Stephenson

AT&T CEO Randall Stephenson on Tuesday told investors that AT&T will deploy a combination of fiber optics and 5G wireless and be able to sell a “true, high-speed internet network throughout the United States” within the next three to five years.

“In three to five years out, there will be a crossover point,” Stephenson told investors. “We go through this all the time in industry. 5G will cross over, performance wise, with what you’re seeing in home broadband. We’re seeing it in business now over our millimeter-wave spectrum. And there will be a place, it may be in five years, I think it could be as early as three, where 5G begins to actually have a crossover point in terms of performance with fiber. 5G can become the deployment mechanism for a lot of the broadband that we’re trying to hit today with fiber.”

Although the remarks sound like a broadband game changer, Stephenson has made this prediction before, most recently during an AT&T earnings call in January, 2019. Stephenson told investors he believed 5G will increasingly offer AT&T a choice of technology to deploy when offering broadband service to consumers and businesses. In high-cost scenarios, 5G could be that choice. In areas where fiber is already ubiquitous, fiber to the home service would be preferred.

Stephenson’s predictions about nationwide service will depend in part on the commercial success of millimeter wave 5G fixed home broadband, which will be required to satisfy broadband speed and capacity demands. Verizon Wireless has been offering fixed 5G in several markets with mixed results. The company’s early claims of robust coverage have been countered by Verizon’s own cautious customer qualification portal, which is more likely to deny availability of service to interested customers than offer it.

But Stephenson remains bullish about expanding broadband.

“So all things considered, over the next three to five years, [with a] continued push on fiber, 5G begins to scale in millimeter-wave, and my expectation is that we have a nationwide, true, high-speed internet network throughout the United States, [using] 5G or fiber,” Stephenson said.

Whether anything actually comes of this expansion project will depend entirely on how much money AT&T proposes to spend on it. Recently, AT&T has told investors to expect significant cuts in future investments as AT&T winds down its government-mandated fiber expansion to 14 million new locations as part of approval of the DirecTV merger-acquisition. In fact, AT&T’s biggest recent investments in home broadband are a result of those government mandates. AT&T has traditionally focused much of its spending on its wireless network, which is more profitable. For AT&T to deliver millimeter wave 5G, the company will need to spend billions on fiber optic expansion into neighborhoods where it will place many thousands of small cell antennas to deliver the service over the short distances millimeter waves propagate.

AT&T could sell a fixed 5G broadband service similar to Verizon Wireless, confine its network to mobile applications, or offer fixed wireless service to commercial and manufacturing users in selected areas. Or it could offer a combination of all the above. AT&T will also need to consider the implications of a fiber buildout outside of its current landline service area. Building fiber optic networks to provide backhaul connectivity to AT&T’s mobile network would not antagonize its competitors nearly as much as the introduction of residential fixed 5G wireless as a home broadband replacement. The competitive implications of that would be dramatic, especially in communities skipped by Verizon FiOS or stuck with DSL from under-investing independent telephone companies like CenturyLink, Frontier, and Windstream. Should AT&T start selling 300+ Mbps fixed 5G wireless in these territories, it would cause significant financial distress for the big three independent phone companies, and could trigger a competitive war with Verizon.

Wall Street is unlikely to be happy about AT&T proposing multi-billion dollar investments to launch a full-scale price war with other phone and cable companies. So do not be surprised if AT&T’s soaring rhetoric is replaced with limited, targeted deployments in urban areas, new housing developments, and business parks. It remains highly unlikely rural areas will benefit from AT&T’s definition of “nationwide,” because there is no Return on Investment formula that is likely to work deploying millimeter wave spectrum in rural areas without heavy government subsidies.

For now, AT&T may concentrate on its fiber buildout beyond the 14 million locations mandated by the DirecTV merger agreement. As Stephenson himself said, “When we put people on fiber, they do not churn.” AT&T has plenty of runway to grow its fiber to the home business because it attracts only about a 25 percent market share at present. Stephenson believes he can get that number closer to 50%. He can succeed by offering better service, at a lower price than what his cable competitors charge. Since 5G requires a massive fiber network to deploy small cells, there is nothing wrong with getting started early and then see where 5G shakes out in the months and years ahead.

Cable One has the highest average revenue per customer of any publicly traded cable company in the United States, with the average customer paying Cable One $70.80 a month, mostly for internet access.

The company’s first quarter earnings growth of 5.5% reflect the company’s recent price increases and regime of low-allowance data caps, which have pushed 10 percent of its customers to pay an extra $40 a month to bring back unlimited access. Others are upgrading to costlier, faster tiers with more generous usage allowances.

“During the first quarter, we saw roughly 50% of our new customers choose our 200 Mbps or higher speed service and nearly 10% of our new customers opted to purchase our unlimited data plan,” said Julia Laulis, Cable One CEO.

