Starlink Internet Access Performance Approaches or Exceeds Fixed Network Median Speeds

The promise of constellations of low earth orbit satellites is a combination of higher access speeds and lower latency. According to second quarter 2021 tests by Ookla, Starlink is demonstrating those values. 

Starlink was the only U.S. satellite internet provider with a median latency that was anywhere near that seen on fixed broadband in the second quarter of  2021 (45 ms and 14 ms, respectively). 

Starlink was the only satellite internet provider in the United States with fixed-broadband-like latency figures, and median download speeds fast enough to handle most of the needs of modern online life at 97.23 Mbps during Q2 2021 (up from 65.72 Mbps in Q1 2021). 

HughesNet averaged 19.73 Mbps (15.07 Mbps in Q1 2021) and Viasat managed 18.13 Mbps (17.67 Mbps in Q1 2021). 

Compare that to 115.22 Mbps, the median download speed for all fixed broadband providers in the United States during Q2 2021. 

source: Ookla 

 

Starlink performance in 458 counties in the United States ranged from 168.30 Mbps) to 64.51 Mbps.  

Starlink’s median download speed exceeded that of fixed broadband in Canada (86.92 Mbps compared to 84.24 Mbps, making Starlink a reasonable alternative to fixed broadband in Canada, Ookla notes.

Starlink also showed a much faster median download speed in the United Kingdom during the second quarter of  2021 (108.30 Mbps) than the country’s average for fixed broadband (50.14 Mbps).

Another Reason Why DX Might Fail So Often

Digital transformation is an overused buzzword. So was big data. But there are lots of other candidates: agile, AI, disrupt, synergy, virtual and cloud. Buzzwords are perhaps annoying. What really matters is whether the concepts buzzwords represent actually deliver value.

On that score, digital transformation is going to disappoint, as prior big rounds of computing investment have disappointed.  

In Bullshit Jobs: A Theory, author and anthropology professor David Graeber offered a scathing explanation of why the application of computers to business processes delivered far fewer results than hoped for.  

Simply put, the workplace became riddled with useless work that technology should be handling, including some difficult, labor-intensive jobs. But much of the argument concerns other work that might not be so routine, but might arguably also not be so productive . 

Graeber argued that in large organizations, as much as half of all work was being done by five categories of unproductive jobs:

• Flunkies, who serve to make their superiors feel important (receptionists, administrative assistants, door attendants, makers of websites whose sites neglect ease of use and speed for looks)

• Goons: who act to harm or deceive others on behalf of their employer (lobbyists, corporate lawyers, telemarketers, public relations specialists, community managers)

• Duct tapers: who temporarily fix problems that could be fixed permanently (programmers repairing bloated code, airline desk staff who calm passengers whose bags do not arrive) 

• Box tickers: who create the appearance that something useful is being done, when it is not (survey administrators, in-house magazine journalists, corporate compliance officers, quality service manager)

• Taskmasters: who manage, or create extra work for, those who do not need it (including middle managers (middle management, leadership professionals)

One need not agree about the analysis to agree that automating work that should not be done in the first place would not necessarily improve productivity.

DirecTV Spinout is Complete

One key question some might have had about the spin out of DirecTV assets was the impact on AT&T cash flow. That was the reason DirecTV was purchased in the first place, and cash flow generation matters mightily to AT&T. 

For most observers, the acquisition of DirecTV was about strategy, and that is correct, up to a point. For some of us, the deal also was the fastest way AT&T could make an acquisition that was immediately a boost to free cash flow.

AT&T said as part of its second quarter 2021 results that the company expected lower revenues by $9 billion; cash flow (EBITDA) lower by $1 billion and free cash flow lower by about $1 billion. AT&T also received about $7 billion in cash as part of the transaction. 

The now separated asset still means AT&T gets a 70 percent share of DirecTV cash flow and revenue, plus equity value upside. That answers the question. 

Assuming the primary use of free cash is payouts to the owners, rather than heavy reinvestment in the business, AT&T continues to receive the great bulk of cash flow value.

Lumen Sells Assets to Apollo Global Management

Lumen Technologies has agreed to sell a collection of telephone and broadband infrastructure that covers six million residential and business customers across 20 states, mostly in the U.S. Midwest and Southeast (according to initial reports) to Apollo Global Management. The $7.5 billion deal value includes $1.4 billion of assumed debt. 

What some will find interesting is that the assets seem to represent much of  the original CenturyTel assets. CenturyTel was a rural telco at the time. Some will still argue that AT&T’s spin out of content assets is the bigger move, but the Lumen asset sale is highly significant.

Many would have described the CenturyLink (including Qwest, CenturyTel and Level 3 Communications as an amalgamation of rural telco assets with an enterprise- and whole-focused capacity business. 

