. However, in this year’s test they fell to third in their group. Leading that category now is Hotwire Communications which largely provides broadband to multi-tenant buildings, with a score of 91.3. Second was Suddenlink at 49.1 with Verizon, Comcast and Cox and closely behind. The lowest in the top 10 was Wow! at a score of 26.7.

Another interesting category is the competitive overbuilders and ISPs. This group is led by Google Fiber with a score of 324.5. EPB Communications, the municipal network in Chattanooga, is second at 136.1. Also in the top 10 are companies like Grande Communications, Sonic.net, RCN, and Comporium.

PC Magazine also ranks ISPs by region and it’s interesting to see how the speeds for a company like Comcast varies in different parts of the country.

Results are also ranked by state. I find some of the numbers on this list startling. For instance, Texas tops the list with a score of 100.3. Next is South Dakota at 80.3 and Vermont at 70.6. If anything this goes to show that the rankings are not any kind of actual random sample – it’s impossible to think that this represents the true composite speeds of all of the people living in those states. The results of this contest also differs from results shown by others like Ookla that looks at millions of actual connection speeds at Internet POPs. Consider Texas. Certainly there are fast broadband speeds in Austin due to Google Fiber where all of the competitors have picked up their game. There are rural parts of the state with fiber networks built by telcos and cooperatives. But a lot of the state looks much like anywhere else and there are a lot of people on DSL or using something less than the top speeds from the cable companies.

But there is one thing this type of study shows very well. It shows that over the years that the cable companies are getting significantly faster. Verizon FiOS used to be far faster than the cable companies and now lies in the middle of a pack with many of them.

This test is clearly not a statistically valid sample. And as I showed above with my results from various speed tests the results are not likely even very accurate. But ISPs care about these kinds of tests because it can give them bragging rights if they are near the top of one of the charts. And, regardless of the flaws, one would think the same shortcomings of this particular test are similar across the board, which means it does provide a decent comparison between ISPs. That is further validated by the fact the results of this exercise are pretty consistent from year to year.

Is Altice Really Bringing FTTP?

suddenlink-truckLate last week Altice released a press announcement that said they are going to bring fiber-to-the-home to all of their newly acquired US properties within five years. For those not familiar with Altice, the company is now the fourth biggest cable company in the US and was created through the recent acquisitions of Suddenlink Communications for $9.1 billion and of Cablevision for $17.7 billion. These acquisitions bring the company about 4.6 million customers.

But there are parts of the press release that have me scratching my head. The headlines announce ‘A full-scale fiber-to-the-home network investment plan’ which will bring ‘large scale fiber-to-the-home deployment across its footprint.’ That sure sounds like the company will give everybody FTTP.

But deeper in the press release are several statements that have me wondering what the company is really planning to do. For example, they say they will ‘drive fiber deeper into our infrastructure.’ Deeper into the infrastructure is not necessarily the same as providing fiber the whole way to the home. That is the same kind of language that Comcast used when they announced their mostly-imaginary 2 gigabit broadband product.

Even more puzzling is the statement that “the new architecture will result in a more efficient and robust network with a significant reduction in energy consumption. Altice expects to reinvest efficiency savings to support the buildout without a material change in its overall capital budget.’ If Altice has 4.6 million customers then they must have around 6 million passings. They will be able to build a lot of the needed network by overlashing fiber onto existing coaxial cable. But even that will probably cost in the range of $500 per passing, meaning an outlay of $3 billion. And to bring fiber into the home costs in the range of $600 to $800 per customer. Add to that the core FTTP electronics of at least $200 per customer and the cost to converting existing customers to the fiber could cost another $3.7 to $4.6 billion, for a total outlay of at least $6.7 billion to $7.6 billion.

The energy savings they are talking about would be due to shutting down the existing hybrid fiber-coaxial cable network. To achieve that savings they would have to convert every customer to fiber – since it take as much electricity to run a network for a handful of customers as it does to run it for everybody. But I have a hard time believing they can save enough in power costs to pay for an expensive new fiber network without having to increase capital budgets. I have a number of clients operating HFC networks and they do not have gigantic power bills of anywhere the magnitude needed to produce that kind of savings.

