Verizon’s Network Performance

Verizon has been posting a weekly report of how COVID-19 has been impacting their network. The weekly blogs are rather short on facts and it’s clear that the intent of this weekly report is to put investors at ease that the company’s networks are coping with the burst of traffic that has come as a result of the pandemic. With that said, the facts that are discussed are interesting.

Verizon lead off the weekly entry for 5/21 saying that voice and text traffic are starting to return to pre-COVID levels. On the most recent Monday Verizon saw 776 million voice calls, down from 860 million calls at the peak of COVID-19. That falls under the category of interesting fact, but heavier telephone call volumes are not the cause of undue stress on the Verizon network. Telephone calls use tiny amounts of broadband – 64 kbps. Thirty telephone calls will fit into the same-size data path as one Netflix stream. Additionally, once voice calls reach a Verizon hub, telephone calls are routed using a separate public switched telephone network PSTN to transport calls across the country. Text messages use much less data than a telephone call and are barely noticed on telco networks.

The bigger news is that some other traffic is staying at elevated levels. Verizon reported for 5/21 that gaming is still up 82% over pre-pandemic levels and VPN connections used to connect to school and work servers are up 72%. The use of collaborative tools like Zoom and Go-to-Meeting are up ten times over pre-COVID levels (1,000%).

One of the more interesting statistics is that network mobility (people driving or walking and switching between cell towers) has increased in recent weeks and that one-third of states now have higher levels of mobility than pre-COVID. At first that’s a little hard to believe until you realize that in pre-COVID time students and employees were largely stationary at the school or office much of the day – any roaming by stay-at-home people is an increase.

Reading back through the weekly statistics shows that most web activities are at higher levels than pre-COVID. Fir example, in the 4/22 report the volumes of downloading, gaming, video usage, VPNs, and overall web traffic were higher than normal, with the only decrease being the volumes used for social media.

What none of these reports talk about is the stress put on the Verizon networks. It’s easy in reading these reports to forget that Verizon wears many hats and operates many networks. They are still a regulated telco in the northeast and still have a lot of telephone customers. That also means they still operate a sizable DSL network. The company, through Verizon FiOS is still the largest fiber-to-the-home provider. The company also owns and extensive enterprise and long-haul fiber network. Verizon also operates one of the largest cellular networks in the world.

When Verizon says all is well, they can’t mean that for each of these networks. The web is full right now of complaints from DSL customers (Verizon’s and other big telcos) complaining how inadequate DSL is for working at home. The Verizon DSL network was already overstressed in evenings and has to be near the point of collapse due to the big increases in VPNs and collaboration connections. Any Verizon DSL customer reading this Verizon blog that says everything is fine is probably spitting fire.

By contrast, Verizon’s FiOS networks are likely handing the pandemic traffic with ease. Verizon FTTH products have offered symmetrical data for years, with the upload data path was lightly utilized. The big uptick in VPN connections and collaboration connections ought to be handled well in that network. Any glitches might come from older FiOS neighborhoods where the backhaul oaths out of neighborhoods are too small.

What Verizon or AT&T haven’t talked about is the different impact on their various networks. For example, what’s the overall change in data usage on their cellular networks compared to other networks? The big telcos have been moot on this kind of detail, because admitting that some of the networks are handing the pandemic well might lead to an admission that other parts of the company are not doing so well. Instead we get the very generic story of how everything is fine with the company and their networks.

These companies probably do not have any obligations to report about their various networks in detail. Verizon DSL customers don’t need company pronouncements to know that their broadband experience has nearly collapsed since the pandemic. FiOS customers are likely happy that their broadband has weathered the storm. One of these days I’ll hopefully have a beer with some Verizon engineer who can tell me what really happened – both good and bad – behind the scenes.

Frontier’s Lack of Fiber

The primary reason that Frontier cites for going into bankruptcy is the lack of fiber. They are finally acknowledging that customers are bailing on them due to the poor broadband speeds on their copper networks. This is being presented as if this is a sudden revelation – as if the company woke up one day and realized that it’s selling services that nobody wants to buy. I must admit this gave me a chuckle and there are some giant flaws with this argument.

Rural customers don’t hate DSL – they hate DSL that doesn’t work. If Frontier had implemented the CAF II upgrades as had been promised, then rural customers would all be using the 10/1 Mbps or faster rural DSL that would have been created as a result of those upgrades. Instead, customers have gotten disgusted by overpriced DSL that is so slow that they can’t stream video or connect to a school or work server. We’ve been doing speed tests all over the country and it’s rare to find rural DSL in many markets that delivers even 5 Mbps download – much of it is far slower than that, some barely faster than dial-up. If Frontier had provided 10/1 Mbps DSL to millions of homes, those households would gratefully be buying that broadband during the COVID-19 crisis.

