Google Fiber will leave the duopoly intact and only change the players

Google_fiber_logoThere’s a lot of talk about Google Fiber bringing competition to the marketplace, but I think it’s a lot of smoke and mirrors. In reality, Google is very good at leveraging its brand to cover up many plays it’s pulling straight out of the incumbent playbook. In the end, they’re acting a lot more like Comcast than I think many are comfortable with confronting, much less admitting. I’ll make a bold prediction: Google will be the new Comcast within 5 years. I’ll make the case as to why.

The biggest problem I see with Google Fiber is their practice of redlining and cherry-picking. Their pattern so far has been to break up neighborhoods into very small “fiberhoods” and only build if there is sufficient demand. Given that they ask for either a 2-year contract at $70/mo or $300 to install the service, it’s easy to see how low-income neighborhoods are unlikely to reap the benefits of a new vertical monopoly in town. This is the kind of practice that Comcast and CenturyLink has been dying to get into: upgrading only the most lucrative areas and letting the low-margin subsidized lines languish.

Let’s not also forget that you have a very limited time to sign up or be left behind. Google has made it very clear in their FAQs that it has no plans to reopen to new subscribers once the signup period has closed. In a rental-heavy market like Provo, this could exclude a large proportion of the user base from ever getting service. There’s also no mention on if someone can reactivate a terminated line to get service again.

So why is Google doing this? Based on the company’s history, I think it’s all about costs. Google is famous for designing hardware to meet very specific needs, a process that leads them to be extremely efficient. It’s not much of a stretch to think this same efficiency is being applied to building Google Fiber. (Warning: speculation ahead.) My theory is that they’re building the network exactly to capacity in an effort to reduce costs and maximize ROI. If you don’t have to plan for potential future additions or build the network where demand won’t meet certain profit goals, you can slash your cost per subscriber to under $1K. Assuming they make about $35 per subscriber per month in profit (which is consistent with numbers I’ve heard from UTOPIA service providers), that works out to a payback of under 2.5 years. With a 5-7 year contract, it’s not hard to see how Google is going to make money hand over fist.

This makes it all the more curious, then, as to why they need all sorts of concessions from municipal governments to make it happen. While their official checklist for the latest round of cities claims that no subsidies are expected, it’s hard to see how really going to be the case. Kansas City greased the wheels with millions in tax dollars whereas Provo literally gave away the network to get Google’s attention. This is much like CenturyLink’s hypocrisy in decrying municipal systems as unfair competition while available themselves again and again and again of available tax dollars. Google may say that they don’t want subsidies, but the unspoken understanding is that without significant municipal concessions, they’re probably going to pass you over.

With all of these behaviors that remind us of the many ways in which Google is behaving like an incumbent carrier, it doesn’t take much to connect the dots. CenturyLink is probably going to let residential wireline rot on the vine as it pursues high-margin business services. Comcast will quickly hit the end of its upgrade capacity and focus instead on entrenching its vertical monopoly between content production and distribution, replacing CenturyLink as the “cheap” provider. Google is then free to fill the void left by Comcast as the “fast” provider, and we’re right back in the non-competitive state we had before, just with different names on the door.

To be quite frank, I don’t think Google has the capacity to be a good ISP. Google has a history of very technocratic decisions, depending heavily on the technical specs, prowess of their products, and brand name to compensate for their lack of customer service and direct marketing. This is uncharted territory for them, especially since they haven’t proven to be very adroit at dealing with entrenched companies whose lobbyists have very deep government connections. While I’m willing to be proven wrong, I don’t think they’re really prepared to survive in the regulation- and politics-heavy world of telecom, especially when the margins are relatively low. Once the reality of operating a utility settles in, you have to wonder if Google is going to treat their fiber products like they did their WiFi network in Mountain View.

When cities are considering Google’s proposal, they need to look at it with clear vision. There’s a limited amount of skin they have to put in the game, but they’re also not getting the same level of benefits that they could be. Overall, Google is offering to rearrange the deck chairs, not right the telecom ship. I hope that more cities will be wise to it.

