Super monopoly?

Some Wall Street analysts are pondering ideas on how to limit forthcoming 5G wireless home broadband, suggesting providers might want to set up local monopolies, keeping competition to a minimum and profits to a maximum.

Verizon’s presentation at its annual Analyst Day meeting drew little praise from analysts and investors in attendance, “landing like a thud” to quote one person at the event.

The issue concerning Wall Street is what impact 5G wireless broadband will have on the internet access marketplace, which is currently a comfortable monopoly or duopoly in most American cities. That may radically change if the country’s four wireless companies each launch their own 5G services, designed to replace wired home broadband services from the cable and phone companies.

This week Verizon formally announced Sacramento would be the first city in the country to get its forthcoming 5G service, with an additional four of five unnamed cities to follow sometime next year.

Verizon will advertise 1,000Mbps service that will be “priced competitively” with current internet providers in the market. But Verizon intends to market itself as “a premium provider,” which means pricing is likely to be higher than one might expect. Verizon claims they intend to roll out 5G service to 30 million households — 25-30% of the country, making Verizon a prominent provider of fixed wireless home broadband service.

But analysts panned Verizon’s presentation for raising more questions than the company was prepared to answer. Barron’s shared the views of several analysts who were underwhelmed.

Notably, Craig Moffett from Moffett-Nathanson was particularly concerned about how to rate 5G service for his investor clients, and more importantly to them, how to forecast revenue and profit.

Moffett

The biggest problem for Moffett is the prospect of additional competition, and what that will do to each current (and future) provider’s share of customers and its revenue. If every major wireless carrier enters the 5G home broadband business, that will raise the prospective number of ISPs available to consumers to six or more — four wireless carriers competing with the phone and cable company. That is potentially very dangerous to big profits, especially if a competitive price war emerges.

“Let’s assume that AT&T is just as aggressive about this opportunity as Verizon,” Moffett told his investor clients. “Will they enter the same markets as Verizon, or different ones? […] If multiple players enter each market, all targeting the same 25-30% [where 5G service will be sold]. Well, what then? Let’s suppose the 30% market share estimate is right. Wouldn’t it be now shared among two, three, or even four [5G fixed wireless broadband] providers?”

Moffett gently proposes a concept where this profit-bruising competition can be abated by following the cable television model — companies agree to stay out of each others’ markets, giving consumers a choice of just one 5G provider in each city instead of four.

“There’s a completely different future where each operator targets different markets […] Let’s say that AT&T decides to skip Sacramento. After all, Verizon will have gotten there first,” Moffett suggests. “If the required share of the [fixed wireless] market is close to Verizon’s estimated 30%, then there is only room for one provider. So AT&T decides to do Stockton, about 40 miles to the south. Verizon would then skip Stockton, but might do Modesto, twenty miles further south… and then AT&T would then skip Modesto and instead target Fresno… unless Sprint or T-Mobile got there first.”

But Moffett is thinking even further ahead, by suggesting wireless carriers might be able to stop spending billions on building and expanding their competing 4G LTE networks when they could all share a single provider’s network in each city. That idea could work if providers agreed to creating local monopolies.

“That would create a truly bizarre market dynamic that is almost unimaginable today, where each operator ‘owned’ different cities, not just for [5G] but also for 4G LTE. If this kind of patchwork were to come to pass, the only viable solution might then be for companies to reciprocally wholesale their networks. You can use mine in Modesto if I can use yours in Fresno. To state the obvious, there is almost no imaginable path to that kind of an outcome today.”

The reason providers have not attempted this kind of “one provider” model in the past is because former FCC commissioners would have never supported the idea of retiring wireless competition and creating a cable monopoly-like model for wireless service. But things have changed dramatically with the advent of Chairman Ajit Pai, who potentially could be sold on the idea of granting local monopolies on the theory it will “speed 5G deployment” to a large number of different cities. Just as independent wireless providers lease access on the four largest carriers today (MVNO agreements), AT&T, Verizon, T-Mobile and Sprint could sell wholesale access to their networks to each other, allowing massive cost savings, which may or may not be passed on to customers.

But it would also bring an end to network redundancy, create capacity problems, and require every carrier to be certain their networks were interoperable with other wireless companies. The federal government’s emergency first responder program also increasingly depends on a wireless network AT&T is building that would give them first priority access to wireless services. How that would work in a city “designated” to get service from Verizon is unclear.

