The Growing Dislike of Big ISPs

The annual ratings from the American Consumer Satisfaction Index came out recently, and they show that consumer dislike for the big ISPs is increasing. This survey looks at how consumers feel about a wide range of businesses, and the ISPs have been ranked as some of the most disliked corporations for a number of years.

The survey asks numerous questions and creates a satisfaction scale from 1 to 100. The survey looks at several different categories of telecom companies and has separate rankings for for cable TV providers, broadband providers and a new category for streaming video providers.

Among the big ISPs that offer cable TV service, the rank of every provider except AT&T U-Verse sank compared to last year. AT&T was the highest rated company in this group with a rating of 70. At the bottom was Mediacom with a rating of 55, down from 56 a year ago. The two giant cable companies both saw a drop in consumer satisfaction: Charter had a huge drop from 63 down to 58, Comcast dropped from 58 to 57.

The rankings for how consumers feel about their broadband provider were similar. The only big ISP that didn’t drop was Comcast that stayed at a ranking of 60 for two years running. Everybody other big ISP dropped. At the top of the list was Verizon FiOS which dropped from 71 to 70. At the bottom was Mediacom again which had a big drop from 58 to 53. Charter also had a big drop from 63 to 58. Rounding out the bottom rankings were Frontier (54), Windstream (56) and CenturyLink (58)

Streaming services got significantly higher rankings. Topping this first time list were Netflix, Playstation Vue and Twitch with a ranking of 78. At the bottom were Sony Crackle (68), Showtime Anywhere (70) and DirecTV Now (70), all still significantly better than traditional cable companies.

It must be frustrating for the big ISPs to see their customer satisfaction drop year after year. The rankings of the ISPs are lower than other unpopular industries like airlines, banks, insurance companies and even the Internal Revenue Service.

If there is any upside to the low customer satisfaction rankings it’s that it creates opportunities for competitors. It’s been conventional wisdom for years that a new competitor will get up to 30% of a market just for showing up with an alternative network – assuming they know how to sell and have decent customer service.

They survey doesn’t dig into the reasons for the sinking dissatisfaction, but it’s easy to speculate on some of the reasons. People are certainly unhappy with traditional cable TV due to the ever-rising prices. High prices are the number one factor cited for consumers who are cutting the cord, and the dropping satisfaction shows there is likely another growing pile of future cord cutters.

It’s a little harder to understand the dissatisfaction with broadband. At least in major metropolitan areas the ISPs have continued to unilaterally increase download speeds with only modest rate hikes. One would expect satisfaction with the the broadband product to be higher and my guess is that the low ranking deal more with the pain involved in having to ever call these big companies. Compared to other businesses we all deal with, the interaction with the cable company / ISP is often the one we dread the most. The other likely cause for dissatisfaction is that ISPs often don’t deliver the speeds they promise. This varies by market, but we’ve seen cities where consumers only get a fraction of the speed they are paying for.

It’s much easier to understand unhappiness with ISPs immediately outside of big cities. Broadband is smaller towns is often still generations behind and is inadequate for what households expect today in terms of download speeds and latency. Anybody who reads this blog will understand the near-hatred for the ISPs in rural areas. The cable companies don’t come to rural America and the big telcos have abandoned maintenance of the copper networks for decades. Rural broadband is either poor or nonexistent with practically everybody hating the companies that won’t bring them broadband.

 

Operating on a Leased Network

One of the comments posted on a recent blog mentioned that CenturyLink recently had agreed to operate on somebody else’s fiber network to serve residential customers – the first time that one of the big telcos or cable companies had agreed to do so. One of the major reasons cited for lack of competition in the US is the unwillingness of the major ISPs to operate outside their own networks. This certainly sounded newsworthy and I looked into the example cited.

CenturyLink has agreed to use the fiber network provided by Lumiere Fiber, an affiliate company of Sterling Ranch, a new planned community outside of Denver. CenturyLink won the ability to serve the community through an RFP competition with Comcast, the cable company serving the area. As the winner, CenturyLink will be the exclusive ISP on the network – which only has a few homes now but has plans to grow to 12,000 residences.

So is this really newsworthy? I think the answer is both yes and no – but mostly no. It is true that CenturyLink will be using somebody else’s fiber network, and a large one at that, when the community is ultimately built. But there are a number of reasons why this is not as groundbreaking as it sounds.

First, this is not really unique. While this is a large new subdivision, in many ways this is similar to the thousands of arrangements that ISPs routinely have made to serve large apartment complexes. In the vast majority of apartments the wiring is owned by the landlord and not the ISPs. There are some large apartment units around the country numbering in the thousands of units and this opportunity is unique only from this perspective of being larger than most MDUS.

