U.S. wireline broadband expansion hitting the wall

USA Today and many other media outlets are carrying an Associated Press story reporting a study by the Pew Internet and American Life Project shows the rate of broadband growth among American households is slowing sharply. Broadband adoption grew just 12 percent from March 2006 to March of this year compared to the 40 percent rate of the previous 12 months.

John Horrigan, Pew's associate director for research, says providers have picked the low hanging fruit. They now have to make substantial investments in their infrastructure to bring in more broadband customers since many households who don't use wireline broadband can't get it because it's not available.

Their prospects of getting it in the near term don't look good, which could produce even lower broadband adoption numbers when Pew and other think tanks report on broadband growth in 2008.

The results of the Pew study aren't surprising considering that AT&T appears to have all but halted deploying additional equipment necessary to expand its Digital Subscriber Line (DSL) service beyond three miles from the telco's central offices. Those who can't get DSL get pitched to sign up for inferior satellite Internet service via AT&T's reseller deal with WildBlue announced a year ago.

The other big player in the telco/cable duopoly, cable provider Comcast, also doesn't appear to be expanding its footprint in existing neighborhoods, concentrating instead on new home developments seen as good prospects for the company's bundled video, Internet and voice services.

Tales from the dark side of the digital divide, 95709

Nearly seven years ago, a postcard arrived in the mail from Internet Service provider EarthLink announcing that DSL was available in my El Dorado County, California neighborhood. That turned out to be premature — very premature. Seven years later and two years after a promising community meeting with a regional manager for the incumbent local exchange carrier (ILEC), then-SBC Communications and now AT&T, DSL is still not available despite fiber optic cable less than two miles away on a frontage road for a major U.S. highway. Nor is Comcast cable, which recently declined to extend its existing cable plant located a mile and a half away, citing a franchise agreement that allows it to skip neighborhoods that aren’t set up like densely developed common interest developments with zero lot lines.

Today, another postcard — actually the size of a flyer — arrived in the mail. This one from HughesNet satellite Internet and addressed to:

DIAL UP INTERNET USER AT
ADDRESS
CITY, STATE, ZIP

"Been overlooked by DSL and cable?” it asks. “Your high-speed Internet solution has arrived."

Judging from a neighbor’s experience with HughesNet, I hardly think so. It’s maddenly sluggish and not surprisingly so considering each keystroke to load a Web page must make a 46,000 mile round trip up to the HughesNet satellite and back down to the surface. For months, about 20 percent of his inbound email wouldn’t download to his Outlook Express program. So we installed Thunderbird mail as an alternative. The emails came in OK, but nothing would go out.

We spent two hours on the phone with some incompetent HughesNet support guy in Bangalore who couldn't solve the problem. So my neighbor is now relegated to using HughesNet’s crappy Web-based mail program. That’s not all. About a month ago, his granddaughter downloaded a TV program and HughesNet responded by throttling down the throughput to dialup speed as punishment for using too much bandwidth since it has too many ex-dialup desperados trying to cram onto too little HughesNet bandwidth. Many of these ex-dialuggers including my neighbor — large numbers of them seniors simply seeking a viable Internet connection to share pics with the grandkids — have been sucked into signing two-year contracts for what more aptly should be dubbed “MolassesNet” on steroids.

I imagine in another two years, another postcard will arrive in the mail addressed to:

DIAL UP INTERNET USER AT
ADDRESS
CITY, STATE, ZIP

Colorado video franchise fight reveals true goal of provider "competition," Comcast's hypocrisy

Here's an interesting story from the Rocky Mountain News that illustrates what the real competition between cable companies and telcos is all about. It's not about which can capture the most customers in a given market -- the traditional measure of market competition -- but rather who can force the other guy to provide service to everyone in a given local government jurisdiction.

Cable provider Comcast insists Denver-based telco Qwest be required to provide broadband video service to everyone in the Colorado municipalities it wants to serve, charging Qwest will leave some neighborhoods unserved if local governments don't require it to do so in exchange for granting Qwest a video franchise. (Note however, hypocritical Comcast does exactly what it accuses Qwest of doing, including in my own El Dorado County, California ZIP code where Comcast serves some neighborhoods but refuses to serve others).

