Next year’s upgrade to DOCSIS 3.1 will support cable broadband speeds up to one gigabit shortly after introduction.

Telephone companies relying on traditional ADSL service to power their broadband offering will likely face a renewed competitive assault in 2016 that will further reduce their already-challenged market share in areas where cable companies compete.

Cable operators are hungry for profitable broadband customers and the best place to find new prospects is at the phone company, where DSL is still a common technology to deliver Internet access. But while cable Internet speeds have risen, significant DSL speed hikes have proven more modest in the residential market.

In 2016, the cable industry intends to poach some of the remaining price-sensitive holdouts still clinging to DSL with revised broadband offers promising more speed for the dollar.

Cable broadband has already proven itself a runaway success when matched against telephone company DSL service. Over the last year, Strategy Analytics found Comcast and Time Warner Cable alone signed up a combined 71 percent of the three million new broadband customers in the U.S.

“Cable operators continue to increase market share in U.S. broadband,” said Jason Blackwell, a director at Strategy Analytics. “Over the past twelve months, Comcast has accounted for 42 percent of new subscribers among the operators that we track.  Fiber growth is still strong, but the telco operators haven’t been able to shake off the losses of DSL subscribers.  In 2016, we expect to see a real battle in broadband, as cable operators begin to roll out DOCSIS 3.1 for even higher speed offers, placing additional pressure on telcos.”

That battle will come in the form of upgraded economy broadband plans, many arriving shortly after providers upgrade to the DOCSIS 3.1 cable broadband platform. Currently those plans offer speeds ranging from 2-6Mbps. Starting next year, customers can expect economy plan prices to stay generally comparable to DSL, with promises of faster and more consistent speeds. A source tells Stop the Cap! at least two significant cable operators are considering 10Mbps to be an appropriate entry-level broadband speed for 2016, in keeping with FCC chairman Thomas Wheeler’s dislike of Internet speeds below 10Mbps.

Just a few years earlier, most providers wouldn’t think of offering discounted 10Mbps service, fearing it would cannibalize revenue as customers downgraded to get lower priced service. Increasing demands on bandwidth from online video and multiple in-home users have gradually raised consumer expectations, and their need for speed.

Unfortunately for many phone companies that have neglected significant investment in their aging wireline networks, the costs to keep up with cable will become unmanageable unless investors are willing to tolerate significant growth in capital expenses to pay for network upgrades. Frontier Communications still claims most of their customers are satisfied with 6Mbps DSL, neglecting to mention many of those customers live in areas where cable competition (or faster service from Frontier) is not available.

Where competition does exist, it’s especially bad news for phone companies that still rely on DSL. Earlier this year, Frontier’s former CEO Maggie Wilderotter admitted Frontier’s share of the residential broadband market had dropped to less than 25% in 26 of the 27 states where it provides service. In Connecticut, the one state where Frontier was doing better, its acquired AT&T U-verse system has enabled the phone company to deliver broadband speeds up to 100Mbps. But even those speeds do not satisfy state officials who are seeking proposals from providers to build a gigabit fiber network in a public-private partnership.

DSL speed upgrades have been spotty and more modest.

Frontier’s recent experiments with fiber to the home service in a small part of Durham, N.C., and the unintentional revelation of a gigabit broadband inquiry page on Frontier’s website suggests the company may be exploring at least a limited rollout of gigabit fiber service in the state. But company officials have also repeatedly stressed in quarterly results conference calls there were no significant plans to embark on a major spending program to deliver major upgrades across their service areas.

Some phone companies may have little choice except to offer upgrades where cable operators are continuing to rob them of customers. In the northeast, where Frontier has a substantial presence, cable operators including Charter, Comcast and Time Warner Cable are committing to additional speed upgrades. Time Warner Cable’s current standard speed of 15Mbps will rise to 50-60Mbps in 2016, up to ten times faster than Frontier’s most popular “up to” 6Mbps DSL plan.

Most of the broadband customer gains won by Comcast and Time Warner Cable come as a result of DSL disconnects. AT&T said goodbye to 106,000 customers during the third quarter. Verizon managed to pick up 2,000 new subscribers overall, almost all signing up for FiOS fiber to the home service. No cable operator lost broadband market share, reported analyst firm Evercore. Leichtman Research offered additional insight, finding AT&T and Verizon were successful adding 305,000 U-verse and FiOS broadband customers, while losing 432,000 DSL customers during the same quarter.

The message to phone companies couldn’t be clearer: upgrade your networks or else.

