Tag Archives: monopoly

Open access fiber drives down consumer broadband prices in New Zealand

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A national project to build fiber-to-the-premise infrastructure and offer it to any Internet service provider on a wholesale basis began in New Zealand in 2011, with an initial goal of reaching 75% of Kiwi homes and businesses. According to a study done by International Data Corporation, a research firm, and sponsored by Spark, the biggest NZ reseller of FTTP service, the build out has reached about 65% of NZ premises, and the goal is now to reach 87% by 2022.

A total of 92 resellers are using the wholesale network to offer retail service. The resulting competition resulted in a drastic drop in retail prices, according to the report

New Zealand telecommunication’s structural separation and national broadband plan have created new constructs and market dynamics. The [Ultra Fast Broadband] initiative has commoditised fibre in New Zealand. Consumer fibre plan prices have plummeted from averaging over NZ$200 per month in 2013 to around NZ$85 per month as at February 2018.

In U.S. dollars, that’s a drop from $144 (or more) per month in 2013 to $61 per month now.

The report questions whether the current level of competition can be sustained. But it also shows that there’s a big gap between the a long tail of small competitors and the handful of market leaders who, presumably, have staying power. Five companies own 91% of subscribers, and all have complementary businesses that share much of the operating costs, including marketing and subscriber management. One is Spark, which is the legacy telephone company in New Zealand, two are mobile carriers – Vodafone and 2degrees – and two are energy companies.

Even if there’s a huge cull amongst the remaining 86 providers, the level of competition will remain high. Five companies competing to offer gigabit class Internet service for $60 or so a month is a robust market, far more competitive than the monopoly/duopoly conditions in nearly all of the U.S..

15 Mbps is the holy grail for 4K video

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Different online video companies put it differently, but the net result is the same: if you want to watch 4K streaming video – aka ultra high definition – you need a broadband connection that reliably delivers 15 Mbps and has enough head room to support whatever other Internet traffic is passing in and out of your house.

A story by Rob Pegoraro in USA Today provides a run down of the 4K bandwidth recommendations from the two big dogs in the over-the-top video game…

  • Amazon says “you need an Internet connection of at least 15 Mbps to watch videos in UHD”.
  • Netflix recommends “an internet connection speed of at least 25 megabits per second to stream Ultra HD titles”. But it also says you’ll burn through 7 gigabytes an hour of your data cap. Taking rounding into account, that’s the same as saying you need a steady stream at 15 Mbps over the course of that hour.

Given that Internet service providers don’t really promise to deliver a particular service level – typically, speeds are offered up to a certain level – a 15 Mbps download package won’t cut it. So Netflix’s 25 Mbps recommendation is a little more realistic, assuming you’re the only person in your home and you turn everything else off.

That rate coincides with the Federal Communications Commission’s 25 Mbps down/3 Mbps up standard for advanced services capability.

It’s also where the market is heading. Big cable companies, which typically offer download speeds starting at 60 Mbps and frequently climbing to 200 Mbps or more, own 61% of U.S. broadband subscribers. Telcos, which have a 34% market share, struggle to get to 25 Mbps on even recently upgraded and well maintained copper systems.

With 4K television sets expected to be in half of U.S. homes by the end of next year, the gap between cable and telco market share, and the gap between cable-rich urban and telco-monopoly rural areas – will continue to grow.

Cable’s broadband monopoly profile sharpens with 2017 results

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Share of U.S. broadband households, as of 31 December 2017. Source: Leichtman Research Group.

Comcast and Charter own half of U.S. residential broadband subscribers, and their share of the market – if you want to call it that – is growing. That’s one of the conclusions gleaned from a tabulation of year-end 2017 financial reports by Leichtman Research Group. As with a similar count by FierceTelecom, the numbers show telcos continue to bleed subscribers profusely, while cable – and the overall broadband universe – keep on growing.

Leichtman’s report was published before Wow cable released its final 2017 financial results, so I added those into the totals. Over the course of 2017, the top cable companies added 2.7 million broadband subscribers, while the top telcos lost 626,000 subs. Big cable’s share of the, um, market was up a point to 61%, while the largest telcos lost a point, dropping to 34%.

Overall, the race for broadband customers is down to a two and a half horses. Comcast has 26% and Charter is behind by a nose at 24%. Their combined 50% share (after rounding) is up from 48% at the end of 2016.

AT&T was the only other broadband provider to hit double digits, with 16% of U.S. broadband households. It was also the only big telco to show growth in broadband customers – fiber-to-the-home gains offset DSL loses, producing a net increase of 114,000 subs. Cincinnati Bell, a much smaller fry, was also in the black, adding 5,500 subs. All the other big telcos – Verizon, Frontier, Windstream and FairPoint – ended 2017 with fewer broadband customers than they started it with.

The top providers – seven cable companies and seven telcos – account for 95% of U.S. broadband households, according to Leichtman. Since it’s a choice between one cable and one telephone company, at most, for any given home, it’s technically a duopoly. But one with a junior partner who is on the ropes. Factor in cable’s overwhelming superiority in the 25 Mbps down/3 Mbps up and better category – the minimum federal standard for modern broadband service – and it looks more and more like a one player game.

If it prices like a monopoly, slams and crams like a monopoly and shows a monopoly’s lack of respect to its customers, then it’s a monopoly.

