Tag Archives: monopoly

Cash for 2018 campaigns drives broadband decisions in Sacramento

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California lawmakers will tackle broadband issues in the coming year, but not ones that directly address the needs of businesses and consumers, or economic development goals of unserved communities. The hottest items will be reboots of two failed bills near and dear to the hearts of big telecoms companies.

Senate bill 649 was vetoed by governor Jerry Brown last October. It would have given mobile carriers, as well as telephone and cable companies, unlimited access to city and county-owned light poles, traffic signals and other vertical infrastructure at a token rental rate, far below market value. Brown said he liked the idea, but SB 649 went a bit too far. Talks are already underway between mobile interests and local agency representatives to see if there’s any common ground. If there isn’t, expect to see a nearly identical bill that’s trimmed just enough to pass muster with Brown.

Assembly bill 2395 was AT&T’s unsuccessful 2016 attempt to get permission to rip out rural copper networks and replace them with low cost and, often, federally subsidised wireless systems. AT&T’s wireless local loop technology can’t match the service provided by even mid-grade DSL, let alone the upgraded copper and fiber systems it installs in affluent neighborhoods, but that’s less of a problem now. Telco and cable lobbyists convinced lawmakers to pass AB 1665 and lower California’s minimum broadband speed standard last year, paving the way for rural broadband downgrades in 2018. AB 2395 will be back.

Don’t expect California to fill the regulatory chasm created by the Federal Communications Commission when it killed network neutrality rules last year. Any kind of broadband-specific consumer protection bill has little chance of making it through the California legislature next year. An Internet privacy bill – assembly bill 375 – died in a leadership committee this year, despite widespread and oh-so-sincere expressions of support from lawmakers.

Cable and telephone lobbyists killed AB 375, while moving SB 649 and AB 1665 through the California assembly and senate in 2017. This year, legislators will listen to them even more attentively: 2018 will be an expensive election year for candidates, and party leaders will be even less willing to upset big money donors.

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

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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

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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.

Justice department picks up free market ball as FCC drops it

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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.

Feds flex anti-trust muscle and sue to block AT&T-Time Warner deal

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The federal justice department challenged the proposed merger of AT&T and Time Warner in court yesterday, on anti-trust grounds. The problem, according to the justice department’s complaint (h/t to Brian Fung at the Washington Post for the pointer) is that if it owns the entire content creation-ownership-distribution chain, AT&T will use that market power to muscle out its competitors, – traditional linear distribution companies and emerging over-the-top players alike…

If allowed to proceed, this merger will harm consumers by substantially lessening competition among traditional video distributors and slowing emerging online competition. After the merger, the merged company would have the power to make its video distributor rivals less competitive by raising their costs, resulting in even higher monthly bills for American families. The merger also would enable the merged firm to hinder the growth of online distributors that it views as a threat to the traditional pay-TV model…

AT&T/DirecTV perceives online video distribution as an attack on its business that could, in its own words, “deteriorate the value of the bundle.” Accordingly, AT&T/DirecTV intends to “work to make [online video services] less attractive.” AT&T/DirecTV executives have concluded that the “runway” for the decline of traditional pay-TV “may be longer than some think given the economics of the space,” and that it is “upon us to utilize our assets to extend that runway.” This merger would give the merged firm key, valuable assets, empowering it to do just that.

The core problem, according to yesterday’s filing is the proposed combination of DirecTv, which, when combined with AT&T’s Uverse service, is the nation’s largest television distributor, and Time Warner’s Turner networks. That lends credence to reports over the past couple of weeks that federal anti-trust lawyers wanted AT&T to give up one or the other in order to avoid going to court.

AT&T isn’t backing down. It’s immediate response was to call the lawsuit “a radical and inexplicable departure from decades of antitrust precedent”.

Big cable, telcos bleed TV subs, but monopoly broadband pricing could be the cure

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It’s been a bad year for the traditional television subscription business. An analysis by Daniel Frankel in Fierce Cable shows that it’s not quite as awful as stock analysts expected, but it’s close and awful enough…

As earnings season has approached in each quarter of 2017, analysts have predicted the watershed moment where linear pay TV losses surpass 1 million customers.

The market came close in the always-volatile second quarter, losing 976,000 subscribers…

The top 10 publicly traded operators, which account for about 95% of the market, reported losses of around 398,000 video customers in the third quarter. Discounting gains made by virtual MVPDs DirecTV Now and Sling TV, these operators lost around 820,000 traditional pay TV users.

Factoring in the pay TV business’ record-breaking first-quarter subscriber losses of 762,000, the industry has lost around 2.5 million linear customers through the first three quarters of 2017.

