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Telcos Pile Up Debt From Mergers & Acquisitions While Stalling Fiber Upgrades

Spending priorities: mergers & acquisitions, not upgrades.

Since 2012, two of the country’s largest phone companies spent enough money — $281.4 billion — to wire at least three-quarters of the  nation with fiber-to-the-home service and deliver vastly improved rural internet access to the rest of the country. Instead of doing that, AT&T and Verizon used the money to buy their competitors and content creators including AOL and Yahoo.

A 2017 Deloitte Consulting analysis estimates the United States will need between $130 and $150 billion in investment over the next 5–7 years to upgrade at least 75% of homes and businesses to fiber to the home service, with the remaining 25% serviced by technologies including 5G that are capable of delivering broadband speeds greater than the federal minimum standard of 25/3 Mbps.

AT&T could almost deliver the country a major broadband upgrade all by itself, having spent $138 billion on mergers and acquisitions in the past six years. Verizon could have easily handled the entire cost, but instead spent its $143.4 billion on business deals, including $130 billion to buy out former Verizon Wireless partner Vodafone. Among independent phone companies, things look equally bad. Frontier Communications is saddled with so much debt after acquiring former AT&T customers in Connecticut and Verizon customers in more than a dozen states, it has been forced to suspend its shareholder dividend and has been only able to make token investments in network upgrades for its mostly copper wire infrastructure in its original “legacy” service areas and a mixture of copper and fiber in acquired service areas. Both CenturyLink and Windstream have refocused many of their business activities on the commercial services marketplace, including the sale of hosting, business IT services, and cloud server networks.

More recently, both AT&T and Verizon have raced into content company acquisitions, buying up AOL, Yahoo, and Time Warner to offer their respective customers additional content. The phone companies are diversifying their business interests away from simply offering phone lines and internet access. At the same time, many of these acquisitions are depleting resources that could be spent on critical network upgrades.

The article in Light Reading claims the telecom industry’s traditional financial model of borrowing money to build networks and upgrade others is broken, because telecom companies now prefer to spend money acquiring other companies instead. Although AT&T has, in recent years, been more aggressive than Verizon in deploying fiber to home service, both companies have resisted committing large amounts of capital to a territory-wide fiber buildout, preferring to spend smaller sums to incrementally upgrade their networks in selected areas over the next decade. But the merger and acquisition teams at both companies are far less cautious, given the go ahead to pay handsomely for companies that often have little to do with providing telephone or internet service.

Light Reading reports AT&T’s debt climbed from $59 billion in 2010 to $126 billion at the end of 2017. Verizon’s debt increased from $45 billion to $114 billion. But those acquisitions have done little to attract new customers. Both companies’ operating cash flows have barely budged — $39 billion annually at AT&T (up from $35 billion) and Verizon’s actually declined from $33 billion in 2010 to $25 billion in 2017.

Mergers and Acquisitions (2011-2018)

AT&T

  • 2012: AT&T buys $1.93 billion worth of spectrum from Qualcomm.
  • 2013: AT&T buys Leap Wireless (Cricket) for $1.2 billion.
  • 2014: AT&T pays $49 billion for the DirectTV, issuing $17.5 billion in debt in April.
  • 2015: AT&T buys out assets from bankrupt Mexican wireless business of NII Holdings for around $1.875 billion.
  • 2018: AT&T pays $207 million to acquire FiberTower.
  • 2018: AT&T is cleared to merge with Time Warner in a deal valued at more than $84 billion.

Verizon

  • 2011: Verizon acquires Terremark for $1.4 billion.
  • 2014: Verizon buys out Vodafone’s 45 percent stake in Verizon Wireless, valued at $130 billion, with a mixture of stock and debt.
  • 2015: Verizon buys AOL for a deal valued around $4.4 billion.
  • 2017: Verizon acquires Yahoo Internet assets for $4.5 billion.
  • 2017: Verizon buys spectrum holder Straight Path Communications for $3.1 billion roughly double rival AT&T’s offer, to build up 5G spectrum and footprint.

The more debt (and debt payments) that pile up at the two companies, the less money will be available to spend on fiber upgrades. In fact, there is evidence these companies are hoping to further cut costs in their core landline network operations. Some regulators have noticed. Verizon was forced to make a deal with New York regulators requiring the company to spend millions replacing failing copper-based facilities and upgrade them to fiber and remove or replace tens of thousands of deteriorated utility poles. Verizon faced similar action in Pennsylvania.