Restricting competition would protect profits and sharing networks would slash expenses. But such prospects were not enough to assuage Wall Street’s insatiable hunger for maximum profits. That is why analysts were unimpressed with Verizon’s presentation, which “lacked the financials” — precise numbers that explain how much the network will cost, how quickly it will be paid off, and how much revenue it can earn for investors.

A small cell attached to a light pole.

Verizon did sell investors on the idea 5G will put an end to having to wire fiber optics to every home. The service will also keep costs to a minimum by selling retail activation kits customers will install themselves — avoiding expensive truck rolls. Billing and account activation will also be self-service.

Verizon also announced a new compact 4G/5G combined antenna, which means 5G service can be supplied through existing macro/small cell 4G equipment. Verizon will be able to supplement that network by adding new 5G nodes where it becomes necessary.

Investor expectations are that 5G will cost substantially less than fiber to the home service, will not cost massive amounts of new investment dollars to deploy in addition to maintaining existing 4G services, will not substantially undercut existing providers, and will allow Verizon to market 21st century broadband speeds to its customers bypassed for FiOS fiber service. It will also threaten rural phone companies, where customers could easily replace slow speed DSL in favor of what Verizon claims will be “gigabit wireless.”

Despite that, Instinet’s Jeffrey Kvaal was not wowed by Verizon’s look to the future.

“Verizon’s initial fixed wireless implementation seems clunky and it withheld its pricing strategy,” Kvaal told his clients. He believes fixed wireless broadband will cost Verizon an enormous amount of money he feels would be better spent on Verizon’s mobile network. “Verizon glossed over 5-10x LTE upgrades that are already offering ~100Mbps of fully mobile service at current prices to current phones without line of sight. A better 5G story might be to free up sufficient LTE capacity to boost the unlimited cap from 25GB to 100GB for, say, a $25 premium. The ‘cut the cord’ concept was successful in voice, in video, and should be in broadband.”

An Indiana company will spend between $70 and $100 million building a fiber-to-the-home network delivering gigabit broadband speed in Lexington, Ky., partly in response to months of consumer dissatisfaction with Charter Communications’ Spectrum service.

MetroNet could make Lexington the largest gigabit city in the country, according to the city’s mayor Jim Gray.

“Santa Claus is coming to town,” Gray said.

Headquartered in Evansville, Ind., MetroNet provides internet, phone and television service across a 100% fiber optic network in 35 communities in the midwest —  mostly in Indiana and the western suburbs of Chicago. The company started operations in 2005, wiring the community of Greencastle, Ind. Since then, it has grown with the financial support of billionaire investors including Microsoft founder Bill Gates and Nike’s Phil Knight. Oak Hill Equity Partners, a private equity firm, has a financial interest in MetroNet, along with investments in WOW!, Atlantic Broadband, Wave Broadband, and Cincinnati Bell.

MetroNet may have selected Lexington because it has a poorly received cable operator — Spectrum, and Windstream, a competitively inadequate phone company. Windstream does not provide the kind of service AT&T’s U-verse and AT&T Fiber offers in other Kentucky cities.

All of Lexington’s residents could get service from MetroNet is as little as three or four years, because the company has agreed to wire the entire urban service area, a departure from the “fiberhood” concept introduced by Google, wiring individual neighborhoods only after a sufficient number of customers pre-register for service and pay a deposit. The project is likely to win a quick approval from the Lexington-Fayette Urban County Council, allowing construction to begin in January. Because MetroNet sells television service, it will have to apply for and receive a franchise from the city.

Prices and packaging:

• 100/25Mbps $49.95
• 200/75Mbps $59.95
• 500/100Mbps $69.95
• 1,000/250Mbps $89.95
• Television packages range from $18-79 a month
• Digital Phone service is $9.95 a month
• Discounts of $10-20 a month are available for customers selecting a two year “price lock” agreement
• a $9.95/mo “technology fee” also applies.

Although most welcome the competition, some noticed MetroNet does not intend to sell service at fire sale prices.

“I checked their rates in Lafayette, Ind. and they weren’t that cheap,” commented James Wood. “100Mbps internet + Standard tier TV+ phone was $146/mo for two years.”

MetroNet uniquely charges exactly the prices it pays for cable television networks, with no mark-up. (1:39)

Comcast is raising broadband speeds across its expansive Central Division, which covers customers in Alabama, Arkansas, Florida, Georgia, Indiana, Illinois, Kentucky, Louisiana, Michigan, Mississippi, South Carolina, and Tennessee.

