The United States is rapidly losing its place among the world’s fastest broadband countries, dropping out of the top-10 this year and falling behind Chile, Liechtenstein, and Romania.

While other countries and internet providers are investing billions to improve their standing in an increasingly competitive global broadband marketplace, a comfortable duopoly of phone and cable companies in the United States has successfully kept regulators at bay and allowed many of the largest internet service providers to divert investment away from upgrades and towards stock buybacks, dividend payouts, debt reduction, and ongoing merger and acquisition activities.

Internet speed testing firm Ookla has watched the United States slip in its fixed broadband speed standings over the last three years, dropping from 8th place (2019) to 9th place (2020), to being dropped from its top 10 list this year (it now scores 14th). Canada has never made the list.

This year, the countries with the fastest internet download speeds are: Monaco, Singapore, Hong Kong, Thailand, Romania, Switzerland, South Korea, Chile, Denmark and Liechtenstein. The only other countries to fall off the top-10 list in the last three years are Taiwan, Andorra, Macau, and France.

Globally, wireless internet speeds are benefitting from 4G and 5G upgrades on cell towers, with overall speed increasing nearly 60% in the last year. Fixed broadband speeds are up 32% year over year, primarily from an increase in the amount of fiber to the home connections providers are making as they move away from traditional copper wiring. Heavy investment in network upgrades can deliver remarkable boosts in internet speeds.

“South Korea and the United Arab Emirates stood out with mean mobile download speeds that were more than 240% faster than the global average and fixed broadband downloads that were more than 70% faster than the global average,” said Ookla’s Isla McKetta. “China’s mobile download speed was more than 180% faster than the global average and the country was more than 70% faster than the global average for fixed broadband. Switzerland’s mobile and fixed broadband download speeds were close to 100% faster than the global average.”

All of those countries have invested heavily in fiber connectivity for both their mobile and fixed wired broadband connections.

In contrast, U.S. cable companies have delayed upgrades to DOCSIS 4.0, capable of supporting 10 Gbps connections, and many telephone companies have dragged their feet on fiber upgrades, facing resistance from Wall Street as well as heavy debt burdens from prior mergers and acquisitions.

Most of the countries ranking the fastest have pushed providers to supply gigabit internet speed connections, but U.S. regulators and politicians have reduced pressure on large providers by proposing to subsidize millions of expanded internet connections with U.S. taxpayer funds while reducing required speed minimums to just 100/20 Mbps.

After weeks of tense negotiations to secure bipartisan support for the Biden Administration’s $1 trillion infrastructure stimulus measure, the White House appears to have largely capitulated to Republican efforts to water down funding to expand broadband service into a $65 billion package that will doubtless be a financial bonanza to the country’s largest phone and cable operators.

The Biden Administration’s original proposal for $100 billion in broadband funding was dedicated to wiring rural areas as well as focusing funding on new entrants like community-owned networks that could deliver internet access to unserved and underserved locations without having a profit motive. The original proposal also would have prioritized funding for future-capable fiber internet, with some advocating that networks be capable of delivering at least a gigabit of speed to customers to qualify for funding. The Administration also promoted the idea of affordable broadband, combatting the growing digital divide exacerbated by internet pricing out of reach of the working poor.

What emerged on Sunday as a “bipartisan agreement” with Republicans on infrastructure stimulus is almost a travesty — slashed almost by half and now effectively a veritable gift to Big Telecom. The industry spent hundreds of millions lobbying Congress and got almost everything it wanted. If passed in its current form, those same phone and cable companies will pocket much of the money for themselves.

Here is how consumers were sold out:

Reduced speed requirements are a dream come true for cable operators.

The bipartisan measure proposes to water down speed requirements to qualify for government stimulus funding to a underwhelming 100/20 Mbps. That speed is tailor made for cable operators, which traditionally offer upload speeds just a fraction of their download speeds. Gone is any condition requiring gigabit-capable networks, at a time when more providers than ever are marketing near-gigabit speeds. That could quickly lead to the emergence of a speed divide, with rural Americans stuck with slower broadband technology from companies that will have no financial incentive to upgrade in these areas.

