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because anybody that buys an early 5G cellphone will have early bragging rights, but those cool benefits can be out of date in six months.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.

Why Big ISPs Screw Up

I was recently joking with a colleague about some of the really dumb things that some of the big ISPs do – those things that get negative press or that make customers permanently dislike them. But after thinking about it a bit, it struck me that bad behavior by the big companies is almost inevitable – it’s a challenge for a big company to not behave badly. I can think of a number of reasons for the poor decisions that big ISPs seem to repeatedly make.

Good Intentions but Bad Policies. Some of the ugliest stories in the press from our industry have come from Comcast customer service. Customers have recorded customer service representatives saying some of the most awful things. Comcast executives have often been quoted as saying that they want to do a better job of customer service and the company has thrown big bucks at the issue over the last decade to try to improve.

But Comcast has corporate policies that undo all of their good intentions. Some of the most memorable press stories came from customer service reps who are compensated for stopping customers from disconnecting service or for upselling additional services to customers. Win-back programs and upselling are good for the Comcast bottom line, but they tempt poorly paid customer service reps into saying anything to stop a customer from disconnecting or entice a customer service rep to sneak unwanted products onto a customer’s bill. The bottom line is that policies that promote good behavior go out the window when employees are compensated for bad behavior.

Decentralized Management. I remember reading last year about the big push at Verizon to bring all of their fiber assets under one regime. The company built fiber over the years under a lot of different business units and there has been no centralized fiber inventory. This has to have cost Verizon a fortune over the years with lost revenue opportunities on fiber that already exists. An outsider like me looks at this and wonders why something this common sense wasn’t done fifteen years ago. Unfortunately, the poor communications inside the company is a natural consequence of operating different business units, each in silos. The FiOS folks never knew what the enterprise or the cellular folks were doing, and so the company frittered away the huge synergies that could have been gained by making all fiber available to all business units. We’ve seen attempts at the big ISPs to make the kind of consolidation Verizon is doing, but if they aren’t careful, in time they’ll slip back to the old bad practices.

No Emphasis on Being Good Corporate Citizens. I worked at Southwestern Bell pre-divestiture. There were some negative sides from being a giant monopoly,  but the company also put a lot of effort into instilling the message internally that the company had a nationwide mandate to do a good job. The company constantly extolled its accomplishments to employees and effectively indoctrinated them into being good citizens. I happened to sit close to the person who took ‘executive’ complaints – complaints from customers that had escalated to upper management. The company made a legitimate effort to deal with every problem that made it that high in the company. Employees were rewarded for loyalty and good behavior with lifetime jobs – phone company people were joked to have bell-shaped heads.

Big ISPs no longer promise jobs for life and working at a big ISP today is just a job. I know a mountain of people who currently work for the big ISPs and none of them have that same esprit de corps that was normal at Ma Bell.

Quarterly Profit-Driven. A lot of the problems I see from the big ISPs come from the modern emphasis on quarterly earnings. This emphasis permeates down into the ranks of management at an ISP. For example, a department head might decide to not make a major repair or upgrade if it causes a blip in the department’s budget. The constant drive for quarterly earnings improvements drives ISPs to lay-off needed technicians to meet an earnings goal. It drives companies to raise rates even when they haven’t increased costs. It makes companies chase new shiny ideas like 5G even if the technology is half-baked and premature. Unfortunately, Wall Street matters more than both employees and customers – and it shows.

What’s the Future for Big Towers?

Late last year AT&T announced that is had contracted for the construction of hundreds of new big cellular towers through Tillman Infrastructure. AT&T and Verizon jointly struck a deal to build with Tillman in 2017 and by late last year some of the new towers came online. This doesn’t sound like big news because towers are built every year – but these new towers were built to directly compete with and replace existing big towers. AT&T’s announcement was a warning to existing tower owners – lower your prices or we’ll bypass you.

You can’t blame AT&T and Verizon for this because they pay some of the highest prices for any telecom products to hang radios and to bring bandwidth to big towers. To a large degree, this is a problem of their own making, and the history of big towers is a great example of economics that has gone awry.

When the two companies first got into the cellular business they mostly built their own towers. There were some tall towers in existence – some to support public safety radio networks and many more that were part of the AT&T, MCI, and Verizon microwave backbone networks. You might remember the towers with the big horn antennas. When AT&T longlines started to replace microwave backhaul with fiber in the 1980s they sold the whole tower network to a newly formed company, American Tower. American Tower went on to remove the big horn antennas and leased space back on these towers to AT&T and Verizon for cellular use.

