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Current News Technology

The Future of Rural Broadband

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

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

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

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

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

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

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

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

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

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

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

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Current News Regulation - What is it Good For?

At Least We are Not Europe

Europe Simulator (Photo credit: wigu)

In this country the FCC has undertaken various policy initiatives to promote broadband. However, except for some universal service funding that will bring broadband for the first time to tribal areas and very rural places, these initiatives come with no federal money. And so the real broadband policy in the country is to wait for the private sector to build the infrastructure. The FCC may make proclamations about creating gigabit cities, but it’s completely up to the private sector to make it happen.

And we all know how that is working out. We have a checkerboard of broadband coverage. At one end of the spectrum are the fiber networks – Google and a few others bringing gigabit fiber, Verizon with FiOS, and many smaller communities with fiber built by municipalities or independent telephone companies. In the middle most metropolitan areas are served by decently fast cable modem service and ADSL2 DSL. And then there are a lot of smaller cities and rural communities where the DSL and the cable modems are a generation or more old and which deliver far less bandwidth than advertised. And we have many rural areas still with no broadband.

But what we have, by and large, is still better than what has been happening in Europe. And this is because our regulatory policy for last-mile connectivity is mostly hands-off while the European markets are heavily regulated. After the European Union was formed the European regulators went for a solution that promoted low prices. They have required that all large networks be unbundled for the benefit of multiple service providers. This has turned out to be a short-term boon for consumers because it has brought down prices in every market where multiple providers are competing.

But there is a big catch and the European policy is not going to work out well in the long-run. Over the last five years the per capita spending on new telecom infrastructure in Europe is less than half of what it is in the US, and this is directly due to the unbundling policy. Network owners have no particular incentive to build new networks or upgrade existing ones because it brings their competitors the same advantages they get.

In the long-run, Europe is going to fall far behind everybody else in fiber deployment because nobody wants to invest in fiber to connect to homes and businesses. There have been several major fiber initiatives in recent years in Europe, but these have largely been driven by large cities who are spending the money on the fiber infrastructure, much as is happening with some cities here. But the normal kinds of companies that ought to be investing in last-mile fiber in Europe, the cable companies and the telcos, are not doing so.

We tried something similar here for a few years. When the Telecommunications Act of 1996 was enacted, one of the major provisions was that the RBOCs (Bell companies) had to unbundle their networks, much as is being done in Europe. This was to spur competition by allowing new competitors to get a start in the business without having to invest in a new network. And this brought short-term benefits to consumers for a while. Companies were leasing RBOC unbundled loops and providing voice and data (DSL at the time) to businesses and residences all over the country.

But the FCC didn’t go the whole way like they did in Europe or else they would have also unbundled the large cable networks in this country. The unbundled telecom network business plans broke apart after cable modem service began winning the bandwidth war. And of course, there was the telecom crash that killed the larger new competitors. There are still a few companies out there pursuing this unbundled business model, but for the most part it didn’t work. And the reason it didn’t work is that it is a form of arbitrage. The business plan only worked because federal regulators made the RBOCs unbundle their networks and then state regulators set the prices for the network elements low to spur competition. But the services the competitors were able to offer were no better than what the RBOCs could offer on the same networks.

It’s always been clear to me that you can’t build a solid business on arbitrage. A smart provider can take advantage of temporarily low prices to make a quick profit when they find arbitrage, but they must be ready to ditch the business and run when the regulatory rules that created the opportunity change.

And Europe is currently engaged in one gigantic arbitrage situation. There are multiple service providers who are benefitting by low network costs, but with no burden to make capital investments. Customers there are winning today due to the lower prices due to competition. But in the long run nobody wins. The same rules that are making prices low today are ensuring that nobody makes any serious investment in building new fiber networks. So the competitors will fight it out on older networks until one day when the arbitrage opportunity dies, the competitors will all vanish like the wind. We know it will happen because it happened here. The CLECs in this country had tens of millions of customers, and they disappeared from the market and stranded those customers in a very short period of time.

The only policy that is really going to benefit consumers here, or in Europe, is one that fosters the building of state-of-the-art networks. The commercial providers have not stepped up nearly enough in this country and there is still not a lot of fiber built to residences. But in Europe it’s even worse. So, as much as I read about people criticizing the broadband policies in the US, I have to remind myself – at least we are not Europe.

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Regulation - What is it Good For?

Doing Away With Regulations

Seal of the United States Federal Communications Commission. (Photo credit: Wikipedia)

In a process that most carriers probably don’t know about, any carrier can petition the FCC to get rid of or modify any regulation that it no longer thinks is necessary. This is an ongoing process and so the FCC issues a biennial report and every two years produces a summary of the requests that have been made as well as the FCC response to those requests. The latest biennial report DA-13-1708A1 was issued yesterday.