The year 2013 marked a significant turning point for phone companies that have handled voice telephone calls for over 100 years. For the first time, the volume of domestic telephone calls and the revenue generated from them was nearly flat. For the last two years, both are now in decline on the wireless side of the business as North Americans increasingly stop talking on the phone and text and message instead.

The U.S. wireline business peaked in the year 2000 with 192 million residential and office landlines. Over the next ten years, close to 80 million of those — 40 percent, would be permanently disconnected, replaced either by cell phones, cable telephone service, or a Voice over IP line. Wireless companies picked up the largest percentage of landline refugees, most never looking back.

Over one-third of more than $500 billion in annual revenue generated by telecom companies in 2013 came from voice services. Although that sounds like a lot, it’s a pittance of a percentage when compared to 2005 when AT&T, Sprint, T-Mobile, and Verizon Wireless earned most of their revenue from voice calls. Ten years ago, wireless companies principally sold plans based on the number of calling minutes included, and many customers often guessed wrong, paying per minute for calls exceeding their allowance.

At first, this represented a revenue bonanza for the wireless industry, which earned billions selling customers minute-based calling plans that came with built-in cost-controlling deterrents for long-winded talkers — the concern of using up their calling allowance.

Starting in 2008, wireless industry executives noticed something peculiar. While revenue from texting add-on plans was surging, the growth in calling began to level off. Wireless voice usage per subscriber peaked at an average of 769 minutes in 2007 and began falling after that year. By 2011, the average customer was making 615 minutes of calls a month. As customers began downgrading calling plans, wireless carriers shifted their quest for revenue towards text messaging.

For awhile, texting earned wireless companies astounding profits that required little extra investment in their networks. SMS service at most carriers was effectively priced at $1,250 per megabyte, broken up into 160 byte single messages. In 2011, over 2.3 trillion text messages were exchanged. A message that cost a wireless carrier an infinitesimal fraction of a penny to send and receive cost consumers up to 20 cents or more apiece if they lacked an optional texting plan. To further boost revenue, some carriers like Verizon Wireless began to pull back offering customers a variety of tiered texting plans with different messaging allowances, switching instead to a single, more expensive unlimited texting plan. Many customers balked at the $19.95 a month price and began exploring other forms of messaging each other.

The industry’s demand for profit eventually threatened to kill the goose that laid the golden egg. At the same time wireless carriers were raising prices on text messages and forcing customers into expensive texting add-on plans, free third-party messaging apps began eating into texting volume. By 2012, the use of SMS declined for the first time, with 2.19 trillion text messages sent and received, down 4.9 percent from a year earlier.

It took little time for the wireless industry to realize the days of offering plans based on calling minutes and texting were quickly coming to an end. Younger users began the cultural trend of talking less, texting more — but using a growing number of free alternative apps to do so. As a result, both AT&T and Verizon shifted their plans away from focusing on revenue from calling and texting and instead moved to monetize data usage. Today, both carriers offer base plans featuring unlimited voice calling and texting almost as an afterthought. The real money is now made from selling packages of wireless data.

Wi-Fi calling allows customers to make and receive voice calls over a Wi-Fi connection, not a nearby cell tower. The prospect of bundling that option into a cell phone just a few years ago would have been unlikely at some providers, unthinkable at others. It was never considered a high priority at any traditional carrier, although T-Mobile began offering the service all the way back in 2007.

Since most calling plans now bundle unlimited calling, letting calls ride off the traditional cellular network is no longer much of an economic concern.

Some even expect carriers to eventually embrace Wi-Fi calling, declaring it superior to alternatives like Hangouts and Skype, which require an app to handle the call. A Wi-Fi call can be received by anyone with a phone.

This month, the last holdout, Verizon Wireless, capitulated and announced it had won approval from the FCC to introduce Wi-Fi calling to customers, joining Sprint, T-Mobile, and AT&T. But Verizon plans to initially limit that service, offering an app that must be installed to make and receive Wi-Fi calls. The other three carriers integrate Wi-Fi calling directly into the primary phone call app already on the phone.

The introduction of the service is unlikely to have a significant economic impact on any wireless carrier. Most have ample room on their networks to handle cell call volumes. Whether a call is placed over Wi-Fi or traditional cellular service, it will ultimately end up on the same or a similar IP-based phone switch as it makes its way to the called party.

With little revenue-generating opportunities for voice calling or SMS messaging, companies have nearly stopped the practice of monetizing individual telephone calls, preferring to offer unlimited, all-you-want calling and texting plans that used to cost consumers considerable amounts of money.

