Simple, cheap way to deliver broadband to half of those without
Expensive Rural Backhaul: 1/3rd of the problem, actually solvable
Unproven claims about broadband
AT&T, Verizon, Qwest: 82% of DSL “Unserved”
A Bronx Tale: The Amazing, Unknown Free Wireless
Great Things Possible in the Plan
Other announced features
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"Politics is compromise.” Jason Bourne
Blair Levin, broadband plan lead, wants to punch me in the nose, I joked. (He's not a violent person and I'm bigger.) More seriously, Blair profoundly disagrees with what I'm writing here. I hope he's right and the plan dramatically expands broadband in the U.S. When someone I respect so much disagrees, I doubt myself.
However, I refused to hold this article until after their intense pr campaign because changes are still possible. It's not too late to refocus things to more effectively help the poor. At least one FCC commissioner was uncomfortable voting for the present draft and it looks like they will have to push it through without a vote. Then it goes to Congress for more changes.
It's worth losing a friend to make a last attempt to get the plan back on track. I know how hard some very good people worked on the plan they were all in the office when I stopped by on a holiday, and answered emails late at night. The analysis of the problem is extraordinary, but the solutions are not.
The constraints they faced were too much, the power they had too little. They didn't have money, political backing for anything tough, the tool of regulation or other direct government action, or backing for antitrust. http://bit.ly/dzUClM for the constraints they faced or below. It was an honor playing a very small role and a grave disappointment at the ultimate achievements.
Re-allocating 20% of the USF/ICC subsidies to helping the poor could connect the majority of those without broadband, but that's not likely. A simple change in "special access" rules may have a huge affect on the worst served areas. The huge “Internet Tax” is a mistake if it just pays for more subsidies to the telcos at a time America is cutting schools and hospitals. I'm told they are avoiding a vote on the plan because the Republicans are thinking the Internet tax is a campaign issue.
Skip this special report unless you're interested in D.C. wonkery. A DSL Prime is also coming: Silvio Scaglia is in jail, Henry Nicholas isn't, Australia's cutting the cost of fiber home in half, 50 meg DOCSIS upstreams will change the Internet, AT&T forecasts severe problems raising capital, and the latest claims from chipmakers on faster DSL.
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The Results of the Plan The U.S. broadband plan accomplishes very little for affordability, quality, speed, or availability of broadband in the U.S., although it has other important achievements I describe below.
In particular The “100 megabits to 100 million homes” is right on target for what will be achieved by 2015 without any broadband plan. (FCC/Columbia CITI November 2009). Based on cable company's official statements, I reported in August 2009 102 million homes would have 100 megabit capable DOCSIS by around 2013. http://bit.ly/c7jMuJ Fewer than 4% of U.S. homes that can only get satellite (“unserved”) will be reached because of the plan. It's more likely only 1-2% of homes will be upgraded. Broadband prices are more likely to increase than decrease because of the plan, especially if a multi-billion dollar Internet tax is included. There's nothing wrong with taxing the Internet like anything else, but this “fee” goes to the shareholders and bondholders of phone companies, not re-opening closed hospitals. Only a small fraction of the poor will get substantial help according to the best information I can find. In particular, the much-touted cable A+ plan provides “back of the bus broadband” throttled to a tenth the normal speed, available to less than one in five of the poor, and actually more expensive than Verizon's recent promotion. AT&T has offered similar, but I don't know if it's included. Since nearly all mobile phones will include broadband in a few years and far more than 90% of families have a mobile phone, the 90% take rate in 2020 would almost certainly be achieved without the plan, probably several years earlier.
I sent the data above to Julius for factchecking. He sent back no contrary facts. http://bit.ly/9v0dRM
The constraints that held back results The first constraint: No money By August, Blair was saying publicly that they needed to look at existing resources, not new funding. I remember December 2008 when, the economy was in free fall. The best economists in the world weren't sure it would stop. So they created the stimulus, using essentially all the discretionary money they had for Obama's four years. So there wasn't going to be any way to get much funding in the budget. This meant that anything large, such as fibering America, wasn't on the table. The September slides mentioned a $350B fiber project that the press picked up, but the real possibilities were in the $20-$35B range, and it wasn't clear if even that was possible.
The second constraint: Weak political backing “The FCC Chairman just does what [AT&T uber-lobbyist] Jim Cicconi tells him to,” one of the most senior D.C. officials told me in a different context. That's exaggerated, of course, but it requires political courage and strong support to challenge the power of the carriers. That hasn't changed since Obama won the election. Century-Embarq and the Time Warner spinoff with a $billion tax break breezed through, and Verizon-Frontier (with another huge tax break) is on target.
Julius has adopted a policy of relying on voluntary cooperation of the carriers to get things done rather than using the authority he has. Except for net neutrality -- promised repeatedly in the campaign -- he hasn't been willing to make a decision they would strongly oppose. Mike Powell and Kevin Martin made the same mistake for their first three years as Chairman. Both left office bitter because of how little they achieved. High speed Internet in the U.S. is telco and cable both watching each other closely for how high they can raise prices. Verizon and AT&T have raised basic DSL rates 30% recently despite their own costs going down.
A chill went through the FCC building when Cicconi trotted out 70 Democratic Congressman to question net neutrality. AT&T has a robust network and net neutrality is a minor issue for them; if they can persuade 70 Dems (and all Republicans) to go against the public interest on that, imagine what they might do if the plan required something more significant, like lower broadband prices for more than a very few.
The third constraint: Thou shalt not Julius doesn't know networks but he's a smart guy. He caught on early that duopoly and weak competition meant he couldn't rely on the market to get results, except possibly in wireless. Where the market doesn't work, you need to use government power to get results. That could be direct regulation or indirect influence. Companies that large are constantly coming to government for favors, from tax breaks to merger approvals. Refuse those occasionally and they have to make a deal. Almost every government except the U.S. sees the regulator as a negotiator for a better deal for consumers.
Companies are in business to make money and squeeze maximum profit where they have market power. So Julius' “voluntary cooperation” is not enough. He knows this intellectually but hasn't translated this into action. Blair Levin explains how it works in most countries http://bit.ly/ayHJFu “when a regulator says to do something, what happens is that within a very reasonable, short timeframe, those things are done.”
Genachowski made it almost impossible for the plan to accomplish very much when he pulled strong government action off the table. His WSJ comment “No one is spending time working on the broadband plan saying ‘how can we re-regulate?’” points to the problem. If he won't regulate, what are the other levers he has? The policy actually goes much further, dismissing other choices (“Use it or lose it” wireless license renewals, tough merger conditions, refusing government favors, tough audits of subsidy programs yielding fair pricing) as “really just another form of regulation.” By January, it was obvious strong action would be needed for results. I was horrified by the NTIA/DOJ statement that rejected taking any firm action or bringing antitrust into play. I said Larry Strickling should have resigned rather than signing because I saw no possibility the plan would achieve the main goals of more and better broadband. Antitrust needs to be on the table as long as there is obvious evidence of market failure. High-speed Internet in the U.S. costs twice what it does in France and Britain, pretty good evidence to an economist our competition is too weak.
By eliminating anything that even smelled like regulation or antitrust, Julius left himself without the stick he needs for results.
In private, Genachowski worries whether even duopoly will continue. Like most of us, he fears wireline telcos except Verizon FiOS don't have the capacity to compete with cable DOCSIS and the companies will fade away. Fortunately, the last year has made clear AT&T and Verizon will maintain wireline because they need the capacity to support their wireless offering. Their 70% of the country is not threatened. Beyond that, wireline only companies with large debt are generally expected to need to go through bankruptcy. I've looked at debt maturities, and the problems are mostly 4-7 years away. For the consumer, however, early reorganization is probably best. Nobody in D.C. is saying this out loud, of course.
Bankruptcy reorganization hurts bondholders but doesn't need to be a tragedy for consumers. Fairpoint is on the way out of bankruptcy and is only a few months behind on their broadband buildout. The opex of a network once built is low and operating profits likely for decades most places.
*** Columbia University Thursday, March 11 – Friday, March 12 Media Concentration Around the World: Empirical Studies A remarkable event with over 40 scholars from over 20 countries. Modest cost. http://www4.gsb.columbia.edu/citi/events/mediacon2010/reg2010 (psa)
Expected but not yet announced Everyone who hasn't seen the plan is still asking “What's in it.” The Wall Street Journal and Washington Post today had apparently contradictory stories despite probably getting their leaks from the same sources. Most of it is public already if a reporter digs. I've based the on public statements and non-FCC sources, not “leaks” from the FCC. Expect a few errors.
Highly likely to be included: Microsoft and Dell will have a computer discount program probably implemented by One Economy and Connected Nation. “Lifeline broadband” will be called help for the poor but could be corporate welfare in disguise Discounts on service from the cablecos (A+) and probably AT&T. A+ as announced is a shallow pr exercise to prevent real price drops. USF totally re-focused, with the recipients being pushed to convert to all IP. Free.fr, Verizon FiOS, and AT&T U-Verse are showing how for much less expensive IP networks can be compared to the PSTN. Most details not yet announced, but there's an internal push to use the broadband plan to reduce some of the obvious waste in the program. A focused program for the last 3-5% that will include wireless. Most of the remaining “unserved” are so scattered there is no easy way to reach them except through the existing local telco or cableco. Satellite (5 megabit, somewhat reduced latency) for the last 1% or so very expensive to reach with terrestrial broadband. $91K/home for Hawaiian politicians and Sandwich Islands illustrate how USF can be wasteful/abused, and they are trying to avoid similar. Note that serving 1% by satellite reduces the $20-35B estimates in September possibly in half. The $350B, beloved of lobbyists and uninformed reporters, never was on the table. Some school and library program put forth in the name of broadband adoption. Some transfer of spectrum from defense etc. to commercial, but this could be minimal Pole attachment and other rules that are important but I don't understand E-rate and ideally USF spending details made public on the web, including improved public bidding for e-rate contracts Proposals on better but not complete disclosure of the details of different carrier’s broadband offerings
Good chance for inclusion: Rule changes on spectrum use for efficiency, probably limited Special access pricing for rural backhaul. Speaker after speaker talked of rural prices of $100-$200/megabit where competition is weak compared to $5-15 across most of the developed world. This is by far the most effective way to help rural areas without taxpayer money, so I've pressed hard for it. (Below) ICC (InterCarrier Compensation) for companies changed with unclear details.
Should be included: Measures taking advantage of the 10 year term of wireless licenses, the easiest way to near-universal service and more competition. Jonathan Adelstein was the first voice I heard for “use it or lose it.” Use of antitrust with the duopoly Some actions likely to substantially reduce prices during Obama's administration. Very, very few of the recommendations are expected to have an impact before 2015 or so.
The Basics: By 2013, 90% covered 50 meg by land, 95% 5 meg wireless To me, that means the broadband plan should be about availability for the last 5-10% and focus on affordability for the 90%. Although the U.S. is behind some countries by most measures, the difference is small and insignificant in relation to underlying goals such as economic growth. Soon, only 5-10% of homes won't be able to get 50 megabits and 95% will be able to get 5 meg or higher LTE wireless (capped). For 90% of the U.S., the issue is price. The U.S. charges twice as much as Britain and France for high speeds, although other comparisons are not as dramatic. Helping the poor and the remaining unserved is good policy, as is bringing down monopoly-like prices. But the “crisis” has been created by companies and groups as a justification for giving out federal money or other favors. As the CITI Columbia report to the FCC noted
“By 2013-4, broadband service providers expect to be able to serve about 95% of U.S. homes with at least a low speed of wired broadband service and they expect to offer to about 90% of homes advertised speeds of 50 mbps downstream. Wireless broadband service providers expect to offer wireless access at advertised speeds ranging up to 12 mbps downstream (but more likely 5 mbps or less due to capacity sharing) to about 94% of the population by 2013. … a significant number of U.S. homes, perhaps five to ten million (which represent 4.5 to 9 percent of households), will have significantly inferior choices in broadband” http://bit.ly/d15BHs (summary)
Two-thirds of broadband policymakers at a recent event did not know this. The $500M/year carrier influence budget has drowned out the facts.
Definitely Included: “Lifeline” Broadband The “lifeline broadband” in the plan could be substantial aid for the poor or just another corporate subsidy. It's not hard for any reporter to tell whether this is a program for the poor as it will be proclaimed. Done like the current USF program, they may only reach a tenth or so.
The first question reporters should ask is how many of the 35M families without broadband will sign up because of the lifeline plan? Done right, half or more of the 20M poor who don't take broadband will have it. The broadband planners have the most extensively researched model of demand ever created. They can do a decent estimate. Only a lazy reporter would accept “up to” or “possible” figures here.
The second question is “Cui Bono?” Will the money go to helping the poor or plumping up company profits? That's not an easy one to answer, but every reporter in D.C. knows there's going to be some lifeline program and has had plenty of time to do the research. C'mon Amy and Cecilia I'll happily share data and sources. If the family payment and the subsidy combined totals between $10 (Free Press request) and $20 (generous profit margins) for 3 meg DSL or 10 meg cable, it's a program for the poor. If it's throttled to a meg or so, or the total payment is more than $20, we're in corporate welfare territory. If the government is buying millions of lines, paying retail is ripping off the taxpayer. http://fastnetnews.com/stim/179-s/2188-save-half-on-broadband-subsidies-dont-pay-retail-for-a-million-lines If the government buys 500,000 broadband connections through the USF Lifeline program, they can and should get a “wholesale” price. The carriers would sacrifice some margin but will still be very profitable because of the volume. Broadband is a high fixed cost, low marginal cost business. That means additional customers, such as those added through a lifeline subsidy for the poor, have high margins.
Save half. Don't pay retail for a million lines.
The third question is whether the poor are being offered regular speeds or “back of the bus” broadband slower than standard a decade ago? Congressman Serrano tells me that's “absolutely unacceptable.”
Congressman Serrano Low Speed Lifeline "Absolutely Unacceptable" "Is it acceptable that the proposed lifeline broadband program only offer low speeds," I asked Jose Serrano, pointing out the cable and AT&T sponsored plan runs at a tenth the regular speed.
"Absolutely not!" the Congressman replied. "Our students need the highest speed possible."
I fear the broadband plan will limit the poor to this kind of "back of the bus" service, because no one around the plan will say otherwise. It might be like the cable association's "Adoption Plus" or "A+." which only offers the lowest tier of service, too slow for ordinary TV quality. They've said they'd revise their proposals, but with most of the broadband plan written I haven't heard any change. http://i.ncta.com/ncta_com/PDFs/AdoptionPlus_Overview_12.02.09.pdf
10 megabit cable broadband costs the carrier $8/month at the margin. http://bit.ly/9w9PaS There's little saving cutting the speed to a meg (as cable proposes for the poor), at very most $1/month and probably pennies with current systems. Drug dealers proverbially offer a free hit to get you addicted, and carriers know most low speed customers will crave the real thing. Verizon and AT&T offer slow service for $10/month to new customers.
In 1999, all the U.S. cable modems ran at 10 megabits. In 2010, Comcast, Cox, and Cablevision have upgraded fifty millions homes to be able to get 50 megabit DOCSIS 3.0, leapfrogging all the telcos except Verizon. It's absurd to suggest 1 megabit as the right speed in 2012. That's especially true because the cablecos have 80% margins on broadband, per Wall Street's Craig Moffett. Bandwidth isn't free, but it's remarkably cheap. The difference in cost for the carrier of 1 megabit and 10 megabit service is a few dimes. In more competitive countries, like France, everyone gets full speed. More at http://bit.ly/a4eGXm
$150 Billion Woman with the $400 Billion Problem Carol Mattey is in charge of ICC/USF for the broadband plan, which runs over $15B/year or $150B for the decade. She's very sharp, her colleagues tell me, but she'd need the wisdom of Solomon to equitably split this baby. If you combine the goals of the plan and the strong expectations of powerful carriers she'll need another $250B or so. While the FCC since at least 2002 having been reporting cuts are inevitable, Qwest CEO Ed Mueller just told investors he expects a big increase. A top lobbyist told me the Verizon and AT&T alone expect about $2B/year more. (It's buried in technicalities like “non-rural” exemption and “statewide cost averaging.) …
Simple, cheap way to deliver broadband to half of those without I didn't believe it until I ran the numbers, but 20% of annual USF/ICC spending is enough to reach easily half of the 35M or so homes - about 100M people - don't take broadband in the U.S. Personally, I think the money is better spent on the poor, especially given that almost everyone believes 50-90% of ICC/USF is wasted except those collecting the cash.
The trick is not to over-subsidize. About $15/month provides a normal profit (? 40% EBITDA) to the carriers, because the marginal cost of broadband is generally $8/month. That figure is from leading Wall Street analyst Craig Moffett, presumably direct from internal numbers at the big cablecos, confirmed by my own research. Telcos accustomed to huge subsidies will scream, as will their captive Congressmen, but it's the right thing to do. Each family enrolled would pay say $7/month.
Here's the numbers for 3 to 10 megabit service for most of the poor in America. The difference in bandwidth cost between "back of the bus" speeds and real service is well under $1 (large carrier). $8: The marginal cost/month of broadband in 85+% of U.S., essentially all large carriers. $15 A reasonable price for the government to pay when buying millions of lines for lifeline service. That provides the companies with a reasonable profit, perhaps 40% EBITDA. $7 Customer pays (a bargain) $8 Subsidy/month to get to the $15 total. < $100 Subsidy per family per year 10,000 families served per million of subsidy. 10,000,000 per $B. 20-30B homes for $3B/year. That's a lot of money to you or me, but less than 20% of the current USF/ICC total, Verizon or AT&T annual cash flow, etc. To extend this to the last 5-10% requires bringing down ripoff rural backhaul costs via special access.
It's ridiculous to pay retail for millions of lines. We know $15 is reasonable because both Verizon and AT&T charged $15 price for basic broadband until recently and always said they were profitable.
I come to a figure of $5-12/month by adding up the cost of bandwidth, customer support, modems, and the other main inputs required to add a customer to an existing network. Moffett's $8 is about right for the large carriers serving 90% of the U.S. Since the networks are already in place no one is building a new network in most of the U.S. the $8 marginal cost is the right one in this context. Higher numbers either assume a new network buildout, are the last 5% of rural homes, or simply errors. I hope Rob Curtis gets this one right, because it will inform $billions in future spending.
For the record: I've been urging this on everyone in power I can contact, many of whom are DSL Prime readers. Almost everyone at the FCC reads their own email except the Commissioners, so you too can petition them. In the spirit of the ex parte rules, when I make recommendations at the FCC I write them up like this publicly as soon as practical. Far more, including speculation why something this obvious isn't in the plan http://bit.ly/95ddri
Expensive Rural Backhaul: 1/3rd of the problem, actually solvable There's nothing on the agenda likely to do more for the remaining unserved than bringing down some exorbitant rural backhaul costs, so this is one to concentrate on. Cogent, a primary Internet backbone, sells bandwidth for $4/megabit in Saint Louis; Sacramento; Sofia (Bulgaria), Tallinn (Estonia), Almansa (I don't know), Bilbao (Spain) and 130 other cities. Laramie, Wyoming, pays $110 for the same megabit. This is the second biggest rural broadband problem, the bright blue bar on the right in the FCC slide 44 in September: rural bandwidth costs, also called middle mile backhaul. Almost everywhere, there is fiber in place built years ago for the phone network. Nearly always, it has spare capacity or can inexpensively be upgraded. The high cost is because there are only one or two suppliers, and they can ask whatever they want.
The government can either spend tens of billions to duplicate the existing fiber or use the "special access" rules very narrowly only where there is proven high costs. Forget arguing the rights or wrongs of this; it's impossible to find tens of billions in the budget after the stimulus is used up. The "unserved" are only 3-6% of U.S. homes, almost all rural. The FCC is deciding on possibly ten billion dollars or more in the urban special access proceeding. The rural part is a fraction of that, especially if it is narrowly tailored only to the places where the $100 or $200 prices provide strong evidence of market failure. Apply this very narrowly, only where there is very limited competition and very high backhaul rates. Much more http://bit.ly/7qAKwg
Unproven claims about broadband 40,000 people losing their jobs at Verizon know the job impact of broadband can be negative as well as positive. Verizon has the most advanced broadband network in the Western world and is massively cutting staff. The local bookstore that dies when people order from Amazon, the newspapers dying across the country as readers shift to the web, and eventually the schools displaced if on-line education actually grows are further evidence that broadband destroys jobs as well as creates them. Honest academics find a very mixed picture that suggests the net effect is very modest at best. The only honest answer looking at the data is Professor Shane Greenstein's "We don't know the effect of broadband on the economy." (I wish it were otherwise, of course.)
Evidence-based medicine is transforming medical practice and research, undoubtedly savings lives, and I've been working to develop evidence-based policy. Washington is talking "data-driven decisionmaking but that's worthless if the data are corrupt and untested. There are claims being made in D.C. that range from unlikely to almost certainly untrue. Many originate from work paid for by the Bells then picked up and repeated by others who want to believe and won't examine the evidence.
Huge economic and job impact of more broadband The data show otherwise, no matter how much I or advocates would like to believe this. Julius should never have said "that even modest increases in broadband adoption can yield hundreds of thousands of new jobs" based on a couple of Verizon paid studies essentially discredited by independent scholars.
The author of one he cites, Bob Crandall, has several times has pointed out in prominent D.C. events that the 2003-2005 data in his work probably does not applytoday. During that period, broadband was first reaching many homes and businesses, many of whom couldn't connect at high speeds. In 2010, 95% of the U.S. can get landline and the remainder satellite. 65% of homes are connected and nearly any business with a major economic return is likely online already. It's a good thing to help the poor, elderly, and possibly even the illiterate get connected; there's no reason to believe these additional connections will have a major impact on the economy.
