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A Month After Maria Hammered Puerto Rico, Most Utilities Still Down

As Puerto Rico approaches the first month anniversary of Hurricane Maria, only small amounts of incremental progress have been made restoring the island’s telecommunications networks badly damaged by the storm.

Wireless Service

According to the Federal Communications Commission, 75.3% of Puerto Rico’s cell towers are still out of commission and many of those restored to service are functioning on generator backup, often using portable cell tower infrastructure that offers a fraction of the coverage area normal service used to provide. The majority of restored towers are in the immediate vicinity of San Juan, while many other parts of the island remain totally without service. Claro, a Mexican-owned cell company that used to offer the best coverage across Puerto Rico still remains the most reliable after the storm. All four wireless companies operating in Puerto Rico are offering free roaming to customers so as towers are restored to service, the companies can provide coverage to as many residents as possible.

Satellite Cells on Light Trucks (COLTs) have been deployed in Aguadilla, Arecibo, Cayey, Caomo Sur, Fajardo, Guayama, Manati, Mayaguez Mesa, San German, Vega Baja, and Yauco and Terrestrial Cells on Wheels (COWs)/COLTs in Humacao, Quebradillas, Rio Grande, and Utuado.

The FCC believes approximately 61% — one percent higher than last week — of the population can now get some cell signal. But that figure is slightly misleading because the largest percentage of the population lives around or in San Juan, the city with the best service restoration so far.

In contrast, most cell sites in Texas, Louisiana, Mississippi, Alabama, Georgia, and the Florida Panhandle affected by two earlier hurricanes were restored to service within two weeks. Cellular providers point out the reason for the difference is the availability of commercial power and reliable backup generators, both not widely available in Puerto Rico even now.

The U.S. Virgin Islands, also devastated by Hurricane Marie, are also struggling with repair efforts. At least 55.4% of cell towers are out of service on those Caribbean islands, with 88.9% still down on St. John, the smallest of the three islands that make up the U.S. territory. Because repair efforts have been more effective on the other two islands, about 88% of the territory can now get a cell signal.

Electricity

NBC News reported today that 17.7% of Puerto Rico now has electricity, but it is very unreliable and there are daily outages that sometimes extend for hours. The Army Corps of Engineers hopes to have in place by next week — more than a month after Hurricane Maria made landfall in Puerto Rico — two 25-megawatt generators at a plant in San Juan to help stabilize electricity there. The generators arrived Oct. 13, and a target date of Oct. 25 may be missed because of ongoing inclement weather. Once installed, the generators will extend electricity to about 30% of the island — mostly in the northeastern section around San Juan — and stabilize power for those who already have it.

The government is prioritizing electricity restoration for public safety and hospitals, public/government institutions including sewage and water treatment plants, schools, and then the island’s large pharmaceutical industry, which own several large drug manufacturing plants.

The order of priority the government is giving to service restoration is upsetting Claro, one of the island’s largest cell companies.

“Businesses and the government itself can hardly operate efficiently without an appropriate telecommunications structure,” said Claro representative Pedro Andrés. “For example, without telecommunication services the bank could not operate and that means that there would be no access to money for people, businesses could not handle electronic transactions, medical plans would not work and suppliers could not dispatch. That is, the country would be paralyzed.”

Andrés wants the power authority to make sure that electric service is restored to cell towers as soon as practical.

Residents are being told they can expect 95% electricity service restoration by Dec. 15.

Cable and Telephone

Liberty Cablevision of Puerto Rico is only working for about 1% of its customers, so it is focusing on offering free Wi-Fi hotspots for now.

Diesel generators are currently powering some of the island’s 911 service centers, which are now back up and running normally.

Cable service remains basically non-existent in Puerto Rico because of the lack of electricity. Liberty Cablevision of Puerto Rico has reported it has restored full service to about 1% of its customers, although a significantly higher number will have service back immediately after electricity is restored. Liberty promises automatic service credits for the duration of the outage and has told customers to ignore billing that was already in the mail when the storm hit. Liberty is currently focused on reaching and retaining the goodwill of its customers with a network of free Wi-Fi hotspots.

The island’s landline provider reports there are six central switching offices out of service on the island and there are problems connecting long distance calls.

Broadcast Media

The following TV stations are confirmed operational: WKAQ, WIPR, WIPN, WTIN, and WNJX, but these nine are still off the air: WAPA, WIPM, WTCV, WUJA, WELU, WECN, WRSV, WORO, and WRUA.

