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Election 2016: Trump Victory Troublesome for Tech Issues

Phillip Dampier November 10, 2016 Editorial & Site News, Public Policy & Gov't 7 Comments

donaldtrumpThe stunning victory by Donald Trump in Tuesday’s election ended two years of campaigning, negativity, and divisiveness.

Wednesday probably marked the beginning of Election 2020, which will involve four years of campaigning, negativity, and divisiveness.

Before looking at the implications of the forthcoming Trump Administration, some personal words about the results from the perspective of a lifelong resident of western New York, on the periphery of the Rust Belt region that evidently made all the difference for Mr. Trump on Tuesday night.

Casting my vote here in western New York while suffering a severe cold that has now evolved into walking pneumonia, I reflected on the fact this nasty election probably gave it to me. Despite that, I have the good fortune of living in a diverse community. Our next door neighbor, and by far the closest to us personally, is an ardent Republican who supported Sen. McCain, Gov. Romney, and Mr. Trump. Across the street, a reliable panoply of Democratic candidate lawn signs sprout every other fall. I spend my Friday afternoons in a community south of Rochester where Hillary Clinton has been largely reviled since she was a senator of New York. She didn’t win in Ontario County this year either. But Sen. Chuck Schumer routinely wins his elections with little effort or opposition.

Politics in the western half of New York State (known as “somewhere around Canada” to those in New York City and Long Island) is far more comparable to the battleground state of Ohio than reliably Democratic Manhattan. Our urban centers in Buffalo, Rochester, and Syracuse are solidly Democratic, while the suburbs and rural areas are just as likely to elect Republicans to office. Among those disappointed Democrats pondering a surprising election of Donald Trump, many cannot understand how such a result is possible. But having been a lifelong resident in a region that has seen profound changes from the decimation of blue-collar, high-paying manufacturing jobs in states that still cling to tax rates that assume everyone still has one, the Trump rebellion predicted by Michael Moore was hardly outlandish. Across the Rust Belt, more than a few voters have given up believing politicians, and are still waiting for relief from the relentless pressure on the declining middle class. Some of the worst job declines came in this region during the first Bush Administration and then again under President Bill Clinton. Memories are still fresh.

The changes to local economies in this region are profound and extremely difficult to navigate for those who lack advanced degrees or special technical skills. A state like North Carolina understands these changes well. An economy quickly transformed away from tobacco and textiles towards high technology created enormous challenges for many families. Those problems still exist in many parts of the state where infrastructure and good jobs are still lacking more than two decades later.

In Rochester, the formerly solid and reliable employers like Eastman Kodak and Xerox are a fraction of the size they were in the 1980s. My father met my mother at Eastman Kodak, a company that also employed more than half my extended family. But not for long. I vividly recall watching the inauguration parade of President Bill Clinton on television in 1993 on a day that Eastman Kodak carried out another wave of draconian job cuts. My father’s job survived, but my uncle’s did not. My grandfather had retired by then.

Michael Moore correctly predicted the reality of a Trump victory with the support of a disaffected middle class in economically distressed states.

Michael Moore correctly predicted the reality of a Trump victory with the support of a disaffected middle class in economically distressed states.

Twenty-three years later, the largest employer by far in this area is the University of Rochester/UR Medicine, which includes the university and an enormous medical treatment infrastructure. Together, this accounts for 22,500 workers. The second largest employer in Rochester is a grocery store. A great grocery store — Wegmans, founded and based here, but a grocery store nonetheless. It accounts for 13,500 jobs. Another 13,000+ workers are employed in medical treatment and hospital services that compete with the U of R. Rounding out top employers are the Rochester City School District with 5,500 teachers, administrators and staff, which is almost as big as Monroe County’s government, which accounts for 4,500 employees. The biggest remaining manufacturer is Xerox, which employs 6,300 workers. But consider this contrast: in 1982 Kodak employed 60,400 in the Rochester area. Today, that number is just 2,300.

Rochester had it easy compared to heavy manufacturing cities to our west. Buffalo, western Pennsylvania, Ohio, and Michigan have been walloped twice — first by the offshoring of heavy industry and then a second round of manufacturing job losses many voters blame on various free trade agreements. Many tens of thousands of these displaced workers have relocated to other states. Exiting residents of Rochester overwhelmingly prefer North Carolina and Arizona for various reasons, while blue-collar workers further west often end up in Kentucky, Tennessee, Alabama, and other southern states. Many of those that remained behind and remember their old jobs are angry, very angry. Some of them supported Bernie Sanders, especially in Michigan. But once the choice came down to Hillary Clinton or Donald Trump, more than a few voted for Mr. Trump, not out of a great allegiance to the Republican party, but because Trump vilified free trade and business as usual in D.C. To these voters, fair or not, Hillary seemed to embody the establishment that has done little or nothing except make speeches.

