Charter Communications is sending letters to consumers in some Google Fiber cities warning that the hotly anticipated fiber to the home provider is “canceling internet service in Louisville — don’t wait to be the next city.”

But no worries, Charter adds. “Spectrum is here for you.”

Spectrum is offering consumers in cities like Raleigh 400/20 Mbps internet $29.99 a month, price-locked for three years. (Image courtesy: News & Observer)

The letter includes an offer for Spectrum’s best internet deal, available only to addresses identified as already getting high-speed internet competition from at least two other providers — 400/20 Mbps internet service for $29.99 a month, price-locked for three years. In contrast, Google Fiber customers in the Triangle region of North Carolina pay $50 a month for 100 Mbps or $70 a month for 1,000 Mbps. That makes Spectrum’s offer a better deal, with for four times the download speed Google offers on its lower-priced plan.

Raleigh’s News & Observer spoke with Joe Mancini, head of sales for Google Fiber’s Triangle region. Mancini called Spectrum’s letter a “scare tactic.” Spectrum had no comment.

The letter could connect with would-be Google Fiber customers still waiting for service. Since being announced in the area in September 2006, Google Fiber’s first target was the community of Morrisville. As of today, the service is available in selected areas as far east as downtown Raleigh, and in Chapel Hill, southern and downtown Durham, and adjacent areas. But Google Fiber still has a long way to go to reach the entire region.

Google Fiber announced it was pulling out of Louisville, Ky., after a failed experiment microtrenching its fiber optic cables just a few inches underground. That proved disastrous, with cables emerging above ground as a result of incidental digging, erosion, road construction, freeze-thaw cycles, and in some cases, pets. Realizing it would have to scrap the entire project and start anew, Google instead decided to abandon the city, switching off existing customers on April 15.

Google has significantly slowed expansion of its fiber network over the last few years, and at one point signaled its future attention would focus on urban wireless mesh technology that would work like high-speed Wi-Fi. But that project seems to be dragging as well. As a result, some consumers may worry if Google is in the broadband business for the long haul. Mancini says the company is, and has continued expansion into new parts of the region earlier this year.

“I would encourage folks to disregard this obvious scare tactic. Google Fiber is here to stay,” he said in a phone interview with the newspaper. “We love it here, and we are working harder every day to bring faster internet coverage. I am knocking on doors to talk to potential customers right now, and our customer base and the network is growing every month. We served our first customers in Chapel Hill earlier this year and downtown Durham, as well.”

This is the second part of a two-part series reflecting on Verizon’s 5G millimeter wave wireless home broadband service and how Wall Street complicates its potential. Be sure to read part one, “How a Wall Street Analyst Complicates AT&T and Verizon’s Upgrade and Investment Plans” for the full story.

“Put simply, the cost of building a second network is so high that its builder simply can’t earn a passable return based on the market share available to a second player,” Craig Moffett, an important telecom industry analyst working on behalf of Wall Street investors, argued over Verizon’s fiber to the home project dubbed FiOS. “Virtually every overbuilder, from telephone companies to competitive cable companies to municipalities, has learned this lesson the hard way; almost all such efforts have ended in bankruptcy. Verizon’s own FiOS network was an economic failure; there is no longer any debate about whether FiOS did or didn’t earn its cost of capital. It didn’t, and it wasn’t even close.”

Moffett’s philosophy about emerging broadband technology and competition is heavily influenced by his personal and professional belief that broadband competition is bad for business and investors. His distaste for Verizon FiOS, a plan to scrap old copper phone wiring in favor of fiber optics, was well-known across the industry and trade press. But Verizon kept going with the project under the leadership of then-CEO Ivan Seidenberg, who was a telephone man through and through. But by 2010, Seidenberg had decided to retire, and his successor, Lowell McAdam, had a very different perspective about Verizon’s future. McAdam spent almost his entire career from the early 1990s forward in the wireless business. In 2006, McAdam was named the chief operating officer and CEO of Verizon Wireless. When he succeeded Seidenberg in late 2010, Verizon had already announced it was winding down further FiOS expansion. That seemed to suit McAdam just fine, because under his leadership as CEO of Verizon, Verizon Wireless became the dominant focus of the company. Heavy investment in wireless continued, while Verizon’s landline network was allowed to deteriorate.

Moffett told his clients the end of FiOS expansion would be good news for cable companies because they would lose fewer subscribers as a result.

