What’s the Future for CenturyLink?

I don’t know how many of you watch industry stock prices. I’m certainly not a stock analyst, but I’ve always tracked the stock prices of the big ISPs as another way to try to understand the industry. The stock prices for big ISPs are hard to compare because every big ISP operates multiple lines of business these days. AT&T and Verizon are judged more as cellular companies than as ISPs. AT&T and Comcast stock prices reflect that both are major media companies.

With that said, the stock price for CenturyLink has performed far worse than other big ISPs over the last year. A year ago a share of CenturyLink stock was at $19.24. By the end of the year the stock price was down to $15.44. As I wrote this blog the price was down to $10.89. That’s a 43% drop in share price over the last year and a 30% drop since the first of the year. For comparison, following are the stock prices of the other big ISPs and also trends in broadband customers:

Stock Price 1 Year Ago Stock Price Now % Change 2018 Change in Broadband Customers
CenturyLink $19.24 $10.89 -43.4% -262,000
Comcast $32.14 $43.15 34.3% 1,353,000
Charter $272.84 $377.89 38.5% 1,271,000
AT&T $32.19 $30.62 -4.9% -18,000
Verizon $48.49 $56.91 17.4% 2,000

As a point of comparison to the overall market, the Dow Jones Industrial average was up 4% over this same 1-year period. The above chart is not trying to make a correlation between stock prices and broadband customers since that is just one of dozens of factors that affect the performance of these companies.

Again, I’ve never fully understood how Wall Street values any given company. In reading analyst reports on CenturyLink it seems that the primary reason for the drop in stock price is that all of the company’s business units are trending downward. In the recently released 1Q 2019 results the company showed a year-over-year drop in results for the international, enterprise, small and medium business, wholesale, and consumer business units. It seems that analysts had hoped that the merger with Level 3 would reverse some of the downward trends. Stock prices also dropped when the company surprised the market by cutting its dividend payment in half in February.

CenturyLink faces the same trends as all big ISPs – traditional business lines like landline telephone and cable TV are in decline. Perhaps the most important trend affecting the company is the continued migration of broadband customers from copper-based DSL to cable company broadband. CenturyLink is not replacing the DSL broadband customers it’s losing. In 2018 CenturyLink lost a lot of broadband customers with speeds under 20 Mbps, but had a net gain of customers using more than 20 Mbps. CenturyLink undertook a big fiber-to-the-home expansion in 2017 and built fiber to pass 900,000 homes and businesses – but currently almost all expansion of last-mile networks is on hold.

It’s interesting to compare CenturyLink as an ISP with the big cable companies. The obvious big difference is the trend in broadband customers and revenues. Where CenturyLink lost 262,000 broadband customers in 2018, the two biggest cable companies each added more than a million new broadband customers for the year. CenturyLink and other telcos are losing the battle of DSL versus cable modems with customers migrating to cable companies as they seek faster speeds.

It’s also interesting to compare CenturyLink to the other big telcos. From the perspective of being an ISP, AT&T and Verizon are hanging on to total broadband customers. Both companies are also losing the DSL battle with the cable companies, but each is adding fiber customers to compensate for those losses. Both big telcos are building a lot of new fiber, mostly to provide direct connectivity to their own cell sites, but secondarily to then take advantage of other fiber opportunities around each fiber node.

Verizon has converted over a hundred telephone exchanges in the northeast to fiber-only and is getting out of the copper business in urban areas. Verizon has been quietly filling in its FiOS fiber network to cover the copper it’s abandoning. While nobody knows yet if it’s real, Verizon also has been declaring big plans to to expand into new broadband markets markets using 5G wireless loops.

AT&T was late to the fiber game but has been quietly yet steadily adding residential and business fiber customers over the last few years. They have adopted a strategy of chasing pockets of customers anywhere they own fiber.

CenturyLink had started down the path to replace DSL customers when they built a lot of fiber-to-the-home in 2017. Continuing with fiber construction would have positioned the company to take back a lot of the broadband market in the many large cities it serves. It’s clear that the new CenturyLink CEO doesn’t like the slow returns from investing in last-mile infrastructure and it appears that any hopes to grow the telco part of the business are off the table.

Everything I read says that CenturyLink is facing a corporate crisis. Diving stock prices always put strain on a company. CenturyLink faces more pressure since the activist investors group Southeastern Asset Management holds more than a 6% stake in CenturyLink and made an SEC filing that that the company’s fiber assets are undervalued.