CenturyLink is already building a lot of fiber to residential neighborhoods, with nearly 1 million new units passed this year – so this isn’t going to present any technological challenges. I am sure that the company will use the identical electronics and provisioning software it uses everywhere else.

This also is not going to stretch the operational systems of CenturyLink. The only real difference between this and other CenturyLink fiber is that the company doesn’t own the fiber. But they are going to take orders and connect new customers using their normal processes. They will dispatch technicians for trouble calls in the usual manner. And if Lumiere hires CenturyLink to do the fiber maintenance then they would even make fiber repairs in almost the same manner (this detail was not specified in the press releases).

There seems to be two reasons why the big ISPs don’t generally use networks owned by others. In the case of the big cable companies there seems be a gentleman’s agreement to never cross those lines. I can’t find one example of a big cable company crossing the line to compete for residential customers.

But the hardest barrier for the big ISPs to use other networks is the fact that their systems are largely incapable of making operational exceptions. They have created operation systems and processes that work for them, on their own networks, with their own employees. These processes are often highly decentralized and it takes employees scattered across the country to accomplish normal daily tasks like adding a new customer or answering a trouble call. It’s extremely difficult for a decentralized company to make exceptions for customers that are treated different than everybody else – that always results in chaos.

An example of this is Verizon FiOS. When the company decided to build fiber they realized that they could not reshape their existing copper work processes and people to accommodate the new technology. They solved this by creating a totally new company and FiOS was new from top to bottom – from technology, to people, to processes.

The real headline I want to see is where one of the big ISPs gets on somebody else’s network in a competitive environment. For example, there are a number of open access fiber networks in Washington state that are significantly larger than the Sterling Ranch opportunity. There are numerous smaller open access networks around the country, and no big ISP has ever served residents on these networks. If the big companies would jump on competitive networks then a lot more of these networks would get built.

San Francisco is talking about building an open access fiber network and if it’s built will really challenge the big ISPs. If that network comes to fruition, will one of the other big cable companies decide to take on Comcast? That would be the big news we’ve always wanted to hear.

Big Telcos and Broadband

A recent article in Telecompetitor reports that analysts at Moffett Nathanson expect the big telcos to start making inroads into the near-monopoly for broadband currently enjoyed by the cable companies. The article focused specifically on AT&T, but some other big telcos like CenturyLink are also aggressively expanding fiber networks.

I would have to assume that the analysts got the following goals directly from AT&T because I can’t find any other references to these specific goals. But each of these is in line with statements made by AT&T executives over the last year. According to the article, AT&T broadband goals over the next few years are as follows:

  • Offer broadband speeds below 50 Mbps to 30 million passings using DSL;
  • Offer broadband speeds between 50 – 100 Mbps to 20 million passings using paired copper VDSL;
  • Offer ‘near gigabit’ speeds to 10 million passings using via 5G wireless;
  • Offer gigabit speeds using FTTH technology to 14 million residential passings and 8 million business passings.

The real news here is in the last two bullet points. AT&T accepted the goal from the FCC for passing 12.5 million customers with FTTH from the merger with DirecTV. It’s big news if they intend to extend that to 22 million passings. And the goal of using millimeter wave radios to reach another 10 million potential customers is something new.

If AT&T meets these goals they will be bringing serious competition to the cable companies. AT&T and the other telcos have been bleeding DSL customers for over a decade and handed the cable companies a near-monopoly on fast broadband in most urban and suburban markets. According to Moffett Nathanson the telco expansion will bring near-gigabit speeds on telco networks to 32% of the country.

It’s important to understand where the new AT&T broadband is being built. The majority of the new coverage is in three market niches – apartment buildings, new greenfield housing developments and business districts. AT&T’s expansion has largely focused on these specific market niches and is likely to continue to do so. AT&T is not proposing to duplicate what Verizon did with its FiOS network and bring broadband to older single family home neighborhoods. They are instead focusing on buildouts where the the cost of construction per customer is the lowest – the ultimate cherry-picking network.

This means that the AT&T coverage will bring the opportunity for gigabit broadband to a much larger footprint, but that’s not always going to bring customer choice. In the MDU market many landlords are still allowing only one ISP into their apartment complexes. As telcos like AT&T compete with the cable companies for this market the broadband speeds in apartments and condos will get much faster, but many customers will still only have the option to buy from whatever ISP that landlord has allowed.