For the most part this is pretty dry regulatory stuff, but some of the changes that carriers request are significant and affects a lot of carriers. While many of the requests are to eliminate reports to the FCC, many requests are more substantial. In reading through this year’s report one will notice that Verizon appears more than any other carrier and one must imagine that they have somebody on staff dedicated to removing regulation.

Here are some of the issues investigated by the FCC in this latest report:

  • CenturyLink and Verizon advocate eliminating continuing property records (CPRs) contained in Part 32. These are detailed asset logs showing the cost, age and type of each asset in a company and must be updated each year for both additions and retirements. For even small LECs the cost of producing CPRs can be expensive.  The FCC has now eliminated the requirement for CPRs for price cap carriers but still require them for rate-of-return carriers.
  • Verizon asked that the Eligible Telecommunications Carrier (ETC) rules in Part 54 b modified so that an ETC is no longer required to serve customers in areas where the carrier gets no USF support, and also in areas where it is unprofitable to serve with landline but where customers have a competitive alternative. Verizon asks to get rid of its lifeline responsibilities in such areas, and effectively be able to walk away from serving customers. The FCC did not agree to removing these rules but instead wrapped the request into the Connect America Fund and the Lifeline and Link-up Reform and Modernization proceedings.
  • USTelecom asked the FCC to remove the requirement to notify the FCC when a carrier wants to replace legacy technology with an IP broadband technology covered by Part 63. For example, this would allow a carrier to stop offering copper services if they offer something else, such as what Verizon wants to do on Fire Island sue to hurricane damage. The FCC declined to accept this request.
  • USTelecom asked that ILECs not be required to have separate subsidiaries for offering in-region long distance as required by Part 64. The FCC concluded that this requirement no longer applied to ILECs subject to price caps. But the rules remain in effect for rate-of-return carriers.
  • Verizon asked the FCC to complete access reform by eliminating originating access charges as required by Part 69. The FCC noted that this was more properly addressed in the ongoing USF/ICC Transformation FNPRM.
  • NTCH asked that the FCC eliminate requirements to notify the FCC of temporary cell phone towers as required by Part 17. Temporary towers are often used during the process of relocating existing towers or when repairing towers after a disaster. The FCC responded by forebearing the existing rules for towers that would be in place for less than 60 days and that which met other conditions.
  • Verizon asked the FCC to eliminate the requirement that it notify the FCC within 120 minutes for major network outages per Part 4. Verizon noted that they have as many as 1,000 such outages every year. The FCC did not agree to the request.
  • The Telecommunications Industry Association (TIA) asked that some of the rules concerning standards for hearing aids and volume controls for hard-of-hearing sets in Part 68 be eliminated due to new TIA standards. The FCC responded by issuing a Public Notice and asking if there should be a rulemaking for the issue.

As you can see by just this sample of the issues that were covered in this docket that the FCC is always being challenged by carriers to eliminate regulations. Any carrier can make such a request and there were dozens of such requests considered in this latest two-year cycle. Sort of like sausage-making, regulation is not always a pretty picture, but the FCC does eliminate regulatory requirements every year that it deems are no longer in the public benefit.

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Regulation - What is it Good For? The Industry

Spectrum Winners and Losers

AT&T posted a short statement on their public policy blog called ‘Inconvenient Facts and the FCC’s Flawed Spectrum Screen’. In that blog post they complained that the FCC had failed to apply the spectrum screen to Softbank’s acquisition of Sprint and Sprint’s acquisition of the rest of Clearwire. And AT&T is right. The FCC has been incredibly inconsistent in the way it looks at wireless acquisition and mergers.

So what is the spectrum screen? The spectrum screen is a set of internal rules at the FCC that they use to determine if any wireless carrier owns too much spectrum in a given market. Historically the FCC had a generic rule that said that no one company could own more than one-third of the spectrum usable for wireless in a given geographic area. This spectrum screen was applied both to attempts of wireless carriers to buy new spectrum or to mergers between wireless carriers.