The company has underperformed compared to its peers ever since it was spun off from AT&T as US West. The company then had what turned out to be a disastrous merger with Qwest. There was hope a few years back that the merger with CenturyLink would help to right the company. Most recently has been the merger with Level 3, and at least for now that’s not made a big difference. It’s been reported that CenturyLink has hired advisors to consider if they should sell or spin off the telco business unit. That analysis has just begun, but it won’t be surprising to hear about a major restructuring of the company.

Millimeter Wave Cellular Service

Verizon is claiming to have the first real-world deployment of fast 5G cellular service. They launched an early version of what they are calling 5G in downtown Chicago and Minneapolis. This launch involves the deployment of millimeter wave spectrum.

A review of the cellular performance in FierceWireless showed exactly what was to be expected. This new service will only be available from a few cell sites in each city. For now the service can only be received using a Motorola Z3 handset that has been modified with a 5G Moto Mod adapter.

As would be expected, the millimeter wave broadband was fast, with peak speed measured at 500 Mbps. But also as expected, the coverage area is small, and millimeter wave spectrum is easily blocked by almost any impediment. Walking inside a building or around the corner of a building killed the broadband signal. The signal speed cut in half when received through a window. When not in the range of the millimeter wave signal the phone reverts to 4G, because Verizon is not yet close to implementing any actual 5G standards. This was not a trial of 5G technology – it’s a trial that shows that millimeter wave spectrum can carry a lot of data. That is especially easy to demonstrate when there are only one or two users on a given cell site.

Verizon announced a fee of $10 per month for the faster data speed, but almost immediately said the fee will be waived. This launch is another marketing gimmick letting Verizon get headlines proclaiming 500 Mbps cellular data speeds. The reviewer noted that the Verizon store in downtown Chicago was not ready to provide the product to anybody.

There are big issues with using millimeter wave spectrum for cellular service. I first ask what a cellphone user can do with that kind of speed. A cellphone can already be used to stream a video on a decent 4G connection. Other than software updates there isn’t any real need to download big files on a cellphone. It’s unlikely that the cellular carriers are going to let you tether speeds of that magnitude to a computer.

The other big issues will be the real-life limitations of millimeter wave spectrum outdoors. Since the frequency won’t pass through walls, this is strictly going to be an outdoor walking technology. As the FierceWireless review showed, it’s extremely easy to walk out of coverage. A cellular carrier will need to provide multiple cell sites in very close proximity in order to cover a given area.

It’s hard to think that there will ever be many subscribers willing to pay $10 more per month for a product with these limitations. How many people care about getting faster data speed outside, and only in areas of a city that are close to 5G transmitters? Would many cellular customers pay more so that they could save a few minutes per month to download software updates?

It’s hard to envision that the incremental revenues from customers will ever justify the cost of deploying multiple cell sites within close proximity of each other. T-Mobile already announced that they don’t plan to charge extra for 5G data when it’s available – there is no incentive to offer the product if there is no additional revenue.

What I found interesting is that Verizon also announced that they will be launching this same product in 20 additional urban markets soon, with 30 markets by the end of the year. The company will be using this launch to promote the new Galaxy S10 5G phone that will be able to utilize the millimeter wave spectrum. Verizon is touting the new service by saying that it will provide access to faster streaming, augmented-reality, gaming, and consumer and business applications.

If anything, this launch is a gimmick to sell more of the expensive 5G handsets. I wonder how many people will buy this phone hoping for faster service, only to realize that they have to stand outside close to a downtown millimeter wave cell site to use it. How many people want to go outside to enjoy faster gaming or augmented reality?

This is not to say that millimeter wave spectrum doesn’t have value, but that value will manifest when Verizon or somebody offers an indoor 5G modem that’s connected to a landline broadband connection. That would enable a cellphone to connect to faster gaming or augmented reality. That has some definite possibilities, but that is not cellular service, but rather an indoor broadband connection using a cellphone as the receiver.

I’m really starting to hate these gimmicks. Verizon and AT&T are both painting a false picture of 5G by making everybody think it will provide gigabit speeds everywhere – something that is not even listed as a goal of the 5G specifications. These gimmicks are pure marketing hype. The companies want to demonstrate that they are cutting edge. The gimmicks are aimed even more for politicians who the carriers are courting to support deregulation of broadband in the name of 5G. In the cease of this particular gimmick, Verizon might sell more Samsung 5G phones. But the gimmicks are just gimmicks and this trial is not a real product.

Verizon to Retire Copper

Verizon is asking the FCC for permission to retire copper networks throughout its service territory in New York, Massachusetts, Maryland, Virginia, Rhode Island and Pennsylvania. In recent months the company has asked to kill copper in hundreds of exchanges in those states. These range from urban exchanges in New York City to exchanges scattered all over the outer suburbs of Washington DC and Baltimore. Some of these filings can be found at this site.