The original Verizon funded claims have been strongly challenged by objective researchers. Shane Greenstein, the Elinor and H. Wendell Hobbs Professor at Northwestern told a recent NTIA hearing "We don't know the economic impact of broadband" and I know visited the FCC that day as well. Raul Katz of Columbia presented a paper in D.C. that pointed out broadband could either create or destroy jobs depending on which of several plausible assumptions one makes.
As Raul notes, "First, a "saturation" effect (i.e., when broadband adoption reaches high penetration levels nationally) might limit the economic impact of broadband. Second, ongoing research on the productivity impact of broadband indicates the potential for capital-labor substitution and consequently, the likelihood of job destruction resulting from broadband deployment. Third, since broadband tends to enable the outsourcing of jobs, a potential displacement of employment in the service sector from the area targeted for deployment might occur. Fourth, some job creation in the targeted areas could be the result of relocation of functions from other areas of the country, and therefore, should not be considered as creating incremental employment." http://www.elinoam.com/raulkatz/Dr_Raul_Katz_-_BB_Stimulus_Working_Paper.pdf
Most dramatically, the most careful study of the economic impact of broadband was presented in D.C. in January. http://bit.ly/4SoNQL Jed Kolko finds a "positive empirical relationship" between availability of broadband in the U.S. early this century and economic growth. He goes on to point out that doesn't imply "broadband expansion causes economic growth." "The reverse might actually be true," he points out, "if broadband providers choose to offer or expand service in areas that are growing faster." During that period Bellsouth emphasized a "smart build" that looked at factors like the local economy. That might be a substantial confounding variable, although Kolko looked for effects like that and sees little evidence they are the explanation.
"The overall relationship between broadband expansion and employment growth, as measured by the NETS, is positive." That's good news, and corresponds to my belief that broadband is a good thing. However, "both the average wage and the employment ratethe share of working-age adults that is employedare unaffected by broadband expansion. The economic benefits to residents appear to be limited. ... Broadband expansion is associated with no change in average pay per employee and a decrease in median household income. Broadband expansion has no statistically significant relationship with the employment rate. ... the economic development benefits of broadband are ambiguous." Jed, like I, believes broadband is a good thing and he was looking for a major economic impact. Unfortunately, the impact is not large enough to be clear from available data.
Huge benefit from electronic health records and telehealth Legendary medical professor Jerome Groopman calls it "Obama's $80 Billion Exaggeration," and while that may be going too far the claims of $700B in savings rest on almost no evidence. Even if the returns from EHR are true, the broadband plan will do very little for their success because most medical facilities are already connected. (below).
Actual speeds are typically 50% lower than advertised Bad Comscore data, cited by the FCC, has now been copied over the world and the refutation never seems to catch up. The 50% speed drop was higher than the results of the best survey in the world, Britain's OFCOM/SamKnows, although the U.S. has much less of a problem than the U.K. Cable is not affected by distance and is closer to promised speeds. The U.S. has twice as much cable as Britain and our advertisers are not as extreme. The same DSL line sold as "up to 8 megabits" in Britain is sold as "up to 6 megabits" in the U.S. so is more accurate.
Our Verizon DSL line is rock solid at 3 megabits down and my Time Warner cable line is consistently close to the promised ten megabits. I’ve confirmed with the actual data on major networks that except for long loop DSL lines, speeds on any decent network tend to be within 20% of advertised. Even the feared "prime time dip" is generally exaggerated. Slowdowns are more often due to the servers, not the network. http://bit.ly/9gpAje bit.ly/cYu6Uv
Any form of "demand stimulus" or broadband promotion works except bringing down the price Telcos learned years ago that promotion did little for broadband sales without a price break. This could be direct, in indirect in the form of a cheap computer, time payments, etc. So I looked closely at the claims that "promotion" made a difference in broadband take rates.
There is no evidence that talking up broadband - demand stimulus - has ever worked. The most cited "study" - Connect Kentucky - falls apart when you look at the data and by their own criteria was worse than useless. (Availability went from 60-95% in the period. Adjusted for availability, the adoption in Kentucky was less than the national average.) I've asked expert after expert whether they have any solid evidence this kind of thing works. Nada. I'd like to think a little training would make a difference, but I can't find proof of that either.
Most people in 2010 know what the Internet is, after all.
Education: The planners cite data that kids with computers and broadband connections do much better in school as though the broadband connection is the primary reason the kids did well. It's far more likely that the more motivated (or less poor) kids are the ones with broadband, not that broadband is the primary cause of their success.
Decades ago, Apple CEO John Scully told me that computers would transform education and solve most of the problems of the schools. Last I looked, U.S. schools aren't doing much better despite decades of computer use. Computers, with or without broadband, are good things but not transformative. There's a good discussion on how most interventions have little effect on schoolchildren http://nyti.ms/9SU5DF
Inappropriate Claims The broadband planners are making several claims for benefits from the plan that will not be realized because of the plan. This is disingenuous.
$513B saving from health records: Nearly all medical facilities are already connected at a speed fast enough for electronic health records. So whatever the benefits of health records, additional broadband won't have much effect. Attributing most of the $513B claimed benefit of electronic health records to anything in the broadband plan is unsupportable. Sufficiently fast lines are in place.
Business web sites need more broadband like the plan would bring Julius credited web site orders for doubling the volume of a small business. "So it is that Blue Valley Meats in the small town of Diller, Nebraska doubled its employees and saw 40 percent growth by setting up a Web site and selling its beef online. But only once Diller got broadband." That's a good thing, but they could have done it previously by satellite without any problems.
Nonsense. Most small business websites are hosted on servers like BlueHost, Rackspace, and GoDaddy, which cost as little as $10/month and are far more reliable than doing it yourself. There's no problem using a satellite connection - available almost everywhere - for updating the site and handling orders. Latency has little impact on creating a small business web site.
Further examples welcome.
AT&T, Verizon, Qwest: 82% of DSL “Unserved” There's a bombshell buried on FCC broadband slide 47: three companies are responsible for the bulk of the problem. People gasped in D.C. when I said the Bells had been treating much of rural America “like the Romans treated the Sabine Women” but even I didn't realize the percentage was that high. Bell rural coverage is often 50-60%, far lower than other U.S. rural carriers or the rural coverage of any Western European telco.
Any U.S. broadband program will therefore failbadlyunless there's a strategy to reach the homes unserved in Bell territory. Working with the companies is ideal, but if they won't co-operate Larry, Jonathan, and Blair need to find an alternative. more http://bit.ly/c9gReR
A Bronx Tale: The Amazing, Unknown Free Wireless One million New Yorkers can get free WiFi through 187 access points across Harlem, the South Bronx, and Brooklyn in the neighborhoods that need it most. If your WiFi can see smartnetnyc, urbanwifitv or smartnetnych, you should be able to register on the splash page that comes up. When I visited them Saturday, 392 users had logged in by 1:30, although until now they have had zero publicity. more http://bit.ly/5hJbaY
Great Things Possible in the Plan Some ideas seriously discussed in D.C. I don't know what made it to the final plan.
The last 2-5%: Obama promised to bring broadband to all Americans, a good thing. There are about 5% of homes that can only get satellite, and these have been a prime focus for Stagg Newman, Rob Curtis, and Jim Stegeman. Early on, they (and the broadband stimulus people) discovered very few of them were in towns or areas of even a few hundred homes, natural for a new build of broadband. Most are 6 her, 20 there, and sometimes 3 on an island. There’s no public information about what the plan will propose. I'd guess 1% or so will be offered the new 5-10 megabit satellite service. Where cable TV but not broadband is available, that's a cheap upgrade especially if the plan solves the backhaul ripoffs (below). Wireless will play a large role, although I don't know whether they will clear the 100 MHz or more of spectrum that would be ideal in rural areas for broadband. Look for a thoughtful move, probably tied into USF funding.
Open set top boxes: Verizon has been talking about this since 2003 but done nothing, and D.C. hasn't even been thinking about it. Put a gigE connection and a decent browser on the set top, and suddenly I can watch everything over the net. Add a USB port for expansion and ideally Linux like the Sony Playstation and the possibilities are remarkable. Cable quietly has been demonstrated that the program protection can be downloaded and done in software. That's an important breakthrough, promised for many tears as part of Tru2way, etc, that should allow people to buy/build their own set top with capabilities far beyond what the company includes. Cable isn't very resistant, because customers buying their own set tops save them a great deal of capex. "Extending outage reporting to broadband service providers:" Good for reliability and requiring reporting identifies problems and possibly persuades the companies to reduce them.
Ending the huge backhaul ripoffs. See above or http://fastnetnews.com/dslprime/42-d/2363-backhaul-3rd-of-the-problem-actually-solvable I don't know if this made the last draft, but it's so clearly true to the planning team it would be a bad mistake if it didn't/
"Ensure survivability of critical infrastructure." In particular, as half the population drops landlines it becomes critical that wireless continues working in emergencies. Most cell sites have severely limited batteries and no generators. CTIA, to their shame, is fighting the FCC in court to prevent sensible requirements. After Katrina, we all know how critical keeping the lines live can be.
"Require participating institutions to meet outcomes-based performance measures" Right on. This will immediately kill most of the "demand stimulus" programs because the results simply haven't been there. I wish it were otherwise, but most accomplish little.
"Address networks’ preparedness to deal with pandemics or incidents of high network stress/overload" To save what's comparatively pennies, many networks simply don't have sufficient reserve capacity. We're seeing that now as modest success selling iPhones is causing major problems for AT&T. They are exaggerated but real. At least since 2003, SBC/AT&T top tech people have been warning management they are cutting capex too far. Most years, it's actually below depreciation. All the old time engineers are afraid the cutbacks in reliability the last decade are inviting disaster. "Commercial data networks are not ubiquitous or universally reliable during emergencies" is important.
"Creating a nationwide interoperable broadband wireless public safety network" Carlos Kirjner of the plan did the post-mortem on the communications during 9/11. The belief in New York was that lives were lost because the police and fire departments had trouble communicating. This should be a no-brainer, but hasn't happened. I pay particular attention to the word "nationwide". One of the biggest gaps in broadband coverage is the last 2-3% where there are no cell towers. Erecting towers with backhaul for public safety purposes can also provide broadband wireless for the last few %.
"Improve program efficiency" Between 40% and 90% of the money in ICC/USF is wasted or corporate welfare, depending on whose figures you believe. This has all been under a veil of secrecy at USAC, NECA, and state regulators. I believe that you could save enough to give 10 megabits to all the poor in the U.S. by cutting waste, but I can't get the solid information to be sure
Other announced features Very little of substance on better broadband for more people, but plenty of moves in other areas, many admirable. This is here $18B for “interoperable public safety everywhere.” If done right, the everywhere part will include erecting towers for nearly all the last 3% of homes. A small increase in e-rate for schools and libraries. (Inflation based on CPI) Universal service funding will not be increased. That can't be done while giving the telcos what they expect from non-rural, broadband lifeline, Fairpoint/Iowa/Puerto Rico, “middle mile RLEC funding” and other parts of the program. Some program for spectrum resale, especially by broadcasters. Some limits on local government right of way, etc. A universal service goal of 3-5 megabits. (Does that include connections for the poor?) “Universal digital literacy so that all of our kids have the tools they need to learn and compete in a 21st century economy.” 100% digital literacy would be particularly remarkable considering that our current educational system results in only 86% of Americans functionally literate by one government estimate. E-care pilots that evaluate cost savings & clinical outcomes. Beneath the rhetoric, most telehealth and electronic medical records programs have not done well. Legendary Harvard Medical Professor Jerome Groopman is eloquent on how the claims for e-health are exaggerated. http://bit.ly/aFgpWt Ensure patients have access to and control over their health data. Sounds great to me. Require participating institutions to meet outcomes-based performance measures Consider open license as option for federal investments. Good idea. USF: Develop standards for financial data transparency USF: Create an online RFP broadcast service to increase market information. Done right, this can dramatically save money on e-rate. Open federal NETWORX contracts to state and local governments Target federal funding to areas where broadband solutions are outcomes-oriented and holistic Explore extending outage reporting to broadband service providers Reply "subscribe" to be added, "un" to be dropped Apologies to about a dozen people who were deleted but are getting this, A Windows crash sent me to a backup. Volume 10, #25 March 3 2010
February 14
Bravo, BT & AT&T: 99% DSL coverage in Wales, $15 & $30 iPad Data Plans http://bit.ly/c9gReR
Shorts: Frontier charging more than twice the bell prices, Novus in Vancouver is delivering 200 megs, fiber costs rather than creates jobs, Bob Cusack, Brian Sugar, Telecommunications Law and Policy. Phil Weiser
"Financial crisis Stalled too many customers CEO no more," Jonathan Schwartz, leaving Sun
Glen Campbell of Merrill Lynch demolished the idea there's a spectrum shortage behind the iPhone problems. Reversing the huge cuts in telco capex, especially at AT&T, should be enough to minimize the problem while remaining highly profitable. Below or dd Sergey Brin asked “why can't drive down deployment costs" and is personally behind the Google gigabits that's scaring every lobbyist in D.C. I'm reporting the Google project cost should be less than a third of the early press reports and provide a gigabit for close to the $700/home passed of Verizon FiOS. Singapore and much of Asia is going a gig and Novus in Vancouver 200 Meg in both directions. Juan Vela told me Friday that Occam has shipped 100,000 ports of gigabit (active) to U.S. carriers. New chips have bought the price of a gigabit down so close to FiOS like gear telcos are buying the gigabit for the future even if they are only selling much lower speeds today. The numbers I'm seeing imply gigabit is right for any new build in the developed world. I can't believe that, but the numbers look clear. Amazing. Dave Burstein, this writer, will be on a panel for the NARUC state regulators' conference Tuesday 1:30 in D.C., as well as at An American Bistro in the lobby of the official hotel, the Renaissance at 9th Street NW Say hello to the round fellow with a beard.
I'm doing a special U.S. issue later in the week. (Some links below.) I'm also sending out ad proposals to most companies in the industry. There will be attractive small company packages for the price of 1/2 a page a year in EE Times; great deals for larger companies at the page of an annual page or two. Please remind your marketing people how many broadband buyers and influencers read DSL Prime.
*** ASSIA -- the world leader in dynamic spectrum management, is now supporting over 28 million lines of DSL. Our performance and reliability are unmatched. http://www.assia-inc.com/
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Bravo, BT & AT&T: 99% DSL coverage in Wales, $15 & $30 iPad Data Plans Edmund Hilary trained for Everest at Snowdonia in Wales. Mountains dominate most of the country. The people were so fearsome Offa built a 120 mile dyke to prevent incursions, and they resisted English conquest for a millennia. The average income is well below the British norm, making them somewhat less likely to buy broadband. Despite that, BT offers DSL to 99% of the homes, one of the highest rates in the world. While some speeds are low, this remains a major achievement.
Trevor Forsythe in Northern Ireland writes to me they have 99% landline coverage there as well. DETI working with BT starting in 2004 made that possible. For the remaining 1%, DETI working with Aventis has a satellite offering. # is becoming the international norm.
AT&T rarely gets credit, so I wanted to go out of my way to report the iPad deals. The iPad WiFi is the primary data, but none of us are always in WiFi range. For $15, with no contract, you get a modest data plan (250 megabits) that will let you check email, directions, and even make a few dozen minutes of VOIP calls. For $30, you get five gigabits (misleadingly called “unlimited”). That's only a few hours of quality TV, but enough for 30 hours of music & all the surfing, email, etc most people will need to do on the road. The catch is that you pay $130 more upfront for the iPad model with 3G builtin.
This is Ralph de la Vega again using common sense and changing the business model. He eliminates the cash drain of a subsidy, lets Apple take on customer support and most of the sales cost, and makes the plan so attractive it should sell itself. Currently, an iPhone buyer in the U.S. commits to about $2,000 for the standard contract, getting $300-400 off the top as a subsidy. That's a terrible deal, but since AT&T has an exclusive on the iPhone (for now) people put up with it. This is a good deal for all sides. Glen Campbell of Merrill calculates that wireless data costs less than $3/gigabyte and the average high end “unlimited” user takes about 1.5 gigabytes. The AT&T $30 plan is less than most competitors, but the direct cost by Merrill's numbers is $5/month and dropping.
Years ago, Tom Starr and the DSL Forum published “DSL Everywhere”, detailing many different techniques. BT has emphasized long reach, on which they have done important research. Repeaters and remote terminals some the size of a paperback book also contribute. I've worked with Vermont Tel who reached just about everyone in their part of rural Vermont back then, and reported the 176,000 rural customers of Madison River also are 99% covered. # The last 1-3% is often expensive, depending on the district, but 96-99% is generally profitable. It's the shame of the Bells they are 82% of the U.S. problem. http://bit.ly/c9gReR
*** New Forward Concepts study, "Smartphone Device & Chip Market Opportunities '10" provides dozens of detailed forecasts by global region by air interface and operating systems for through 2014. Major cellular and peripheral ICs are also detailed. http://www.fwdconcepts.com/smartphone10/index.htm
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Google's Gigabit Could Cost $700/home At Best Buy a gigabit switch costs less than $50/port, so any geek can tell you even carrier-reliable gigabits just aren't very expensive any more. Sergey Brin, who personally inspired Google gigabit plans, is right on target for any network built today. Verizon is already planning to upgrade FiOS to that speed in a few years, and Juan Vela tells me they have already shipped 100,000 ports to customers. Everyone in Singapore is getting a gig connection within the next two years, and literally millions in Asia already have shared GEPON that hits top speeds close to a gig when traffic is modest. Fiber gear has improved so quickly that in most of the U.S. Google can deliver a true gigabit for less than $700/home passed, what Verizon is paying for the much slower Verizon FiOS. Over 100,000 lines of true gigabit active Ethernet have already shipped in the U.S. (from Occam, below) although the customers are usually selling only 100 Meg speeds for marketing reasons. The difference in cost for a gigabit was so little several companies have bought gigabit gear they don't need today because they might need it in the future. Bandwidth isn't free, but it's so cheap an efficient company can make a profit with a price between $40 & $70, about what U.S. cable modems cost for 5% of the speed. That's based on early costs from actual deployments in Asia, actual bids for the new faster equipment, and a business plan developed and submitted for stimulus funding. It requires a few limits: a cap of 500-700 gigabytes, twice the highest cap today in the U.S.; efficient and experienced management; and volume that could be quickly achieved with cooperation from a city like Seattle. The cap would go up over time as Moore's Law brings down bandwidth costs. There is amazing little difference in running costs when higher speeds are installed; you don't get much more email or even watch much more TV over the net if your connection goes from 10 megabits to 100 (J:COM, Japan) or 200 (Novus Net, Canada.) The actual increase in bandwidth demand averages about 30% in those two upgrades according to their technical leads. The increased bandwidth is likely to add a few bucks at most to monthly costs in a large deployment. Seattle's Mayor McGinn told the local papers he is going for it and he has strong backing. Qwest in the city is so second rate that they were looking to spend their own money on a fiber build, and would welcome Google's involvement. Seattle, like the also committed Somerville, Mass, has the natural medium density that Verizon FiOS proved is practical to fiber. (FiOS has problems to deal with, but Verizon's continued high profits after deploying 15M lines make clear it's not impossible.) With local support helping bring in customers and government cutting the red tape there's a good chance Google or anyone else competent can make a build like this profitable, especially where the telco doesn't put in their own fiber and the cableco charges double the world price for high speeds. The 16M fiber lines deployed in the U.S. have shown how to reduce construction costs and the equipment gets better and cheaper every few months. It's still a tough battle to overbuild. Both UTOPIA in Utah and Burlington in Vermont came in so much over budget they are struggling, but others can profit from the lessons learned. The $3,000/home figure some press have been picking up is based on small, extremely rural buildouts. Running fiber along poles costs about $20/K mile. If you have only five homes on each side of the road, that's $2,000 apiece for the fiber run. Bell Canada recently told investors their fiber home costs are about $650 and I have a similar figure from France. Most of the European builds come in between that figure and about $1,300. So unless Google puts most of its money in very small towns, the cost will be close to Verizon's plus a factor for the smaller size of the projects. If they keep to their modest plans, the total spending will be a few hundred million and many of the projects self-sustaining and even profitable. http://bit.ly/bI8BKI
*** Columbia University Thursday, March 11 – Friday, March 12 Media Concentration Around the World: Empirical Studies A remarkable event with over 40 scholars from over 20 countries. Modest cost. http://www4.gsb.columbia.edu/citi/events/mediacon2010/reg2010
(psa) Inspired by Eli Noam’s new book Media Ownership and Concentration in America
Occam's Vela: We've shipped 100,000 full gigabit ports in the U.S. Upstream gig included Most customers are only selling the service at lower speeds, but the added cost for a true gigabit of active Ethernet is modest. Many of his customers are simply ordering the gigabit now rather than upgrade later, and starting to sell a full gigabit to commercial customers meanwhile. Vermont Tel is similarly selling a gigabit to schools and hospitals for about what many telcos would charge for 5 megabits of T-1. They gave me a “Gig-E for Vermont” t-shirt. If the stimulus helps with the fiber construction costs, they are ready to very quickly bring a gig to their 20,000 customers. (For the record: I did a four figure consulting job for Vermont Tel on a wireless project.) The GPON “passive optical” gear Verizon is using generally is slightly cheaper than active Ethernet, but is only designed for 200 Meg in each direction. Verizon with Huawei demonstrated the next generation 10-GPON, which is shared but should provide a full gig to any customer a very high percentage of the time. As 10G goes from the lab to volume production in a few years, it will probably cost no more to deploy than today's 50 and 100 megabit gear. Since the bandwidth usage doesn't go up nearly as much as the speed, the operating cost of the bandwidth should only be a few dollars more for a gig in a few years. Anyone can verify how cheap a gigabit is by going to any computer store and pricing gigabit switches. Best Buy has a 48 port Netgear gigabit switch for $1,999.99, $42/port. Carrier gear has to be reliable so it's not quite that cheap, but you get the idea. Occam also got some very good news from Fairpoint, a large customer. The bankruptcy is having only a minor effect on the New England DSL deployment. Fairpoint's plan to get out of bankruptcy has them losing only a few months in the deployment plans promised to the states. It appears the regulators did a good job getting commitments confirmed. Investors and regulators are rightly concerned about any telco without wireless, including British Telecom and Qwest. As analyst Craig Moffet has made clear, there's no good longterm plan to deal with the continuing loss of lines to wireless. The mid-sized U.S. carriers like Frontier have junk bond ratings. http://bit.ly/9LOyxL
*** ASSIA – generate more revenue from your DSL network investment. Reduce churn and upsell customers. http://www.assia-inc.com/
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Absolutely No Wireless Spectrum Shortage in 2010 Sure the iPhone has problems, but John Stankey of AT&T thinks restoring a $2B capex cut will fix them. It may take a little more money than that, but Glen Campbell of Merrill Lynch has confirmed he's on track. In a 50 page report that's one of the best I've read in years, Merrill destroyed the common belief that wireless has a significant spectrum shortage. He estimated the likely traffic demands (including iPhone) through 2012 (and possibly longer) and the realistic capabilities of the technology. AT&T and O2 obviously have to catch up some investment, but Campbell concludes “For most wireless carriers, we expect that capex increases will be temporary and/or modest ... network equipment cost declines will continue.” He reviewed AT&T's plans to fix things and a myriad of technology moves already beginning that improve voice and data performance. Off the record, two of the best engineers in the world have confirmed to me that's perfectly plausible. It corresponds to my research, an FCC conclusion, and what John Stankey of AT&T is telling investors. Campbell calculates it costs less than $3/month for a gigabyte of added capacity, falling. If the average “unlimited” (really 5 gig) customer uses about 1 ½ gig (a likely average), that means a carrier collecting $20-50/month needs to spend about $5 of that for the bandwidth. It should fit in a capex budget similar to todays and will drop with Moore's Law. An important point is that the carriers can essentially control the bandwidth demand by plans and pricing. If they stay with today's 5 gigabyte cap or even double it, the numbers work. Behind the higher estimates for 2012-2015 is an implicit assumption that carriers will raise double their caps every two years and be at 20-40 gigabytes for the almost all customers. That's unlikely. Those caps will limit the use of wireless for folks who want to watch all their TV over the net. It is therefore only a partial substitute for landlines, so I believe most families will maintain both. With a landline in most homes, 30-50% of wireless traffic can be diverted to femtos and WiFi. Vodafone and AT&T are well along making that happen, especially as femto prices drop to $50 and eventually $20. They pay for themselves just with the spectrum savings. Vodafone is already giving them out for free as part of the bundle and 2Wire has promised gateways with femtos inside. While some of his conclusions are U.S. centric, most of his data applies across the world. Glen is Merrill's world lead on telecom and he has some conclusions about both the emerging and developed world. He has long been acknowledged as one of the dozen best in the world. This report is the most interesting I've seen in a while. It should be available through the standard investor databases but unfortunately is not public. There are predictable technology shifts like double or triple capacity in 3G/4G, huge IP voice efficiencies that will free up spectrum used for voice today, mass deployment of WiFi phones and/or femtocells. My guess is we probably can go a decade without a serious problem based on some almost certain FCC moves. Improved spectrum use is the most important part of the broadband plan, as I wrote more than a year ago. New America Foundation, Scott Marcus and many others doing important work informed my articles http://bit.ly/bK5s4y
*** ASSIA – talk to the DSL experts. Critical enabling technology and DSL network best practices. http://www.assia-inc.com/
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Equipment sales down 12 percent in 2009 Dell'oro, one of the best analyst firms, reports a 12% decline in access equipment sales in 2009, which they think will only be partially reversed in 2010. They see the future as determined by upgrades, not new deployments, with fiber in the lead. They see the market split about evenly between GPON and EPON, cable CMTS upgrades as everyhing goes digital, and disappointing sales for DSL.