Within a few years, both big cellular carriers agreed to lease towers almost everywhere from American Tower and a few other big tower companies. At the time, both AT&T and Verizon were spinning off huge cash from the rapidly growing cellular business and they both decided to avoid the capital costs of building towers and allowed others to invest in the key infrastructure component of cellular networks. Both carriers also made similar choices about allowing others to construct the fiber needed to connect to their cell sites. Their decision to avoid capital costs turns out to have been a giant mistake in the long run.

Today, cellular companies are feeling huge pressure from competition as the prices of cellular plans have tumbled. Had the big carriers decided years ago to own their key infrastructure – towers and fiber – they would have minimal costs for operating these assets today. Instead, they are paying ever-escalating prices for tower space and fiber transport.

AT&T is now demanding big reductions in tower space rental prices. Building the new towers is an obvious threat that the company is willing to bypass anybody who won’t cut prices. A few hundred new towers is barely a blip in the tower market, but the AT&T message is clear. Last year Verizon used the same tactic to put pressure on fiber providers to lower transport costs – at the risk of Verizon building fiber to their towers and bypassing existing fiber.

All of this is happening at a time when we’re also seeing the proliferation of small cell sites. When I look at the architecture of cellular networks, a significant number of tall towers could be replaced with a network of small cell sites. The cellular network today is really two separate networks. There is the network built to provide cellular traffic along major highways – you see these towers at every few exits along every interstate highway. These towers are not likely to go away, and in fact, the tall towers are needed to provide coverage across large stretches of highway.

But there are a lot of cellular towers that have been built to serve where people live and work. There has been a long-standing unease in many communities about having the big towers in somebody’s back yard. Over time the cellular companies can make many of these towers obsolete as the smaller cell sites take over. (Of course, there is also now unease about having a lot of smaller towers in neighborhoods).

The big tower companies understand this transition. American Tower is leading the way in acquiring pole rights and is building electronics vaults along city streets for small cell sites to support 5G. Like other parts of the telecom market, the cell tower market segment is facing big changes. Just five years ago the big cellular carriers, the tower companies, and the fiber transport companies were all making big money from the cellular market. Today, all are feeling the pinch due to the advent of cellular price competition. It’s going to be interesting to see if AT&T and Verizon make the same choice all over again and lease small cell sites rather than building themselves.

The End of Satellite TV?

DirecTV launched their most recent satellite in May of 2015. The company has launched 16 satellites in its history, and with twelve remaining in service is the largest commercial satellite company in the world. AT&T, the owner of DirecTV announced at the end of last year that there would be no more future satellite launches. Satellites don’t last forever, and that announcement marks the beginning of the death of DirecTV. The satellites launched before 2000 are now defunct and the satellites launch after that will start going dark over time.

AT&T is instead going to concentrate of terrestrial cable service delivered over the web. They are now pushing customers to subscribe to DirecTV Now or WatchTV rather than the satellite service. We’ve already seen evidence of this shift and DirecTV was down to 19.6 million customers, having lost a net of 883,000 customers for the first three quarters of 2018. The other satellite company, Dish Networks lost 744,000 customers in the same 9-month period.

DirecTV is still the second largest cable provider, now 2.5 million customers smaller than Comcast, but 3 million customers larger than Charter. It can lose a few million customers per year and still remain as a major cable provider for a long time.

In much of rural America, the two satellite companies are the only TV option for millions of customers. Households without good broadband don’t have the option of going online. I was at a meeting with rural folks last week who were describing their painful attempts to stream even a single SD-quality stream over Netflix.

For many years the satellite providers competed on price and were able to keep prices low since they didn’t have to maintain a landline network and the associated technician fleet. However, both satellite providers looked to have abandoned that philosophy. DirecTV just announced rate increase that range from $3 to $8 per month for various packages. They also raised the price for regional sports networks by $1. Dish just announced rate increases that average $6 per month for its packages. These are the two largest rate increases in the history of these companies and will shrink the difference between satellite and terrestrial cable prices.

These rate increases will make it easier for rural cable providers to compete. Many of them have tried to keep rates within a reasonable range of the satellite providers, and these rate increases will shrink the differences in rates.

