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Charter Spectrum Sending Scare Letters Over Google Fiber’s Demise in Louisville

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.”

Verizon’s Millimeter Wave 5G Has Return On Investment Problems

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.”

How a Wall Street Analyst Complicates AT&T and Verizon’s Upgrade and Investment Plans

Moffett

The road to 5G wireless home broadband is paved with good intentions and a lot of hype, but at least one Wall Street analyst hints Verizon’s millimeter wave 5G project may be a bad idea, unable to achieve a proper return on investment and potentially a worse performer than originally thought.

Craig Moffett, a key analyst at MoffettNathanson, has analyzed and commented on the telecommunications industry at least as far back as the 1990s. He slammed cable operators for overpriced upgrades in the 1990s, talked down AT&T’s U-verse project, and spent years telling the media and investors that Verizon FiOS — a fiber to the home project, was an expensive failure.

Moffett’s latest research examines Verizon’s six-month old 5G millimeter wave wireless network in Sacramento, Calif., which relies on a large number of small cells to provide a $50 wireless home broadband replacement. But after taking a closer look at the technology, its performance, and costs, Moffett has warned investors Verizon has a “steep climb” to convince Wall Street it can attract enough revenue from paying customers to justify the tens of billions in new spending required to roll out small cell technology across the country.

How does Moffett know this and can his views derail or alter Verizon’s long-term plans for millimeter wave 5G? The answer is clearly “maybe.”

In this series, we will look at how Wall Street’s view of the telecom industry is often focused on short term profits at the expense of long term growth and customer satisfaction.

The telecom industry analyst presents detailed analyses tracking industry developments, mergers and acquisitions, technology shifts, competition, regulation, expenses, and shifting consumer behavior into reports for investment banks, institutional investors, or in some cases individual investors looking for both hard numbers and perspective on what is going on in the industry.

The metrics analysts use to describe success or failure are typically different from what customers use, and many analysts don’t spend much time focused on technical trivia, public policy goals, and ways of overcoming problems for which there are no obvious market solutions, such as rural community broadband. Some analysts are particularly friendly and non-confrontational with executives, who know and recognize them by their first name, while others are more willing to challenge company press releases and policies and can eventually develop an adversarial relationship with at least some of the companies they cover. The analyst’s reputation for getting the correct analyses to clients means everything. Good research and advice does not come cheap, and subscription fees can be breathtakingly high. Many Wall Street analysts also make frequent appearances in the media, often on business cable news channels and newspapers.

Moffett is one of the most frequently-quoted telecom analysts, known for his favorable coverage of the cable industry and skepticism towards telephone companies attempting to reinvent themselves. He has advocated for the adoption of usage caps and usage-based billing to further monetize broadband, but has not been as aggressive as others, such as Jonathan Chaplin, a Wall Street analyst with New Street Research, who has frequently called on the cable industry to aggressively raise broadband prices to $90 a month or more. Moffett, in contrast, worried last year that Cable One, an operator specializing in serving small and medium sized cities, was pricing its service far too high, driving off potential customers.

Cable’s Hybrid Fiber/Coax vs. Telco’s Copper: Dueling Legacy Technologies Confront a Fiber and Wireless Future

Most of the nation’s cable television systems were built in the 1970s and 1980s and were primarily dependent on copper-based coaxial cable. By the 1990s, many cable operators embarked on system wide “rebuilds” to prepare for the era of digital cable television. It was during this decade that most cable systems moved beyond 50-70 analog TV channels and also began offering new services, including home phone, broadband, home security, and large on-demand video libraries. To support these new services and to increase the reliability of cable systems, operators began replacing some of the coaxial cable in their networks with more reliable fiber optics. Investments in these upgrades were significant, but to the cable industry not extravagant. A loud chorus from Wall Street disagreed, complaining cable systems were overspending on upgrades. Moffett, an analyst for Sanford Bernstein at the time, complained the cable industry collectively wasted $100 billion on network upgrades.

But like many Wall Street analysts who complain about almost any significant investment or spending, once a company has gone ahead and spent the money, analysts start looking at how those companies are monetizing those upgrades to recover the investment, boost revenue, and maximize shareholder value. Moffett flipped on a dime from being a critic of cable’s spending to commenting on how well the cable industry was now positioned to lead the telecom industry.

“Cable built a plant that was more expensive than they ever should have built,” Moffett told the New York Times in 2008. “But now that the cable companies have spent that money, their network is in place to deliver phone service more cheaply than any other alternative.”

