New Proposal for Freeing Up 370 MHz of C-Band Spectrum for U.S. 5G

ACA Connects, the Competitive Carriers Association (“CCA”), and Charter Communications have filed a new proposal for clearing C-band spectrum with the Federal Communications Commission.

The proposal proposes to free up at least 370 megahertz, while satisfying incumbent user requirements for C-band video delivery, compensating satellite users and providing an alternative way for users to replicate their C-band requirements. 

As always, each proposal, while clearing spectrum, also serves the discrete financial interests of each proposing group. The straw man proposal by the C-Band Alliance releases a much-smaller amount of spectrum, raises the value of the remainder of the spectrum C-Band Alliance members would hold, and also creates scarcity of C-band spectrum, which raises likely prices for any auction of the assets.

The new proposal by ACA Connects, CCA and Charter likewise provides benefits. It would create a big national fiber transport network that also provides other advantages for the cable operators and programming networks in providing data services, for example. 

source: Cartesian

“C-band customers and earth station users made whole and given long term certainty through funding (subject to true up) and reimbursement of certain costs: a. For all multichannel video program distributor (“MVPD”) C-band users and MVPD programmers to transition off the C-band, funding and reimbursement to include the cost of redundant, future-proof assets that they would own and operate (fiber construction in some cases and Indefeasible Rights of Use (“IRUs”) in others); and b. For all satellite industry providers and existing C-band users that remain on the C-band, funding and reimbursement to include the costs of transitioning to a reduced amount of spectrum for continued satellite service,” the filing notes.

In other words, the consortium shifts spectrum use from video to 5G in a way that gives the cable operators funding for, and control of, a new national optical fiber transport network that supports all their current and future services. 

FCC Prepares to Limit Franchise Fees

Since the mid-1980s, municipalities have collected franchise fees from cable operators providing video entertainment services, as cable operators use municipal rights of way. Those fees traditionally are set on a “percent of gross revenue basis.”

The new issue is whether the “percent of revenues” formula applies solely to video services or also includes communication services. The other issue is whether the statutory five-percent maximum franchise fee includes both cash and other in-kind payments. 

The U.S. Federal Communications Commission plans to address those issues at its August 2019 meeting. 

The new rules would prohibit franchising authorities from using their video franchising authority to regulate most non-cable services, including broadband Internet service, offered over cable systems by incumbent cable operators. 

New rules would treat video-related, in-kind contributions required by franchises as well as cash payments as part of the statutory five-percent franchise fee cap.

The new rules also would preempt any imposition of fees on a franchised cable operator that exceeds the formula set forth in section 622(b) of the Cable Television Consumer Protection and Competition Act of 1992, and the rulings contained in the Third Report and Order, whether called as a “franchise” fee, “right-of-access” fee, or a fee on non-cable (telecommunications or broadband) services.

The new rules would also bar additional franchise requirements for providing communications services once a cable operator already has a franchise agreement for video.

The thinking here is broadly that incentives to invest in internet access and other communications services are discouraged when new taxes on gross revenue up to five percent are levied--in the form of franchise fees--on the additional gross revenues from those services. 

The background is that franchising agreements often include requirements that cable operators provide free cable and broadband service to government or educational entities, construction of special fiber networks to government buildings, and payments for public access channels that seldom are watched. 

The issue now is whether that franchise fee applies to all services cable operators deliver over their cable systems--including internet access, voice services, public Wi-Fi, mobile service or other enterprise special access connections-- even if the operator has already paid for access to the right of way. 

Some franchise authorities, such as Los Angeles, are piling up surpluses because the city is not sure how to spend the franchise fee collections, some note. 

As often is the case, financial interests collide. U.S. cable TV revenues peaked in 2010 or 2011 at about $54 billion and are predicted to fall to $36.75 billion by 2023, by some estimates. 

source: Bloomberg

Regulators naturally want to replace that lost revenue (a percentage of gross revenue) by tapping communications services covered by other regulatory rules (Communications Act of 1934, as amended). 

Cable operators in turn argue they already have paid for use of rights of way for a single network that now provides multiple services. 

A "Hellishly Difficult" Challenge

Some argue that most countries can supply their current energy requirements using only

renewable sources. Others disagree. 

But that is probably not the right question. The bigger questions are whether future energy consumption requirements can be met, using renewable sources, and whether the historic correlation between energy consumption and economic development can be broken. 

What is not so clear--and will require both lots of human ingenuity and some technology development--is whether most nations can improve living standardsf or their people while at the same time reducing carbon and other footprints.

It is likely to be hellishly difficult. Some will argue we do not need “growth.” Others will argue that is an immoral position, where it comes to most people of the developing world. 

source: Anthropocene

As Dennis Anderson argues in the UN Development Program’s Energy and Economic Prosperity, modern, abundant energy can improve living standards of billions of people, especially in the developing world, who lack access to services or whose consumption levels are far below those in industrialized countries.