Cable wins the broadband market fight, telcos lose. Again

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The U.S. cable industry’s broadband subscriber count grew by 1.7% in the last quarter of 2017, while telephone companies continued to lose customers. That’s the top line from a tally by FierceTelecom of 15 of the 16 largest Internet service providers (Wow Cable hasn’t reported yet, although check the link – FierceTelecom will be updating its numbers). It’s a trend that continued throughout 2017.

In total, cable companies added 918,000 Internet subscribers, while the telco loss was a bit more than 7,000 subs – negligible in terms of percentage, but a significantly bad result in a growing market.

There are six cable companies and nine telcos on the list, with Comcast topping the chart at 22.8 million broadband subscribers, and Charter close behind with 22.5 million subs. A more distant third place goes to AT&T with 14.3 million subs, and Verizon came fourth with 12.0 million subs. All four added to their broadband subscriber counts in the final three months of last year, but not at the same rate. The two top cable companies increased their customer base by 1.4%, while the two big telcos only grew by 0.5%.

Further down the list, telcos start showing losses. CenturyLink lost 90,000 subs, Frontier shed 62,000 subs and Windstream’s loss was 11,000 subs.

The reason cable companies are gaining while telcos, in aggregate, are losing customers – despite a 1.1% increase for the broadband industry (or at least the big dogs) as a whole – is clear. AT&T reported that it gained 95,000 broadband customers overall, but that includes a loss of 76,000 DSL subscribers. Frontier lost both subscribers on both DSL and fiber to the home systems, but the bleeding was much heavier on the copper side of the ledger.

Speed matters. Although cable-based Internet service is not uniformly excellent, it is virtually always better than DSL service telcos can offer. It’s better than the federal advanced services standard of 25 Mbps download and 3 Mbps upload speeds, which only the top tier of copper-based telco systems can touch.

Wyoming’s legislature bows to telco, cable lobbyists, but not as deeply as California’s

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Following California’s lead, Wyoming lawmakers grabbed their ankles and took what cable and telco lobbyists gave them: a law that subsidises broadband infrastructure, but only to the extent that incumbents want. Even so, Wyoming is not buying into the 1990s service levels that lobbyists for Frontier Communications, AT&T, Comcast and Charter Communications bribed convinced Californian assembly members and senators to accept.

As described by Phillip Dampier in Stop the Cap, what started out as an effort to give communities the option of pursuing their own broadband projects turned into an incumbent right of first refusal, secretly rewritten by lobbyists for Charter and CenturyLink. Which prompted a sharp response from Cheyenne mayor Marian Orr…

The substitute bill is substantially different than the original bill. And it wasn’t posted on-line or anywhere for anyone except insiders to have access to. CenturyLink and [Charter] are bullies. It’s wrong, and they are hurting Cheyenne and other WY communities from gaining affordable access.

Orr pushed back, but it wasn’t enough. According to Karl Bode, writing in DSL Reports, Wyoming legislators approved the bill this week.

That said, Wyoming’s legislators did not completely prostrate themselves, as California’s did. If no private ISP is interested in serving a Wyoming community, even with subsidies, then a local government can step in.

Perhaps even more importantly, Wyoming’s residential broadband standard is pegged at 25 Mbps download and 3 Mbps upload speeds. That’s equal to the federal agriculture department’s minimum for rural communities, and the Federal Communications Commission’s benchmark for “advanced services” capability. In larger communities, the standard for business service is even higher – 50 Mbps down/5 Mbps up.

California’s lawmakers thought that was too generous. Blindly accepting the campaign cash poor mouth arguments offered by AT&T, Frontier and cable companies, they decided last year that 6 Mbps down/1 Mbps up is good enough for every Californian.

State of Wyoming, Senate File No. SF010, Economic diversification-broadband services

AT&T CEO explains why net neutrality is necessary

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Randall Stephenson, AT&T’s chief executive officer, offered a hell of good example of why he can’t be trusted to do the right thing and refrain from using his position as a dominant, monopoly-centric broadband service provider to benefit his equally hefty video content business.

In an interview with CNBC, Stephenson complained that his online competition is beating him up…

“Reality is, the biggest distributor of content out there is totally vertically integrated. This happens to be something called Netflix. But they create original content; they aggregate original content; and they distribute original content. They have 100 million subscribers,” Stephenson said on CNBC. “Look at Amazon. They’re doing the exact same thing. Amazon Studios, creating, aggregating, distributing; Google, YouTube, Hulu, this thing is prolific.”

Reality is, Stephenson has a choke hold on their necks. AT&T is a gatekeeper – for hundreds of thousands of Californians, the only gatekeeper – between those online video platforms and their subscribers.

He intends to make good use of that power, too. The “Internet bill of rights” that AT&T published, and claims to honor, conspicuously fails to include paid prioritisation on the list of network management tactics it promises not to use. Voluntarily promises not to use – there’s nothing preventing it from posting another version of what, reality is, a declaration of AT&T’s rights.

Even if all AT&T does is play the paid prioritisation game, it will gain a big competitive advantage over video platforms that don’t share the top-to-bottom supply chain control it hopes to gain from its proposed purchase of Time Warner’s content and distribution business. AT&T can raise the price of Internet fast lanes to the point where it forces the likes of Netflix and Amazon to either reimburse it for any profits lost to the competition they present, or concede the fight to DirecTv Now and other in-house content engines. Even if the established players can adjust, new video ventures would be blocked. High prioritisation prices won’t matter much to AT&T – it’ll just shift money from one pocket to another.

Reality is, what reality is.

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.