The cable industry’s hybrid fiber-coax (HFC) systems upgraded in the 1990s are still partly in wide use today. Cable operators are using incremental technology upgrades to squeeze more performance out of these systems, notably by retiring space-hogging analog cable television in favor of digital. That analog to digital video conversion, along with regular updates to the cable broadband technical standard, known as DOCSIS, has allowed most cable operators to claim they do not need to upgrade to an all fiber network to support the services offered today, which includes hundreds of TV channels and gigabit speed downloads. Altice USA, which operates Cablevision in suburban New York City, is among a few operators claiming it was time to discard HFC technology in favor of fiber to the home (FTTH) service. Altice argues fiber further increases available bandwidth and is much more reliable, reducing costs. So far, other major operators like Comcast, Charter, and Cox are still taking a more incremental approach towards fiber, in part to keep costs down.

The upgrade spending that Wall Street complained about in the 1990s ultimately paid off handsomely for the cable industry. Moffett himself only occasionally criticizes cable operators these days, preferring to target most of his negative coverage on phone companies. In fact, in an interview in 2008, Moffett called effectively called phone companies obsolete.

“In 1996, as soon as you saw that the technology existed for a cable network with vastly higher capacity and vastly lower margin cost to be able to do voice calls over the same network, you would have said the end game is obvious: Cable will win and the telcos will go into bankruptcy. The only question is how long it will take,” Moffett said.

Moffett praised Qwest for doing and spending nothing to confront copper wire obsolescence.

The phone companies, having no interest in voluntarily sacrificing themselves in bankruptcy court, have moved to meet the cable industry’s challenge by upgrading their own networks to compete, something Moffett is not a big fan of either. Back in 2008, he gave top marks to Qwest, the orphaned Baby Bell serving the sparsely populated Pacific Northwest that would later be bought by CenturyLink. Lacking its own mobile business, or a large amount of capital for upgrades, Moffett praised Qwest for making the right decision (according to him) in the cable vs. phone wars of the early 2000s: “do nothing.”

That advice was simply not acceptable to the top executives at two of the biggest phone companies in the country. Both rejected Moffett’s philosophy of living with the technology they had instead of putting investors through the agony of spending money to completely overhaul the existing copper wire phone network. For Moffett, that was throwing good money after bad, and it was too late to try.

“It is an obsolete technology,” Moffett said. “It’s not like horses lost share of the transportation market until they stabilized at 40 percent market share.”

Phone Company Fiber Optic Upgrades = ‘Shareholder Value Destruction’

Large phone companies saw the same writing on the wall about landline telephone service Moffett did back in the 1990s. Their emerging wireless mobile businesses were cannibalizing in-home landlines and the introduction of the cable industry’s “digital phone” Voice over IP product, often bundled with a range of calling features and a nationwide long distance plan, quickly began eroding the revenue phone companies earned from per-call charges, calling features like Caller ID, and long distance revenue.

AT&T repair truck

AT&T and Verizon had a problem. Telephone networks were designed and built to handle voice-grade phone calls, not broadband or television. Repurposing the traditional landline to support a popular package of phone, internet, and television service was complex and costly. DSL had already emerged as the phone company’s best effort to compete with cable broadband over the traditional copper phone wire network. Phone companies experimented with competing television service, sending one channel at a time down a customer’s phone line. When a customer changed channels, one streaming channel stopped and another began. It did not always prove to be very reliable or dependable, because performance degraded significantly the farther the customer lived from the phone company’s switching office. Something better was needed, and it was going to cost billions.

The 1992 Cable Act, which guaranteed competing video providers could offer popular cable networks on fair and competitive terms, was crucial to laying the groundwork for a reimagined local phone company. Telephone company executives began approaching state and local officials with proposals to replace existing phone networks with newer fiber technology that could support voice and video, giving local cable monopolies long-awaited competition. The sticking point was money. Some large phone companies sought regulator approval to raise telephone rates to create a fiber fund that would be used to cover some of the costs of scrapping copper wire networks and replace them with fiber optics. The cable industry understood the threat and immediately launched a fierce lobbying campaign to block attempts to bill captive phone ratepayers for the cost of fiber upgrades. The phone companies were largely unsuccessful winning approval to cross-subsidize their fiber future, but some companies did make deals with state regulators to approve rate increases with the promise the extra revenue would fund future fiber upgrades.