The filings ask to retire the copper wires. Verizon will no longer support copper in these exchanges and will stop doing any maintenance on copper. The company intends to move people who still are served by copper over to fiber and is not waiting for the FCC notice period to make such conversions. Verizon is also retiring the older DMS telephone switches, purchased years ago from the long-defunct Northern Telecom. Telephone service will be moved to more modern softs switches that Verizon uses for fiber customers.

The FCC process requires Verizon to notify the public about plans to retire copper and if no objections are filed in a given exchange the retirement takes place 90 days after the FCC’s release of the public notice to retire. Verizon has been announcing copper retirements since February 2017 and was forced to respond to intervention in some locations, but eventually refiled most retirement notices a second time.

Interestingly, much of the FiOS fiber network was built by overlashing fiber onto the copper wires, so the copper wires on poles are likely to remain in place for a long time to come.

From a technical perspective, these changes were inevitable. Verizon is the only big telco to widely build fiber plan in residential neighborhoods and it makes no sense to ask them to maintain two technologies in neighborhoods with fiber.

I have to wonder what took them so long to get around to retiring the copper. Perhaps we have that answer in language that is in each FCC request where Verizon says it “has deployed or plans to deploy fiber-to-the-premises in these areas”. When Verizon first deployed FiOS they deployed it in a helter-skelter manner, mostly sticking to neighborhoods which had the lowest deployment cost, usually where they could overlash on aerial copper. At the time they bypassed places where other utilities were buried unless the neighborhood already had empty conduit in place. Perhaps Verizon has quietly added fiber to fill in these gaps or is now prepared to finally do so.

That is the one area of concern raised by these notices. What happens to customers who still only have a copper alternative? If they have a maintenance issue will Verizon refuse to fix it? While Verizon says they are prepared to deploy fiber everywhere, what happens to customers until the fiber is in front of their home or business? What happens to their telephone service if their voice switch is suddenly turned off?

I have to hope that Verizon has considered these situations and that they won’t let customers go dead. While many of the affected exchanges are mostly urban, many of them include rural areas that are not covered by a cable company competitor, so if customers lose Verizon service, they could find themselves with no communications alternative. Is Verizon really going to build FiOS fiber in all of the rural areas around the cities they serve?

AT&T is also working towards eliminating copper and offers fixed cellular as the alternative to copper in rural places. Is that being considered by Verizon but not mentioned in these filings?

I also wonder what happens to new customers. Will Verizon build a fiber drop to a customer who only wants to buy a single telephone line? Will Verizon build fiber to new houses, particularly those in rural areas? In many states the level of telephone regulation has been reduced or eliminated and I have to wonder if Verizon still sees themselves as the carrier of last resort that is required to provide telephone service upon request.

Verizon probably has an answer to all of these questions, but the FCC request to retire copper doesn’t force the company to get specific. All of the questions I’ve asked wouldn’t exist if Verizon built fiber everywhere in an exchange before exiting the copper business. As somebody who has seen the big telcos fail to meet promises many times, I’d be nervous if I was a Verizon customer still served by copper and had to rely on Verizon’s assurance that they have ‘plans’ to bring fiber.

5G vs. WiFi

The big cellular carriers envision a future where every smart device is connected to their cellular networks rather than to WiFi. They envision every home having to pay a monthly subscription to maintain connectivity for their wired devices. They envision every new car and truck coming with a subscription to cellular service.

I notice that the cellular providers talk about generating IoT revenues, but they’re never specific that the real vision is for everybody to buy additional cellular subscriptions. Most IoT applications will be low-bandwidth yet the carriers have been spreading the false message that 5G is all about faster broadband. I just saw another ludicrous article yesterday predicting how 5G was going to bring mobile gigabit broadband to rural America – a pure fantasy that is being fed by the public relations machines at Verizon and AT&T.

We aren’t seeing much press about the most important aspect of the new 5G specifications – that each cell site will be able to make up to 100,000 simultaneous connections. This isn’t being done for cellphones. It’s rare these days except in a few over-crowded places for a cellular call not to be connected. Placing a few small cell sites at the busiest places in most cities could solve most cellular bottlenecks without an upgrade to 5G.

The 100,000 connections give the wireless carriers the tool that can make a connection to every smart TV, smart washer and dryer, home video camera, burglar alarm sensor and every other wired device in a home. The big carriers are launching a direct challenge to WiFi as the wireless technology of choice for connecting our devices.