My take going forward sees China continuing as the dominant market. Their 12M/year DSL growth has been the driver for several years, but PON will take a large share of the Chinese future. There are 20M lines of fiber on order in China, with GPON making inroads at China Mobile and perhaps China Telecom. The norm is rapidly becoming fiber at least to the basement. Japan is 85% fiber already, limiting room for growth, and India will be predominatnly wireless because their wireline network is miniscule in (35M line) for a country of over a billion people.
Brazil has some grand plans, with Lula speaking of a possible $8B investment in fiber. But the developed world - where 60-80% of homes are already connected - has little room for growth. http://bit.ly/bdjjRf
*** ASSIA – the fastest way to dramatically reduce your DSL network operating costs. Fewer truck rolls, fewer customer calls, better diagnostics. http://www.assia-inc.com/
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Premier ministre Demands French Broadband Price Cut 20 euro ($28) is the right price for broadband + phone, Le Premier ministre Francois Fillon has decided, and has asked the Minister of Industry to make it so That's unlimited landline calls nationwide + DSL "up to 22 meg", which would cost twice as much or more in the U.S. "I hope that within six months, all operators who wish to can offer a special social to allow low-income households access the Internet at attractive conditions. This offer social should be around 20 euros"(LePoint, Google translation)
"The Internet has become an essential tool in the same way as electricity. Access to an affordable price is an imperative of social justice. I hope that by six months, all operators who wish to can offer a special social to allow low-income households access the Internet at attractive conditions," AFP, GT.
"I asked the Minister of Industry to undertake the necessary consultations to initiate a code change positions and electronic communications to enable to offer all operators the opportunity to establish such an offer social." FT and SFR surely will not be unpatriotic and refuse to drop their prices - if they want part of the 2 billion euros Fillon has offered for the nationwide fiber build or any of the other favors they need from government. It's pretty hard to say the price down is impossible, because Free/Alice and Numericable already have an offering for 20 euro. http://bit.ly/c3LtXj
Corrections
Apologies to AT&T's John Stankey whose name I just discovered I mis-spelled in 2008. Also to Martyn Warwick, who works at TelecomTV not Total Telecom. Both publications are excellent as are both reporters.
Briefs, some of which become longer stories if I ever catch up:
Rural carriers like Frontier charging more than twice the bell prices is a crucial part of the low rural take rate. Something is wrong if driving down prices like this isn't central to the broadband plan.
Novus in Vancouver is delivering 200 megs inbothdirections to buildings across the city. They've run fiber to the basement and then Cat 5 Ethernet to the apartments. It's working great, but Shaw has gone to dirty tactics to scare customers away from Novus. In those buildings, Shaw is selling double and triple play for less than half the price of customers across the street. That's true predatory pricing on a scale very seldom seen, and even the CRTC is concerned.
At carriers, fiber costs rather than creates jobs over time. Verizon, with the largest fiber deployment in the West, is continuing with 40,000 job cuts. Fiber reliability resulting in fewer repairs is crucial to that. The CWA union has gone to the wall in D.C. to get $30-60B for fiber, hoping that subsidies to the companies will protect most jobs. A top D.C. economist tells me the Verizon results make that almost certainly unlikely.
Press
Bob Cusack at The Hill knows the difference between rhetoric and reality in D.C. After Obama's speech, he heard from a lobbyist, “Bash lobbyists, and then reach out to us. Bash lobbyists [while] I have received four Democratic invitations for fundraisers.” His colleague, Kim Hart, has been covering more tech stories than virtually anyone else in D.C. I just wish Hart's editors, and their peers at the Washington Post and Wall Street Journal allowed the reporters enough time to check whether the lobbyists and government people are telling the truth. It's not true “Governments always lie” but both officials and those trying to influence them often avoid the truth. Many of the claims in D.C. can be identified as ridiculous with a phone call or three to anyone who actually knows the networks.
The Wall Street Journal editorial page is right the “broadband problem” in the U.S. is exaggerated, but gets a crucial fact wrong, writing, “A typical cable modem today is 10 times faster than a decade ago.” Which is odd, considering the typical cable modem 10 years ago Comcast, Cox, or AT&T @Home - ran at 10 megabits and most cable modems today are at 8-12 megabits. The network was designed for the 10 megabits, including sophisticated for the day caching, but the marketing side of the cablecos pulled down the speeds when they took over. Since then, they have been justifying higher prices because they "increased" the speeds, although they took years to get back to 1999 speeds. Now DOCSIS 3.0 really does raise speeds a factor of 5-10, but they are pricing it so high very few are taking the service. (Britain and France are half the price for 50 and 100 meg speeds.) People believe these myths - Ivan Seidenberg recently said "The price of a broadband connection has fallen by half since 2001" without an intent to lie. Does the WSJ print corrections when they have the facts wrong in an editorial?
People
Brian Sugar while at 2Wire was one of the most dynamic executives in DSL, and a friend to many of us. After he left, with wife Lisa he formed Sugar Media, initially a celebrity blog. Nick Carlson reports the company is now profitable with 116 employees. According to Carlson, “They got the idea for Sugar Inc when, at an Oscars party, tech blog mogul Om Malik turned to Lisa and said something along the lines of, 'F--- tech. You two should build the next Conde.'” Om always did think big.
Books Telecommunications Law and Policy. Phil Weiser's publisher Carolina Academic Press sent me a copy of the casebook he edited with Stuart Benjamin, Douglas Lichtman and Howard Shelanski. It's well done, although not light reading. The 1200 pages include the laws, cases, many of the regulations and intelligent commentary on what it all means. It was dramatic comparing what the laws actually say versus what the lobbyists in D.C. and usually the FCC thinks the law is. On the law, the Verizon-Frontier deal would be easily rejected. It fails on the facts as well. But in D.C., it is considered politically impractical to do more than ask for feel good concessions. In practice, the cult of deregulation is so powerful, and the tens of millions in lobbying so effective, it will almost certainly go through with insignificant exception. My brother Josh lives in Eugene, Oregon, one of the territories Verizon has been trying to get rid of for seven years. In the territory Verizon is retaining, 80% is going to FiOS and a town like Eugene would almost definitely be on the way to 200 megabit GPON. Under Frontier, that's not going to happen. If the result of the deal is that Eugene gets an inferior Internet, then the public interest is not being served. Especially because Frontier is literally charging twice as much for basic service as Verizon, which Julius hasn't done anything about. Phil is a brilliant antitrust lawyer and professor now senior at the Department of Justice. We have a long running disagreement over whether antitrust can solve the major problems in U.S. broadband, etc. He's absolutely right in a perfect market, but my take is that the efficiencies of scale and power make that inadequate. I'd be delighted if he proves me wrong, however.
Congressman Serrano Low Speed Lifeline "Absolutely Unacceptable" "Is it acceptable that the proposed lifeline broadband program only offer low speeds," I asked Jose Serrano, pointing our the cable and AT&T sponsored plan runs at a tenth the regular speed. "Absolutely not!" the Congressman replied. "Our students need the highest speed possible." NCTA, the cable association, calls their plan "Adoption Plus" or "A+" but it only offers the lowest tier of service, too slow for ordinary TV quality More at http://bit.ly/a4eGXm
The Basics: By 2013, 90% covered 50 meg by land, 95% 5 meg wireless To me, that means the broadband plan should be about availability for the last 5-10% and focus on affordability for the 90%. From the Columbia CITI study to the FCC, the crucial conclusion. “By 2013-4, broadband service providers expect to be able to serve about 95%2 of U.S. homes with at least a low speed of wired broadband service and they expect to offer to about 90% of homes advertised speeds of 50 mbps downstream.3 Service providers expect to provide many homes with access to these higher speeds by 2011-2012.4 Wireless broadband service providers expect to offer wireless access at advertised speeds ranging up to 12 mbps downstream (but more likely 5 mbps or less due to capacity sharing) to about 94% of the population by 2013. ... a significant number of U.S. homes, perhaps five to ten million (which represent 4.5 to 9 percent of households)5, will have significantly inferior choices in broadband: most of these homes will have wireless or wired service broadband available only at speeds substantially lower than the speeds available to the rest of the country.
Save Half on Broadband Subsidies: Don't Pay Retail for a Million Lines If the government buys 500,000 broadband connections through the USF Lifeline program, they can and should get a “wholesale” price. The carriers would sacrifice some margin but will still be very profitable because of the volume. Broadband is a high fixed cost, low marginal cost business. That means additional customers, such as those added through a lifeline subsidy for the poor, have high margins.
Plugging in some numbers, there's a sensible compromise around the point where a subsidy would serve twice as many homes. Consider if a regular broadband price is $20/month (AT&T & Verizon's current low end price) and a goal for the customer to pay $5/month on top of their phone bill. more http://bit.ly/280HH4
AT&T, Verizon, Qwest: 82% of DSL “Unserved” There's a bombshell buried on FCC broadband slide 47: three companies are responsible for the bulk of the problem. People gasped in D.C. when I said the Bells had been treating much of rural America “like the Romans treated the Sabine Women” but even I didn't realize the percentage was that high. Bell rural coverage is often 50-60%, far lower than other U.S. rural carriers or the rural coverage of any Western European telco.
Any U.S. broadband program will therefore fail badly unless there's a strategy to reach the homes unserved in Bell territory. Working with the companies is ideal, but if they won't co-operate Larry, Jonathan, and Blair need to find an alternative. more http://bit.ly/c9gReR
Adelstein's Courage: Losing Face, Saving Public Money Things went horribly wrong with the first round of the U.S. stimulus. Amazingly few proposals came in that would reach the unserved at reasonable cost or create jobs effectively, the primary goals. The normal government response - including the past history of RUS - would be to give out the money anyway, put lipstick on the pig, and hope no one notices. At NTIA, the grants announced are mostly misdirected, and at least one smells like fraud. Congress was already roasting RUS for how long they were taking to spend the stimulus money, putting on pressure to "do something." Jonathan wisely resisted. Adelstein decided instead to take the heat for the delay and reboot. http://bit.ly/c0l2DI
$150 Billion Woman with the $400 Billion Problem Carol Mattey is in charge of ICC/USF for the broadband plan, which runs over $15B/year or $150B for the decade. She's very sharp, her colleagues tell me, but she'd need the wisdom of Solomon to equitably split this baby. If you combine the goals of the plan and the strong expectations of powerful carriers she'll need another $250B or so. While the FCC since at least 2002 having been reporting cuts are inevitable, Qwest CEO Ed Mueller just told investors he expects a big increase. A top lobbyist just told me the Verizon and AT&T alone expect about $2B/year more. (It's buried in technicalities like “non-rural” exemption and “statewide cost averaging.) ...
One million New Yorkers can get free wifi through 187 access points across Harlem, the South Bronx, and Brooklyn in the neighborhoods that need it most. If your WiFi can see smartnetnyc, urbanwifitv or smartnetnych, you should be able to register on the splash page that comes up. When I visited them Saturday, 392 users had logged in by 1:30, although until now they have had zero publicity. http://bit.ly/5hJbaY
January 27
LTE - 25-45 meg, with problems http://bit.ly/6YQM7t
Briefs on: Bell Canada, PFF conference in Sundance, “Does Google Dream of Electric Sheep?”, NTIA/RUS regulations, Jim Southworth, Yinan Li, Xavier Niel "The United States stands for a single internet where all of humanity has equal access to knowledge and ideas"
Hillary Clinton is right an open Internet is a good thing in the long run, in China or anywhere else. A good first step is to look at the day to day practice of Clinton's State Department.
In particular, the U.S. has pushed for NGN standards with controls built in that look like a blueprint for the Great Firewall of China. I spoke out and was politely pulled aside and told not to waste my effort. “National security has already decided,” I was told. Cisco and AlcaLu took the lead, and everyone knew what was going on.
Making communications affordable turns out to be paramount if Clinton is sincere about "all of humanity." Thousands of lives were saved in Haiti because a third of the country now has mobile phones. Thousands were lost because of limited communication. Heroic efforts have 80% of the country now back up, while T-Mobile, AT&T, Voilà and others are flying in ten of thousands of phones to help relief efforts.
The State Department and USTR need to place priority on minimizing the costs of services around the world. Behind closed doors in standards, again and again choices are made that drive up royalties and costs. Patent costs need to be made "reasonable" in fact as well as rhetoric. The Qualcomm tax is hated around the world. (details to come after factchecking)
------------------ Larry Strickling diverted $2B from U.S. broadband expansion to providing higher speeds for already connected community colleges and the like. He is horrified at the "gimme, gimme, gimme" waste in the early broadband stimulus. We all know what teenagers will do with a faster net connection, and it's mostly not distance learning. It's supposed to be a safe political decision, but I can't understand why we're spending $2B helping kids download porn faster.
Say hello to the round fellow with a beard at NARUC in D.C. Tuesday February 16. I wish I had a travel budget this year; Silicon Flatirons in Boulder Sunday will be one of the best events of the year and Mobile World in Barcelona will be exciting.
LTE - 25-45 meg, with problems Bengt Nordstrom and friends drove around Stockholm and blogged LTE downloads "above 25 Mbps more often than below, and we’ve reached 45 meg downlink on some occasions." Service frequently dropped, confirming the rumors I've been hearing of profound issues still unsolved. He first blogged he was only getting 12 meg down, which made news around the world because TeliaSonera is claiming they were offering "up to 50 meg." Nordstrom is a wireless analyst with decades of experience. He's clear this wasn't scientific testing, but it's interesting and better than many expected.
Wireless is shared, meaning the speed will go down as the network gets loaded. So I'm still comfortable with Verizon CTO Dick Lynch's estimate of speeds from 5-12 megabits in regular use. Until proven otherwise, I speak of LTE speeds as "megabits", not tens of megabits. In addition, the guesses are that heavily used LTE should be sold mostly as a 3-7 megabit service.
One of the most respected network engineers tells me to think of 1.6 megabits/megahertz as an excellent result in the real world. The vendors are promising much more, of course. In a typical LTE deployment of 20 megahertz, that's 30-40 megabits shared. With a lightly loaded network, Bengt's 15-30 megabits makes sense. That will be difficult or impossible to maintain in a heavily loaded network. That opens interesting possibilities in rural areas, predictably a light load. It would almost certainly require larger spectrum blocks, but most of the spectrum in rural areas isn't used today. All the carriers sharing the spectrum and towers would be the natural build, and two FCC technologists suggested it at the workshops. The carriers instantly said no way would they accept changes, and in D.C. at least the carriers win 90+% of the time. More, including a look at how many will drop DSL/cable for wireless more, including a look at wireless replacing DSL http://bit.ly/6YQM7t
Vodafone cuts femtos to £50 or free - in advance of iPhone “Customers tell us it is life changing,” claims Guy Laurence, Vodafone UK CEO, who has just dropped the price of the “Sure Signal” box 70%. That's wildly exaggerated, of course, even if you live in a basement; your life isn't ruined if you have to use a landline at home or VOIP over your broadband connection. Femtos and/or WiFi phones are a crucial strategy at nearly every mobile telco, because they move traffic from wireless networks to landlines. The £50 is the cash price for current customers, but Vodafone will also include a femto essentially for free as part of bundles for new customers.
In 2008, nearly all mobile operators realized there's a huge potential saving and included either a femto or WiFi phones in their (private) plans. If AT&T invests $500M to deploy a cloud of 10M femtos across the U.S., that saves them two or three times as much just in spectrum costs. One Vodafone femto can handle up to four simultaneous calls and 32 is possible. No carrier has announced plans to use home femtos for neighbors and passersby, but that's a logical next step. It will need careful limits, especially on low speed upstreams.
A particularly interesting newcomer to femtos is Free.fr, where they are ready to offer a femto as an option with the Freebox even though they don't expect to begin their wireless service until 2012. A standalone femto in small carrier quantities goes for about $100 today, while AT&T received bids around $50 for their planned (but unconfirmed) rollout of 10M. By incorporating that into a box with a power supply, intelligence, antenna, etc., the cost is probably halved. With single chip femtos hitting the market, adding one to an existing broadband box will get cheaper every year. I'd guess Xavier will be able to add a femto in 2013 for $15-30, cheap enough for a payback in months just on marketing and spectrum/bandwidth savings. http://bit.ly/9rVWj6
Price rises cost Verizon 107K DSL subs FiOS grew 153K, lousy when you consider they are opening for sale 700K additional homes every quarter. Some of those are DSL conversions, while in non-FiOS areas Verizon is significantly losing DSL customers. "You've raised prices for FiOS and some of the low-end DSL stuff," Bank of America noted in the investor call. Chris King adds, "subscriber growth continues to slow as the company has placed a renewed emphasis on profitability over market share." Ivan Seidenberg explains why they are taking the short term fix of a price rise. "We do need to balance a little bit of profitability to make sure that where the economy is hurting us that we offset some of that by not being too aggressive on the FiOS side."
Verizon and AT&T have raised basic DSL prices by a third the last few years, by far the most significant reason people aren't taking broadband. They've just raised wireless data prices by as much as 50% (Pali Research), trying to create a wireless data price cartel as the wireless voice cartel is fraying. I have excellent Verizon mobile voice (via TRACFONE/Telmex) for about $15/month for 150 minutes, which is all I need if I don't make long calls. While serving all the data customers is straining some networks (not Verizon), there is massive overcapacity on mobile voice, with a negligible marginal cost/minute. The voice minute overcapacity will only expand as LTE doubles and quadruples bandwidth. Ivan explains
"As we move into 2011 and we start to get into full deployment of LTE, we're going to get a big, big improvement in terms of our efficiency. And so we are feeling good about that. ... I don't think at this point there's anything to worry about.”