Comcast has been holding out on us, but it’s out of tricks up its sleeve

Comcast-LogoWhen Google Fiber announced in Provo, it didn’t take long for Comcast to immediately whip out a new 250Mbps/50Mbps tier and match the announced price. The reaction isn’t all that surprising. They needed to look like they’re doing something to try and retain customers, and current modems meeting the DOCSIS 3.0 standard can max out at 343Mbps/122Mbps. Unfortunately, Comcast, in one move, almost entirely exhausted the available juice in its system without a massive overhaul of their operations. Could it be that they’re not going to be able to upgrade any further without a huge cash infusion?

Looking at the DOCSIS 3.0 standard, it allows for bonding up to 24 downstream and 8 upstream channels. This provides a peak theoretical bandwidth of 1029Mbps/245Mbps. Unfortunately, cable providers like Comcast have had trouble enough meeting the demand for 8 downstream and 4 upstream channels. With hundreds of channels (many now in HD), reclaiming spectrum has been very tricky. Despite tricks such as headend upgrades to H.264 (and, soon, H.265), using digital-to-analog adapters for customers who won’t upgrade to a digital package, and exploring IPTV, the system remains tapped out. The systems usually only support 6MHz channels across about 1GHz of total space or about 165 total channels. With nodes containing as many as 200 users, even a high 14:1 oversubscription ratio would mean dedicating at least 60% of the available channels just to broadband users, something that would crowd out their core TV product.

This is why Comcast has had to resort to very expensive FTTP upgrades to push their 505Mbps/65Mbps service in markets where Verizon’s FiOS has been chipping away at their market share. Even then, they want $500 to get service and charge a $1,000 ETF if you don’t stick with them for long enough. The hardware has also lagged behind with a limited number of modems that can push that kind of speed. Comcast also charges over $400/mo for the product, well out of reach of your typical user.

So where would Comcast do these kinds of upgrades? So far, it’s primarily in areas with only one wireline competitor that offers somewhat comparable speeds. To date, that means areas with Verizon FiOS. Tiers beyond 105Mbps haven’t shown up anywhere in Utah outside of Provo. Even there, Comcast won’t go beyond what their current 8-channel DOCSIS 3.0 deployment is capable of. Areas with CenturyLink DSL? No need to surpass 50Mbps at most. ADSL2+? 105Mbps is faster enough to keep their heads above water. Areas with gigabit fiber? Invest the bare minimum needed to get low-end users on the cheap because they know they can’t match the speeds.

What we’re seeing in Provo is all Comcast has got: pushing the system to and sometimes past its reasonable limits, and yet still falling woefully short. With a poor reputation for customer service and CenturyLink ceding markets, it seems obvious that Comcast is about to enter a slow bleed phase with very limited upgrades targeted at areas without gigabit fiber. Funny, that sounds a lot like what CenturyLink is now.

Not Just Copper: Is CenturyLink slowly withdrawing from the residential wireline market entirely?

CenturyLinkAlmost all of our broadband heartburn comes from uncompetitive markets. Even in areas with at least two wireline competitors (which is only about 95% of the urbanized Wasatch Front), you’re usually stuck picking between faster speeds from Comcast and cheaper speeds from CenturyLink. I’ve already written that it’s looking like CenturyLink is going to let copper die without a replacement, but it’s entirely possible they just want to get out of the residential market entirely. This would be a nightmare for competitive choice in our state.

Do you remember the last time CenturyLink upgraded their ADSL2+ product? I do; it was 2009. The year before, they stopped doing FTTN deployments entirely, occasionally lighting a new FTTN node here or there. Most of the Wasatch Front is still limited to 7Mbps ADSL with real-world performance usually coming in much less than that. I know people in Sandy that struggle to squeeze 3Mbps out of that aging copper. It makes CenturyLink’s claims of doing their own gigabit fiber seem pretty hollow and underscores that their main purpose in deploying FTTN may have been to try clubbing competitors in the kneecaps.

Just look at how CenturyLink has been not responding to competitive threats. In Provo, Comcast very quickly pushed their system to its absolute limits with a 250Mbps/50Mbps tier that price-matches Google. What did CenturyLink do? Nothing. They haven’t uttered a single word about doing any kind of upgrades in Provo at all. Who can blame them? It would cost them tens of millions of dollars to go after a customer base that hates them. The ROI would be so far out as to be disastrous. It’s noteworthy that the only places CenturyLink has announced doing FTTH have been duopoly markets, places with a more-or-less captive customer base. Given their non-response to Veracity rolling their own ADSL2+ using CenturyLink cabinets, this isn’t too surprising.

