When Customers Use Their Data

In a recent disturbing announcement ,Verizon Wireless will be disconnecting service to 8,500 rural customers this month for using too much data on their cellphones. The customers are scattered around 13 states and are a mix those with both unlimited and limited data plans.

Verizon justifies this because these customers are using data where Verizon has no direct cell towers, meaning that these customers are roaming on cellular data networks owned by somebody else. Since Verizon pays for roaming the company say that these customers are costing them more in roaming charges than what the company collects in monthly subscription fees.

Verizon may well have a good business case for discontinuing these particular data customers if they are losing money on each customer. But the act of disconnecting them opens up a lot of questions and ought to be a concern to cellular customers everywhere.

This immediately raises the question of ‘carrier of last resort’. This is a basic principle of utility regulation that says that utilities, such as traditional incumbent telephone companies, must reasonably connect to everybody within their service territory. Obviously cellular customers don’t fall under this umbrella since the industry is competitive and none of the cellular companies have assigned territories.

But the lines between cellular companies and telcos are blurring. As AT&T and Verizon take down rural copper they are offering customers a wireless alternative. But in doing so they are shifting these customers from being served by a regulated telco to a cellular company that doesn’t have any carrier of last resort obligations. And that means that once converted to cellular that Verizon or AT&T would be free to then cut these customers loose at any time and for any reason. That should scare anybody that loses their rural copper lines.

Secondly, this raises the whole issue of Title II regulation. In 2015 the FCC declared that broadband is a regulated service, and that includes cellular data. This ruling brought cable companies and wireless companies under the jurisdiction of the FCC as common carriers. And that means that customers in this situation might have grounds for fighting back against what Verizon is doing. The FCC has the jurisdiction to regulate and to intervene in these kinds of situations if they regulate the ISPs as common carriers. But the current FCC is working hard to reverse that ruling and it’s doubtful they would tackle this case even if it was brought before them.

Probably the most disturbing thing about this is that it’s scary for these folks being disconnected. Rural homes do not want to use cellular data as their only broadband connection because it’s some of the most expensive broadband in the world. But many rural homes have no choice since this is their only broadband alternative to do the things they need to do with broadband. While satellite data is available almost everywhere, the incredibly high latency on satellite data means that it can’t be used for things like maintaining a connection to a school server to do homework or to connect to a work server to work at home.

One only has to look at rural cellular networks to understand the dilemma many of these 8,500 households might face. The usable distance for a data connection from a cellular tower is only a few miles at best, much like the circles around a DSL hub. It is not hard to imagine that many of these customers actually live within range of a Verizon tower but still roam on other networks.

Cellular roaming is an interesting thing. Every time you pick up your cellphone to make a voice or data connection, your phone searches for the strongest signal available and grabs it. This means that the phones of rural customers that don’t live right next to a tower must choose between competing weaker signals. Customers in this situation might be connected to a non-Verizon tower without it being obvious to them. Most cellphones have a tiny symbol that warns when users are roaming, but since voice roaming stopped being an issue most of us ignore it. And it’s difficult or impossible on most phones to choose which tower to connect to. Many of these customers being disconnected might have always assumed they actually were using the Verizon network. But largely it’s not something that customers have much control over.

I just discussed yesterday how we are now in limbo when it comes to regulating the broadband practices of the big ISPs. This is a perfect example of that situation because it’s doubtful that the customers being disconnected have any regulatory recourse to what is happening to them. And that bodes poorly to rural broadband customers in general – just one more reason why being a rural broadband customer is scary.

WiFi to Challenge Cellular?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

The Battle to Track Your Cellphone

HTC-Incredible-S-SmartphoneWe all know that advertising is what drives the Internet today. There is a sophisticated system in place to track desktop users through cookies and numerous other techniques that let companies amass information on who you are and how you use the internet. But these same tracking tools are largely not available for cellphones. The slimmed down operating systems for cell phones have created an environment that is very unfriendly to cookies and the other kinds of tools that are used to track desktop users.