Verizon announced another 13K layoffs, bringing the 2008-2010 total over 40,000. http://bit.ly/dhqLBO
Vodafone, O2, Bouygues: Emerging DSL Giants Just as we were giving up on new DSL competitors, the European wireless companies have been ramping up. Vodafone has added 1.1M fixed broadband lines in 12 months, reaching over 5M customers and investing to go after more. That includes 3.3M in Germany and 1.1M in Italy. Voda has plenty of room to grow; they have 34M mobile lines in Germany, 22M in Italy, 18M in Britain, and 16M in Spain. Voda in Germany is offering seven months free for new customers, with a price of 29,95 € for “up to 16 megabit” service + telephone.
O2/Telefonica has 22M mobile customers in Britain but only 527K DSL lines. So they are offering “up to 8 meg DSL” plus unlimited landline calls to 20 countries for £20, about $32. Their German branch is offering four months free. Bouygues Telecom, the #3 French wireless company, decided they had to offer a bundle with DSL and built a network. With a quadplay at 44 euro, including wireless, they won 100,000 customers last quarter.
Except for Italy, these deployments are all in countries with relatively strong competition policies. The pattern has been to sign on to the incumbents' resale to offer immediate coverage in most of the nation while building an unbundled network. There's no reason to think mobile carriers in countries without strong CLEC results are likely to enter the market. For example, there's no sign any of the U.S. or Canadian mobile companies are expanding fixed offerings. http://bit.ly/buKFq2
British Telecom: $40 for "40" down, 10 up Virgin is selling 50 down DOCSIS 3.0 for £28 and winning many customers from BT according to rumor. BT responded by finally starting construction on their DSL/fiber upgrades, after delaying in the hope of a big government subsidy. To stay in the game BT has set the price at £20 for a 20 gigabyte/month "up to 40 down" plus initial charge and £25 for a more appropriate "unlimited" 40 down, 10 up service. $32-40 is cheaper than AT&T (24 meg $65) but more expensive than France. Fewer than 40% of Britain will be reached in the next two years, the vast bulk in the half the country that Virgin is serving. Most of the other half of Britain will have to wait years before they get 21st century Internet speeds. Andrew Parker (FT) reports BT is demanding a government subsidy to do even DSL/FTTN upgrades for most of the country. Given that AT&T will already have reached 70% with FTTN by then without subsidy, and Verizon 70% with fiber all the way home, it's hard to see why BT can't afford more investment.
"Up to" speeds are inherently deceptive, of course, with OFCOM tests showing many DSL customers actually getting half the speed advertised. Cable modem customers get a significantly high % of the speeds promised. Based on AT&T experience with similar FTTN builds, I'd guess that 50-70% will get 25 meg or more and significantly fewer the 40 megabits, unless DSM Level 3 gear is out of the labs and into BT's cabinets by then.
John Petter of BT "said the pricing of the superfast broadband service would ensure it became a mass-market phenomenon. …The name of the game for BT is getting customers to come back to BT for all their services." I suspect BT Retail is taking very slim margins after paying BT Wholesale/Openreach in the hopes of winning voice customers. If so, then CW TalkTalk and Sky won't be able to price much cheaper unless they build their own local fiber. Charlie Dunstone is talking about doing just that. More at http://bit.ly/5lviGJ
Goldman, Morgan behind Calix IPO Carl Russo wasn't able to IPO his last company, Cerent. Cisco pre-empted the stock offering with a $7B takeover, probably the most remarkable of the boom era. That's not likely to be repeated, but with two of the biggest names on Wall Street the Calix IPO has great prospects.
Calix as a private company has reached annual sales of over $200M, selling access systems to the regional U.S. carriers. About a third of their sales went to CenturyLink, while a second company (?Windstream) took another 11%. TDS, one of the few funded in RUS stimulus round one, has also been a Calix customer. These carriers have been actively installing 20 meg ADSL2+/VDSL systems for several years, including field terminals, as they deploy more aggressively than the bells. The smaller U.S. telcos are often installing Calix GPON gear, which CenturyLink is using for cell tower backhaul as well. Many of the smaller carriers are buying GPON systems from Calix. Leaving out the Verizon contract, Calix/Optical Solutions is the leading GPON merchant in the U.S. .
Russo put in $12M earlier this year, part of a private funding round that included $10M from Adam Grosser's Foundation Capital. Foundation had invested $20M in 2007, and is one of five VC firms that own between 6% and 9% of the company. Russo owns 15% of the company, 7M shares.If the IPO goes at $10, he'll do very well, as will CFO Kelyn Brannon-Ahn (300,000 shares), Kevin Pope (180,000 shares), and Roger Weingarth (241,000) shares. One good sign is that Calix has a number of engineering job openings. They also need a Director of SEC Reporting and Compliance. More at http://bit.ly/7WghUY
briefs
Bell Canada, at least four years behind schedule on their DSL/FTTN upgrade in order to goose short term financials, will finally launch IPTV around May, Ben Dummett speculates (WSJ). In the interim, Microsoft got most of the bugs out of the software, although many of the features including tracking what everyone watches in order to customize ads still haven't been delivered. AT&T 2M video customers prove that the IPTV can hold some customers from cable, with a dramatic difference in churn where AT&T has done the upgrades. 60% of Bell's landlines are not upgraded to FTTN, about half of which are scheduled by 2012.
The PFF conference is back, July 11-13 at Sundance, Utah. PFF has long been my favorite DC “conservative” outfit, because Ray Gifford and others follow the facts even if that pulled them away from their ideology. The PFF Aspen Conference for a decade was Washington's favorite paid vacation, usually pulling several FCC and FTC commissioners and other senior DC types to mingle with the corporate sponsors, academics, and even the occasional journalist. Sessions were generally very substantive and speakers/attendees who didn't share the organization's viewpoint were welcome. The year I went, they broke at 1, allowing everyone to take private meetings or enjoy the beautiful country. Over a drink, I was declared “the official dissident,” particularly welcome because my aunt Claire is co-author of the Stigler and Friedland paper everyone loves to cite to show regulation is often useless. Claire went to Stockholm with George when that work and much more she shared with him over thirty years won the Nobel Prize. A well-run event, they even negotiated a decent rate from the hotels for rooms.
press
“Does Google Dream of Electric Sheep?” Mary Lennighan in yet another great headline from Total Telecom. Isa Dick Hackett has said she will sue Google for using the name “Nexus One” for their new droid phone. Her father called the robots “Nexus-6 androids” in his book, Do Androids Dream of Electric Sheep. The title was changed to Blade Runner when they made the film. Blade Runner visuals are unforgettable if you see the movie on a good screen.
Lennighan's colleague, Martyn Warwick, has an interesting prediction for 2010. “Carrier collaboration: This encompasses network sharing, wholesaling, service federation and partnerships. In an incredibly complex world carriers will continue to seek ways to reduce costs, get services to market faster and concentrate on core capabilities whilst offload tasks and overheads that aren't.” This is particularly interesting because the FCC is considering requiring not just towers but actual frequencies as part of the effort to get more effective spectrum. BellSouth CFO Ron Dykes said Cingular saved hundreds of millions doing a joint build with AT&T Wireless just in New York City, a good thing. The FCC tech folks are pressing for more of same, because it would be the equivalent of 5-15% more spectrum. Wireless network peaks are rarely exactly at the same time. Verizon probably has some free frequencies when AT&T is slightly overloaded in an area and vice versa. Combining the spectrum would allow both to reduce congestion. If it saves money as well, that can support more towers and improve things further.
Jim Baller has a helpful 15 page summary of the new NTIA/RUS regulations at
Jim Southworth played a crucial role at the DSL Forum as the industry emerged, built a nationwide DSL network for Concentric, and was the first contact for anyone in the industry who needed advice. After a few rough years, his health is improved, he's working as lead technologist on a large government construction project, and is engaged.
Yinan Li, legendary Chinese network engineer, will take over a branch of China Mobile after leaving his job as CTO at Baidu. He became research VP at Huawei when he was only 27 but left three years later for Harbour Networks. Bitter battles for market share ended when Huawei took over Harbour in 2006, and he split to Baidu in 2008.
Xavier Niel was profiled by the French press after he won the fourth mobile license. They were mostly charmed by his long hair, informal manner, and especially his promise to bring mobile prices down dramatically. One comment in lepoint surprised me, however. Mentioning that he bought a house near President Sarkozy, "Le soir, quand je rentre du boulot, son cortège me double en voiture. Je ne lui ai jamais adressé la parole. Je crois que je serais très intimidé". Nonsense Xavi is not intimidated by a mere politician.
Policy
Nellie Kroes' weak stand on broadband almost lost EU Commissionership Broadband for all is the goal of the EU, but “the commissioner-designate didn't speak concretely on the social challenge for a guaranteed development of Internet, respecting fundamental rights and freedom of expression,” French Socialist MEP Catherine Trautmann tells Carolyn Henson. Kroes led the EU competition drive against Microsoft, so power wants her scalp.
Austrian conservative Paul Rübig led the opposition. If the left also remained unhappy, Barroso needed to find a replacement. So Kroes went back for some private meetings, told people what they wanted to hear, and held the post.
Kroes took strong action when she saw outrageous behavior but generally is pro-business. At her hearing, she angered even conservatives by her weak endorsement of Viviane Reding's cut of the ridiculous telco roaming charges, believing “it is up to the market to do the job.”
Kroes “I am for net neutrality.” The consensus at the European Parliament for NN is so strong that Nellie Kroes was very clear. “I am for net neutrality. The Commission must protect it. There are many reasons to remain vigilant with regard to new threats to the net’s neutrality.” Britain's telecom regulator, Ed Richards, in practice takes the opposite opinion. He believes that competition is strong enough to prevent any issues. Matthias Kurth of Germany was also skeptical of the need for NN regulations. http://bit.ly/8rU6h5
Briefs: Numericable's ﾓ100 megﾔ service ﾓis a flavor of DOCSIS 2.0," Henry Nicholas and Henry Samueli of Broadcom got off on a technicality, 700,000 FTTH in Abu Dhabi, Matt Richtel, Mark Siegal, Jim Baller, Paul Whitehead, Carl Ford
ﾓThere hasnﾒt been this much hype about a tablet since Moses came down from the mountain,ﾔ David Carr on Apple
Jim Cameron's $1B+ Avatar box office has forever changed Hollywood. Avatar visuals are unforgettable so no one cares the plot is weak. Home 3D will come quickly because it only requires a software upgrade to today's better TV sets. ﾓAvatar is the best film I've ever seen.ﾔ Steven Spielberg. (Below)
In Washington, London and Berlin, however, it's the same old stuff and probably worse. Monday, a White House/NTIA filing made clear the U.S. broadband plan will be a hollow shell above modest wireless speeds and "a wing and a prayer" in wireless. High level politics overruled the recommendations of the broadband team. In Germany, Rene Obermann is saying DT will not serve the last few rural customers unless the government holds back his competition across the country. In England, British Telecom is fighting a good fight against Peter Mandelson's plan to give away $20-40B in spectrum rights in return for less than 5% of that in increased broadband spending.
But the most amazing is the AT&T filing about ﾓa death spiral.ﾔ They want to end universal service requirements, knock out remaining competitors, kill all state quality requirements, and collect $billions in government subsidies. All of which might make sense if their situation were desperate, so they paint a frightening picture. Their CFO and financial statements directly contradict that; one part of AT&T is not telling the truth.
It turns out that AT&T (and almost all wireless companies) have powerful incentive to keep wireline alive because the wired backhaul is crucial to wireless success. Although Randall Stephenson's first speech as AT&T CEO was ﾓWe are a wireless company,ﾔ they are backtracking on letting the wired side die. Suddenly this quarter, AT&T and Verizon are massively promoting DSL. Wireless companies, they decided, need the copper to provide more bandwidth to wireless. DSL can thrive in a wireless world.
That's a crucial transformation that will preserve DSL/fiber's role long into the future. It's the path to ﾓThriving DSL in a Wireless World.ﾔ Wireless spectrum has important constraints and a crucial part of the solution is moving as much as possible over the existing wires. 40-50% of mobile calls are from home or office and can be carried via a femto or WiFi gateway. That's the design of the AT&T, Verizon, and most European networks in the next few years, wildly accepted in the industry. Complete report http://bit.ly/8NLq9F ----------
Separately, and to my extreme dismay, I have to report that the Obama administration has put off working on affordability of high speed Internet until after 2015 and probably later, except for a token gesture in lifeline. The broadband plan is being delayed, but that's about getting the details right. The major decisions have been set by the White House, and they are pablum.
The strategy in the plan will include creating more effective spectrum (mostly 5-10 years from now) in the hope that will create more wireless competition. AT&T + Verizon are pulling away from the pack in wireless, so competition may not work.
For higher speeds, both NTIA and DOJ postulate that most of the country will only have weak competition, one or two networks. They go on to say that nothing significant should be done about it.
Cowards. Larry Strickling should have resigned instead of signing.
Tomorrow or Friday pending fact-checking, I'll finally get out my stories on what's going wrong with the U.S. stimulus. I'm being extra careful because I expect to write VP Joe Biden's speech contained serious untruths. At least one of the first projects smells like fraud.
*** ASSIA, the world leader in dynamic spectrum management, is now supporting over 23,000,000 lines of DSL. Our performance and reliability is unmatched. (ad)
Lantiq: Wireless HD TV Works No one ready to believe Christian Wolff promises "flawless and unobstructed HD-Video streaming over Wireless-LAN without making any compromise to Quality-of-Service," after taking over the Metalink 802.11n MIMO. Wireless HDTV has been promised so many times, by Metalink and many others, that no one believes it's finally working. Wolff is confident the new 65 nanometer Metalink chips will convince people. His investors are putting up $17M to buy key assets after Metalink itself ran out of funds. (Lantiq is the VDSL spinoff of Infineon which was once part of Siemens.)
Metalink was a remarkable outfit whose VDSL chips were close in performance but half the price of the competing DMT designs that eventually won out. Send me some thoughts and company history for my next issue,
*** ASSIA. The single best way to reduce operating costs benefit and truck rolls. Reliability and performance for happier customers, lower churn, fewer trouble tickets. http://bit.ly/TWmE4 (ad)
Broadband, Yes. Toilet, No. ?fiber to the yurt Bretwood Higman and Erin McKittrick line in a yurt heated by wood they chop in Seldovia, Alaska. Sarah Maslin Nir reports "They decided they could live without running water, shower, bath or a working toilet, but they had to have broadband Internet access." (NYT) They earn their living from Ground Truth Trekking and Sundrop Jewelry. Bretwood has a PhD and Erin a Master's in molecular biology but many less educated are finding a way to live near wilderness because of the Internet. The number is fewer than the beggar's propaganda suggests and the total economic impact modest, but broadband everywhere (including improved satellite) is an admirable goal.
Broadband becoming essential ironically has effect of allowing companies to raise prices anywhere competition is weak - including nearly all the United States. That's simple supply and demand. When there are enough suppliers, increased demand raises the price some but over time it retains a relationship to cost. If one supplier raises prices too much, you can switch. But when there are only two suppliers you have little choice, especially if they raise the price simultaneously. Wall Street calls this "rational pricing" when the companies signal each other to raise prices and they price more like a monopoly than a supply and demand system.
Most of the cost factors in broadband - modems, DSLAMs, even support (fewer new unskilled customers) - tend to go down over time. In a competitive market, that means prices will tend to go down. Another way to put that is the cost of delivering broadband tend to deflate. If the prices go up, that's not "normal inflation" but instead suggests market power. t *** ASSIA benefit #2 Potential power saving in the range of 10-30+%. (ad)
Hundreds of DSL Orders Hostage in Pakistan Incumbents difficult everywhere As Pakistan reports thousands of deaths in a civil war, business as usual continues in much of the country. Pakistan Telecommunication Company Limited - controlled by Etisalat - is failing to connect hundreds of orders from customers of competitors. PTCL "said there is a technical glitch which is being sorted out and the provisioning shall resume as soon as possible. The PTCL did not give a timeframe." (The News International).
The incumbent tactics resemble those in the developed world not long ago. PTCL "is creating delays in connections of its competitor ISPs. ISPs and PTCL have a history of bitter relations with formers accusing the only fixed line operator to adopt strong-arm tactics, anti-competitive behaviour, and predatory pricing. (Daily Times)"
DSL in Pakistan. has doubled to 332K lines in the last year, while WiMAX from Wateen has come from nowhere to 150K lines. Ultimately, the Pakistani Internet will be wireless. The country has fewer than 3.5M landlines and the number is falling, compared to an official figure of 96M wireless connections. Thanks to Aamir Attaa and propakistani.pk for reporting that informed this article.
*** ASSIA benefit #3 Vendor neutral. Works with all major DSLAM manufacturers. http://bit.ly/TWmE4(ad)
Moffett's The End of the Line(s) Wireline is declining worldwide, including fast-growing economies like China and India. Craig Moffett, one of the most interesting analysts, has run some numbers and come to the conclusion U.S. wireline is in worse shape than many think. He's advising underweight of the U.S. Telecommunications sector because of the issues. He calls it a "crisis."
I believe wireline only carriers - that's everyone in the U.S. except AT&T and Verizon - have an ﾓuncertain future.ﾔ For two years I've seen the squeeze and Randall Stephenson saw it far before I did. Lines keep going down, DSL has little room to go up, price increases and job cuts are already extreme. It's tough.
Wireless is likely to continue growing for several years, with T & VZ likely pulling ahead. T & VZ have an enormous advantage over the other mobile carriers because they can efficiently shiftmuch of the calling volume to their wired networks via WiFi of femtos. 40-50% of all calls are made from home or office, so that allows the two companies to virtually double their spectrum with an investment of a few $billion for gateways.
That means AT&T and Verizon, like wireless carriers everywhere, have strong incentive to maintain there wireline networks. Vodafone and Bouygues, recognizing that, have massively ramped their DSL. That's one more reason AT&T is unlikely to dump wireline. They need it for wireless competitive advantage.
What Craig is adding is that margins will be directly affected because there won't be any more room to cut because what remains is mostly fixed costs. DC has been passing this around with the question are they really dying, but not adjusting the broadband plan for that possibility. Major sand castles fall. Think about it. As Craig writes:
Wireline still accounts for more than half of Verizon's revenues (after adjusting for VOD's 45% stake in VZW), and a similar amount of AT&T's, yet, paradoxically, is often almost entirely overshadowed by the smaller Wireless business.
Investors tend to underestimate the likelihood that wireline revenue declines will be compounded by margin compression, and that the compression should accelerate relative to history, understating the importance of the segment to changes in profitability.
Since our analysis of state-level data though 2007, two things have happened. First, the rate of access line losses has accelerated. Second, broadband growth has slowed dramatically, reducing an offsetting ARPU tailwind for margins.
Indeed, if one were to also include the in-region wired portion of the wireless network as part of the broader wired picture (recall that the majority of any wireless network isﾅ a wired network) then these companies' still-overwhelming dependence on their wired franchises becomes even more striking, with what is almost certainly three quarters or more of the revenues and assets depending on the wired infrastructure.
Because the margins of the to-be-sold properties are much higher than Verizonﾒs system average, a divestiture would reduce margins immediately by another 170 bps, all the way to the 22% range.
Moreover, because their capex is much lower, it would leave operating cash flow (EBITDA less capex) lower by perhaps $900M in 2011.
Those still reading from outside the U.S., don't get confident because the landline fall is currently lower than the U.S.. The U.S. is first, Glen Campbell of Merrill believes, because we have the lowest mobile rates for big packages of minutes. That makes it easier to cut the cord, and 25% of homes have done so. Buckets of minutes are spreading elsewhere. DSL growth is slow almost everywhere so that can't help. Telecom Austria just announced a 400M revenue shortfall. Beware.
"Hollywood Seized by 3D Mania" but ... When I wrote After Avatar, You Must Move On 3D Channels, I had no idea just how powerful the movie would prove. As I write, it's over $1B and going strong. Sharon Waxman writes "even the most hard-bitten moguls (from David Geffen: ﾓa complete gamechangerﾔ) now -- faster than you can say "man the lifeboats!" -- everyone is on board." Ridley Scott wants to spend $7M to add 3D to Robin Hood, already in the can in 2D and therefore extremely limited in what can be done with 3D. Even the next Jackass movie is adding a dimension. The 3D hype at CES in a few weeks will be overwhelming.
3D announcements will flood CES. Sky in England has already announced a 3D channel, ESPN and Sony have jumped in for the U.S. and DirecTV is rumored about to follow (HDguru). The Blu-ray folks agreed to use MPEG4-MVC for 3D and some believe it will work in the Sony Playstation. There's no doubt which way the wind is blowing. High end TVs already can display the necessary 60 and 120 frames/second. At the FCC Paul Laio, new head of CableLabs, reported enormous interest among the cable folks. Paul may be running the cable side these days, but he's an old Bellcore engineer, respected by his peers. In Britain, OFCOM is getting serious about 3D TV, which Sky will launch next year. They've tabled a report from ZetaCast recommending 2D plus Delta as the standard, which will require something less than twice the bandwidth of HD. (Julian Clover) Is your network ready for 10 megabit 3D channels?
Time for a reality check. To a reader who forwarded my piece to his CEO, I wrote "On 3D, I'm a little ahead of the telecom crowd. It's two to four years before 3D is a crucial product most places. There remain problems with standards, etc. They are solvable and the cost will be reasonable. Hollywood and the Asian Consumer Electronics crowd are all over this."
It will be a small niche at least through 2011. There will be some very, very bad 3D movies with monsters in front of your face until you are exhausted. The actual power of 3D requires a director - like Cameron - able to use it subtly, adding immersive depth. The TV standards haven't been agreed. Ultimately, it will require 1.5x or 1.8x the bandwidth of HD, with terrible artifacts if the compression isn't done well.