At the same time, CenturyLink has been chasing down deals to build fiber to cell towers and focusing heavily on their business services through acquisitions like Savvis. These premium services command much greater profit margins and more stable user bases than residential markets, plus they can easily convince businesses to pay the full cost of installing the latest technology. Even when the fiber to cell towers goes into residential areas, CenturyLink has been noncommittal about using it to upgrade DSL users to better speeds or technologies. It seems very strange to not want to use the investment to upgrade other services. I’d usually say they just don’t have the money, but they just approved spending $1B on a stock buyback program, money that would deploy gigabit fiber to as many as 1M homes and businesses.

This all paints a very disturbing picture for the future of telecommunications where open access systems like UTOPIA aren’t or won’t be available: Comcast will be the only real ISP for most users, and cities who go with Google Fiber will be right back into the “fast vs cheap” duopoly they hate so much right now. This is one of the many reasons why I’ve been so sour on both Provo and Salt Lake City for going with Google instead of fixing the underlying anticompetitive problems in the telecommunications space. Why would you expect Google to be any better than Comcast when they no longer really have to work for your business?

Feeling the Google Heat: Comcast will bump speeds to 250Mbps/50Mbps in Provo

Competition is good, and Comcast is just now proving it. I spoke with one of their sales guys who confirmed that Comcast will be offering a package of 250Mbps/50Mbps for $70 starting in September, but only in Provo. (Sorry, everywhere else.) This is in direct response to Google Fiber coming to town and will include a new modem with a built-in 802.11ac router to take advantage of the speed bump. It’s unknown if this speed tier will land in any other cities in the future.

This is yet another story proving that having a fiber network in your town benefits everyone, not just subscribers.

Is CenturyLink About to Ditch Copper?

CenturyLinkIt’s no small secret that Verizon has been working really, really hard to ditch copper access lines. In areas where they haven’t rolled out FIOS, they’re letting older copper plants rot on the vine, ceding the wired space in those communities to the local cable companies. In areas of New York where Hurricane Sandy wiped out the copper plant, they’re flat-out refusing to rebuild any landlines, instead offering a high-margin fixed wireless service.

AT&T hasn’t been too much better. Their anemic speeds on FTTN constantly lag behind their cable counterparts. Like Verizon, most of their money comes from wireless operations, so that’s where their efforts have been focused. In fact, when was the last time you heard anything about U-Verse in the news?

It seems to me that CenturyLink is ready to follow suit. They recently announced that they would be building fiber to 19-20K cell towers in their service areas. I can’t say I blame them. This is a highly profitable business, one that I wish UTOPIA or its providers could crack. Given the slow and steady loss of both landlines and broadband customers (the latter due to a lack of network upgrades), I’m sure they’re looking at whatever boosts the bottom line.

You’ll note, however, that upgrading DSL users to ADSL2+, their FTTN solution, is a footnote. Their CFO and SVP more-or-less states it outright:

“We try to design the routes to bring fiber to the towers to where they can serve other needs that we have to in terms of providing fiber closer to business customers and closer to residential customers to provide some of the higher bandwidth services,” Ewing said.

That’s right: CenturyLink is stating rather plainly that their main concern is to get fiber to those cell towers, then, if it’s “feasible” (read: dirt cheap), you can have the leftover table scraps. Cable companies (and most other phone companies) have posted subscriber gains in broadband, yet CenturyLink, who hasn’t upgraded speeds past 40Mbps since 2009, is losing thousands of customers per quarter. Odds are good that any areas getting this fiber will just now be moving off of vanilla DSL to the same 40Mbps speed (or lower) that they’ve been pushing for the last four years. When Comcast is pushing 105Mbps and UTOPIA and Google Fiber are doing gigabit, how is it anything but a giant middle finger to current and potential customers?

CenturyLink is choosing to let copper customers loose for the same reasons that Verizon and AT&T are: it’s expensive to provide service, and they can make the same or more money from wireless (albeit on different ends) with lower costs and a lot less competition. The copper network has paid for itself many times over, so writing it off as it continues to degrade is no big deal. The money they invest in cell towers has a much better ROI than investing in wireline services, so what limited funds they have will be going there.