Frontier blames its woes on lack of fiber with no mention of their reputation for unconscionably bad customer service. I’ve talked to customers who talk about routine network outages that lasts for many days. Customers complain about losing broadband and having to wait weeks to get it repaired – or worse, are told that the electronics needed to replace a bad DSL modem are out of stock. This is a company that has trimmed, then trimmed again its maintenance staff to the bone. Talk to any rural Frontier technician and they’ll tell you that they don’t have the time or resources available to address routine customer problems.

Frontier complains about lack of fiber, but as recently as 2015 they purchased another huge pile or dilapidated Verizon copper networks as part of a $10.5 billion acquisition. While that acquisition came with some FiOS fiber networks, the company also doubled down on buying non-functional copper networks. The speculation in the industry was that Frontier continued to buy lousy properties because it created opportunities for huge management bonuses – the company never had any plans to make the purchased copper networks any better.

And that’s the real issue with Frontier’s claim – they have no fiber because they’ve made almost no effort to migrate to fiber. The company burned all of its cash on trying to service the debt for overpriced acquisitions rather than rolling cash back into its networks.

It’s interesting to compare Frontier to the many smaller independent telephone companies. The FCC brags about places like the Dakotas that have a huge amount of rural fiber to homes. But that rural fiber didn’t happen all at once. It happened over decades. Most rural telcos went through two rounds of investment where they invested to improve rural DSL. In doing so they built fiber to go deeper into the rural areas, the first build brought fiber within maybe ten miles of homes, the second got fiber to within 3 miles of most homes. When the rural telcos decided to take fiber the rest of the way, it was reasonably achievable because they already had fiber deep into rural neighborhoods.

Frontier has done very little of that kind of incremental improvements over the years. They found it more enticing to keep borrowing to buy new rural properties rather than roll cash back into the existing networks. It doesn’t even look like they did all of that much new fiber as part of the CAF II upgrades. I’m sure Frontier would refute that statement and say they are fully compliant with CAF II, but if they had built fiber deep into the network then rural DSL would have gotten better – and for the most part, it hasn’t.

I can’t how the bankruptcy will benefit frontier’s customers. The company will likely get to walk away from a lot of the debt that was provided for the last few acquisitions – and it’s hard to feel bad for lenders who thought it was a good idea in 2015 to lend to buy copper networks. But bankruptcy won’t fix any of the fundamental problems with the Frontier networks. Customers are going to continue to bail on inferior and nonfunctional broadband products. The upcoming RDOF auction is going to give a lot of money to ISPs that are going to overbuild Frontier copper with something better (even though Frontier made a last-minute filing at the FCC to block grant funding by claiming they had magically upgraded 16,000 rural census blocks).

Is Frontier going to somehow start investing in rural fiber? My best guess is that they won’t even after bankruptcy. If they can raise any money for new capital spending they’ll likely try to salvage some of the county seats and other markets where there is a mass of customers. However, in many of those markets they’ve already lost the battle to the cable companies.

Frontier is right in that they are failing from lack of fiber. But that statement doesn’t tell the full story. They are failing because the company decided decades ago to not invest capital into their own networks – and now they are paying the price.

Can LTE Fixed Wireless Solve the Rural Digital Divide?

I’ve been working in rural counties all over the US and have found that a lot of rural homes are using a fixed 4G LTE wireless product for home broadband. All three big cellular companies have a fixed LTE product for the home. The product typically involves installing a small dish outside of a home that receives broadband using 4G LTE broadband from a nearby cell tower.

The big cellular companies have bombarded the press for the last several years touting how 5G cellular might solve rural broadband gaps. The way the wireless companies price and market these products is a precursor for what they will likely do with 5G (assuming 5G even comes to rural places). I haven’t looked into the LTE products in a while and so I researched the LTE broadband products intended as home broadband. I knew these products were expensive, but I had forgotten how stingy these plans are with broadband.

Verizon. Verizon’s hotspot product has four available pricing tiers based upon the monthly data allowance. The 10 GB plan is $60, the 20 GB plan is $90, the 30 GB plan is $120, and the 40 GB plan is $150. The real cost killer is that Verizon bills additional gigabits for $10 each.

Verizon says that broadband speeds average from 5 – 12 Mbps download and 2 – 5 Mbps upload. I recently talked to a customer using this plan who told me that when a customer doesn’t agree to pay the overage charges that Verizon throttles speeds to a crawl once the monthly data limit has been reached.

T-Mobile. T-Mobile has six hotspot pricing plans based upon the monthly data usage. The 2 GB plan is $10. The 6 GB plan is $25, the 10 GB plan is $40, the 14 GB plan is $55, the 18 GB plan is $70, and the 22 GB plan is $85. Each plan offers a $5 discount for customers who authorize autopay. The killer with this plan is that speeds revert to 3G speeds when the cap has been met. The plans also include unlimited texting.