Avatar has scenes unlike any you've ever seen. Steven Spielberg called it "the best film heﾒd ever seen," (Waxman) It is visually astonishing. Dialog, plot, and the like are not up to that standard, but if you've haven't seen the movie yet go see it at the best screen you can find. The answer to the obvious question about the Na'vi is "with their tails," according to Zoe Soldana, but they are holding those scenes for the disk to protect the movies PG rating. http://bit.ly/91Tdir
If you want to understand the latest in video compression, catch the MPEGIF event January 8 at CES. AT&T is one of the presenters. Also, if you want to keep up with Hollywood, do subscribe to Sharon Waxman's free emails from The Wrap, http://bit.ly/6RW4Qi
Correction: Numericable's ﾓ100 megﾔ service ﾓis a flavor of DOCSIS 2.0, a European cable expert writes, ﾓYou said 'The biggest favor you can do a reporter is to catch an error.', so I'm happy to oblige :-) Num?icable is not using DOCSIS 3.0 but actually DOCSIS 2.0+, with 3 downstream channels bonding: they're using a Netgear modem gateway CVC834G based on a Broadcom chipset. This is enough for 100 Meg downstream, especially in EuroDOCSIS.ﾔ Thanks for the correction.
Briefs
Henry Nicholas and Henry Samueli of Broadcom played a crucial role in the early development of DSL. They became billionaires, but went over the line in a $2B+ accounting fraud and were facing jail terms. They just got off on a technicality.
Etisalat has completed the rollout of its fibre to the home (FTTH) network to 700,000 homes in Abu Dhabi, with the rest of the UAE to be covered by the end of 2011.,,, For the previous four years the UAE's incumbent telco has been challenged by newcomer, du. (Arabian Business)
Press
Matt Richtel did a solid job on a major story about telcos and the dangers of driving with a cellphone with a great kicker. ﾓA recent ad in People magazine for the Nuvifone, sold by AT&T, shows a woman, apparently in the lawn-ornament business, explaining how she got directions from her phone while making a work call.
ﾓI just tapped the address and followed spoken, turn-by-turn directions right to the front door,ﾔ it reads. ﾓAnd I was able to take the call about pink palm trees ﾭ while still navigating.ﾔ
Mark Siegel, a spokesman for AT&T, said safety is paramount. ﾓYour first priority in the car is driving safely,ﾔ he said. The marketing for the Nuvifone, he added, is ﾓnot intended to override our position.ﾔ
Jim Baller's day job is as a Washington lawyer, strongly supporting municipal fiber. He also publishes the Baller Herbst List, an invaluable daily summary of broadband news. He included today the story of a four year old girl whose life could be saved by a bone marrow transplant. http://bit.ly/5EV1h4 Being tested is easy, and imagine if you actually were able to save someone's life.
Jim's list is free; just email list at baller.com . Everyone interested in policy also needs to read every day the Benton Foundation update from Kevin Tagalog, also free from headlines AT benton DOT org .
TelecomTV had another great headline: Victory as victim vanquishes voracious Verizon for a consumer issue.
People
Paul Whitehead of AT&T will be at the MPEG-IF Master Class at CES January 8. This $179 event is the single best opportunity to learn what's about to happen in video. He'll be joined by the CTO of Home Box Office, the PBS Chief Engineer, and many of the people who created the MPEG standard. If I make it to Vegas (unlikely), hope to see you there. http://www.cesweb.org/sessions/search/results.asp?categoryID=1876
Carl Ford programmed most of the great Jeff Pulver conferences, which will never be duplicated. He's now put together a M2M conference alongside the TMC 4G Wireless conference in Miami January 20th. M2M ﾖ machine to machine ﾖ is the heart of smart grid and a slew of new wireless apps, such as the Kindle that will soon destroy the book business. He's featuring Stuart Elby of Verizon, Brough Turner, and Brian Higgins, who has the intriguing title of Executive Director for Ecosystem Development at Verizon Wireless. Mathew Oommen of Sprint had interesting thoughts at the FCC and Anton Wahlman, who was the first major analyst to emphasize the importance of people dropping DSL/cable for wireless broadband.
Policy (Apology for the length)
In Washington, London and Berlin, however, it's the same old stuff and probably worse. Monday, a White House/NTIA filing made clear the U.S. broadband plan will be a hollow shell above modest wireless speeds and "a wing and a prayer" in wireless. High level politics overruled the recommendations of the broadband team, and Larry Strickling should have resigned instead of signing. NTIA was clear the U.S. can expect only one or two high speed providers most places, but that they wouldn't do anything. People should laugh at Julius Friday if he says anything about "affordable broadband." Prices are actually going up, and he's not doing anything about it. It pains me to watch, but nothing has changed that matters to consumers.
In Germany, Rene Obermann is saying DT will not serve the last few rural customers unless the government holds back his competition across the country. That's blackmail, since the government needs to bring service everywhere, and the concessions they want have nothing to do with rural broadband. He's under pressure. UBS put a very rare "sell" on DT. In England, British Telecom is fighting a good fight against Peter Mandelson's plan to give away $20-40B in spectrum rights in return for less than 5% of that in increased broadband spending.
But the most amazing is the AT&T filing about ﾓa death spiral.ﾔ They want to end universal service requirements, knock out remaining competitors, kill all state quality requirements, and collect $billions in government subsidies. All of which might make sense if their situation was desperate, so they paint a frightening picture. Their CFO and financial statements directly contradict that; one part of AT&T is not telling the truth.
High speed affordability dropped from Obama Broadband Plan The Obama administration has put off working on affordability of high speed Internet until after 2015 and probably later, except for a token gesture in lifeline. The strategy, as I outlined in 2008, will include creating more effective spectrum in the hope that will create more wireless competition. That may or may not create decent competition on low megabit connections, as AT&T + Verizon are pulling away from the pack. More spectrum may not be enough to make others viable. Sprint (loaded with spectrum) and T-Mobile (no real shortage) are struggling already.
If used heavily as a broadband replacement, wireless today tops out at 500K to 2 megabits. That will go to 2-6/7 meg in 2013-2015, the LTE generation. (Much uncertainty here, but those estimates are informed by Bell CTOs and the like. Wireless is shared, so the higher speeds - like 12 meg LTE - can only be offered to a limited group.)
Itﾒs possible the spectrum will allow more players, but equally possible it wonﾒt be enough. Right now, it's a wing and a prayer.
On higher speeds, both DOJ and NTIA point out that most of the U.S. will have weak competition of only one or two companies. Yet they explicitly advise against doing anything substantive about it. I believe affordability is an important factor for consumers, with U.S. prices for high speeds twice what similar service costs in France and Britain. NTIA and DOJ explicitly hold back on meaningful steps to solve the problem.
I therefore conclude that the U.S. broadband plan is failing at speeds above wireless. Without the plan, 90% of the U.S. will get 50 megabits but it is too expensive for many. With the plan, little changes for those 90%. (Not much is being done for the other 10%, but thatﾒs another story.)
The decisions implicit in NTIA-DOJ therefore are that little will be accomplished except for a hope at lower speeds, and very limited lifeline subsidies I don't think that should be acceptable. Too many nations are doing much better. Itﾒs a mistake for the U.S. to fall behind.
USF is already 15% so they don't have money for more subsidies unless they tax all Internet connections. Since USF only reaches a small fraction of the poor, the net effect would be to raise the price of broadband for those in need. http://bit.ly/7WdTSw
Cheat sheet on the broadband plan This isn't ready yet, with several key points only partially confirmed. I'm putting it up because it may be useful while I collect better information. What's in, what's out, and what's unsettled. A very rough draft, still in research is at http://bit.ly/78vQQ5 . I very much welcome corrections and additions.
Repeat: some of this is unconfirmed. But it may be interesting.
Special Report: Why AT&T Isn't Really in a ﾓDeath Spiralﾔ AT&T has a sensible filing that they should replace their big old switches with VOIP/softswitches, otherwise known as ﾓturning off the PSTN.ﾔ I reported that back in 2003 from their CTO Ross Ireland (ﾓit will take about ten yearsﾔ because they were cutting capex) and BellSouth's CTO Bill Smith (who wanted to do it in five.) In effect, that's the architecture inside FiOS and U-Verse. No big news here, just common wisdom in the industry. Verizon's Paul Lacouture and Mark Wegleitner also planned this 2002.
AT&T has gone much further in their filing, talking about a ﾓdeath spiralﾔ and using that to demand:
major money ($billions) in increased universal service funding
knocking the remaining unbundled competitors off the network
eliminating any service quality requirements
and, most extreme, eliminating the fundamental requirement to serve everyone, which is absolutely required as part of public policy.
To justify such an extreme step, they make some extraordinary claims about their wireline network ﾓdeath spiralﾔ and the impossible costs they would face maintaining service. No government can accept ending universal service unless the company's financial situation is dire.
Unfortunately for the credibility of AT&T policy people, their CEO and CFO, as well as all their financial filings, suggest they are doing just fine.
My best guess (and Craig Moffett's analysis) is that AT&T is being somewhat optimistic on Wall Street (but not fraudulent). The FCC filing comes out of the rear end of a male cow. I welcome more facts.
AT&T's Death Spiral (?satire) AT&T is telling the FCC they face a "death spiral" on the wired side. The solution they suggest: change USF to give them $billions in subsidy. "To achieve the "universal broadband" - a good thing - AT&T is asking for "explicit support" (Page 19) for their lines. Nearly none of the AT&T lines currently get USF, so this would be a substantial additional subsidy to AT&T.
The FCC has long argued that the Bells generally don't need a USF subsidy, which makes sense to me. As things stand, they are among the most profitable companies in the world. If that's really about to change unless they get "explicit support", they need to amend their financial filings.
AT&T also wants to kill any state or federal laws allowing competitors access and want the feds to eliminate any state "service quality requirements." Above all, they cannot accept the obligation to provide service to all, generally considered a crucial policy goal. (USF funding is about "universal service" in name only. Far too much is just a government giveaway like tobacco subsidies, unrelated to real needs.)
If AT&T is telling the truth in D.C. about how desperate their finances are on wireline, CFO Rich Lindner apparently committed securities fraud in the last quarterly investor call. Half of T's revenue remains wireline; problems there imply severe problems for the company finances. If that's so, the December dividend increase was wildly inappropriate and the dividend should be heavily cut or perhaps eliminated. S & P would almost certainly need to drop the company's credit rating. Their last investor presentation would be "wildly misleading." (Suggestion: ask yourself whether it's more likely that AT&T's CFO and financial filings are fraudulent or that they are stretching the truth at the FCC?)
" $13.9 billion free cash year to date versus $ 7.9 billion over first three quarters of 2008"
"Directional 32.1% year-over-year growth in Improvement in Wireline Consumer Trends"
"Stable Consolidated Margins [with] Wireline operating expenses down 2.8%"
Wireline revenues per household served increased 2.5 percent versus the year-earlier third quarter and were up 1.3 percent sequentially. This marked AT&T's seventh consecutive quarter with year-over-year growth in wireline consumer revenues per household.
As Craig Moffett points out in "End of the Line(s)" wireline is definitely hurting. But with $20B in cash flow annually, T is far from requiring a handout or a massive change in the regulations to favor them. Nor do they need this to cover the cost of extending broadband to the "unserved" beyond some fantasy figures. The September broadband plan estimate to bring ten megabits to 100% of the U.S. is $35B, of which the share covered by AT&T would be a total of perhaps $15B. Because the last 1% is truly remote and exceedingly expensive to serve, there's an emerging D.C. consensus that improved satellite is right for about 1%, which will cut that cost by a third. So the total cost to reach 99% of AT&T territory is about $10B, of which some will be covered by cable, profits from the customers reached, and government subsidy including the stimulus. Three months of AT&T cash flow - or 10% of three years spending - is enough for 99% coverage, without any additional subsidy. That's less than they have cut capex from 2008 to 2009, and clearly not an intolerable burden More at http://bit.ly/5O2pqf
Michael Balmoris of AT&T writes "Our filing was the latest in a series of filings weﾒve made over the last couple of years pointing out that the traditional POTS business model is in decline. We did not ask for any additional USF in this filing; that is not that same thing as saying our view is that no additional USF funding is needed to achieve whatever broadband goal the administration may announce in its plan.
The POTS model is a collective model for all LECs. Most of the remaining POTS lines are served by LECs for which the decline of the POTS model will be catastrophic. As consumers abandon POTS for other ways to communicate, the subsidies needed to maintain universal POTS will only increase, forcing carriers to spread the cost of providing POTS over a smaller customer base. At the same time, policy makers are intent on transforming the USF from a program that supports POTS to a program that supports broadband. We can continue to meet the goals of universal service in a broadband world, but not as quickly or as efficiently as possible if we donﾒt plan for the end of the POTS model. That is the point of our filing."
AT&T Wrong About ~Half the Broadband Unserved "The customers who are easiest to serve already have access to broadband; the remaining unserved customers overwhelmingly live in sparsely populated, high-cost areas that cannot economically be served absent government support", from AT&T seems to make sense and similar is often said in D.C. Actually, it turns out that something like half the remaining unserved do not "live in sparsely populated, high-cost areas that cannot economically be served absent government support," as AT&T's filing presents as though it were fact. Getting this right leads to policy that would reach the unserved at billions less than the commonly estimated cost. Combined with using improved satellite for perhaps 1%, the $20B and $35B projections in the September broadband plan can easily be cut by a third or more. So this is important.
Between 25% & 70% of the "unserved" do not cost prohibitively much because of sparse population but instead are hard to serve because backhaul locally is not competitive and costs 5-20 times what backhaul costs in competitive markets. I can buy transit for $5-15/megabit across several hundred U.S. cities, but some rural carriers are asked to pay $100 and even $200/megabit because there aren't competitive suppliers. This came up time and again at the FCC broadband workshops. This is not because of a shortage of fiber capacity; fiber in place can easily handle any likely increased load at very modest cost. Sometimes, this is monopoly suppliers "charging what the market will bear" when there's no effective market. Other times, the sole fiber supplier is the telco who does not want to make backhaul available to a possible competitor at a fair price.
This is the whole "middle mile" problem so visible in D.C. these days. There are some places without fiber, but they turn out to be amazingly few. The problem is cost. As I explain elsewhere, overbuilding to create a little competition is rarely the right policy. I believe the FCC will use "special access" to get rid of the worst examples. Bringing reasonable prices for backhaul to a very narrow set of poorly served rurals is the single most important thing Jules can for rural broadband. Really.
Between 10% and 25% of the unserved are not "high-cost" but are held back by problems at their local carrier. Earlier this year, there were 600K probably "unserved" at Charter alone, which was in bankruptcy.
December 5, 2009
How France Got the Best Deals in Europe: 20 & 30 Euro Triple Play
AT&T Buying Into Femtocells
Lantiq, The New Old Chip Company
DSL 2013: Double and Triple Speeds Possible, Limited Advanced Deployment
After Avatar, You Must Move on 3D Channels
Briefs: Cisco and Verizon fought G.hn, Dawn Chmielewski, Martin Warwick and Kirk Laughlin, Cecila Kang, Rick Boucher, Ed Whitacre's hirings at GM, Karn Thomas, Ralph de la Vega
Reply "subscribe" to be added, "un" to be dropped. Xavier Niel just dropped the price of a decent tripleplay to 20 euro, ($30). Numericable is offering “100 meg” DOCSIS + phone for the same price. The world noticed, and I got a question from D.C., "What the eff is going on?" The main answer is “competition can work if you have enough competitors.” France has five, with wireless #3 Bouygues jumping in hard. Bouygues added 100,000 customers last quarter, more than Verizon. U.S. bundles generally have better TV included, but France's have faster Internet and calls to 40 countries. My answer is the article at the end, How France Got the Best Deals in Europe.
The right question is not “What the eff is going on in France.” Should be “what the eff is going on in the U.S. and other countries so much more expensive than the French?”
Say hello to the round fellow with a beard if you come to New York for UBS this week or in DC Thursday and Friday. http://bit.ly/8EKRMa
"The telecommunications industry was deemed to be a ‘natural monopoly.’" Lafont & Tirole France is proving competition is possible, but it requires regulators with courage. Competition doesn't work for the Black Swans of last 5-10%. Broadband plans need to be different where competition is strong (France) and where it is weak (Most extreme rural areas.)
*** ASSIA, the world leader in dynamic spectrum management, is now supporting over 23,000,000 lines of DSL. Our performance and reliability is unmatched. (ad)
AT&T Buying Into Femtocells AT&T intends to roll 10M femtocells across the U.S. and has now invested in their supplier picoChip, alongside Intel, Samsung and financial investors. Cisco and ipAccess use picoChip in the boxes they are supplying to AT&T. Vodafone and others are also using picoChip boxes. Femtocell deployment is currently extremely limited, with large deployments waiting for the price to come down and bug fixes. AT&T has already negotiated a price of $50 each and is ready to include a femto with most bundled wireless offerings. Customers' cell phones will sound great at home so they'll be reluctant to switch, the theory goes.
Femtos will be a good thing, stretching spectrum 20-50%. That's more than any likely increase from making more spectrum available. They will increase the dominance of companies doing both wired and wireless. That leaves BT, Sprint, T-Mobile, Qwest and other companies without both struggling. Mobile carrier Telefonica/O2 spent over $B to buy Hansenet in Germany. Bouygues in France added 100K DSL customers last quarter, and Vodafone is also moving hard. China Mobile has assimilated China Tietong/Railcom and is launching double and triple play.
BT, AT&T and others have made $billions via investments in suppliers. BT was a strong majority of the work of Tech Mahindra when it went public. The IPO was valued based on earnings/cash flow, ignoring the fact that BT defined the level of earnings by the prices they accepted when they sent work to India. An increase in price of the work would be returned 10-fold, and BT made billions. They've cashed out substantially I believe, but haven't been able to find a buyer stupid enough to take the remainder of the company off their hands at full price. The picoChip investment is much smaller so unlikely to be anything like that huge score.
AT&T/SBC - and CEO Ed Whitacre personally - made fortunes on an initially very small investment in AMDOCS, the Israeli billing software company where again they were a primary customer at the beginning. After the boom, and some legitimate AMDOCS successes, AT&T had stock worth $billions. They would sell off a chunk any quarter they needed to goose earnings. Whitacre personally collected substantial sums related to AMDOCS stock while approving large purchases from them. He probably didn't break any law doing so, because it was approved by his close friends on the board of directors.
. They recently spoke with Morgan Stanley about their plans for WiFi in LTE homes, but I don't know if that's in addition to femtos or instead of them. Every wireless company in the world is considering whether to emphasize femtocells or WiFi. I know three major carriers who have chosen to go femto over WiFi for customer control and plan orders in the millions in the next 2-3 years. Assuming picoChip continues to be a primary supplier, T and other investors will do very, very well. Texas Instruments is looking back with regret at their decision not to buy picoChip a while ago. Previous coverage AT&T plans 5-10M femtos http://bit.ly/1UeThj
*** ASSIA. The single best way to reduce operating costs benefit and truck rolls. Reliability and performance for happier customers, lower churn, fewer trouble tickets. http://bit.ly/TWmE4
(ad)
Tiscali Reviving in Italy Tiscali is installing UTStarcom DSLAMs in 200 more Italian exchanges, Ray Le Maistre reports. Good to see them coming back; Italy has weak competition and generally high prices. Founder Renato Soru was worth $4B in 2001 when Tiscali was one of Europe's largest ISPs. All that's left is 600,000 Italian customers, about two-thirds in their 486 unbundled exchanges. Most of the new exchanges will start out with more than one hundred customers and the savings from unbundling should pay back the investment in months.
Tiscali is a prime example of how smaller ISPs mostly are being forced from the market. Between 2005 and 2007, Tiscali sold off branches in Austria, South Africa, Norway, Sweden, Switzerland, Belgium, Denmark, France and Germany as the company bled cash. The UK with 1M customers was their last stronghold beyond Italy, but even that wasn't enough to reach breakeven. They sold to CW this spring. Similarly, Hansenet in Germany, Telecom Italia Alice in France and Deutsche Telekom didn't have sufficient volume and sold. You have to be large enough to have your own fiber-based backbone to make it in a competitive market in 2010. Today, the only way to get many customers is to win them away from the existing carriers. From 2000-2006, millions of new customers signed up every year; outside of China and South Asia, growth is now slow.
Also good to see a nice contract for UTStarcom, who have been quiet in DSL for some time. http://bit.ly/647Tdi
*** Zhone is proud to announce Hardy Telecommunications in West Virginia has selected Zhone. West Virginia’s topography is characterized by forested mountain ranges and deep valleys, making Zhone’s extended reach DSLAM technology critical to Hardy’s success in delivering broadband coverage to 99 percent of its serving area. Bobby Armistead, Project and Internet Operations Manager for Hardy Telecommunications notes, “The products are high value and low-to-no maintenance and that level of reliability is very important to us." (ad)
DSL 2013: Double and Triple Speeds Possible, Limited Deployment John Cioffi amazed the FCC hearing with talk of 200 megabit bonded VDSL with DSM3, which one carrier believes will make fiber unnecessary. Infineon and ECI in Paris both demonstrated working DSM3, although field units are a few years away. Infineon and ECI in Paris. VDSL bonding is working according to carrier engineers testing it in the field. Over modest distances like 1,000 feet two pair can deliver 200 megabits without breaking Shannon's Law.
But rather few homes are likely to be offered more than today's 10-20 meg in the U.S. Few in Europe will be offered double speed bonding. DSM3 will come from the labs to practicality over the next few years and likely be standard on new DSLAMs. Few carriers will replace existing DSLAMs any time soon and it will probably be a decade before most homes are upgraded. Working technology doesn't mean anything if the carriers don't deploy it.
