AT&T’s residential market shortcomings

 

As AT&T would have it, the telecommunications giant is enthusiastic about serving the residential market and connecting homes to fiber. AT&T Communications CEO Jeff McElfresh told a Bank of America Merrill Lynch TMT Conference in June 2020 the company will increase its investment in fiber connections. "We are laser-like focused on finding the most efficient path to expanding the footprint of our fiber offerings," McElfresh said. "It's a great business. It's got great margins. It's got great returns. There's nothing not to like about it, and we're going to lean into it."

McElfresh’s comments represent a turnabout from a year earlier, when AT&T downplayed its residential fiber ambitions and dismissed hundreds of field technicians after completing a limited build out to meet regulatory obligations attached to its acquisition of DirecTV. "That's behind us now," McElfresh’s predecessor John Donovan told FierceTelecom. "We'll continue to invest in fiber, but we'll do it based on the incremental, economic case. We're not running to any household target."

For single family home neighborhoods, AT&T makes residential fiber available only to discrete pockets, reports industry observer Doug Dawson. AT&T also markets residential fiber to multifamily dwellings that require less capital investment and produce comparatively faster returns. One analyst suggests AT&T is weak at executing fiber build outs, unable or unwilling to focus on the necessary details of neighborhood telecommunications infrastructure deployment. (Jim Patterson, Curing AT&T’s Sickness, 10/12/20) Other analysts point to high debt on AT&T’s balance sheet that constrains its ability to finance a broad move into residential fiber.

In less dense exurban and rural neighborhoods, AT&T is phasing out its legacy ADSL service, halting new connections as of October 1, 2020. In these areas, AT&T offers fixed wireless residential service over its 4G LTE mobile infrastructure but with throughput limited to a small fraction of what a fiber connection could handle. Dawson notes the company has not actively marketed the service (most likely to preserve limited radio spectrum at the same time the company encourages high bandwidth video streaming). Moreover, the company was notably absent among bidders for the FCC’s recently closed Rural Digital Opportunities Fund (RDOF) subsidy reverse auction.

Where AT&T is building fiber to serve enterprise consumers (via dedicated Ethernet) it is not generally investing in premise drops and field distribution equipment to serve adjacent single family home residential neighborhoods. According to an October 2020 report by the Communications Workers of America, the labor union representing AT&T line technicians, and the National Digital Inclusion Alliance, 63 percent of 1,500 line technicians surveyed report that AT&T is not installing splitting equipment to enable home connections even where a fiber backbone exists.

With little focus on residential fiber, AT&T is instead looking to gain revenues in the consumer segment from streaming video and mobile wireless offerings as it experiences a steady decline in linear TV subscribers, legacy and wireline delivered services, according to Zacks Investment Research.

Will a Biden administration back publicly owned advanced telecommunications infrastructure as a means of attaining universal access and affordability?

Should former Vice President Joe Biden be deemed the winner of the presidency and a Biden administration installed early next year, the campaign’s policy positions on advanced telecommunications infrastructure reveal the outlines of how the new administration might proceed.

The overarching policy choice is between continuing the laisse faire policy of the past three decades of regarding Internet protocol-based telecommunications as a commercial market of “broadband” bandwidth. Or recognizing advanced telecommunications infrastructure as essential infrastructure like electric power and roads and highways.

Integral to the latter policy is recognizing the broad socio-economic benefits of advanced telecommunications infrastructure, known in economics as positive externalities. They are described as external because they lie outside the narrow interest of commercial investors to extract profits and rents from selling broadband bandwidth in a natural monopoly landline market. Those external benefits – and the lack thereof considering the nation’s substantial access and affordability challenges -- have become very apparent with the public health restrictions and social distancing accompanying the SARS-CoV-2 contagion that converted homes into offices, classrooms and clinics.

Key to attaining the broader external benefits of advanced telecommunications infrastructure is that it be universally accessible and affordable. As well as public ownership of advanced telecommunications infrastructure that eliminates the inherent conflict between the broader public interest and the narrow interest of investors to build it only where there’s a strong business case. What do the Biden campaign’s positions signal on these issues?

Biden’s campaign calls for “universal broadband access” as part of an initiative to modernize transportation and water infrastructure. Biden also recognizes the socio-economic benefit of universally accessible and affordable advanced telecommunications infrastructure:

“As the COVID-19 crisis has revealed, Americans everywhere need universal, reliable, affordable, and high-speed internet to do their jobs, participate equally in remote school learning and stay connected. This digital divide needs to be closed everywhere, from lower-income urban schools to rural America, to many older Americans as well as those living on tribal lands. Just like rural electrification several generations ago, universal broadband is long overdue and critical to broadly shared economic success.”

However, Biden does not explicitly call for publicly owned advanced telecommunications infrastructure as he has to improve access and affordability for non-group medical plans with a government operated “public option” plan. The Democratic Party campaign platform recommendations that Biden and Sen. Bernie Sanders jointly authored after Biden emerged as the Democratic Party presidential nominee calls for preempting state laws that prohibit municipalities and rural co-ops from building publicly-owned broadband networks and for increased federal support for municipally owned networks.

Should a Biden administration take office in January, it bears watching to what extent it supports publicly owned advanced telecommunications infrastructure as a means of attaining universal access and affordability.

Distinguishing between edge content provider market power and natural monopoly of telecom distribution infrastructure

The Tech Antitrust Problem No One Is Talking About | WIRED: 

After years of building political pressure for antitrust scrutiny of major tech companies, this month Congress and the US government delivered. The House Antitrust Subcommittee released a report accusing Apple, Amazon, Google, and Facebook of monopolistic behavior. The Department of Justice filed a complaint against Google alleging the company prevents consumers from sampling other search engines. The new fervor for tech antitrust has so far overlooked an equally obvious target: US broadband providers. “If you want to talk about a history of using gatekeeper power to harm competitors, there are few better examples,” says Gigi Sohn, a fellow at the Georgetown Law Institute for Technology Law & Policy.

When it comes to antitrust, it's important to distinguish between FAANG edge content providers and commercially owned and operated advanced telecommunications infrastructure. The major difference is the former isn't a natural monopoly. However, landline telecom infrastructure that connects to customer premises functions as a natural monopoly due to high capital cost barriers and long duration return on investment that tends to keep would be competitors out. Moreover, competition among multiple sellers isn't economically rational as Investopedia describes:

Multiple utility companies wouldn't be feasible since there would need to be multiple distribution networks such as sewer lines, electricity poles, and water pipes for each competitor. Since it's economically sensible to have utilities operate as natural monopolies, governments allow them to exist. However, the industry is heavily regulated to ensure that consumers get fair pricing and proper services.

In other words, competitive market forces cannot function to ensure access and value in a natural monopoly market. Both are frequently missing in advanced telecom distribution infrastructure, with uneven access due to sell side market failure.  

Antitrust assumes competition is possible and thus is intended to check a seller from attaining too much market power and promote competition. But it's an impossible undertaking in natural monopoly market like advanced telecom distribution infrastructure where competitive market forces don't come into play.