Accelerating implosion of pay TV will hasten AT&T exit from residential wireline

The accelerating implosion of subscription pay TV offerings will hasten AT&T’s exit from the residential wireline market segment and could also result in the telco’s withdrawal of its planned acquisition of satellite provider DirecTV announced in 2014.

AT&T offers video packages with its U-Verse-branded triple play Internet-video-voice product. With the DirecTV deal pending regulatory approval, AT&T hopes to expand its audience of potential viewers and consequently, boost its purchasing power with TV programming providers as negotiations with the programming providers have hardened in recent years.

Viewers have historically regarded the TV programming packages as a poor value for the money since they typically watch only a handful of a few hundred channels. Now they can stream only the video programming they desire via their Internet connections, disrupting the triple play revenue model.

In addition, AT&T’s U-Verse product is delivered to residences over its aging legacy last mile copper cable plant that offers far less bandwidth headroom -- much of it consumed by video -- than hybrid fiber-coax (HFC) cable plants. To keep technologically abreast of cable, AT&T would have to replace its copper plant with fiber. But it is unable to easily do so, constrained by shareholder expectations for earnings and high dividends that militate against substantial capital expenditures.

That leaves AT&T with only one viable option – to continue to sell off chucks of its residential market as it did in December 2014, spinning off its Connecticut residential landline unit, including Internet and TV services to Frontier Communications for $2 billion.

FCC’s Title II order adopts ultra light touch on net neutrality enforcement

While much of the media has been abuzz over the concept of net neutrality – the principle that all Internet traffic be treated equally – an initial review of the FCC’s report and order issued last week classifying Internet services as telecommunications services under Title II of the Communications Act indicates the regulatory agency is adopting a decidedly light touch approach on enforcing net neutrality. The question of whether net neutrality is being respected has arisen at interconnection between network layers, choke points specifically addressed in the FCC’s order and report.

Paragraph 4 states the order’s policy respecting net neutrality, described in the media as a ban on network providers creating paid fast lanes, drawing on the metaphor of toll lanes on a busy freeway:

4. The lesson of this period, and the overwhelming consensus on the record, is that  carefully-tailored rules to protect Internet openness will allow investment and innovation to continue to flourish. Consistent with that experience and the record built in this proceeding, today we adopt carefully-tailored rules that would prevent specific practices we know are harmful to Internet openness— blocking, throttling, and paid prioritization—as well as a strong standard of conduct designed to prevent the deployment of new practices that would harm Internet openness. We also enhance our transparency rule to ensure that consumers are fully informed as to whether the services they purchase are delivering what they expect.

Paragraph 30 however specifically declines to apply Title II rules to interconnection, noting frictions among commercial players have produced differing accounts of how Internet data traffic is being handled:

30. But this Order does not apply the open Internet rules to interconnection. Three factors  are critical in informing this approach to interconnection. First, the nature of Internet traffic, driven by massive consumption of video, has challenged traditional arrangements—placing more emphasis on the use of CDNs or even direct connections between content providers (like Netflix or Google) and last-mile broadband providers. Second, it is clear that consumers have been subject to degradation resulting from commercial disagreements, perhaps most notably in a series of disputes between Netflix and large last-mile broadband providers. But, third, the causes of past disruption and—just as importantly—the potential for future degradation through interconnection disputes—are reflected in very different narratives in the record.

At paragraph 31 of the order, the FCC opts for an information gathering stance vis a vis disputes over interconnection rather than a strong enforcement role:

31. While we have more than a decade’s worth of experience with last-mile practices, we lack a similar depth of background in the Internet traffic exchange context. Thus, we find that the best approach is to watch, learn, and act as required, but not intervene now, especially not with prescriptive rules. This Order—for the first time—provides authority to consider claims involving interconnection, a process that is sure to bring greater understanding to the Commission.

Levin's Law of Internet Infrastructure Inertia may prevail over FCC universal service mandate

This week’s report and order by the U.S. Federal Communications Commission that imposes a universal service requirement on Internet infrastructure providers may do little to over the next decade to ensure all premises have access to landline Internet connections.