• Performance Starter (10Mbps) increases to 25Mbps;
• Performance (25Mbps) will now be 60Mbps;
• XFINITY Blast! (75Mbps) rises to 100Mbps.

Customers subscribed to the Performance tier will see the biggest speed jump, rising by more than double the current speed.

The new speeds are gradually rolling out to customers in these states from mid-November until mid-December. In some cases, customers will need to briefly unplug their cable modems to get the free speed upgrade.

Defenders of FCC Chairman Ajit Pai are rushing to defend the Republican majority’s likely support for an initiative to roll back the FCC’s 25/3Mbps speed standard embraced by his predecessor, Thomas Wheeler.

Johnny Kampis, writing for Watchdog.org, claims that broadband speed standard has had an adverse affect on solving America’s rural broadband gap.

After raising that standard, suddenly those areas with speeds below 10 mbps were lumped into the same group with those who could access speeds of 10-25 mbps, resulting in diminished focus on those areas where the broadband gap cut the deepest.

Raising the standard meant, too, that fans of big government could point to the suddenly higher percentage of the population that was “underserved” on internet speeds and call for more taxpayer money to solve that “problem.”

Kampis is relying on the talking points from the broadband industry, which also happens to support the same ideological interests of Watchdog.org’s benefactor, the corporate/foundation-funded Franklin Center for Government & Public Integrity. The argument suggests that if you raise broadband standards, that opens the door to more communities to claim they too are presently underserved, which then would qualify them for government-funded broadband improvements.

Kampis’ piece, like many of those published on Watchdog.org, distorts reality with suggestions that communities with 50Mbps broadband service will now be ripe for government handouts. He depends on an unnamed source from an article written on Townhall.com and also quotes the CEO of Freedom Foundation of Minnesota, which is closely associated with the same Franklin Center that hosts Watchdog.org. Kampis’ piece relies on sourcing that is directly tied to the organization hosting his article.

In reality, rural broadband funding has several mechanisms in place which heavily favor unserved, rural areas, not communities that already have 50Mbps internet access. ISPs also routinely object to projects proposed within their existing service areas, declaring them already served, and much of the funding doled out by the Connect America Fund (CAF) Kampis suggests is a government handout are being given to telephone companies, not municipalities.

Kampis

Kampis is satisfied free market capitalism will eventually solve the rural broadband problem, despite two decades of lackluster or non-existent service in areas deemed unprofitable to serve.

“So while Pai’s critics denigrate him because his FCC is considering lowering that broadband standard, he’s just correcting an earlier mistake, with the realization that the free market, not big government, will solve the rural broadband gap if given enough time,” Kampis writes. “And returning to the old standards will help ensure that the focus will be placed squarely on the areas that need the most help.”

Kampis suggests that free market solution might be 5G wireless broadband, which can potentially serve rural populations less expensively than traditional wired broadband service. Communities only need wait another 5-10 years for that to materialize, if it does at all.

Kampis claims to be an investigative reporter, but he didn’t venture too far beyond regurgitating press releases and talking points from big phone companies and opponents of municipal broadband. If he had spent time reviewing correspondence sent to the FCC in response to the question of easing broadband speed standards, he would have discovered the biggest advocates for that are large phone companies and wireless carriers that stand to benefit the most from the change.

Following the money usually delivers a clearer, more fact-based explanation for what motivates players in the broadband industry. In this case, the 25Mbps speed standard has regularly been attacked by phone and wireless companies hoping to tap into government funds to build out their networks. Traditional phone companies are upset that the 25Mbps requirement means their typical rural broadband solution – DSL, usually won’t cut it. Wireless companies have also had a hard time assuring the FCC of consistent 25Mbps speeds, making it difficult for them to qualify for grants. AT&T wasn’t happy with a 10Mbps standard for wireless service either.

Incidentally, these are the same companies that have failed to solve the rural broadband gap all along. Most will continue not serving rural areas unless the government covers part of their costs. AT&T illustrates that with its own fixed wireless rural broadband solution, which came about grudgingly with the availability of CAF funding.

The dark money ATM network hides corporate contributions funneled into advocacy groups.