The election is now over and we have the results. My candidate did not win because she did not run. (Elizabeth Warren in 2020!) On the broadband issues Stop the Cap! is concerned with, a Trump Administration is likely to be bad news for consumer protection, fair pricing, and community broadband, primarily because the people Mr. Trump has chosen thus far to advise him on tech issues are the usual sort with close ties to the largest telecommunications companies in the country, and many have penned papers that have closely aligned with those companies’ public policy positions.

Phillip Dampier: This election gave me walking pneumonia.

Phillip Dampier: This election gave me walking pneumonia.

Trump transition team adviser Jeffrey Eisenach, for example — who we wrote about back in August, could hold considerable power over the direction President-elect Trump will take tech policy in this country. Eisenach has written papers opposing Net Neutrality, is unconcerned about data caps and zero rating policies, and called fears about consolidation blowouts like the now-dead Comcast-Time Warner Cable mega-merger overblown.

Trump did state opposition to the recent merger announcement from AT&T and Time Warner, Inc., which has Wall Street concerned the deal will be DOA by the time the merger papers are filed sometime early next year in Washington. If President Trump keeps his word on that, there are many more mergers and acquisition deals that will emerge in 2017 that will likely never be on his radar, but will be reviewed by a Federal Communications Commission stacked with commissioners closer in ideology to Ajit Pai and Michael O’Rielly than Thomas Wheeler. In our view, Commissioners Pai and O’Rielly have yet to support any significant pro-consumer policy change on broadband before the FCC. Instead, they have largely parroted Big Telecom’s talking points.

It is our suspicion that most of the merger and acquisition deals dreamed about on Wall Street that would never have gotten through the Obama Administration’s Justice Department and FCC will receive quick approval under a Trump Administration.

While Mr. Trump alludes he will prove to be a complete game-changer to business as usual in Washington, his transition team is being swarmed by the usual faces — corporate lobbyists, big donors, and political hacks angling for cabinet or agency positions. Most of them are Beltway insiders, and many have been through D.C.’s revolving door before — lobbyist -> public servant -> lobbyist.

So while Mr. Trump tells America AT&T and Time Warner is “too much concentration of power in the hands of too few,” we remain uncertain he will speak as loudly about other likely deals, particularly involving Altice, Cox, Mediacom, CenturyLink, Windstream, Frontier, Sprint, and T-Mobile — just some of the hunters and the hunted that may get consolidated in 2017.

On other issues:

  • Net Neutrality: Republicans vilified Net Neutrality and a Republican-dominated FCC will likely kill or dramatically downplay any efforts to enforce it. Trump himself has never been a fan. Any new powers won by Chairman Wheeler to regulate internet providers under Title II will also likely be jettisoned by a Chairman Pai or O’Rielly;
  • Data Caps/Zero Rating: This issue is important to us, but isn’t likely to see any regulatory action under a GOP-dominated FCC. Internet providers are likely to see a Trump Administration as a green light for data caps and consumption billing;
  • Internet Privacy: Efforts to regulate internet privacy will also likely face a reversal from skeptical Republicans who will combine excuses for national security with a “hands off” attitude on telecommunications regulation.
  • Community Broadband: The issue of turning back bans on public/municipal broadband will have to be won on the state level. We do not expect to see many friends for municipal broadband in Republican-dominated Washington. The influence of the Koch Brothers, notoriously opposed to public internet projects, has only gotten stronger after this election.

With a GOP-sweep across the Executive and Legislative branches, we expect more deregulation, which is likely to further entrench the broadband duopoly in the United States, if not further expand it with additional consolidation-related mergers and acquisitions, at least among the small and mid-sized players.

On a more personal level, I have been involved in public policy battles surrounding telecommunications issues since 1988. In the late 1980s, I fought for increased competition and regulatory relief for home satellite (TVRO) dishowners and we joined forces to help pass the 1992 Cable Act, which laid the foundation for the emergence of competitors DirecTV and Dish Networks — the first serious competition to the cable industry. That law was vetoed by President George H.W. Bush, but that veto was overridden by the U.S. Congress — the only bill to successfully become law during the first Bush Administration over his objection. Republicans pay cable bills too.

(Image courtesy: Steve Rhodes)

(Image courtesy: Steve Rhodes)

Administrations come and administrations go, but we are still here.

The need for robust consumer protection, true competition, and a level playing field never changes. Your involvement remains essential regardless of what party is in power in Washington. Some battles will be more challenging, but not all. Direct consumer action can make an impact on companies concerned about their brand and public image. Just as consumers are passionate about rising cable bills, broadband is always a hot button issue, especially where service is unavailable or comes only at a price that resembles extortion.

