Improving Your Business What Customers Want

Don’t Be the Big Guys

Hurricane_Katrina_August_28_2005_NASALarge telco and cable companies took a pretty good beating in the press in 2013. There were tons of articles that don’t present them in a very good light. For all of my clients and friends in the industry who are not these large companies, I think it might more important right now to show your customers why you are not like the big guys.

Here are just a few things that made headlines this year:

  • Verizon said they would not replace the copper on Fire Island and parts of New York City that were destroyed by Hurricane Sandy and wanted customers to instead use cell phones.
  • AT&T told the FCC in a filing that they were planning on ditching ‘millions of access lines’ and wanted to transfer rural areas to cellphone-only.
  • The large ISPs, both telcos and cable companies came in at the bottom again on the national customer service satisfaction polls that measure the companies that the public most dislikes.
  • Almost every large carrier has been accused of handing over all of their telephone and email traffic to the NSA.
  • Cable rates had continued dramatic increases everywhere.
  • It was reported in California that telephone rates have nearly tripled since they were deregulated in 2008.
  • Verizon customers have accused the company of pressuring them to convert to FiOS and then not having access to older copper products.
  • All of these large companies announced record profits.

There is such a widespread dislike of these companies that we need to be careful that the dislike of them doesn’t wipe off onto the rest of us. In large cities many customer talk about holding their nose and picking the incumbent they dislike the least.

Unfortunately, some of my smaller telco clients have policies in place that also don’t win them any love in the marketplace. As an example, I ran across one company this year who would only accept customers who would pay with direct bank debit. I found another client who would only let somebody reconnect after being disconnected by coming in live with cash or a money order. I suspect many companies have policies that are not customer friendly. In the long run any such policy is going to cost you revenues and profits.

It’s easy to understand how such policies get started. Perhaps a company was having a high level of bad debt. But you can’t punish all of your customers for the behavior of a few (and in fact, you really shouldn’t punish anybody). I know personally that if I had to bring cash into my telco in person that they would never see me again, and I can’t be unique in this.

I think the constant bad headlines about telecom companies probably paint us all in a bad light. So I would advise that you take a fresh look at your company and figure out how you are going to let your customers know that you are not the same as the big guys. You may assume they know this, but these is a very good chance that they think of you just as the phone or cable company and that over the years you have done something to annoy many of your customers.

So take this new year as an opportunity to think about how you tell your customers who you are. Certainly you can always tell them with your actions, but it never hears to remind them in other ways. So what do you want your customers to most know about you? Figure out a way to get out that message.

Technology The Industry

The Explosion of WiFi

Wi-Fi Signal logo (Photo credit: Wikipedia)

WiFi has been around since the mid 90’s as a local wireless data connection. WiFi products grew somewhat slowly with the two primary uses being external WiFi networks used to supply point-to-point data in mostly rural areas, and as the way to connect wirelessly to computers within a home or business. And companies like Cisco, Linksys and others made a decent living selling WiFi transmitters.

But then along came the smartphone and suddenly cellular data offload became a huge business as everybody scrambled to use WiFi data from their landline network rather than pay for more expensive cellular data. All of a sudden WiFi routers became a necessity and most homes that have a landline data connection now also have a WiFi router. In fact, most cable companies, FTTX companies and telcos have built WiFi into their standard data modems.

And as successful as WiFi has been, the spectrum is about to get a lot busier. Consider the following industry trends:

Proliferation of Commercial Hotspots. There has been a proliferation of public WiFi hotspots in recent years. It used to be when you wanted free WiFi you would head to a Starbucks. But since most businesses now have data connections many of them had added WiFi for their customer’s convenience. One good indicator of this is the website This site tracks known public WiFi hotspots and conveniently maps them. And this site shows many hotspots, but there are many additional hot spots that are not shown on these maps.