Addressing affordability is now mostly wishful thinking.

The latest proposal’s idea of solving the broadband affordability issue is to admit there is a problem and declare the need for some kind of low-cost broadband option, but apparently does not specify pricing, who is qualified to get cheaper service, and who will oversee that such programs remain affordable. That allows providers to keep writing the rules of their own token, voluntary efforts to offer discounted internet, like those that disqualify current customers and requires enrollees to jump through various qualification hoops to sign up. The stimulus program will also spend billions of dollars effectively paying a portion of disadvantaged Americans’ internet bills, at the current high prices many ISP’s charge. That is a direct subsidy to big cable and phone companies that can continue charging whatever they please for access, knowing the government will now pay $30-50 of the bill.

Republicans have made sure there is not a whiff of rate regulation or consumer protection mandates in the measure. It also abandons establishing a fixed rate, affordable internet tier for as little as $10 a month. That original proposal would have given cable and phone companies as little as $10 a month from the federal government, much less than collecting up to $50 a month from the Emergency Broadband Benefit, which pays a portion of regular-priced service. The $14 billion being set aside to continue subsidizing Americans’ internet bills at Big Telecom’s monopoly or duopoly prices could be better spent building and expanding internet services where no service or competition exists now.

Digital redlining is A-OK

The watered down compromise measure chastises companies for only incrementally expanding fiber service, mostly to wealthy neighborhoods, but stops short of banning the practice. This wink and a nod to redlining primarily benefits phone companies like AT&T and Frontier, which can now cherry-pick rich neighborhoods for fiber upgrades most likely to return the biggest profits. Phone companies and fiber overbuilders will continue to skip over urban poor neighborhoods and the highest cost rural areas which have always been the hardest to reach.

Sky is the Limit pricing with onerous data caps are fine with us.

Nothing in the measure will give preference to providers willing to offer affordable, flat rate service without the hassle of data caps. Neither will it discourage applicants that plan to use public tax dollars to subsidize expanding service that comes at high prices and with paltry usage limits.

Light Reading reported Wall Street analysts were generally pleased with the outcome, noting the negotiations resulted in stripping out oversight and price regulation and the measure won’t fund potential competitors. It also noted Big Telecom and its associated trade organizations spent more than $234 million on lobbying. Comcast topped the list of spenders at more than $43 million, with AT&T coming in second at $36 million. Both the cable and wireless industry also spent tens of millions on lobbying. They got their money’s worth. Taxpayers won’t.

President Biden

Large cable and telephone companies are applauding the Biden Administration’s compromise $65 billion broadband infrastructure plan, designed to reduce the number of rural Americans without access to broadband service.

Many industry lobbyists and Wall Street analysts were wary of earlier plans by the Administration to spend $100 billion or more on internet infrastructure expansion, because amounts that high were seen to likely attract major proposals from municipalities to construct their own independent broadband projects, some in direct competition with cable and phone companies. The Biden Administration had sought preferential treatment to fund public broadband projects, suggesting the direct competition they could bring would lower prices. Unlike for-profit phone and cable companies, municipal projects were “less pressured to turn profits” and would have a natural incentive to commit to serve entire communities.

Heavy lobbying from for-profit phone, cable, and wireless companies, largely directed at Republicans in the Senate, sought a much lower budget for broadband expansion in the $35 billion range and a commitment to discourage municipal broadband.

Last week the Administration and a small group of Senate Republicans settled on a $65 billion compromise measure, with many of the details still unavailable early this week. But big ISPs are already breathing a sigh of relief, convinced a slimmed-down compromise measure will choke off any existential competitive threat from municipal providers invading their turf.

Wall Street analysts predict the compromise measure will be too small to provide funding for competing major city municipal broadband networks and would continue the tradition of targeting funds on unserved, high-cost rural areas. Historically, this has resulted in funding going to nearby cable and telephone companies to subsidize expansion of existing networks into areas currently deemed too unprofitable to wire for service. But ample funds are still likely to be awarded to rural telephone and electricity co-ops to expand internet access.