Verizon’s marketing machine carefully lays its business case for 5G home broadband

More than a decade later, Verizon’s decision to embark on another major technology upgrade requiring billions in new spending quickly raised eyebrows on Wall Street. This time, however, Verizon executives attempted to be better prepared to defend their 5G vision from the reflexive investor argument that it was too expensive and extravagant.

Moffett

“First, their fixed wireless broadband business will leverage investments that Verizon argues they will need to make anyway to support their wireless network,” Moffett wrote in a report to his clients, acknowledging Verizon’s claimed reasons for entering the wireless home broadband business. “Second, Verizon argues that it will be cheaper to connect homes wirelessly than it is to connect them with fiber, making it economic to deploy fixed wireless in markets where fiber to the home hasn’t been economically justifiable.”

Most of the expenses cited by Moffett relate to bringing fiber networks into neighborhoods to support the small cell technology Verizon is relying on for its 5G home broadband and mobile services.

Moffett also believes the only attractive market for 5G service will be in more upscale suburban rings around cities, not densely populated urban centers or rural areas. Moffett argues fiber providers are likely already providing service in urban areas and rural areas simply lack enough customers to justify the cost of either a fiber optic network or a small cell network. Ironically, that conclusion means the same suburban ring Moffett rejected 5-10 years ago as economically unsuitable for fiber service is now precisely the area Moffett argues is the only attractive market for fiber service, to bring 5G.

From a short-term results perspective, laying fiber optics is a costly proposition unlikely to return much revenue gain in a few short years. That reality has kept many investor-owned phone companies away from expensive network upgrades. These legacy telephone companies recognize they are going to continue to lose customers to faster technologies like cable, fiber, and perhaps, wireless. But managing an existing low-speed DSL business seems preferable to facing the wrath of investors upset over the prospect of shareholder dividends and share buybacks being curtailed to redirect money into a full-scale upgrade effort, even if it results in better returns and greater revenue a few years down the road.

Verizon is depending on its wireless division’s extremely high profitability to counter the usual objections to major upgrades, and by focusing on how 5G will enhance the wireless experience. It also benefits from media hype surrounding 5G technology, exciting some investors. But Verizon is also downplaying exactly what it will cost to lay fiber optic networks deep into neighborhoods to deliver it.

Moffett investigates Verizon’s first 5G city — Sacramento, Calif., and discovers alarming results

Moffett decided to bypass the traditional cost-benefit analysis of laying mile after mile of optical fiber and decided to test Verizon’s case for wireless 5G home broadband instead.

Six months after launch, Moffett investigated Verizon’s 5G millimeter wave network in Sacramento, examining how the service is initially performing. Moffett identified seven zip codes in Sacramento where service was most likely to be available, based on cell tower/small cell records. As of late February, Moffett found Sacramento had 391 Verizon small cells installed, with 273 used for millimeter wave 5G service (the rest are likely designed to bolster Verizon’s 4G LTE network).

Verizon has admitted small cell technology is vulnerable to distance, so Moffett relied on earlier purported claims of 5G coverage to limit the number of addresses to be sampled. Moffett’s team identified 45,000 out of 70,000 possible addresses, based on if those homes were located within a radius of 0.7 miles of a 5G small cell. Then, Moffett’s team devised a method of hitting Verizon’s 5G availability website with each of those 45,000 addresses to learn which ones Verizon qualified for 5G service.

The results, so far, are underwhelming:

• Only an average of 6% of the queried addresses were actually eligible to receive Verizon’s fixed wireless service. That could mean Verizon has installed 5G small cells, but some are not yet operational in all areas or the network is performing much worse than originally anticipated. Some zip codes did better than others, but not by much. The best offered just an 18% pre-qualified acceptance rate. Apparently Verizon’s qualification website also informs applicants if they already have service, which proved to be a good way of finding out how many addresses actually have signed up. Moffett claims only 3% of eligible customers have decided to subscribe to Verizon’s 5G home broadband service so far.
• Coverage appears to a problem. As Moffett checked addresses further away from each small cell, more and more were deemed ineligible for service. In fact, despite Verizon’s claims that its 5G signal reached customers more than 1,900 feet away, the company’s own website refused to actually sell service to customers that far away. Moffett found subscribers were deemed ineligible for service as little as 400 feet away from a small cell. At that distance, less than 50% of checked addresses could sign up. For those 700 feet or more away, almost no addresses were qualified for service.

