AT&T, Frontier talk to CPUC about future networks, without putting all cards on the table

FacebookTwitterGoogle+PinterestLinkedInRedditEmail

The California Public Utilities Commission looked at telephone company plans to replace copper networks and plain old telephone service (POTS) with new technology at a workshop in San Francisco yesterday. Representatives from AT&T and Frontier Communications talked about some, but not all, of those plans, as I pointed out in the remarks I prepared, and mostly delivered, at the workshop…

The copper-to-IP transition involves three discrete but inter-related issues. Only two of those issues were addressed today.

The speakers from AT&T and Frontier talked about the benefits of replacing copper networks with fiber, and legacy POTS systems with Internet protocol technology. They did a good job of explaining the technology, the economics and the benefits that fiber and IP-based service brings.

Fair enough.

But they ignored the third issue, despite the fact that it is at the heart of their business strategy. It is at the heart of their plan to use federal and state subsidies to lock rural communities into substandard service at monopoly prices for decades to come.

That unspoken, third issue is the replacement of copper networks, largely paid for with public subsidies, with fixed wireless service, also paid for with taxpayer and ratepayer money.

Although AT&T’s representative ignored it today, [the company has made no secret of its plans](https://www.tellusventure.com/blog/att-confirms-plans-to-replace-california-copper-service-with-wireless/). It intends to replace copper networks with *wireless local loop* technology in rural areas, claim it delivers the minimum 10 megabits down and 1 megabit up speeds required by the California Advanced Services Fund and the FCC’s Connect America Fund subsidy programs, and pocket the cash.

Frontier has been less straightforward. Despite promising the CPUC that it was a “dedicated wireline service provider”, during the regulatory review of its purchase of Verizon’s California systems, it is now testing its own version of wireless local loop technology, and its executives are speaking of it of as a means of meeting their Connect America Fund obligations.

At best, the fixed wireless systems that AT&T and Frontier are developing can support broadband service that’s on a par with legacy DSL upgrades; service that’s priced, though, on a par with faster and more reliable copper and fiber-based service. And they want to use [regulatory blessings obtained with promises of a fiber future to do it](https://www.tellusventure.com/blog/att-writes-its-own-permission-slip-to-end-california-wireline-service/).

Today’s focus on IP technology and fiber networks was driven, in part, by the CPUC’s regulatory authority over voice service. But the CPUC also has a legislative mandate to bridge the digital divide in California and bring fast, reliable and affordable broadband service to all Californians. It also has a new responsibility to monitor AT&T’s and Frontier’s compliance with Connect America Fund commitments.

The CPUC should hold AT&T and Frontier to account for everything they do, not just those things they choose to talk about.

Big telecom gets bigger while the small get teeny tiny, part 2

FacebookTwitterGoogle+PinterestLinkedInRedditEmail

Size matters in the telecoms business. That’s true when success is measured by broadband subscriber counts, as I explored in yesterday’s post, and it’s true for share prices too. Some companies might be heading for a very hard landing.

It’s the small and mid-sized telephone companies that are in the roughest shape. CenturyLink’s share price is down 41% since this time last year, which is the best of the middle of the pack. Its purchase of Level 3 Communications seems to be slowing its descent. The picture is much worse for Windstream (down 73%) and Frontier Communications (down 82%). That’s led to speculation that complete collapse might be just over the horizon, according to a story by Joan Engebretson in Telecompetitor

“The market anticipates that both these companies will go bankrupt in the not-too-distant future, judging by their sagging bond prices and nosebleed credit default swap prices,” said [MoffettNathanson financial analysts]…

Frontier’s issue, according to the researchers, is that in the residential and small to medium business market, it is competing using mostly obsolete copper assets against technologically superior cable HFC and wireless. And CenturyLink faces the same issue in those markets, although that company is not so reliant on those markets.

In the residential and SMB market, however, “the competitive endgame is preordained,” the analysts wrote. “The telcos are destined to lose this one.”

