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Fiber to the Home Customers Only Cancel “If They Move or Die”

Customer satisfaction with fiber to the home internet service is so high, one industry leader says the only time customers cancel service is if they move or die.

Carl Russo, CEO of internet equipment vendor Calix, says phone companies are relying on fiber optic networks to turn their struggling businesses around except in the most rural areas of the country.

“Fixed wireless will sometimes be the right choice and Calix’s software supports it. But our telco customers with fiber will lose very few customers. If they provide strong, customer-focused service, no one will have a reason to switch,” Russo told Dave Burstein’s Fast Net News. “It’s only a slight exaggeration to say customers only churn if they move or die. This is provided the service provider chooses to ‘own’ the subscriber experience. A service provider that invests in fiber but doesn’t further invest in an excellent subscriber experience is still vulnerable.”

Russo argues that fiber to the home service has been the right choice for most of the developed world for several years now, at least where there is hearty competition between providers.

Where competition is lacking, phone companies often still rely on archaic DSL service, which is increasingly incapable of competing with even smaller cable operators. Phone companies are now up against the wall, forced to recognize that existing, decades-old copper wire infrastructure cannot sustain their future in the broadband business. Companies that drag their feet on fiber upgrades are bleeding customers, and some companies are even in bankruptcy reorganization.

Russo

Fiber networks are future-proof, with most offering up to gigabit speed to consumers and businesses. But upgrading to 10 Gbps will “add little to the cost” once demand for such faster speed appears, Russo said.

Fast Net News notes that France Telecom, Telefonica Spain, Bell Canada, and Telus have all proven successful using fiber to the home service to compete with cable companies to market internet access. Companies that approved less costly fiber to the neighborhood projects that relied on keeping a portion of a company’s legacy copper network, including AT&T, BT in the United Kingdom, and Deutsche Telekom in Germany, have had to bring back construction equipment to further extend fiber optic cables to individual customer homes — a costly expense.

Even public broadband projects like Australia’s National Broadband Network (NBN) paid dearly for a political decision to downsize the NBN’s original fiber optic design to save money. The NBN was hobbled by a more conservative government that came to power just as the network was being built. Many NBN customers ended up with a more advanced form of DSL supplied from oversubscribed remote terminals, which delivered just 50 Mbps to some subscribers. For-profit companies have also been pressured to keep costs down and limit fiber rollouts by Wall Street and investors. Verizon FiOS is the best known American example, with further network expansion of the fiber optic service essentially shelved in 2010 at the behest of investors that claimed the upgrades cost too much.

Underfunded upgrades often bring customer dissatisfaction as speeds cannot achieve expectations, and many hybrid fiber-copper networks are less robust and more subject to breakdowns. In the United Kingdom, BT’s “super fast” broadband initiative has been a political problem for years, and communities frequently compete to argue who has the worst service in the country. BT’s fiber-to-the-village approach supplies fiber internet service to street cabinets in smaller communities that link to existing BT copper phone lines that are often in poor shape. Customers often get less than 50 Mbps service from BT’s “super fast” service while a few UK cable companies are constructing all-fiber networks in larger cities capable of supplying gigabit internet speed to every customer.

Calix is positioned to earn heavily by selling the equipment and infrastructure that will power future fiber network upgrades that are inevitable if companies want to attract and keep customers. A new round of federal rural broadband funding will help phone companies pay for the upgrades, which means many rural Americans will find fiber to the home service in their future.

Providers Look for New Ways to Boost Broadband Bills with “Value Added Services”

Phillip Dampier July 7, 2020 Consumer News No Comments

Parks Associates: Broadband VAS Adoption & Awareness

Cable and phone companies may increasingly turn to selling broadband subscription add-ons to restore the high level of profitability investors expect from the nation’s internet service providers.

With an increasing number of people deciding to ditch cable TV subscriptions, cable and phone companies are seeing lower growth in the average amount they charge subscribers every month, leaving many to consider finding new broadband “value-added” products and services to sell.