The president-elect says that America doesn’t win anymore. We sure haven’t been winning on broadband, either on speed, pricing, or availability, in comparison to Europe and Asia. The solution is not to turn the problem over to the same companies that created the conditions for broadband malaise we are dealing with now. As seen in fiercely competitive markets like France, true competition is often the only regulation you need. A duopoly answers to itself. Having the choice of four, five, six, or more competing providers answers to customers. Consolidated and entrenched markets resist innovation and the need to compete stagnates. Corporate welfare and ghost-written telecom laws that forbid community broadband restricts economic growth and kills jobs, stranding countless rural residents from the digital economy. That -is- business as usual in too many states where groups like the American Legislative Exchange Council (ALEC) facilitate legislative fixes and legal protectionism that restricts or disadvantages competition.

If Mr. Trump truly believes the words he has spoken, he must be vigilant. He must not surround himself with the same politicians and their minders that created the very problems he promises to fix. The voters that elected him to office expect nothing less than blowing up business as usual. But the nation’s capital has a better track record of changing the politician while resisting change to the status quo.

We wish President Trump success for our country, but we’ll be watching to make certain his rhetoric meets the reality.

Frontier’s Follies: Company Blames Marketing, On-Shoring Call Centers for Customer Flight

Road to nowhere?

Road to nowhere?

Frontier Communications has lost more than 150,000 customers in the last six months as company executives blamed bad marketing and the on-shoring of call centers that formerly supported Verizon customers in Texas, California, and Florida.

Some 99,000 customers dropped Frontier service in the last three months, and another 77,000 departed during the three months before that. In addition to losing customers, Frontier saw a net loss of $80 million in its third quarter, up from a the $14 million the company lost during the same quarter a year ago.

A clearly distraught Dan McCarthy, Frontier’s CEO, knew he was in for a pummeling from Wall Street analysts on a conference call with investors on Tuesday.

“I wanted to assure you, that I’m focused on addressing and resolving the issues hindering our performance,” McCarthy said. “I’m fully aware that the third quarter results underscore the urgent need for our expanded business to perform at the higher level, where I know it can and should. And you have my personal commitment that we will do so.”

Frontier lost $52 million in revenue in the last three months in part because of its disastrous transition of former Verizon customers in California, Texas, and Florida and because a growing number of broadband users have realized Frontier’s endless promises of better service have rarely come to fruition and those customers chose other providers.

“This decline is unacceptable and reflects a level of performance, [and] I’m committed to change it,” McCarthy promised.

Unfortunately for customers and investors, that “change” is primarily rearranging the deck chairs with a haphazard, and likely soon-to-be-an-afterthought “reorganization,” and the usual treatment prescribed when executives fail to deliver Wall Street the results they expect: big layoffs of employees that had nothing to do with Frontier’s problems and have in fact been warning the company about some of their more boneheaded moves. The idea for quick layoffs may have come from Frontier’s newest chief financial officer R. Perley McBride, a pick McCarthy said will be “laser focused” on cost management. That’s code for cost-cutting, not exactly the best idea for a company that has shown a near-constant aversion to investing adequately in its network and on necessary broadband upgrades.

Analysts didn’t seem to be terribly interested in Mr. McCarthy’s grand reorganization plan either, detailed in this veritable word salad:

Let me also highlight that today, we announced a new customer-focused organizational structure, and the creation of commercial and consumer business units. This change is designed to improve our execution and operational effectiveness, increases spans of control in the organization and makes us more nimble, while at the same time eliminating duplicative costs associated with our former structure. In the first month of operating our new properties, it became apparent that this change was necessary.

McCarthy

McCarthy

Some investors pondered if these operational problems were all so readily identifiable and apparent, why didn’t Mr. McCarthy carry out changes after assuming leadership of the company more than a year ago.

McCarthy’s realization that big changes were needed is not what he was telling investors in May, when he was downplaying the impact of the Verizon customer cutover as affecting less than 1% of customers and wasn’t material. That level of happy talk puts McCarthy dangerously close to Wells Fargo territory, where a few million fake bank accounts weren’t material either.

McCarthy loves to use catchphrases to minimize the problems experienced at Frontier, as well as countering any negative developments with aspirational talk about the future.

For example, Frontier’s decision not to carefully scrutinize customer data provided by Verizon before cutting over customers to Frontier’s systems, leaving many without service for days to weeks was the result of “imperfect data extracts and network complexities” according to McCarthy. That cost Frontier plenty as the company issued bill credits to potentially tens of thousands of customers left without service because of ‘imperfections.’ Many just decided to leave and never looked back.