I have to admit that this market shift to bring broadband to MDUs caught me a bit by surprise. Many years ago Verizon showed that there is a successful business plan for building fiber to older residential neighborhoods. In the northeast Verizon still carries significant market share in its FiOS neighborhoods, and customers consistently rate them as having better customer service than the cable companies. Other telcos like CenturyLink are copying the Verizon model and are building swaths of fiber in residential neighborhoods.

The traditional wisdom was that it is too costly to bring fast broadband to apartments. A decade ago bringing fiber to an apartment meant rewiring the whole building with fiber – and for many apartments that is prohibitively expensive. But there have been technology advances that have made this more feasible. For example, much of the ‘near-gigabit’ speeds can be achieved by using G.Fast technology over existing coaxial or telco cable in older apartments. There have also been big improvements for indoor fiber deployments that include small flexible fibers and techniques for installing fiber inconspicuously in hallways. Many buildings that seemed too costly to serve years ago now make economic sense. Finally, the potential to deliver backhaul to an MDU using millimeter wave radios is going to eliminate the need to build as much fiber.

The real big unknown is how successful any of these big companies will be with 5G. As I’ve been writing lately there are still a lot of barriers that might make it difficult for AT&T to use the wireless technology to cover 10 million passings. We’re going to have to wait to see some real deployments over the next few years to see if the technology works as promised and if the cost of deployment is as cheap as anticipated. But the one thing that these analysts have gotten right is that the big telcos are finally fighting back against the cable monopolies they helped to create by sticking with DSL too long. It’s going to be interesting to see how well they do in winning back customers that they lost over the last two decades.

Is 5G Really a Fiber Replacement?

I recently saw a short interview in FierceWireless with Balan Nair, CTO of Liberty Global. In case you haven’t heard of the company, they are the biggest cable company in the world with over 28 million customers.

One of the things he discussed was the practical widespread implementation of 5G gigabit technology. He voiced the same thing I have been thinking for the last year about the economics of deploying 5G. He was quoted as saying, “5G will be a ‘game-changer’ in its superior ability to transfer data, but the technology will not replace fixed-network broadband services anytime soon. The economics just aren’t there. You’re talking about buying hundreds of towers and all of that spectrum. And on the residential end, putting a device outside the window and wiring it back into the home. It’s a question of business model and if you plan on making any money. The economics benefit fixed.”

The big telcos are making a big deal out of 5G, mostly I think to appear cutting-edge to their investors. And I have no doubt that in certain places like dense urban downtowns that 5G might be the best way to speed up gigabit broadband deployment. But I look at what’s involved in deploying the technology anywhere else and I have a hard time seeing the economic case for using 5G to bring fast broadband to the masses.

5G will definitely make an impact in urban downtowns. You might assume that cities already have a great fiber infrastructure, but this often isn’t the case. Look at Verizon’s FiOS deployment strategy in the past – they deployed fiber where the construction was the most cost effective, and that meant suburban areas where they had existing pole lines or conduit. Verizon largely avoided much of the downtowns of eastern cities because the cost per mile of fiber construction was too expensive.

Now, 5G can be deployed from the top of high-rises to reach the many downtown buildings that never got fiber. New York City recently sued Verizon since the company reneged on its promise to build fiber everywhere and there are still 1 million living units in the city that never got fiber broadband. Verizon, or somebody else is going to be able to use 5G in the densely populated cities to bring faster broadband, and as Nair said, this might be a game changer.

But as soon as you get out of downtowns and high-rises the math no longer favors 5G. There are three components of a 5G network that are not going to be cheap in suburbia. First, 5G needs fiber. You might be able to use a little wireless backhaul in a 5G network, but a significant portion of the network must be fiber fed. And in most of the country that fiber is not in place. Deloitte recently estimated that the cost for just the fiber to bring 5G everywhere is $130 billion. There is nobody rushing to make that investment.

5G then needs somewhere to place the transmitters. This is more easily achieved in a downtown where there are many tall rooftops and existing towers. But the short delivery distances for millimeter wave frequencies mean that transmitters need to be relatively close the end-user. And in suburban areas that’s going to mean somehow building a lot of new towers or else placing smaller transmitters on existing poles. We know suburbia hates tall towers and it’s always a struggle to build new ones. And the issues associated with getting access to suburban poles are well documented. An ISP needs to affordably get onto poles and also get fiber to those poles – two expensive and time-consuming challenges.

And then there is the economics of the electronics. Because millimeter wave spectrum is easily disrupted by foliage or any impediments it means that there won’t be too many homes served from any one pole-mounted transmitter. But the 5G revenue stream still has to cover both ends of the radios as well as wiring into the home.