If Colorado local governments force Qwest to serve their entire jurisdictions, the Rocky Mountain News reports Qwest may counter by invoking a recently promulgated Federal Communications Commission rule that Qwest sought prohibiting local governments from imposing "unreasonable" build out requirements on telephone companies seeking franchises to offer enhanced broadband-based video services. The rule also requires local governments to make a decision on a video franchise application within 90 days.

If Qwest presses ahead with this reported effort to accelerate local government video franchise applications, it will set the stage for litigation over the meaning of what constitutes an "unreasonable" build out requirement under the FCC rule. Local governments have already gone to federal court to challenge the rule, contending the FCC overstepped its authority.

Qwest's initiative also marks a quick reversal of a strategy announced earlier this month by CEO Richard Notebaert, who told Bloomberg Qwest planned to hold off offering video over phone lines, concentrating instead on accelerating residential broadband Internet access.

California's AB 2987: Market competition in a tightly limited market

I agree in concept with Pacific Research Institute think tanker and TechNewsWorld columnist Sonia Arrison that allowing telcos to compete with cable companies for broadband video services as California's recently enacted Digital Infrastructure and Video Competition Act (AB 2987) provides is good public policy in that it spurs some degree of market competition. "California lawmakers -- and others across the nation -- would do well to learn from the success of cable franchise reform and discard recycled proposals to over-regulate the technology sector," Arrison opines.

The problem is that competition is geographically restricted, playing out in a limited market where both the telco and cable provider have a presence. Consumers not in these proscribed markets don't benefit from the increased competition envisioned by AB 2987.

In California and most states, there exists a de facto duopoly in which the big telcos and cable companies like AT&T and Comcast have the market all to themselves. There are few if any other competitors nipping at their heels and forcing them to provide more and improved services.

Exhibit A is the large number of broadband black holes that exist in California where hapless residents can't get broadband Internet access from their telco (who in AT&T's case tells them to "go suck a satellite") or from the cable provider (upon whose maps these would be customers simply don't exist). Here, AB 2987 fails to spur competition and better services and does nothing to expand broadband services to unserved areas of the Golden State since the legislation allows the telco/cable duopoly to offer services to just half of potential customers by 2012. That effectively locks the providers into the market they presently serve, creating two separate but unequal Californias -- one with broadband Internet access and the other without.

Comcast should expand service area as well as access speeds

Roberts went on to demonstrate how wideband can download four gigabytes of data, the entire Encyclopedia Britannica Library--55 million words and more--in just under four minutes. It would take a traditional cable modem about three hours and a dial-up connection two weeks to download the same amount of data, which Roberts said is equivalent to how much the average family consumes online a month.

“It’s kind of mind boggling to think what you’d be able to do with that speed,” said Roberts.

In the short term, Roberts and his fellow cable operators plan to use that speed to continue to hammer away at the competitive threat from both the telcos and satellite with their triple-play offering of video, broadband and voice services.

Satellite Internet with triple play? What planet is Roberts living on? Satellite Internet is crippled broadband, with sluggish connections and high latency that can't even support Voice Over Internet Protocol (VOIP). As for the telcos, the only real threat is Verizon if it continues to speed deployment of Fiber To The Home (FTTN). If Comcast really wants to compete with the telcos and satellite, it should expand its coverage to those areas where residents are stuck with a Hobson's choice of dial up over aging telco copper cable or satellite.

Will Comcast seek California state charter?

As demand for broadband Internet access grows, California municipalities and counties will invariably find themselves under pressure to amend franchise agreements with cable companies like Comcast to require them to extend service to neighborhoods lacking cable access. Even areas where AT&T and other telcos provide broadband via Digital Subscriber Line (DSL) could clamor for cable service since it offers a proven bundle of television and Internet access at speeds higher than DSL.

But if they do, will Comcast and other cable providers tell California local governments to take a hike and opt to obtain a statewide franchise under legislation that took effect earlier this year, the Digital Infrastructure and Video Competition Act of 2006?