In the long run the consequences of not having the satellite option will create even more change in a fast-changing industry. For years the satellite companies have been the biggest competitor of the big cable companies – and they don’t just serve in rural America. I recently did a survey in a community of 20,000 where almost half of the households use satellite TV. As the satellite companies drop subscribers, some of them will revert to traditional cable providers. The recent price increases ought to accelerate that shift.

Nobody has a crystal ball for the cable industry. Just a year ago it seemed like industry-wide consensus that we were going to see a rapid acceleration of cord cutting. While cord cutting gets a lot of headlines, it hasn’t yet grown to nearly the same magnitude of change that we saw with households dropping telephone landlines. Surprisingly, even after nearly a decade of landline losses there are still around 40% of homes with a landline. Will we see the same thing with traditional cable TV, or will the providers push customers online?

Recently I’ve seen a spate of articles talking about how it’s becoming as expensive to buy online programming as it is to stick with cable companies, and if this becomes the public perception, we might see a slowdown in the pace of cord cutting. It’s possible that traditional cable will be around for a long time. The satellite cable companies lost money for many years, mostly due to low prices. It’s possible that after a few more big rate increases that these companies might become profitable and reconsider their future.

Windstream Turns Focus to Wireless

Windstream CEO Tony Thomas recently told investors that the company plans to stress wireless technology over copper going into the future. The company has been using point-to-point wireless to serve large businesses for several years. The company has more recently been using fixed point-to-multipoint wireless technology to satisfy some of it’s CAF II build-out requirements.

Thomas says that the fixed wireless technology blows away what could be provided over the old copper plant with DSL. In places with flat and open terrain like Iowa and Nebraska the company is seeing rural residential broadband speeds as fast as 100 Mbps with wireless – far faster than can be obtained with DSL.

Thomas also said that the company is also interested in fixed 5G deployments, similar to what Verizon is now starting to deploy – putting 5G transmitters on poles to serve nearby homes. He says the company is interested in the technology in places where they are ‘fiber rich’. While Windstream serves a lot of extremely rural locations, there also serve a significant number of towns and small cities in their incumbent service areas that might be good candidates for 5G.

The emphasis on wireless deployments puts Windstream on the same trajectory as AT&T. AT&T has made it clear numerous times to the FCC that they company would like to tear down rural copper wherever it can to serve customers with wireless. AT&T’s approach differs in that AT&T will be using its licensed cellular spectrum and 4G LTE in rural markets while Windstream would use unlicensed spectrum like various WISPs.

This leads me to wonder if Windstream will join the list of big telcos that will largely ignore its existing copper plant moving into the future. Verizon has done it’s best to sell rural copper to Frontier and seems to be largely ignoring its remaining copper plant – it’s the only big telcos that didn’t even bother to chase the CAF II money that could have been used to upgrade rural copper.

The new CenturyLink CEO made it clear that the company has no desire to make any additional investments that will earn ‘infrastructure returns’, meaning investing in last mile networks, both copper and fiber. You can’t say that Frontier doesn’t want to continue to support copper, but the company is clearly cash-stressed and is widely reported to be ignoring needed upgrades and repairs to rural copper networks.

The transition from copper to wireless is always scary for a rural area. It’s great that Windstream can now deliver speeds up to 100 Mbps to some customers. However, the reality of wireless networks are that there are always some customers who are out of reach of the transmitters. These customers may have physical impediments such as being in a valley or behind a hill and out of line-of-sight from towers. Or customers might just live to far away from a tower since all of the wireless technologies only work for some fixed distance from a tower, depending upon the specific spectrum being used.

It makes no sense for a rural telco to operate two networks, and one has to wonder what happens to the customers that can’t get the wireless service when the day comes when the copper network gets torn down. This has certainly been one of the concerns at the FCC when considering AT&T’s requests to tear down copper. The current FCC has relaxed the hurdles needed to tear down copper and so this situation is bound to arise. In the past the telcos had carrier of last-resort obligations for anybody living in the service area. Will they be required to somehow get wireless signal to those customers that fall between the cracks? I doubt that anybody will force them to do so. It’s not far-fetched to imagine customers living within a regulated telcos service area who can’t get telephone or broadband service from the telco.

Customers in these areas also have to be concerned with the future. We have wide experience that the current wireless technologies don’t last very long. We’ve seen electronics wear out and become functionally obsolete within seven years. Will Windstream and the other telcos chasing the wireless technology path dedicate enough capital to constantly replace electronics? We’ll have to wait for that answer – but experience says that they will cut corners to save money.