AT&T and Verizon envision every home having a new $10, $20 or $30 subscription to keep all of the devices connected. They also envision becoming the repository of all IoT data – moving them in front of Google and others in the chase for collecting the big data that drives advertising revenues. This is something they definitely don’t talk about.

It doesn’t take much of a thought exercise to understand that 5G is not about faster cellular service. Cellular subscribers will gladly take faster cellular broadband, but they probably aren’t willing to pay more for it. T-Mobile is already making that clear by announcing that they won’t charge more for 5G. The carriers are not going to spend tens of billions to implement 5G cellular technology that doesn’t drive the new revenues needed to pay for it. 5G is about IoT, plain and simple.

Today all of our home devices use WiFi. While WiFi is far from perfect, it seems to do an adequate job in connecting to the video camera at the front door, the smart TV, and the sensors in various appliances and devices around the home. WiFi has a few major advantages over cellular broadband – it’s already in our homes and connected to our devices and doesn’t require an additional monthly subscription.

I think people will resist another forced subscription. HP recently reported that the vast majority of their customers that buy 4G LTE-enabled laptops disable the cellular connection almost as soon as the new computer is out of the box. In this day of cellphones, very few car owners sign-up for the cellular subscription for OnStar when the free trial expires. I know that I personally would not buy a home device that eventually needed another cellular subscription to function.

The cellular carriers make a valid point in saying that WiFi is already growing inadequate for busy homes. But there are already short-term and long-term fixes on the way. The short-term fix is the upcoming migration to WiFi 6 using the 802.11ax standard. The new WiFi will better use MIMO antennas, frequency slicing and other techniques to allow for prioritization of devices and a more reliable connection to multiple devices.

The ultimate indoor broadband network will be a combination of WiFi and millimeter wave, or even faster spectrum. Higher frequency spectrum could provide bandwidth for the devices that use big bandwidth while keeping other devices on mid-range spectrum WiFi – getting the best from both sets of spectrum. That combination will allow for the easy integration, without interference for the connection of gigabit devices and also of tiny sensors that only communicate sporadically.

This is not the future that AT&T and Verizon want, because this is a world controlled by consumers who buy the wireless boxes that best suit them. I envision a future indoor-only wireless network that won’t require licensed spectrum or a cellular subscription since the millimeter waves and other higher frequencies won’t pass outdoors through walls.

The cellular carriers will have a monopoly on the outdoor sensor market. They will undoubtedly make the connections to smart cars, to smart agriculture, and to outdoor smart city sensors. But I think they will have a huge uphill battle convincing households to pay another monthly subscription for something that can be done better using a few well-placed routers.

The Impending Cellular Data Crisis

There is one industry statistic that isn’t getting a lot of press – the fact that cellular data usage is more than doubling every two years. You don’t have to plot that growth rate very many years into the future to realize that existing cellular networks will be inadequate to handle the increased demand in just a few years. What’s even worse for the cellular industry is that the growth is the nationwide average. I have many clients who tell me there isn’t nearly that much growth at rural cellular towers – meaning there is likely even faster growth at some urban and suburban towers.

Much of this growth is a self-inflicted wound by the cellular industry. They’ve raised monthly data allowances and are often bunding in free video with cellular service, thus driving up usage. The public is responding to these changes by using the extra bandwidth made available to them.

There are a few obvious choke points that will be exposed with this kind of growth. Current cellphone technology limits the number of simultaneous connections that can be made from any given tower. As customers watch more video they eat up slots on the cell tower that otherwise could have been used to process numerous short calls and text messages. The other big chokepoint is going to be the broadband backhaul feeding each cell cite. When usage grows this fast it’s going to get increasingly expensive to buy leased backbone bandwidth – which explains why Verizon and AT&T are furiously building fiber to cell sites to avoid huge increases in backhaul costs.

5G will fix some, but not all of these issues. The growth is so explosive that cellular companies need to use every technique possible to make cell towers more efficient. Probably the best fix is to use more spectrum. Adding an additional spectrum to a cell site immediately adds capacity. However, this can’t happen overnight. Any new spectrum is only useful if customers can use it and it takes a number of years to modify cell sites and cellphones to work on a new spectrum. The need to meet growing demand is the primary reason that the CTIA recently told the FCC they need an eye-popping 400 MHz of new mid-range spectrum for cellular use. The industry painted that as being needed for 5G, but it’s needed now for 4G LTE.

Another fix for cell sites is to use existing frequency more efficiently. The most promising way to do this is with the use of MIMO antenna arrays – a technology to deploy multiple antennas in cellphones to combine multiple spectrum together to create a larger data pipe. MIMO technology can make it easier to respond to a request from a large bandwidth user – but it doesn’t relieve the overall pressure on a cell tower. If anything, it might do the exact opposite and let cell towers prioritize those that want to watch video over smaller users who might then be blocked from making voice calls or sending text messages. MIMO is also not an immediate fix and also needs to work through the cycle of getting the technology into cellphones.