Now wireless carriers see fortunes to be made slicing up and packaging gigabytes of wireless data, sold at prices that have little relation to actual cost, just as carriers managed with text messaging for the last 20 years. A Verizon Wireless customer using 12GB of data in October that kept a now-grandfathered unlimited data plan paid just under $30 for that usage. (This month Verizon raised the price of that coveted unlimited plan by $20 a month.) Verizon charges $80 for that same amount of data on its new “XL” data plan. Verizon’s cost to deliver that data to customers is lower than it was five years ago, but customers wouldn’t know it based on their bill. As always with the wireless industry, costs often have no relationship to the price ultimately charged consumers.

One of AT&T’s cell towers in Denison, Tex. went missing last Thursday in the 1900 block of West Crawford St. after vandals cut the tower’s supporting guy wires, causing it to collapse.

Nearby residents woke up to find the remains of the tower crumpled on the ground, with dramatically poorer cell service the result for AT&T, Sprint, and T-Mobile customers in the immediate vicinity. All three mobile providers maintained antennas on the affected tower.

Denison Police say the incident was a clear case of vandalism. After the guy wires were intentionally cut, the tower lacked sufficient support to stay standing on its own.

Nobody was injured during the collapse, but AT&T says the vandals caused $1 million in damages. A temporary cell tower is now in place. It will take three months to permanently replace the cell tower.

AT&T is offering at least a $7,500 reward for information that leads to an arrest.

[flv]http://www.phillipdampier.com/video/KXII Sherman ATT cell tower felled in Denison 11-22-2015.mp4[/flv]

KXII in Sherman, Tex. reports Denison authorities are looking to arrest the vandal(s) that destroyed an AT&T cell tower. (1:30)

Gov. Haslam

Top officials of four southern states are coordinating efforts with Republican House members to oppose the Federal Communications Commission’s preemption of state laws that restrict or prohibit municipal/public broadband competition.

South Carolina Governor Nikki Haley, Tennessee Governor Bill Haslam, Alabama Attorney General Luther Strange, and Tennessee Attorney General Herbert Slattery have all backed efforts by House Republicans to curtail the regulatory powers of the FCC, claiming states’ rights should have precedence over the federal regulator. All four have sent letters to the House Energy & Commerce Committee putting their opposition on paper.

In 2014, FCC chairman Thomas Wheeler announced the FCC would seek to preempt state laws in North Carolina and Tennessee that severely restrict the development of broadband networks owned or controlled by municipalities and public utilities. The laws typically allow existing municipal networks to continue operating, but prohibit expansion beyond a pre-defined service area. Networks planning to launch after the laws took effect usually face onerous conditions and disclosure requirements that make many untenable. Large incumbent cable and phone companies were exempted from the law.

Wheeler’s efforts came in response to requests from community broadband providers seeking to deliver service to expanded service areas. The debate has put several local governments and utilities in an uncomfortable position of opposing their colleagues in state government.

In North Carolina, Attorney General Roy Cooper has taken the FCC to court in a petition to the U.S. Court of Appeals for the Fourth Circuit.

“Despite recognition that the State of North Carolina creates and retains control over municipal governments, the FCC unlawfully inserted itself between the State and the State’s political subdivisions,” Cooper wrote to the court. Cooper says the FCC’s actions are unconstitutional and exceeds the commission’s authority; “is arbitrary, capricious, and an abuse of discretion within the meaning of the Administrative Procedure Act; and is otherwise contrary to law.”

Much of the opposition to municipal broadband comes from Republican politicians on the state and federal level. Most claim municipal providers represent unfair competition to the private sector. The American Legislative Exchange Council (ALEC) considers municipal broadband a significant issue. The corporate-funded group offers state legislators the opportunity to meet with telecom company lobbyists. Legislators are also provided already-written sample legislation restricting municipal broadband developed by ALEC’s telecom company members, including AT&T, Comcast, and Time Warner Cable. In states where Republicans hold the majority in the state legislature, such bills often become law.

The FCC represents a serious threat to the telecom company-sponsored broadband legislation. Instead of debating the impact of the law on unpopular phone and cable companies, the four state officeholders claim the dispute is a battle pitting states’ rights against the powers of the federal government.

Haslam, who also serves as the national chairman of the Republican Governors Association, formally asked Congress to intervene against the FCC to protect state sovereignty. In a separate appeal to the FCC, Tennessee officials argued the FCC violated the country’s founding concept of separation of state and federal power, citing the 10th Amendment to the Constitution reserving power not delegated to the United States for the states respectively, or to the people.