10-15% with marginal IPTV speeds are likely to be offered bonded service. AT&T almost certainly will use bonding offer TV to homes that can't get 25 megabits without it. That's typical of homes 3,000-5,000 feet from a U-Verse DSLAM. There may be as many as 10M homes that need bonding to receive U-Verse, three or four times as many as the first U-Verse planners expected. DT and others offering HD TV will probably do similar although for fewer homes.
Virtually no carriers today have plans to offer bonding except to bring distant homes to 20-30 meg for HD TV. The current RFPs, which are for the equipment for the next 2-5 years, almost never are planned for widespread bonding. With massive firings of network staff continuing, they are reluctant to make changes in their system. One regulator thinks it's a good idea to offer a second line to the lowest speed homes, but doesn't expect that to be required.
For the TV homes using bonding, about half of the bandwidth will be dedicated to TV. So even for those home, the effective download speed will be 10-15 megabits and upload will be 1-3 megabits. Except for fiber to the basement huge in Japan and now beginning in New York and other American cities - the hybrid DSL/FTTN offering will be closer to 1 up, 10 down the 100 megabits routine with fiber home.
DSM3 noise cancellation, the other major improvement likely, is 1-3 years from the field. Because it requires replacing the line card or the entire DSLAM, it will mostly go to new builds. The 40-50 million homes passed by U-Verse and similar cannot be inexpensively upgraded. There's no reason to think many will be replaced in less than 5, or perhaps 10 years. So DSM is crucial for new equipment and particular situations, but it will be a decade before it has much of an impact in existing deployments.
I probably underestimated the cost of bonding when I said it was $200 right now but likely to go down towards $50 fairly quickly based on the increased cost of the modem and extra DSLAM port. Stagg Newman reminds me that it requires a technician to the home in most cases. If they are installing IPTV, they need that truck roll anyway. But for an upgrade, especially from a U-Verse field terminal, that also requires a technician.
*** ASSIA benefit #2 Potential power saving in the range of 10-30+%. (ad)
After Avatar, You Must Move on 3D Channels Jim Cameron's Avatar premieres December 18 and it will open eyes about what 3D can be. The film inevitably won't live up to the hype, but today's 3D technology amazes everyone the first time they see it. Cameron made a believer out of me almost three years ago with a remarkable demonstration at NAB. He said then that all his friends the A-List directors will insist on shooting with 3D and that most of the big movies will be in 3D from now on.
The televisions soon will be much cheaper than the $10,000 units that will be at CES. 3D is created in the original program and post, not at the TV set, so it requires little modifications of the TV. Sony at NAB showed decent 3D on a current top of the line TV unmodified. The main requirement is a rock solid high frame rate, which now is achievable.
BSkyB is already promising 3D channels soon because they are a valuable way to stand out from the competition. Verizon hasn't said anything, but 3D is a natural way to take advantage of FiOS' massive bandwidth. Severe difficulties with standards, etc. are putting people off. But if you can make it work, probably right to be in the vanguard. Your most affluent and technically sophisticated customers will want it, and they tend to have a strong influence on others.
For a taste on your computer today of what 3D can be, do see a remarkable video of Picasso's Guernica in three dimensions. http://bit.ly/7oPfky
*** ASSIA benefit #3 Vendor neutral. Works with all major DSLAM manufacturers. http://bit.ly/TWmE4(ad
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Lantiq, The New Old Chip Company "What are you most excited about?" I asked Christian Wolff. He's now CEO of Lantiq after Infineon sold the division to investors Golden Gate. Wolff's an engineer, so I shouldn't have been surprised his answer was about the chips themselves, not the company challenges. He's designing in 65 nanometer, which requires less than half as much power for given functionality. Lantiq promises the chip complies with the most stringent requirements of European Union Code of Conduct (EU CoC) for energy consumption of broadband equipment. Small chips, Lantiq hopes, will stimulate innovative designs.
The first new chip, soon come, is the XWAY(tm) VRX200, 100 meg down with a Gigabit Switch fabric configurable as two Gigabit or four Fast Ethernet ports. It's designed to the preliminary 802.3az "Energy Efficient Ethernet" spec as well. When similar low power technology is applied to the DSLAM side, street cabinets will be able to eliminate the noisy fans and often be powered over existing copper pair for a big saving.
All 900 employees still have their jobs (hooray) as the company was already running lean. They are in good financial shape, with no debt. No longer a huge company, Lantiq can move quickly as it did when buying the DSL design team of Aware. Wolff, Gohlke and team have proven they can survive in a tough market. Intel, Analog Devices, LSI Logic, ST Micro and even TI have exited DSL. Infineon/Lantiq is one of the survivors; they intend to do well.
This is the first story for a new company, so I normally wouldn't break unannounced news. Christian had told me they were doing some hiring, so I looked at the jobs on their website. They are looking for a senior development engineer for "Lantiq's new GPON products." http://fastnetnews.com/dslprime/42-d/2305-lantiq-our-new-chips-take-half-the-power
Correction: Blair Levin's comment about USF was that it is “not sustainable in its present form.” Leaving out the “not” was particularly dumb.
Possible future correction: A D.C. person wrote me "that congestion is a real problem and impossible to build your way out of," speaking of large wireline networks like FiOS, U-Verse or Bell Canada, I promised to issue a correction as the first line of the next DSL Prime if he (or anyone) provides solid data that the cost is very high to build networks with minimal congestion compared to the ordinary broadband network. (Everyone has problems with peaks like Katrina or 9/11 or cable cuts.) If the needed upgrades to minimize congestion cost even 10% ($3-4) of the monthly customer charge, I will issue a very visible correction and thank the person providing the data. The biggest favor you can do a reporter is to catch an error.
I'm pretty sure I have this one right for DSL networks, but if someone who's done research says I'm wrong it's my job to doublecheck. Cable upstream before DOCSIS 3.0, small and rural carriers can have problems, and wireless is trickier.
Briefs
G.hn looks like a sensible protocol for high-speed home networks because it works on coax, phone line, and powerline. AT&T and several chipmakers have given it strong support. It's long been delayed in a secretive process at the ITU, although now looks ready for approval. Among the key opponents were Cisco and Verizon, who now have climbed on board. One result of the closed sessions is that policymakers who ultimately will be involved don't know what's going on until too late. The U.S. FCC has just opened a proceeding on “Open Set Top Boxes,” but at least one policymaker had no idea that Geneva is close to ratifying a relevant standard. Hint on open set tops and TVs: Ethernet, USB and a browser in almost all of them is the first step and very cheap. Verizon has actually called for the Internet capability for TVs as they look for compatibility with cable's Tru2way.
Press
Dawn Chmielewski, LA Times tech reporter, looks stunning in a barely there zebra dress rehearsing for her shot at Dancing With the Stars. She follows Woz and Mark Cuban as performers at the show. There's not a (straight) male tech executive who will turn down Dawn's request for an interview after reading her article with stirring video - Happy feat in strappy heels http://bit.ly/63ZRQl
Martyn Warwick and Kirk Laughlin of TelecomTV have some great headlines lately. U.K. Govt. Introduces the Digitally Economical with the Truth Bill accurately described Peter Mandelson's folly. While copper lines rot, AT&T and Verizon put focus on the future covers the ongoing scandal of ever worse U.S. telco service. “The New York State Public Service Commission,” Laughlin reports determined Verizon, “failed to meet state requirements in over 60% of cases during the summer this year.” Connecticut’s Attorney General Richard Blumenthal finds "AT&T has reached new heights of arrogance -- dropping workers, deteriorating service and disregarding a Department of Public Utility Control ruling that it has failed to meet service standards," he adds. Kim Hart wonders how many of the FCC folks will attend Thursday's Chairman's Dinner if they have to buy tickets at $120-$205. Usually, loads of staff go and eat for free on a ticket provided by lobbyists who buy them ten at a time. Julius and Adelstein have banned the practice for senior officials appointed by Obama. Bravo. Last time I went, two people pointed out the spot where Ronald Reagan was shot.
Cecilia Kang of the Washington Post posted Rick Boucher's discussion draft of new USF rules. http://bit.ly/5a0rFV The biggest changes would be to tax every Internet connection possibly the current 14.6% - and returning some of the money in “lifeline” subsidies for the poor. It also would provide a major boost to AT&T, Qwest and Verizon by giving them USF money through rule changes. Republicans in Congress are already criticizing the USF increases to 14% as a Democratic tax, so the FCC is very reluctant to broaden or increase the pot. There are many billions involved, so I hope some of the D.C. reporters jump in and follow the money. One feature I like is “SEC. 201. PERFORMANCE MEASURES. Within 1 year after the date of enactment of this Act, the Federal Communications Commission shall establish and implement outcome-oriented performance goals and measures for each universal service support program.” They should be doing that right now for the homes reached and jobs created by the broadband stimulus.
People
Ed Whitacre, ex-AT&T CEO now running GM, fired CEO Fritz Henderson and replaced most of the top executives. Big Ed likes total control, so the firings weren't surprising. Bloomberg's Jeff Green and Katie Merx noted the surprising number of women newly promoted. Susan Docherty is now vice president vehicle sales, service and marketing. Diana Tremblay becomes vice president of manufacturing and labor relations. Denise C. Johnson, is now vice president of labor relations. Whitacre. long ago realized that resisting discrimination allows you to find better people. Ray Wilkins, a black man, rose to Group President under Whitacre and continues to run several business units. The other Bells are also more open than the typical U.S. company. Doreen Tobin recently retired as Verizon CFO, Virginia Ruesterholz is President of Verizon Services Operations and Shaygan Kheradpir is Executive Vice President and Chief Information Officer. Sol Trujillo when CEO of Qwest said he wouldn't have been hired except for affirmative action, but the Bells always were far more open in hiring than most U.S. companies.
Karen Thomas has won TheBitbag.com “PR Rep of the Year” 2009 Award. Karen is one of the last of the pr people with flair. She also throws better parties than the usual tech folk.
Wall Street
Ralph de la Vega of AT&T is headlining the UBS Global Media and Communications conference December 8-9. UBS has several of the best analysts so they attract the best, usually the CEO or CFO. Monday has Qwest, Rogers, CenturyLink (now bigger than Qwest), News Corp, NBCU, and many others. On Tuesday, you can listen successively to Comcast, Time Warner Cable, Verizon, Frontier, Yahoo, American Tower, and Charter or Windstream as well as Walt Disney, BSkyB and Time Warner. AT&T. Sprint, Virgin Media, and Liberty Global are on Wednesday, as well as WPP, Gannett, and AOL. A good chance to hear from everyone.
Policy
The FCBA Chairman's Dinner is Thursday December 10 at the DC Hilton. Last time I went, two people pointed out the spot where Ronald Reagan was shot. Some folks may not be able to come this year because of the change in government. The procedure had been for companies to buy tables ($120-$300/ticket) and provide tickets to government staff. Kim Hart reports that the FCC has forbidden that for senior executives this year. A good change.
How France Got the Best Deals in Europe Xavier Niel introduced the 30 euro triple play years ago, and everyone scoffed. Then he won a million customers, and France Telecom and others had to respond. When he IPO'd in the $billions and proved solidly profitable, we knew a low price model is possible. When he began a $billion fiber build without government subsidy (temporarily blocked by FT at the regulator,) he proved competition can be good for investment.
1) Free around 2002 offered the 30 euro triple play. Everyone, including me at first, thought that was impossible but Niel quickly took a million customers from France Telecom and became a profitable company. Absolute dream of an all IP low cost network, and the best run outfit I've visited in the ten years I've been doing this. The only big difference in costs between the U.S. and France is that the TV is mostly without charge to the carrier. On a full bundle, the payment for the programming $10-15 less than the U.S. The difference between the 30 euro ($45) and our triple play at $95-130 is the key reason I'm confident we have fat in our system.
2) The turning point in European broadband was when Xavi became profitable at that price. That's not just an audited figure from public financials,it is confirmed by his need to pay substantial corporate income tax every year.
3) France Telecom and everyone else had to match. Vivendi SFR rolled up nearly all the DSL carriers as Free.fr drove economies of scale to pass 3M customers. Telecom Italia Alice discovered even 1M customers were not enough for scale and sold to Iliad. Deutsche Telekom also gave up after major losses. Xavier still has the best, most efficient network and after buying Alice is well on his way to 5M customers.
4) Meanwhile, what's now Numericable rolled up a set of badly run cablecos that cover about 9M French homes. French PE firm Cinven was behind them and borrowed a lot of money for the buyout. They also had to match the 30 euro price. Last year they bought in Carlyle as an investor and recently had to expensively reschedule their borrowings.
Until a year ago, Numericable service was so bad that municipalities were threatening to take away the franchise. People, including the regulators, laughed at them and no one thought they were a factor. They still have operational problems, but they are now able to take on more customers. But DOCSIS 3.0 is putting them in the game in a way almost no one expected. The squabbling over fiber has slowed down the deployment, although Xavi just repeated his commitment for "horizontal" coverage of 70% of Paris in 2010.
Numericable's primary offering is a 32 euro triple play, initially at 10 meg down and now "100 meg down" as they have upgraded nearly everything to DOCSIS 3.0. I believe they are four channels of EuroDOCSIS bonded, or a total of 200 meg shared. (U.S. DOCSIS has 6.4 megahertz channels and only about 160 meg shared. All these numbers have a little overhead.) In practice, so few people are pulling even ten meg that customers get 80-90 meg on speed tests much of the time. I think of DOCSIS 3.0 as 50 meg 95+% of the time and probably better, but we're all guessing until we get loaded networks.
5) Bouygues Telecom, the #3 wireless company, decided they had to offer a bundle with DSL and built a network. With a quadplay at 44 euro, including wireless, they won 100,000 customers last quarter. Vodafone is also moving hard for quadplay across Europe, bringing in another competitor able to accept the years of losses necessary to get up to scale. The wireless companies without landlines are virtually the only new entrants lately and probably for the foreseeable future. They can absorb big losses to hold their customers.
6) A month or two ago, Numericable decided to get really aggressive with the 15 and 20 euro pricing. The marginal cost of a cable modem + voice customer is $10-15 (if they are running lean,) so that's very aggressive. I assume they expect most to move to the 32 euro level, but I don't know how much revenue they are getting from the offerings at higher prices. Iliad is finding that even a few euro each month from VOD, etc. makes a big difference to the bottom line. -----------------
Where there is less competition, prices are higher. Numericable in Belgium charges 38 euro for a service similar to what they charge 32 euro in France. Belgacom is limited competition because they have a high-priced model and there's no Xavier Niel in Belgium. I believe the German cable offerings are really low, but I don't have all the details. Virgin in Britain starts at £30 ($50) http://bit.ly/7JJvYY
but Sky wants at least £44, partly because BT has a high £11 line charge that OFCOM let them raise. The U.S. for triple play runs $110-130, with occasional promotions down to $95.
Japan once had similar price but they've gone up substantially as NTT fiber has come to dominate the market. Most competitors failed except Softbank/Yahoo BB and eAccess. Yahoo BB has had the fight kicked out of them in broadband and is largely reselling NTT fiber for a small margin. Masayoshi Son decided instead to fight for the mobile phone business and has been the leader in new wireless hookups.
Will France and Britain “consolidate” and reduce the advantages of competition? There have been constant rumors of mergers in France, with SFR in particular wanting to take over the low-priced Free.fr. In Britain, where retail but not wholesale competition has been fierce, nearly all the smaller companies are headed to extinction or sales agents for BT. Three companies dominate across the country: BT, Sky, Carphone Warehouse. Virgin cable only covers about 50%.
Wall Street and the industry are certain that “consolidation is inevitable” in order to produce “rational pricing.” That's a euphemism for “monopoly-type pricing.” Regulators need to face reality about competition. Nearly everywhere, there will be less.
Competition without enough competitors doesn't work very well.
Reply "subscribe" to be added, "un" to be dropped. Copyright 2009 Dave Burstein Volume 10, #20 Issue date 12/03/09November 16
Hong Kong: US$13 100 up, 100 down
Telmex: 403K Quarter, 2M Year, 6.4M total
Q3 BT + 72K, FT in France +124K, DT +100K, KPN rounding error
ACS Alaska, Cincinnati Bell, FairPoint Down
NEC: 24 Ports VDSL2, 83.6 Watts
French Fiber Cost:?$650/home Passed
Briefs on Matthias Kurth, Susan Crawford, Lloyd Blankfein
Reply "subscribe" to be added, "un" to be dropped.
Cheap money and fiscal stimulus seem to have averted a second Great Depression. But policy makers haven’t been able to generate enough spending, public or private, to make progress against mass unemployment. Paul Krugman. The NY Times also headlined Hunger in U.S. at a 14-Year High William Leung posed with a Lamborghini dressed in leather to promote his 100 megabit upstream and downstream service, for $13/month. Repeat: US$13/month, 100 Meg up, 100 Meg down, no cap and generous terms including an 80% speed guarantee. 1.5M homes in Hong Kong are eligible, and another 500K under construction. That's a third the price and much faster than anything available in London, New York, Chicago, or Berlin. Triple play is US$40. Magic? Crazy stunt of a company trying to avoid bankruptcy? Huge government subsidy? No, just strong competition. An aggressive entrant, already profitable, wants to win customers. Speeds like that are practical across 50-90% of the homes in the developed world. Comcast and Verizon in the U.S., Free.fr and Numericable France, and many others are proving out the technology. France's triple play including “100 meg down” cable modems and fiber in several cities - is under $50. Of course rural areas are harder, but the gap is far too wide. Every competent regulator needs to look at the leaders and ask, “How can I come close in my country?” Your move, Julius, Ed, Mathias, and other powerful men. More in that in the (soon come) U.S. broadband special issue. I strongly recommend the Telco 2.0 Brainstorm in Orlando Dec 9-10 to anyone involving in strategy and marketing. They are the best small consultancy in Europe, with innovative ideas. I also wish I could go to Kevin Werbach's SUPRNOVA in San Francisco Dec 1-3. Kevin brings some of the key Internet thinkers to the event, most of them unknown in telecom circles. Folks like Danah Boyd, Doc Searles, and Chris Anderson have a clue. Here in New York Wednesday and Thursday, say hello to the round fellow with a beard and the irrepressible Jennie Bourne at Future of TV, always a strong show. (details below) First off, however, good news from Mexico where they are selling broadband to the relatively poor. *** Zhone is proud to announce Hardy Telecommunications in West Virginia has selected Zhone. West Virginia’s topography is characterized by forested mountain ranges and deep valleys, making Zhone’s extended reach DSLAM technology critical to Hardy’s success in delivering broadband coverage to 99 percent of its serving area. Bobby Armistead, Project and Internet Operations Manager for Hardy Telecommunications notes, “The products are high value and low-to-no maintenance and that level of reliability is very important to us." (ad)
Hong Kong: US$13 100 up, 100 down NiQ Lai of City Telecom charges $13 for 100 megabits up and down and has great ads featuring a Lamborghini. They offer an 80% speed guarantee for non-international traffic, or 2x your money back. They have no cap or major hidden charges. Similar costs $99 in the U.S., $45 in Britain, and something like $20 in France as part of a bundle, and rarely includes upstream. With five wired carriers in most HK buildings, they have to be aggressive to gain market share. It's a real standalone offer, although you can add voice ($9) and IPTV ($17) for a triple play under $40. They are profitable with little debt, and have set a "Big Hairy Audacious Goal to become the largest IP service provider in Hong Kong by 2016." "We make Lamborghini 'SuperCar' class broadband available at mass market prices," Lai writes. The one significant limit is they provision only 20 Meg per home of International bandwidth. New customers pay installation of US$39 but no equipment charge. The substantial majority of their traffic profile is local, with most resources from streaming TV to p2p available locally. Like Iliad and other successful new competitors, they run a simple IP network. GEPON fiber to the building (which is less than $100/connection.) Then a simple Ethernet switch with Cat 5e to each apartment. The switch looks very similar to the 24 port 10/100 Linksys or Netgear that costs less than $150 at local computer stores. This is yet one more confirmation of the major savings of IP networks like those I see at Iliad/Fr. The lower costs provide a major competitive advantage. http://bit.ly/Hong_Kong_100_for_13 *** ASSIA, the world leader in dynamic spectrum management, is now supporting over 23,000,000 of DSL. Our performance and reliability is unmatched. (ad) The line count goes up every time I check. db
Telmex: 403K Quarter, 2M Year, 6.4M total Good growth, finally, in Mexico, with a third more net adds than the U.S. adjusted for population. Prices have been high in relation to income, given per capita a third of that on average as the U.S. Measured by Gini coefficient, Mexico's inequality is very high (46,) similar to the U.S. (45) but much higher than France and Germany (28) or Britain (34.) Part of Telmex's success is installment sales of 2.3M computers, with brand name laptops currently available from 100 pesos/month (US$8.) Telmex tells investors, “The service has to be affordable to succeed in appealing to large numbers of users. An important component of expanding the broadband market is to make sure that customers have access to computers.” A customer can “walk out of a TELMEX store with the computer in hand, online service arranged, and monthly cost set.” This highlights what Brian David of the U.S. broadband plan emphasized: poor people often can't afford the computer even when they can pay for the broadband connection. He put that as one of the highest priorities. Folks making $100,000 often forget that coming up with hundreds of dollars up front is often as great an obstacle as the cost over time. That needs to be part of the program, along with a requirement that companies set reasonable deposits for people without credit. Hooking up a DSL line, including modem and labor, costs $50-150. Washington lobbyists talk as if the only way to bring down prices is massive government subsidies, most of which go to company shareholders rather than helping the poor. The marginal cost of broadband at line speed up to 20 Meg is $5-12/month, including initial equipment. Add a generous profit to that and you come to a fair wholesale price for the service. It's far less than what many carriers demand for even slow, 3-5 megabit service. If the government is paying for hundreds of thousands of lines through universal service, they should ask for a wholesale, not a retail price. http://bit.ly/280HH4 The poor should not pay more. http://bit.ly/2nfdEU *** 8th Telco 2.0 Executive Brainstorm 9-10 Dec, Orlando
With superb line up of stimulus presenters, and using 'Mindshare' format these strategy events enable 200 invited execs to review and brainstorm growth opportunities including: Strategy & Finance; Consumer Services – Engaging with the ‘digital generation’; Digital Money – Strategies for Mature Markets; Digital Marketing & Advertising – Creating the Telco Channel; Machine-to-Machine – Healthcare, Smart Grid; Cloud Computing – Consumer and SME Markets; APIs – Monetisation and much more.