Falling video subscription revenue and increased programming costs have made it difficult for operators to report the glowing results Wall Street has come to expect over the last 20 years. In 2017, only 34% of customers were signed up for broadband-only service. By the first quarter of this year, that number had risen to 42%. Broadband only customers pay less than customers who choose a bundle of services. Parks Associates found the average internet-only customer paid $60 a month for service, with rates up 36% from the first quarter of 2012 to the third quarter of 2019. In comparison, cable operators only managed to raise rates for bundled video/internet packages from $107 to $127 a month over the same period. When a customer downgrades to internet-only service, the average revenue per subscriber (also known as “ARPU”) drops significantly, sometimes by as much as half.

To keep revenue growing, providers have a few options:

  1. Raise prices: Cable and phone companies have traditionally raised prices on services least likely to be dropped as a result of price hikes. For years, cable operators could significantly raise prices for cable TV packages with little fear customers would cancel service. Cord-cutting changed that, and as a result video-related rate hikes have slowed. Instead, operators have found broadband to be the service most cannot do without, and have shifted rate hikes accordingly.
  2. Offer upgraded services: The most popular and effective revenue enhancer is upselling customers to better packages and services. For broadband, that traditionally means a faster speed package. Most companies charge a comparatively small amount (often $10-20 more) for a considerably faster speed tier.
  3. Sell value-added services: These are ancillary services that offer subscribers more value from their existing subscription. Examples include: Unlimited Access (waiving data caps), Enhanced Technical Support, Anti-Virus/Malware Protection, Enhanced Streaming Video Services, Enhanced Network Performance for Gameplay, Wiring Maintenance/Insurance, Home Security/Automation, and Cloud Backups.

Currently, only a few providers aggressively promote value-added services. Many already provide anti-virus/malware software as part of their broadband service offering. Others, like Charter/Spectrum, have soured on selling value-added services in favor of a simplified menu of services and options. Spectrum ceased supporting Time Warner Cable and Bright House Networks’ legacy home security/automation services in early 2020. Some phone companies, notably Frontier Communications, have long depended on value-added services to bolster revenue for its increasingly beleaguered DSL internet service. Frontier heavily markets anti-virus, enhanced tech support, and wiring maintenance services to customers, which can add a considerable amount to a customer’s bill.

Parks Associates, a market research and consulting company, is now offering insight on value-added services to phone and cable companies in its latest research report, 360 Deep Dive: Broadband Value-added Services (for $7,500 a copy):

As the broadband market becomes increasingly commoditized, broadband providers are seeking way to differentiate themselves through new products and services. This research investigates consumer perception and interest in value-added services from service providers including Wi-Fi services, network optimization, and data security and monitoring services.

The report finds most consumers have traditionally ignored or were unaware of value-added services from internet providers. As a result, the impact on revenue from sales of such services has been usually negligible.

“Value-added services (VAS) have little impact on ARPUs because [internet] speed, which correlates with VAS adoption, is the primary driver of ARPUs,” said David Drury, Parks’ research director. “In other words, speed rather than the number of VAS broadly determines ARPU levels, even though those with higher speeds also have a higher number of VAS.”

But Parks suggests the ongoing coronavirus pandemic may open fresh opportunities to introduce customers to value-added services. Among the services consumers may now be using for the first time are telehealth services, which allow for virtual online doctor visits, video conferencing with friends, family, and colleagues, and remote learning tools. After the COVID-19 crisis passes, providers could begin marketing service and support for these applications, either directly or in partnership with other companies.

Still undetermined is whether companies should bundle these types of services into existing subscriptions for free as a customer retention tool, or offer them for sale to customers.

“Broadband growth has plateaued, so the next opportunity is in VAS,” Drury said. “Providers have generally used VAS as a marketing tool to attract and retain subscribers, so for them to make the transition to a revenue source, companies need a clear understanding of the gaps in consumer satisfaction and demand for strategic and successful VAS deployments.”

FCC’s Ajit Pai Will Meet Privately With Wall Street Analysts in Closed Door Meeting

Phillip Dampier June 17, 2020 Public Policy & Gov't No Comments

Pai

Federal Communications Commission Chairman Ajit Pai will meet with Wall Street analysts at a Wells Fargo investors conference on Thursday closed to the public and news media.

Pai is expected to focus most of his remarks on the topics of 5G wireless networks and forthcoming spectrum auctions, but will also likely praise the Trump Administration’s overall deregulatory policies and achievements Pai feels point to the regulator’s recent successes. In attendance will be top executives from T-Mobile, Verizon, AT&T, and the powerful D.C. law firm Wilkinson Barker Knauer, LLP that specializes in serving telecommunications industry clients. That firm will present a regulatory discussion entitled, “Will Washington Topple Tech and Telecom.”