It’s worth noting that T-Mobile will offer a plan that provides 100 GB of monthly data to qualified students for the next 5 years as one of the promises made to merge with Sprint. I haven’t seen the definition of eligible households, but the company estimated 10 million homes would be eligible.

AT&T. AT&T has two plans. In areas where AT&T is the incumbent telephone provider and accepted CAF II funding, the company decided to provide 4G LTE fixed cellular broadband to satisfy their CAF II requirements. The company had accepted $2.56 billion from the FCC’s Universal Service fund with payments spread over six years. That funding covered 1,117,806 rural homes, providing AT&T with a subsidy of $2,296 per home.

That CAF II product is priced at $50 per month and comes with a 250 GB data cap. AT&T says that speeds are at least 10/1 Mbps (since that was the FCC requirement). The killer with this plan is that customers pay $10 for each additional 50 GB block of data, and payments aren’t capped until a customer spends $200 extra.

Outside of the CAF II areas, AT&T has three hotspot plans. That includes 3 GB of data for $25, 10 GB of data for $50, and 18 GB of data for $75. Extra data ranges from $10 for 1 GB with the $25-dollar plan to $10 for 2 extra GBs with the $72 plan.

Do These Products Solve the Rural Digital Divide? I think not – the core hotspot products define the digital divide. Rural customers who have no other options are paying for some of the most expensive broadband in the world. You have to look at distressed third world countries to see similarly high prices per gigabyte. Recall in looking at these prices that these products are for home broadband – not for cellphones.

  • Verizon’s plans range from $3.75 to $6.00 per gigabyte. Additional gigabytes are $10 each.
  • T-Mobile data prices range from $3.86 to $5 per gigabyte. After hitting the data cap, the company throttles customers rather than provide more expensive data.
  • AT&T hotspots are the most expensive and range from $4.16 to $8.22 per gigabyte. Extra gigabytes on AT&T range between $5 and $10 per gigabyte.
  • AT&T’s CAF II product is much more affordable. However, customers can still spend up to $250 per month. Additionally, AT&T charges $100 for installation, which is outrageous considering the company collected $2,296 from the FCC for each of the 1.1 million potential customers. The CAF II money had to have gone almost entirely to AT&T’s bottom line.

What is somewhat ironic is that the cellular companies don’t aggressively advertise the product in rural America, even at these incredibly high prices. I guess that the cellular carriers don’t want to sink any money into rural cell sites or pay for more backhaul, so they are reluctant to sell very much of these products in any one location.

The Frontier Bankruptcy

To nobody’s surprise, Frontier declared bankruptcy. What is somewhat ironic is that the company blamed their problems on the lack of fiber – something that the company had the last decade to address. The company lost 6.3% of broadband customers and 21% of video customers in 2019.

People that live in rural areas in the Frontier service areas know them as a dreadful ISP. They probably don’t know the company’s history. Frontier was originally Citizens Utilities based in Minneapolis. The company decided to grow by acquisition. The company first acquired 500,000 telephone lines from GTE starting in 1993 – customers that had originally been served by Contel. In 1994 they acquired 117,000 telephone lines from Alltel – properties that were originally operated by CP National. The company picked up another 187,000 rural access lines when GTE merged with Verizon since Verizon wasn’t interested in acquiring more rural customers. In 1999, Citizens purchased Rochester Telephone that served Rochester, New York. In 2001 the company acquired the assets and customers of Global Crossings, which included local telephone customers, a long-distance network, and long-haul fiber. In 2006 the company purchased Commonwealth Telephone in Pennsylvania.

The biggest acquisitions came in 2009 when Frontier purchased the Verizon customers in thirteen states for $8.6 billion. This was followed by the purchase of Verizon customers in California, Florida, and Texas in 2016 for $10.5 billion. In 2014 the company purchased AT&T’s customers in Connecticut, which had formerly been called the Southern New England Telephone (SNET). Everybody I talked to who was knowledgeable about acquisitions thought that Frontier massively overpaid for the last three purchases. The prices paid per customer were high considering the condition of the properties they were purchasing.

There is probably no better example than West Virginia. When Frontier purchased the customers in that state, Verizon had already had the market up for sale for over a decade. During that time Verizon had stopped doing maintenance, had cut staff and had taken the normal steps to ‘dress-up’ the bottom line to enhance a sale by cutting costs wherever possible. Frontier bought a telco in West Virginia that was already in dreadfully bad shape, as were many of the other properties purchased from big telcos.

Frontier’s shortcomings were recently addressed in a 164-page report by Schumaker and Company that was funded by the West Virginia Public Service Commission. The report looked in detail at Frontier’s problems in West Virginia – a state where Frontier is the only ISP for the vast majority of the state.