Among the big players, the big losers were DISH Networks and Altice USA. Both lost about 1% of their traditional linear video subscribers in the third quarter of 2017. Aside from Cox, which is privately held and doesn’t publish its key subscriber metrics, the rest hovered around a half-percent loss – AT&T/DirecTv and Verizon just below that mark; Comcast and Charter just above it.

On the other hand, AT&T/DirecTv and DISH saw big gains in their over-the-top video services. AT&T reported a gain of 296,000 DirecTv Now subscribers and DISH is estimated to have added 113,000 Sling TV subs, according to the Fierce Cable story.

Cord cutting is changing the video game, although it’s too soon to start talking about the death of the linear TV subscription business model. The seven biggest operators still have close to 90 million subs. Taking a weighted average of the five companies that report revenue per subscriber (Verizon and Cox don’t), they’re getting about $123 per month per customer. That’s a total of $11 billion every month.

The trend is bad, though. The 2.5 million TV subscribers lost this year represent about $300 million a month in revenue. There will be pressure to replace it, and the first place to look is on the broadband side of the ledger. That’ll be tough for DISH, since it’s still a pure satellite play, but the rest sell – and price – broadband on a monopoly/duopoly basis. As TV viewing shifts to Internet-based services, consumer tolerance for higher broadband subscription prices will increase.

You can bet AT&T, Verizon, Comcast, Charter, Cox and Altice will test that tolerance, right up to the breaking point.

California broadband subsidies will be top down, incumbent focused

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The California Public Utilities Commission plans to take a more active role in deciding where and how broadband infrastructure will be subsidised, and to work more closely with incumbents in the process. Yesterday, commissioners discussed how they will run the California Advanced Services Fund (CASF) program under new rules adopted by the California legislature. Assembly bill 1665 was signed into law by governor Jerry Brown last month. It requires the commission to periodically designate which communities in California can receive CASF money, based on a slower minimum broadband speed standard – 6 Mbps download and 1 Mbps upload – that will slash the number of eligible households from 300,000 to just 20,000, according to one CPUC estimate.

Commissioner Martha Guzman Aceves, who is taking the lead on redesigning the CASF program, said she wants to set specific goals for broadband deployment and work with incumbent providers to achieve them…

The key one I really want to focus on is…the overarching program goals. It can really help us work on how we have this regional focus that is goal driven and certainly one of the things I’ll be mentioning that I want us to consider as one of those goals is to be driven in the areas of highest economic need…

With the federal CAF program and other dynamics there is going to be provider engagement. Again, as I mentioned, the example of Oroville, where you could actually work with Comcast and AT&T to expand to the unserved areas. So this is a new area, it’s one where I think we have a responsibility to really be engaged to ensure that that engagement is balanced.

Up until now, infrastructure projects were created at the local level, usually by independent broadband providers, and then proposed to the CPUC for CASF funding. Incumbents are equally eligible, but a couple of small Frontier Communications grants aside, preferred to either ignore the program, or complain bitterly with varying degrees of truth whenever an independent project was proposed.

AB 1665 flipped that process completely around, giving the CPUC responsibility for making the first-cut decisions on where projects should be built and putting incumbents at the head of the line for getting the money to do it.

That’s really not a reversal for the CPUC itself, though. As president Michael Picker noted, commissioners have wanted, to varying degrees, to proactively manage the CASF program rather than simply responding to proposals as they came in.

Guzman Aceves and communications division director Cynthia Walker outlined a timetable for completing the overhaul by next September. Until then, the plan is to continue funding projects from the $30 million that’s leftover from the old program. No details were given about that process would work though. In the past, the CPUC has tended to take the position that grant proposals are assessed on the basis of the rules in effect as of the application date, but there’s been no indication whether that’s the case now.

CPUC presentation, California Advanced Services Fund, 8 November 2017

FCC misses night and day difference between lit and dark fiber

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The Federal Communications Commission’s decision to allow CenturyLink to buy Level 3 Communications might have broken with merger review practices, but it is solidly in line with its past nonsense regarding wholesale broadband services. Earlier this year, the FCC justified backing away from common carrier regulation of business-to-business service with the circular argument that if ISPs – Comcast and Charter Communications, in particular – don’t follow common carrier rules, then common carrier rules don’t apply.

In its latest departure from logic, the FCC majority claimed that allowing a managed services-centric legacy telco to buy the nation’s largest independent fiber company wouldn’t harm the market for “long-haul transport service” because lit service and dark fiber are the same thing…

In conducting our review, we evaluate the competitive availability of long-haul transport considering both lit transport services and dark fiber, as we recognize dark fiber as a substitute for lit fiber transport services for purposes of our public interest analysis and there is no basis in our record to distinguish between lit and dark fiber transport.