In addition to businesses deploying hot spots, some carriers have started deploying hot spots as part of their business plan. For example, it was recently reported that cable companies have deployed over 300,000 public WiFi hot spots, with most of those being deployed by Comcast, Comcast is deploying public hotspots in areas where they have stiff competition with fast landline data, such as areas with Verizon FiOS. So in some of these areas Comcast has deployed hot spots in areas where the public tends to congregate. For instance, they tout that they have completely covered the Jersey shore. When they can they sell hot spots to businesses as a money-making venture, but many of the Comcast hot spots are free for the use of any Comcast customer and have been installed to give them a competitive marketing advantage over their local competition. They report that the public is flocking to their hotspots with cell phones and tablets.

Settop Boxes. Many of the settop makers for cable television are coming out with version of their boxes that use WiFi to connect and transmit TV from one central hub to other televisions or to tablets, PCs or cell phones. There has already been a trend of creating a ‘whole-house’ centralized DVR / settop box that is able to record and playback multiple shows to any other TV in the home. Settop box manufacturers are going to count on the new 801.11ac standard to provide enough bandwidth to transmit cable signal between TVs.

City-wide WiFi networks. There have been a number of municipalities and other entities that have been expanding free WiFi networks. Wikipedia now lists 65 US cities that have deployed WiFi networks in some or all parts of the City. For the most part these networks offer free service although some of them instead offer WiFi by the hour or day similar to what is available in airports. I know of cities who do this which are not on this list, so the actual count of cities with some public WiFi coverage is probably quite a bit higher than 65. And I read almost daily of cities who are thinking about adding more of this. Additionally there are many cities that have added WiFi networks for first responders and City employees without offering these networks for the public.

The Internet of Things. But the real explosion of WiFi is going to come from the Internet of Things. There is only two current reliable ways for the multitude of IoT devices to communicate with a central hub, either WiFi or Bluetooth. It appears that most device makers are leaning towards WiFi as the preferred communications method since Bluetooth is mostly limited by line of sight to the central router. It’s estimated that over the next decade that billions of new IoT devices will be deployed and will start sharing the WiFi bandwidth.

There are a lot of concerns that the number of devices that will be using WiFi is going to cause a lot of local interference, which is an issue I will cover in a later blog.

Current News The Industry

Where are the Verizon Profits?

Verizon Wireless “Rule the Air” Ad Campaign (Photo credit: Wikipedia)

I’ve been reading over the last few weeks about the controversy surrounding Verizon’s profitability in its wireless versus wireline business. Verizon has been claiming that it is not making very much money from its landline business while critics are charging that Verizon is cooking the books to make the wireline business look bad.

This link is a report on Verizon’s 3rd quarter earnings. In the third quarter Verizon had total revenues of $30.3 billion. This was comprised of $20.4 billion for the wireless segment and $9.7 billion for the wireline businesses. The profit story is quite skewed and they show profits of $6.9 billion for the wireless business but only $155 million for the total wireline business. If you take out depreciation to get operating margins, the wireless business made $8.9 billion for the quarter while the landline business made $2.2 billion.

In looking at these numbers as an outsider I ask myself if they make sense. I probably have more ability to judge these numbers than most people because I am privy to the books of hundreds of telecom companies that are in the same business lines as Verizon.

Verizon claims their losses for landline are so big because of all of their continuing losses of landlines. But all of my clients have been losing landlines and yet many of them are still quite profitable. Let’s look at some of the piece parts of the company to kick the tires on Verizon’s claim of low profitability:

  • Verizon has 5.2 million video subscribers. It’s a pretty well-known industry fact that these are low margin customers.
  • Verizon has 5.9 million FiOS data customers and another 3.0 million DSL customers. And 40% of the FiOS customers were buying the faster speeds of between 50 Mbps and 500 Mbps. Universally, data is a high margin business.
  • Verizon had 4.1 million voice customers on FiOS and 6.8 million voice customers on copper. While voice lines are dropping, and Verizon lost a net 432,000 customers over the last year, the margins on voice should be high.
  • Landline revenues include $3.6 billion in core and strategic services and another $1.7 billion in global wholesale. These product lines include what are the most profitable business lines for most telcos – such things as selling special access circuits, internet backbone connections and fiber connections to cell towers. Most of my clients report these business lines to be very highly profitable.