The FCC has been very inconsistent in the way they apply the existing screen. Last September they announced that they were going to look at the way the spectrum screen ought to work. But meanwhile, during the last year the screen has been applied (or ignored) in the following ways:

  • When the FCC looked at the proposed AT&T / T-Mobile merger they rejected the merger in part because they said that the acquisition would fail the screen test in 274 CMAs that covered 71 of the top 100 markets and 66% of the US population. However, the FCC fudged the spectrum screen in coming up with those numbers. At that time the spectrum screen set the maximum amount that any one carrier could own in one market at 95 MHz, which was one-third of the spectrum available for wireless carriers. However, in coming up with their conclusion the FCC lowered that threshold to 90 MHz in judging the merger. That might not sound like a big difference, but it lowered the number of markets affected by the merger by 84 and reduced the overall problem to less than 50% of the top 100 markets and 50% of the US population. That is still a lot of places where the proposed merger would have failed the spectrum screen, but AT&T had announced plans to divest of bandwidth as needed to meet the FCC test. The FCC made this change in the spectrum screen without any public input.
  • When Verizon acquired spectrum in the 1.7 to 2.1 GHz band the FCC applied this fully to their spectrum screen band. They did the same when AT&T acquired 2.3 GHz spectrum.
  • And then there is the recently announced approval for Softbank to acquire Sprint and Clearwire spectrum. The Clearwire spectrum at 2.5 GHz is right next to the 2.3 GHz spectrum recently acquired by AT&T. While the FCC fully counted the spectrum AT&T purchased against the spectrum screen, in the Softbank acquisition the FCC counted only 55.5 MHz of the Clearwire spectrum against the new Softbank spectrum screen even though there is an average of 140 MHz available in most of the Softbank markets.

So AT&T has a legitimate gripe. The FCC seems to apply the spectrum screen to get the results they want. It looks a lot more like the FCC is picking market winners and losers than they are protecting the public. The spectrum screen was established in the first place to promote competition. The FCC wanted to make sure that a given carrier did not get so much spectrum in a major market that they could effectively close out competition. They also didn’t want carriers to be able to hoard spectrum for future use. But the FCC no longer seems to be using market protection as the criteria of deciding who can and cannot merge.

It’s clear that the FCC didn’t want AT&T and T-Mobile to merge. They thought that it was bad for competition to lose one of the major carriers in the country. But it was wrong for them to fudge the spectrum screen as a way to justify their position rather than just oppose the merger on pure competitive grounds.

And in the case of Softbank they are going in the opposite direction. They obviously want a new competitor to AT&T and Verizon and they are ignoring the spectrum screen to make sure that happens.

Why does all of this matter? Like anything else it’s a matter of money. Wireless carriers have two ways that they can address congested conditions. They can just add more cell sites, closer and closer to the old ones. In effect spectrum is reusable and each new cell site uses the original spectrum freshly. The other solution is to just layer on a new spectrum in a crowded area so that no new cell sites need to be constructed. That is much cheaper than building cell sites, and so carriers want more and different spectrum in major markets to meet the seemingly insatiable and rapidly growing demand for mobile data.

The issue is going to get a lot worse. President Obama announced a new policy that will release up to 500 MHz of new spectrum for wireless use over the next five years. So there is going to be a new land grab by all of the carriers and the FCC needs to get ready.

It just seems to me like the FCC needs to toss out the spectrum screen and come up with a new way to determine the right amount of competition. In the two biggest merger cases before them in the last few years they blatantly ignored their own spectrum screen rules to get the result they wanted. That is evidence enough that we need to stop having the fiction of a spectrum screen. If the FCC wants to be in the game of picking market winners and losers they just need to be upfront about it.

Categories
Current News Regulation - What is it Good For?

Switching in an IP Environment

FCC HQ (Photo credit: Wikipedia)

In this industry there are always interesting fights going on behind the scenes. In fact, it seems like a lot of the policies made by the FCC are in response to battles being waged between carriers. As the FCC intervenes in these fights they end up creating policy as they help solve issues.

This Letter is a correspondence with the FCC about a current dispute that is going on with Verizon and AT&T disputing the way they are being billed by Bandwidth.com. and Level3. This fight is an interesting one because it asks the FCC to affirm that is supports a migration to an all-IP network.

The dispute is over what is called OTT (Over-the-top) VoIP. OTT in this case means that there are voice calls being made from a service provider’s network for which the service provider is not providing the switching. Instead the service provider is buying switching from a CLEC like Level3. And all of the calls involved are VoIP calls, meaning that they are being delivered from the customers to the switching CLEC using the IP network rather than the public switched telephone network.

Here is how this might happen, although there are other configurations as well. The network in question is clearly an IP network to the customer in order for this to be considered as VoIP. That means it is either a fiber-to-the-home network, DSL over a copper network or a cable system that has been upgraded to send the voice over the data path. In a traditional TDM network the calls from customers are routed directly to a voice switch and that switch will decide what to do with the call based upon the numbers that were dialed. But in this scenario there is not a switch in the subscriber’s network. Instead, when a customer makes a call, a signal is sent to wherever the switch is located telling it where the customer wants to call. That remote voice switch then tells the network owner where to send the call. It is no longer necessary in a smartswitch environment for the call to actually touch the switch, but the switch is still the device that decides how to route the call.