There is, in fact, a huge difference between buying lit (or managed) service, where bandwidth quality, reliability, capacity and routing are determined by the provider, and leasing particular strands of dark fiber between two points and lighting it up with your own equipment.

The latest example of why that’s an important distinction came three weeks ago when the County of Santa Cruz lost internal connectivity and its primary link to the Internet during a major wildfire, due to an otherwise unrelated cut in an AT&T fiber line. County staff didn’t know that the direct connections between major sites they thought they were buying from AT&T were actually being routed through San Jose. A single misplaced chop by a road construction crew was enough to take it all down.

Dark fiber is also an essential building block for competitive service providers. When independent ISPs are forced to buy managed service on terms dictated by the monopolies they’re competing against, anything resembling a free market disappears. By ignoring this distinction and approving the CenturyLink-Level 3 deal with no thought given to the damage it will do, the FCC is whacking market competition, not regulatory weeds.

FCC limits scope of merger reviews as it okays CenturyLink-Level 3 deal

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CenturyLink can close its deal to buy Level 3 Communication, and will probably do so tomorrow. The Federal Communications Commission gave the final green light to the deal on Sunday, without imposing any significant conditions. The FCC’s decision amounts to a manifesto that lays out how the republican majority will sharply restrict its review of future mergers and acquisitions.

The previous democratic-majority FCC took a broad look at proposed mergers, sometimes imposing conditions aimed at extracting general public benefits, but not necessarily directly related to problems caused by the transaction itself. One example was the low price Internet package AT&T was required to offer to low income households when it was allowed to buy DirecTv.

In a statement, FCC chair Ajit Pai said such conditions are a thing of the past…

This is in line with past pronouncements by the Commission that we will use conditions “only to remedy harms that arise from the transaction (i.e., transaction-specific harms)” and that are “related to the Commission’s responsibilities under the Communications Act and related statutes,” and we “will not impose conditions to remedy pre-existing harms or harms that are unrelated to the transaction.”

For the CenturyLink-Level 3 deal, the FCC found those transaction-specific harms to be virtually non-existent. The sole condition it attached to its approval was a five year price freeze on business services in 10 buildings scattered across the U.S. (but none in California), where Level 3 and CenturyLink both serve customers. That’s out of 4,600 buildings where the two companies currently compete.

The loss of an independent dark fiber competitor to a legacy telco with a monopoly-centric focus on lit services isn’t a problem, according to the FCC decision, because 1. there’s no meaningful difference between dark fiber and lit service and 2. the federal justice department took care of any imaginable problems by requiring the new company to lease out 24 dark fiber strands on 30 particular intercity routes, including five in California.

Pai and the other two republicans on the commission, Michael O’Rielly and Brendan Carr endorsed the decision; democrats Mignon Clyburn and Jessica Rosenworcel disagreed with it, to one extent or another.

California broadband subsidy program heads for the deep freeze

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With the stroke of a pen, governor Jerry Brown transformed the California Advanced Services Fund (CASF) into a piggy bank for AT&T and Frontier Communications. Carve outs for federally subsidised service areas and the right of first refusal on unserved areas give them an opportunity to claim CASF money for the projects they want to do, and block independent projects virtually everywhere else in their service areas.

Going forward, two questions need to be answered: what will happen to pending CASF infrastructure grant applications and how will the California Public Utilities Commission implement the new rules?

Earlier this year, the CPUC went through a preliminary information gathering exercise, in anticipation of assembly bill 1665 becoming law. No conclusions were reached, but one can hope that action will come faster than the 14 months it took to get from the last legislative rework of the CASF program to the first applications accepted under it. Technically, that application window is still open and a project proposal could still be submitted but, given that AB 1665 took effect immediately, there’s no clear path for review and approval.

The same is true for the four pending CASF grant applications. One, in the Kennedy Meadows area in the southern Sierra was submitted by the Ducor Telephone Company is on reasonably firm ground, at least from a statutory perspective. Ducor is a small rural incumbent telco, and has the same rights as Frontier and AT&T in its very limited service area.

But the other three – Surfnet in Santa Cruz County, Renegade in Santa Barbara County and the second phase of the Connect Anza project in Riverside County – are less certain. Past practice indicates that those applications should be evaluated under the rules in effect when submitted. But all three are, to one extent or another, in Frontier’s newly protected service area. Frontier tried to stop a San Bernardino County project by falsely claiming 1. they would have the entire area upgraded by August (they didn’t) and 2. that protecting federally funded areas was already California policy (it wasn’t); it is safe to assume that opposition to the pending projects will be just as fierce and disingenuous.

The only certainty is that nothing will happen quickly. Two of those projects – Surfnet and Ducor – have been stuck in the evaluation process for more than two years, despite a CPUC time limit of three and a half months for such reviews.

The days of big, state-subsidised independent broadband projects are over in California.