Tracking and profiling customers is now key to advertisers. They are only willing to spend big bucks on web advertising if they can send directed ads to consumers. I live in Florida and I’ve barely been able to visit any web site in the last month where I didn’t get an ad about the Florida governor’s race. The tracking tools for web sites are good enough to know where I live and then give me ads appropriate to where I live and to my interests. The rest of the year my ads are directed more to me specifically and I get very different ads on my computer compared to what my wife gets.

You can’t blame the advertisers. The real value in web advertising is through the ability to direct ads that try to match the advertisement and the offers made to the person receiving the offer. They don’t want to try to sell a sports product to a non-sports fan or a cooking application to someone who has no interest in food. And so directed advertising is helping them to narrow the target audience to improve their chance of success. One of the main drivers behind developing big data techniques is to hone the ability to track people over time, across multiple devices and multiple web sites to form profiles on each of us.

Advertisers are desperate to be able to direct ads as accurately on cellphones as they do on desktops. This is incredibly important to advertisers because ad space on cellphones is so much more limited, and thus more valuable. On a cellphone you can’t do popups or even insert ads in any meaningful way onto the smaller screens when a cellular customers looks at a cellular version of a website. When I visit the typical commercial website on my laptop probably 20% or more of each page has been made available for the insertion of ads. And there is a huge industry that has sprung up to fill the space on those millions of web pages.

Recently both Verizon and AT&T have been experimenting with a new way to track wireless users. They have been inserting tracking numbers into the headers that identify individual cellphones. Apparently these headers have been very successful for advertisers and several of them have announced that they have had great success tracking phones through these identifying headers.

Several years ago the manufacturers of smartphones tried building an identifying number into each cellphone they made. But there was a huge outcry from the public and from privacy critics and these device IDs were either eliminated or somehow encoded and protected so that outsiders could not use them to identify an individual cellphone.

But the cellphone companies are desperate to find something that will enhance advertising revenues and so they now are putting identification in the headers. This means that every time that a cellphone visits any website, when that web site scans who is making a request they can gather these identifying numbers.

Verizon and AT&T say that these numbers are not for advertising and that they regularly rotate the numbers, in the same manner that they are supposed to change IP addresses for landline Internet connections. But we know in practice that in this age when people no longer log off the Internet that homes sometimes maintain the same IP address for months at a time. The wireless carriers don’t say how often the identifying headers are changed at a given cellphone.

AT&T notified customers in 2013 that it would be inserting these identifiers as part of a ‘test’ of future advertising products, and they offered their customers the ability to opt out of the program. But it’s been reported by those who opted out (and who are savvy enough to track this sort of thing) that they are being given these tracking numbers today and that there is apparently no way to elect out of the process.

The real proof that the tracking numbers are effective is the buzz that this has created in the wireless advertising world. Numerous advertising firms are now touting advertising programs that can help their clients track cellular customers in ways similar to desktop users.

Interestingly, Google has proposed a new Internet protocol they are calling SPDY that would eliminate and prevent these kinds of advertising headers. However, since Google makes the vast majority of their revenue from directed advertising these days, one has to think that this just means that they have found a different way to achieve the same results and want to eliminate one of the tools of their competitors.

Let’s face it. Our cellphones and other devices are amazing tools that bring us all a lot of benefits. But with those benefits it is just assumed that the carriers and advertisers are going to find a way to track us. It seems that if we want the benefits these devices bring us that the cost is our privacy.

Wireless Net Neutrality

Transmitter_tower_in_SpainWhile the FCC has not yet found a set of network neutrality rules that will stand up to a court challenge, all of the attempts they have made so far were aimed at net neutrality for landline data networks. But lately the question has been raised if the same network neutrality concepts should also be applied to wireless data.