To receive your 20% discount please use code VIP361 when registering. (ad) Original ideas attract many of the best in Europe to their London events. One of the best of the year.
Q3 BT + 72K, FT in France +124K, DT +100K, KPN rounding error Telefónica is no longer a “Spanish” phone company, with nine month sales in Latin America (16,616 euro) now higher than in Spain (14,655.) Telefónica Europe - mostly 02 wireless, with 36M customers in Britain and Germany was not that far behind at 10,055. They've just spent to buy Hansenet to fight the decline in German mobile. KPN in Q2 had one of the first actual declines in European DSL, 7,000 lines. In Q3 they added 1,000, a rounding error for a carrier with 2.5M DSL lines. France Telecom has cut capex by 17%, preserving cash flow but doing little to reverse revenue loss. DT added about 100K DSL lines to 11.3M, less than half the rate of prior quarters. Unbundling is growing rapidly, and cable has suddenly become a major factor. BT has fired tens of thousands, cut capital spending by over 25%, continues to lose customers in droves, and has fallen far behind on the 21CN and broadband networks. The “Global Services” business continues to lose hundreds of millions and the pension deficit is probably larger than the market capitalization. A few more Q3 results: Bell Canada 22K; Bell Aliant 15K; Telus 9K; Telefonica Spain 92K, Telfonica Telesp -149K because of a government freeze on new customers until they fixed service problems, Telefónica O2 UK’s DSL 70K as O2 moves strongly to bundles *** Supernova Conference: A Thought Leadership Forum for Change in the Network Age December 1-3, 2009, San Francisco, CA Use code "DSL09"for a special DSL Prime discount of $200 off regular price. Register at: https://supernovahub.com/registration/register.php
Supernova brings together over 500 business, government, and technology influencers to understand how decentralization and pervasive connectivity are changing our world in the Network Age. It's the only conference to focus on how networks have become the main instruments of change from both business and social perspectives. (ad) Kevin Werbach brings in the best of the Internet crowd, this year including Werner Vogels of Amazon, danah boyd of Microsoft Research, Chris Anderson of Wired and Peter Guber of Hollywood, among others. Always a very strong event. db
ACS Alaska, Cincinnati Bell, FairPoint Down FairPoint (-1K) is in bankruptcy so their fall has an explanation, but Cincinnati Bell (-900) and ACS Alaska (-500) are financially healthy. This is a trend deserving a headline. AT&T, Verizon, and Qwest were all down substantially in first generation DSL. DT net adds were also down by more than half. It's too early to tell whether this is the recession, a switch to cable for higher speeds, or the first edge of people deciding that 3G and 4G wireless are enough for many needs. *** Future of Television East - NYC - Nov. 18-19, 2009 Traditional power brokers like Josh Sapan of Rainbow Media and Dave Poltrack of CBS are joined by new media pioneers like Dina Kaplan of Blip.tv and Avner Ronen of the very hot Boxee. Register now at https://www.meeting-services.com/reg/en/register.asp?event=121 (ad) This and other DMV events have always been well-organized and a pleasure to attend. Q3: Comcast & Cable Clobber U.S. DSL/Fiber Verizon DSL -135K, AT&T also down Comcast added 362K subs in Q3 compared to less than 300K for all DSL and fiber. The major cablecos added 654K to reach 38,659,067. The telcos added 256K total to 32,153,331. Overall, wireline broadband was up 910K to 70,812,000 (plus several million at smaller companies.) Verizon dropped an astonishing 135K DSL lines, only some of which were FiOS switches. AT&T U-Verse added 252K while older DSL dropped 162K. Take out 198K FiOS adds, and DSL is under 100K. Outside of U-Verse, there was a net drop of 150K or so DSL customers at AT&T. Only some of those switched to U-Verse. Here are figures from Leichtman Research, covering well over 90% of U.S. wireline. Cablecos Comcast 362K to 15,684,000 Time Warner 121K to 9,167,000 Cox 40K to 4,150,000 Charter 53K to 3,010,100 Cablevision 19K to 2,522,000 Mediacom 11K to 765,000 Insight 12K to 493,400 Cable ONE 2K to 388,567 RCN 2K to 309,000 Other major private cable companies 33K to 2,170,000 Telephone Companies AT&T 90K to 15,638,000 (252K U-Verse, -162K older DSL) Verizon 63K to 9,174,000 (198K FiOS, - 135K DSL) Qwest 28K to 2,951,000 (71K increase in the 3M upgraded fiber/DSL lines, - 43K in DSL) CenturyLink 44K to 2,189,000 Windstream 26K to 1,050,500 Frontier 8K 621,331 FairPoint -1K to 295,000 Cincinnati Bell -900 234,500 ACS Alaska -500 46,000 http://bit.ly/1gK1km *** ASSIA. The single best way to reduce operating costs benefit and truck rolls. Reliability and performance for happier customers, lower churn, fewer trouble tickets. http://bit.ly/TWmE4 (ad)
NEC: 24 Ports VDSL2, 83.6 Watts AT&T spends close to $100M annually for power for broadband, I estimate. DSL worldwide requires the output of 6 or more nuclear power plants. The Chinese, needing to keep consumer prices low, were the first to watch power costs closely. The Europeans more recently imposed a “European Code of Conduct” with energy standards for broadband gear. NEC's new AM3150R2 requires under 83.6 watts for 24 VDSL2 ports, 100 meg in both directions using the 30 MHz profile. The backhaul is GigE or the increasingly common GPON, and it supports both single and dual end line testing. Separately, Lantiq/bInfineon announced a GigE physical layer chip they claim is the first to implement the Energy Efficient Ethernet (EEE) guidelines in IEEE 802.3az. When the chip is idle most of the time in many home networks energy consumption drops from the typical 500mW to only 50mW. At full load, it pulls a relatively low 400mW. *** ASSIA benefit #2 Potential power saving in the range of 10-30+%. (ad)
French Fiber Cost:?$650/home Passed Xavier Grawitz of Normandy told the D.C. audience that fiber to the home cost them $650 to deploy. Manche Numerique is a successful “public-private partnership” - one of the few that has reached 26,000 homes and plans 40,000 more in the next phase. That's similar to Verizon's cost per home passed of less than $700 but less than the estimates by Caisse de dépôt at the same event. The difference is partly explained by high costs in extreme rural areas but I'd guess better management plays an important role. At the same Alcatel event, Gabrielle Gauthey explained effective competition was the main driver bringing France to first place in European triple play. Dynamic new entrants encouraged France Telecom to equip all their exchanges with first ADSL and soon after ADSL2+. Local loop unbundling complemented by bitstream was the essential first step. Local authority intervention has been crucial in the expansion. They have been much more efficient than the U.S. planned 80% subsidy, garnering $1 of direct private investment for every $1 of public money. In addition, the public sector often retains ownership, sometimes with a 30 year term of company management and investment recovery. Gauthey played a major role in French rural development and then at ARCEP as France ascended to world leadership. She's now an Alcatel Vice-President, brought over to provide some perspective on how to make the stimulus work. Perhaps her most important perspective is that France realized in 2004 that deregulation and leaving everything to the private sector had failed. More from Ms. Gauthey at http://bit.ly/3wSY12 *** ASSIA benefit #3 Vendor neutral. Works with all major DSLAM manufacturers. http://bit.ly/TWmE4(ad)
Briefs
Matthias Kurth is a Social Democrat, but will probably retain his post as Germany's regulator despite the election loss. He has three more years on his term and is personally cordial with Angie Merkel. Merkel and the EU have been struggling over policies that make life hard for DT's competitors, and it's taken all of Kurth's considerable diplomacy to achieve much. Wireless customers would be saving billions if EU competition policy were dominant, but Kurth and Ed Richards of OFCOM have put up strong opposition.
Press
Charlie Shaw of the Saint Paul Legal Ledger Capitol Report headlines “There's no state money for broadband, but there are plenty of lobbyists.” I once carelessly said something about the Bells spending more on lobbying than on broadband networks. That's obviously untrue; they spend something like $10B a year on broadband networks (including wireless) but almost certainly less than $2B on influence. The AT&T and Verizon influence budgets may not be more than $500M/each, but no one will let me even close to a figure. Of that, only a small fraction (direct political donations, registered lobbyists) is publicly trackable. I've found $1M each from AT&T to causes of Congressmen Bobby Rush and Bill Tauzin, as well as California Governor Schwarzenegger. BellSouth used to keep private jets dedicated to bringing
People
Susan Crawford is going back to the University of Michigan after being the White House senior adviser on tech. In other words, the D.C. lead on telecom policy. The Spectator, a conservative magazine, published some wishful thinking that she was pushed out for supporting NN. I credit their report that AT&T persuaded many CEOs to call Larry Summers on this, but Susan had told me six months ago she only intended to stay a year. Her spring courses have long been in the school catalog.
Wall Street
Lloyd Blankfein of Goldman is “a man who has greenbacks, not blood, running through his veins,” John Arlidge writes in the London Times. He adds, “The culture as 'completely money-obsessed. I was like a donkey driven forward by the biggest, juiciest carrot I could imagine. Money is the way you define your success. There’s always room need for more. If you are not getting a bigger house or a bigger boat, you’re falling behind. It’s an addiction.'” The article is a hatchet job, but accurate in its description of (much of) Wall Street culture (not just Goldman Sachs, of course.)
Coming in the U.S. broadband special issue Save Half on Broadband Subsidies. Don't Pay retail http://bit.ly/280HH4 Seattle Fibernet Won't Bankrupt Qwest http://bit.ly/280HH4 (New Mayor McGinn wants a muni network.) Broadband Plan Ideas http://bit.ly/Broadband_Plan Doug Sicker, Ethical researcher http://bit.ly/Qq1CQ (He doesn't hide his financial support.) Policy Gossip http://bit.ly/Z56sA Reply "subscribe" to be added, "un" to be dropped. Copyright 2009 Dave Burstein Volume 10, #18 Issue date 11/03/09November 3
Newsbreak: AT&T CTO Donovan: We Need Non-Discrimination
Broadband Plan and D.C. Thoughts
China Unicom Adds 2.55M in Q3, China Telecom 2.4M
Fiberhome $79M, ASSIA $10M Prove Funding is Possible
VDSL Doubling Works
British Telecom Dropping Bandwidth Price 50%
De la Vega on U-Verse and LTE
Found At Charter: 600,000 Probably Unserved, Cheap to Reach
The U.S. broadband plan accomplishes very little for affordability, quality, speed, or availability of broadband in the U.S., although it has other important achievements I describe below.
In particular The “100 megabits to 100 million homes” is right on target for what will be achieved by 2015 without any broadband plan. (FCC/Columbia CITI November 2009). Based on cable company's official statements, I reported in August 2009 102 million homes would have 100 megabit capable DOCSIS by around 2013. http://bit.ly/c7jMuJ Fewer than 4% of U.S. homes that can only get satellite (“unserved”) will be reached because of the plan. It's more likely only 1-2% of homes will be upgraded. Broadband prices are more likely to increase than decrease because of the plan, especially if a multi-billion dollar Internet tax is included. There's nothing wrong with taxing the Internet like anything else, but this “fee” goes to the shareholders and bondholders of phone companies, not re-opening closed hospitals. Only a small fraction of the poor will get substantial help according to the best information I can find. In particular, the much-touted cable A+ plan provides “back of the bus broadband” throttled to a tenth the normal speed, available to less than one in five of the poor, and actually more expensive than Verizon's recent promotion. AT&T has offered similar, but I don't know if it's included. Since nearly all mobile phones will include broadband in a few years and far more than 90% of families have a mobile phone, the 90% take rate in 2020 would almost certainly be achieved without the plan, probably several years earlier.
34% of West Virginia homes can't get DSL, one of the lowest deployments in the developed world, according to the new FCC stats. Jay Rockefeller should have called in Verizon's lobbyists years ago and told them they'd never get a bill through the Senate if they didn't bring his state up to standards. Mountainous Wales is 99% covered and most rural areas of Europe are over 90%, so the argument this is because of impractically high cost comes out of the rear end of a male cow. The smallest rural carriers in the U.S. reach all but 8%, proving what's practical in rural areas. (All states below). 37% of New Hampshire, 31% of Virginia, 28% of Vermont, 27% of Maine, 26% of Michigan, 24% of Maryland and Mississippi, 22% of Arkansas, 21% of Alaska (despite massive subsidies) and New York all can't get DSL. Cable generally is better, but the FCC data is limited and doesn't include homes not passed by cable for TV. (Phone lines pass all homes but cable only about 96%.)
This data makes clear the largest problem in DSL deployment is where Verizon virtually stopped all upgrades around 2002 when they decided to sell
For the last decade, every year someone quotable says Moore's law is dead. It just ain't so. Chip innovation is continuing, with Intel/Micron's new 25 nm flash memory pointing the way not just to smaller iPod nanos but predictable price/performance improvements in telecom gear. Most telecom gear is produced at 65 or 85 nanometers, with only a few chips, mostly for wireless, at 45 nanometers. The latest 25 nanometer process from Intel and Micron will over the next few years extend from NAND memory chips to comm chips, cutting typical space and power demands by 50-80%. It's hard to imagine a feature size so small that over 30 billion transistors can fit in a half inch square, but that's what we talking about here. About 50 atoms across by another measure. Altera promies even more demanding chips, FPGA's in 28nm this summer. Digitimes says they will be manufactured at TSMC, where many of the communications chips are also made,
Underestimating the power of Moore's Law leads to many of the stupid things you hear around D.C., like that the exaflood will destroy networks. In practice, the cost of carrying bits has gone down since 2002 at about the rate demand for bandwidth has gone up. That's highly unlikely to change for the next five years even if video causes 35% increases in traffic every year - as it probably will. An authoritative source - Bill Smith of AT&T - told an FCC workshop that lately the growth in demand has slightly outpaced the cost decline. That's important to DSL Prime readers whose job is managiing the cost of a huge network. But a modest change - say 5% - has minimal impact on the overall cost of a $20-50/month service. The working number for bandwidth costs is about $1/month/customer at a large wired carrier.
Just as we were giving up on new DSL competitors, the European wireless companies have been ramping up. Vodafone has added 1.1M fixed broadband lines in 12 months, reaching over 5M customers and investing to go after more. That includes 3.3M in Germany and 1.1M in Italy. Voda has plenty of room to grow; they have 34M mobile lines in Germany, 22M in Italy, 18M in Britain, and 16M in Spain. Voda in Germany is offering seven months free for new customers, with a price of 29,95 € for “up to 16 megabit” service + telephone.
O2/Telefonica has 22M mobile customers in Britain but only 527K DSL lines. So they are offering “up to 8 meg DSL” plus unlimited landline calls to 20 countries for £20, about $32. Their German branch is offering four months free. Bouygues Telecom, the #3 French wireless company, decided they had to offer a bundle with DSL and built a network. With a quadplay at 44 euro, including wireless, they won 100,000 customers last quarter.
Except for Italy, these deployments are all in countries with relatively strong competition policies. The pattern has been to sign on to the incumbents' resale to offer immediate coverage in most of the nation while building an unbundled network. There's no reason to think mobile carriers in countries without strong CLEC results are likely to enter the market. For example, there's no sign any of the U.S. or Canadian mobile companies are expanding fixed offerings.
20 euro ($28) is the right price for broadband + phone, Le Premier ministre Francois Fillon has decided, and has asked the Minister of Industry to make it so That's unlimited landline calls nationwide + DSL "up to 22 meg", which would cost twice as much or more in the U.S. "I hope that within six months, all operators who wish to can offer a special social to allow low-income households access the Internet at attractive conditions. This offer social should be around 20 euros"(LePoint, Google translation)
"The Internet has become an essential tool in the same way as electricity.Access to an affordable price is an imperative of social justice. I hope that by six months, all operators who wish to can offer a special social to allow low-income households access the Internet at attractive conditions,"
"The customers who are easiest to serve already have access to broadband; the remaining unserved customers overwhelmingly live in sparsely populated, high-cost areas that cannot economically be served absent government support", from AT&T seems to make sense and similar is often said in D.C. Actually, it turns out that something like half the remaining unserved do not "live in sparsely populated, high-cost areas that cannot economically be served absent government support," as AT&T's filing presents as though it were fact. Getting this right leads to policy that would reach the unserved at billions less than the commonly estimated cost. Combined with using improved satellite for perhaps 1%, the $20B and $35B projections in the September broadband plan can easily be cut in half. So this is important.
Between 25% & 70% of the "unserved" do not cost prohibitively much because of sparse population but instead are hard to serve because backhaul locally is not competitive and costs 5-20 times what backhaul costs in competitive markets. I can buy transit for $5-15/megabit across several hundred U.S. cities, but some rural carriers are asked to pay $100 and even $200/megabit because there aren't competitive suppliers. This came up time and again at the FCC broadband workshops. This is not because of a shortage of fiber capacity; fiber in place can easily handle any likely increased load at very modest cost. Sometimes, this is monopoly suppliers "charging what the market will bear" when there's no effective market. Other times, the sole fiber supplier is the telco who does not want to make backhaul available to a possible competitor at a fair price.
This is the whole "middle mile" problem so visible in D.C. these days. There are some places without fiber, but they turn out to be amazingly few. The problem is cost. As I explain elsewhere, overbuilding to create a little competition is rarely the right policy. I believe the FCC will use "special access" to get rid of the worst examples.
Customers hate bandwidth caps, Verizon's market research shows, so "No Bandwidth Caps. Period!" is the highlight of their latest DSL ad campaign. There's no technical or cost reason a cap is needed on any large, wireline network; it's a way to block competitive video and efficiently raise prices.
Internet transit is down to $2/megabit at major peering points and costs of deploying broadband continue to drop steadily. Bandwidth growth continues, which Bill Smith of AT&T tells an FCC workshop has slightly raised his cost per customer. That's important information for DSL Prime readers whose job is to manage network costs, but I'd estimate any increase in the last year is less than 1% of the price of the service. The usual industry figure is the total bandwidth cost is about $1/month, 2-4% of the price charged.
Congressman Eric Massa became a hero to voters by fighting a Time Warner bandwidth cap. Fighting caps – and unreasonable prices – is a natural move for politicians and regulators worldwide who want public support. There's nothing immoral or even fattening about a cap that's reasonably related to costs. Iheard from my consumer-favoring friends for writing about a reasonable one, http://fastnetnews.com/docsisreport/163-c/53-comcasts-fair-250-gig-bandwidth-cap . But it turns out so few people are affected by the Comcast cap it saves very little money.
Mike Gulett of Ikanos told me they make the best DSL chips when I visited. A few hours later, Imran Hajimusa of Lantiq (formerly part of Infineon) said something very similar. I'm sure I would have heard the same if I had stopped by Broadcom as well. Not being an engineer with a test lab, I'm not qualified to judge. Any chipmaker who's survived the tough DSL market obviously has an outstanding product as far as I'm concerned. Both had some impressive features to demonstrate.
Ikanos showed me how their rate-adjustment on the fly minimizes the dropouts and retrains that are the bane of IPTV carriers. Tom, Gavin, and the rest did a remarkable job back aroun 1993 defining the DSL standards and it's amazing how little problem we have with interference. Back in 2000, some competent engineers believed DSL would crash when the networks became loaded, but that clearly hasn't happened.
But the occasional interference problem is annoying for IPTV, especially if the dropout happens at a crucial moment in a football game. Alcatel tells 40% of Europeans turn off their modems when not in use, a good way to save energy but causing spikes in the network. Ikanos had a strong demonstration with TV running in their lab and interferers added. With rate-adjustment, they never dropped the signal.
Lantiq has a nice demo of 4 simultaneous TV programs playing wirelessly over 802.11n,
Dell'oro, one of the best analyst firms, reports a 12% decline in access equipment sales in 2009, which they think will only be partially reversed in 2010. They see the future as determined by upgrades, not new deployments, with fiber in the lead. They see the market split about evenly between GPON and EPON, cable CMTS upgrades as everyhing goes digital, and disappointing sales for DSL.
My take going forward sees China continuing as the dominant market. Their 12M/year DSL growth has been the driver for several years, but PON will take a large share of the Chinese future. There are 20M lines of fiber on order in China, with GPON making inroads at China Mobile and perhaps China Telecom. The norm is rapidly becoming fiber at least to the basement. Japan is 85% fiber already, limiting room for growth, and India will be predominatnly wireless because their wireline network is miniscule in (35M line) for a country of over a billion people.
Brazil has some grand plans, with Lula speaking of a possible $8B investment in fiber. But the developed world - where 60-80% of homes are already connected - has little room for growth.
Edmund Hilary trained for Everest at Snowdonia in Wales. Mountains dominate most of the country. The people were so fearsome Offa built a 120 mile dyke to prevent incurstions, and they resisted English conquest for a millenia. The average income is well below the British norm, making them somewhat less likely to buy broadband. Despite that, BT has offers DSL to 99% of the homes , one of the highest rates in the world. While some speeds are low, this remains a major achievement.