I build a lot of landline business plans and I can’t see this making any economic sense for widespread deployment. In many cases this 5G network might be more expensive and slower to deploy than an all-fiber network.

I instead envision companies using 5G technology to cherry pick. There will be plenty of places where there is existing fiber and poles that can be used to serve suburban apartment complexes or business districts. I can see strategic deployment in those areas and the technology used in the same way that Verizon deployed fiber – 5G will deployed only where it makes sense. But like with FiOS, there are going to be huge areas where there will be no 5G deployment, even in relatively dense suburbia. And the business case for rural America is even bleaker. 5G will find a market niche and will be one more technology tool for bringing faster broadband – where it makes economic sense.

5G Needs Fiber

I am finally starting to see an acknowledgement by the cellular industry that 5G implementation is going to require fiber – a lot of fiber. For the last year or so the industry press – prompted by misleading press releases from the wireless companies – made it sound like wireless was our future and that there would soon not be any need for building more wires.

As always, when there is talk about 5G there is a need to make sure which 5G we are talking about, because there are two distinct 5G technologies on the horizon. One is high-speed wireless loops send directly to homes and businesses as a replacement for a wired broadband connection. The other is 5G cellular providing bandwidth to our cellphones.

It’s interesting to see the term 5G being used for a wireless microwave connection to a home or business. For the past twenty years this same technology has been referred to as wireless local loop, but in the broadband world the term 5G has marketing cachet. Interestingly, a lot of these high-speed data connections won’t even be using the 5G standards and could just as easily be transmitting the signals using Ethernet or some other transmission protocol. But the marketing folks have declared that everything that uses the millimeter wave spectrum will be deemed 5G, and so it shall be.

These fixed broadband connections are going to require a lot of fiber close-by to customers. The current millimeter radios are capable of deliver speeds up to a gigabit on a point-to-point microwave basis. And this means that every 5G millimeter wave transmitter needs to be fiber fed if there is any desire to offer gigabit-like speeds at the customer end. You can’t use a 1-gigabit wireless backhaul to feed multiple gigabit transmitters, and thus fiber is the only way to get the desired speeds to the end locations.

The amount of fiber needed for this application is going to depend upon the specific way the network is being deployed. Right now the predominant early use for this technology is to use the millimeter wave radios to serve an entire apartment building. That means putting one receiver on the apartment roof and somehow distributing the signal through the building. This kind of configuration requires fiber only to those tall towers or rooftops used to beam a signal to nearby apartment buildings. Most urban areas already have the fiber to tall structures to support this kind of network.

But for the millimeter technology to bring gigabit speeds everywhere it is going to mean bringing fiber much closer to the customer. For example, the original Starry business plan in Boston had customers receiving the wireless signal through a window, and that means having numerous transmitters around a neighborhood so that a given apartment or business can see one of them. This kind of network configuration will require more fiber than the rooftop-only network.

But Google, AT&T and Verizon are all talking about using millimeter wave radios to bring broadband directly into homes. That kind of network is going to require even more fiber since a transmitter is going to need a clear shot near to street-level to see a given home. I look around my own downtown neighborhood and can see that one or two transmitters would only reach a fraction of homes and that it would take a pole-mounted transmitter in front of homes to do what these companies are promising. And those transmitters on poles are going to need to be fiber-fed if they want to deliver gigabit broadband.

Verizon seems to understand this and they have recently talked about needing a ‘fiber-rich’ environment to deploy 5G. The company has committed to building a lot of fiber to support this coming business plan.

But, as always, there is a flip side to this. These companies are only going to deploy these fast wireless loops in neighborhoods that already have fiber or in places where it makes economic sense to build it. And this is going to mean cherry-picking – the same as the big ISPs do today. They are not going to build the fiber in neighborhoods where they don’t foresee enough demand for the wireless broadband. They won’t build in neighborhoods where the fiber construction costs are too high. One only has to look at the hodgepodge Verizon FiOS fiber network to see what this is going to look like. There will be homes and businesses offered the new fast wireless loops while a block or two away there will be no use of the technology. Verizon has already created fiber haves and have-nots due to the way they built FiOS and 5G wireless loops are going to follow the same pattern.

I think the big ISPs have convinced politicians that they will be solving all future broadband problems with 5G, just as they made similar promises in the past with other broadband technologies. But let’s face it – money talks and these ISPs are only going to deploy 5G / fiber networks where they can make their desired returns.