As of today, 44 AM radio stations are confirmed to be on-the-air: WA2XPA, WALO, WAPA, WBMJ, WBQN, WCMN, WCPR, WDEP, WENA, WEXS, WGDL, WI2XAC, WI2XSO, WI3XSO, WIAC, WIDA, WIPR, WISO, WJIT, WKAQ, WKFE, WKJB, WKUM, WKVM, WLEO, WLEY, WMDD, WMNT, WNEL, WNIK, WOIZ, WOLA, WPAB, WPPC, WPRA, WPRP, WQII, WSKN, WSOL, WTIL, WUKQ, WUNO, WVJP, and WXEW.

These 29 AM radio stations are confirmed out of service: WABA, WBSG, WBYM, WCGB, WCMA, WDNO, WEGA, WFAB, WGIT, WHOY, WIBS, WISA, WIVV, WLRP, WMIA, WMSW, WNVI, WOQI, WORA, WOSO, WQBS, WRRE, WRSJ, WRSS, WUPR, WVOZ, WYAC, WYEL, and WYKO.

There are 36 FM radio stations back on the air: WAEL-FM, WCMN-FM, WEGM, WERR, WFID, WIDA-FM, WIDI, WIOA, WIOA-FM1, WKAQ-FM, WLUZ, WMAA-LP, WMEG, WNVM, WODA, WORO, WOYE, WPRM-FM, WPUC-FM, WPUC-FM1, WQML, WRIO, WRRH, WRTU, WRXD. WTOK-FM, WUKQ-FM, WVDJ-LP. WVIS, WVJP-FM, WXLX, WXYX, WYQE, WZNT, WZNT-FM1, and WZOL.

But these 22 FM radio stations are still out of service: W227CV, WCAD, WCAD-FM2, WCRP, WELX, WFDT, WIOC, WIPR-FM, WJDZ, WMIO, WNRT, WNVE, WQBS-FM, WTPM, WVQR, WXHD, WYAS, WZAR, WZCA, WZET, WZMT, and WZOL-FM3.

T-Mobile/Sprint Merger Approval May Depend on GOP Maintaining Majority in Congress

As the wireless industry awaits an announcement that T-Mobile and Sprint have an agreement to merge, some on Wall Street are skeptical the merger deal will win approval, especially if Republicans lose their majority in the House and Senate in the 2018 mid-term elections.

Matthew Niknam of Deutsche Bank has warned his clients any merger deal not approved by next November is more likely to fall apart if  Democrats take back control of Congress:

“There also may be greater incentive for both sides to evaluate a potential deal sooner rather than later, given the risk that deal approval may slip beyond mid-term elections in late 2018 (with the risk that more populist/less corporate-friendly sentiment may become more pervasive in D.C.) In fact, we note that the Democrats’ ‘Better Deal’ agenda (unveiled in July 2017, targeted towards 2018 elections) highlights ongoing corporate consolidation as a threat to U.S. consumers, and proposes sharper scrutiny of potential deals.”

Nikram writes there has not been a lot of interest by cable operators to acquire Softbank’s Sprint, which has been effectively up for sale or merger for at least a year.

Fierce Wireless notes Cowen & Company Equity Research last month suggested the chance of a merger between T-Mobile and Sprint was now 60-70%, down from 80-90% originally. The reason for the pessimism is their estimate that any deal’s chance of winning approval was only about 50%. The odds get even worse if the Democrats start to check the Trump Administration’s power.

Public policy groups and well-compensated industry opinion leaders are already preparing to wage a PR war over a deal that would reduce America’s major wireless carriers to just three.

Professor Daniel Lyons, well-known for writing pro-industry research reports defending almost anything on their corporate policy wish list, is hinting at a possible strategy by the merging carriers by suggesting neither could survive without a merger.

Most analysts predict that with just three national wireless carriers, the U.S. wireless marketplace would more closely resemble Canada — widely seen as more carrier-friendly and expensive.

Wall Street analysts are debating exactly how many tens of thousands of jobs will be lost in a merger, and the numbers are staggering.

Jonathan Chaplin of New Street Research predicts the merger would cost the country more jobs than now exist at Sprint.

He predicts “approximately 30,000 American jobs” will be permanently lost in a merger. Together the two companies currently employ 78,000 — 28,000 at Sprint and 50,000 at T-Mobile.