AT&T has spent millions lobbying the federal government to permanently decommission rural America’s landline network and replace it with a wireless alternative, while also working to replace the current regulated telephone network with deregulated alternatives like internet and Voice over IP phone service.

Wall Street analysts have occasionally questioned or at least expressed surprise over some of the phone companies’ odd acquisitions:

  • Verizon acquired Terremark to beef up its cloud-based and server-hosting businesses. But shortly after acquiring the company, Verizon began replacing top management, sometimes repeatedly, and ultimately divested itself of its data center portfolio, including Terremark, just five years later.
  • AT&T bought DirecTV to help it reduce wholesale TV programming expenses for its U-verse TV subscribers. But DirecTV has lost more than one million satellite TV customers since AT&T acquired it in 2014, despite new marketing efforts to convince would-be U-verse TV customers to choose DirecTV instead.
  • Verizon saw value in web brands that were major players more than 18 years ago but are mostly afterthoughts today. The company spent almost $9 billion to acquire Yahoo and AOL, and their low quality content portfolios, which rely heavily on clickbait headlines, advertiser-sponsored content, and articles designed to maximize mouse clicks to boost the number of ads you see.

“The telcos are trying to diversify into content when they should instead be focused on their core business — building networks and charging for value-added technology,” said Scott Raynovich, founder and principal analyst at Futuriom. “It’s clear they see content as part of the value-add but customers so far don’t seem to be reacting that way. It’s clear they are allergic to paying higher prices for bundled content.”

AT&T and Verizon’s customers are not clamoring for more content deals. When surveyed, most want better internet service at more affordable prices.

NextGen Fiber: 10 Gbps XGS-PON Heads to Frontier, Greenlight Networks

As gigabit internet becomes more common across the United States, some ISPs are seeking a speed advantage by offering even faster speeds to residential and business customers. On Tuesday, Nokia announced Frontier Communications and Rochester, N.Y.-based Greenlight Networks would be upgrading their fiber networks to the company’s XGS-PON solution, which can handle 10 Gbps upload and download speeds.

“Next Generation PON technologies such as XGS-PON are increasingly being deployed as demand for ultra-broadband applications and services continue to grow,” said Julie Kunstler, principal analyst at Ovum, in a statement. “Providing operators with the ability to use the same passive and active plants, XGS-PON solutions like Nokia’s can be quickly deployed and used to capture 10Gbps service opportunities that help operators to improve the return on their existing fiber network investments.”

Many existing fiber networks currently rely on GPON (gigabit passive optical network) technology — which allows one fiber in a bundle of fibers to service multiple homes and businesses. GPON networks are typically capable of download speeds of 2.488 Gbps and shared upstream speeds of 1.244 Gbps. Many ISPs using GPON technology typically offer fast download speeds, but often slower upload speeds.

Next generation XGS-PON allows up to 10 Gbps in both directions over existing fiber networks. In fact, the technology is future proof, allowing operators to immediately upgrade to faster speeds and later move towards Full TWDM-PON, an even more robust technology, without expensive network upgrades.

Most providers are leveraging XGS-PON technology to deliver symmetrical broadband — same upload and download speeds — to residential customers and to expand network capacity to avoid congestion. XPS-PON technology also supports faster-than-gigabit speeds than can be attractive to commercial customers.

Frontier intends to deploy Nokia’s technology in ex-Verizon markets in California, Texas, and Florida, beginning in Dallas-Fort Worth. It will allow Frontier to beef up its FiOS network and market stronger broadband products to Texas businesses. In Rochester, Greenlight will use the technology to upgrade its fiber service, which competes locally with Frontier DSL and Charter/Spectrum. Spectrum recently introduced gigabit download speed in Rochester. Greenlight can now expand beyond its 1 Gbps offering, but more importantly, increase its maximum upload speed beyond 100 Mbps.

“Greenlight is constantly looking at ways we can deliver new services that fit every customer need. We pride ourselves on offering the fastest internet speeds available in the markets we serve and Nokia’s XGS-PON technology will play a critical part in our ability to deliver these services to our customers,” said Greenlight CEO Mark Murphy. “With Nokia’s next-generation PON fiber solution we will be able to deliver the latest technologies, applications, products and services quickly and reliably to our customers and ensure they have access to the ultra-broadband speeds and capacity they require now and in the future.”

Nokia points out its XGS-PON technology may also be very attractive to wireless companies considering deploying 5G services. Extensive fiber assets available in area neighborhoods will be crucial for the success of millimeter wave 5G technology, which relies on small cells placed around neighborhoods and fed by fiber optics.