The last strategy is what the industry calls densification, which is adding more cell sites. This is the driving force behind placing small cell sites on poles in areas with big cellular demand. However, densification might create as many problems as it solves. Most of the current frequencies used for cellular service travel a decent distance and placing cell sites too close together will create a lot of interference and noise between neighboring towers. While adding new cell sites adds additional local capacity, it also decreases the efficiency of all nearby cell sites using traditional spectrum – the overall improvement from densification is going to be a lot less than might be expected. The worse thing about this is that interference is hard to predict and is very much a local issue. This is the primary reason that the cellular companies are interested in millimeter wave spectrum for cellular – the spectrum travels a short distance and won’t interfere as much between cell sites placed closely together.

5G will fix some of these issues. The ability of 5G to do frequency slicing means that a cell site can provide just enough bandwidth for every user – a tiny slice of spectrum for a text message or IoT signal and a big pipe for a video stream. 5G will vastly expand the number of simultaneous users that can share a single cell site.

However, 5G doesn’t provide any additional advantages over 4G in terms of the total amount of backhaul bandwidth needed to feed a cell site. And that means that a 5G cell site will get equally overwhelmed if people demand more bandwidth than a cell site has to offer.

The cellular industry has a lot of problems to solve over a relatively short period of time. I expect that in the middle of the much-touted 5G roll-out we are going to start seeing some spectacular failures in the cellular networks at peak times. I feel sympathy for cellular engineers because it’s nearly impossible to have a network ready to handle data usage that doubles every two years. Even should engineers figure out strategies to handle five or ten times more usage, in only a few years the usage will catch up to those fixes.

I’ve never believed that cellular broadband can be a substitute for landline broadband. Every time somebody at the FCC or a politician declares that the future is wireless I’ve always rolled my eyes, because anybody that understands networks and the physics of spectrum can easily demonstrate that there are major limitations on the total bandwidth capacity at a given cell site, along with a limit on how densely cell sites can be packed in an area. The cellular networks are only carrying 5% of the total broadband in the country and it’s ludicrous to think that they could be expanded to carry most of it.

The Slow Deployment of 5G

Somebody asked me a few days ago why I write so much about 5G. My response is that I am intrigued by the 5G hype. The major players in the industry have been devoting big dollars to promote a technology that is still mostly vaporware. The most interesting thing about 5G is how politicians, regulators and the public have bought into the hype. I’ve never seen anything like it. I can remember other times when the world was abuzz over a new technology, but this was usually a reaction to an actual technology you could buy like the first laptop computers, the first iPhone and the first iPod.

Anybody that understands our industry knew that it will take a number of years to roll out any major new technology, particularly a wireless technology since wireless behaves differently in the field compared to the lab. We’re only a year past the release of 5G standards, and it’s unrealistic to think those standards could be translated into operation hardware and software systems in such a short time. You only have to look back at the history of 4G, which started as slowly as 5G and which finally had the first fully-compliant 4G cell site late last year.  It’s going to take just as long until we see a fully functional 5G cell site. What we will see, over time, is the incremental introduction of some of the aspects of 5G as they get translated from lab to the field. That rollout is further complicated for cellular use by the timeline needed to get 5G-ready handsets into peoples’ hands.

This blog was prompted by a Verizon announcement that 5G mobile services will be coming to 30 cities later this year. Of course, the announcement was short on details, because those details would probably be embarrassing for Verizon. I would expect that the company will introduce a tiny few aspects of 5G into the cell sites in business districts of major cities and claim that as a 5G roll-out.

What does that a roll-out this year mean for cellular customers? There are not yet any 5G capable cellphones. Both AT&T and Verizon have been working with Samsung to introduce a 5G version of their S10 phone later this year. Verizon has also been reported to be working with Lenovo for a 5G modular upgrade later this year. I’m guessing these phones are going to come with a premium price tag for the early adaptors willing to pay for 5G bragging rights. These phones will only work as 5G from the handful of cell sites with 5G gear – and that will only be for a tiny subset of the 5G specifications. I remember when one of my friends bought one of the first 4G phones and crowed about how it worked in downtown DC. At the time I told him his great performance was because he was probably the only guy using 4G – and sure enough, his performance dropped as others joined the new technology.

