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Wall Street Uneasy About Future 5G Broadband Competition; Ponders Idea of 5G Monopolies

Super monopoly?

Some Wall Street analysts are pondering ideas on how to limit forthcoming 5G wireless home broadband, suggesting providers might want to set up local monopolies, keeping competition to a minimum and profits to a maximum.

Verizon’s presentation at its annual Analyst Day meeting drew little praise from analysts and investors in attendance, “landing like a thud” to quote one person at the event.

The issue concerning Wall Street is what impact 5G wireless broadband will have on the internet access marketplace, which is currently a comfortable monopoly or duopoly in most American cities. That may radically change if the country’s four wireless companies each launch their own 5G services, designed to replace wired home broadband services from the cable and phone companies.

This week Verizon formally announced Sacramento would be the first city in the country to get its forthcoming 5G service, with an additional four of five unnamed cities to follow sometime next year.

Verizon will advertise 1,000Mbps service that will be “priced competitively” with current internet providers in the market. But Verizon intends to market itself as “a premium provider,” which means pricing is likely to be higher than one might expect. Verizon claims they intend to roll out 5G service to 30 million households — 25-30% of the country, making Verizon a prominent provider of fixed wireless home broadband service.

But analysts panned Verizon’s presentation for raising more questions than the company was prepared to answer. Barron’s shared the views of several analysts who were underwhelmed.

Notably, Craig Moffett from Moffett-Nathanson was particularly concerned about how to rate 5G service for his investor clients, and more importantly to them, how to forecast revenue and profit.

Moffett

The biggest problem for Moffett is the prospect of additional competition, and what that will do to each current (and future) provider’s share of customers and its revenue. If every major wireless carrier enters the 5G home broadband business, that will raise the prospective number of ISPs available to consumers to six or more — four wireless carriers competing with the phone and cable company. That is potentially very dangerous to big profits, especially if a competitive price war emerges.

“Let’s assume that AT&T is just as aggressive about this opportunity as Verizon,” Moffett told his investor clients. “Will they enter the same markets as Verizon, or different ones? […] If multiple players enter each market, all targeting the same 25-30% [where 5G service will be sold]. Well, what then? Let’s suppose the 30% market share estimate is right. Wouldn’t it be now shared among two, three, or even four [5G fixed wireless broadband] providers?”

Moffett gently proposes a concept where this profit-bruising competition can be abated by following the cable television model — companies agree to stay out of each others’ markets, giving consumers a choice of just one 5G provider in each city instead of four.

“There’s a completely different future where each operator targets different markets […] Let’s say that AT&T decides to skip Sacramento. After all, Verizon will have gotten there first,” Moffett suggests. “If the required share of the [fixed wireless] market is close to Verizon’s estimated 30%, then there is only room for one provider. So AT&T decides to do Stockton, about 40 miles to the south. Verizon would then skip Stockton, but might do Modesto, twenty miles further south… and then AT&T would then skip Modesto and instead target Fresno… unless Sprint or T-Mobile got there first.”

But Moffett is thinking even further ahead, by suggesting wireless carriers might be able to stop spending billions on building and expanding their competing 4G LTE networks when they could all share a single provider’s network in each city. That idea could work if providers agreed to creating local monopolies.

“That would create a truly bizarre market dynamic that is almost unimaginable today, where each operator ‘owned’ different cities, not just for [5G] but also for 4G LTE. If this kind of patchwork were to come to pass, the only viable solution might then be for companies to reciprocally wholesale their networks. You can use mine in Modesto if I can use yours in Fresno. To state the obvious, there is almost no imaginable path to that kind of an outcome today.”

The reason providers have not attempted this kind of “one provider” model in the past is because former FCC commissioners would have never supported the idea of retiring wireless competition and creating a cable monopoly-like model for wireless service. But things have changed dramatically with the advent of Chairman Ajit Pai, who potentially could be sold on the idea of granting local monopolies on the theory it will “speed 5G deployment” to a large number of different cities. Just as independent wireless providers lease access on the four largest carriers today (MVNO agreements), AT&T, Verizon, T-Mobile and Sprint could sell wholesale access to their networks to each other, allowing massive cost savings, which may or may not be passed on to customers.

But it would also bring an end to network redundancy, create capacity problems, and require every carrier to be certain their networks were interoperable with other wireless companies. The federal government’s emergency first responder program also increasingly depends on a wireless network AT&T is building that would give them first priority access to wireless services. How that would work in a city “designated” to get service from Verizon is unclear.

Restricting competition would protect profits and sharing networks would slash expenses. But such prospects were not enough to assuage Wall Street’s insatiable hunger for maximum profits. That is why analysts were unimpressed with Verizon’s presentation, which “lacked the financials” — precise numbers that explain how much the network will cost, how quickly it will be paid off, and how much revenue it can earn for investors.