This FTTP plan also has to be compared back to Altice’s promises to their shareholders. They promised to bring significant cost savings after the acquisition of Suddenlink and Cablevision and it’s already hard to see how they are going to do that. For example, their largest property is in New York and they promised the PUC there not to eliminate any customer-facing jobs (technicians and customers service reps) for five years.

They also talk about their fiber rollouts in Portugal and France. In Portugal fiber is being deployed mostly due to heavy subsidies from the government which is hoping that fiber will boost a poor economy. And in France their business plan is different than the US and Altice benefits greatly from a quad play that includes cellular service. My quick analysis of their financial performance shows that wireless drives a big piece of their profitability there, and it’s unlikely they are going to figure out a profitable wireless play here in the US.

Finally, the company seems to have spent heavily this past year on upgrading existing HFC cable networks. I’ve read a dozen local press releases in Suddenlink markets that talk about completing digital conversions and upping data speeds to as much as a gigabit using DOCSIS 3.0. It’s curious they would pour that much money into their HFC networks if they are getting ready to abandon them for fiber.

I hope I am wrong about this and I hope they bring fiber everywhere. That would certainly highlight Comcast and Charter’s decision to milk their HFC networks for decades to come. But the press-release as a whole sets off my radar and is reminiscent of similar press releases in recent years from AT&T and Comcast talking about gigabit deployments. There are just too many parts of this press release that don’t add up.

What if Nobody Wants to Sell Video?

television-sony-en-casa-de-mis-padresSome of the largest cable companies in the country have begun to de-emphasize cable TV as a product and it makes me wonder if smaller companies should consider the same strategy. It’s been clear to everybody in the industry that margins on cable have dropped, so the question that every cable provider should ask is how hard should you work to maintain cable customers or introduce any new innovations in your cable products?

The largest company that is downplaying cable TV is Cable ONE. Earlier this year Cable ONE’s CEO James Dolan told investors that cable had accounted for 64% of his profits in 2005, but by 2018 he expects that to drop to under 30 percent. Like many other cable companies, the lost margins on cable have been replaced by sales of broadband products.

Cable ONE has gone farther than most cable companies in de-emphasizing cable. For example, they and Suddenlink decided to drop the Viacom suite of cable networks when the programmer asked for a giant rate increase last year. This decision has cost these companies cable subscribers, and Cable One lost over 100,000 cable customers in the year after the decision, but the companies see this as a good long-term strategy.

If you are a small ISP and offer cable then your situation has to be a lot direr than Cable ONE’s. I have one small client who dropped their cable offering altogether earlier this year and they were surprised to find out how positively it affected them. They went from having a room full of busy customer service reps to having almost no inbound calls. It turns out that cable drove almost all of the inquiries and complaints to the company.

This tells me that it’s likely that offering cable is costing a small company a lot more than they realize. By the time you factor in the true amount of customer service time and truck rolls that are associated with the cable product it’s very likely that for small companies cable is completely under water.

The cable companies still have one major advantage that gives them a lot of flexibility. In the majority of the markets in the US the cable companies have no real competition with their data products and they have captured the lion’s share of the market. The latest statistics I’ve seen show that less than 10% of the homes in the country have access to fiber, and a lot of that is Verizon FiOS which is no longer expanding. In most markets the cable companies are still competing against DSL – a battle they have largely won.

For a while the telcos were rapidly expanding broadband products based upon paired-copper DSL, like AT&T U-verse, and were capturing a lot of data customers. But a lot of homes are starting to find that a data pipe that delivers around 40 Mbps of data, and which must be shared between cable and data products, is not fast enough for them. This might be the primary reason that AT&T bought DirecTV, to take pressure off their huge embedded base of U-verse customers by moving cable back to the satellites.

There is a lot of press about the growth in fiber-to-the-home. CenturyLink says they will pass 700,000 homes with fiber by the end of the year. AT&T is announcing new markets almost weekly for their new fiber product. And Google is steadily but slowly building fiber to new cities. But even if all of this fiber activity raises the national fiber passings to 20% of homes the cable companies will still be in the driver’s seat in most markets.