And that means no 5G in poorer neighborhoods. It might mean little or limited 5G in neighborhoods with terrain or other similar issues. And it certainly means no 5G in rural America because the cost to build a 5G network is basically the same as building a landline fiber network – it’s not going to happen, at least not by the big ISPs.

Cellular Networks and Fiber

We’ve known for a while that the future 5G that the cellular companies are promising is going to need a lot of fiber. Recently Verizon CEO Lowell McAdam verified this when he said that the company will be building dense fiber networks for this purpose. The company has ordered fiber cables as large as 1,700 strands for their upcoming build in Boston in order to support the future fiber and wireless network there. That’s a huge contrast from Verizon’s initial FiOS builds that largely built a network using mostly 6-strand fibers in a lot of the Northeast.

McAdams believes that the future of urban broadband will be wireless and that Verizon intends to build the fiber infrastructure needed to support that future. Of course, with that much fiber in the environment the company will also be able to supply fiber-to-the-premise to those that need the largest amounts of bandwidth.

Boston is an interesting test case for Verizon. They announced in 2015 that they would be expanding their FiOS network to bring fiber to the city – one of many urban areas that they skipped during their first deployment of fiber-to-the-premise. The company also has engaged with the City government in Boston to develop a smart city – meaning using broadband to enhance the livability of the city and to improve the way the government delivers services to constituents. That effort means building fiber to control traffic systems, police surveillance systems and other similar uses.

And now it’s obvious that the company has decided that building for wireless deployment in Boston is part of that vision. It’s clear that Verizon and AT&T are both hoping for a world where most devices are wireless and that the wireless connections use their networks. They both picture a world where their wireless is not just used for cellphones like today, but will also be used to act as the last mile broadband connection for homes, for connected cars, and for the billions of devices used for the Internet of Things.

With the kind of money Verizon is talking about spending in Boston this might just become the test case for a connected urban area that is both fiber rich and wireless rich. To the extent that they can do it with today’s technology it sounds like Verizon is hoping to serve homes in the City with wireless connections of some sort.

I’ve discussed several times how millimeter wave radios have become cheap enough to be a viable alternative for bringing broadband to urban apartment buildings. That’s a business plan that is also being pursued by companies like Google. But I still am not aware of hardware that can reasonably be used with this same technology to serve large numbers of single family homes. At this point the electronics are still too expensive and there are other technological issues to overcome (such as having fiber deep in neighborhoods for backhaul).

So it will be interesting to watch how Verizon handles their promise to bring fiber to the homes in Boston. Will they continue with the promised FTTP deployment or will they wait to see if there is a wireless alternative on the horizon?

It’s also worth noting that Verizon is tackling this because of the density of Boston. The city has over 3,000 housing units per square mile, making it, and many other urban centers, a great place to consider wireless alternatives instead of fiber. But I have to contrast this with rural America. I’m working with several rural counties right now in Minnesota that have housing densities of between 10 and 15 homes per square mile.

This contrast alone shows why I don’t think rural areas are ever going to see much of the advantages of 5G. Even though it’s expensive to build fiber in a place like Boston, the potential payback is commensurate with the cost of the construction. I’ve always thought that Verizon made a bad strategic decision years ago when they halted their FiOS  construction before finishing building in the metropolitan areas on the east coast. Verizon has fared well in its competition with Comcast and others.

But there is no compelling argument for the wireless companies or anybody else to build fiber in the rural areas. The cost per subscriber is high and the paybacks on investment are painfully long. If somebody is going to invest in rural fiber they might as well use it to connect directly to customers rather than to spend the money in fiber plus adding a wireless network on top of it.

We are going to continue to see headlines about how wireless is the future, and for some places like Boston it might be. Past experience has shown us that wireless technology often works a lot different in the field compared to the lab, so we need to see if the wireless technologies being considered really work as promised. But even if they do, those same technologies are going to have no relevance to rural America. If anything the explosion of urban wireless might further highlight the stark differences between urban and rural America.

Broadband Shorts – March 2017

Today I’m writing about a few interesting topics that are not long enough to justify a standalone blog:

Google Scanning Non-user Emails. There has been an ongoing class action lawsuit against Google for scanning emails from non-Google customers. Google has been open for years about the fact that they scan email that originates through a Gmail account. The company scans Gmail for references to items that might be of interest to advertisers and then sell that condensed data to others. This explains how you can start seeing ads for new cars after emailing that you are looking for a new car.