The overall operating margin for the landline business, at 23% ($2.2 billion of margin compared to $9.7 billion of costs) is very low compared to almost all of my customers. Much smaller telephone companies than Verizon have margins that are somewhere in the 30% – 40% range.

So, is Verizon just very inefficiently operated or are they cooking their books? I consider the following:

  • There is a lot of corporate leeway in assigning costs between operating divisions. I help my clients make these kinds of cost allocations all of the time and there is a wide variety of ways that you can allocate costs that will still fly with an external auditor. So Verizon has a lot of leeway to change the relative profits between the two operating divisions.
  • Verizon publicly has been trying to convince the FCC that they ought to be able to transition customers from copper to wireless. The most visible controversy has been about Fire Island off New York City that got devastated by hurricane Sandy. But Both Verizon and AT&T have made it clear that they would like to find a way to walk away from maintaining older copper.
  • On the surface the profits look too small. This either has to be the result of very inefficient operations or of allocating costs to slew profits. If the wireline business really only has a 20% margin then Verizon would be far better off to spin those businesses off to standalone regional companies who could probably double the margins within a few years.

It’s obviously very hard to know all of the facts within the books of a company as big as Verizon. But my gut tells me that they ought to be making more money on the wireline business. While Verizon claims the poor profitability is due to loss of landlines, that only comprises a small percentage of the landline business. A lot of that business comes from the very profitable business lines of supplying transport for the Internet and for cell sites.

So are they cooking the books? Probably.

Current News What Customers Want

We Don’t Have Enough Bandwidth

I read three different articles Friday that have a common theme – we just don’t have enough bandwidth in this country.

The first article from the Fiber To The Home Council which reports on a recent survey. They report that video viewing over the Internet is growing faster than expected, led by the viewing habits of the young. One third of young viewers watch video on a cell phone or tablet at the same time that they watch TV. And 12% of viewers under 35 report watching all of their content over the Internet.

The article also points out a recent report from Conviva, a web optimization company, who reports that they sampled 22.6 billion video streams and found that 60% of them suffered some degradation due to inadequate bandwidth.

The gist of the article is that demand keeps growing while many parts of the Web are near or at a breaking point in terms of capacity and quality. It’s also evidence that homes don’t want to just watch streaming video, they want to watch multiple streaming videos.

In another article Time Warner announced that it would roll out significantly faster Internet service, but only in competitive markets. The upgrades will come in markets where they are competing against fast competition, such as places where Verizon has built FiOS, where AT&T has relatively fast U-verse and where municipalities have built fiber networks. The company says that they will upgrade to DOCSIS 3 and also install much faster wireless routers. They also will upgrade the DVRs in these markets and roll out apps that are designed for the faster Internet.

But Time Warner also made it clear that they have no plans to upgrade markets where there is not fast competition. My take away from this article is that a lot of the incumbent providers are still only doing upgrades in response to direct competition. Otherwise they are quite satisfied with the status quo and only make investments under duress.

Finally, the citizens of Bergen County, New Jersey have started a petition to ask their politicians to offer whatever is necessary to attract Google fiber to the county. Bergen County is the most populous county in the state.

I find this somewhat surprising because most of the people in this county have Verizon FiOS available. And recently Verizon said they plan to have all of New Jersey covered by FiOS. Most of the rest of the country would be thrilled to be upgraded to the kinds of speeds available in Bergen County. FiOS speeds differ by market, but most markets have speeds available from 15 Mbps download to 150 Mbps download. And a few markets have 300 Mbps and 500 Mbps speeds available. Of course, Google would be bring 1 Gbps speeds for a little more than what people are paying for 50 Mbps from Verizon.

My takeaway from this is that people are beginning to realize how important very fast Internet service is. Even those who already have some of the fastest Internet speeds in the country do not view what they have as a value.