In May, McCarthy told investors “After a month of operating these properties, we are very pleased with the progress we have made, and we want to thank customers for their patience during the transition period. The entire Frontier team remains focused on cultivating growth by retaining and attracting new customers. We will continue to drive Frontier’s performance to maintain free cash flow that provides an attractive and sustainable dividend payout ratio.”

Not so much anymore. This week, McCarthy hit the red alert button and suddenly declared an urgent need for a major reorganization, oddly pegging Frontier’s problems partly on organizational inefficiencies:

“Historically, Frontier was organized around a regional structure, each one of the regions had its own resources that included marketing, finance, engineering, human resources. And in doing that, we – when we were a much smaller entity, it really did serve us well at that point in time. The more we looked at it today, the less differences there are in a lot of the markets and the way we’re going to market whether it’s around a Vantage product or it’s around FiOS or it’s around next-generation broadband products. So, when we looked at it, we did a really a trade-off on it, so we’ve essentially eliminated all of that redundancy in the organization.”

The unemployment line is in the future for 1,000 Frontier employees.

The unemployment line is in the future for 1,000 Frontier employees.

So what is the “redundancy” Frontier claims it has essentially eliminated? The forthcoming layoffs of 1,000 employees nationwide which Frontier management believes will make things much better for customers, at least according to McCarthy:

The impact is approximately 1,000 individuals that will be leaving the organization, and that translates directly into cost savings. And the nice part about it too is that the enhanced focus on commercial as well as consumer and Frontier has historically been a very consumer-focused organization. We’ve done well on the commercial side, but I really believe we can do much better with more focus, more attention and really putting the resources on those opportunities and making it, that’s what they do every day when they get up and they come to work, all they’re trying to do is grow the commercial revenue base.

So that’s really what we’ve done. It does change the focus on the field operations to really be engaged with the community as well as providing excellent service to customers and being that bridge, but really sales for both consumer and commercial are more centralized in a way that we can apply better resources and do it in a more efficient manner.

analysisSo Frontier plans to become more engaged with the community and deliver better service locally by… getting rid of 1,000 local employees and centralizing its resources somewhere else, probably in another state. The cherry on top? Frontier also implemented a rate hike for customers to enjoy.

McCarthy claimed Frontier has been a “very consumer-focused organization,” which seems hard to believe considering how many customers are saying goodbye to Frontier for good. He also implied customer sales are down because Frontier hasn’t effectively used their call center employees to sell service and Frontier alienated customers by moving those call centers from overseas back to the United States. Really?

The executive team at Frontier shrugs off further evidence of deepening customer dissatisfaction by ignoring customer losses in their “legacy” service areas — Frontier territories served by copper yesterday, today, and probably tomorrow. But ignoring problems is nothing new at Frontier:

  • It’s not a problem that customers cannot order Frontier products and services on its website because of managerial ineptitude.
  • It’s not a problem that customers are still stuck with 1-6Mbps copper-based DSL from Frontier while their cable competitor offers 200Mbps or more.
  • It’s not a problem that several years after assuming control over almost all landlines in West Virginia, Frontier has only accomplished broadband speed upgrades for 23% of customers stuck in Frontier’s broadband molasses, and only after the company settled with the West Virginia Attorney’s General office in December 2015. For the record, that amounts to 6,320 customers. Don’t break a sweat there. Frontier’s performance in West Virginia has been so abysmal, the settlement between the state and the company represents the largest, independently negotiated consumer protection settlement in West Virginia history, which extends back to June 20, 1863.
  • It’s not a problem that customers in Connecticut are still plagued by aftershocks from the tumultuous transfer from AT&T to Frontier in October 2014. On Oct. 19, 2016 countless DSL customers were reminded of that transition when they suffered another multi-hour outage and to add insult to injury, Frontier decided the time was also right to raise rates $4 a month for its Vantage TV service, which caused another round of customer cancellations.

McCarthy called the operational reorganization a “bridge” between field operations and providing excellent service to customers. We call it just another bridge to nowhere.

We’ve written for years that Frontier’s real problem isn’t cost management, organizational structure, or where it places employees and call centers. The real elephant in the room is that Frontier’s broadband service is terrible, especially where Frontier built the network all by itself or acquired it from another phone company decades earlier.

We are convinced Frontier’s management understands this, and so do many investors, but they just don’t care. One summed up the Frontier story this way:

So Frontier buys the whole wireline shooting match in one geographic area after another (labor force, wires, customers, DSL, even FIOS) paid for with billions in junk bond proceeds. Looking at an asset base that is disappearing before their eyes, the game is to squeeze as much out of it as possible before it crumbles completely. Minimum possible maintenance, minimum possible [investment], minimum possible headcount, and less every year.

From an investor’s standpoint, the key question is to figure out when the final collapse is going to take place.