There are no specific numbers available for how much they make from scanning Gmail, but this is part of their overall advertising revenues which were $79.4 billion for 2016, up 18% over 2015.  The class action suit deals with emails that are sent to Gmail users from non-Gmail domains. It turns out that Google scans these emails as well, although non-Gmail users have never agreed to the terms of service that applies to Gmail users. This lawsuit will be an important test of customer privacy rights, particularly if Google loses and appeals to a higher court. This is a germane topic right now since the big ISPs are all expected to do similar scanning of customer data now that the FCC and Congress have weakened consumer privacy rights for broadband.

Verizon FiOS and New York City. This relationship is back in the news since the City is suing Verizon for not meeting its promise to bring broadband to everybody in the city in 2008. Verizon has made FiOS available to 2.2 million of the 3.3 million homes and businesses in the city.

The argument is one of the definition of a passing. Verizon says that they have met their obligation and that the gap is due to landlords that won’t allow Verizon into their buildings. But the city claims that Verizon hasn’t built fiber on every street in the city and also that the company has often elected to not enter older buildings due to the cost of distributing fiber inside the buildings. A number of landlords claim that they have asked Verizon into their buildings but that the company either elected to not enter the buildings or else insisted on an exclusive arrangement for broadband services as a condition for entering a building.

New Applications for Satellite Broadband.  The FCC has received 5 new applications for launching geostationary satellite networks bringing the total requests up to 17. Now SpaceX, OneWeb, Telesat, O3b Networks and Theia Holdings are also asking permission to launch satellite networks that would provide broadband using the V Band of spectrum from 37 GHz to 50 GHz. Boeing also expanded their earlier November request to add the 50.4 GHz to 52.4 GHz bands. I’m not sure how the FCC picks winners from this big pile – and if they don’t we are going to see busy skies.

Anonymous Kills 20% of Dark Web. Last month the hackers who work under the name ‘Anonymous’ knocked down about 20% of the web sites from the dark web. The hackers were targeting cyber criminals who profit from child pornography. Of particular interest was a group known as Freedom Hosting, a group that Anonymous claims has over 50% of their servers dedicated to child pornography.

This was the first known major case of hackers trying to regulate the dark web. This part of the Internet is full of pornography and other kinds of criminal content. The Anonymous hackers also alerted law enforcement about the content they uncovered.

Are Cable Companies Winning the Speed War?

Polk County SignThe latest news about Google Fiber slowing on their metropolitan fiber builds got me to wondering if perhaps the cable companies are starting to win the speed wars. Are we getting to a time when a fiber overbuilder is going to have trouble competing with them?

After many years of being stingy with bandwidth the cable companies have now largely adopted the opposite strategy and increase household speeds over time without raising prices. I can remember quotes from several big cable companies a few years ago where the cable companies claimed they were giving households all the speed that they need. And this was back at a time when they were experiencing a significant amount of network congestion during the peak evening hours. But my reading of many different customer reviews tells me that the cable companies have largely solved the congestion issue.

This is not to say that there are not places where the cable networks are still not up to snuff, but compared to ten years ago, a lot more cable networks seem to be delivering the speeds that customers want. Of course, there are still plenty of small town where the rural cable networks are not up to snuff, but metropolitan areas seem to have improved a lot.

The FCC reported in their 2015 Measuring Broadband America Fixed Report that Comcast customers got between 109% and 119% of the speeds that they paid for. I know personally that my speed tests often shows at least 5 Mbps better performance than what I am paying for with Comcast.

But the question that has been nagging me is if a new fiber provider can really thrive in a metropolitan area? Can they get enough customers to be profitable? It’s been widely reported that Google and other fiber overbuilders need at least a 30% market share to succeed, and that’s a tall order in a city where everybody already has broadband.

People need a compelling reason to change providers, because it’s a process that nobody enjoys. It means staying at home to meet an installer, returning settop boxes and modems, and worrying about the billing transition.

I have some anecdotal evidence about the way at least one group of people buy broadband. I’ve been a member of several active Maryland sports message boards for over two decades and broadband is a periodic topic of conversation since sports fans these days care about watching sports on the Internet. The majority of the people on these boards happen to live in neighborhoods that have both Verizon FiOS and a cable company – mostly Comcast, but sometimes somebody else. These are folks who have had the choice between fiber and coaxial cable networks for a long time.

What I’ve seen over the years is that there are a few people that are big fans of either the cable company or Verizon. But the vast majority don’t seem to really care as long as the broadband works well enough to watch their sports and the other things their families do on the Internet. Probably half of the people on these boards have moved back and forth between the providers during the last decade. I’ve seen evidence that content matters more than speeds when over the years there were occasions when one provider or the other did not broadcast a Maryland football or basketball game. At least among this one large group of I don’t see any major affinity for fiber over coaxial cable networks. These folks just want something that will work.