There are several reasons why this might now make sense. There are now a substantial number of people whose only connectivity is through their wireless devices. Further, I’ve seen estimates that by sometime next year the number of data transactions from cell phones will exceed transactions from landline sources. It’s obvious that wireless data is now a major component of the general Internet and not some specialized niche like it once was. Landline data will continue to carry the vast majority of web video, but it appears that smartphones are carrying a lot of everything else.

This question has come more to the forefront lately due to some of the actions taken by cell phone providers. For example, Verizon Wireless recently announced that it would be throttling the speeds of customers who are still on its unlimited data plans on 4G LTE networks. The Verizon announcement said that starting October 1 at congested cell sites that Verizon would be throttling the speeds for unlimited plan data customers in favor of customers who buy data by the gigabyte.

This announcement seems to have angered Tom Wheeler, the FCC Chairman who sent a letter to Verizon warning them that this better be done for network management purposes and not as a play to enhance their revenues. Verizon has been trying for years to drive customers from older unlimited data plans and this just seems like another way to make life miserable for those customers to convince them to convert to more costly data plans.

The CEO of Verizon Wireless probably added fuel to the fire by comments he made at CTIA. He said that the wireless industry is still in its ‘infancy’ and needs a light regulatory touch. That’s a little hard to buy in a country where there are now as many active cell phones as there are people. He went on to say that wireless companies should be allowed to determine how they generate revenue and not regulators. He said “If a company chooses to pay us for priority access on our network, that is not a regulatory decision. It’s a business decision.”

And cell phone providers are now starting to offer blatant priority access plans. Virgin Mobile, a subsidiary of Sprint just announced plans that let customers use social media without having it count against their data plans. For example, a customer can buy a data plan for $12 per month that gives them unlimited access to any one service consisting of Facebook, Pinterest, Instagram or Twitter. Or for $10 more they can subscribe to all four. And for $5 per month extra they can add one streaming music source.

These are exactly the kinds of plans that were predicted when the courts rejected network neutrality. I read many predictions that service providers would begin giving priority to some content providers over others. To some, the Virgin Mobile plan might sound like an expansion of choice, but the fear is that customers are being herded towards a handful of big-money web services at the expense of the rest of the web.

While the Virgin Mobile plan sounds like a way for a customer to save money, in the long run going to a la carte services is going to allow wireless carriers to charge more for data than they do today. One of the concerns about lack of net neutrality is that plans like the Virgin one will kill creativity on the web by only given access to content from a handful of large providers. A customer who spends most of their time on one service like Facebook might save money with this kind of plan. But this kind of plan restricts people from trying new things on the web and will drive users towards those services that are willing to pay the wireless carriers for priority access. These plans are just starting to appear on cellphones, but how long will it be before they appear at the big ISPs?

The Skinny on U.S. 4G Data Speeds

Cell-TowerI am a statistic freak and I read any and all statistics I can find about the telecom industry. A lot of statistics are interesting but require a lot of heavy lifting to see what is going on beneath the numbers. But I ran across one set of statistics that sums up the problems of wireless 4G data in this country in a few simple numbers.

A company called OpenSignal has an app that people can use to measure the actual download speeds they see on LTE 4G networks. This app is used worldwide and so we can also compare the US to other parts of the world. In 2014 the comparisons were made from readings from 6 million users of the app.

The first interesting statistic is that the US came in 15th in the world in LTE speeds. In 2014 the US average download speed was a paltry 6.5 Mbps across all US downloads using 4G. At the top of the chart was Australia at 24.5 Mbps, Hong Kong at 21 Mbps, Denmark at 20.1 Mbps, Canada at 19.3 Mbps, Sweden at 19.2 Mbps and South Korea at 18.6 Mbps. Speeds drop pretty significantly after that, and for example Japan was at 11.8 Mbps. So beyond all of the hype from AT&T and Verizon touting their network speeds, they have not done a very good job in the US.