By comparison, the big telcos are performing pretty well, although not at the same level as the two cable giants. Comcast (up 15%), Charter Communications (up 22%) and Verizon (up 2.4%) have all seen their share prices increase over the past year. AT&T is the exception, with its share price dropping 5.4% over the past 12 months. But it’s still pursuing its troubled takeover of Time Warner, which has knocked its valuation around. At its most recent peak, before the feds dropped the hammer on the deal, AT&T’s stock market performance over the past year looked a lot like Verizon’s.

Although most small cable companies are still gaining broadband subscribers at least to a degree, the industry-wide downward trend in video subscriptions is hurting their business model. Their future upgrade paths – a choice between costly fiber to the home rebuilds or less pricey but less capable DOCSIS 3.1 technology upgrades – create uncertainty. Altice USA, which is also plagued by doubts about its rapid acquisition and expansion strategy, has lost 42% of its stock value since it started trading separately from its European parent company last June.

Consumers chase better broadband, ditching small companies and old tech

FacebookTwitterGoogle+PinterestLinkedInRedditEmail

Cable companies are widening their lead over telcos in the battle for broadband market domination. According to a tabulation by FierceTelecom that tracks the top 15 wireline broadband companies, cable companies picked up a net gain of 2 million broadband subscribers, while telcos lost 430,000 during the first nine months of 2017.

One clear trend: whether it’s the cable or telephone side of the ledger, the big are getting bigger, and the small are struggling.

Looking just at the third quarter – July through September – Charter Communications was the cable company gaining the most, adding 249,000 net new broadband subs, but Comcast wasn’t far behind, with a bump of 214,000 subs.

That’s pretty much the cable industry. The next three biggest – Cox, Altice and Mediacom – had a combined net gain of just 66,000 subs, while the two smallest on the list, Wow and Cable One, lost a combined total of 5,000 broadband subs.

It’s a similar story for telephone companies. AT&T and Verizon gained 125,000 and 66,000 broadband subs respectively, while every other telco lost wireline customers. CenturyLink was hit the hardest, losing 101,000 subs, while Frontier bled 63,000 subs. The small fry – Windstream, Consolidated, TDS, Cincinnati Bell and Hawaiian Telecom – also saw declining broadband subscriber counts in the third quarter.

A harder look at AT&T’s and Verizon’s numbers points to the problem. Both companies lost legacy DSL customers – 96,000 and 76,000 subs respectively – while gaining with advanced DSL and fiber-based service. Cable’s overall advantage, as well as the gap between the gainers and losers, is likewise explained by technology. According to FierceTelecom, “cable’s aggressive DOCSIS 3.1 rollouts, which enable operators to deliver 1 Gbps over existing HFC infrastructure, continue to make cable a force telcos find hard to compete with on the speed front”.

Comcast, AT&T and Verizon have the capital to pursue upgrade strategies. Charter does too, although its strategic thinking is also driven by regulatory requirements imposed when it bought Time Warner Cable last year. Cox seems to be holding its own, although as a privately held company it doesn’t disclose much. The rest have a harder road ahead, and there’s no guarantee they’ll make it to the end.

California muni broadband battle continues, with or without federal advice

FacebookTwitterGoogle+PinterestLinkedInRedditEmail

Even if it’s adopted as is – and it’s as likely to get worse as it is to get better – a wish list of muni-stomping broadband policy drafted by a Federal Communications Commission advisory group, and echoed by the FCC majority, probably won’t have much impact in California.

That’s not necessarily good news for Californian cities and counties, though. One of the recommendations – grant cable franchises on a statewide basis with an impossibly light and delicate regulatory touch – has been law here for more than ten years. Cable companies pushed through the Digital Infrastructure and Video Competition Act (DIVCA) in 2006 and now answer to no one.

Local control over permits for wireless facilities – on private property or in the public right of way – has been steadily eroding and mobile carriers, as well as telephone and cable companies, continue to keep the pressure on in Sacramento. They’ll be back next year looking for on-demand access to city and county owned assets, such as light poles or land, at below market rental rates. Senate bill 649, which was passed by the legislature this year but was vetoed by governor Brown, would have done all that. Brown wasn’t fundamentally opposed to the idea, he just thought the bill went a bit too far. That’s an open invitation to try again, with some of the rough edges sanded off.