Unfortunately, the current version of the report is highly redacted since Frontier claimed that details of their operations in the state are proprietary. Hopefully, the redactions will be overruled due to the fact that the company is the carrier of last resort in a state where there are still huge areas with little or no cellular coverage. However, even with the redactions it’s clear from the report that the Frontier spends little money in rural areas, has cut staff significantly in recent years, and has done very little to upgrade the networks since the original purchase. Frontier recently sold some of their properties in the Northwest as a way to raise cash.

The Frontier bankruptcy plan asks for a quick restructure and the ability to walk away from $11 billion in debt. I’ve read several analysts who are skeptical that the bankruptcy will be that easy. If the company keeps losing customers at the current pace, I find it hard to think there will be many lenders willing to front big loans for the company to rebuild.

A giant telco comprised of huge rural areas never made sense. I predicted that Frontier would eventually fold when they purchased some of the most neglected telco properties in the country. It took a decade, but those purchases finally brought the company down.

Any restructuring is not going to help the rural properties served by Frontier. The best possible solutions in terms of benefits to customers would be to restructure Frontier to just operate in its larger markets and to force it to divest of rural properties to the highest bidder – even if that offer is pennies on the dollar. New owners of the rural properties would be more likely to tackle upgrades, while Frontier is not likely to care about rural America even should they start over out of the bankruptcy.

Will Covid-19 Traffic Kill the Internet?

This is the question being asked all across the industry as the volume of data traffic has leaped upward due to students and employees working from their homes. We got our first glimpse of the impact of the crisis when Verizon announced a week into the crisis that they were seeing a 22% increase in data traffic in their network. More recently AT&T announced a 27% increase in network traffic. In perhaps a peek at what might be coming, Italy, which has been in a lockdown for longer than the US has seen a 90% increase in Internet traffic.

The answer to the question differs depending on somebody’s perspective of the network. For example, Evan Swartztrauber, described as an advisor to the FCC, says that the US Internet network is handling the surge in traffic just fine. He says the increased volume is significant, but it’s not at the same level as what is seen during the Superbowl or the finale of Game of Thrones. That’s reassuring news to hear, but he’s talking from the perspective of the big Internet POPs and the long-haul networks that carry Internet traffic from city to city. Even his answer is a bit glib because we’ve just seen more than a year’s growth in traffic in a matter of weeks and there must be places in the Internet backbone that need to be beefed up to meet the increased demand.

The question that matters is if Internet performance is getting worse for the average user, which is a question about the last mile network. I’ve been checking in on clients to understand the impact. So far, everybody with a fiber-to-the-home network says they are weathering the increased volumes, although several clients are looking into increasing bandwidth in a few parts of the network, such as between the core and field huts. Several clients who operate HFC or DSL networks have told me that their biggest problem is with upload speeds. People working from home as well as students are using a lot more upload bandwidth as they communicate with office and school servers. Gamers also need significant upload bandwidth. These technologies were not designed to handle significant amounts of uploaded bandwidth and customer performance is seriously degrading.

Many clients also say that they are increasing the bandwidth needed to connect to the Internet. Luckily most of them can do this easily, but some rural clients are constrained on the ability to easily add more bandwidth.

What nobody is talking about is the last-mile networks that were already broken. For example, I helped a rural county to get citizens to take speed tests right before the pandemic and we found almost no rural households in that county with broadband speed greater than 5 Mbps – and most are far under that modest number. These customers are served with DSL or fixed wireless broadband, and the local telco and WISPs are obviously bandwidth restricted either due to older technology or due to lack of backbone bandwidth.

Rural networks that are already underperforming might easily collapse under increased bandwidth usage. A 30% increase in usage won’t cut speeds by just 30%, the extra usage is likely to crash the networks. A large portion of rural America already has dreadful broadband. There are terrible ramifications if a network that is only delivering 3 Mbps broadband today gets further stressed. Degraded usage means that a home where a student might have been able to connect to a school server before Covid-19 might now be unable to maintain a connection. Good luck to somebody trying to connect to an office server as they work from home for the first time. And considering that some of these stressed rural networks have upload speeds measured in kilobits per second, good luck to anybody wanting to make a video connection for school or working from home.

Perhaps it’s true that the overall US Internet is not in danger yet of collapsing. Networks are going to see additional stress if the shelter-at-home restrictions carry through April and into May or June. What all of the national headlines are missing is that many rural Internet networks were barely functional before the pandemic. I’ve talked to numerous rural businesses in the last year that don’t even have adequate broadband to sustain a credit card transaction. I hear from homes across the country where the Internet is too slow, or latency too high to sustain connections to a school network to do homework. The current burst in new traffic is going to mean that the Internet performance for many rural users is going to go from barely functional to non-functional.