But the second statistic is even more telling. The speeds in the US dropped from 9.6 Mbps in 2013 to 6.5 Mbps in 2014. The US was the only country on the list of the top fifteen countries that saw a significant percentage drop from one year to the next. Sweden did have a drop, but they went from 22.1 Mbps to 19.2 Mbps

So what does this all mean? First, the drop in speed can probably best be explained by the fact that so many people in this country are using wireless data. Large amount of users are obviously overwhelming the networks, and as more people use the wireless data networks the speeds drop. Our wireless networks are all based upon the total bandwidth capacity at a given cell site, and so to the extent that more people want data than a cell site is designed for, the speeds drop as the cell site tries to accommodate everybody.

But for the average 4G speed for the whole year to only be 6.5 Mbps there has to be a whole lot more to the story. One might expect Canada to be faster than the US simply because we have a lot more large cities that can put strains on wireless networks. But you wouldn’t expect that to make the Canadian 4G experience three times faster than the US experience. And there are very few places on earth as densely populated as Hong Kong and they have the second fastest 4G networks in the world.

It’s obvious from these numbers that the US wireless carriers are not making the same kinds of investments per customer as other countries are doing. It’s one thing to beef up urban cell sites to 4G, but if those cell sites are too far apart then too many people are trying to use the same site. I would have to guess that our main problem is the number and spacing of cell sites.

But we also have a technology issue and regardless of what the carriers say, there are a lot of places that don’t even have 4G yet. I don’t have to drive more than 2 miles outside my own town to drop to 3G coverage and then only a few more miles past that to be down to 2G. A few weeks ago I was in Carlsbad California, a nice town halfway between LA and San Diego and right on I-5. I couldn’t even find a 2G network there at 5:00 in the evening, probably due to all of the traffic on the interstate.

I hope the FCC looks at these kinds of statistics because they debunk all of the oligopoly hype we get from the wireless carriers. I laugh when people tell me they are getting blazing fast speeds on 4G, because it’s something I look at all of the time when I travel and I have never seen it. When I hear of somebody who claims that they are getting 30 Mbps speeds I know that they must be standing directly under a cell tower at 3:00 in the morning. I like speed, but not quite that much.

A Little Bit Closer to OTT

TabletWe keep inching closer and closer to the day when customers will have a viable access to real time over-the-top programming. The first company to make any progress in this area was Aereo who is sending the network channels to people’s cellphones and tablets in major markets. But Aereo has an upcoming day in court and the US Supreme Court could put them out of business.

It’s not like there isn’t any programming available on the web, because there are mountains of old TV shows and movies available on NetFlix and AmazonPrime and the many other companies that have deals to put content on the web. And many customers of the major cable providers have TV anywhere where the cable company lets them watch some of the channels they subscribe to on remote devices.

But what is still missing, and what will finally give a lot of people the impetus to cut the cord is when they can get the programming they most want in real-time on devices other than televisions. I have largely cut the cord and watch the programming available on NetFlix and AmazonPrime. But I would be very happy if I could buy ESPN and the Big10 Network a la carte. And maybe some news network like CNN.

There were two announcements this past week that inch us closer to an OTT alternative. The CEO of Verizon Wireless, Lowell McAdam announced that he has had discussions with content providers about launching an OTT service for customers using the Verizon LTE network and also possibly for those using other broadband providers.

The second announcement came from Dish Networks who announced a major deal with Disney that would allow them to distribute Disney and ESPN wirelessly. The agreement was complex and also resolved a number of issued between Disney and Dish for satellite carriage. Last week I reported on the spectrum that Dish has been buying, and this announcement demonstrates that they have plans to use some of that spectrum to offer an OTT product.

When the Verizon CEO was asked about the Dish Networks announcement his response was that he thought Verizon has a huge head start and that it would take Dish at least a year to construct a wireless network. So I think we can expect Verizon to roll something out soon to take advantage of the existing network.