AT&T Reiterates 5G Fixed Wireless is a Waste of Resources: Pushes Fiber to Home Instead

AT&T does not see fixed wireless millimeter wave broadband in your future if you live in or around a major city.

John Stephens, AT&T’s chief financial officer, today reiterated to shareholders that building a small cell network for urban and suburban fixed wireless service does not make much sense from a business perspective.

“It’s the cost efficiency,” Stephens told an audience at Cowen and Company’s 46th Annual Technology, Media & Telecom Broker Conference. “Once you [get] the fixed wireless connection from the alley to your house, that’s great you can do that, but you have to get it from the alley into the core network.”

Stephens

Stephens noted that once AT&T realized it would require a collection of small cells to hand wireless traffic off, “building that out can be very expensive when you’re likely doing it in an urban market in a residential area that already has a lot of fiber [or] a lot of competition [from] incumbent telephone and cable companies.”

AT&T sees a likely different future for fixed wireless based on in its ongoing trials underway in Austin, Tex. — selling the service to commercial and manufacturing customers with robotic equipment and other machinery that need instant and fast wireless communications to communicate with each other and back to a central point.

Stephens believes a better idea for its 30 million U-verse fiber-near-the-home customers is to extend fiber directly to those customers’ homes. Stephens said AT&T would be financially better off scrapping the remaining copper wire running the last 500 feet from a customer’s home or business to the nearest fiber-equipped pedestal and give customers dedicated fiber to the home service instead.

“It may be very inexpensive for us compared to the [5G] alternative and gives the customer a tremendous level of service,” Stephens added.

Where millimeter wave could make sense is in exurban and rural areas where clusters of homes could potentially be reached by fixed wireless, assuming there was fiber infrastructure close enough to connect those small cells to AT&T’s network. But AT&T seems to be more interested in applying the technology in commercial and Internet of Things (IoT) applications where wireless access can be essential, and would be much easier to deploy.

Verizon, in contrast, is expanding millimeter wave fixed wireless broadband trials, with the hope of selling a wireless home internet replacement.

Cable Broadband in 2025: DOCSIS 4.0 Could Raise Speeds as High as 60/60 Gbps

Phillip Dampier May 24, 2018 Broadband Speed, Consumer News 6 Comments

The next standard for cable broadband is due around 2025.

Just as the cable industry is widely introducing gigabit download speed supported by DOCSIS 3.1 technology, cable engineers are working on a way to boost upload and download speeds to as high as 60 Gbps (60,000 Mbps) starting as soon as 2025.

According to a new article in Light Reading, DOCSIS 4.0 (or DOCSIS.Next) represents a transformational leap of cable broadband technology. Jeff Finklestein, Cox Communications’ executive director of advanced technology, claims the next major broadband update will be able to use at least 3 GHz of RF spectrum available on existing coaxial cable for high-speed internet. That is more than twice the 1.2 GHz that being used by some cable systems for today’s DOCSIS 3.1 (and the 1.8 GHz that will be needed to support DOCSIS 3.1 FD, which will allow operators to dramatically boost upload speeds by 2020.)

Designed for the next decade, DOCSIS 4.0 will support 30/30 Gbps speed (or 60/60 Gbps if an operator is willing to dedicate up to 6 GHz for broadband). Today’s coaxial cable networks can use up to 10 GHz of RF spectrum in all, with some compromises and allowances to deal with possible signal ingress and other types of interference.

By the time DOCSIS 4.0 arrives, many cable operators will not mind delivering the majority of their available spectrum to broadband, because most are expected to eventually deliver a single broadband stream that collectively supports IPTV, digital phone, and broadband service.

Finklestein

To make the next generation of cable broadband possible, cable systems will likely need to reduce the amount of copper coaxial cable in their networks and push fiber optics deeper into neighborhoods. The more optical fiber the better — the technology is not hampered by coaxial cable’s limitations and degradation.

Engineers are also likely to shift away from DOCSIS 3.1’s orthogonal frequency division multiplexing (OFDM) modulation and use advanced wave form technology instead.

While engineers are excited about the project, some suspect DOCSIS 4.0 may be a tougher sell for cable industry executives, asked to invest in another transformational broadband upgrade less than ten years after DOCSIS 3.1 was introduced. Many cable operators using older cable network plants will have to spend millions on overhauls and upgrades, and there is some question about whether that kind of additional investment in a Hybrid Fiber Coax (HFC) network platform makes sense. Altice certainly does not believe so, and in 2016 elected to scrap Cablevision/Optimum’s HFC network and replace it with fiber to the home service.