As they did soon after the Communications Act was amended in 1996 requiring telephone companies to share their network infrastructures with competitive providers, the large telephone companies -- joined by cable companies – could challenge the rule in the courts and drag their feet implementing it.

They might also argue that they cannot afford to provide universal service within their service territories because there are insufficient subsidies given this week’s draft order defers enforcement of Section 254(d) of the Communications Act requiring telecommunications carriers to fund universal service.

With a generation of progress toward connecting all American premises with fiber already squandered, the associated delays could buy the big incumbent telephone and cable companies another 10 years or more of business as usual, allowing them to continue to cherry pick communities, neighborhoods and roads and streets they prefer to serve and redline those they reject.

That would leave Levin's Law of Internet Infrastructure Inertia* intact and the resulting entrenched disparate access to landline Internet service that leaves about one in five U.S. homes and small businesses unable to order service.

*Blair Levin, a former U.S Federal Communications Commission official and lead author of the FCC’s 2010 National Broadband Plan observed in 2012 that the major landline ISPs had no plans to improve and build out their infrastructures. “For most Americans, five years from now, the best network available to them will be the same network they have today," Levin stated.

FCC adopts Internet universal service obligation

Finding the United States needs improved Internet access, the U.S. Federal Communications Commission today released a report and order classifying Internet service as a common carrier telecommunications service under Title II of the Communications Act. That subjects Internet service providers (ISPs) to the same common carrier universal service obligations under which telephone companies operate, requiring them to provide connections to all customers requesting service in their service territories. Harold Feld of Public Knowledge recently termed universal service “the quintessential common-carrier obligation.”

Under prior FCC rules, Internet service was classified as an information service under Title I of the Act, relieving ISPs of the obligation to provide Internet service to any premise requesting it. Consequently, for more than a decade ISPs have effectively redlined communities, neighborhoods and even portions of roads and streets by not building out their infrastructures to serve them.

The FCC's reclassification of Internet as a Title II telecommunications service invokes Section 201(a) of the Communications Act:

"It shall be the duty of every common carrier engaged in interstate or foreign communication by wire or radio to furnish such communication service upon reasonable request therefor..."

The FCC's order and rulemaking also applies Section 254(b)(3) of the Communications Act that requires ISPs to provide access to advanced telecommunications in all regions of the nation:

(3) Access in rural and high cost areas

Consumers in all regions of the Nation, including low-income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services, including interexchange services and advanced telecommunications and information services, that are reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas.

The report and order also applies Section 214(e)(3) of the Communications Act, which empowers the FCC to "determine which common carrier or carriers are best able to provide such service to the requesting unserved community or portion thereof and shall order such carrier or carriers to provide such service for that unserved community or portion thereof."

In addition, within the scope of the FCC's action is Section 202 of the Act, which contains an anti-redlining provision barring providers from discriminating against localities in providing service. The report and order notes complaints of violations will be addressed on a case-by-case basis.

In applying most of Section 254 of the Act to ISPs, the FCC noted it rejected calls to delay or phase in its enforcement:

“Even prior to the classification of broadband Internet access service adopted here, the Commission already supported broadband services to schools, libraries, and health care providers and supported broadband-capable networks in high-cost areas. Broadband Internet access service was, and is, a key focus of those universal service policies, and classification today simply provides another statutory justification in support of these policies going forward. Under our broader section 10(a)(3) public interest analysis, the historical focus of our universal service policies on advancing end-users’ access to broadband Internet access service persuades us to give much less weight to arguments that we should proceed incrementally in this context… We therefore conclude that these universal service policy-making provisions of section 254, and the interrelated requirements of section 214(e), give us greater flexibility in pursuing those policies, and outweighs any limited incremental effects (if any) on broadband providers in this context. Because forbearance would not be in the public interest under section 10(a)(3), we apply these provisions of section 254 and 214(e) and our implementing rules with respect to broadband Internet access service.”