We might see a little relief if some of the biggest bandwidth users of the web cut back on broadband demand. Google announced that they are going to reduce the quality of video signals from YouTube as a way to cut back on the volume of data hitting networks. There is pressure on Netflix to do the same. AT&T announced that Netflix’s traffic volumes have hit an all-time high. Netflix announced that it is going to reduce traffic volumes by 25% in Europe but hasn’t made the same claim yet for the US. Unfortunately, these fixes are unlikely to make a big difference. the problems in last mile networks is due to having many more Internet users than before the pandemic, and the sheer number of users along with their attempts at using bandwidth-hungry applications is going to kick rural networks in the teeth.

This pandemic has highlighted the horrendous inadequacies of rural broadband. The shortfalls of rural broadband already existed, but with the added traffic volumes, rural broadband is going to significantly worsen. Unfortunately, we didn’t see much funding to help rural broadband as part of the recent stimulus plan. I’m pretty sure politicians with rural constituents are going to hear a lot about this – at least constituents with enough bandwidth to tell their story.

Expect a New Busy Hour

One of the many consequences of the coronavirus is that networks are going to see a shift in busy hour traffic. Busy hour traffic is just what is sounds like – it’s the time of the day when a network is busiest, and network engineers design networks to accommodate the expected peak amount of bandwidth usage.

Verizon reported on March 18 that in the week since people started moving to work from home that they’ve seen a 20% overall increase in broadband traffic. Verizon says that gaming traffic is up 75% as those stuck at home are turning to gaming for entertainment. They also report that VPN (virtual private network) traffic is up 34%. A lot of connections between homes and corporate and school WANs are using a VPN.

These are the kind of increases that can scare network engineers, because Verizon just saw a typical year’s growth in traffic happen in a week. Unfortunately, the announced Verizon traffic increases aren’t even the whole story since we’re just at the beginning of the response to the coronavirus. There are still companies figuring out how to give secure access to company servers and the work-from-home traffic is bound to grow in the next few weeks. I think we’ll see a big jump in video conference traffic on platforms like Zoom as more meeting move online as an alternative to live meetings.

For most of my clients, the busy hour has been in the evening when many homes watch video or play online games. The new paradigm has to be scaring network engineers. There is now likely going to be a lot of online video watching and gaming during the daytime in addition to the evening. The added traffic for those working from home is probably the most worrisome traffic since a VPN connection to a corporate WAN will tie up a dedicated path through the Internet backbone – bandwidth that isn’t shared with others. We’ve never worried about VPN traffic when it was a small percentage of total traffic – but it could become one of the biggest continual daytime uses of bandwidth. All of the work that used to occur between employees and the corporate server inside of the business is now going to traverse the Internet.

I’m sure network engineers everywhere are keeping an eye on the changing traffic, particularly to the amount of broadband used during the busy hour. There are a few ways that the busy hour impacts an ISP. First, they must buy enough bandwidth to the Internet to accommodate everybody. It’s typical to buy at least 15% to 20% more bandwidth than is expected for the busy hour. If the size of the busy hour shoots higher, network engineers are going to have to quickly buy a larger pipe to the Internet, or else customer performance will suffer.

Network engineers also keep a close eye on their network utilization. For example, most networks operate with some rule of thumb, such as it’s time to upgrade electronics when any part of the network hits some pre-determined threshold like 85% utilization. These rules of thumb have been developed over the years as warning signs to provide time to make upgrades.

The explosion of traffic due to the coronavirus, might shoot many networks past these warning signs and networks start experiencing chokepoints that weren’t anticipated just a few weeks earlier. Most networks have numerous possible chokepoints – and each is monitored. For example, there is usually a chokepoint going into neighborhoods. There are often chokepoints on fiber rings. There might be chokepoints on switch and router capacity at the network hub. There can be the chokepoint on the data pipe going to the world. If any one part of the network gets overly busy, then network performance can degrade quickly.

What is scariest for network engineers is that traffic from the reaction to the coronavirus is being layered on top of networks that already have been experiencing steady growth. Most of my clients have been seeing year-over-year traffic volumes increases of 20% to 30%. If Verizon’s experience in indicative of what we’ll all see, then networks will see a year’s typical growth happen in just weeks. We’ve never experienced anything like this, and I’m guessing there aren’t a lot of network engineers who are sleeping well this week.

FCC Reports on Poor Rural 4G Coverage

The FCC released a report in January that shows that the cellular networks of the major carriers underperform in rural America. This is no news to anybody who lives and works in a rural county. The tests allowed the FCC to conclude that the national coverage maps for 4G LTE are largely fiction in rural America.

The FCC conducted 25,000 tests in twelve states to verify the coverage maps of Verizon, T-Mobile, and US Cellular. The majority of tests were done in Arizona, New Mexico, Oklahoma, Vermont, Alabama and Montana. Speeds were tested from both stationary locations and in a moving vehicle. AT&T and Sprint weren’t tested because the maps they provided to the FCC showed only the combined upload and download speeds – something that is meaningless to test. The other three carriers reported what they claimed were actual upload and download speeds, shown separately.