Craig Moffett of MoffettNathanson Research was more conservative, predicting 20,000 job losses would come from a merger. But the impact would not be limited to just direct hire employees.

“We conservatively estimate that a total of 3,000 of Sprint and T-Mobile’s branded stores (or branded-equivalent stores) would eventually close,” Moffett’s report said.

Golden parachutes will make some executives at Sprint and T-Mobile very wealthy if a merger succeeds.

Many T-Mobile and Sprint stores are located in malls and retail “power centers” where maintaining both stores would be unnecessary. Also hard hit would be wireless tower owners and those employed to care for them. Most believe Sprint’s CDMA wireless network would eventually be decommissioned in a merger, and many of its cell sites would be mothballed. Sprint’s biggest asset is its currently unused trove of high frequency wireless spectrum it could use to deploy future 5G services, but those services would likely be provided from small cells mounted on utility poles and street lights.

The biggest winners in any deal will likely be top executives at Softbank, Sprint, and T-Mobile, Wall Street banks providing deal advisory services and financing, and shareholders, who can expect higher earnings from a less competitive marketplace. Fierce competition from T-Mobile and Sprint were both directly implicated for threatening revenues for all four wireless companies, who have had to respond to aggressive promotions by cutting prices and offering more services for less money.

The Trump Administration’s choices of Ajit Pai for Chairman of the FCC and Makan Delrahim as United States Assistant Attorney General for the Antitrust Division of the Justice Department are both widely seen as signals the White House is not going to crack down on competition-threatening merger deals. Mr. Pai has recently improved the foundation for a T-Mobile/Sprint merger by declaring the wireless industry to be suitably competitive, something required before seriously contemplating reducing the number of competitors.

Eight Democrats sent a letter to the FCC chairman last week calling on both the FCC and the Justice Department to begin an investigation into the possible merger as soon as possible, citing possible antitrust concerns.

The text of the letter:

Dear Chairman Pai and Assistant Attorney General Delrahim:

We write to ask you to begin investigating the impact of a merger between T-Mobile International and Sprint Corporation. According to Pew Research, over three-quarters of Americans now own smartphones, driven by a 12 percent increase in smartphone ownership among adults over age 65 and a 12 percent increase in smartphone ownership in households earning less than $30,000 a year since 2015. Today, smartphones are not really just phones at all. For many, they are the primary connection to the internet. An anticompetitive acquisition would increase prices, burdening American consumers, many of whom are struggling to make ends meet, or forcing them to forego their internet connection altogether. Neither outcome is acceptable.

We believe that an investigation is appropriate for three reasons. First, aggressive antitrust enforcement benefits consumers and competition in the wireless market. Second, a combination of T-Mobile and Sprint would raise significant antitrust issues and could dramatically harm consumers. Third, although a deal has not been announced, the two parties have made repeated attempts to merge, and current reports suggest they are close to an agreement. Your agencies should be in a position to fully – but expeditiously – investigate and analyze this deal should it occur.

Competition among wireless carriers has lowered prices, increased quality, and driven innovation

Consumers have benefited from competition among the four national carriers, and we have effective antitrust enforcement to thank for that competition. In the summer of 2011, the Department of Justice’s (DOJ) Antitrust Division filed suit to block AT&T’s proposed acquisition of T-Mobile despite claims that T-Mobile was a weak competitor and, without the deal, remaining options “won’t be pretty.”  The FCC likewise outlined its opposition to the deal that fall. The deal collapsed, but T-Mobile did not. It competed. It spent billions improving its network, and it offered better terms; for example, it eliminated two-year contracts and data overages. It enticed customers to switch providers by paying their termination fees. And, its competitors had to respond in kind. As William Baer, former head of DOJ’s Antitrust Division, has explained, consumers have enjoyed “much more favorable competitive conditions” since that transaction was blocked.  In May 2017, the Wall Street Journal reported that cellphone plan prices were down 12.9 percent since April 2016, the largest decline in 16 years, and attributed the drop to “intense competition” among the top cell service providers: Verizon, Sprint, T-Mobile, and AT&T.  Paul Ashworth, chief U.S. economist at Capital Economics, specifically suggested that it was caused by the “price war that has broken out among cell-phone service providers, with all the big providers now offering unlimited data plans at cheaper rates.”