I also have to wonder what happens to the many parts of the Windstream service areas that are too hilly or too wooded for the wireless technology. As the company becomes wireless-oriented will they ignore the parts of the company stuck with copper? I just recently visited some rural counties that are heavily wooded, and which were told by local Windstream staff that the upgrades they’ve already seen on copper (which did not seem to make much difference) were the last upgrades they might ever see. If Windstream joins the other list of big telcos that will ignore rural copper, then these networks will die a natural death from neglect. The copper networks of all of the big telcos are already old and it won’t take much neglect to push these networks into the final death spiral.

Can Cable Fight 5G?

The big cable companies are clearly worried about 5G. They look at the recently introduced Verizon 5G product and they understand that they are going to see something similar over time in all of their metropolitan markets. Verizon is selling 5G broadband – currently at 300 Mbps second, but promised to get faster in the future – for $70 standalone or for $50 for those with Verizon cellular.

This is the nightmare scenario for them because they have finally grown to the point where they are approaching a near monopoly in most markets. They have successfully competed with DSL and quarter after quarter have been taking DSL customers from the telcos. In possibly the last death knell for DSL, both Comcast and Charter recently increased speeds of their base products to at least 200 Mbps. Those speeds makes it hard for anybody to justify buying DSL at 50 Mbps or slower.

The big cable companies have started to raise broadband rates to take advantage of their near-monopoly situation. Charter just recently raised bundled broadband prices by $5 per month – the biggest broadband price increase I can remember in a decade or more. Last year a major Wall Street analyst advised Comcast that their basic broadband price ought to be $90.

But now comes fixed 5G. It’s possible that Verizon has found a better bundle than the cable companies because of the number of households that already have cellphones. It’s got to be tempting to homes to buy fast broadband for only $50 per month in a bundle.

This fixed 5G competition won’t come over night. Verizon is launching 5G in urban markets where they already have fiber. Nobody knows how fast they will really implement the product, due mostly to distrust of a string of other Verizon hype about 5G. But over time the fixed 5G will hit markets. Assuming Verizon is successful, then others will follow them into the market. I’m already seeing some places where companies American Tower are building 5G ‘hotels’ at poles, which are vaults large enough to accommodate several 5G providers at the same location.

We got a clue recently about how the cable companies might fight back against 5G. A number of big cable companies like Comcast, Charter, Cox and Midco announced that they will be implementing the new 10 Gbps technology upgrade from CableLabs. These cable companies just recently introduced gigabit service using DOCSIS 3.1. It looks like the cable companies will fight against 5G with speed. It sounds like they will advertise speeds far faster than the 5G speeds and try to win the speed war.

But there is a problem with that strategy. Cable systems with the DOCSIS 3.1 upgrade can clearly offer gigabit speeds, but in reality cable company networks aren’t ready or able to deliver that much speed to everybody. Fiber networks can easily deliver a gigabit to every customer, and with an electronics upgrade can offer 10 Gbps to everybody, as is happening in parts of South Korea. But cable networks have an inherent weakness that makes gigabit speed problematical.

Cable networks are still shared networks and all of the customers in a node share the bandwidth. Most cable nodes are still large with 150 – 300 customers in each neighborhood node, and some with many more. If even a few customers start really use gigabit speeds then the speed for everybody else in the node will deteriorate. That’s the issue that caused cable networks to bog done in the evenings a decade ago. Cable companies fixed the problem then by ‘splitting’ the nodes, meaning that they build more fiber to reduce the number of homes in each node. If the cable companies want to really start pushing gigabit broadband, and even faster speeds, then they are faced with that same dilemma again and they will need another round, or even two rounds of node splits.

For now I have serious doubts about whether Comcast and Charter are even serious about their gigabit products. Comcast gigabit today costs $140 plus $10 for the modem. The prices are lower in markets where the company is competing against fiber, and customers can also negotiate contract deals to get the gigabit price closer to $100. Charter has similar pricing – in Oahu where there is competition they offer a gigabit for $105, and their price elsewhere seem to be around $125.