The FCC undertook the testing in response to numerous complaints filed in the FCC’s docket for the Mobility Fund Phase II grants. The intention of this fund was to improve 4G coverage in rural areas with little or no cellular coverage. Smaller cellular carriers and the public complained to the FCC that the cellular data coverage claimed by the large cellular carriers was overstated. Small cellular carriers worried that the overstatements would stop them from asking for funding for areas that need upgrading. Local governments were worried that the overstated coverage meant that their areas wouldn’t see upgrades and they’d be doomed for another decade with poor cellular coverage.

The tests were conducted in areas where the carrier maps showed cellular data coverage. The results of the testing were rather bleak. 16% of all calls tried on Verizon were unable to make a data connection. The failures to connect were 23% on T-Mobile and 38% on US Cellular.

Overall, the three carriers met the FCC’s minimum requirement of 5 Mbps download for 4G only 62% of the time. That was 64% on Verizon, 63% on T-Mobile and only 45% for US Cellular. However, even within those reported results, the testers said that they experienced intermittent dropped calls on all three networks.

The FCC responded to these tests by revamping the reporting of cellular data speeds in the future, asking for far more granular speed data by location. The FCC also convened a group of experts to recommend to the FCC how to better test cellular speeds. Finally, the FCC issued an Enforcement Advisory on the accuracy of the cellular data on form 477. That’s a step short of issuing fines and likely will have little impact on the carriers. It doesn’t appear that any of them have pared back their national coverage maps that still claim coverage across most of rural America.

There are significant real-life implications of overstated cellular coverage maps. Just like with the RDOF grant program that will rely on faulty maps of landline broadband, poor maps of cellular coverage mean that many areas with overstated cellular coverage won’t be eligible for federal grants to help fix the problem.

The big downside is that many rural households have no 4G LTE coverage, or at best have slow and intermittent 4G data available. These are often the same areas where landline broadband is slow or non-existent. As hard as it is to live without good cellular coverage or good landline broadband, homes without both are cut off from the rest of the world. To make matters worse, there is still 3G coverage in a lot of rural America and all of the carrirs have plans to cut that dead over the next few years.

The FCC has revamped the Mobility Fund II grant program by doubling the amount of funding to $9 billion and renaming it as the 5G Fund. That’s a silly name because the goal of the program is to bring at least minimal 4G coverage to rural areas, not 5G. Remember that the grant program was originally aimed only at areas that showed no coverage by the carriers. Ideally the FCC would also  direct funding to the many areas where the carriers were lying about their coverage – but It’s doubtful that they have any meaningful maps of real 4G coverage.

Can 5G Replace WiFi?

Verizon recently posted a webcast with investors where Ronan Dunne, EVP and CEO of the Verizon Consumer Group said that he believed that 5G hotspots using millimeter wave spectrum will eventually displace WiFi in homes.

He cites major benefits of 5G over WiFi. He believes that a 5G network will be more reliable and more secure. He thinks that people will value the safety that comes from having traffic inside their home being encrypted as it rides Verizon’s 5G network compared to the more public nature of WiFi where every neighbor can see a home’s WiFi network.

He also cites the convenience of being able to transfer 5G traffic between networks. He paints a picture where a customer making a call or watching a video using a home 5G hotspot will be able to walk out the door and seamlessly continue the session outside on their cellphone. That’s pretty slick stuff should that ever come to pass.

The picture he’s painting for Verizon investors is a future where homes buy a Verizon 5G subscription to use in place of WiFi. This is part of Verizon’s ongoing effort to find a business case for 5G. His vision of the future is possible, but there are a lot of hurdles for Verizon to overcome to achieve that vision.

It’s going to get harder to compete with WiFi since the technology is getting a lot better with two major upgrades. First, the industry has introduced WiFi 6, which brings higher quality performance, lower latency, and faster data rates. WiFi 6 will use techniques like improved beamforming to greatly reduce interference between WiFi uses within the home.

Even more importantly, WiFi will be incorporating the new 6 GHz spectrum band that will increase bandwidth capabilities by adding seven 160 MHz bands and fourteen 80 MHz bands. It will be much easier to put home devices on separate channels when these new channels are added to the existing channels available on 2.4 and 5 GHz. This means that 5G will be competing against a much improved WiFi compared to the technology we all use today.

Another big hurdle for Verizon to overcome is that WiFi is ubiquitous today. WiFi is built into a huge number of devices, and a homeowner might already own a dozen or more devices capable of using WiFi. Verizon will have to somehow convince homeowners that 5G is so superior that it’s worth replacing the panoply of WiFi devices.