Critics contend AT&T and Verizon’s wireless mobile networks ended up the biggest beneficiaries of the revenue raked in from rate increases, with some accusing companies like Verizon of shifting money away from landline service to help pay for the construction of their growing wireless businesses. With billions spent on cell tower construction and network buildout costs, there was not much money left for fiber to the home upgrades. The cost to wire each home for fiber was also a concern, as were regulatory requirements surrounding universal service, which meant phone companies might have to serve any customer seeking service, while cable companies were allowed to skip serving rural America altogether.

It would take until 2004 for phone companies to begin major upgrades. At the same time, deregulation was once again stirring up the marketplace, triggering a gradual re-consolidation of the old Bell System, coalescing primarily around AT&T (SBC, Ameritech, BellSouth, and Pacific Telesis) and Verizon (Bell Atlantic, NYNEX, independent telephone company GTE, and former long distance carrier MCI). Both AT&T and Verizon were exploring fiber upgrades.

AT&T U-verse vs. Verizon FiOS – Wall Street Not Impressed Either Way

Project Lightspeed was developed by SBC in 2004 and later renamed AT&T U-verse in time for its commercial launch in 2006. AT&T chose a fiber to the neighborhood approach, leaving intact existing copper phone wiring already in place in neighborhoods and homes. U-verse was capable (at the time) of delivering just over 20 Mbps internet service while customers also watched TV,  and/or made a phone call. The advantage of U-verse was that it was cheaper to deploy across AT&T’s more sprawling local telephone territories than fiber all the way to each customer’s home.

Verizon, which serves a number of densely populated cities in the northeast and mid-Atlantic region, believed a fiber to the home upgrade would future proof their network and deliver better, more reliable service than U-verse. Verizon FiOS launched in September 2005 and completely did away with existing copper phone wiring in favor of optical cable. Verizon argued that although it was more expensive, a complete fiber upgrade would cost the company less over time, and was essentially infinitely upgradable as customer needs changed. Verizon also argued that with scale, the cost of wiring each home or business would fall, making the technology more cost-effective. Verizon launched its FiOS business with great fanfare among customers, some who bought homes specifically because they were located in a FiOS service area.

As with the cable industry’s rebuilding (and spending) wave of the 1990s, many on Wall Street were unhappy with both AT&T and Verizon. Moffett’s calculations were based on the premise that projects like this have 15 years not only to pay back investors in full, but also generate shareholder value from increased revenue. If the costs are not covered in full and then some, it is deemed a failure and value destructive. What customers want is only a tiny part of the means test Wall Street analysts use to determine if a project is good news or bad news:

Good News

  • The provider successfully raises prices and accelerates payoff of outstanding debt.
  • A project attracts new customers and prompts current customers to upgrade, generating more revenue.
  • An upgrade can be expensed in a way that results in extra tax savings.
  • Customer churn drops, as a more satisfied customer remains a customer.
  • An upgrade offers new revenue opportunities not available before.

Bad News

  • A project causes a surprise increase in capital expenses, especially if those costs are higher than anticipated.
  • An upgrade results in increased competition, or worse, a price war that forces providers to cut prices.
  • The project cannot be paid off within ~15 years. Short term results matter. Long term results only matter to future investors.
  • An upgrade forces competitors to also undertake upgrades.
  • A provider is forced to choose between share buybacks and dividend payouts and spending money on upgrades and chooses the latter. Shareholders matter more.

Moffett’s 2008 calculations argued that Verizon would lose $769 on each FiOS customer signing up for service. AT&T U-verse would come close to breaking even, but not generate much in the way of profit for AT&T. After determining that, he was a frequent and vocal critic of upgrade efforts, particularly in the case of FiOS. Verizon argued his calculations were wrong and that the company was pleased with the progress of its fiber buildout. But Moffett claimed vindication when Verizon shelved future FiOS expansion in 2010, leaving many cities with only a smattering of fiber service — often in a handful of wealthy suburbs and nowhere else.

Verizon clearly changed direction in 2010, but probably not because of Moffett and other critics. Verizon’s CEO at the time came from Verizon Wireless, and his executive team was focused predominantly on the phone company’s wireless unit, which was earning Verizon plenty of revenue. Verizon so valued its wireless business, in 2014 it bought out its partner Vodafone’s 45% interest in Verizon Wireless in a transaction valued at approximately $130 billion. That kind of money would have wired a considerable amount of the United States with fiber to the home service.