Unfortunately for the citizens of Bergen County I find it highly unlikely that Google will ever build to compete against another fiber network. Verizon could easily upgrade their network to compete with Google on speed and price and the conventional wisdom is that nobody is going to build a second fiber network to homes or both fiber owners will go broke competing against each other.

But all of these articles are indicative of the daily articles I see that continue to highlight the big gap between the bandwidth people want and what they are being offered in the market. We just don’t have enough bandwidth in the country, at least according to consumers.

Current News What Customers Want

Google and the NFL

The new NFL logo went into use at the 2008 draft. (Photo credit: Wikipedia)

Google has announced that it is interested in buying the Sunday package from the NFL to stream over the web. For those of you who are not sports fans, this means every regular Sunday football game (just not the Sunday or Monday night games or the mid-week game).

The Sunday package today is available today only on DirectTV. A sports fan must buy a DirectTV regular programming package in order to buy what DirectTV markets as the Sunday ticket. DirectTV simulcasts all Sunday games, so there are a number of games playing at one time.  DirectTV owns the rights through the end of the 2014 season and the package comes up for bid again.

The football programming currently costs DirectTV $1 billion per year, and one has to imagine the price is going to go up in a bidding war. But obviously Google can afford this.

I would think that losing football would be devastating to DirectTV. As a serious sports fan, I know of a lot of sports fans who subscribe to DirectTV just for the right to buy the football package. If that goes away, DirectTV is going to see a number of subscribers melt away over the first year.

The whole idea of Google buying the NFL package raises all sorts of different issues:

  • This would give major legitimacy to OTT programming and could form the core of a Google on-line TV offering with some teeth. One has to think that Google is going to bundle this with other programming to get enough revenue to pay for the package. This could turn Google into a serious player in the content provider war.
  • One has to wonder if Google understands the lack of bandwidth in much of the country. DirectTV delivers football in high definition, and most fans routinely watch multiple games at the same time or want to quickly flip between games. This country is divided into a lot of broadband haves and have-nots. Certainly customers on fiber like Verizon FiOS will love football on the web. But there are still a significant number of rural households who can’t get real broadband. And even more importantly, there are a whole lot of towns that don’t get enough broadband to watch multiple football games in HD.
  • Interestingly, the FCC has been tracking the availability of broadband by letting the service providers tell the FCC what they offer where. And everybody knows this process is highly flawed and that a lot of the reporting is very far from reality. Moving football to the web is going to more effective than any broadband map at showing who has and does not have adequate broadband. All we need to do to track where broadband is inadequate is to follow the complaints about Google football.
  • On the other hand, Google would be opening up the Sunday football package to a lot of new households. There are a lot of people today that can’t get DirectTV, either due to a clear look at the right part of the sky or else from living in a place, like a high-rise that doesn’t allow satellite TV.
  • And Google football is really perfect for somebody like me who is not always in the same place every Sunday. I would assume that if I am a subscriber that I am going to be able to watch as long as I can find a good broadband connection. I think there will quickly be web boards that track which hotels have good or poor internet and business travelers will be going to the good ones and avoiding the poor ones.

Sports programming is the one wild card in the programming world for which there is no substitute. To any sports fan there is the NFL and then there is everything else.

It has also been reported that ESPN is considering a web-package that they would only sell to web-providers who bundle it with a larger programming line-up. And one has to think that if ESPN works out this kind of deal that the college football networks will follow suit. If NFL football, college football and ESPN become available on the web, then landline cable TV is going to have lost its grip on a lot of households. This has to be a concern for the big cable companies.

Improving Your Business Technology

Make it Faster

Cable modem Motorola SurfBoard for broadband internet (Photo credit: Wikipedia)

Whenever I look at my client’s data products I almost have the same advice – make it faster. I am constantly surprised to find companies who deliver small bandwidth data products when their networks are capable of going much faster. I have come to the conclusion that you should give customers as much bandwidth as you technically can deliver, within any technical restraints.

I know that networks are operated largely by engineers and technicians and very often I hear the engineers warn management against increasing speeds. They typically are worried that faster speeds mean that customers will use more bandwidth. They worry that will mean more costs with no additional revenue to pay for the extra bandwidth.