Analysts expect the final measure will include a requirement to offer service at minimum speeds of 100 Mbps, which would be a challenge for wireless companies and rural phone companies seeking to expand DSL service. Most providers would likely have to use fiber optics to build networks consistently capable of delivering that speed. If the compromise measure only insists on 100 Mbps download speed, expect the cable industry to be relieved. If the minimum speed requirement is substantially relaxed to as low as 25 Mbps, that would also benefit wireless ISPs offering fixed wireless access.

Also unknown is whether the compromise measure still contains language overriding state laws that restrict or prohibit municipal broadband projects.

Customer satisfaction with fiber to the home internet service is so high, one industry leader says the only time customers cancel service is if they move or die.

Carl Russo, CEO of internet equipment vendor Calix, says phone companies are relying on fiber optic networks to turn their struggling businesses around except in the most rural areas of the country.

“Fixed wireless will sometimes be the right choice and Calix’s software supports it. But our telco customers with fiber will lose very few customers. If they provide strong, customer-focused service, no one will have a reason to switch,” Russo told Dave Burstein’s Fast Net News. “It’s only a slight exaggeration to say customers only churn if they move or die. This is provided the service provider chooses to ‘own’ the subscriber experience. A service provider that invests in fiber but doesn’t further invest in an excellent subscriber experience is still vulnerable.”

Russo argues that fiber to the home service has been the right choice for most of the developed world for several years now, at least where there is hearty competition between providers.

Where competition is lacking, phone companies often still rely on archaic DSL service, which is increasingly incapable of competing with even smaller cable operators. Phone companies are now up against the wall, forced to recognize that existing, decades-old copper wire infrastructure cannot sustain their future in the broadband business. Companies that drag their feet on fiber upgrades are bleeding customers, and some companies are even in bankruptcy reorganization.

Russo

Fiber networks are future-proof, with most offering up to gigabit speed to consumers and businesses. But upgrading to 10 Gbps will “add little to the cost” once demand for such faster speed appears, Russo said.

Fast Net News notes that France Telecom, Telefonica Spain, Bell Canada, and Telus have all proven successful using fiber to the home service to compete with cable companies to market internet access. Companies that approved less costly fiber to the neighborhood projects that relied on keeping a portion of a company’s legacy copper network, including AT&T, BT in the United Kingdom, and Deutsche Telekom in Germany, have had to bring back construction equipment to further extend fiber optic cables to individual customer homes — a costly expense.

Even public broadband projects like Australia’s National Broadband Network (NBN) paid dearly for a political decision to downsize the NBN’s original fiber optic design to save money. The NBN was hobbled by a more conservative government that came to power just as the network was being built. Many NBN customers ended up with a more advanced form of DSL supplied from oversubscribed remote terminals, which delivered just 50 Mbps to some subscribers. For-profit companies have also been pressured to keep costs down and limit fiber rollouts by Wall Street and investors. Verizon FiOS is the best known American example, with further network expansion of the fiber optic service essentially shelved in 2010 at the behest of investors that claimed the upgrades cost too much.

Underfunded upgrades often bring customer dissatisfaction as speeds cannot achieve expectations, and many hybrid fiber-copper networks are less robust and more subject to breakdowns. In the United Kingdom, BT’s “super fast” broadband initiative has been a political problem for years, and communities frequently compete to argue who has the worst service in the country. BT’s fiber-to-the-village approach supplies fiber internet service to street cabinets in smaller communities that link to existing BT copper phone lines that are often in poor shape. Customers often get less than 50 Mbps service from BT’s “super fast” service while a few UK cable companies are constructing all-fiber networks in larger cities capable of supplying gigabit internet speed to every customer.

Calix is positioned to earn heavily by selling the equipment and infrastructure that will power future fiber network upgrades that are inevitable if companies want to attract and keep customers. A new round of federal rural broadband funding will help phone companies pay for the upgrades, which means many rural Americans will find fiber to the home service in their future.

Parks Associates: Broadband VAS Adoption & Awareness

Cable and phone companies may increasingly turn to selling broadband subscription add-ons to restore the high level of profitability investors expect from the nation’s internet service providers.