Frontier's "High Speed" Fantasies extend back to 2010 when former CEO Maggie Wilderotter was telling customers Frontier was loaded with fiber.

Frontier’s “High Speed” fantasies extend back to 2010 when former CEO Maggie Wilderotter was telling customers Frontier was loaded with fiber.

When Rochester Telephone rebranded itself Frontier Communications in the 1990s, it did so looking forward to the future. The Frontier Communications experience of today is like immersing oneself in the History Channel. Nearly everything about Frontier these days is about the past and a promised future that never seems to arrive. Everything surrounds a legacy network still almost entirely dependent on last-century DSL for residential customers and various acquired networks from Verizon and AT&T mismanaged at conversion, forcing customers to clean up after Frontier’s repeated mistakes.

In legacy service areas where little has changed over the last decade, the four words that come to mind are “too little, too late” as customers make one last call to permanently drop service despite promises faster speeds are coming soon.

Too little investment in suitable broadband: Frontier dwells on its dividend payout to shareholders while customers languish with internet speeds that do not come close to the FCC’s definition of broadband. Instead of spending billions acquiring Verizon’s throwaway service areas, invest that money in your network and offer truly competitive 21st century broadband service.

Too late to matter: Frontier’s commitments to broadband upgrades happen too slowly and for too few customers. Much of Frontier’s state-of-the-art networks were built by other companies and simply acquired by Frontier, which now provides sleepy caretaker service. When people think Frontier Communications, they sure don’t think of words like “modern” and “innovative” and “excellence.” They think “yesterday,” “out of service,” and “slow.” There is a good reason why cable operators eat Frontier’s market share. People don’t love the cable company more than Frontier, but at least they are no longer stuck with broadband speeds that were common during the latter half of the Clinton Administration.

You’re a communications company, not the Geek Squad: While Frontier fritters away their customer base, those remaining are literally assaulted with promotions for dubious value services like tech support, virus protection, and cloud storage backup. There is a reason other phone and cable companies have not followed Frontier’s lead on emphasizing these services. They don’t matter to most customers and many of those who do have them are surprised when they find them on their phone bill because they don’t remember signing up. Sell reliable and fast phone, broadband, and video service, not gimmicks.

It is unfortunate another 1,000 Frontier employees are about to pay for the mistakes made at the top. Until that changes, customers would do well to consider their options and act accordingly. If reporting by The Hour is any indication, customers shouldn’t hold their breath. Frontier is still looking out for their most important asset: their shareholders.

If Frontier’s customer relations remain a work in progress, so does McCarthy’s job convincing investors to see the promise of his plan and that of his CEO predecessor Maggie Wilderotter to create a national broadband company from territories AT&T and Verizon have been willing to cast aside. Since closing at $6.54 on Oct. 31, 2014, on the eve of the switch [in Connecticut], two years later Frontier shares have hovered for the most part just above the $4 threshold.

With a new chief financial officer in place in former Frontier executive Perley McBride, McCarthy promised to get Frontier on track from an investor perspective, even as the company works to get its customer relations on an even keel.

Google Fiber’s CEO Out of a Job; Fiber Expansion on Hold Indefinitely in Many Cities

Down the rabbit hole

Down the rabbit hole

Google has quietly announced an indefinite suspension of further fiber expansion as it prepares to downsize fiber division employees and re-evaluate its fiber business model.

In a blog post tonight from Craig Barratt, senior vice president of Alphabet and CEO of Google’s Access division, it becomes clear Google is rethinking its entire fiber strategy and is likely moving towards fixed wireless technology going forward:

Now, just as any competitive business must, we have to continue not only to grow, but also stay ahead of the curve — pushing the boundaries of technology, business, and policy — to remain a leader in delivering superfast Internet. We have refined our plan going forward to achieve these objectives. It entails us making changes to focus our business and product strategy. Importantly, the plan enhances our focus on new technology and deployment methods to make superfast Internet more abundant than it is today.

Barratt outlines the immediate implications of Google’s dramatic shift:

  • In the cities where we’ve launched or are under construction, our work will continue;
  • For most of our “potential Fiber cities” — those where we’ve been in exploratory discussions — we’re going to pause our operations and offices while we refine our approaches. In this handful of cities that are still in an exploratory stage, and in certain related areas of our supporting operations, we’ll be reducing our employee base.
Barratt

Barratt

Barratt himself is jumping ship (or was pushed). He announced in his blog entry he is “stepping away” from his CEO role, but will remain as an “adviser.”

Observing Google’s recent fiber efforts and acquisitions, it seems clear Google no longer thinks fiber-to-the-home service is an economically viable solution in light of competitors like AT&T rolling out increasing amounts of fiber and the cable industry is on the cusp of launching DOCSIS 3.1, which will dramatically boost internet speeds without a substantial capital investment.