A new fiber provider has to provide a compelling reason for people to change. Certainly having lower prices could be a compelling reason, but most metropolitan fiber providers are not much cheaper than the cable company (and sometimes they are more expensive). And while a fiber provider might offer gigabit speeds, I wonder if that is enough to get people to change if they are happy with the speeds they have had for the last few years?

I’ve always said that there is some percentage of any community that will change to a new provider because they dislike the current provider for some reason. But those are rarely enough customers to justify a business plan, and so being successful with fiber also means persuading customers that are not unhappy to change. And perhaps, as Google has found out, that is not as easy as fiber proponents have assumed. Certainly, the cable company tactic of greatly improving the performance of their data products is making it harder and harder for a new overbuilder to thrive.

Thoughts on the Google Fiber News

800px-OSU_Bucket_TruckIt was recently reported that Larry Page, the CEO of Alphabet told Google Fiber to cut their staff in half from 1,000 to 500 and to also cut the cost of building new fiber. That certainly is going to slow or even stop Google Fiber’s expansion plans. There are a few lesson to be learned from that announcement for all fiber start-ups.

It’s expensive to build in cities. Building new fiber networks from scratch is expensive. It’s very doubtful that Google has found any magic that would let them build fiber networks for much less than anybody else. Verizon always said they stopped expanding FiOS due to the construction costs. Yet Verizon built most of their network in places where the construction was relatively inexpensive. They lashed fiber to existing phones cables where there was poles or installed underground fiber where there was existing conduit. But Google Fiber didn’t have either of those advantages and so they were spending a lot more than Verizon.

The company is now looking at wireless technologies to cut construction costs. Unless the company has some really good millimeter wave technology ready to roll out soon, this could cause a big delay on expansion. Lots of companies are thinking about wireless loops, but we know from past experience that there is a big transition with any wireless technology when moving from a lab into the real world.

You have to sell what customers want to buy. The news articles I saw say that Google Fiber had 200,000 customers at the end of 2014. One would expect that they have up to twice that by now. But considering their initial goal to have millions of customers those numbers are low.

My guess is that the company has had trouble convincing enough households to buy their $70 broadband. I would buy that in a flash, but I expect a lot of homes found the product to be out of reach for their budgets. I see that in Atlanta that Google Fiber has introduced a 100 Mbps broadband connection for $50, and that has to open up a lot more sales opportunities for them.

This highlights one of the biggest challenges for a fiber overbuilder. The biggest expense by far of getting into the business is to build the fiber network. Once you’ve sunk that money the goal is to get as many paying customers as possible onto the network, and that means having a wide enough array of products (which are still profitable) to generate revenue.

Delays are to be expected. There has been news over the last few years of delays in Google Fiber construction, much of it having to do with access to poles. Google Fiber learned the same lesson that had deviled many of my clients: when you need to get poles from the company you will competing with they are going to use every legal trick in the book to slow down the process. I’ve written about pole horror stories before in the blog.

Labor costs can be your enemy. The announcement said that Google Fiber had to slash their work force from 1,000 to 500. They face the same dilemma as other broadband start-ups – there is a lot of work to do in launching new markets compared to the number of people needed to operate them once they are mature.

For many years I have used a general rule of thumb for the number of employees that a telecom company ought to have. For example, a medium sized carrier with 20,000 to 50,000 customers ought to have roughly 1 employee for every 350 customers. As companies get larger and more efficient that ratio increases and companies up to about 250,000 ought to have around 1 employee for every 400 customers. Bigger companies should get even more efficient, but seems to be a natural cap at some size reached by very large companies.

It’s impossible to judge if Google Fiber has too many employees without knowing how many customers they have today. I also have no idea if the company uses contractors in addition to full-time employees because those would count in this calculation. But if the company has 400,000 customers today and doesn’t use contractors then the 1,000 employee count wouldn’t be too bad. But if they have fewer customers and also use contractors they are currently overstaffed.

One issue that can justify a larger staff than normal is the need to have a staff that is working ahead on future markets. Those employees would not be counted when looking at the size of the needed staff.

Also, the ratios I cited are more than a decade old and if I put some thought to them I would probably revise them higher. There are numerous improvements in customer service tools and other efficiencies that can reduce the number of times that a customer has to talk to or see a live employee. With the upcoming AI revolution one would imagine that a lot of customer service is going to be handled by bots and lower labor costs.