Laulis

Cable One’s 200 Mbps plan (with a 600 GB data cap) costs $65 a month after promotions expire. A DOCSIS 3.0 modem lease fee of $10.50 applies. A $2.75 monthly internet service surcharge may apply. If a customer wants unlimited access to avoid overlimit fees, there is an additional charge of $40 a month (a 5 TB cap applies to the “unlimited plan”). Customers choosing a 200 Mbps broadband-only package with unlimited data will pay up to $118.25 a month.

Cable One’s broadband customers are concerned about staying within the data caps to avoid overlimit fees. While Comcast and Charter Spectrum customers consume over 300-400 GB of data per month (Comcast has a 1 TB cap, Spectrum only sells unlimited service), Cable One customers use an average of 290 GB, with usage growing at a 30-35% annual rate. Many Cable One customers have little choice either. Laulis noted that Cable One’s DSL competition is not very relevant when customers want to watch streaming video. Speeds are often so slow, customers do not have a good experience streaming HD video over DSL.

Cable One is also shedding its video customers in record numbers, with just 305,000 of its cable TV customers left. More than 29,000 departed year over year, and that number continues to rise as consumers rebel against the company’s high prices and unwillingness to negotiate.

MoffettNathanson warned that Cable One’s high pricing may eventually price itself out of broadband growth, as consumers elect to sign up with telephone companies instead. But many of its service areas are still served by low-speed DSL, and despite Cable One’s high cost, the company added 10,600 new internet customers in the last quarter.

In addition to raising prices, the company also plans to spend between $9-11 million to change its name from Cable One to Sparklight over the next two years.

CenturyLink is considering getting out of the consumer landline and broadband business and instead focusing on its profitable corporate-targeted enterprise and wholesale businesses.

CenturyLink CEO Jeff Storey told investors on a quarterly conference call that the phone company had hired advisors that will conduct a strategic review of all CenturyLink products and services targeting the consumer market and is “very open” to the possibility to selling or spinning off its residential business, assuming it can find an interested buyer.

“Let me be clear, we’re early in what I expect to be a lengthy and complex process,” Storey told investors, noting the company’s first priority is to take care of its shareholders. “During our review, we will not modify our normal operations or our investment patterns. I can’t predict the outcome or the timing of this work or if any transactions will come from it at all. Our focus, though, is value maximization for shareholders. If there are better paths to create more value with these assets, we will pursue them.”

CenturyLink’s landline network is similar to those of other independent telephone companies. There are significant markets where extensive upgrades have introduced fiber broadband service and high-speed DSL, but most of CenturyLink’s network remains reliant on copper wire infrastructure that is not capable of supplying high speed internet to customers.

Like most large independent telephone companies, the majority of CenturyLink’s residential customers can only purchase slow speed DSL service offering less than 20 Mbps. A growing number of customers have canceled service after running out of patience waiting for upgrades. CenturyLink executives told investors last week the company is abandoning investments in bonded or vectored DSL upgrades, claiming anything other than fiber optics is not “competitive infrastructure.”

CenturyLink also admitted it is losing customers after deciding to shelve its unprofitable, competing Prism TV product. The only growth on the consumer side of CenturyLink is coming from significant broadband upgrades.

“In the first quarter, we saw a net loss of 6,000 total broadband subscribers. This quarter’s total was made up of declines of 83,000 in speeds below 20 Mbps and growth of 77,000 in speeds of 20 Mbps and above,” reported CenturyLink chief financial officer Neel Dev. “Within those gains, we added 47,000 in speeds of 100 Mbps and above. Voice revenue declined 12% this quarter. Going forward, we expect similar declines in voice revenue. As a reminder, the decline in other revenue was driven by our decision to de-emphasize our linear video product.”

Dev reported that 55% of CenturyLink’s customers have access to speeds of 20 Mbps or less, and the company has ceased spending marketing dollars advertising slow speed DSL. Instead, it “microtargets” service areas where customers can sign up for service faster than 20 Mbps.

Observers note CenturyLink’s interest in its landline business has been waning for some time. The change in attitude can be traced back to CenturyLink’s merger with Level 3, a very profitable provider of connectivity to the enterprise and wholesale markets. CenturyLink’s commercial services are consistently earning most of the revenue the company reports to shareholders every quarter, with residential services declining in importance.

A sale of CenturyLink’s local landline and consumer-focused internet businesses could be hampered because of the likely lack of buyers. Frontier Communications had been an aggressive player in acquiring landline networks cast off by Verizon and AT&T, but that company is now in financial trouble and faces major debt issues. It would be an unlikely bidder. Windstream is still in bankruptcy reorganization and an acquisition is out of the question. Smaller independent phone companies like Consolidated Communications (owner of former FairPoint Communications), also likely lack financing to achieve such a deal, especially as interest rates continue to rise. CenturyLink also has the option of spinning off its residential business into a new corporate entity, but would likely result in a financially hobbled enterprise that may have trouble attracting capital to continue funding further expansion.

