Comcast to customer in UTOPIA cities: “drop dead, here’s a rate hike”

Comcast-LogoIn a somewhat shocking move, Comcast has recently released a rate table showing that it’s giving every one of its customers in UTOPIA cities (and just UTOPIA cities) a rate hike just days after the deadline to respond to the Macquarie deal. With several cities still set to vote, you have to wonder what they would have to gain by underscoring UTOPIA’s points about a competitive marketplace. You may recall they slashed rates to the bone in Provo when Google Fiber moved in.

One theory is that they may be trying to lock customers into long-term contracts in exchange for lower rates. If that’s the case, it’s the same way they’ve tried to starve out competitors in other markets Standard Oil style. This only underscores how grossly anti-competitive the telecommunications market is.

Here’s a full chart of the rate increases:

Comcast Rate Hikes

Utah Taxpayers Association Launches Sophmoric “uNOpia” Site Opposing Macquarie Deal

Utah Taxpayers AssociationSurprising exactly nobody, the Utah Taxpayers Association has launched an effort to try and derail the Macquarie deal using misinformation, half-truths, and outright lies. Using the sophomoric name “uNOpia“, they falsely claim that the deal will cost more (when it is actually less than selling), that those who can’t afford the utility fee will be forced to pay it (when the deal includes waivers for the indigent), and that cities lose all control of how the deal works (when it’s all hammered out in a contract). The lies are blatant hysteria designed to whip people into an unhinged frenzy, exactly the same as they’ve done time and time again on anything UTOPIA.

The best thing you can do is make sure you show up at public meetings and counter the misinformation campaign paid for by incumbents CenturyLink and Comcast. It’s time for these hatchetmen to take a seat and let the adults in the room speak.

Is Macquarie a good deal for UTOPIA cities? The math says yes

It’s not very surprising to see Royce Van Tassell attack UTOPIA and its proposed deal with Macquarie. He is, after all, vice president of the Utah Taxpayers Association, a group that receives contributions from Comcast and CenturyLink. It is surprising, though, to see him make up his own facts and numbers. A fair look shows that the deal is much better than Macquarie is willing to say out loud.

A lot of hay has been made over the requirement in the deal to have the utility fee rise with CPI. The criticisms, however, assume that the cost to provide service and the revenues from subscribers are both static. Why is it a reasonable assumption that neither of these things will also rise with inflation? It isn’t, so inflation is entirely a non-argument.

Royce also gets some very basic facts wrong about the deal. This covers 163K addresses, not 157K. Macquarie has stated clearly that the utility fee will include network refreshes every seven years at a cost of about $60M each time, but he’s claiming that it’s not included and that equipment refreshes will happen as often as every three years. Royce claims that upgrades will be incredibly expensive, yet 100Mbps electronics from 10 years ago were more expensive than 1Gbps electronics are today. There are so many errors of fact in his op-ed that it’s hard to take any of his conclusions seriously.

And so let me break down the very simple math of how the deal works and what it will actually cost subscribers.

Let’s take a worst case-scenario first. Assuming a take rate of only 30% and a utility fee of $20, the total cost of the Macquarie deal will be $1173.6M while revenues are estimated to be $1000M. Less $500M to pay for the existing bond obligations, you’re looking at a total cost over 30 years of $673.6M or an effective utility fee of $11.48 per month per address. That’s a lot less than the stated fee.

But what about the best case scenario? That’s assuming a take rate of 50% and a utility fee of $18. This brings the total cost to $1056.2M and total revenues to $1500M. Less the $500M for existing bond obligations, you’re looking at $56.2M over 30 years or a scant $0.96 per month per address. It’s pretty hard to get upset over a fee that small.

So really, it all depends on the take rate. The question is what take rate we can reasonably expect. Brigham City got a 28% take rate with a $3000 installation charge, but Macquarie will eliminate it. Provo managed to keep 35% despite having disastrously bad providers like MSTAR and Broadweave, but Macquarie has well-respected ISPs like XMission, Veracity, and many other local companies. If Macquarie achieves this take rate, the cities hit the “wash” point where their costs are the same whether or not they opt to go with the deal. That point is about at a 38% take rate. I’d like to think just about anyone can do 3% better than Provo.

Even at the point where the deal is a wash financially, cities still get a completed network with an included basic level of service for every resident. Comcast and CenturyLink will slash their prices substantially in response to the competition (at least 50% in Provo) so that every citizen benefits regardless of if they use the network. Even for someone with a very basic Internet connection that wouldn’t use the network, they would be paying no more than $11.48 to potentially save at least $15, a net gain. The cities also get a $100M annual revenue stream at the end of the 30-year contract, effectively making the worst case scenario break even after less than seven years of ownership.

Given the very easily attainable goals and the high likelihood of reaching them, it would be ridiculous for cities to not move forward with negotiations under Milestone Two. Or to listen to a naysayer like Mr. Van Tassell that’s paid to say the things he says.

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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