Google’s investors have been lukewarm about the company’s economic commitments relating to its fiber broadband networks. Often built from the ground up, Google’s fiber construction complexities also include trying to navigate costly roadblocks established by their competitors (notably Comcast and AT&T), dealing with bureaucracies and red tape even in states where near-total-deregulation was supposed to make competition easy. Google Fiber has also not proved to be a runaway economic success, and now faces more challenges in light of upgrades from their competitors. Cable companies have slashed prices for customers threatening to cancel and have added free services or upgrades to persuade customers to stay, and Google’s proposition of selling consumers $70 gigabit access has proved tougher than expected.

It is highly likely the future of Google’s Access business will be deploying wireless broadband solutions powered by Webpass, a company Google acquired earlier this year. Webpass uses a high-speed point to point wireless transmission system the company claims can deliver gigabit broadband access to customers in multi-dwelling buildings and other urban areas. Webpass sells access for $60 a month (discounted to $550/yr if paid in advance) for 100Mbps-1,000Mbps speed depending on network density and capacity in the customer’s building. So far, Webpass has not been able to guarantee speed levels, and some customers report significant variability depending on their location and network demand.

Webpass’ wireless infrastructure costs a fraction of what Google has coped with building fiber to the home networks, and the installation of point-to-point wireless antennas on participating buildings has been less of a regulatory nightmare than digging up streets and yards to lay optical fiber.

webpassBut despite Webpass’ claim its performance is comparable to fiber, its inability to guarantee customers a certain speed level and its tremendous performance variability from 100 to 1,000Mbps exposes one of the weaknesses of fixed wireless networks. At a time when capacity is king, only fiber optic networks have shown a consistent ability to deliver synchronous broadband speeds that do not suffer the variability of shared networks, poor antenna placement/signal levels, or harmful interference.

There is room for wireless technology to grow and develop, as evidenced by the wireless industry’s excitement surrounding future 5G networks and their ability to offer a home broadband replacement. The emergence of 5G competition is almost certainly also a factor in Google’s decision. But even AT&T and Verizon acknowledge a robust 5G network will require a robust fiber backhaul network to support both speed and user demand. The more users sharing a network, the slower the speed for all users. No doubt Webpass has made the same assumption that cable operators did in the early days of DOCSIS 1 — current internet applications won’t tax a network enough to create a traffic logjam that would be noticed by most customers. The phone companies also learned a similar lesson trying to serve too many DSL customers from inadequate middle mile networks or traffic concentration points. (Some phone companies are still learning.)

Whether it was yesterday’s peer-to-peer file sharing or today’s online video, capacity matters. That is why fiber broadband remains the gold standard of broadband technology. Fiber is infinitely upgradable, reliable, and robust. Wireless is not, at least not yet. But technology arguments rarely matter at publicly-traded corporations that answer to Wall Street and investors, and it appears Google’s backers have had enough of Google Fiber.

Stop the Cap!’s View

tollAt Stop the Cap!, we believe these developments further the argument broadband is an essential utility best administered for the public good and not solely as a profit-motivated venture. The path to fiber to the home service in rural, suburban, and urban communities has and will continue to come from a mix of private and public utilities, just as local public and private gas and electric companies have served this country for the last century. Where there is a business model for fiber to the home service that investors support, there is a for-profit fiber provider. Where there isn’t, now there is often no service at all. So far, the FCC in conjunction with Congress has seen fit to solve broadband availability problems by bribing private providers into offering service (usually low-speed DSL that does not even meet the FCC’s definition of broadband) with cash subsidies, tax write-offs, or occasional tax abatement schemes. Imagine if we followed that model with the nation’s public roads and highways. We would today be paying tolls or a subscription to travel down roads built and owned by a private company often financed by tax dollars.

Not every product or service needs to earn Wall Street-sized profits. Nobody needs to get rich selling water, gas, and electricity… or broadband. Public broadband networks can and should be established wherever they are needed, and they should be priced to recover their costs as well as expenses that come from support, billing, and ongoing upgrades. Naysayers like to claim municipal broadband is socialism run wild or an instant economic failure, yet the same model has provided Americans with reliable and affordable gas, electricity, and clean water for over 100 years.

Maine was made for municipal broadband.

Maine was made for municipal broadband.