The bottom line of all of these issues is that Google Fiber hit the same wall hit by every other overbuilder. There comes a time when you have to show profitability or the money dries up. And it’s really hard to show profitability when you are still growing rapidly.

What’s the Right Price for a Gigabit?

Speed_Street_SignI often get asked how to price gigabit service by clients that are rolling it out for the first time. For an ISP already in the broadband business, layering in a super-fast Internet product on top of an existing product line can be a real challenge.

Google certainly lowered the bar for the whole industry when they priced a gigabit at $70. And that is the real price since Google doesn’t charge extra for the modem. I think the Google announcement recalibrated the public’s expectations and anybody else that offers a gigabit product is going to be compared to that price.

There are a few other large companies marketing a gigabit product in multiple markets. CenturyLink has a gigabit connection for $79.95 per month. But it’s hard to know if that is really the price since it is bundled with CenturyLink’s Prism TV. The cheapest Prism TV product offered on the web costs $39.99 per month and includes 150 channels of programming and also comes with an additional settop box fee of $9.99 per month – the highest box fee I’ve seen. I don’t know exactly what kind of bundle discount is available, but on the web I’ve seen customers claiming that the cheapest price for the gigabit bundle is around $125 per month. That’s a far cry from Google’s straight $70. And for customers who want to use a gigabit to cut the cord a forced bundles feel a bit like blackmail.

Verizon FiOS has not yet given in to the pressure to offer a gigabit product. In looking at their web site their fastest product is still a symmetrical 500 Mbps connection at $270 per month plus an added fee for a modem, and with a required 2-year commitment. A 1-year commitment is $280 per month.

Comcast will soon offer a gigabit in more markets than anybody else. In Atlanta where Comcast is competing against Google Fiber a gigabit is $70 per month with a 3-year contract, including an early termination fee (meaning that if you leave you pay for the remaining months). This package also requires an additional modem charge. Without a contract the price for the gigabit is $140. It’s unclear if Comcast is offering the same lower-price deal in other markets with newly upgraded DOCSIS 3.1 like Chicago. The word on the Internet is that customers are unable to sign-up for the lower-price option in these markets, but the company says it’s available. I’m sure the availability  will soon become clear.

One thing that happens to any company that offers a gigabit is that the prices for slower speeds are slashed. If a gigabit is $70 – $80 then slower products must become correspondingly less expensive. Google offers a 100 Mbps product for $50 and each of the other companies listed above has a range of slower bandwidth products.

The first question I always ask an ISP is if they are offering gigabit speed for the public relations value or they really want to sell a lot of it. There are plenty of ISPs that have gone for the first option and have priced a gigabit north of $100 per month.  But for somebody that hopes to sell the product, the dilemma is that they know that the majority of their customers will buy the least expensive product that provides a comfortable speed. The rule of thumb in the industry is that, in most markets, at least 80% of customers will buy the low or moderate priced options. But if the choice is between a gigabit product and a 100 Mbps product, the percentage buying the slower product is likely to be a lot higher.

The issue that small ISPs face when recalibrating their speeds is that they end up increasing speeds for most existing customers. If they migrate from a scale today where 50 Mbps or 100 Mbps is the fastest product up to a new scale topped by a gigabit, then they have to increase speeds across the board to accommodate the new gigabit product.

This is a hard mental block to get over for many small ISPs. If a company offers a range today of products from 6 Mbps to 75 Mbps it’s mentally a challenge to reset their slowest speed to 50 Mbps or faster. They often tell me that in doing so they feels like they are giving away something for free. If a company has been an ISP since the dial-up days they often have a number of customers that have been grandfathered with slow, but inexpensive broadband. It’s a real dilemma when rebalancing speeds and rates to know what to do with households that are happy with a very cheap connection at 1 Mbps or 2 Mbps product.

For the last ten years I have advised clients to raise speeds. ISPs that have raised speeds tell me that they generally only see a tiny bump in extra traffic volume after doing so. And I’ve always seen that customers appreciate getting faster speeds for the same price. Since it doesn’t cost much to raise speeds it’s one of the cheapest forms of marketing you can do, and it’s something positive that customers will remember.

I think most ISPs realize that the kick-up to gigabit speeds is going to be a change that lasts for a long time. There are not many customers in a residential market that need or can use gigabit speeds. What Google did was to leap many times over the natural evolution of speeds in the market, and I think this is what makes my clients uneasy. They were on a path to have a structure more like Verizon with a dozen products between slow and fast. But the market push for gigabit speeds has reduced the number of options they are able to offer.