The third major recommendation was to kill muni broadband systems, and give away muni fiber to incumbents so they wouldn’t suffer the horrible pain of competition. That would be difficult in California. The California constitution gives cities, particularly charter cities, a considerable degree of autonomy. Even though full service muni broadband systems are relatively rare here, they do exist. And the number of muni dark fiber systems is growing. Trying to claw back that authority would be difficult, legally and politically.

But that doesn’t mean they won’t try.

Frontier orders a California broadband subsidy sandwich

FacebookTwitterGoogle+PinterestLinkedInRedditEmail

The first application for construction (and maybe operations) subsidies from the California Advanced Services Fund (CASF) since the program was gutted by the California legislature landed in the hopper at the California Public Utilities Commission.

Frontier Communications is asking for a $1.8 million grant, without specifying how much, if anything, it’s willing to pay out of its own pocket. It wants the money to pay for a fiber to the home system in and around the remote San Bernardino County town of Lytle Creek…

Frontier’s proposed project will cover about 4.4 square miles and is a combination of middle-mile and last-mile infrastructure using Frontier’s existing poles and rights of way to deploy fiber-to-the-home (“FTTH”) facilities capable of providing High Speed Internet, Ethernet, and VoIP service with speeds of up to 1 Gbps download and 1 Gbps upload.

“Capable of” and “up to” are weasel words that incumbent telcos, like Frontier, put in ads and other marketing material with the intent of pulling the rug out from under consumers when they have the gall to ask for it. In its project summary, Frontier makes no promises about the service it will actually offer, or the price it will charge.

Frontier says it plans to serve 339 homes with the subsidy, which comes out to $5,300 each. But what Frontier doesn’t mention is that Lytle Creek is one of the blank spaces on its federally subsidised checkerboard. It’s sandwiched between areas where the Federal Communications Commission is paying for service at 10 Mbps down/1 Mbps up, which is below the otherwise federal standard of 25 Mbps down/3 Mbps up. The middle mile infrastructure that Frontier wants all Californians to pay for will support the promise, if not necessarily the reality, of modern service for some while condemning the rest to speeds consistent with 1990s DSL infrastructure.

The purpose of CASF is to extend the benefits of 21st century broadband service to all Californians. Frontier’s Lytle Creek proposal might do that for some. Before writing the check, the CPUC needs to make sure it will deliver it to all.

Mobile industry group calls for less 5G hype while standards are established

FacebookTwitterGoogle+PinterestLinkedInRedditEmail

A European trade group wants more 5G coordination and less marketing misdirection, while at the same time AT&T is running as fast as it can in the opposite direction. On the one hand, it’s an interesting contrast between the technocratic central planning that European telecoms companies often take comfort in (and often ignore, when it suits them), and the Wild West, grab-it-while-you-can ethic of the U.S. mobile industry.

On the other, it’s a useful reminder that the overheated press releases and aggressive lobbying by U.S. mobile companies, and AT&T in particular, does more than just confuse consumers and policy makers. It also creates needless distractions and delays for technology and infrastructure that relies on international standards and a global supply chain.

The 5G Infrastructure Association is a creature of the European Commission, one of the main governing branches of the European Union. It’s job is to coordinate development, trials and, eventually, full roll out of 5G mobile technology and networks across Europe. It released its latest road map earlier this week, showing true commercialisation of 5G technology coming sometime after 2020, and warning carriers that “it is very important to avoid premature ‘5G’ launch announcements and the subsequent potential fragmentation among the different countries, which would hurt both industry and consumers”.

It’s no shock that an E.U.-sponsored group is calling for more coordination and consumer protection – it’s what they do. Nor is it a surprise that AT&T is completely ignoring them – it’s what they do. The tension between the two helps maintain a balance between innovation and cooperation, both of which are indispensable to the telecommunications industry.

What’s not necessary, though, is misleading hype. More industry groups should follow the 5G Infrastructure Association’s lead and insist on clarity and truth in labelling. Facts are important.