But the experience in the industry is that customers don’t use more data when they get more speeds, at least not right away. Customers do not change their behavior after they get faster data – they just keep doing the same things they were doing before, only faster.

Of course, over time, internet data usage is steadily increasing on every network as customers watch more and more programming on the web. But they are going to increase usage regardless of the speed you deliver to them as long as that speed is fast enough to stream video. Going faster just means they can start watching content sooner without having to worry about streaming glitches.

The engineers do have one valid point that must be taken into consideration, in that many networks have chokepoints. A chokepoint is any place in a network that can restrict the flow of data to customers. Chokepoints can be at neighborhood nodes, within your network backbone, at devices like routers, or on the Internet backbone leaving your company. If your network is getting close to hitting a chokepoint you need to fix the issue because the data usage is going to grow independently of the speeds you give your customers. When I hear worry about chokepoints it tells me that the network needs upgrades, probably sooner rather than later.

Historically telecom companies were very stingy with data speeds. The first generations of DSL didn’t deliver speeds that were much faster than dial-up and even today there are many markets that still offer DSL with downloads speeds of 1 Mbps. Then cable modems came along and they upped speeds a little, with the first generation of cable modems offering speeds up to 3 Mbps. And over time the telcos and the cable companies increased data speeds a little, but not a lot. They engaged in oligopoly competition rather than in product competition. There are many notorious quotes by the presidents of large cable companies saying that their customers don’t need more speed.

But then Verizon built FiOS and changed the equation. Verizon’s lowest speed product when they launched service was 20 Mbps, and it was an honest speed, meaning that it delivered as advertised. Many of the DSL and cable modem speeds at that time were hyped at speeds faster than could be delivered in the network. Cable modems were particular susceptible to slowing down to a crawl at the busiest times of the evening.

Over time Verizon kept increasing their speeds and on the east coast they pushed the cable companies to do the same. Mediacom in New York City was the first cable company to announce a 50 Mbps data product, and today most urban cable companies offer a 100 Mbps product. However, the dirty secret cable companies don’t want to tell you is that they can offer that product by giving prioritization to those customers, which means that everybody else gets degraded a little bit.

And then came Google in Kansas City who set the new bar to 1 Gbps. Service providers all over the country are now finding ways to 1 Gbps service, even if it’s just to a few customers.

I am always surprised when I find a company who operates a fiber network which does not offer fast speeds. I still find fiber networks all the time that have products at 5 Mbps and 10 Mbps. In all of the fiber-to-the-premise technologies, the network is set up to deliver at least 100 Mbps to every customer and the network provider chokes the speeds down to what is sold to customers. It literally takes a flick of a switch for a fiber provider to change the speed to a home or business from 10 Mbps to 100 Mbps.

And so I tell these operators to make it faster. If you own a fiber network you have one major technological advantage over any competition, which is speed. I just can’t understand why a fiber network owner would offer speeds that are in direct competition with the DSL and cable modems in their market when they are capable of leaping far above them.

But even if you are using copper or coax you need to increase speeds to customers whenever you can. Customers want more speed and you will always be keeping the pressure on your competition.

Improving Your Business What Customers Want

What’s Up With Verizon?

1980s Dodge Ram Van Verizon (Photo credit: Wikipedia)

I have another story to tell about my friend Danny. He runs an accounting firm in northern Virginia and he looks a lot like a ton of other small businesses. He has half a dozen phone lines and he wants a fast Internet connection. He called me the other day and told me that he had been approached in just the course of one week by three different salespeople who represented Verizon.

His first contact still has me shaking my head. A salesman stopped by and offered to sell him an all-in-one T1. Danny already has FiOS and a symmetrical 35 Mbps Internet connection. This salesperson wanted to sell Danny a T1 from Verizon or from half a dozen other CLECs and resellers. And he could do this for only $1,400 per month, which is 3.5 times what Danny is paying for vastly better service.