Years ago, Tom Starr and the DSL Forum published “DSL Everywhere”, detailing many different techniques. BT has emphasized long reach, on which they have done important research. Repeaters and remote terminals – some the size of a paperback book – also contribute. I've worked with Vermont Tel who reached just about everyone in their part of rural Vermont back then, and reported the 176,000 rural customers of Madison River also are 99% covered. http://bit.ly/cBfU20
The last 1-3% is often expensive, depending on the district, but 96-99% is generally profitable. It's the shame of the Bells they are 82% of the U.S. problem. http://bit.ly/c9gReR
Trevor Forsythe in Northern Ireland writes to me they have 99% landline coverage there as well. DETI working with BT starting in 2004 made that possible. For the remaining 1%, DETI workin with Avanti has a satellite offering. Satellite for the last 1% is becoming the international norm.
Virgin is selling 50 down DOCSIS 3.0 for £28 and winning many customers from BT according to rumor. BT responded by finally starting construction on their DSL/fiber upgrades, after delaying in the hope of a big government subsidy. To stay in the game BT has set the price at £20 for a 20 gigabyte/month "up to 40 down" plus initial charge and £25 for a more appropriate "unlimited" 40 down, 10 up service. $32-40 is cheaper than AT&T (24 meg $65) but more expensive than France. Fewer than 40% of Britain will be reached in the next two years, the vast bulk in the half the country that Virgin is serving. Most of the other half of Britain will half to wait years before they get 21st century Internet speeds. Andrew Parker (FT) reports BT is demanding a government subsidy to do even DSL/FTTN upgrades for most of the country. Given that AT&T will already have reached 70% with FTTN by then without subsidy, and Verizon 70% with fiber all the way home, it's hard to see why BT can't afford more investment.
"Up to" speeds are inherently deceptive, of course,
France's Natalie Kosciusko-Morizet has allocated 250M euros to satellite while Jonathan Adelstein at RUS has added a dedicated round of stimulus funding. Using satellite for about 1% of homes cuts the cost of universal U.S. "broadband" from $20-35B by about half. Les Echoes/EUTELSAT estimates 750,000 French homes won't get fiber and are candidates for satellite. In Australia, NBN chief Mike Quigley will reach a "few percent" with satellite, capacity he may build or buy. They just started an RFP.
Mark Dankberg of Viasat told an FCC workshop the new satellites for 2011 can deliver 5-10 megabits with improved latency, and EUTELSAT has a similar megabird planned for Europe later this year. Satellite bandwidth is shared in a complex fashion, but with a gigabit of spot beams available that speed is plausible.
The current French offering from SFR/Tooway is 34.90€ for download speeds of up to 3.6 Mbps and between 2.4 and 4.7 GB of data.
Christian Wolff promises "flawless and unobstructed HD-Video streaming over Wireless-LAN without making any compromise to Quality-of-Service," after taking over the Metalink 802.11n MIMO. Wireless HDTV has been promised so many times, by Metalink and many others, that no one believes it's finally working. Wolff is confident the new 65 nanometer Metalink chips will convince people. His investors are putting up $17M to buy key assets after Metalink itself ran out of funds.
Metalink was a remarkable outfit whose VDSL chips were close in performance but half the price of the competing DMT designs that eventually won out. Send me some thoughts and company history for my next issue,
AT&T's customers have long hated the unfortunately named B-52's cabinets and now British Telecom is facing civil disobedience over the ugly 6 foot by 4 foot neighborhood boxes they are deploying. St. Albans said they are totally unacceptable in a "conservation district" and Sandridge parish councillor Chris Hackett has refused to let them dig foundations. Herts 24 now reports the police hear from a local man "I told them I'm not having this. They are trying to obstruct me from getting in and out of my drive. And anyway I don't intend to look at that eyesore from my house. They can either move it somewhere else or I will." http://bit.ly/cIhPct, including picture
Fortunately, new generation field cabinets can be half the size as chip densities go up. A nice unit from Ericsson does away with the fan, and quiet fans are available for any enclosure. It's time for BT to find a smaller, quieter box. It was a brit, after all, who promised "we shall defend our Island, whatever the cost may be, we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender."
35M or so homes - about 100M people - don't take broadband in the U.S. You could subsidize 15-30M of them for 1/5th of the money spent each year on USF/ICC. Each family enrolled would pay say $7/month. The companies would make a normal profit, say 40% EBITDA. It requires no political tricks, and the economics are derived from top Wall Street analysts. It would be a very good thing, far more important than anything I've heard from the broadband plan. It is probably politically impossible. The FCC is hard to change.
I begin with the real economics of broadband. The marginal cost of adding a customer to any large broadband network is about $8 by wall street and my estimates. $8 provides 3 to 10 megabit service; reducing the speed to "back of the bus" speeds saves well under $1 (large carrier).
$8: The marginal cost/month of broadband in 85+% of U.S., essentially all large carriers. The $8 figure comes from leading Wall Street analyst Craig Moffett, presumably direct from internal numbers at the big cablecos. My own research confirms it, although I speak of a range of $5-12 across the developed world. I have factchecked it with AT&T as well as a senior cabler and a large RLEC, as well as off the record with many CTO types, etc. I come to that figure by adding up the cost of bandwidth, customer support, modems, and the other main inputs required to add a customer to an existing network.
$15 A reasonable price for the government to pay when buying millions of lines for lifeline service. That provides teh companies with a reasonable profit, perhaps 40% EBITDA. It's ridiculous to pay retain for millions of lines. We know $15 is reasonable because both Verizon and AT&T charged $15 price for basic broadband until recently and always said they. were profitable. Many European broadband prices are at that level when bought as a bundle. The cost and profit figures are on target for all the larger carriers.
$7 Customer pays (a bargain)
$8 Subsidy/month to get to the $15 total.
< $100 Subsidy per family per year
10,000 families served per million of subsidt. 10,000,000 per $B.
20-30B homes for $3B/year. That's a lot of money to you or me, but less than 20% of the current USF/ICC total. Verizon or AT&T annual cash flow, etc. It's practical to identify $billions in waste in USF/ICC that can cover it over time.
Important note: 5-10% of the U.S. is rural or otherwise has higher costs, which is why elsewhere I point to reducing high rural backhaul costs etc. as critical.
Congressman Jose Serrano is bringing FCC Chair Genachowski to Per Scholas, a community group in the Bronx 1 p.m. Monday. I've been considering what's the right question to focus on some real issues. Update after the event: Despite saying there would be a Q & A, they "ran out of time" and I didn't get to ask Julius the questions. Congressman Serrano did give me a few minutes, and that resulted in my item http://fastnetnews.com/docsisreport/163-c/2541-congressman-serrano-low-speed-lifeline-qabsolutely-unacceptableq End update “Is Back of the Bus broadband acceptable for the poor?” I'll ask the Congressman. There's a good chance the “lifeline broadband” will look like the NCTA Adoption Plus suggestion that was strongly backed by Jim Cicconi of AT&T. That's carefully designed to offer a fig leaf to the broadband plan while not serously threatening the cash cow video business. Only 1/6th of the poor would be eligible for a short term Internet connection at speeds too low for standard video. They want a pile of government money as part of the deal. Nate Anderson of Ars - who constantly outreports the Washington Post – noticed the price they asked was higher than the current promotions at Verizon and AT&T. For Genachowski, I'll probably ask “As we move to objective, data-driven policy, just what are the results we are seeing. In the first Obama year, how much did the basic price of broadband and telephone service go up or down? How many of the “unserved” broadband homes were newly offered service?” Obama's prime FCC goal to to bring broadband to everyone and make it affordable, but I haven't seen anything like an objective measures of results. My best information is that the last year has been the worst since 1998 in extending broadband to the “unserved”. Several large carriers have raised, not lowered their prices. AT&T California just raised basic phone prices 22% (LA Times). If I get a second question, it will be “what percent of the broadband lifeline you've supported will directly help the poor and what percent will go to the bottom line of the carriers.” Wall Street's Craig Moffett estimates that 10 megabit broadband's marginal cost is about $8 and contribution margins 80%. Free Press believes paying more than $10 for lifeline is a carrier subsidy; I'd use a higher figure ($15 or so, 50% margins) but am horrified by the general assumption that subsidies will be much higher and the speed probably crippled. I wrote http://fastnetnews.com/stim/179-s/2188-save-half-on-broadband-subsidies-dont-pay-retail-for-a-million-lines on the topic, which resonated with several in D.C. There's nothing wrong with making a profit helping the poor, but the main benefits of a program for the poor should not go to Brian Roberts and Randall Stephenson's shareholders. Cui Bono, Julius of the Supreme Court? Julius is a great guy who's done a remarkable job improving morale at the FCC but the real test is results.
FiOS grew 153K, lousy when you consider they are opening for sale 700K additional homes every quarter. Some of those are DSL conversions, while in non-FiOS areas Verizon is significantly losing DSL customers. "You've raised prices for FiOS and some of the low-end DSL stuff," Bank of America noted in the investor call. Chris King adds, "subscriber growth continues to slow as the company has placed a renewed emphasis on profitability over market share." Ivan Seidenberg explains why they are taking the short term fix of a price rise. "We do need to balance a little bit of profitability to make sure that where the economy is hurting us that we offset some of that by not being too aggressive on the FiOS side." That's me on the left asking Ivan a question about femtocells.
Verizon and AT&T have raised basic DSL prices by a third the last few years, by far the most significant reason people aren't taking broadband. They've just raised wireless data prices by as much as 50% (Pali Research), trying to create a wireless data price cartel as the wireless voice cartel is fraying. I have excellent Verizon mobile voice (via TRACFONE/Telmex) for about $15/month for 150 minutes, which is all I need if I don't make long calls. While serving all the data customers is straining some networks (not Verizon), there is massive overcapacity on mobile voice, with a negligible marginal cost/minute. The overcapacity will only expand as LTE deploys, doubling and quadrupling bandwidth. Ivan explains
"As we move into 2011 and we start to get into full deployment of LTE, we're going to get a big, big improvement in terms of our efficiency. And so we are feeling good about that. ... I don't think at this point there's anything to worry about.”
Verizon announced another 13K layoffs, bringing the 2008-2010 total over 40,000.
Carl Russo wasn't able to IPO his last company, Cerent. Cisco pre-empted the stock offering with a $7B takeover, probably the most remarkable of the boom era. That's not likely to be repeated, but with two of the biggest names on Wall Street the Calix IPO has great prospects.
Calix as a private company has reached annual sales of over $200M, selling access systems to the regional U.S. carriers. About a third of their sales went to CenturyLink, while a second company (?Windstream) took another 11%. TDS, one of the few funded in RUS stimulus round one, has also been a Calix customer. These carriers have been actively installing 20 meg ADSL2+/VDSL systems for several years, including field terminals, as they deploy more aggressively than the bells. The smaller U.S. telcos are often installing Calix GPON gear, which CenturyLink is using for cell tower backhaul as well. Many of the smaller carriers are buying GPON systems from Calix. Leaving out the Verizon contract, Calix/Optical Solutions is the leading GPON merchant in the U.S. other than at Verizon.
Russo put in $12M earlier this year, part of a private funding round that included $10M from Adam Grosser's Foundation Capital. Foundation had invested $20M in 2007, and is one of five VC firms that own between 6% and 9% of the company. Russo owns 15% of the company, 7M shares.
Jed Kolko has just finished the most thoughtful paper on the economic benefits of broadband I've read. He's presenting it at NAF in D.C. on Wednesday 13 January. Kolko finds a "positive empirical relationship" between availability of broadband in the U.S. early this century and economic growth. He goes on to point out that doesn't imply "broadband expansion causes economic growth." "The reverse might actually be true," he points out, "if broadband providers choose to offer or expand service in areas that are growing faster." During that period Bellsouth emphasized a "smart build" that looked at factors like the local economy. That might be a substantial confounding variable, although Kolko looked for effects like that and sees little evidence they are the explanation.
"The overall relationship between broadband expansion and employment growth, as measured by the NETS, is positive." That's good news, and corresponds to my belief that broadband is a good thing. However, "both the average wage and the employment rate—the share of working-age adults that is employed—are unaffected by broadband expansion. The economic benefits to residents appear to be limited. ... Broadband expansion is associated with no change in average pay per employee and a decrease in median household income. Broadband expansion has no statistically significant relationship with the employment rate. ... the economic development benefits of broadband are ambiguous."
Wireline is declining worldwide, including fast-growing economies like China and India. Craig Moffett, one of the most interesting analysts, has run some numbers and come to the conclusion U.S. wireline is in worse shape than many think. He's advising underweight of the U.S. Telecommunications sector because of the issues. He calls it a "crisis."
I believe wireline only carriers - that's everyone in the U.S. except AT&T and Verizon - have an “uncertain future.” For two years I've seen the squeeze and Randall Stephenson saw it far before I did. Lines keep going down, DSL has little room to go up, price increases and job cuts are already extreme. It's tough.
Wireless is likely to continue growing for several years, with T & VZ likely pulling ahead. T & VZ have an enormous advantage over the other mobile carriers because they can efficiently shift much of the calling volume to their wired networks via WiFi of femtos. 40-50% of all calls are made from home or office, so that allows the two companies to virtually double their spectrum with an investment of a few $billion for gateways.
That means AT&T and Verizon, like wireless carriers everywhere, have strong incentive to maintain there wireline networks. Vodafone and Bouygues, recognizing that, have massively ramped their DSL. That's one more reason AT&T is unlikely to dump wireline. They need it for wireless competitive advantage.
What Craig is adding is that margins will be directly affected because there won't be any more room to cut because what remains is mostly fixed costs. DC has been passing this around with the question are they really dying, but not adjusting the broadband plan for that possibility. Major sand castles fall. Think about it. As Craig writes:
Wireline still accounts for more than half of Verizon's revenues (after adjusting for VOD's 45% stake in VZW), and a similar amount of AT&T's, yet, paradoxically, is often almost entirely overshadowed by the smaller Wireless business.
Investors tend to underestimate the likelihood that wireline revenue declines will be compounded by margin compression, and that the compression should accelerate relative to history, understating the importance of the segment to changes in profitability.
Since our analysis of state-level data though 2007, two things have happened. First, the rate of access line losses has accelerated. Second, broadband growth has slowed dramatically, reducing an offsetting ARPU tailwind for margins.
Indeed, if one were to also include the in-region wired portion of the wireless network as part of the broader wired picture (recall that the majority of any wireless network is… a wired network) then these companies' still-overwhelming dependence on their wired franchises becomes even more striking, with what is almost certainly three quarters or more of the revenues and assets depending on the wired infrastructure.
Because the margins of the to-be-sold properties are much higher than Verizon’s system average, a divestiture would reduce margins immediately by another 170 bps, all the way to the 22% range. Moreover, because their capex is much lower, it would leave operating cash flow (EBITDA less capex) lower by perhaps $900M in 2011.
34% of West Virginia homes can't get DSL, one of the lowest deployments in the developed world, according to the new FCC stats. Jay Rockefeller should have called in Verizon's lobbyists years ago and told them they'd never get a bill through the Senate if they didn't bring his state up to standards. Mountainous Wales is 99% covered and most rural areas of Europe are over 90%, so the argument this is because of impractically high cost comes out of the rear end of a male cow. The smallest rural carriers in the U.S. reach all but 8%, proving what's practical in rural areas. (All states below). 37% of New Hampshire, 31% of Virginia, 28% of Vermont, 27% of Maine, 26% of Michigan, 24% of Maryland and Mississippi, 22% of Arkansas, 21% of Alaska (despite massive subsidies) and New York all can't get DSL. Cable generally is better, but the FCC data is limited and doesn't include homes not passed by cable for TV. (Phone lines pass all homes but cable only about 96%.)
Just as we were giving up on new DSL competitors, the European wireless companies have been ramping up. Vodafone has added 1.1M fixed broadband lines in 12 months, reaching over 5M customers and investing to go after more. That includes 3.3M in Germany and 1.1M in Italy. Voda has plenty of room to grow; they have 34M mobile lines in Germany, 22M in Italy, 18M in Britain, and 16M in Spain. Voda in Germany is offering seven months free for new customers, with a price of 
20 euro ($28) is the right price for broadband + phone, Le Premier ministre Francois Fillon has decided, and has asked the Minister of Industry to make it so That's unlimited landline calls nationwide + DSL "up to 22 meg", which would cost twice as much or more in the U.S. "I hope that within six months, all operators who wish to can offer a special social to allow low-income households access the Internet at attractive conditions. This offer social should be around 20 euros"(LePoint, Google translation)
Customers hate bandwidth caps, Verizon's market research shows, so "No Bandwidth Caps. Period!" is the highlight of their latest DSL ad campaign. There's no technical or cost reason a cap is needed on any large, wireline network; it's a way to block competitive video and efficiently raise prices.
Mike Gulett of Ikanos told me they make the best DSL chips when I visited. A few hours later, Imran Hajimusa of Lantiq (formerly part of Infineon) said something very similar. I'm sure I would have heard the same if I had stopped by Broadcom as well. Not being an engineer with a test lab, I'm not qualified to judge. Any chipmaker who's survived the tough DSL market obviously has an outstanding product as far as I'm concerned. Both had some impressive features to demonstrate.
Dell'oro, one of the best analyst firms, reports a 12% decline in access equipment sales in 2009, which they think will only be partially reversed in 2010. They see the future as determined by upgrades, not new deployments, with fiber in the lead. They see the market split about evenly between GPON and EPON, cable CMTS upgrades as everyhing goes digital, and disappointing sales for DSL.
Virgin is selling 50 down DOCSIS 3.0 for £28 and winning many customers from BT according to rumor. BT responded by finally starting construction on their DSL/fiber upgrades, after delaying in the hope of a big government subsidy. To stay in the game BT has set the price at £20 for a 20 gigabyte/month "up to 40 down" plus initial charge and £25 for a more appropriate "unlimited" 40 down, 10 up service. $32-40 is cheaper than AT&T (24 meg $65) but more expensive than France. Fewer than 40% of Britain will be reached in the next two years, the vast bulk in the half the country that Virgin is serving. Most of the other half of Britain will half to wait years before they get 21st century Internet speeds. Andrew Parker (FT) reports BT is demanding a government subsidy to do even DSL/FTTN upgrades for most of the country. Given that AT&T will already have reached 70% with FTTN by then without subsidy, and Verizon 70% with fiber all the way home, it's hard to see why BT can't afford more investment. 
France's Natalie Kosciusko-Morizet has allocated 250M euros to satellite while Jonathan Adelstein at RUS has added a dedicated round of stimulus funding. Using satellite for about 1% of homes cuts the cost of universal U.S. "broadband" from $20-35B by about half. Les Echoes/EUTELSAT estimates 750,000 French homes won't get fiber and are candidates for satellite. In Australia, NBN chief Mike Quigley will reach a "few percent" with satellite, capacity he may build or buy. They just started an RFP. 
Christian Wolff promises "flawless and unobstructed HD-Video streaming over Wireless-LAN without making any compromise to Quality-of-Service," after taking over the Metalink 802.11n MIMO. Wireless HDTV has been promised so many times, by Metalink and many others, that no one believes it's finally working. Wolff is confident the new 65 nanometer Metalink chips will convince people. His investors are putting up $17M to buy key assets after Metalink itself ran out of funds.
neighborhood boxes they are deploying. St. Albans said they are totally unacceptable in a "conservation district" and Sandridge parish councillor Chris Hackett has refused to let them dig foundations. Herts 24 now reports the police hear from a local man "I told them I'm not having this. They are trying to obstruct me from getting in and out of my drive. And anyway I don't intend to look at that eyesore from my house. They can either move it somewhere else or I will." http://bit.ly/cIhPct, including picture 
35M or so homes - about 100M people - don't take broadband in the U.S. You could subsidize 15-30M of them for 1/5th of the money spent each year on USF/ICC. Each family enrolled would pay say $7/month. The companies would make a normal profit, say 40% EBITDA. It requires no political tricks, and the economics are derived from top Wall Street analysts. It would be a very good thing, far more important than anything I've heard from the broadband plan. It is probably politically impossible. The FCC is hard to change.
FiOS grew 153K, lousy when you consider they are opening for sale 700K additional homes every quarter. Some of those are DSL conversions, while in non-FiOS areas Verizon is significantly losing DSL customers. "You've raised prices for FiOS and some of the low-end DSL stuff," Bank of America noted in the investor call. Chris King adds, "subscriber growth continues to slow as the company has placed a renewed emphasis on profitability over market share." Ivan Seidenberg explains why they are taking the short term fix of a price rise. "We do need to balance a little bit of profitability to make sure that where the economy is hurting us that we offset some of that by not being too aggressive on the FiOS side." That's me on the left asking Ivan a question about femtocells.
Carl Russo wasn't able to IPO his last company, Cerent. Cisco pre-empted the stock offering with a $7B takeover, probably the most remarkable of the boom era. That's not likely to be repeated, but with two of the biggest names on Wall Street the Calix IPO has great prospects.
Jed Kolko has just finished the most thoughtful paper on the economic benefits of broadband I've read. He's presenting it at NAF in D.C. on Wednesday 13 January. Kolko finds a "positive empirical relationship" between availability of broadband in the U.S. early this century and economic growth. He goes on to point out that doesn't imply "broadband expansion causes economic growth." "The reverse might actually be true," he points out, "if broadband providers choose to offer or expand service in areas that are growing faster." During that period Bellsouth emphasized a "smart build" that looked at factors like the local economy. That might be a substantial confounding variable, although Kolko looked for effects like that and sees little evidence they are the explanation.
Wireline is declining worldwide, including fast-growing economies like China and India. Craig Moffett, one of the most interesting analysts, has run some numbers and come to the conclusion U.S. wireline is in worse shape than many think. He's advising underweight of the U.S. Telecommunications sector because of the issues. He calls it a "crisis."