Both of these companies are setting gigabit prices far above Google’s Fiber’s $70 gigabit. The current cable company gigabit is not a serious competitor to Verizon’s $50 – $70 price for 300 Mbps. I have a hard time thinking the cable companies can compete on speed alone – it’s got to be a combination of speed and price. The cable companies can compete well against 5G if they are willing to price a gigabit at the $70 Verizon 5G price and then use their current $100+ price for 10 Gbps. That pricing strategy will cost them a lot of money in node upgrades, but they would be smart to consider it. The biggest cable companies have already admitted that their ultimate network needs to be fiber – but they’ve been hoping to milk the existing coaxial networks for another decade or two. Any work they do today to reduce node size would be one more step towards an eventual all-fiber network – and could help to stave off 5G.

It’s going to be an interesting battle to watch, because if we’ve learned anything in this industry it’s that it’s hard to win customers back after you lose them. The cable companies currently have most of the urban broadband customers and they need to act now to fight 5G – not wait until they have lost 30% of the market.

Is the Public Buying the 5G Hype?

T-Mobile recently conducted a survey, conducted by HarrisT, that looks in detail about how the public feels about the role of pending new technologies. They expect to repeat this survey quarterly to track how public perceptions of technology changes over time.

As you would expect, a significant number of the questions in the poll were about 5G. I’m sure that T-Mobile’s motivation for conducting the survey is due to the fact that they are one of the few companies in the industry that are not hyping 5G. They expect 5G to start creeping into the industry in 2020 and then taking as much as a decade to become a widespread reality.

The survey started by asking if respondents had heard of various new technologies. The 5G hype isn’t fully pervasive yet with 57% having heard of the technology. For other technologies: Internet of Things – 29%; machine learning – 26%; virtual reality – 83%; artificial intelligence – 78%; cloud computing – 52% and blockchain – 19%.

One of the most interesting responses in the survey is the public expectation of when they expect to see 5G in the market place. Of those that have heard of 5G, 29% thought it was already here in late 2018. 35% more think they’ll see 5G in 2019 and another 25% expect 5G in 2020. This response has to reflect the flood of marketing hype and press releases extolling 5G. The public has been inundated for several years by articles and press releases that declare that 5G is going to solve our broadband problems by delivering huge data speeds wirelessly everywhere.

When asked more specifics about 5G, 64% were somewhat excited or very excited about 5G in general. They were also somewhat or very excited about the following attributes of 5G: faster upload and download speeds – 92%; wider network coverage – 91%; higher quality streaming video – 85%; higher quality voice calls – 89%; less lag time on mobile devices – 90%; more reliable mobile connections – 93%; greater number of connected devices – 80%; smart city data sensors – 68%; driverless vehicles – 50%; virtual reality in the work environment – 59%; smart energy grids – 75%; supercharged IoT – 64%; expanded use of drones – 47%; next generation artificial intelligence – 59%; telehealth – 68%; remote surgery – 59%; real time language translation – 72%; replacement of landline broadband connections – 75%; replacement of traditional cable TV – 75%.

Interestingly, only 27% of total respondents thought that 5G would have a big influence on their daily life.

In a finding that I find disturbing, 65% of respondents think 5G will have a positive impact on rural America. Even the biggest 5G proponents admit that 5G is going to be hard to justify in low-density areas. It’s not hard to understand this belief because I’ve seen numerous articles that make this claim. 79% think 5G will have a positive impact in cities.

When asked which companies would be leaders in 5G, the unsurprising responses include Verizon (43%), AT&T (36%), Apple (43%), Samsung (35%) and T-Mobile (20%). However, there were surprises on this list including Amazon (24%), Comcast (12%), Google (36%), Facebook (12%), Microsoft (34%) and Dish Networks (5%).

The public believes that 5G is going to bring price increases. 84% said they thought that 5G would result in higher cellular service prices. 77% said they thought 5G would lead to higher cable TV prices (this has me scratching my head). 81% said they thought 5G would lead to higher process for home broadband – but wouldn’t increased competition for home broadband bring lower prices? 86% expect the prices for smart phones to be higher.

Overall, the survey shows an unrealistic public perception about when we’ll see the benefits of 5G. It’s not hard to understand this misperception since there are untold articles making it sound like we’re on the verge of a 5G revolution. I’m guessing this might have been one of the motivations for T-Mobile to sponsor this survey since they are one of the most realistic voices in the industry talking about the 5G time line. It will be interesting to see what the public thinks in a few years after very little 5G has actually been implemented. But perhaps I’m just being overly skeptical since the big carriers like AT&T are now extolling their 4G LTE product as 5G – maybe the public will but it.