I was really surprised by this sales call. This is a flashback to the late 90’s when there were salespeople everywhere selling the all-inclusive T1 that had some channels for voice and the rest of the T1 for data. And in those days since we had all just migrated from the dial-up world, this seemed like fast Internet access. But then DSL and cable modems, and now fiber and 4G have all left T1s far behind and I was surprised that there was a company who would spend the money on a salesperson to go door-to-door with last century’s product. That seems like the telecom’s version of a buggy-whip salesman.

But Danny says that in his CPA practice that he has at least 50 clients who still use T1s. He advises them every year to move to something better, but I guess there are a lot of people in the world who stick with what is comfortable and working. Such customers could save a lot of money moving to something else and would get far faster Internet access to boot. But I guess the fact that these kinds of customers are still out in the market explains the T1 salesman. There is so much profit in a T1 at his prices that one sale per month probably keeps him happy and very profitable.

Next Danny got a visit from Verizon Wireless. They wanted him to ditch his FiOS and go completely wireless with 4G. Danny has had his FiOS for four years and has never had a single problem. During that time Verizon has increased his bandwidth without changing the price. He is completely happy with fiber and he knows that fiber is the ultimate pipe if he wants bigger bandwidth in the future.

4G is an interesting product, but nobody thinks that a wireless network is as reliable as the FiOS fiber. Cell towers sometimes go down or get overwhelmed with service requests. And the 4G speeds vary by how many customers are using it at any given time. 4G is nice, but it is not fiber.

Danny says that the 4G salesperson could not answer some basic questions. For instance, they could not tell him the speeds he could expect at his location but only could talk about a possible range of speeds. And they never asked him any questions about his business. There certainly are going to be businesses where 4G might be the right solution, but Danny is not one of them. His accountants work in the office and clients come to see him. His major concern is reliability and he loves that FiOS stays up and running. Before FiOS he had a Comcast cable modem and had to send employees home several days when the Internet was not working. Danny is a happy Verizon customer and is sold on their fiber. Danny was somewhat amazed that the 4G salesperson did not know that he already had FiOS and it seems like the different parts of Verizon don’t talk to each other.

Finally last week Danny got a call from a FiOS rep. He had not gotten a call about his FiOS since he first bought it, but I guess that the Verizon FiOS group knew that Verizon Wireless was out trying to poach their customers and they called to check on him. So within the span of one week Danny was contacted by three different salespeople, two from Verizon and one who was a Verizon reseller.

This surprised me for a number of reasons. First, I honestly would have thought the day of selling T1s was dead and that visit just has me shaking my head. But the idea that two different parts of Verizon would spend for sales resources to compete for the same customer has me flummoxed. I understand that the Verizon fiber and wireless businesses are separate business units. But at the end of the day their profits all roll up to the same bottom line.

It appears to me that Verizon has missed one of the basic principles of selling – putting the customer first. A lot of my clients are CLECs and they learned a long time ago that the way to get loyal customers is to get to know them and find them a solution that fits what they need. This approach is called consultative sales and involves taking the time to get to know the customers’ needs. In the early days of CLECs they all sold on price and they quickly learned that a customer who changed to them for a lower price would also drop them for the next lowest offer. The CLECs who are still around today are for the most part doing it right and selling in a way to earn trust and loyalty from customers.

It honestly surprises me that Verizon has not learned this simple lesson. Danny says that the wireless salesperson never asked him about his business and only spouted that 4G was the latest and greatest product. It further surprises me that Verizon would put a live sales staff on the street to compete against themselves. Sales teams are expensive and it’s hard to fathom why Verizon would send a wireless salesperson to a place that already has Verizon FiOS. You would think at a minimum they would send salespeople only to those places that don’t already use Verizon. But once they heard he had FiOS they still tried to convert him to wireless.

Why would Verizon compete against itself like this? I know that there are different business units at Verizon and that each group will earn bonuses based upon their own performance, but at the end of the day it is more profitable as a corporation to do this the right way. Verizon ought to be sending out one sales team that can sell their whole product line and who will help the customer find the best solution for their business. In the long run it can’t do Verizon any good having salespeople bashing their own product lines. As a corporation do they really want wireless salespeople telling the public not to use their fiber? That is going to lead customers to pick somebody other than Verizon.