Further, the fact that T-Mobile and Sprint appear to be each other’s primary competitor raises additional concerns about this potential horizontal merger. That direct competition has particularly benefited lower-income families and communities of color, many of whom rely on mobile broadband as their primary or only internet connection.  Sprint and T-Mobile have offered products and service options that are more appealing to lower-income consumers. For example, T-Mobile was the first major carrier to offer a no contract plan,  and both Sprint and T-Mobile have been leaders in offering prepaid and no credit check plans, which allow people who may have poor credit to obtain a cell plan and ultimately access the internet.

A combination of T-Mobile and Sprint would raise significant antitrust concerns

Not surprisingly, when T-Mobile and Sprint first discussed a merger in 2014, both of your predecessors expressed skepticism. William Baer stated that “[I]t’s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers.”  Similarly, former FCC Chairman Tom Wheeler simply explained, “[f]our national wireless providers are good for American consumers.”

What is surprising, however, is that a few years later the two companies have revived their merger talks. Whether one looks at cellphone competition as a national market or as numerous local markets, T-Mobile’s acquisition of Sprint would very likely be presumptively anticompetitive. We are concerned that this consolidation would increase prices, reduce incentives to offer new plans, and allow the remaining carriers to curtail their investment in their networks. Further, given both companies’ focus on competing for lower-income customers, the combination of Sprint and T-Mobile could disproportionately harm those consumers. In addition to potentially raising retail prices, the remaining carriers are also likely to increase prices to companies like Straight Talk, which buys bulk access to one or more of the four national carriers and advertises almost exclusively to lower-income communities.

T-Mobile and Sprint will no doubt claim that the merger will leave sufficient competition, increase cost savings, and spur investment. The agencies will need to examine these issues in depth and make the ultimate determination as to whether the effect of such a deal would be to undermine or promote competition. The very complexity of the issues only further justifies the need for the agencies to begin examining the markets and investigating the competitive dynamics sooner rather than later.

Initiating an investigation is appropriate

Although the antitrust agencies often wait for an official filing before opening an investigation, nothing requires this delay. For example, in May, the Antitrust Division announced an investigation of the possible acquisition of the Chicago Sun-Times by the owner of the Chicago Tribune.  The two companies in question here have had a longstanding interest in combining, and, according to reports, an agreement between Sprint and T-Mobile may be weeks away.

Beginning an investigation into a merger of T-Mobile and Sprint now will allow your agencies to quickly, but fully, review the agreement if it is announced. Indeed, multiple news sources are reporting that the two parties are close to a deal in principle. The likelihood of the transaction occurring combined with the serious issues that it raises provide compelling reason for DOJ and the Federal Communication Commission to begin investigating the potential transaction.

For the reasons stated above, we urge you to begin to examine this potential transaction now. Competition among four major cell phone carriers has benefited consumers with lower prices, better service, and more innovation. We are concerned that consolidation will thwart those goals. Thank you for your prompt attention to this matter.

Sincerely,

Amy Klobuchar (D-Minn.)
Al Franken (D-Minn.)
Patrick Leahy (D-Vt.)
Richard Blumenthal (D-Conn.)
Ron Wyden (D-Ore.)
Kirsten Gillibrand (D-N.Y.)
Ed Markey (D-Mass.)
Jeff Merkley (D-Ore.)

T-Mobile Makes Deal With FOX Television to Relocate Channels to Boost Cell Coverage

WWOR advertises itself as My 9, but the station actually transmits over UHF channel 38 and will move to channel 25 early next year.

T-Mobile today announced a partnership with FOX Television Stations to hasten channel relocation to make room for the wireless carrier’s expansion of wireless service in the 600MHz spectrum it won at auction.

As part of the agreement, FOX-owned WWOR-TV in Secaucus, N.J., will vacate its current digital UHF channel 38 in early 2018, over a year sooner than originally planned. The station will move to UHF channel 25, but most viewers will still find the channel on virtual channel 9. T-Mobile will then bring new cell service online in metropolitan New York where WWOR’s signal used to be.

T-Mobile is aggressively trying to bring its valued 600MHz spectrum online as quickly as possible because it offers the carrier and its customers expanded coverage and better reception in indoor locations. Although the FCC has set an August 2019 deadline for stations to vacate and move their channels to make way for improved cell service, T-Mobile is offering incentives to get broadcasters to make the move well before that deadline.

Earlier this year, PBS and America’s Public Television Stations announced a similar partnership with T-Mobile. The wireless carrier has offered to pay the costs for a significant number of rural TV translators to move to new channel positions to make room for T-Mobile’s cell expansion.