Both announcements make it sound like customers will be able to buy the OTT programming without having to subscribe elsewhere to a landline version of the same channels. This would be the first time that such live content like sports has been made available this way. I wrote last year that there are only a handful of channels with enough market power to pull off OTT programming, and that very short list includes ESPN. I know that I would gladly pay $20 for ESPN a la carte rather than have to buy a $60 package to get it. And I don’t think I am that unusual. Just in the last week I have had conversations with several other sports fans who say the same thing.

I had cable service several years ago with all of the channels and all of the movies. And I found that I would go weeks, and sometimes even months without turning on the TV (especially outside of football season). I am really hoping that these announcements are the first little crack in the programming monopoly and that the first pieces of OTT are here. But I won’t believe it until I can buy it. It’s possible that Dish and Verizon Wireless will be forced to also sell bundles of programming including a lot of things I won’t want. But I can’t see them getting into the OTT business if they aren’t going to let customers buy the smaller packages they really want. I will be watching.

Cellular is Not the Rural Broadband Solution

Cell-TowerI’m often asked why we can’t let cellular 4G bandwidth take care of the bandwidth needs for rural America. When you look at the ads on TV by Verizon and AT&T you would assume that the cellular data network is robust and is being built everywhere. But there are a lot of practical reasons why cellular data is not the answer for rural broadband:

Rural areas are not being upgraded. The carriers don’t make the same kinds of investments in rural markets that they do in urban markets. To see a similar situation in a related industry, consider how the large cable companies are upgrading cable modems in the metropolitan areas years before they upgrade rural areas. It seems that urban cellular technology is being upgraded every few years while rural cell sites might get upgraded once a decade.

Rural networks are not built where people live. Even where the cellular networks have been upgraded, rural cellular towers have been historically built to take care of car traffic, referred to in the industry as roaming traffic. Think about where you always see cellular towers and they are either on the top of tall hills or else along a highway not close to many homes and businesses. This matters because like all wireless traffic, the data speeds drop drastically with distance from the tower. Where a 3G customer in a City might get 30 Mbps download speed because they are likely less than a mile from a transmitter, a customer who is 4 miles from a tower might now get 5 Mbps. And in a rural area 4 miles is not very far.  

The carriers have severe data plans and caps. Even when customers happen to live close to a rural transmitter and can get good data speeds, the data plans for the large carriers are capped at very skimpy levels. One HD movie uses around 1.5 gigabits, meaning that a cap of 2 to 4 gigabits is a poor substitute for landline broadband. There are still a few unlimited data plans around but they are hard to get and dwindling in availability. And it’s been widely reported that once a customer reaches a certain level of usage on an unlimited plan that the speeds are choked to go very slow for the rest of the month.

Voice gets a big priority on the network. Cellular networks were built to deliver vice calls to cell phones and voice calls still get a priority on the network. A cell phone tower is limited to a finite amount of bandwidth. And so, once a few customers are downloading something big at the same time, the performance for the rest of the cell site gets noticeably worse. 3G networks are intended to deliver short bursts of fast data, such as when a cell phone user downloads an app. But there is not enough bandwidth at a cell phone tower to support hundreds of ‘normal’ data customers who are watching streaming video and using bandwidth like we use in our homes and businesses.

The plans are really expensive. Cellular data plans are not cheap. For example, Verizon will sell you a data plan for an iPad at $30 per month and a 4 gigabit total usage cap. Additional gigabits cost $10 to $15 each. To get the same plan for an iPhone is $70 per month since the plan requires voice and text messaging. Cellular data is the most expensive bandwidth in a country that already has some of the most expensive bandwidth in the world. 

There are no real 4G deployments yet. While the carriers are all touting 4G wireless, what they are delivering is 3G wireless. By definition the 4G wireless specification allows for gigabit data download speeds. What we now have, in engineering terms can best be described as 3.5 G and real 4G is still sometime in the future. There are reports of current cellular networks in cities getting bursts of speed up to 50 Mbps, which is very good, but is not close to being 4G. But most realized speeds are considerably slower than that.