The larger cable companies are being proactive in order to preserve their large market broadband penetration rates. They have almost all announced that they are embracing DOCSIS 3.1 and will be significantly increasing data speeds in markets ahead of any fiber builds. Until now fiber roll-outs have had great success when entering markets where they are selling gigabit fiber against a 15 – 30 Mbps cable product. But fiber’s success is not going to be so automatic if cable companies can counter gigabit fiber with a lower-priced 250 Mbps or faster data product.

To come back around to my original point, it’s clear that data is becoming everything for cable companies. Analysts have been wondering for a few years how the large cable packages might eventually unravel. There has been a lot of speculation that cord-cutters and OTT programming will chip away at the business. But the death of the traditional cable packages might instead come when the cable companies all stop caring about cable TV. At that point they will have regained the balance of power against the programmers.

How’s Cable Doing?

Cord cuttingWith all of the talk of cord cutting, cord-shaving and the general demise of the cable industry I thought it would be useful to take a snapshot of the cable industry at the end of the third quarter of 2014 to see how the industry is doing. Here are some key facts for a numbers of major cable providers:

Comcast. For the quarter they lost 81,000 TV subscribers compared to losing 127,000 in the 3rd quarter of 2013. Meanwhile they gained 315,000 data customers compared to 297,000 customer a year before. Overall profits were up 4% over the year before. Comcast now has 22.4 million video customers and 21.6 million data customers.

Time Warner Cable. The company lost 184,000 cable subscribers in the third quarter compared to 122,000 in the previous year. But the company did add 92,000 residential data customers for the quarter. Earnings were up 3.6%, driven by cable rate increases and growth in the business services group. The company saw a 9.6% increase in programming costs, driven by a bad deal they made for the programming rights to the LA Dodgers.

Charter Communications. Charter lost 22,000 video customers for the quarter compared to 27,000 a year earlier. They saw data customers increase by 68,000 compared to 46,000 a year ago. Overall profits were up 8% driven by rate increases and data customer gains. Charter finished the quarter with 4.15 million cable customers.

CableVision. The company saw significant loss of 56,000 cable customers, Profits for the company dropped to $71.5 million for the quarter down from $294.6 million a year earlier.

Cable One. The company lost 14,000 video subs and ended with 476,000 at the end of the quarter. The company has not renewed programming from Viacom starting in April of this year

Suddenlink. The company added 2,200 video customers for the quarter compared to a loss the previous year of 3.200 subs even though they have dropped Viacom programming. Revenues increased by 6.6% compared to a year ago.

AT&T. U-verse added 216,000 cable customers for the quarter and added 601,000 data customers. The company now has more than 6 million video customers and 12 million data customers. U-verse profits were up 23.8% compared to a year earlier.

Verizon. The company added 114,000 new video customers and 162,000 new data customers for the quarter. The company now has 5.5 million video customers and 6.5 million data customers.

DirectTV. The company saw a decrease of 28,000 customers for the quarter while revenues grew by 6% due to rate increases. The average satellite bill is up to $107.27 per customer per month.

Netflix. Netflix added 1 milllion US subscribers and 2 million international subscribers for the quarter. They now have 37 million US customers and almost 16 million international ones. But these growth rates were less than their predictions and their stock tumbled 25% on the news.

Amazon Prime. The company does not report number of customers. But their earnings release says they gained significant customers even while increasing their annual fee from $79 to $99.

What does all of this mean? As can be seen by looking at all of the major players who make quarterly releases (companies like Cox do not), one can see that total video subs are down by maybe a net of 100,000 for the quarter. But cord cutting is growing when you consider that the industry used to routinely grow by 250,000 customers per quarter for now households being built. So it looks like cord cutting is growing by perhaps 1.5 million per year.

Within these numbers one can’t see the effects of cord shaving. It’s been widely reported that customers are downsizing their cable package as a way to save money. None of these companies report on their mix of types of customers.

Netflix and Amazon Prime continue to grow significantly along with other on-line content providers. It’s been reported that over half of the households in the country pay for at least one of the on-line services and many others watch free content available at Hulu and other sites.

One thing that is obvious is that broadband is still growing for all of the service providers. In fact, Comcast and other traditional cable providers are starting to refer to themselves more as ISPs than as cable companies.