“We’re committed to working with broadcasters across the country to clear 600MHz spectrum, so we can preserve programming and bring increased wireless choice and competition across the country,” said Neville Ray, chief technology officer at T-Mobile.

Working with the low power television outlets is a win-win solution for T-Mobile and the stations, because some budget-constrained stations may be required to change channel positions at least twice. There are concerns that the diminishing UHF TV dial may not have room to accommodate every TV station that wants to remain on the air.

Puerto Ricans Giving Up on U.S. Cell Phone Providers; Mexico’s Claro Has Best Coverage

U.S. cell phone providers are facing increasing criticism they are dragging their feet on restoring cell service in Puerto Rico while Mexican-owned Claro has now successfully restored service in 28 of the territory’s 78 municipalities.

Claro Puerto Rico, owned by Mexican billionaire Carlos Slim’s America Movil, has dramatically outpaced AT&T, T-Mobile, and Sprint in getting their damaged cell phone facilities back up and running. Claro is Puerto Rico’s second most popular cell company behind AT&T.

“Claro is the only one with service here,” Francisco Portales, 47, a customer of privately held Puerto Rico-based network provider Open Mobile told a Reuters reporter while waiting outside the Claro store in Fajardo hoping to buy a phone.

Looking for a signal.

The FCC’s latest update on Tuesday reported about 88% of Puerto Rico is still without cell service, but the agency does not break down network repairs by carrier, and American providers have declared their specific restoration plans to be confidential.

While AT&T complained the lack of commercial power remained its biggest problem, Claro said it had pre-positioned generators, diesel fuel, battery backups, and vehicles 72 hours before the hurricane hit, which appears to have made all the difference in restoring service.

Sprint said late last week its towers were still standing and “largely intact” although it gave no specific information on when service might be restored. T-Mobile was more frank, reporting “it’s going to be a long road to recovery.”

Claro is not taking advantage of its position as the island’s most reliable post-hurricane carrier, allowing customers of other providers to roam on its network where a signal is available. That may be all the good publicity Claro needs to win over new customers after the hurricane damage is repaired.

Claro’s repair trucks.

Mercedes Saldana, a 54-year-old school cafeteria worker and Sprint customer is just one of many now searching shops for a Claro prepaid phone.

“I don’t have any service, none,” she said. “We don’t know when Sprint’s going to be connected again.”

Customers unwilling to switch carriers and won’t roam may have long travel times ahead of them to find a signal. Luis Pacheco, 64, was planning to drive with his wife to Canovanas — 30 to 40 minutes west — in hopes of finding a cell signal to text his daughter in California. That is the nearest community where AT&T has a signal at the moment.

Before the storm, AT&T dominated Puerto Rico with a 34% market share, followed by Claro Puerto Rico with a 26% share. T-Mobile was third with 19%, Open Mobile has 11% and Sprint 10%. Verizon Wireless has no network facilities in Puerto Rico, but travelers with Verizon phones are granted roaming access on Claro’s network.

Internet’s Biggest Frauds: Traffic Tsunamis and Usage-Based Pricing

Providers’ tall tales.

Year after year, equipment manufacturers and internet service providers trot out predictions of a storm surge of internet traffic threatening to overwhelm the internet as we know it. But growing evidence suggests such scare stories are more about lining the pockets of those predicting traffic tsunamis and the providers that use them to justify raising your internet bill.

This month, Cisco — one of the country’s largest internet equipment suppliers, released its latest predictions of astounding internet traffic growth. The company is so confident its annual predictions of traffic deluges are real it branded a term it likes to use to describe it: The Zettabyte Era. (A zettabyte, for those who don’t know, is one sextillion bytes, or perhaps more comfortably expressed as one trillion gigabytes.)

Cisco’s business thrives on scaring network engineers with predictions that customers will overwhelm their broadband networks unless they upgrade their equipment now, as in ‘right now!‘ In turn, the broadband industry’s bean counters find predictions of traffic explosions useful to justify revenue enhancers like usage caps, usage-based billing, and constant rate increases.

“As we make these and other investments, we periodically need to adjust prices due to increases [in] business costs,” wrote Comcast executive Sharon Powell in a letter defending a broad rate increase imposed on customers in Philadelphia late last year.

In 2015, as that cable company was expanding its usage caps to more markets, spokesman Charlie Douglas tried to justify the usage caps claiming, “When you have 10 percent of the customers consuming 50 percent of the network bandwidth, it’s only fair that those consumers should pay more.”