More people, more fire hazards, more damage costs for utilities, at least for now CPUC says

FacebookTwitterGoogle+PinterestLinkedInRedditEmail

San Diego Gas and Electric’s shareholders will have to pick up the tab for $379 million of the $2.4 billion worth of damage (and legal fees) caused by a series of wildfires in 2007. Yesterday, the California Public Utilities Commission unanimously approved a draft decision by an administrative law judge that assigned the blame to SDG&E because, as commissioner Carla Peterman put it, SDG&E “failed to meet its burden to prove it was a prudent manager”.

That means SDG&E can’t pass the cost on to ratepayers, via a proposed $1.67 per month add on to bills for six years.

There was some discomfort with the decision, though. Some commissioners believed they were put in a straightjacket by California law and court decisions, and suggested the legislature could, or should, act to give them more discretion. Commission president Michael Picker said that while yesterday’s decision was about a particular set of circumstances, the real problem is much larger…

The number of people who are choosing to live in areas that we now know to be elevated fire hazard or extreme fire hazard is growing. That area is actually growing as we get more information about the impact of climate change. The fuel area has grown from about 31 thousand square miles of California to 77 thousand square miles of California. That’s almost 42% of the state’s landmass. Add to that the fact that as people move into these areas which are growing in terms of the severity of the hazard and we see more and more severe wind storms and lightning storms, happening more frequently here in California, we also know that those people demand and have a right to have both electric and telecommunications as they move into those fire hazard areas. So this is becoming an increasingly complex area for us.

Here, the decision that we have to make is about whether the utility or the ratepayers should be responsible for the financial cost associated with these very specific fires. What we talk about here may or may not have any precedence on any future fire issues that come before us.

This fall’s wildfires were even more destructive and, particularly, have put PG&E in the crosshairs. No causes have been established or blame assigned yet, but there’s a clear possibility that PG&E will take the hit for billions of dollars in damages. Particularly if the same law, logic and court decisions that drove yesterday’s decision are applied.

Mobile data traffic forecast says seven-times growth in six years

FacebookTwitterGoogle+PinterestLinkedInRedditEmail

Mobile data traffic growth will continue on a hockey stick trajectory, according to Ericsson’s latest Mobility Report. North American smartphone users will, on average, be consuming 7 gigabytes of data per month by the end of this year, and by 2023 will be burning through 48 GB per month, the most of any region.

This growth is the reason that mobile carriers are pushing hard to increase the density, and consequently the capacity, of their networks. Equipment upgrades – from 4G to 5G technology – will help, but the big gains will come from putting more and more cells into a given space. At least in urban and suburban areas with sufficient return on investment potential.

Video is still the killer app – literally, given the impact traffic growth will have on 4G networks. Ericsson estimates that video will account for about 75% of usage in 2023 – that’s about 36 GB per month, more than a gigabyte a day, for North American smartphone users. Smartphones will increasingly be the device of choice for video viewing, at higher and higher levels of resolution…

The emergence of new applications and changes in consumer behavior can shift the forecast relative traffic volumes. Streaming videos in different resolutions can impact data traffic consumption to a high degree. Watching HD video (1080p) rather than video at a standard resolution (480p) typically increases the data traffic volume by around 4 times. An emerging trend with increased streaming of immersive video formats, such as 360-degree video, would also impact data traffic consumption. For example, a YouTube 360-degree video consumes 4 to 5 times as much bandwidth as a normal YouTube video at the same resolution.

Another driver is an increasing preference among consumers for on-demand and catch-up TV over scheduled linear TV viewing. Consumer research indicates that as early as 2020, half of all TV and video viewing will be done on a mobile screen.

Worldwide, total mobile data traffic will grow from 14 exabytes to 110 EB per month by 2023 (an exabyte is one billion gigabytes), and from 2.6 EB to 18 EB in North America alone, a seven-fold increase.

AT&T turns good 4G tech into bad 5G hype and worse public policy

FacebookTwitterGoogle+PinterestLinkedInRedditEmail

Minneapolis is AT&T’s latest case study in deceptive, but well-lawyered, public statements. According to a company press release, AT&T is rolling out something that a casual reader might think is 5G…

Minneapolis is one of 20 markets where we plan to bring AT&T 5G Evolution by the end of the year, with this technology already available in parts of Austin and Indianapolis today. 5G Evolution offers customers a taste of the future of entertainment and connectivity on their devices.