When Will Small ISPs Offer Wireless Loops?

I wrote last week about what it’s going to take for the big wireless companies to offer 5G fixed wireless in neighborhoods. Their biggest hurdle is going to be the availability of fiber deep inside neighborhoods. Today I look at what it would take for fiber overbuilders to integrate 5G wireless loops into their fiber networks. By definition, fiber overbuilders already build fiber deep into neighborhoods. What factors will enable fiber overbuilders to consider using wireless loops in those networks?

Affordable Technology. Number one on the list is cheaper technology. There is a long history in the wireless industry where new technologies only become affordable after at least one big company buys a lot of units. Fifteen years ago the FCC auctioned LMDS and MMDS spectrum with a lot of hoopla and promise. However, these spectrum bands were barely used because no big companies elected to use them. The reality of the manufacturing world is that prices only come down with big volumes of sales. Manufacturers need to have enough revenue to see them through several rounds of technical upgrades and tweaks, which are always needed when fine-tuning how wireless gear works in the wild.

Verizon is the only company talking about deploying a significant volume of 5G fixed wireless equipment. However, their current first-generation equipment is not 5G compliant and they won’t be deploying actual 5G gear for a few years. Time will tell if they buy enough gear to get equipment prices to an affordable level for the rest of the industry. We also must consider that Verizon might use proprietary technology that won’t be available to others. The use of proprietary hardware is creeping throughout the industry and can be seen with gear like data center switches and Comcast’s settop boxes. The rest of the industry won’t benefit if Verizon takes the proprietary approach – yet another new worry for the industry.

Life Cycle Costs. Anybody considering 5G also needs to consider the full life cycle costs of 5G versus fiber. An ISP will need to compare the life cycle cost of fiber drops and fiber electronics versus the cost of the 5G electronics. There are a couple of costs to consider:

  • We don’t know what Verizon is paying for gear, but at the early stage of the industry my guess is that 5G electronics are still expensive compared to fiber drops.
  • Fiber drops last for a long time. I would expect that most of the fiber drops built twenty years ago for Verizon FiOS are still going strong. It’s likely that 5G electronics on poles will have to replaced or upgraded every 7 – 10 years.
  • Anybody that builds fiber drops to homes knows that over time that some of those drops are abandoned as homes stop buying service. Over time there can be a sizable inventory of unused drops that aren’t driving any revenue – I’ve seen this grow to as many as 5% of total drops over time.
  • Another cost consideration is maintenance costs. We know from long experience that wireless networks require a lot more tinkering and maintenance effort than fiber networks. Fiber technology has gotten so stable that most companies know they can build fiber and not have to worry much about maintenance for the first five to ten years. Fiber technology is getting even more stable as many ISPs are moving the ONTs inside the premise. That’s going to be a hard to match with 5G wireless networks with differing temperatures and precipitation conditions.

We won’t be able to make this cost comparison until 5G electronics are widely available and after a few brave ISPs suffer through the first generation of the technology.

Spectrum. Spectrum is a huge issue. Verizon and other big ISPs are going to have access to licensed spectrum for 5G that’s not going to be available to anybody else. It’s likely that companies like Verizon will get fast speeds by bonding together multiple bands of millimeter wave spectrum while smaller providers will be limited to only unlicensed spectrum bands. The FCC is in the early stages of allocating the various bands of millimeter wave spectrum, so we don’t yet have a clear picture of the unlicensed options that will be available to smaller ISPs.

Faster speeds. There are some fiber overbuilders that already provide a gigabit product to all customers, and it’s likely over time that they will go even faster. Verizon is reporting speeds in the first 5G deployments between 300 Mbps and a gigabit, and many fiber overbuilders are not going to want a network where speeds vary by local conditions, and from customer to customer. Wireless speeds in the field using millimeter wave spectrum are never going to be as consistently reliable and predictable as a fiber-based technology.

Summary. It’s far too early to understand the potential for 5G wireless loops. If the various issues can be clarified, I’m sure that numerous small ISPs will consider 5G. The big unknowns for now are the cost of the electronics and the amount of spectrum that will be available to small ISPs. But even after those two things are known it’s going to be a complex decision for a network owner. I don’t foresee any mad rush by smaller fiber overbuilders to embrace 5G.