As cable companies push fiber deeper into their networks, the cost of taking fiber the rest of the way to customer homes and businesses is coming down as well.

The cable industry has generally dismissed fiber to the home service as an extravagant and expensive technology to deploy, arguing cable’s HFC networks can deliver the broadband speeds that are commercially in demand today, while working on upgrades like DOCSIS 4.0 to meet consumer and business demands tomorrow, without the cost of tearing up streets to lay optical fiber.

Hillsboro, Ore. Rejects Naysayers and Pushing Ahead With $50 Gigabit Public Broadband

Three years after Hillboro’s city council accepted the recommendation of a consultant that warned the city away from running its own residential fiber network, local officials have changed their mind and plan to extend the city’s institutional fiber network to homes and businesses, offering affordable $10 a month internet access, as well as gigabit speed for $50 a month.

The Oregonian reports Hillsboro Mayor Steve Calloway wants to move fiber back on the agenda because recent experiences in other western cities with public broadband networks found a much higher buy-in by local residents, with up to 50% willing to ditch Comcast, CenturyLink, Frontier and other providers in favor of fiber to the home service. A recent “conservative” estimate expected 36% of Hillsboro residents would sign up if given the chance. Ongoing complaints about poor customer service from Frontier Communications, the area’s phone company, only increased support for the public broadband initiative.

In 2015, a consultant hired to study the feasibility of offering public broadband in Hillsboro, the fifth largest city in Oregon, recommended against it, which caused the city council to shelve the project. Uptown Services said Hillsboro would have to spend around $66 million for what it felt would be a “marginally viable” fiber to the home network expected to grab only a 28% share of a market dominated by Comcast.

Despite the cost, more than 77% of respondents to a phone survey held at the time were interested in switching to the city’s municipal fiber network, if it was priced at least 10% less than the competition. Hillsboro’s fiber aspirations face significant cost challenges other communities don’t, because 80% of buildings in Hillsboro are served by buried cables, which cost much more to install over aerial cable strung between utility poles.

 

Hillsboro is a rapidly growing community, with plans to develop 8,000 new homes in South Hillsboro that could eventually house 20,000 people. The new housing construction offers a unique and affordable opportunity to place underground fiber optic cables in the same trenches already dug for electrical, cable, and telephone service.

The city plans to start the project by running fiber into lower-income areas of the Southwest Hillsboro/Shute Par area, to offer affordable access to residents for as little as $10 a month. More affluent customers will be able to select gigabit service for $50 a month — cheaper than what Comcast and Frontier offer.

To keep the impact on the city budget reasonable, Hillsboro city council is being asked to allocate $4 million annually for fiber rollouts starting in 2019, with an equal amount each year through 2024. City engineers estimate it will take a decade to completely wire the community of 92,000, located just west of Portland.

 

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  • Paul Houle: I can believe in AT&T's plan, but not Comcast. For better or worse, AT&T is going "all in" on video and is unlike other major providers in ...
  • Phillip Dampier: Yes, that battle with Northwest Broadcasting, which also involved stations in Idaho-Wyoming and California, was the nastiest in recent history, with s...
  • Doug Stoffa: Digital takes up way less space than old analog feeds - agreed. In a given 6 MHz block, the cable company can send down 1 NTSC analog station, 2-4 HD...
  • Phillip Dampier: Digital video TV channels occupy next to nothing as far as bandwidth goes. Just look at the huge number of premium international channels loading up o...
  • Doug Stoffa: It's a bit more complicated than that. Television stations (and the networks that provide them programming) have increased their retransmission fees ...
  • Alex sandro: Most of the companies offer their services with contracts but Spectrum cable company offer contract free offers for initial year which is a very good ...
  • John: I live in of the effected counties, believe it or not our village is twenty three miles from WSKG Tower, approxiamately eighty miles from Syracuse, WS...
  • Wilhelm: I'm in the Finger Lakes where Spectrum removed WROC-8 last Fall, but we still get other Rochester channels, WHAM-13, WHEC-10 and WXXI-21. I have to wo...
  • dhkjsalhf: "Another classic case of businesses being much smarter than governments." I don't know whether this was sarcastic or not, but I feel it's a sentiment...
  • New Yorker: It makes no sense. I wonder sometimes if raising the limits on how much money rich people giving to candidates could make it more expensive to buy of...
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