With those results, Moffett was able to extrapolate some important numbers about how much Verizon’s infrastructure is being utilized:

• Each small cell serves approximately 27 eligible addresses.
• Verizon’s 5G home broadband has a 0.1% market share in Sacramento.
• Excluding areas where multi-dwelling properties dominate, Verizon has achieved a penetration of roughly one subscribed single-family home per 1.5 5G small cell.

“Our findings in Sacramento — limited coverage, low penetration — preliminary though they may be, suggest that earning an attractive return will be challenging, at best,” Moffett concluded.

Because Verizon has attracted so few subscribers thus far, the total cost per connected home for 5G wireless service could far exceed what it would cost to just lay down fiber to the home service to each customer, which might actually give Verizon more business.

“Our analysis suggests that costs will likely be much higher (that is, cell radii appear smaller) and penetration rates lower than initially expected,” the report explained. “If those patterns are indicative of what is to come in a broader rollout, it would mean a much higher cost per connected home, and therefore much lower returns on capital, than what might have been expected from Verizon’s advance billing.”

If Moffett’s estimate of 27 residences served per small cell was proven true, Verizon would have to deploy well over five million small cells to deliver 5G wireless service across America.

Verizon’s choice of cities to launch its 5G millimeter wave network may be partly designed to test the differences in topology, building density and foliage levels, and there may be dramatic differences between Houston, Sacramento, Indianapolis, and Los Angeles.

Moffett’s overall conclusion is that should Verizon move forward on rolling out 5G wireless home broadband to around 25% of the country, as it planned, reaching those 30 million homes “will take a very, very long time, and it will cost a great deal of money.”

As AT&T continues to build out its fiber to the home network in its landline service areas, the company estimates it could achieve 50% market penetration by 2023, triggering a growing wave of consumers dropping cable in search of a better deal.

Cowen, a research firm, issued a report to clients indicating if AT&T achieves its expansion goals, it will be a tough competitor to Comcast and Charter.

Both cable companies have pulled back on promotional and customer retention pricing in recent years, allowing customers to follow through on threats to disconnect service. AT&T Fiber is expected to be a frequent destination for those unhappy cable customers. As AT&T’s fiber network expands, it could eventually grab one million customers each from Comcast and Charter, as well as another 200,000 cancelling service with Altice’s Suddenlink.

If the estimates prove accurate, the costs to earnings will be considerable — Comcast will lose around $1.1 billion, Charter $885 million, and Altice $162 million.

AT&T claims it has expanded fiber to the home service to three million homes each of the last two years. It plans to continue expanding fiber buildouts for an additional three years, wiring up communities where a return on investment can be achieved.

To stem customer losses, the cable industry will likely have to relent on pricing and promotions in areas where AT&T Fiber already provides competitive service.

The cable industry has enjoyed a strong speed advantage over most phone companies for the last few years as nearly 100% of cable operators now offer gigabit download speed. In contrast, phone companies are offering gigabit speed in only about 25% of their footprint, with many telco service areas still stuck with low-speed DSL, often unable to achieve the FCC’s minimum broadband speed of 25 Mbps.

Cable ONE today announced it has acquired family owned cable operator Fidelity Communications, in a $525.9 million cash deal.

Fidelity serves 134,000 residential and business customers in smaller communities in Arkansas, Louisiana, Missouri, Oklahoma, and Texas. Cable ONE showed interest in Fidelity because many of its small cable systems are not too far away from existing Cable ONE systems that also target smaller communities.

Fidelity systems typically sell broadband at speeds of 50 Mbps ($64.99) and 100 Mbps ($89.99).

Fidelity does not usage cap its customers, Cable ONE does.

Cable ONE has also been criticized for charging the highest price residential broadband service in the country.

Fidelity currently serves customers in:

Arkansas
Alexander
Bauxite
Beebe
Benton
Bryant
Cherokee Village
Hardy
Haskell
Hensley
Highland
Little Rock
Mabelvale
Mammoth Springs
Maumelle
North Little Rock
Pulaski
Shannon Hills

Louisiana
Erwinville
Glynn
Jarreau
Lakeland
Morganza
New Roads
Oscar
Rougon
Ventress

Missouri
Adrian
Buffalo
El Dorado Springs
Gerald
Harrisonville
Lebanon
Nevada
New Haven
Owensville
Rolla
Salem
Sullivan
Thayer
West Plains

Oklahoma
Lawton

Texas
Atlanta
Carthage
Hallsville
Jefferson
Marshall
Queen City

Discovery has announced an exclusive agreement with BBC’s Natural History Unit that will open up decades of natural history and wildlife programming for on-demand viewing on Discovery’s forthcoming subscription streaming platform, planned for a 2020 launch.