Enacted last year as AB 2987, the law allows both cable and telephone companies to bypass local governments and instead obtain authority to offer video-capable broadband through franchises issued by the California Public Utilities Commission (CPUC). But AB 2987 also allows cable companies to operate under existing local government franchise agreements if they choose. So far, Comcast is doing just that and has not applied for a statewide franchise from the CPUC. (To date, only one cable provider, Cox Communications, has applied for a statewide franchise.)

If enough California local governments pressure Comcast to build out its cable plant to provide service to more neighborhoods, Comcast could well opt for a state charter under AB 2987. The reason: the law has very limited build out requirements that require providers serve only half of their regional service areas by 2012. Opting for a statewide franchise would provide Comcast and other cable providers an easy exit from local political pressure to expand broadband access.

How Comcast perpetuates broadband black holes

Even though it’s now free to expand its service area and apply for a statewide franchise from the California Public Utilities Commission, so far cable provider Comcast has not. It could be because it prefers to remain under existing franchises issued by local governments that impose no future build out requirements. California’s Digital Infrastructure and Video Competition Act of 2006 (AB 2987), signed into law last year by Gov. Arnold Schwarzenegger, allows cable providers to do so if they choose.

In El Dorado County, for example, county supervisors sold out their constituents’ interests by allowing Comcast to operate under an urban gridline model. That component of the franchise agreement between Comcast and the county requires service only be provided only in areas where a large number of homes exist as measured by linear road mile.

The problem is El Dorado County isn’t laid out that way. There are many curved roads that measured linearly are longer than relatively straight roads with too few homes to meet the minimum under the franchise agreement. They connect neighborhoods that might otherwise qualify for service since they have same approximate density of homes as those situated along relatively straight thoroughfares.

Comcast could extend service to these cut off areas, but declines to make the investment necessary to reach them. It insists on sticking with an urban gridline model that’s inappropriate for a place like El Dorado County and only serves to perpetuate the many broadband black holes that exist there.

Content providers could make a big play for the pipes

When television was a relatively new technology, mass communications theorist Marshall McLuhan predicted it would produce an electronic global village linked together by a medium so powerful that the medium itself would be as important as its content. Thus, McLuhan famously pronounced in his 1964 book Understanding Media: The Extensions of Man, “the medium is the message.”

If McLuhan were alive today, he’d surely say the same about Internet and with great emphasis. It’s become such a powerful global medium that it’s threatening to reshape TV itself along with other traditional media outlets such as radio and print publications. Because the Internet can transport all forms of communication and do so interactively, it’s arguably McLuhan’s uber medium. It’s no wonder that newspapers, television and radio are paying homage to the Internet, scrambling to get their content on it.

Given the power of this emerging medium, expect to see content providers to take a greater stake in owning Internet infrastructure directly as cable provider Comcast already does. Last year, News Corp. owner Rupert Murdoch complained about the current patchwork state of Internet access, with large numbers of people unable to obtain broadband connections to the Internet. Murdoch and other media titans could end up making plays for telcos and cable companies to speed broadband deployment in order to reach larger audiences for their content.

If they were joined by big Internet content amalgamators Yahoo! and Google, their economic power would be enormous, able to finance a crash program to upgrade the nation’s infrastructure to support near universal broadband access. It’s also quite conceivable that the debate over network neutrality in which the cable and telcos claim they should be able to charge media content providers for access to their systems (net neutrality advocates say they shouldn’t) could provoke media content providers to launch hostile takeovers of big telcos and cable companies. You want to charge us to use your pipes? Forget about it; we want those pipes!

Telcos like Verizon that are putting in fiber optic based systems that offer adequate bandwidth to easily carry all types of Internet content now and in the near future will likely be the most attractive takeover targets. By contrast, AT&T’s strategy utilizing both fiber and its legacy copper cable plant could make it a less attractive target for a media company. But Ma Bell would certainly have to be on the list by virtue of her sheer size and ownership of vast swaths of the nation’s Internet infrastructure.