Paradox: 2008 – Don’t you dare spend that kind of money / 2013 – That was money well spent

Wall Street analysts, like many investors, like to focus on the short-term picture of the companies they cover. What appears to be really bad news today may not be so bad tomorrow, and as a result their advice often changes with time.

For example, Mr. Moffett spit nails over the cable industry’s “waste” of $100 billion on system rebuilds in the 1990s, but by the late 2000s he was a veritable cable stock promoter. Moffett told the New York Times it was clear cable was emerging on top in the telecom space and its competitors, including satellite and telephone companies, were dead companies walking. Cable’s success would likely not have come without the investments Moffett and other Wall Street analysts howled about.

Among the phone companies, AT&T initially won more respect from investors for not overspending on its U-verse project, which was less costly than FiOS, but also less capable. U-verse avoided the cost of ripping out copper cable from backyards and the sides of homes, but also had limits on broadband speed and the number of concurrent TV channels a customer could watch. As HDTV took hold, those limits became more clear, especially to customers. As a result, U-verse customer satisfaction was not that high. In contrast, Verizon FiOS consistently achieved top position in customer ratings year after year because it delivered more than customers expected and was ready-made for easy expansion and upgrades.

“There was a raging debate a couple of years ago about who got it right, AT&T or Verizon,” Blair Levin, then an analyst with Stifel, Nicolaus & Company, told the Times in 2008. “Initially the investment community thought it was AT&T, but increasingly Verizon got their begrudging respect.”

Even Moffett’s views on FiOS ‘evolved’ over time. In 2013, he sent a research note to his clients admitting his views were more positive about FiOS than before.

“FiOS will sustain subscriber growth longer than either we or Verizon had projected, and that FiOS will ultimately achieve higher penetration rates than either we or Verizon had originally targeted,” Moffett’s team wrote. “Verizon’s FiOS is overwhelmingly the largest and most important FTTH network in the U.S. For comparison, Verizon’s FiOS covers 14% of American homes; Google’s fledgling fiber network, at least based on the three markets that have been disclosed up to now . . . will cover less than ½% to 1% when it is eventually completed.”

Moffett himself predicted in 2008 his views would evolve over time, as would his clients. Those invested in Verizon during FiOS’ buildout years would suffer somewhat from the costs to deploy the fiber optic network. But those who bought shares around 2010 or after consider those expenses “sunk costs” at this point — already spent and dealt with on the balance sheet. The economics change from ‘who is going to pay for all this’ to ‘how is the company going to use this new asset to best monetize its business.’

To be sure, Moffett still frequently recoils when a company reports it is planning on significant and costly upgrades, like Verizon’s millimeter wave 5G network. He is more tolerant of gradual upgrades, like those undertaken by Charter Spectrum to retire analog cable television and upgrade its systems to DOCSIS 3.1 technology, allowing it to sell faster internet speeds.

Moffett and other analysts can present a problem for for-profit, investor-owned companies that are about to launch a disruptive product or service. Verizon’s 5G project is now facing new scrutiny, perhaps as a backlash against the excessive hype these wireless networks are enjoying in the media. The costs to deploy small cell wireless technology across the country will be staggering, and it is not a stretch to suggest some on Wall Street will champion efforts to consolidate costs by building a shared network, recommending a tough return on investment formula to determine where small cell technology will be deployed, or calling for higher prices on services. Companies like Verizon will have to be prepared to defend their business case for 5G, perhaps stronger than they did defending FiOS more than a decade ago.

We’ll explore Moffett’s latest findings about the performance of Verizon’s millimeter wave 5G wireless home broadband replacement in part two.

Craig Moffett was a featured guest on C-SPAN’s ‘The Communicators’ at the 2013 Cable Show, discussing cable’s inherent advantages over telephone companies and the emergence of video cord-cutting as a result of too many rate hikes on customers. (24:39)

Bradford, N.Y. – The Poster Child of America’s Rural Broadband Crisis (Updated)

The Kozy Korner Restaurant is one of the local businesses in Bradford, N.Y.

Bradford, N.Y. is an unassuming place, not atypical of communities of under 1,000 across western and central New York. It’s too far south to benefit from the tourist traffic and affluent seasonal residences of the Finger Lakes region. It isn’t next to a major interstate, and the majority of travellers heading into the Southern Tier of New York are unlikely to know Bradford even exists. Nestled between the Sugar Hill State Forest, Coon Hollow State Forest, Goundry Hill State Forest, and the Birdseye Hollow State Forest, the largely agricultural community does offer some nearby tourist opportunities for outdoor hiking, camping, boating, and horseback riding.