This isn’t just a problem for CenturyLink customers. As they slowly back away from consumers and shift their core business to wholesale transport for other businesses, most users in Utah will be left with just the cable company, Comcast, to fill the void. With only a single wireline provider in most of the state, speeds will stagnate, prices will rise, and service will worsen. When there’s no incentive to compete, why would you?

Comcast’s $10 Service is Smoke and Mirrors

One of the conditions placed upon Comcast’s purchase of NBC Universal was to start offering a cost-conscious Internet plan for low-income households. This also includes a plan to offer cheap PCs to those families so that they can actually use the service. As with any deal, though, the devil is in the details. Upon closer examination, it would appear that Comcast has simply found a way to create a new revenue stream with some great PR. Combined with the stringent terms of use, it’s obvious that the entire thing is puffed up well beyond what it actually is.

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Despite speed bumps, Comcast just can’t compete with UTOPIA

Comcast is still trying desperately to stay in the high-speed game, but they just can’t quite seem to pull it off. Their fastest tiers are now 105M/10M and 50M/10M, but with more than a few caveats. Both are $100/mo, but the faster tier requires that you subscribe to at least one other service, and the price is only for 12 months. After that, it skyrockets to $130/mo for the next year and an unspecified price thereafter. So how do UTOPIA providers compare?

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Comcast Can’t Shake the Anti-P2P Legacy

Yesterday morning, the Internet went into a total tizzy when Comcast users found themselves unable to access the infamous torrent site ThePirateBay. Almost immediately, the accusations of intentional blocking spread like wildfire despite Comcast’s insistence that they aren’t doing anything. This reveals a pretty telling truth: Comcast’s foray into filtering traffic has done permanent and incalculable damage to the brand, even years after admitting to the blocking and putting an end to it.

Is Comcast blocking anything? I doubt it. They took such a big PR black eye the first time that they’re unlikely to be dumb enough to try it again. That the stain persists years later, however, shows what a bad move it is to manipulate user traffic. Let that be a warning to all service providers of the lasting consequences of abusing users.

Comcast, Netflix and Why Municipal Networks Matter

Comcast is apparently a bit of a slow learner. After getting publicly smacked about for tinkering with bitTorrent, they’ve really stepped in it now by messing with Netflix. The audience is much bigger than the guys running protocol analyzers on their connections; you’ve gone and upset regular folks too. (How do you see that one working out?) Unfortunately, this is playing out as badly as anyone can hope.

Comcast is unfortunately trying to realize the dream of Ed Whitacre by essentially double-dipping for data at a time when bandwidth is so cheap you can almost afford to give it away. Imagine if the phone company tried to charge you for making a call and the recipient on another phone network for receiving it. Can you imagine the uproar and outrage at attempting to bill someone that’s not even their customer? That’s what Comcast is essentially doing, trying to charge both sides of the transaction instead of providing you the service you already paid for.

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Salt Lake Tribune Employs Cable Industry Shill to Review UTOPIA Plan

The Salt Lake Tribune ran an article today about UTOPIA’s new business plan in which a Mr. Ron Rizzuto continually discounted it. The article cites that Mr. Rizzuto is a professor at the University of Denver; this is true. What is omitted, though, is much more telling. Mr. Rizzuto is a senior fellow at The Cable Center, an organization funded by the cable industry. Not only that, Comcast’s Executive Vice President, David L. Cohen, is a member of the organization’s board.

It’s not surprising that a cable industry shill would attempt to trash UTOPIA in the press. It’s not even surprising that he would attempt to portray himself as a dispassionate and disinterested third party. Both of these have been done time and time again, like when Heartland Institute’s Steven Titch did consulting work for Qwest and claimed it had no bearing on his harsh criticisms for iProvo and UTOPIA. If anything, I automatically expect some kind of conflict of interest to emerge from parties opposed to UTOPIA as so many of them will always act in their own financial best interests. (Utah Taxpayer’s Association, I’m looking at you.)

What is surprising, shameful, and downright embarrassing is that the Salt Lake Tribune didn’t spend the entire 2 minutes on Google required to find all of this out. Even if they did, they chose not to disclose it in their article. One of two things happened: they were either negligent in their journalistic duties or (and this is more likely) they are continuing to advance the position of the editorial board that UTOPIA cannot succeed. Whichever it is, I am deeply unimpressed.