A review of past investor conferences shows it is rare for a chairman of the FCC to appear at such private events, usually attended by professional analysts working for Wall Street investment firms and top executives from the businesses analysts cover for their investor clients. The propriety of public officials attending closed door events with the industries they regulate is controversial, particularly because topics discussed during informal meetings are not always disclosed to the public through “ex parte” notices filed with the Commission. But Pai has proven to be an industry-friendly chairman and formerly served as counsel for Verizon Communications.

A transcript of Pai’s formal remarks at the event will be published on the FCC’s website within a few days of his speech, and it likely Pai will speak on issues already a part of the agency’s public record. Normally the opportunity to strengthen personal ties between regulators like Pai and the regulated and a chance to meet Pai to exchange views is worth gold to many investors, but this specific event will be conducted entirely “virtually” online.

Defenders claim such meetings allow the FCC to become better informed about Wall Street investor concerns not discussed by corporate executives worried about any negative impact on their stock price. They also contend there is no opportunity for Pai to engage in “ex parte” discussions because the event is entirely webcast online. But critics note regulators that appear at such industry events rarely attend Question and Answer events open to the public. Critics view that as further evidence of the kinds of cozy D.C. relationships between the government and special interests many ‘good government’ groups decry as a conflict of interest.

Telcos Without Fiber to the Home Service Face Crisis As Their Market Share Will Erode to Zero

Phillip Dampier June 3, 2020 Broadband Speed, Competition, Consumer News 2 Comments

The death of DSL?

If your local phone company does not offer fiber-to-the-home service, it risks seeing its market share as a broadband competitor drop to zero, according to new research from Wall Street analyst firm MoffettNathanson.

As the cable industry prepares to deploy DOCSIS 4.0, capable of much faster upload speeds in the gigabits and downloads as fast as 10 Gbps, the future of telephone companies that have under-invested in their networks for years is dire. The research firm’s “Equilibrium Forecast” sees DSL’s market share in areas where cable broadband is available dropping to zero. Phone companies that have invested in fiber half-measures, including fiber to the neighborhood, IP-DSLAM, and VDSL technology that traditionally delivers internet speed between 25-75 Mbps are not far behind. Only true fiber-to-the-home service stands a chance at protecting phone company broadband market share.

“DSL [and] mid-tier [fiber/copper combinations are both] obsolete,” researchers said in a private note to investors. “Broadband is increasingly a two-horse race between cable and telco fiber-to-the-home service, where it exists.”

The COVID-19 pandemic has only increased problems at the nation’s legacy phone companies, as customer losses accelerate in favor of cable company delivered internet. In the first quarter of 2020, cable company broadband sign-ups increased 122% compared to the same quarter last year, while phone companies said goodbye to at least 65,000 subscribers. Last year during the first quarter, telcos managed to add 20,000 customers.

Leichtman Research Group reports that most customers are looking for stable and reliably fast internet service, and phone company DSL delivers neither. Having a speedy and dependable connection has become crucial as tens of millions of Americans work from home to avoid contracting the illness. Sharing that internet connection with kids staying home from school quickly caused a spike in upgrade orders.

“The increased level of usage was enough to convince many customers that they needed higher speeds to handle the number of simultaneous users in their home,” MoffettNathanon wrote.

Many phone companies lacking fiber were unable to deliver on upgrades, and customers that could went shopping for alternatives. At the same time, large DSL providers like Frontier Communications and Windstream have become mired in bankruptcy and have been losing residential customers for years. MoffettNathanson told its investor subscribers it was time to declare DSL effectively dead as a competing technology, with fiber service variants like U-verse and other flavors of VDSL near-dead.

“As with legacy DSL, it is increasingly clear that this segment is simply not competitive anymore. Equilibrium market share in this cohort, if one looks out far enough, is 100/0.”

MoffettNathanson expects cable operators will achieve an 85% market share for broadband service in markets where their chief competitor is a phone company yet to provide fiber-to-the-home service. If phone companies do not embark on immediate fiber upgrades, the damage to their market share could be permanent, especially after DOCSIS 4 arrives, according to the researchers, because the newest cable broadband platform may be able to erase fiber’s speed advantage.