In New York, publicly owned/municipal utilities often charge a fraction of the price charged by investor-owned utilities. In Rochester, where Stop the Cap! is headquartered, one need only ask a utility customer if they would prefer to pay the prices charged by for-profit Rochester Gas & Electric or live in a suburb where a municipal provider like Fairport Electric or Spencerport Electric offers service. RG&E has charged customers well over 10¢ a kilowatt-hour when demand peaks (along with a minimum connection charge of over $21/mo and a “bill issuance charge” of 72¢/mo). Spencerport Electric charges 2.9¢ a kilowatt-hour and a connection charge of $2.66 a month, and they issue their bills for free. There is a reason real estate listings entice potential buyers by promoting the availability of municipal utility service. The same has proven true with fiber-to-the-home broadband service.

The economic arguments predicting doom and gloom are far more wrong than right. Municipal utilities are often best positioned to offer broadband because they already have experience providing reliable service and billing and answer to the needs of their local communities. Incompetence is not an option when providing reliable clean water or electricity to millions of homes and customers have rated their public utilities far superior to private phone or cable companies.

Google’s wireless future may prove a success, but probably only in densely populated urban areas where a point-to-point wireless network can run efficiently and profitably. It offers no solution to suburban, exurban, or rural Americans still waiting for passable internet access. Clearly, Google is not the “free market” solution to America’s pervasive rural broadband problem. It’s time to redouble our efforts for public broadband solutions that don’t need a seal of approval from J.P. Morgan or Goldman Sachs.

Pondering the Future of AT&T’s Dead-Brand Walking U-verse, DirecTV, and Data Caps

att directvWith the advent of AT&T/DirecTV Now, AT&T’s new over-the-top streaming TV service launching later this year, AT&T is preparing to bury the U-verse brand.

Earlier this year, AT&T customers noticed a profound shift in the company’s marketing priorities. The phone company began steering potential customers to AT&T’s latest acquisition, satellite television provider DirecTV, instead of U-verse. There is an obvious reason for this – DirecTV has 20.45 million customers as of the second quarter of 2016 compared to 4.87 million customers for AT&T U-verse TV. Volume discounts make all the difference for pay television companies and AT&T hopes to capitalize on DirecTV’s lower programming costs.

AT&T’s buyout of DirecTV confused many Wall Street analysts, some who believe the days of satellite television are past their peak. Satellite providers lack the ability to bundle services, although some phone companies partner with the satellite company to pitch phone, broadband, and satellite TV to their customers. But consider for a moment what would happen if DirecTV introduced satellite television without the need for a satellite dish.

Phillip Dampier: The "U" in U-verse doesn't stand for "unlimited."

Phillip Dampier: The “U” in U-verse doesn’t stand for “unlimited.”

AT&T’s DirecTV Now will rely on the internet to deliver television channels instead of a satellite. AT&T is currently negotiating with most of the programmer conglomerates that own popular cable channels to allow them to be carried “over-the-top” through broadband connections. If successful, DirecTV Now could become a nationwide powerhouse alternative to traditional cable TV.

AT&T is clearly considering a potential future where DirecTV could dispense with satellites and rely on broadband instead. The company quietly began zero rating DirecTV streaming in September for AT&T Mobility customers, which means watching that programming will not count against your data plan. For current U-verse customers, broadband speeds have always been constrained by the need to reserve large amounts of bandwidth to manage television viewing. Although AT&T has been boosting speeds in selected areas, a more fundamental speed boost could be achieved if AT&T dropped U-verse television and turned the service into a simple broadband pipe that relied on DirecTV Now to manage television service for customers.

AT&T seems well on the way, adding this notice to customer bills:

“To make it simpler for our customers U-verse High Speed Internet and U-verse Voice services have new names: AT&T Internet and AT&T Phone. AT&T Internet product names will now align with our Internet speed tiers. Our voice plan names will remain the same.”

An earlier internal company memo suggested AT&T would eventually transition all of its TV products into “AT&T Entertainment” after completing a transition to its “next generation TV platform.” Increasingly, that platform seems to be an internet-powered streaming solution and not U-verse or DirecTV satellite. That transition should begin in January.

Top secret.

Gone by end of 2016.

It would represent a formidable change, but one that makes sense for AT&T’s investors. The transition to IP networks means providers will offer one giant broadband pipe, across which television, phone and internet access will travel. The bigger that pipe becomes, the more services customers are likely to use — and that means growing data usage. Having a lot of fiber infrastructure also lays the foundation for expansion of AT&T’s wireless network — particularly towards 5G service, which is expected to rely on small cell technology to offer faster speeds to a more localized area — fast enough to serve as a home broadband replacement. Powering that network will require plenty of fiber optics to provide backhaul access to those small cells.