When Cisco released its 2017 predictions of internet traffic growth, once again it suggests a lot more data will need to be accommodated across America’s broadband and wireless networks. But broadband expert Dave Burstein has a good memory based on his long involvement in the industry and the data he saw from Cisco actually deflates internet traffic panic, and more importantly provider arguments for higher cost, usage-capped internet access.

“Peak Internet growth may have been a couple of years ago,” wrote Burstein. “For more than a decade, internet traffic went up ~40% every year. Cisco’s VNI, the most accurate numbers available, sees growth this year down to 27% on landlines and falling to 15-20% many places over the next few years. Mobile growth is staying higher — 40-50% worldwide. Fortunately, mobile technology is moving even faster. With today’s level of [provider investments], LTE networks can increase capacity 10x to 15x.”

According to Burstein, Cisco’s estimates for mobile traffic in the U.S. and Canada in 2020 is 4,525 petabytes and in 2021 is 5,883 petabytes. That’s a 30% growth rate. Total consumer traffic in the U.S. and Canada Cisco sees as 48,224 petabytes and 56,470 petabytes in 2021. That’s a 17% growth rate, which is much lower on wired networks.

Burstein’s findings are in agreement with those of Professor Andrew Odlyzko, who has debunked “exaflood/data tsunami” scare stories for over a decade.

“[The] growth rate has been decreasing for almost two decades,” Odlyzko wrote in a 2016 paper published in IPSI BgD Transactions. “Even the growth rate in wireless data, which was extremely high in the last few years, shows clear signs of a decline. There is still rapid growth, but it is simply not at the rates observed earlier, or hoped for by many promoters of new technologies and business methods.”

Burstein

The growth slowdown, according to Odlyzko, actually began all the way back in 1997, providing the first warning the dot.com bubble of the time was preparing to burst. He argued the data models used by equipment manufacturers and the broadband industry to measure growth have been flawed for a long time.

When new internet trends became popular, assumptions were made about what impact they would have, but few models accurately predicted whether those trends would remain a major factor for internet traffic over the long-term.

Peer-to-peer file sharing, one of the first technologies Comcast attempted to use as a justification for its original 250GB usage cap, is now considered almost a footnote among the applications having a current profound impact on internet traffic. Video game play, also occasionally mentioned as a justification for usage caps or network management like speed throttling, was hardly ever a major factor for traffic slowdowns, and most games today exchange player actions using the smallest amount of traffic possible to ensure games are fast and responsive. In fact, the most impact video games have on the internet is the size of downloads required to acquire and update them.

Odlyzko also debunked alarmist predictions of traffic overloads coming from the two newest and largest traffic contributors of the period 2001-2010 — cloud backups and online video.

Odlyzko

“Actual traffic trends falsified this conjecture, as the first decade of the 21st century witnessed a substantial [traffic growth rate] slowdown,” said Odlyzko. “The frequent predictions about ‘exafloods’ overwhelming the networks that were frequent a decade ago have simply not come to pass. At the 20 to 30% per year growth rates that are observed today in industrialized countries, technology is advancing faster than demand, so there is no need for increasing the volume of investments, or for the fine-grained traffic control schemes that are beloved by industry managers as well as researchers.”

That’s a hard pill to swallow for companies that manufacture equipment designed to “manage,” throttle, cap, and charge customers based on their overusage of the internet. It also gives fits to industry executives, lobbyists, and the well paid public policy researchers that produce on spec studies and reports attempting to justify such schemes. But the numbers don’t lie, even if the industry does.

Although a lot of growth measured these days comes from wireless networks, they are not immune to growth slowdowns either. The arrival of the smartphone was hailed by wireless companies and Wall Street as a rocket engine to propel wireless revenue sky high. Company presidents even based part of their business plans on revenue earned from monetizing data usage allegedly to pay for spectrum acquisitions and upgrades.

McAdam

Verizon’s CEO Lowell McAdam told investors as late as a year ago “unlimited data” could never work on Verizon Wireless again.

“With unlimited, it’s the physics that breaks it,” he said. “If you allow unlimited usage, you just run out of gas.”

The laws of physics must have changed this year when Verizon reintroduced unlimited data for its wireless customers.

John Wells, then vice president of public affairs for CTIA, the wireless industry’s top lobbying group, argued back in 2010 AT&T’s decision to establish pricing tiers was a legitimate way for carriers to manage the ‘explosive growth in data usage.’ Wells complained the FCC was taking too long to free up critically needed wireless spectrum, so they needed “other tools” to manage their networks.