But that means energy production and consumption levels far above what we now experience. 

"No country has been able to raise per capita incomes from low levels without increasing its commercial energy use," said Anderson.  

source: United Nations

The issue is whether that correlation can change, allowing development at lower levels of energy consumption. That is where the ingenuity and technology development will be required.

Do International Rankings of Internet or Mobile Access Speed Mean Very Much?

The United States never ranks at the top of countries for mobile internet access speeds. It never ranks at the top for fixed network internet access either. The United States never ranked at the very top for voice service adoption, either. Some would say such rankings do not matter.

The whole point of having communications capabilities generally is to support social, economic and other goods that we believe come with good communications. Deficiencies such as “lack of coverage” or service quality (audio quality, internet access speed) are therefore problematic since those conditions might hinder desired social and economic outcomes.

The rankings, per se, do not matter much. What matters is the ability to wring value from such capabilities. And while there is a generalized correlation between mobile internet access speed and measures of economic strength, the correlations are not necessarily causal. 

source: MGM Research

Whatever combination of factors “causes” economic well-being, it is impossible to say what percentage of economic health is produced by any single input element. Few would likely question the assertion that the U.S. economy is large and robust, despite never ranking at the top of measures of communications supply. 

Nor, some might well argue, can ranking at the top of measures of internet access speed propel most economies much further than they can, based on all the other background factors (population size, for example).

Fixed Networks are the Mainstay, but Mobile-Only Households are Growing

A rational observer would have to agree that fixed network internet access will remain the mainstay for most consumers. Still, in 2017, about 19 percent of U.S. homes were mobile-only for internet access, so there are a significant number of use cases where mobile data is deemed a reasonable choice. In 2019, 20 percent of U.S. homes are mobile only. 

source: Pew Research Center

High Altitude Pseudo Satellite (Drone) for 5G

Lanai to See Test of Solar-Powered Drone for 5G Service

A solar-powered unmanned aerial vehicle developed by SoftBank and built by U.S. drone manufacturer AeroVironment will test 5G delivery over the island of Lanai, Hawaii. The Hawk 30 High-Altitude Pseudo-Satellite drone is in the same family of aircraft developed by NASA. 

The University of Hawaii Research Organization has a support agreement with program sponsor HAPSMobile Inc. to perform the test project on Lanai. SoftBank Corp., Loon LLC and AeroVironment also are involved in the project.

source: NASA

Service Providers Believe Enterprise Will Generate Most New 5G Revenue

With the caveat that service provider executives can be collectively wrong at times, there is fairly broad concurrence that new revenue sources in the 5G era will come from enterprise use cases, according to GSMA. 

source: Cisco

How Do You Build a Communications Network at Population Density of 6 People Per Square Mile?

As rural areas have the lowest population density, and since communications network costs are density related, American Indian reservations are tough places to finance communication networks. By some estimates, the most-difficult places to connect are homes in the last two percent of locations, representing the most-isolated areas. 

The average population density for the U.S. is approximately 345 persons per square mile. The Navajo Nation has a population density of 6.33 persons per square mile. That means the business model is not only astoundingly difficult, it likely can be characterized as non-existent. In other words, service can only be provided if subsidies are provided, since there actually is no positive business case. 

Assume 55 locations per square mile, and two fixed network suppliers in each area. That means a theoretical maximum of 27 customers per square mile, if buying is at 100 percent. Assume for the moment that buying rates really are at 100 percent. Two equally skilled competitors might expect to split the market, so each provider, theoretically, gets 27 accounts per square mile.

At average revenue of perhaps $75 a month, that means total revenue of about $2025 a month, per square mile, or $24,300 per year, for all the customers in a square mile.

The network reaching all homes in that square mile might cost an average of $23,500 per home, or about $1.3 million.

At 50 percent adoption, that works out to roughly $47,000 per account in a square mile, against revenue of $900 per account, per year. Over 10 years, revenue per account amounts to $9,000.

The business case does not exist, without subsidies. The business case is, of course, far worse at densities of 6.33 persons per square mile. As one engineering analysis noted, “areas with a density density of less than 10 households per square mile (survey areas C, D, and F) are unlikely to see investment from the private sector.”

In rural areas everywhere, there are two fundamental reasons mobile networks have a better business case than fixed networks: customers want service and network costs are lower than for fixed networks.

CEO of Genexis on FTTH in United Kingdom

Gerlas van den Hoven, CEO of Genexis on full fiber connectivity in the United Kingdom. As an industry mentor once told me, a few decades ago, "fiber to the home is the future, and always will be." He was joking, but only in a sense. Since then, in the U.S. market, hybrid fiber coax has become the market leader for fixed network internet access, with service almost ubiquitously at 1 Gbps, and a roadmap to 10 Gbps. Other options keep popping up, and some might eventually become commercial forces.