The Future of Rural Broadband

Verizon Wireless "Rule the Air" Ad C...

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

There were several events this week that are telling rural subscribers the future of rural broadband. It is a bleak picture.

First, at a Goldman Sachs conference on Tuesday, the CEO of AT&T said that he hoped that the new FCC chairman Tom Wheeler would be receptive to AT&T’s desire to begin retiring its copper network in favor of its wireless network. At the end of last year AT&T had said in an FCC filing that they were going to be seeking to retire the copper plant from ‘millions of subscribers’.

In that filing AT&T had asked to move from the copper network to an all-wireless all-IP network. Stephenson said that cost savings from getting rid of the copper network would be dramatic.

On that same day, Verizon CEO Lowell McAdam said that the idea of offering unlimited data plans for wireless customers was not sustainable and defied the laws of physics. Earlier this year Verizon had ended all of its unlimited wireless data plans and now has caps on every plan.

Verizon already has a rural wireless-based landline surrogate product that it calls VzW. This uses the 4G network to deliver a landline phone and data anywhere that Verizon doesn’t have landline coverage. The base plan is $60 per month and includes voice and 10 gigabytes of data. Every extra gigabyte costs $10. There is an option to buy a $90 plan that includes 20 gigabytes or $120 for 30 gigabytes.

Finally, at the same Goldman Sachs conference mentioned above, the CFO of Time Warner said that they saw more room for increasing data rates.

So what does all of this mean for rural subscribers? First, it means that if you are served by a large incumbent like AT&T that they are going to be working hard to retire your copper and force you onto wireless. And we all know that the wireless data coverage in rural America is not particular fast when you can even get data. The data speeds delivered from a cell tower drop drastically with distance. In urban areas where towers are only a mile or less apart this doesn’t have much practical effect. But in a rural environment a mile is nothing and homes might be a mile apart. People lucky enough to live near to a cell tower can probably get okay data speeds, but those further away will not.

And even if you can get wireless data your usage is going to be capped. Rural landline data usage today may be slow, but it is unlimited. Customers have learned that if they put in WiFi routers that they can channel all of the data usage on their cell phones and tablets to their unlimited landline data connections. But once those connections are wireless, then every byte of data leaving your home, whether directly from a device or though the WiFi router, is going to count against the data caps. So rural America can expect a future where they will have data caps while people in urban areas will not.

Finally, one can expect the price of data to keep climbing. I have been predicting this for a decade. The large telcos and cable companies are facing a future where the old revenues streams of voice and cable TV are starting to decline. The only sustainable product they have is data. And so as voice and cable continue to tumble, expect incumbents to get into the habit of raising data prices every year to make up for those declines. Competition won’t help because the cell company data is already expensive, and both the incumbent cable and telcos will be raising data rates together.

This is not a pretty picture for a rural subscriber. Customers will be forced from copper to wireless. Speeds are not likely to get much faster. Data is going to be capped and prices will probably be increased year after year.

Is Wireless Really Better than Wires?

An rural area west of Route 41 and Lowell, Ind...

An rural area west of Route 41 and Lowell, Indiana. (Photo credit: Wikipedia)

It is clear that the FCC prefers wireless as the broadband solution for rural areas. It seems like they badly want every rural household in the country to get some kind of broadband just so they can take this issue off their plate. Just about every bit of policy decided in the last few years has a bias towards wireless bias.

For instance, the historic Universal Service Fund which was used to promote rural telephony over copper has been transitioned into a new CAF fund that will instead promote high-speed data in rural areas. There are several aspects of the CAF that clearly will ensure that the funds will go mostly to wireless carriers. The bulk of the funding will eventually be distributed by a reverse auction. This is an auction where the broadband providers in a given area will be able to compete for the funding, and the one who bids for the lowest amount of subsidy per customer will receive the funds.