Ironically, just 25 miles further south of Bradford is the headquarters of Corning, Inc., a world leader in the production of optical fiber. Both communities are in Steuben County, but are miles apart in terms of 21st century telecommunications technology.

Corning residents can choose between Verizon and Charter Spectrum. Bradford has a smattering of cable television and internet service from Haefele TV, a tiny cable company serving 5,500 customers in 22 municipalities in upstate New York — towns and villages dominant provider Charter Spectrum has shown no interest in serving. Verizon barely bothers offering DSL service, and has shown no interest in improving or expanding the service they currently offer. As a result, according to the Bradford Central School District, approximately 90% of student households in the district do not have access to broadband internet speeds that meet or exceed the FCC’s minimum standard of 25 Mbps.

“Connectivity is sporadic throughout the community,” the district told state officials.

Some residents suffer with satellite internet, which has proven to be largely a bust and source of frequent frustration. Slow speeds and frequent application disruptions leave customers with web pages that never load, videos that don’t play, and cloud-based applications far too risky to rely on. Others are sneaking by using their mobile phone’s hotspot for in-home Wi-Fi, at least until their provider throws them into the penalty corner for using too much data.

Governor Andrew Cuomo’s 2015 Broadband for All initiative was supposed to end this problem forever. Gov. Cuomo promised that his program would offer high-speed internet access to any New Yorker that wanted it. New Yorkers want it, but still can’t get it, and now comes word the all-important third round of funding to reach some of the hardest areas of the state to serve may now on “indefinite hold,” according to Haefele TV, with no explanation. That means providers that would otherwise not expand service without the state’s financial assistance are shelving their expansion plans until the money arrives, if it ever does.

This week, the Democrat and Chronicle toured broadband-challenged Bradford. Reporter Sarah Taddeo sends word the status quo is not looking good for the people of the spread-out community. In fact, the internet challenges Bradford faces are all too familiar to long-time readers of Stop the Cap!:

  • Stalled funding: Haefele TV has shown an interest in expanding service in Bradford, and New York State awarded the company $5,150,612 to connect 1,303 homes and businesses in upstate New York. The money now appears to be on hold, according to a Haefele spokesperson.
  • Poor broadband maps: Bradford residents without service are hopelessly dependent on the broadband service maps offered voluntarily by incumbent providers. Those maps are inaccurate and typically unverified. Even worse, many Bradford residents are falling victim to the scourge of the “census block,” a granular measurement of an area showing who has service and who does not. In suburban areas, a census block is usually part of a neighborhood. In rural areas, it can encompass several streets containing random houses, businesses, and farms. Most broadband funding programs only award funds to “unserved” census blocks. If any provider delivers service to a single home or business within a census block, while ignoring potentially dozens of others, awards are typically not available because that area is deemed “served.” Bradford has several examples of “served” census blocks that are actually not well-served, as well as at least one that was skipped over altogether.
  • Politics and bureaucracy: Politicians are usually on hand to take credit for broadband expansion programs, but leave it to the bureaucrats to dole out funding. That is typically a long and arduous process, requiring a lot of documentation to process payments, which are usually provided in stages. Some providers do not believe it is worth the hassle of participating. Others do appreciate the funding, but do not appreciate the delays and paperwork. Politicians who declare the problem solved are unlikely to be back to explain what went wrong if lofty goals are ultimately unachieved.
  • Relying on for-profit providers: Some portions of Bradford will eventually get service from Haefele, while others will be officially designated as served by Hughes’ satellite internet service — one of two satellite providers that already earn low marks from local residents sharing scathing reviews from paying customers. Haefele won’t break ground without state dollars, and nothing stops Bradford residents from signing up for satellite internet today.
  • Homework Hotspots: Impacted families often have to drive to a community institution or public restaurant or shopping center that offers reliable Wi-Fi to complete homework assignments, pay bills, and manage the online responsibilities most people take for granted. Their children may be left at a permanent disadvantage not growing up in the kind of digital world kids in more populated areas do.

With funding for the area seemingly “on hold,” the Bradford’s school district stepped up and found $456,000 from the community’s share of the state’s Smart Schools bond fund, which supplied $2 billion for school districts to spend on technology products and services. Instead of buying iPads or more computers, school officials announced an initiative that would spend the money on an 18-mile fiber network strung through the community’s most student-dense neighborhoods. The school district claims “50-75% of student households will be covered” by the initial phase of the project, with plans to eventually reach everyone with a fiber-fed Wi-Fi network. The proposal has been cautious about staying within the guidelines of the bond initiative, such as limiting access exclusively to students, at least for now.