The free market broadband solution is rooted in meeting Return On Investment metrics. In short, if a home costs more to serve that a company can recoup in a short amount of time, that home will not be served unless either the homeowner or someone else covers the costs of providing the service. By wiping out the Obama Administration’s FCC speed standard, more ratepayer dollars will be directed to phone and wireless companies that will build less expensive and less-capable DSL and wireless networks instead of investing in more modern technology like fiber optics.

Mr. Kampis, and others, through their advocacy, claim their motive is a reduction in government waste. But in reality, and not by coincidence, their brand of journalism hoodwinks readers into advocating against their best interests of getting fast, future-proofed broadband, and instead hand more money to companies like AT&T. The Franklin Center refuses to reveal its donor list, of course, but SourceWatch reported the Center is heavily dependent on funding from DonorsTrust, which cloaks the identity of its corporate donors. Mother Jones went further and called it “a dark money ATM.”

Companies like AT&T didn’t end up this lucky by accident. It donates to dark money groups that fund various sock puppet and astroturf operations that avoid revealing where the money comes from, while the groups get to claim they are advocating for taxpayers. By no coincidence, these groups frequently don’t attack corporate welfare, especially if the recipient is also a donor.

New York’s rural broadband initiative is on track to deliver near 100% broadband coverage to all New York homes and has speed requirements and a ban on hard data caps.

Raising speed standards does not harm rural broadband expansion. In New York, Gov. Andrew Cuomo’s broadband expansion campaign is on track to reach the remaining 150,000 homes still without broadband access by sometime next year. His program relies on broadband expansion funding that comes with requirements that insist providers offer internet access capable of at least 25Mbps (with a preference for 100Mbps) for $60 or less and a ban on hard usage caps. Kampis claims the 25Mbps speed standard hampers progress, yet New York is the first state in the nation moving towards 100% broadband availability for its residents at that speed or better.

Chairman Pai’s solution is little more than a gift to the country’s largest phone and wireless companies that would like to capture more CAF money for themselves while delivering the least amount of service possible (and keep money out of the hands of municipalities that want to build their own more capable networks). The evidence is quite clear — relying on the same companies that have allowed the rural broadband crisis to continue for more than 20 years is a stupendously bad idea that only sounds brilliant after some corporation writes a large check.

Charter Communications has informed shareholders it will soon introduce gigabit speed broadband plans in select cities.

“In a couple of months, we’ll launch gigabit speeds offerings in several key markets using DOCSIS 3.1, with more launches planned through 2018,” said Charter CEO Thomas Rutledge. “We expect DOCSIS 3.1 modems to be priced similarly to DOCSIS 3.0 modems when purchased at scale, and we’ll begin to buy exclusively DOCSIS 3.1 modems and drive higher entry-level speeds.”

Charter will not be following Comcast and Altice with fiber to the home upgrades for customers looking for the fastest possible speed. Instead, it will begin limited rollouts of current DOCSIS 3.1 technology, which will support gigabit download speeds with a considerably more limited upload speed.

Charter may have accidentally leaked the first place it plans to offer gigabit service – Oahu, Hawaii, by jumping the gun on a support page (quickly removed yesterday) discovered by a DSL Reports reader.

Charter executives have consistently told shareholders the priority for the company this year is to continue upgrading its acquired Time Warner Cable and Bright House cable systems to support Spectrum’s standardized internet speed of 100Mbps. (An unadvertised upgrade option to 300Mbps is also available for approximately $105/mo with a one time $199.99 upgrade fee. Legacy markets still awaiting upgrades continue to receive 60Mbps with an unadvertised upgrade option to 100Mbps for approximately $105/mo with a one time $199.99 upgrade fee.)

Charter is facing competitive pressure from Google and telephone company competitors upgrading to fiber to the home service. Hawaiian Telcom, for example, now offers gigabit broadband options on Oahu. Charter’s gigabit offerings are most likely to be introduced in markets where it already faces gigabit competition. For areas that don’t, Charter is moving forward with less dramatic upgrades that currently top out at 300Mbps.

“As of today, we offer [standard] internet speeds of 100Mbps in over 75% of our entire footprint, up from just 50% at the end of the second quarter,” added Rutledge. “And we expect to offer minimum speeds in excess of 100Mbps in nearly all of our passings by year-end.”

Rutledge did not define what the next set of broadband speed tiers would be.

Rutledge also announced new Spectrum broadband customers would be getting an improved Wi-Fi router, known as Wave 2, specifically developed and designed by Charter’s engineers.

“It has much faster speeds and even better propagation of reliability throughout the home,” Rutledge offered.