In 5G Evolution markets, we upgrade cell towers with network upgrades that include ultra-fast LTE Advanced features like 256 QAM, 4×4 MIMO, and 3-way carrier aggregation.

If you didn’t know that LTE Advanced is 4G technology, you might think that 5G Evolution gets you 5G service on a 5G network. It doesn’t. As AT&T is careful to note, “5G standards are still being finalized”.

It’s a bit of misdirection that’s in line with AT&T’s marketing and lobbying style, similar to its fiber umbrella branding and mislabeling copper-based DSL as fiber-to-the-home service.

The research and development work, including field trials like the one in Minneapolis, that AT&T, Verizon, T-Mobile and Sprint are doing is critical to the eventual deployment of 5G networks. They need room to expand their 4G networks right now. But they also need to be called out when they deliberately try to confuse the two in order to stampede policy makers into giving away publicly-owned property, abandoning responsible management of public right of ways and ignoring valid community standards.

AT&T and the other mobile carriers have a legitimate claim to use public assets to expand and upgrade their networks as market demand continues to increase. They also have a responsibility to be honest about it. Conflating 5G R&D with 4G upgrades is deliberately misleading and should not be rewarded by policy makers.

Justice department picks up free market ball as FCC drops it

FacebookTwitterGoogle+PinterestLinkedInRedditEmail

Cable and phone companies may soon be free of any obligation to meet common carrier standards of behavior, but that doesn’t necessarily mean they can exert their monopoly muscle on the broadband market without fear of consequences.

Last week’s other big broadband story offers hope of an even more effective counterweight to broadband monopolies: anti-trust law. When the federal justice department sued to block AT&T’s takeover of Time Warner, it made a clean break from recent practice and went after the root cause of the problem – pursued a structural remedy – instead of nibbling around the edges with temporary and often tangential behavioral restrictions on the companies. It’s a strategy – and philosophy – outlined in a recent speech to the American Bar Association by Makan Delrahim, the new assistant attorney general in charge of anti-trust enforcement…

Like any regulatory scheme, behavioral remedies require centralized decisions instead of a free market process. They also set static rules devoid of the dynamic realities of the market. With limited information, how can antitrust lawyers hope to write rules that distort competitive incentives just enough to undo the damage done by a merger, for years to come? I don’t think I’m smart enough to do that.

Behavioral remedies often require companies to make daily decisions contrary to their profit-maximizing incentives, and they demand ongoing monitoring and enforcement to do that effectively. It is the wolf of regulation dressed in the sheep’s clothing of a behavioral decree. And like most regulation, it can be overly intrusive and unduly burdensome for both businesses and government.

The justice department’s complaint called out the problem. When Comcast bought NBC-Universal – a similar deal – the justice department and the Federal Communications Commission extracted promises of good behavior. Some targeted direct, anti-competitive problems, while others went after unrelated side benefits, like discounted broadband rates for low income households. But it won’t matter much longer whether those promises did any good: they all expire next year. Comcast will be free to be, well, Comcast.

The justice department is taking a better approach with AT&T and Time Warner. It’s trying to avoid damage, rather than ineptly mopping up around the edges. The same thing happened with CenturyLink’s takeover of Level 3 Communications. The combined company is giving up dark fiber strands on 30 key long haul routes. It’s arguable whether that’s sufficient, but it is a structural cure aimed at preventing a monopoly from forming. The contrast with the weak and irrelevant behavioral conditions imposed by the California Public Utilities Commission is stark.

The broadband market in the U.S. is mostly a mix of outright monopolies and cozy duopolies, which are themselves collapsing into monopolies as cable companies outstrip telcos’ ability to deliver broadband at the federal advanced services standard of 25 Mbps download and 3 Mbps upload speeds. The Federal Communications Commission is determined to let that happen. With its new found zeal for trust busting, the justice department is the unexpected last line of defence.