Another hurdle is that there is going to be WiFi vendors painting almost the same picture as Verizon. The makers of WiFi routers are already envisioning future devices that will introduce millimeter-wave spectrum including 5G into the home. There are vendors already working on devices that will provide both WiFi 6 and 5G using millimeter-wave connections simultaneously, using the publicly available 60 GHz V band. These solutions envision offering everything that Verizon can do, except the ability to roam seamlessly in and out of a home – and it will be done by selling a box instead of a new monthly subscription.

Another interesting hurdle to switching home networks to 5G is that there might be separate 5G solutions for each cellular carrier that uses different bands of spectrum. It’s relatively easy for device makers today to build a cellphone or other device that can use different cellular carriers because the carriers all use similar spectrum. But as each cellular company picks a different mix of frequencies moving forward, there is likely going to be cellphones and other devices that are specific to one carrier. It’s impossible to build a cellphone with today’s battery technology that can receive a huge range of spectrums – the multiple antenna systems would drain a cellphone dry in no time.

The largest hurdle of all is that WiFi is free to use after buying a WiFi router or meshed WiFi devices for the home. There is no monthly subscription fee to use the wireless WiFi connections within the home. Verizon clearly foresees a world where every home has a new monthly subscription to use its in-home 5G network.

Mr. Dunne makes one good point. It’s becoming increasingly clear that public WiFi networks are susceptible to hacking. A 5G network controlled by a carrier should be a lot safer than a WiFi hotspot managed by a coffee shop. The big question is if this enough incentive for people to buy 5G-capable devices or for coffee shops to switch to 5G networks. Even should coffee shops go with a 5G solution, will homes follow suit?

Mr. Dunne vision has an underlying assumption that people will value data security enough to be willing to pay more for it. He envisions people choosing a managed network when they have a choice. He could be right, and perhaps there will be enough data breaches in coming years with WiFi that the paradigm will change from WiFi to 5G. But it’s going to be incredibly hard to dislodge WiFi, particularly when it’s evolving and improving along with 5G.

Even if Mr. Dunne is right, this shift is not coming soon, probably not within this decade. For now, WiFi has won the device war and any shift to 5G would drag out over many years. It’s going to be incredibly difficult for the cellular carriers to convince everybody to switch to 5G.

I sympathize with Mr. Dunne’s dilemma. Investors want to understand where the revenues will come from to fund the expensive upgrades to 5G. Verizon and the other cellular carriers have tossed out a lot of ideas, but so far none of them have stuck to the wall.  Investors are getting rightfully nervous since there doesn’t appear to be any significant 5G revenues coming in the next few years. The carriers keep painting pictures of an amazing 5G future as a way to not have to talk about lack of 5G revenues today.

Is it Time for Honest Pricing?

Verizon is getting a lot of positive press from changing its product pricing to be more transparent. I look at the new pricing structure. and see both plusses and minuses.

The new pricing is a straightforward menu of prices as follows:

  • There are three broadband products: 100 Mbps for $40, 300 Mbps for $60 and 1 gigabit for $80. The first two products charge $15 monthly for a router – a router is included in the gigabit product price.
  • There are new, and lower-priced cable TV options. Your FiOS TV is $50 (plus $12 for a settop box). A customer chooses 5 channels and Verizon provides 120 other channels based upon that choice. More FiOS TV provides 300 channels for $70 and includes one free settop box. The Most FiOS TV is $90 and comes with 425 channels, one free settop box and some use of a DVR. Verizon is also now reselling YouTube TV for $50.
  • A basic voice line is $20 and comes with caller ID. I assume voice mail is extra. They didn’t include it in the announcement, but there must be a higher-priced product that includes unlimited long distance.
  • Customers must use autopay and paperless billing to get any of these products.

There are some definite positives from the new pricing:

  • Verizon says they have eliminated hidden fees.
  • Verizon has eliminated term contracts for these products. It’s not clear in the announcement, but customers under current contracts are likely going to have to finish those contracts before moving to the new prices.
  • This eliminates the games that Verizon and other big ISPs have played with bundling discounts. With bundle discounts, customers got some nice price breaks for buying multiple products. However, the discounts were never associated with any product, and customers found that when they tried to drop any one product that they lost the bundling discount. This new pricing is a menu and customers can pick what they want to buy, and due to monthly billing can add or subtract products later with no penalty.
  • Along those same lines, Verizon will have finally taken out all of the hassles of trying to negotiate for standalone products. Customers can pick any products from this new menu of services, including standalone broadband.

Of course, there are also negatives:

  • The settop box and router fees at $12 and $15 are outrageous considering that in both cases the box that Verizon is providing likely costs around $100. These add-ons costs are still going to be mentioned only in the small print in advertising, which still smacks of hidden fees.
  • Verizon is also including a $15 per month product they call TechSure Plus that provides for 24/7 technical support. Reading between the lines, this product means customers will have to pay Verizon $180 per year to avoid the long phone waits for customer service. The unspoken threat is that customers without this service will go to the end of the customer service queue. It’s a ballsy product statement by Verizon – pay extra if you ever want to talk to us.
  • All of this is only available where Verizon has fiber – and there is still a lot of their market that is not wired with fiber.