“This is our largest-ever content sales deal,” said Tony Hall, BBC director general. “Global subscribers are in for a real treat — the best content on a great new platform.”

The BBC Natural History Unit is the world’s largest producer of radio, television, and online content dealing exclusively with natural history and wildlife programming. Launched in 1957, the department produces around 100 hours of television and 50 hours of radio programs annually. Some of that programming comes from well-known naturist Sir David Attenborough, himself responsible for hundreds of hours of award-winning BBC nature documentaries.

A limited amount of programming produced by the unit is already available on other platforms, like Netflix, usually branded as BBC Earth. But only a limited catalog of content is on offer, typically licensed for streaming for one year. The new agreement between Discovery and BBC will make Discovery’s forthcoming subscription video service the exclusive streaming home of all BBC nature and wildlife programs, except in the United Kingdom, Ireland, and China. More importantly, Discovery can make the full BBC catalog of nature programming available for viewing.

Discovery’s plans for its subscription streaming platform have quickly evolved since first announced last year. The original plan was to offer a $5-8/mo service showcasing programming from over 30 networks already operated or owned by Discovery worldwide. The well-known cable network announced its plans for a streaming service after completing its $14.6 billion acquisition of Scripps Networks Interactive in 2017. The acquisition allows Discovery to blend its own nature and history programs with lifestyle content from Scripps’ networks like HGTV, Food Network, and DIY.

Now, Discovery is planning several different tiers of its streaming service, each offering subscribers a very deep catalog of non-expiring content. The BBC Natural History programming add-on is expected to cost under $5 a month. Other planned add-ons may feature a rich catalog of educational videos for do-it-yourself home projects, a video cooking school, and others to teach people sports like golf or tennis.

Zaslav

Discovery CEO David Zaslav sees the opportunity for Discovery to launch the “Peloton of food,” a reference to the stationary bike manufacturer that also sells exercise routine subscriptions to owners. In such a scenario, a celebrity chef like Bobby Flay could host hundreds of hours of cooking content, teaching subscribers how to cook everything from a turkey to a complete cajun-style meal.

Discovery has already put its wheels in motion, launching streaming services with sports programming including cycling and golf which may feature products such as the SkyTrak+.

Zaslav envisions the future of Discovery’s streaming service to be the Netflix of factual content programming. He noted most of the huge entertainment companies are clashing head to head by competing with scripted entertainment programming. Discovery will differentiate itself with documentaries, education, sports, and nature specials.

“The scripted movie packagers are big boats, and they’re banging into each other,” Zaslav said. “They’re fighting over who can be the widest and who can be the fastest. Right now, we have some great lanes.”

Zaslav admits Discovery’s earlier forays into streaming, including its participation in TV Everywhere — offering a limited number of shows for streaming to authenticated cable or satellite subscribers — has not been very successful. Contract restrictions often limited how long series can remain available for viewing, and the catalog of options was never particularly deep. With the new ad-free streaming platform, Discovery envisions releasing a massive menu of content, frequently updated with new shows from its own production unit and its partners. Most of Discovery’s own programming was produced for its cable networks, but nothing stops Discovery from creating content specifically for its streaming platform. Discovery’s new agreements should also allow it to keep content available indefinitely.

Discovery plans on spending hundreds of millions of dollars to develop and market its new services. It will face the challenge of convincing customers that subscribing to yet another streaming service is worthwhile. A 2018 survey from Magid Research found consumers were willing to spend up to $38 a month on a combination of streaming services like Netflix, Hulu, and Amazon Prime Video. Discovery hopes to launch its new platform in time to grab subscribers before new competitors from Disney, WarnerMedia, and Apple take hold and possibly tap out would be customers.

The deal with the BBC is part of a larger transaction between the two programmers over their European networks. The BBC is spending $225 million and assuming $90 million in debt to acquire Discovery’s share of several UKTV networks, including Alibi, Dave, Drama, Eden, Gold, W, and Yesterday. In turn, Discovery assumes full control of lifestyle channels Home, Good Food, and Really.