Will Dish Wireless Actually Launch Its Own Network? Some Think Not

The merger of T-Mobile and Sprint would never have been approved by the Justice Department had Charles Ergen not promised to launch a new nationwide wireless competitor to protect competition. But now Ergen may be wavering over his commitment.

The founder of satellite TV company Dish Network had promised to spend nearly $10 billion to build a new 5G network capable of reaching 70 percent of the population by June 2023 as part of negotiations between T-Mobile, Sprint, and the federal government. But with the coronavirus pandemic shutting down the U.S. economy, the New York Post reports the company will have a difficult time finding the money to build that network.

“I think whatever rosy projections Charlie had are now very questionable,” said a source who expected to be part Dish’s lending group. “There is no financing to build a telecom network.”

Oddly, Ergen predicted just such a scenario in December when he testified to Dish’s ability to replace Sprint. In order to prove he was fit for the job, the 67-year-old media mogul showed off letters from three banks — Deutsche Bank, JPMorgan and Morgan Stanley — saying they would gladly fund his expensive network construction.

“Where the markets are today — if we don’t have another 9-11, God forbid — the banks are confident,” Ergen told the packed courtroom.

That testimony helped convince Manhattan federal judge Victor Marrero to approve T-Mobile’s $26 billion acquisition of Sprint, despite calls by a group of attorneys general, including Letitia James of New York, to block the deal, which they said would reduce competition and increase prices for consumers.

Ergen’s commitment to build a new fourth national wireless carrier was crucial for T-Mobile and Sprint to win regulatory approval of their $26 billion merger, which will reduce the number of national wireless competitors to three. That merger secretly received help from the country’s chief antitrust enforcer, Makan Delrahim. The Trump-appointed regulator, who serves as the head of the Justice Department’s antitrust division, exchanged numerous text messages between himself and top executives of Sprint, T-Mobile, and Dish to help salvage a merger deal under heavy criticism from Democrats and consumer advocates. Delrahim signaled his approval of the merger if Dish promised to buy Sprint’s prepaid wireless brand Boost and was offered access to T-Mobile’s wireless network to help launch Dish Wireless as a new competitor. But executives from Sprint and T-Mobile repeatedly quarreled over the details of the merger with Ergen, forcing Delrahim to intervene and bring the parties together to smooth things over.

Several consumer advocates and state attorneys general questioned the merger and Ergen’s commitment and capacity to serve as a new competitor. Ergen has warehoused wireless spectrum for years and has yet to meaningfully deploy it, deal critics contend. Additionally, Dish Wireless will be unlikely to achieve the scale and size of Sprint, the wireless carrier absorbed by the merger. That could mean it would be unable to deter anti-competitive behavior by the three larger companies — AT&T, Verizon, and the New T-Mobile. The most skeptical suggest Ergen has no intention of constructing a network for Dish Wireless. Instead, they contend he quietly intends to sell the wireless operation and potentially sweeten the deal by including Dish’s satellite TV business, its existing portfolio of unused wireless spectrum, or both.

If Ergen cannot meet the 2023 deadline, regulators could fine his company $2 billion and force it to relinquish the $12 billion worth of wireless spectrum Dish Network has been warehousing for years.

To succeed, Ergen will need Wall Street banks to cooperate and continue extending Dish Wireless credit. He will also need to find capable engineers ready to place 5G infrastructure on thousands of cell towers at the same time other wireless providers are building 5G networks of their own. None of this will be possible until the coronavirus crisis abates and the economy recovers. Despite this, some analysts are willing to still give Ergen the benefit of the doubt.

“Two months of severe market uncertainty doesn’t really alter my view of a company to execute on a three-year plan,” Lightshed Partners Analyst Walt Piecyk told The Post, saying it is too soon to question if Ergen will meet the deadline.

Ergen may also be able to convince regulators to approve a delay, pushing out the deadline. Assuming Ergen closes the deal to acquire Boost Mobile, which currently relies on Sprint’s 4G network to service its prepaid wireless customers, Boost will likely be rechristened Dish Wireless and serve as Ergen’s contribution to a competitive wireless industry until his own network gets off the ground.

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