The new pricing is a definite challenge to the big cable companies that Verizon competes with. The $55 price for 100 Mbps broadband ($40 for the broadband and $15 for the router) sets a market bottom price and is a definite challenge to the cable companies. It’s likely that a big majority of Verizon customers will choose this product because of the low price and because most homes today are going to be happy with 100 Mbps service on fiber. This product will make the big cable companies sharpen their pencils for their base broadband product and also might make them hesitate from the annual broadband rate increases they’ve now built into their planning.

It’s going to be interesting to see how Comcast and the other big cable companies react to these new prices. They can advertise promotional pricing that can beat the Verizon rates, but those specials will likely still include hidden fees, and the rates will spring back to full price at the end of the promotional period. The big cable companies also need to be careful about offering lower prices only where there is FiOS – this will annoy the hell out of customers in other markets who will understand they are subsidizing lower rates in Verizon markets.

It’s not going to be surprising to see Verizon take away customers from the cable companies with these prices. The prices are not particularly low, but for the most part, they are honest and transparent – a refreshing change from a big ISP.

The Frontier Bankruptcy

Bloomberg reported that Frontier Communications is hoping to file a structured bankruptcy in March. A structured bankruptcy is one where existing creditors agree to cut debt owed to them to help a company survive. There is no guarantee that the existing creditors will go along with Frontier’s plan, and if not, the bankruptcy would be handed to a bankruptcy court to resolve.

It’s been obvious for a long time that Frontier is in trouble. Three years ago, the stock sat at over $51 per share. By January 2018 it had fallen to $8.26 per share, and to $2 per share a year ago. As I write this blog the stock sits at 59 cents per share.

Frontier has been losing customers rapidly. In the year ending September 30, 2019 the company lost 6% of its broadband customers (247,000), with 71,000 of the losses occurring during the third quarter of last year.

For those not familiar with the history of Frontier, the company started as Citizens Telephone Company, a typical small independent telco. The company grew by buying telephone customers from GTE, Contel, and Alltel. The company became Frontier when they bought the remains of the Rochester Telephone Company from Global Crossings. Since then Frontier went on a buying spree and purchased large numbers of customers from Verizon.

Frontiers woes intensified in 2016 when they bungled the takeover of Verizon FiOS customers while taking on huge debt. There were major outages in some major markets that drove customers to change to the cable company competitor. However, Frontier’s biggest problem is due to operating a lot of rural copper networks. The copper networks they purchased had been maintained poorly before acquired by Frontier. For example, Frontier bought all of the Verizon customers in West Virginia, and Verizon had been ignoring the market and had been trying to sell it for over fifteen years.

Frontier got a small boost when the FCC gave them $1.7 billion to upgrade rural DSL to speeds of at least 10/1 Mbps. This month Frontier reports that it has not fully met that requirement in parts of thirteen states. Customers in many places where Frontier has supposedly made the upgrades are saying that speeds are not yet at the required 10/1 Mbps.

Frontier’s real problem is that their rural properties are being overbuilt by other ISPs. For example, Frontier properties are the targets of funding for many state broadband grants. Most of the rural Frontier network is going to be targeted in the upcoming $16 billion RDOF grants this year. It would not be surprising to see the company quietly disappear from rural America as others build better broadband.

Meanwhile, other than in properties that formerly were Verizon FiOS on fiber, the company’s networks in towns are also providing DSL. We’ve seen every telco that offers DSL in urban areas like AT&T and CenturyLink lose a lot of customers year-after-year to the cable companies. It’s increasingly difficult for DSL to keep customers with speeds between 10 Mbps and 50 Mbps when competing against cable products of 100 Mbps and higher.

Last May, Frontier announced the sale of its properties in Washington, Oregon, Idaho and Montana to WaveDivision Capital. That sale was for $1.35 billion, which doesn’t make a big dent in the company’s $16.3 billion in long-term debt. Frontier has also shed 10% of its workforce in an attempt to control costs.

Frontier may get the structured bankruptcy they are seeking or may have to give up more to survive this current bankruptcy. However, restructuring their debt is not going to make up for the huge amounts of its network that sits on dying copper. They are not the only company facing this issue and CenturyLink has even more rural copper. However, CenturyLink has a thriving business in big cities and would be stronger if regulators ever allow it to walk away from rural copper.

The harder question to answer is if there is a viable company remaining after Frontier finally sheds or loses its rural customer base. I don’t know enough to make any prediction on that, but I can predict that the company’s problems will not be over even after making it through this bankruptcy.