The first time I read the reverse auction rules my first thought was that this money is all going to wireless companies. The reverse auction rules strongly favor companies who can provide data over large areas. Any smaller company who wants to get CAF funds to help pay for a rural wired network can be undercut by the largest wireless companies. AT&T Wireless and Verizon Wireless are the two richest and most successful companies in the country. They pay many billions of dollars of dividends annually and they can afford to underbid any rural landline company for subsidy, simply because they do not need it. But of course, they will bid in the reverse auctions and take the subsidies because the rules allow them to.

There are also parts of the CAF that can be used to build new broadband infrastructure and these funds also favor wireless companies. The funds get distributed by complicated rules that have a bias to get broadband to customers at the lowest cost per subscriber. And of course, there is no cheaper way to cover a large rural footprint than with wireless. Wireless companies are also going to get a lot of this infrastructure funding.

Meanwhile, AT&T recently told the FCC that they were going to introduce a plan to drop the copper for ‘millions’ of rural subscribers. And if they are successful then their rural subscribers can expect to be told to get cell phones rather than landlines. And for voice telephony this might not be such a bad thing. But do we really want to relegate a large bunch of the US geography to only having cellular data?

Today there is clearly a broadband gap with some rural areas still stuck with dial-up Internet access. And so getting them some kind of faster data seems like a reasonable plan. The FCC has set the definition of broadband to be the capability of receiving 4 Mbps download. And it’s obvious that they set that limit with rural areas in mind.

And so over the next decade more and more of rural America will be getting cellular data that will meet, or come close to meeting the FCC’s definition of broadband. But meanwhile, the cities have already far surpassed those speeds. There are very few cities left where the average home can’t get speeds of between 10 Mbps and 20 Mbps. There are usually cheaper alternatives in the range of 5 Mbps to 7 Mbps, but the faster speeds are widely available. And many places have much faster speeds available.

The FCC itself has promoted the availability of gigabit bandwidth and companies are responding. Google is bringing this speed to Kansas City, Austin and Provo and AT&T has promised to match them in Austin. CenturyLink is bringing a gigabit to Omaha. And a number of smaller municipal and commercial providers have brought gigabit speeds to other towns and cities scattered across the country. And one can expect the gigabit movement to grow rapidly.

It’s universal knowledge that the household use of bandwidth has continued to grow and there is no end in sight for that growth. As networks can provide more data households find ways to use it. Video has been the recent reason for the explosion in data usage, and now we can see that the Internet of Things will probably be the next big bandwidth driver.

Have we really solved the rural bandwidth gap if people in those areas are going to have 4 Mbps data speeds while urban areas have a gigabit? Obviously the rural areas will continue to be left behind and they will fall further behind than today. Just a few years ago the rural areas had dial-up and the cities had maybe 5 Mbps. But a gap between a rural world at single digit megabit speeds with the cities at gigabit speeds is a much larger gap and the rural areas will not be able to share in the benefits that bandwidth will bring.

The only long-term solution is to build fiber to rural America. Obviously nobody is going to build fiber to single homes at the top of mountains or at the end of ten-mile dirt roads, but I have been working on business plans that show that fiber can make sense in the average rural county. But it is really hard to get rural fiber funding since such projects tend to jut pay for themselves and are not wildly profitable.

It’s possible that the FCC’s universal service plans will work and that a lot of the 19 million rural people without broadband will get some sort of rudimentary broadband. But meanwhile, the rest of the country will be getting faster and faster bandwidth. And so, before the FCC declares ‘mission accomplished’ I think we need to have more of a debate about the definition of broadband and what is acceptable. I hate to tell the FCC, but the rural broadband issue is not going to go away even after rural areas all have cellular data.

What’s Up With Verizon?

1980s Dodge Ram Van 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.