“This is one of the measures that carriers are considering to make sure everyone has a fair and equal experience,” Walls said, forgetting to mention the wireless industry was cashing in on wireless data revenue, which increased from $8.5 billion annually in 2005 to $41.5 billion in 2009, and Wall Street was demanding more.

“There were again many cries about unsustainable trends, and demands for more spectrum (even though the most ambitious conceivable re-allocation of spectrum would have at most doubled the cellular bands, which would have accommodated only a year of the projected 100+% annual growth),” Odlyzko noted.

What the industry and Wall Street did not fully account for is that their economic models and pricing had the effect of modifying consumer behavior and changed internet traffic growth rates. Odlyzko cites the end of unlimited data plans and the introduction of “tight data caps” as an obvious factor in slowing down wireless traffic growth.

“But there were probably other significant ones,” Odlyzko wrote. “For example, mobile devices have to cope not just with limited transmission capacity, but also with small screens, battery
limits, and the like. This may have led to changes of behavior not just of users, but also of app developers. They likely have been working on services that can function well with modest
bandwidth.”

“U.S. wireless data traffic, which more than doubled from 2012 to 2013, increased just 26% from 2013 to 2014,” Odylzko reported. “This was a surprise to many observers, especially since there is still more than 10 times as much wireline Internet traffic than wireless Internet traffic.”

Many believe that was around the same time smartphones achieved peak penetration in the marketplace. Virtually everyone who wanted a smartphone had one by 2014, and as a result of fewer first-time users on their networks, data traffic growth slowed. At the same time, some Wall Street analysts also began to worry the companies were reaching peak revenue per user, meaning there was nothing significant to sell wireless customers that they didn’t already have. At that point, future revenue growth would come primarily from rate increases and poaching customers from competitors. Or, as some providers hoped, further monetizing data usage.

The Net Neutrality debate has kept most companies from “innovating” with internet traffic “fast lanes” and other monetization schemes out of fear of stoking political blowback. Wireless companies could make significant revenue trying to sell customers performance boosters like higher priority access on a cell tower or avoiding a speed throttle that compromised video quality. But until providers have a better idea whether the current administration’s efforts to neuter Net Neutrality are going to be successful, some have satisfied themselves with zero rating schemes and bundling that offer customers content without a data caps or usage billing or access to discounted packages of TV services like DirecTV Now.

Verizon is also betting its millions that “content is king” and the next generation of revenue enhancers will come from owning and distributing exclusive video content it can offer its customers.

Odlyzko believes providers are continuing the mistake of stubbornly insisting on acquiring or at least charging content providers for streaming content across their networks. That debate began more than a decade ago when then SBC/AT&T CEO Edward Whitacre Jr. insisted content companies like Netflix were not going to use AT&T’s “pipes for free.”

“Much of the current preoccupation of telecom service providers with content can be explained away as following historical precedents, succumbing to the glamour of ‘content,'” Odlyzko wrote. “But there is likely another pressing reason that applies today. With connection speeds growing, and the ability to charge according to the value of traffic being constrained either directly by laws and regulations, or the fear of such, the industry is in a desperate search for ways not to be a ‘dumb pipe.'”

AT&T and Verizon: The Doublemint Twins of Wireless

A number of Wall Street analysts also fear common carrier telecom companies are a revenue growth ‘dead-end,’ offering up a commodity service about as exciting as electricity. Customers given a choice between AT&T, Verizon, Sprint, or T-Mobile need something to differentiate one network from the other. Verizon Wireless claims it has a best in class LTE network with solid rural coverage. AT&T offers bundling opportunities with its home broadband and DirecTV satellite service. Sprint is opting to be the low price leader, and T-Mobile keeps its customers with a network that outperforms expectations and pitches constant promotions and giveaways to customers that crave constant gratification and change.

The theory goes that acquiring video content will drive data usage revenue, further differentiate providers, and keep customers from switching to a competitor. But Odylzko predicts these acquisitions and offerings will ultimately fail to make much difference.

“Dumb pipes’ [are] precisely what society needs,” Odylzko claims and in his view it is the telecom industry alone that has the “non-trivial skills” required to provide ubiquitous reliable broadband. The industry also ignores the utility-like built-in advantage it has owning pre-existing wireline and wireless networks. The amortized costs of network infrastructure often built decades ago offers natural protection from marketplace disruptors that likely lack the fortitude to spend billions of dollars required to invade markets with newly constructed networks of their own.