The parties are fighting about whether access charges ought to be charged for an OTT VoIP call. Access charges are fees that long distance carriers pay at both the originating and terminating end of a call to compensate the network owner at each end for processing the call. Verizon and AT&T don’t want to pay the switching component of the access charges for these calls. They are arguing that since there is not a physical switch in the originating network that such charges aren’t warranted.

Broadband.com and Level3 are arguing that the switching is being performed regardless of the location of that switch. They point out that for the FCC to rule otherwise would be counter to the FCC’s desire for the telephony world to migrate to an all-IP environment.

If the FCC rules that AT&T and Verizon are right, they will be saying that a carrier performing a switching function on legacy TDM technology can bill for performing that function but that somebody doing it more efficiently in an IP environment cannot. I just published a blog yesterday talking about ways to share a softswitch and that is exactly what is happening in this case. In an all-IP environment the network can be more efficient and not every carrier needs to buy and operate a switch. They can instead contract with somebody else to switch calls for them which is easy to make happen in an IP environment. Access charges are designed to compensate local carriers for the cost of performing certain functions and one has to think that the network owner in this case is still having to pay for the switching function and should get to recover some of that cost.

In fact, there has been switch sharing for years even in the TDM world. I know several rural LECS who lease switching from their neighbors and who have not owned a switch for decades, and they have always billed the switching access charge element. That element reimburses you for the cost of switching and it really shouldn’t matter if that cost is made up of the depreciation on a box you paid for or else a fee you pay to use somebody else’s box. Cost is cost and the key fact is that calls can’t be made or received from an area if somebody isn’t doing the switching.

I always find arguments by the large RBOCs to be interesting because they wear many hats. AT&T and Verizon are wireless carriers, LECs and long distance companies, and often when one part of the large companies make regulatory arguments it will be contrary to the interest of one of the other branches of the company. In this case the long distance branches of the RBOCs are looking for a way to avoid paying access charges. But the LEC side of both Verizon and AT&T share switching and they do not have a switch any more for every historic exchange area. So to some degree these companies are arguing against something that another branch of their company is doing. And this is often the case in many regulatory arguments since these companies do so many things.

Hopefully the FCC will agree with Broadband.com and Level3. If they rule otherwise they will be telling carriers that it is not a good idea to establish switch-sharing arrangements that are more efficient than having every carrier buying the same expensive boxes. If the FCC really wants the telco world to move to IP they need to get rid of any regulatory impediments that would make an IP network less desirable than a legacy network. Hopefully the FCC sides with efficiency.

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Improving Your Business What Customers Want

What’s Up With Verizon?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Categories
Current News The Industry

Will Poor People Get Google Fiber?

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

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

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

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

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

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

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

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

Categories
Improving Your Business The Industry

Should You Become an MVNO?

This article compares the price of US cell phone plans to those around the world. It shows that the basic packages from the large US providers are in some cases twice as expensive as in other countries.

The small oligopoly of nationwide carriers, being AT&T, Verizon, Sprint and T-Mobile, have no incentive to lower prices. The only thing that will get them to come down in price would be competition or some sort of regulatory action.

The large carriers have created an opportunity for some competition against their products by selling bulk minutes, data and messaging. Companies that buy these bulk minutes are known as MVNOs (Mobile Virtual Network Operators). There are scores of MVNO providers in the country with the largest ones listed here.

The three original MVNOs are TracPhone, Virgin and Boost and who still had over half of the pre-paid cellular phone business in 2012. However, note that Sprint recently bought Virgin and Boost, so perhaps part of their strategy is to create sub-markets and then gobble them up to make more profit.

MVNOs have various marketing strategies:

  • Republic relies on shunting a lot of traffic to WiFi which greatly lowers their costs.
  • Ting lets customers design their own rate plan.
  • Kajeet has plans for kids that are parent-controlled.
  • Solavei uses multi-level marketing similar to Amway.
  • Voyager Mobile competes on price and is selling very low-cost plans.

If your carrier business already has a loyal customer base you should consider becoming an MVNO. Your loyalty will bring you customers, and your existing customers will appreciate being able to save money on cell phones while buying from somebody they trust. As long as you do it smartly there are significant profits to be made in the MVNO business. All that is really needed is having good existing cell phone coverage in your area and the desire to expand your product line.

CCG can help you get into the MVNO business. We can assist you with finding a good deal on bulk minutes, help you design products and prices, help you create a business plan, and help you with technical strategies such as a handphone strategy, and using WiFi to lower costs.