I think Danny has it right. When his receptionist hears the word Verizon now she just tells them, “He doesn’t want to talk to you.” And she is right.

Current News The Industry

Will Poor People Get Google Fiber?

FiOS installed in Montclair, New Jersey (Photo credit: Wikipedia)

This was a great question that was posed by a recent article in Forbes Magazine. In this country we have a long history of having telecom provided by monopoly telephone companies and more recently by cable companies. Both incumbent providers have been mandated to serve almost everybody in their footprint. In the case of telephone companies this has been done by regulatory fiat by the various state Commissions that regulate telephone service in each state. Every state has rules for incumbent telephone companies that include a requirement for universal service using a concept known as carrier-of-last-resort. When a telephone company got the right to serve an area they were expected to provide service to everybody in that area, within reason, and then the costs of the more expensive-to-reach customers was averaged with everybody else. I say within reason, because even the telephone companies were allowed an out for really expensive-to-reach customers. For instance, if a farmer lived back a seven-mile long lane, the phone company might only provide a mile or two of the service line and expect the customer to pay for the rest.

And cable companies had similar requirement that came through the franchise agreements that they signed with local governments. If a cable company wanted to serve a town, then they were required to serve everybody in town in order to get the franchise.

Today fiber is being built by both regulated monopoly carriers like Verizon, but also by competitive providers like Google. But none of the fiber builders has the same carrier-of-last-resort or cable-like franchises requirements that the incumbents faced when they built their copper networks.

So to answer the opening question, will everybody get Google fiber?  The answer is no, for the following reasons:

  • Copper is still in place.  As long as the copper is still in place for the telephone and cable company, they can satisfy their service obligations by connecting customers on copper. They are thus relieved of building fiber everywhere as long as copper still exists.
  • Exclusive contracts with MDUs.  Anybody that builds with fiber needs to get the approval of the owner of multi-tenant buildings, be that apartments or multi-tenant business buildings. And some of those building owners are not going to give permission. Some building owners will have signed exclusive access contracts with the incumbent cable company. The FCC invalidated some types of exclusivity a few years ago, but there are still contractual ways for the cable company to keep out competition. Further, some building owners just don’t want to let a provider into their complex.
  • Places too expensive to serve.  Fiber overbuilders can pick and choose where to serve. It is often very expensive to bring fiber into apartment buildings, particularly older apartments, and many fiber builders choose to not build or selectively build to apartments. Verizon is famous for avoiding high-cost places. If you look at a suburban map of Verizon FiOS you would find a real patchwork of served areas. They will build to one pocket of houses but then skip over ones right next door, certainly due to cost. For the most part Verizon has elected to not dig up streets to build fiber, and so FiOS is more commonly placed in neighborhoods with existing Verizon aerial wires, or in neighborhoods where there is existing conduit in the ground. Verizon also often skips past apartment complexes. But I don’t want to single out Verizon since this is true of just about every fiber overbuilder.
  • Redlining, or the nearest thing to it.  As the article suggests, the build-out patterns of Verizon, Google and just about any other fiber overbuilder have a significant taste of redlining about them. It is easy for the fiber builders to say they are building where the cost is the lowest and the returns are expected to be the highest, but this means that they generally end up avoiding large apartment complexes and poorer neighborhoods. If they had set out to deliberately redline they would end up with basically the same networks that actually get built.

And so we are entering a future where there will be definite fiber haves and have-nots. There has been a lot of this for the last few decades since the introduction of DSL and cable modems. Rural areas for the large part have received very little broadband compared to urban and suburban areas. But the future digital divide is going to be starker, with the divide being everywhere, including the cities and suburbs, with some homes having fiber and others not.

For the last decade there has been conventional wisdom that having fiber connected to your home will add to the value of your house. I guess we are going to get to see this tested on a very large-scale.