Odylzko is also critical of the industry’s ongoing failure of imagination.

Stop the Cap! calls that the industry’s “broadband scarcity” business model. It is predicated on the idea that broadband is a limited resource that must be carefully managed and, in some cases, metered. Companies like Cox and Comcast now usage-cap their customers and deter them from exceeding their allowance with overlimit penalties. AT&T subjectively usage caps their customers as well, but strictly enforces caps only for its legacy DSL customers. Charter Communications sells Spectrum customers on the idea of a one-size fits all, faster broadband option, but then strongly repels those looking to upgrade to even faster speeds with an indefensible $200 upgrade fee.

Rationing Your Internet Experience?

“The fixation with video means the telecom industry is concentrating too much on limiting user traffic,” Odlyzko writes. “In many ways, the danger for the industry, especially in the wireline arena, is from too little traffic, not too much. The many debates as to whether users really need 100Mbps connections, much less 1Gbps ones, reveal lack of appreciation that burst capability is the main function of modern telecom, serving human impatience. Although pre-recorded video dominates in the volume of traffic, the future of the Net is likely to be bursts of traffic coming from cascades of interactions between computers reacting to human demands.”

Burstein agrees.

“The problem for most large carriers is that they can’t sell the capacity they have, not that they can’t keep up,” he writes. “The current surge in 5G millimeter wave [talk] is not because the technology will be required to meet demand. Rather, it is inspired by costs coming down so fast the 5G networks will be a cheaper way to deliver the bits. In addition, Verizon sees a large opportunity to replace cable and other landlines.”

On the subject of cost and broadband economics, Burstein sees almost nothing to justify broadband rate hikes or traffic management measures like usage caps or speed throttling.

“Bandwidth cost per month per subscriber will continue flat to down,” Burstein notes. “For large carriers, that’s been about $1/month [per customer] since ~2003. Moore’s Law has been reducing equipment costs at a similar rate.”

“Cisco notes people are watching more TV over the net in evening prime time, so demand in those hours is going up somewhat faster than the daily average,” he adds. “This could be costly – networks have to be sized for highest demand – but is somewhat offset by the growth of content delivery networks (CDN), like Akamai and Netflix. (Google, YouTube, and increasingly Microsoft and Facebook have built their own.) CDNs eliminate the carrier cost of transit and backhaul. They deliver the bits to the appropriate segment of the carrier network, reducing network costs.”

Both experts agree there is no evidence of any internet traffic jams and routine upgrades as a normal course of doing business remain appropriate, and do not justify some of the price and policy changes wired and wireless providers are seeking.

But Wall Street doesn’t agree and analysts like New Street Research’s Jonathan Chaplin believe broadband prices should rise because with a lack of competition, nothing stops cable companies from collecting more money from subscribers. He isn’t concerned with network traffic growth, just revenue growth.

“As the primary source of value to households shifts increasingly from pay-TV to broadband, we would expect the cable companies to reflect more of the annual rate increases they push through on their bundles to be reflected in broadband than in the past,” Chaplin wrote investors. Comcast apparently was listening, because Chaplin noticed it priced standalone broadband at a premium $85 for its flagship product, which is $20 more than Comcast’s non-promotional rate for customers choosing a TV-internet bundle.

“Our analysis suggests that broadband as a product is underpriced,” Chaplin wrote. “Our work suggests that cable companies have room to take up broadband pricing significantly and we believe regulators should not oppose the re-pricing. The companies will undoubtedly have to take pay-TV pricing down to help ‘fund’ the price increase for broadband, but this is a good thing for the business. Post re-pricing, [online video] competition would cease to be a threat and the companies would grow revenue and free cash flow at a far faster rate than they would otherwise.”

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  • Doug: So what are they (Charter Spectrum) supposed to do? Continue repairing the sabotage? Pay for "protection?" I am certain that those customers whose ...
  • tony russo: Promo with TWC ending this week. Had Starter TV (25 channels) plus Turbo internet for $65 total. Called to see what is available and the lowest tv p...
  • FredH: ....talk about flimsy (or no) evidence.....good luck Charter, wasting our cable fees on a lawsuit they stand no chance of winning....
  • Will: I have to agree with ATT here... Can't blame cord cutters when it's just that ATT's video service is awful and customers are fleeing at the first oppo...
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