A small cell attached to a light pole.

Verizon did sell investors on the idea 5G will put an end to having to wire fiber optics to every home. The service will also keep costs to a minimum by selling retail activation kits customers will install themselves — avoiding expensive truck rolls. Billing and account activation will also be self-service.

Verizon also announced a new compact 4G/5G combined antenna, which means 5G service can be supplied through existing macro/small cell 4G equipment. Verizon will be able to supplement that network by adding new 5G nodes where it becomes necessary.

Investor expectations are that 5G will cost substantially less than fiber to the home service, will not cost massive amounts of new investment dollars to deploy in addition to maintaining existing 4G services, will not substantially undercut existing providers, and will allow Verizon to market 21st century broadband speeds to its customers bypassed for FiOS fiber service. It will also threaten rural phone companies, where customers could easily replace slow speed DSL in favor of what Verizon claims will be “gigabit wireless.”

Despite that, Instinet’s Jeffrey Kvaal was not wowed by Verizon’s look to the future.

“Verizon’s initial fixed wireless implementation seems clunky and it withheld its pricing strategy,” Kvaal told his clients. He believes fixed wireless broadband will cost Verizon an enormous amount of money he feels would be better spent on Verizon’s mobile network. “Verizon glossed over 5-10x LTE upgrades that are already offering ~100Mbps of fully mobile service at current prices to current phones without line of sight. A better 5G story might be to free up sufficient LTE capacity to boost the unlimited cap from 25GB to 100GB for, say, a $25 premium. The ‘cut the cord’ concept was successful in voice, in video, and should be in broadband.”

This Week: FCC’s Ajit Pai Plans to Announce Sweeping Plan to Dismantle Net Neutrality

Phillip Dampier November 20, 2017 Competition, Net Neutrality, Public Policy & Gov't 5 Comments

Pai

FCC Chairman Ajit Pai is preparing to announce a complete dismantling of Net Neutrality protections enacted during the Obama Administration, despite millions of comments from Americans demanding the agency retain rules protecting an open internet.

According to a report in the Wall Street Journal (use link embedded in tweet below to avoid paywall), Pai seems poised to introduce a complete rollback of the rules requiring internet service providers to treat all web traffic equally, which appears to have been his original plan before opening the matter to public comment.

The changes, likely to be adopted by the 3-2 Republican majority at the FCC, will allow ISPs to sell paid or bundled packages of websites and content and offer it to consumers at higher speeds, lower prices, or without counting usage against data caps. “Paid prioritization” was specifically forbidden under rules introduced by Obama-era FCC chairman Thomas Wheeler, who expressed concern ISPs already wielded too much power over the internet experience.

WSJ:

If the rollback survives likely legal challenges, it has the potential to reorder the online business environment. It could give internet providers such as AT&T Inc., Comcast Corp., Charter Communications Inc. and Verizon Communications Inc. more flexibility to use bundles of services and creative pricing to make their favored content more attractive to consumers.

These companies generally profess support for basic principles of “Net Neutrality,” such as not blocking content or throttling its delivery. But with the Obama-era bright-line rules widely expected to be eliminated, many experts predict the industry will experiment with new services. The big internet providers either declined to comment or didn’t respond over the weekend.

The change would affect not only how the internet is regulated, but who regulates it. Under the new plan, legal experts say, oversight responsibility would shift to include the Federal Trade Commission as well as the FCC.

The FTC has long been the principal regulator of most internet businesses, a regime effectively ended with the 2015 rules. The shift is significant because unlike the FCC, the FTC generally doesn’t adopt overarching rules, instead developing case-by-case determinations about what business behavior is fair or unfair.

Frontier: Nothing to See Here; 3rd Quarter Results Cause Share Price to Plummet to New Low

Phillip Dampier November 1, 2017 Broadband Speed, Competition, Consumer News, Frontier No Comments

Frontier’s stock has reached the lowest level of the year after another disappointing earnings report.

Frontier Communications turned in lackluster numbers for the third quarter of 2017, resulting in a wide selloff of Frontier’s stock, driving it to the lowest level it has seen in a year.

Investors are reacting to news the company missed earnings estimates once again, and many are losing confidence in Frontier’s CEO Daniel McCarthy, who has promised better results for more than a year. Frontier is rare among broadband providers, losing customers in virtually every segment of its business, including in its acquired FiOS service areas.

Frontier’s stock has lost more than 80% of its marketplace value so far this year — a stunning decline for a company selling broadband service in many areas where it maintains a monopoly.