On the same day that I saw this Verizon announcement I also saw a prediction by Cisco that only 3% of cellular connections will occur over a 5G network by the end of 2022. This might be the best thing I’ve seen that pops the 5G hype. Even for folks buying the early 5G phones, there will be a dearth of cell sites around the country that will work with 5G for a number of years. Anybody who understands the lifecycle of cellular upgrades agrees with the Cisco timeline. It takes years to work through the cycle of upgrading cell sites, upgrading handsets and then getting those handsets to the public.

The same is true for the other technologies that are also being called 5G. Verizon made a huge splash just a few months ago about introducing 5G broadband using millimeter wave spectrum in four cities. Even at the time of that announcement, it was clear that those radios were not using the 5G standard, and Verizon quietly announced recently that they were ceasing those deployments while they wait for actual 5G technology. Those deployments were actually a beta test of millimeter wave radios, not the start of a rapid nationwide deployment of 5G broadband from poles.

AT&T had an even more ludicrous announcement at the end of 2018 where they announced 5G broadband that involved deployment of WiFi hotspots that were supposedly fed by 5G. However, this was a true phantom product for which they had no pricing and that nobody could order. And since no AT&T cell sites have been upgraded to 5G, one had to wonder how this involved any 5G technology. It’s clear this was technology roll-out by press release only so that they could have the bragging rights of saying they were the first ones to have 5G.

The final announcement I saw on that same day was one by T-Mobile saying they would begin deploying early 5G in cell sites in 2020. But the real news is that they aren’t planning on charging any more for any extra 5G speeds or features.

I come back to my original question about why I write about 5G so often. A lot of my clients ask me if they should be worried about 5G and I don’t have an answer for them. I can see that actual 5G technology is going to take a lot longer to come to market than the big carriers would have you believe. But I look at T-Mobile’s announcement on price and I also have to wonder what the cellular companies will really do once 5G works. Will AT&T and Verizon both spend billions to put 5G small cells in residential neighborhoods if it doesn’t drive any new cellular revenues? I have to admit that I’m skeptical – we’re going to have to wait to see what the carriers do rather than listen to what they say.

AT&T’s 5G Strategy

AT&T recently described their long-term 5G strategy using what they call the 3 pillars of 5G – the three areas where the company is putting their 5G focus. The first pillar is a concentration on 5G cellular, and the company’s goal is to launch a 5G-based cellular service, with some cities coming on board in the second half of 2020. This launch will use frequencies in the sub-6 GHz range. This admission that there won’t be any AT&T 5G until at least 2020 contradicts the AT&T marketing folks who are currently trying to paint the company’s 4G LTE as pre-5G.

The biggest problem for the public will be getting a 5G cellphone. AT&T is working with Samsung to hopefully launch two phones later this year that have some 5G capability. As always with a new generation of wireless technology, the bottleneck will be in handsets. The cell phone makers can’t just make generic 5G phones – they have to work with the carriers to be ready to support the spectific subset of 5G features that are released. You might recall that the 5G cellular specification contains 13 improvements, and only the first generation of a few of those will be included in the first generation 5G cell sites. Cellphone manufacturers will also have to wrestle with the fact that each big cellular carrier will introduce a different set of 5G features.

This is a real gamble for cellphone makers because a 5G phone will become quickly obsolete. A 5G phone sold in late 2019 probably won’t include all of the 5G features that will be on the market by late 2020 – and this is likely to be true for the next 3 or 4 years as the carriers roll out incremental 5G improvements. It’s also a gamble for customers because anybody that buys an early 5G cellphone will have early bragging rights, but those cool benefits can be out of date in six months. I think most people will be like me and will wait a few years until the 5G dust settles.

AT&T’s second pillar is fixed wireless. This one is a head-scratcher because they are talking about the fixed cellular product they’ve already been using for several years – and that product is not 5G. This is the product that delivers broadband to homes using existing low-band cellular frequencies. This is not the same as Verizon’s product that delivers hundreds of megabits per second but is instead a product that delivers speeds up to 50 Mbps depending upon how far a customer lives from a cell tower – with reports that most households are getting 15 Mbps at best. This is the product that AT&T is mostly using to satisfy its CAF II requirements in rural America. All of the engineers I’ve talked to don’t think that 5G is going to materially improve this product.

The final pillar of AT&T’s strategy is edge computing. What AT&T means by this is to put fast processors at customer sites when there is the need to process low-latency, high-bandwidth data. Like other carriers, AT&T has found that not everything is suited for the cloud and that trying to send big data to and from the cloud can create a bandwidth bottleneck and add latency. This strategy doesn’t require 5G and AT&T has already been deploying edge routers. However, 5G will enhance this ability at customer sites that need to connect a huge number of devices simultaneously. 5G can make it easier to connect to a huge number of IoT devices in a hospital or to 50,000 cell phones in a stadium. The bottom line is that the migration to more edge computing is not a 5G issue and applies equally to AT&T’s fiber customers.