Unpacking USTelecom FCC forbearance petition: no obligation to continue copper plant

GN 14-126: USTelecom Comments on 2015 Broadband Progress Report | USTelecom: First, the Commission should grant the petition that USTelecom filed in October 2014 that seeks forbearance from various outdated regulatory requirements applicable only to incumbent local exchange carriers (“ILECs”). As USTelecom explained in its Forbearance Petition, unlike most broadband providers – including cable, wireless, and competitive fiber providers – ILECs are not free to focus their expenditures on next-generation networks designed to deliver the higher-speed broadband services customers increasingly crave; instead they “must direct a substantial portion of their expenditures to maintaining legacy networks and fulfilling regulatory mandates whose costs far exceed any benefits.”

USTelecom is correct in noting there's little point in investing in obsolete copper networks. But its petition to the U.S. Federal Communications Commission fails to cite any regulations that specifically require telephone companies to deliver services solely over copper and not fiber.

Instead, the filing appears to pick a bone with existing rules governing ILEC last mile network operations and access -- rules that are predicated on ILECs having a monopoly over last mile infrastructure. The petition does not explain how these rules operate to discourage investment to upgrade copper networks to fiber.

Expect more legacy incumbent telephone company complaints as the FCC adopts final rules later this year reclassifying Internet service as a common carrier utility under Title II of the Communications Act.

Rhode Island universal Internet service bill introduced

GoLocalProv | Chippendale: Homes Without Internet Access Leave Students Unable to Excel in School: Representative Michael Chippendale (R-Foster, Glocester, Coventry) has introduced legislation that would bring broadband internet to households that currently have no means of accessing it. The bill stipulates that “any public utility providing phone, cable television, or broadband internet service to 75% of the eligible residents of any single city or town shall make available said phone, cable television, or internet services to the remaining 25% of the city or town.” Also, “any broadband service provider which provides internet service to any city or town that is part of a school district that utilizes portable internet devices for student learning at home and has broadband internet provided to at least 25% of the eligible residents of any single city or town, must provide broadband internet service for all residents of the city or town.”

While the U.S. Federal Communications Commission appears to be passing on a universal Internet service obligation in its forthcoming final rules deeming ISPs as common telecommunications carriers under Title II of the Communications Act, this could be the first of a state-based movement to impose such a requirement.

It should be noted this is a limited universal access measure and won't help localities in the all too common scenario where ISPs commonly serve only the doughnut hole of half of all premises -- those close to the center of town -- but not those outside of the center.

Tennesseans want fiber Internet service

More and more areas of the United States are recognizing they need to build fiber telecommunications infrastructure just as they built their own roads and highways. The excerpts below from this story explain why and the growing political sentiment that is reaching a tipping point.

Farm Bureau backs EPB expansions | Local News | Times Free Press: Sen. Todd Gardenhire, R-Chattanooga, said he backs Bowling's bill because his top priority is getting high-speed Internet to rural areas of south Bradley County that are in his district. Some 800 families would benefit, he said.

He said Charter, Comcast and AT&T told him "it's not profitable" to do it. In Gardenhire's view, "private enterprise has given up on taking care of the people."

Some south Bradley Countians are less than a mile from EPB's service area but can't get its broadband, leaving them with dial-up service and a slow connection speed. Joyce Coltrin, whose wholesale nursery is in southern Bradley County, relies on her cellphone to access the Internet.

"It's very hard to use an iPhone for business," said Coltrin, who heads a group of 160 households who call themselves "citizens striving to be part of the 21st century." They, too, have been pushing state legislators to change the law.

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Wireless in particular "is capable of a tiny fraction of what fiber can deliver, with respect to speed, reliability, and capacity," she said. "Because of data caps and usage-based pricing, it's also very, very expensive for anyone who uses a lot of bandwidth, such as families who home-school and therefore require lots of online video." Saying that a community "doesn't need fiber because it has DSL or wireless is like saying that the nation doesn't need the Interstatehighway system because we have the Santa Fe trail," Hovis argued.