McCarthy once again made a commitment his efforts will “stabilize” customer losses, but spent most of his time trying to reassure investors on a Tuesday conference call that those stabilization efforts will primarily target areas where Frontier sells FiOS fiber to the home service. Customer churn continues to be a problem, with many customers leaving either because the company alienated them or dramatically raised their rates after a discounted promotion expires. Either way, many of those customers switch back to a cable provider. McCarthy claimed Frontier plans to adjust promotional pricing to soften the blow of a steep rate hike after a promotion expires.

McCarthy said almost nothing about Frontier’s legacy service areas, where Frontier still sells copper-based DSL service. Some of the company’s biggest losses have been in areas where it cannot compete effectively with cable broadband. McCarthy offered to enhance customer retention efforts and increase marketing to reduce losses, but there are no indications Frontier plans to spend significantly on major network upgrades in these areas anytime soon.

Frontier declared an unexpected dividend of $0.60 a share, which some analysts consider excessive and represents a “red flag atop this toxic value destroyer.”

One analyst remarked, “I’m not buying it; Frontier is a business in free fall.”

Some Former Bright House Customers Hit by $20/Mo ‘Rate Normalization’ Hike

Phillip Dampier October 26, 2017 Charter Spectrum, Competition, Consumer News 1 Comment

In an effort to keep things ‘organized,’ Charter Communications is ‘normalizing’ rates in its acquired service areas to match amounts paid by legacy Charter Communications customers for years. Charter will not lose any money from this process, effectively “rounding up” the rates it charges, causing bill shock for some former customers of Bright House Networks enrolled in grandfathered and/or promotional pricing plans.

Harry Johnson, who has been a Bright House customer in Florida for over 20 years, was unpleasantly surprised when he was notified in a letter his rates were going up approximately $20 a month.

“Charter wrote me telling me my promotion was expiring and they were raising my rates, except I am not on a promotion and have been paying the same price for internet service for a few years now,” Johnson tells Stop the Cap! “It was either the longest promotion ever or Charter was lying.”

Johnson was paying around $45 for his Bright House internet plan. Effective this month, he is being asked to pay $65 — a $20 increase.

“After they refused to negotiate or give me even a semblance of an explanation that made sense, I told them they just lost a multi-decade customer,” Johnson said, signing up for Frontier FiOS instead. “It is amazing to me just how nonsensical these giant cable companies are sending letters like that and then be non-responsive to complaining customers, hoping we will just swallow it.”

In a letter sent by Charter to a subscriber in Texas, signed by Sam Araji, Charter’s vice president of billing, the cable company explains the customer was enrolled in promotion that was now ending and billing would continue at standard rates.

(Courtesy: ‘etaadmin’)

A DSL Reports reader encountered almost the same situation when he discovered his internet bill was $20 higher than the month before.

“I found this curious because I wasn’t on any promotional offering and just have internet only service,” wrote ‘Chuch.’ “When I called customer service, I was told that I was under an old Bright House plan and that Spectrum was adjusting pricing to be more ‘in-line’ with their national plans and that she wasn’t going to budge on the price, even though I was never under a promotion. All I got from her was lip service about how I should be paying more for the same service I’ve had for some time, even though there have been no service improvements over that time.”

Like Johnson, ‘Chuch’ is dropping his Charter Spectrum service and switching to Frontier FiOS.

Former Bright House customers in Florida have been hit twice with rate hikes, first in March when some customers saw their bills literally double. Charter admitted it would raise rates for the majority of customers $20-30 a month this year alone.

WFTS in Tampa reported some customers in the Tampa area saw their bills double after Charter/Spectrum took over from Bright House. (3:21)

Netflix is Raising Their Rates

Phillip Dampier October 5, 2017 Competition, Consumer News, Online Video 1 Comment

Most Netflix customers in the U.S. will be paying $1-2 more a month to the online streaming service starting in November.

Mashable reports Netflix is raising prices on its Standard plan (currently $9.99/mo) by $1 and those on its Premium plan (now $11.99) will pay $2 more a month. The basic $7.99 plan remains unchanged for now.

“From time to time, Netflix plans and pricing are adjusted as we add more exclusive TV shows and movies, introduce new product features and improve the overall Netflix experience to help members find something great to watch even faster,” Netflix said in a statement.

Most of the extra money will likely be spent on content creation and acquisition for subscribers. Netflix is expected to spend $7 billion on content in 2018.

Netflix plans are differentiated based on video quality and the number of concurrent streams. Here are the respective features of each plan. Customers and downgrade or upgrade at any time.

Prices reflected are prior to the impending rate increase.

The last Netflix rate increase was announced in 2014, but did not take full effect for all customers until 2016.

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