There is really nothing new in the three-pillar announcement and AT&T has been talking about all three applications from some time – but the announcement does highlight the company’s focus for stockholders.

In what was mostly a dig at Verizon, AT&T’s CEO Randall Stephenson did hold out the possibility of AT&T following Verizon into the 5G fixed wireless local loop using millimeter wave spectrum – however, he said such a product offering is probably three to five years into the future. He envisions the product as an enhancement to AT&T’s fiber products, not necessarily a replacement. He emphasized that AT&T is happy with the current fiber deployments. He provided some new statistics on a recent earnings call and said the company is seeing customer penetration rates between 33% and 40% within 18 months of new fiber deployment and penetration around 50% after three years. Those are impressive statistics because AT&T’s fiber deployments have been largely in urban areas competing with the big cable companies.

A year ago, Stephenson said that getting sufficient backhaul was his number one concern with deploying high-bandwidth wireless. While he hasn’t repeated that recently, it fits in with his narrative of seeing millimeter wave radio deployments in the 3-5 year time frame. The company recently released a new policy paper on its AirGig product that says that the product is still under development and might play well with 5G. AirGig is the mysterious wireless product that shoots wireless signals along power lines and somehow uses the power lines to maintain focus of the signal. Perhaps the company is seeing a future path for using AirGig as the backhaul to 5G fixed wireless deployments.

Shrinking Competition for Transport

Bloomberg reported that CenturyLink and Alphabet are interested in buying Zayo. It’s been anticipated that Zayo would be the next fiber acquisition target since the Level 3 merger with CenturyLink since they are the largest remaining independent owner of fiber.

As you might expect, the biggest owners of fiber are the big telcos and cable companies. Consider the miles of fiber owned by the ten biggest fiber owners – I note these miles of fiber are from the end of 2017 and a few of these companies like Verizon have been building a lot of fiber since then.

AT&T 1,100 K
Verizon 520 K
CenturyLink / Level 3 450 K
Charter 233 K
Windstream 147 K
Comcast 145 K
Frontier 140 K
Zayo 113 K
Cogent 57 K
Consolidated 36 K

You might wonder why this matters? First, Zayo is the largest company on the list who’s only business is to sell transport. All of Zayo’s fiber is revenue producing. While the companies above it on the list have a lot more fiber, a lot of that fiber is in the last mile in neighborhoods where there is not a lot of opportunity to sell access to others. The biggest independent fiber owner used to be Level 3, with 200,000 miles of revenue-producing fiber before they merged with CenturyLink.

The numbers on this chart don’t tell the whole story. Companies like Zayo also swap fiber with other networks. They may trade a pair of fibers on a route they own for a route elsewhere that they want to reach. These swapping arrangements mean the transport providers like Zayo, Cogent and Level 3 control a lot more fiber than is indicated by these numbers.

It matters because as soon as you get outside of the metropolitan areas there are not many options for fiber transport. A few years ago I helped a City look for fiber transport and the three options they found that were reasonably priced were CenturyLink, Level 3 and Zayo. If CenturyLink buys Zayo they will have purchased both competitors in this region and will effectively eliminated fiber transport competition for this community. Without that competition it’s inevitable that transport prices will rise.

I think back to the early days of competition after the Telecommunications Act of 1996. I remember working with clients in the 1990s looking for fiber transport, and there were many cases where there was only one provider willing to sell transport to a community. If the sole provider was the local telco or cable company it was likely that the cost of transport was four or five times more expensive than prices in nearby communities with more choices. When I worked with rural providers in the early 2000s, one of the first question I always asked was about the availability of  transport – because lack of transport sometimes killed business plans.

Since then there has been a lot of rural fiber built by companies like statewide fiber networks and others who saw a market for rural transport. Much of the rural construction was egged on by the need to get to cellular towers.

My fear is that we’ll slide back to the bad-old-days when rural fiber was a roadblock for providing broadband. I don’t so much fear for the most rural places because those fiber networks are owned by smaller companies and they aren’t going away. I fear more for places like county seats. I worked with a city in Pennsylvania a few years ago where there was a decent number of competitors for transport – Verizon, Zayo, Level 3 and XO. Since then Verizon bought XO and CenturyLink might own the other two. That city is not going to lose transport options, but the reduction from four providers to two giant ones almost surely means higher transport costs over time.