In some markets, FTTH provided by a single wholesale provider might be the future. The issue is, when does it stop being the future, in the sense of finally being deployed as commonly as copper was. And, if the access market remains competitive, what is the financial return?

"Fiber to where you can make money" is my own formulation, when markets are seriously competitive.

The Earth is Getting Greener, Because of Higher CO2

Science is pretty amazing. Without minimizing carbon dioxide levels in the atmosphere, which can cause warming, carbon dioxide also is food for plants. That might explain why plant coverage now is increasing. 

Enterprise AI is in Early Stages, Expect Disappointment

A recent International Data Corporation survey of global organizations that are already using artificial intelligence solutions found only 25 percent have developed an enterprise-wide AI strategy. 

It is likely very few enterprises had comprehensive personal computing or local area networking strategies in place in the early days, either. In fact, one might be safe in arguing that productivity paradox will continue to hold, and that quantifiable benefits from a shift to AI-enabled processes will lage investment by quite some degree.

The primary drivers behind these organizations' AI initiatives were to improve productivity, business agility, and customer satisfaction via automation, IDC researchers say. 

Faster time to market with new products and services was another leading reason for implementing AI. 

As always, though, there is a lag between capital investment in new technologies and tangible business results, if only since entire business processes must be redesigned before the full advantage can be gained. 

So much disappointment with the outcomes of AI are to be expected. Quite often, big new information technology projects or technologies fail to produce the expected gains. 

That “productivity paradox,” where high spending does not lead in any measurable way to productivity gains, is likely to happen with artificial intelligence and machine learning, at least in the early going. And that “early going” period can last far longer than many believe.

To note just one example, much of the current economic impact of “better computing and communications” is what many would have expected at the turn of the century, before the “dot com” meltdown. Amazon, cloud computing in general, Uber, Airbnb and the shift of internet activity to mobile use cases in general provide examples.

But that lag was more than 15 years in coming. Nor is that unusual. Many would note that similar lags in impact happened with enterprises invested in information technology in the 1980s and 1990s.

So prepare now: artificial intelligence and machine learning are eventually going to have the impact many now expect. It simply will take far longer than many expect.

No doubt, spending is growing. Some surveys suggest enterprises have dived into machine learning (artificial intelligence).

Half of those adopting machine learning are looking for insights they can use to improve their core businesses. About 46 percent report they are looking for ways to gain greater competitive advantage. Some 45 percent are looking for faster gleanings of insight. And 44 percent are looking at use of machine learning to help them develop new products.

But clear and quantifiable benefits will lag the investments. Thus it always is.

Net Neutrality Rules, or Absence of Rules, are Just Noise

Some argue U.S. customers are worse off since the end of network neutrality regulations, referring to transparency of charges and fees. Others would offer argue that net neutrality rules are sort of “noise,” not signal. 

With or without the rules, speeds are climbing--and fast--while prices are in line with global norms or have decreased. 

source: Speedtest

Though there are many other reasons for investments in networks that lead to speed improvements, network neutrality rules were in place from 2015 to 2017. 

source: Trading Economics

The larger point is that average U.S. fixed network speeds have risen dramatically since 2010. 

source: Statista

Some focus on price as the problem, but absolute prices do not appear to have changed much, even as speeds and usage allowances have grown rapidly. Stand-alone pricing for residential internet access costs between $50 and $60 a month, less if purchased as part of a bundle, which most consumers do.  

Broadband prices also are not high in U.S. markets, as a percentage of household or national income. Prices over time arguably have dropped, as between 1990 and 2000, for example. Adjusting for purchasing power parity, U.S. prices are in line with global prices.

U.K. Service Provider Revenue has Dropped Since 2012

Connectivity traditionally has not been a “growth” business. Far from it, telecom had for most of its history been considered a natural monopoly, on a par with water, sewer and electrical service. Around the turn of the century there was some thinking that might have changed. 

Alas, the connectivity business still seems to be a slow growth--in some cases no growth--type of industry. The latest data from U.K. regulator Ofcom shows this. Since 2012, total service provider revenue in the United Kingdom has dropped. Monthly household spending on communications has remained relatively flat, growing about one pound per household, per month. 

source: Ofcom

Heavy Mobile Video Viewers More Likely to Drop Fixed Network Inrternet?

“Potential broadband cord-cutters rely on their mobile devices for entertainment,” says Parks Associates senior research director Brett Sappington. “They are significantly more likely to watch live video content via mobile, including live TV broadcasts and live streaming, averaging an hour more per week each compared to average broadband households.”

That is a partial answer to the question of whether heavier mobile video usage can lessen the value of fixed network internet access as well.

Parks Associates argues U.S. broadband households highly likely to drop linear video services  in the next 12 months watch more than six hours of video content on their mobile phone a week, compared to 2.5 hours among all US broadband households. 

“Roughly 10 percent of broadband subscribers are likely broadband cord-cutters, with half of them highly likely to make the change in the next 12 months,” said Sappington. 

source: Parks Associates