With an increasing number of people deciding to ditch cable TV subscriptions, cable and phone companies are seeing lower growth in the average amount they charge subscribers every month, leaving many to consider finding new broadband “value-added” products and services to sell.

Falling video subscription revenue and increased programming costs have made it difficult for operators to report the glowing results Wall Street has come to expect over the last 20 years. In 2017, only 34% of customers were signed up for broadband-only service. By the first quarter of this year, that number had risen to 42%. Broadband only customers pay less than customers who choose a bundle of services. Parks Associates found the average internet-only customer paid $60 a month for service, with rates up 36% from the first quarter of 2012 to the third quarter of 2019. In comparison, cable operators only managed to raise rates for bundled video/internet packages from $107 to $127 a month over the same period. When a customer downgrades to internet-only service, the average revenue per subscriber (also known as “ARPU”) drops significantly, sometimes by as much as half.

To keep revenue growing, providers have a few options:

1. Raise prices: Cable and phone companies have traditionally raised prices on services least likely to be dropped as a result of price hikes. For years, cable operators could significantly raise prices for cable TV packages with little fear customers would cancel service. Cord-cutting changed that, and as a result video-related rate hikes have slowed. Instead, operators have found broadband to be the service most cannot do without, and have shifted rate hikes accordingly.
2. Offer upgraded services: The most popular and effective revenue enhancer is upselling customers to better packages and services. For broadband, that traditionally means a faster speed package. Most companies charge a comparatively small amount (often $10-20 more) for a considerably faster speed tier.
3. Sell value-added services: These are ancillary services that offer subscribers more value from their existing subscription. Examples include: Unlimited Access (waiving data caps), Enhanced Technical Support, Anti-Virus/Malware Protection, Enhanced Streaming Video Services, Enhanced Network Performance for Gameplay, Wiring Maintenance/Insurance, Home Security/Automation, and Cloud Backups.

Currently, only a few providers aggressively promote value-added services. Many already provide anti-virus/malware software as part of their broadband service offering. Others, like Charter/Spectrum, have soured on selling value-added services in favor of a simplified menu of services and options. Spectrum ceased supporting Time Warner Cable and Bright House Networks’ legacy home security/automation services in early 2020. Some phone companies, notably Frontier Communications, have long depended on value-added services to bolster revenue for its increasingly beleaguered DSL internet service. Frontier heavily markets anti-virus, enhanced tech support, and wiring maintenance services to customers, which can add a considerable amount to a customer’s bill.

Parks Associates, a market research and consulting company, is now offering insight on value-added services to phone and cable companies in its latest research report, 360 Deep Dive: Broadband Value-added Services (for $7,500 a copy):

As the broadband market becomes increasingly commoditized, broadband providers are seeking way to differentiate themselves through new products and services. This research investigates consumer perception and interest in value-added services from service providers including Wi-Fi services, network optimization, and data security and monitoring services.

The report finds most consumers have traditionally ignored or were unaware of value-added services from internet providers. As a result, the impact on revenue from sales of such services has been usually negligible.

“Value-added services (VAS) have little impact on ARPUs because [internet] speed, which correlates with VAS adoption, is the primary driver of ARPUs,” said David Drury, Parks’ research director. “In other words, speed rather than the number of VAS broadly determines ARPU levels, even though those with higher speeds also have a higher number of VAS.”

But Parks suggests the ongoing coronavirus pandemic may open fresh opportunities to introduce customers to value-added services. Among the services consumers may now be using for the first time are telehealth services, which allow for virtual online doctor visits, video conferencing with friends, family, and colleagues, and remote learning tools. After the COVID-19 crisis passes, providers could begin marketing service and support for these applications, either directly or in partnership with other companies.

Still undetermined is whether companies should bundle these types of services into existing subscriptions for free as a customer retention tool, or offer them for sale to customers.

“Broadband growth has plateaued, so the next opportunity is in VAS,” Drury said. “Providers have generally used VAS as a marketing tool to attract and retain subscribers, so for them to make the transition to a revenue source, companies need a clear understanding of the gaps in consumer satisfaction and demand for strategic and successful VAS deployments.”