I am intrigued that Alphabet (the parent of Google Fiber) would look at buying an extensive fiber network like Zayo. Google is one of the biggest users of bandwidth in the country due to the web traffic to Google and YouTube. Their desire for fiber might be as simple as wanting to control the fiber supply chain they use. If so, that’s almost as disconcerting as CenturyLink buying Zayo if Google wouldn’t remain as a fierce transport competitor.

ISPs Are Violating the Old Net Neutrality Rules

It’s been just over a year since the FCC repealed net neutrality. The FCC’s case is being appealed and oral arguments are underway in the appeal as I write this blog. One would have to assume that until that appeal is finished that the big ISPs will be on their best behavior. Even so, the press has covered a number of ISP actions during the last year that would have violated net neutrality if the old rules were still in place.

It’s not surprising that the cellular carriers were the first ones to violate the old net neutrality rules. This is the most competitive part of the industry and the cellular carriers are not going to miss any opportunity to gain a marketing edge.

AT&T is openly advertising that cellular customers can stream the company’s DirecTV Now product without it counting against monthly data caps. Meanwhile, all of the competing video services like Sling TV, Paystation Vue, YouTube TV, Netflix or Amazon Prime count against AT&T data caps – and video can quickly kill a monthly data plan download allotment. AT&T’s behavior is almost a pure textbook example of why net neutrality rules were put into place – to stop ISPs from putting competitor’s products at an automatic disadvantage. AT&T is the biggest cellular provider in the country and this creates a huge advantage for DirecTV Now. All of the major cellular carriers are doing something similar in allowing some video to not count against the monthly data cap, but AT&T is the only one pushing their own video product.

In November a large study of 100,000 cellphone users by Northeastern University and the University of Massachusetts showed that Sprint was throttling Skype. This is not something that the carrier announced, but it’s a clear case of pushing web traffic to the ‘Internet slow lane’. We can only speculate why Sprint would do this, but regardless of their motivation this is clearly a violation of net neutrality.

This same study showed numerous incidents where all of the major cellular carriers throttled video services at times. YouTube was the number one target of throttling, followed by Netflix, Amazon Prime, and the NBC Sports app. This throttling wasn’t as widespread as Sprint’s throttling of Skype, but the carriers must have algorithms in their network that throttles specific video traffic when cell sites get busy. In contrast to the big carriers, the smaller independent cellular carrier C.Spire had almost no instances of differentiation among video streams.

Practices that might violate net neutrality were not limited to cellular carriers. For example, Verizon FiOS recently began giving free Netflix for a year to new broadband customers. AT&T also started giving out free HBO to new customers last year. This practice is more subtle than the cellular carrier practice of blocking or throttling content. One of the purposes of net neutrality was for ISPs to not discriminate against web traffic. By giving away free video services the landline broadband companies are promoting specific web services over competitors.

This doesn’t sound harmful, but the discussions in the net neutrality order warned about a future where the biggest ISPs would partner with a handful of big web services like Facebook or Netflix to the detriment of all smaller and start-up web services. A new video service will have a much harder time gaining customers if the biggest ISPs are giving away their competitors for free.

There are probably more bad practices going on that we don’t know about. We wouldn’t have known about the cellular throttling of services without the big study. A lot of discrimination can be done through the network routing practices of the ISPs, which are hard to prove. For example, I’ve been seeing a growing number of complaints from consumers recently who are having trouble with streaming video services. If you recall, net neutrality first gained traction when it became known that the big ISPs like Comcast were blatantly interfering with Netflix streaming. There is nothing today to stop the big ISPs from implementing network practices that degrade certain kinds of traffic. There is also nothing stopping them from demanding payments from web services like Netflix so that their product is delivered cleanly.

Interestingly, most of the big ISPs made a public pledge to not violate the spirit of net neutrality even if the rules were abolished. That seems to be a hollow promise that was to soothe the public that worried about the end if net neutrality. The FCC implemented net neutrality to protect the open Internet. The biggest ISPs have virtual monopolies in most markets and public opinion is rarely going to change an ISP behavior if the ISP decides that the monetary gain is worth the public unhappiness. Broadband customers don’t have a lot of options to change providers and Cable broadband is becoming a near-monopoly in urban areas. There is no way for a consumer to avoid the bad practices of the cellular companies if they all engage in the same bad practices.

There is at least some chance that the courts will overturn the FCC repeal of net neutrality, but that seems unlikely to me. If the ISPs win in court and start blocking traffic and discriminating against web traffic it does seem likely that some future FCC or Congress will reinstitute net neutrality and starts the fight all over again. Regardless of the court’s decision, I think we are a long way from hearing the last about net neutrality.