Haslam’s critics contend the governor has delegated his own power to protect the interests of large telecommunications corporations operating in his state — companies the critics claimed wrote and lobbied for a state law that established anticompetitive broadband corporate protectionism in Tennessee. Among Haslam’s top campaign contributors are AT&T and Comcast — Tennessee’s two largest telecommunications companies.

Gov. Haley

Slattery, appointed by the Tennessee Supreme Court, argued in his letter to Congress the FCC lacked any authority to circumvent Tennessee state law.

The FCC has consistently claimed it is not overturning any state laws. Instead, it is performing its duties under its mandate.

The FCC cites Section 706 authority to regulate when broadband is not being deployed in a reasonable and timely manner, something that cannot happen if a state law impedes new competitors and entrants.

Alabama’s attorney general joined the fight in a brief to the Sixth Circuit opposing preemption, with a copy sent to the House Subcommittee on Communications and Technology, which is planning to hold a hearing on the matter. Alabama has several municipal and public utility networks operating in the state. AT&T and Comcast also serve large parts of Alabama. AT&T gave $11,000 to Strange’s campaign, Comcast sent $8,500. The Koch Brothers, fierce opponents of community broadband, also donated $10,000 to Strange through Koch Industries.

South Carolina Governor Nikki Haley told legislators she strongly opposes external entities like the FCC overreaching into her state’s business. She did not mention AT&T is her fifth largest contributor, donating more than $16,000 to her last campaign. South Carolina’s largest cable operator is Time Warner Cable. It donated $9,900 to the governor’s campaign fund.

AT&T has introduced 23 new communities and adjacent service areas in North Carolina, Georgia, Florida, Illinois, Texas, and Tennessee to the possibility of getting gigabit broadband speeds, if customers are willing to wait for AT&T to reach their home or small business.

Here are the latest cities on AT&T’s new launch list:

• Florida: Coral Gables, Homestead, Miami Gardens, North Miami, Oviedo, Sanford, and Parkland
• Georgia: Alpharetta, Cartersville, Duluth, East Point, Avondale Estates, Jonesboro, and Rome
• Illinois: Bolingbrook, Mundelein, Shorewood, Elmwood Park, Volo, and parts of Munster, Ind.
• North Carolina: Clemmons, Garner, Holly Springs and Salisbury
• Tennessee: Spring Hill and Gallatin
• Texas:  Hunters Creek Village and Rosenberg

AT&T claims its fiber to the home service will eventually reach more than 14 million customers across its service area, but adds it will only reach a fraction of them – one million – by the end of 2015. Most customers will have around a 7% chance of getting gigabit speeds from AT&T this year.

Warren

In Salisbury, N.C., where Fibrant delivers community-owned broadband at speeds up to 10Gbps, AT&T gave space in its press release for Rep. Harry Warren, the local Republican member of the state House of Representatives, to praise the phone company.

“I’m excited about this new development, and appreciate AT&T’s continued investment in Rowan County,” Warren said.

Warren says he fought to protect Fibrant from a 2011 state law — drafted by the state’s largest phone and cable companies — that effectively outlawed community-owned broadband competition. But he, along with most of his Republican colleagues, also voted in favor of it.

Earlier this year, Federal Communications Commission chairman Thomas Wheeler announced the FCC would pre-empt municipal broadband bans in North Carolina and Tennessee. Warren told the Salisbury Post he wondered if Wheeler was guilty of “federal overreach.”

“That’s my biggest concern about it,” he said.

Both AT&T and Time Warner Cable have been regular contributors to Warren’s campaigns since 2010.

Brock

State Sen. Andrew Brock, also a Republican, told the newspaper Wheeler’s actions show how out of touch the Obama Administration is with “technology and the pocketbooks of American families.”

“I find it interesting that a bureaucrat that is not beholden to the people can make such a claim without going through Congress,” Brock said.

The year Brock voted in favor of banning community broadband competition in North Carolina, he received $3,750 from telecom companies. This election cycle, Time Warner Cable is his second largest contributor. AT&T and CenturyLink also each donated $1,000 to Brock’s campaign fund.

While AT&T is free to expand its gigabit U-verse upgrade as fast or as slow as it chooses, the community providers that delivered gigabit speeds well before AT&T are limited by state law from expanding service outside of their original service areas or city limits. In plain English, that effectively gives AT&T state-sanctioned authority to decide who will receive gigabit speeds and who will not.

The FCC’s pre-emption, if upheld despite ongoing challenges from Republican lawmakers on the state and federal level, could allow Fibrant to join forces with other municipal providers in North Carolina to expand fiber broadband to new communities around the state.