Last week, AT&T announced it launched a trial 100Mbps service using point-to-point millimeter-wave spectrum to offer broadband to subscribers in multiple apartment complexes around the Minneapolis area. If the initial trial is successful, AT&T will boost speeds to include 500Mbps service to those same complexes. AT&T has chosen to provide the service outside of its usual service area — Minneapolis is served by CenturyLink. AT&T acquired a nationwide license to offer service in the 70-80GHz band back in 2009, and an AT&T spokesperson claimed the wireless signal can reach up to two miles. The company is also experimenting with new broadband over power lines technology that could offer service in rural areas.

cheapJust like its wireless service, AT&T stands to make money not just selling access to broadband and entertainment, but also by metering customer usage to monetize all aspects of how customers communicate. Getting customers used to the idea of having their consumption measured and billed could gradually eliminate the expectation of flat rate service, at which point customers can be manipulated to spend even more to access the same services that cost providers an all-time low to deliver. Even zero rating helps drive a belief the provider is doing the customer a favor waiving data charges for certain content, delivering a value perception made possible by that provider first overcharging for data and then giving the customer “a break.”

As of mid-September, streaming media analyst Dan Rayburn noted Akamai — a major internet backbone transit provider — was selling content delivery contracts at $0.002 per gigabyte delivered, the lowest price Rayburn has ever seen. Other bids Rayburn has reviewed recently topped out at 0.5 cents per gigabyte. According to industry expert Dave Burstein, that suggests large ISPs like AT&T are paying something less than a penny per gigabyte for internet traffic.

“If you use 139GB a month, that costs your provider something like $1/month,” Burstein wrote, noting doubling backbone transit costs gives a rough estimate of the cost to the carrier, which also has to carry the bits to your local exchange. In this context, telecom services like broadband and phone service should be decreasing in cost, not increasing. But the opposite is true. Large providers with usage caps expect to be compensated many times greater than that, charging $10 for 50GB in overlimit fees while their true cost is well under 50 cents. Customers buying a cell phone are often fitted with a data plan that represents an unprecedented markup. The extent of price increases customers can expect can be previewed by looking at the cost of phone service over the last 20 years. The average, often flat rate telephone bill in 1995 was $19.98 a month. In 2014, it was $73 a month. In 2015, it was $90 a month. Those dramatically rising prices in the last few years are mostly as a result of the increased cost of data plans providers charge to clean up on customers’ growing data usage.

Both Comcast and AT&T are dedicated to a campaign of getting customers to forget about flat rate, unlimited service at a reasonable cost. Even as both companies raise usage caps, they continue to raise prices as well, even as their costs to provide the service continue to drop. Both companies hope to eventually create the kind of profitable windfall with wired services that wireless providers like AT&T and Verizon Wireless have enjoyed for years since they abandoned unlimited flat rate plans. Without significant new competition, the effective duopoly most Americans have for telecommunications services offers the opportunity to create a new, more costly (and false) paradigm for telecom services, based on three completely false claims:

  • data costs are expensive,
  • usage must be monetized, and
  • without a bigger return on investment, investors will not finance the next generation of telecom upgrades.

But as the evidence clearly shows, profits from selling high-speed internet access are only growing, even as costs are falling. Much of the drag on profits come from increasing costs related to licensing television content. Voice over IP telephone service is almost an afterthought for most cable and phone companies, often thrown in for $10-20 a month.

AT&T’s transition puts all the attention and its quest for fatter profits on its broadband service. That’s a bad deal for AT&T customers no matter what the company calls its “next generation” network.

Successful Results for Helium Balloon Broadband Test Off Coast of the Azores

Phillip Dampier October 3, 2016 Rural Broadband, Wireless Broadband No Comments

Researchers from Portugal’s Institute of Systems and Computer Engineering, Technology and Science (INESC TEC) report success delivering high-speed internet access powered by helium balloons attached to buoys, vessels, or even windmills.

The Bluecom+ Project demonstrates the viability of delivering internet access using a broadband mesh network operating in the 500MHz band, currently occupied by UHF television channels 19-34. Researchers created a wireless internet network from shore that achieved more than 100 kilometers of coverage offshore, providing access to Wi-Fi and 4G technology-powered internet in the Azores, an archipelago in the mid-Atlantic.

bluecom

The islands, an autonomous region of Portugal, were selected to test the capability of providing affordable enhanced communications for vessels at sea. Currently, most ships rely on satellite-based communications services, which come at a high cost.

The relatively low frequencies used are capable of penetrating buildings and achieving longer distance coverage, which make them especially suitable for wireless broadband. In the United States, mobile providers are seeking additional spectrum now used by UHF television stations to further expand their wireless networks. In rural areas like the Azores, there is plenty of open channel space to support wireless broadband, as there would be in rural communities currently not served well by DSL or cable broadband.

The project hopes to achieve complete coverage of the Azores, as well as offshore areas around the islands, within the next five years. Bluecom+ is a jointly funded project of Norway, Iceland and Liechtenstein through European Union grants.

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