So far, the proposal has survived its first major review by state officials, but there is still plenty of time for large cable and phone companies serving the state to object, not so much because they want to punish the people of Bradford, but because they may not like a precedent established allowing school districts to spend state funds on broadband projects that could expose them to unwanted competition.

Updated 3:50pm ET: We received word from a credible source denying that the third round of broadband funding was on hold across New York, so we are striking through that section of the story. We anticipate receiving a statement for publication shortly and will update the story again when it arrives.

The Star Gazette visited Bradford, N.Y., to learn more about the broadband challenges faced by the community of nearly 800 people in southwestern New York. (1:47)

Verizon Says Its 5G Home Broadband Will Only Be for Urban Areas

Verizon, the country’s leading provider of millimeter wave 5G wireless broadband, is promising to expand service nationwide, but admits it will only service urban areas where the economics of small cell/fiber network infrastructure makes economic sense.

At the Mobile World Congress conference in Barcelona, Spain, Verizon’s vice president of technology planning told PC that when it launches its mobile 5G network later this spring, home wireless internet service will come along for the ride.

“It is one network, based on 5G, supporting multiple use cases,” Verizon’s Adam Koeppe said. “Enterprise, small/medium business, consumer, mobility, fixed. When the 5G network is built, you have a fixed and mobile play that’s basically native to the deployment you’re doing.”

That means Verizon’s millimeter wave 5G network is designed to be shared by everyone and everything, including businesses, residential customers, cell phone users on the go, Internet of Things applications like smart meters and intelligent traffic systems, and more. But that network will not be everywhere Verizon or Verizon Wireless currently provides service.

“Our deployments of millimeter wave are focused on urban centers. It’s where the people are, where the consumption is,” Koeppe said.

Verizon faces significant costs building out its 5G wireless network in areas where it does not already offer FiOS fiber to the home service. Verizon’s 5G network is dependent on a fiber optic-fed network of small cells placed on top of utility and light poles at least every few city blocks. That means Verizon is most likely to get a reasonable return on its investment placing its 5G network in urban downtown areas and high wireless traffic suburban zones, such as around event venues, large shopping centers and entertainment districts. The company has chosen to deploy 5G in some residential areas, but only within large city limits. So far, it has generally steered clear of residential suburbs in favor of older gentrified city neighborhoods with plenty of closely-spaced multi-dwelling apartments, condos, and homes, as well as in urban centers with converted lofts or apartments.

Koeppe

Rural areas are definitely off Verizon’s list because the millimeter waves Verizon prefers to use do not travel very far, making it very expensive to deploy the technology to serve a relatively small number of customers.

Other carriers are not committing to large scale 5G deployments either.

At a debate held earlier today at Georgetown Law’s Institute for Technology Law & Policy, former FCC commissioner Mignon Clyburn, now a paid lobbyist for T-Mobile, warned that unless T-Mobile was allowed to merge with Sprint, its deployment of 5G will only happen in “very limited areas.”

Sprint has plans to introduce its own flavor of 5G, which won’t use millimeter wave frequencies, by June in nine U.S. cities. T-Mobile has talked about deploying 5G on existing large cell towers, which means one tower will serve many more customers than Verizon’s small cells. But with more customers sharing that bandwidth, the effective speed customers will see is likely to be only incrementally better than T-Mobile’s existing 4G LTE network. AT&T is initially moving in the same direction as T-Mobile, meaning many customers will be sharing the same bandwidth. That may explain why AT&T’s current 5G hotspot service plan also comes with a 15 GB data cap.

Verizon says its millimeter wave network will, by geography and design, limit the number of people sharing each small cell, making data caps unnecessary for its 5G fixed wireless home broadband replacement, which delivers download speeds of around 300 Mbps on average.

“We engineer the network to give the customer what they need when they need it, and the results speak for themselves,” Koeppe said.

Verizon is already selling its 5G service in limited areas for $50 a month to Verizon Wireless customers, $70 a month for non-customers. There are no data caps or speed throttles.

Based on the plans of all four major U.S. carriers, consumers should only expect scattered rollouts of 5G this year, and only in certain neighborhoods at first. It will take several years to build out the different iterations of 5G technology, with millimeter wave taking the longest to expand because of infrastructure and potential permitting issues.

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