Verizon’s FiOS expansion is still, still, still, still, and still dead.

Despite the passage of favorable legislation deregulating the state’s largest telecom companies, Verizon has thumbed its nose at New Jersey’s efforts to convince the company to expand its fiber-to-the-home service.

“Verizon does not plan to expand its FiOS service footprint,” wrote Tanya Davis, a Verizon franchise service manager for FiOS in New Jersey and New York. “The company remains focused on continuing to meet its franchise obligations, and delivering competitive services, and enhanced consumer choices, where the services are available.”

More than a decade after passing the 2006 Cable TV Act in New Jersey, designed to convince telecom companies to compete more vigorously with each other, Verizon remains uninterested in further expanding its fiber network in New Jersey and beyond.

After successfully lobbying the state to adopt a statewide cable TV franchise policy, making life easier for Verizon by not requiring the company to negotiate a contract with each town serviced, Verizon suddenly stopped caring after announcing a pullback in further FiOS expansion in 2010. The change in heart appears to have started at the top. Then CEO Ivan Seidenberg, who approved FiOS, retired and was replaced by Lowell McAdam, who preferred Verizon invest mostly in its wireless networks.

Vergano

As a result, New Jersey has a telecom industry-friendly deregulatory policy in place with nothing to show for it.

“People want to see competition,” Wayne Mayor Christopher Vergano told the North Jersey Record, citing complaints his office has received about Altice USA’s Optimum service. “Over the years, they’ve seen their cable bills increase. We’re trying to give residents options.”

Wayne’s Township Council passed a resolution asking state lawmakers to review the 2006 Cable TV Act to find a way to coerce Verizon to do more fiber upgrades in the state. In 2006, then Gov. John Corzine got Verizon to commit to wiring 70 towns across New Jersey, and Wayne was not one of them.

Verizon agreed to expand its fiber network to all county seats, as well as areas with a population density in excess of 7,111 residents per square mile.

New Jersey’s Board of Public Utilities (BPU) is still allowed to report on Verizon’s progress, but little else, thanks to deregulation. A BPU report stated deployment of FiOS slowed to a crawl between 2010-2013, when only three new towns were reached with fiber upgrades. What little interest Verizon still had in FiOS expansion ended after 2012’s Superstorm Sandy, after which Verizon ended expansion in urban areas of New Jersey as well.

“It’s solely Verizon’s discretion to add municipalities to its system-wide franchise,” a BPU spokesman told the newspaper.

Prior to deregulation, utility boards and regulators could compel companies to offer service instead of shrugging their shoulders and telling state lawmakers ‘it’s all up to Verizon.’

Frontier Communications has no plans to upgrade most of their legacy copper DSL internet customers this year, leaving customers in many markets stuck at speeds as low as 1-3 Mbps.

Frontier CEO Dan McCarthy told analysts in a late afternoon conference call Tuesday that around one million homes have access to Frontier’s 100 Mbps DSL service, and six million can sign up for DSL at or above 25 Mbps. McCarthy considers those customers valuable targets for marketing campaigns because most are not Frontier customers. For the rest of Frontier’s legacy copper areas that cannot access those speeds, Frontier will have little to offer in 2019.

“I don’t think you’re going to see us do a lot of significant copper upgrades this year,” McCarthy admitted. “Our big focus is really future proofing kind of the [California, Texas, and Florida] fiber markets. So, we’re spending the money to upgrade th[ose markets] to 10 Gbps capability.”

Frontier reported another quarter of poor results late yesterday, widely missing analyst expectations. Frontier’s share price lost 26.8% of its value overnight in heavy trading. Over the last 12 months, Frontier’s share price has dropped by 77%.

Analysts remain deeply concerned about Frontier’s customer defections, which have persisted for several years and show no signs of ending. Even more daunting, Frontier’s high debt levels are still a problem. A major tranche of Frontier’s debt comes due for repayment in 2022, and there are concerns Frontier may not be able to cover it, which could force the company into bankruptcy. In February, Bloomberg News ranked Frontier No. 1 on the list of deeply distressed debt issuers in North America.

While cable companies can count on quarterly boosts in the number of customers signing up for broadband, Frontier shareholders have become accustomed to reading about subscriber losses. The company lost 38,000 broadband subscribers in the last quarter, including in its fiber to the home markets. Most of Frontier’s losses are Charter Spectrum and Comcast’s gains. Frontier also reported landline and video customer losses.