It was an odd match. In the third quarter of 2020, for example, 75 percent of Lumen revenue came from business customers, wholesale or international connectivity services. 

The companies have not yet released information about the actual geographic extent of the assets, but the original CenturyTel operated rural assets concentrated across the old BellSouth, Ameritech, SBC Communications and Bell Atlantic (Verizon) areas where US West (Qwest) did not operate fixed local networks. 

US West served customers in Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, and Wyoming. What made US West different from the other RBOCs was the largely-rural character of its service territory. US West served a relative handful of tier-two cities or smaller metro areas and larger swaths of rural density. 

source: FCC 

CenturyTel had holdings across the United States, but did not overlap with US West (Qwest) in the Southeast, much of the Midwest and South Central United States, shown in green on this map, while US West (Qwest) operations are shown in blue. 

source: Denver Business Journal 

The logical disposition would be the former CenturyTel assets in BellSouth, Ameritech, SBC Communications and Verizon areas. It would be relatively easy to keep the former CenturyTel assets in the Lumen (former US West/Qwest) areas. 

CenturyLink purchased (some would say the firms merged) the Qwest assets in 2011. That deal was valued at $12.2 billion. 

At the time, the firms had combined revenue of $18.6 billion. CenturyLink later also purchased Level 3 Communications and Savvis. 

So the new deal essentially breaks out the former CenturyTel assets, leaving Lumen Technologies with the Qwest, Level 3 and Savvis assets. The new Lumen will derive even more of its total revenue from business services and customers. 

It will likely be a while before we can determine the change in customer mix and revenue sources. Still, Lumen Technologies will become even more focused on enterprise, wholesale and business customers than before, though it still likely serves consumers in 13 states.

Lumen Appears to Sever Former CenturyTel Assets

Lumen Technologies has agreed to sell a collection of telephone and broadband infrastructure that covers six million residential and business customers across 20 states, mostly in the U.S. Midwest and Southeast, to Apollo Global Management. The $7.5 billion deal value includes $1.4 billion of assumed debt. 

What some will find interesting is that the assets seem to represent much of  the original CenturyLink assets, which was a rural telco at the time. 

CenturyLink purchased (some would say the firms merged) the Qwest assets in 2011. That deal was valued at $12.2 billion. 

At the time, the firms had combined revenue of $18.6 billion. CenturyLink later also purchased Level 3 Communications and Savvis. 

So the new deal essentially breaks out the former CenturyTel assets, leaving Lumen Technolgoies with the Qwest, Level 3 and Savvis assets. The new Lumen will derive even more of its total revenue from business services and customers.

AT&T is Still in the Content Business, Just in a Different Way

One key question some might have had about the spin out of DirecTV assets was the impact on AT&T cash flow. That was the reason DirecTV was purchased in the first place, and cash flow generation matters mightily to AT&T.  Also, there were few other major transactions AT&T could have made without regulatory opposition. 

The acquisition, in other words, was the fastest way to add free cash flow, of the alternatives available to AT&T at the time. So what else could AT&T have done with $67 billion--what it spent on DirecTV--assuming a 4.6 percent cost of capital? 

Cost of capital is the annualized return a borrower or equity issuer (paying a dividend) incurs simply to cover the cost of borrowing.

In AT&T’s case, the breakeven rate is 4.6 percent, which is the cost of borrowing itself. To earn an actual return, AT&T has to generate new revenue above 4.6 percent.

First of all, AT&T would not have borrowed $67 billion if it needed to add about three million new fiber to home locations per year. Assume that was all incremental capital, above and beyond what AT&T normally spends for new and rehab access facilities.

Assume that for logistical reasons, AT&T really can only build about three million locations each year, gets a 25-percent initial take rate, spends $700 to pass a location and then $500 to activate a customer location. Assume account revenue is $80 a month.

AT&T would spend about $2.1 billion to build three million new FTTH locations. At a 25-percent initial take rate, AT&T spends about $525 million to provide service to new accounts. So annual cost is about $2.65 billion, to earn about $720 million in new revenue (not all of which is incremental, as some of the new FTTH customers are upgrading from DSL).

The simple point is that building three million new FTTH locations per year, and selling $80 in services to a quarter of those locations, immediately,  does not recover the cost of capital.

The DirecTV acquisition, on the other hand, boosted AT&T cash flow about 40 percent.

 

To be sure, the linear video business deteriorated faster than AT&T expected. Still, to the extent that triple play still made strategic sense at the time, the deal allowed AT&T to claim a major position there without the time and expense of upgrading its copper fixed network to achieve such a position. 

AT&T said as part of its second quarter 2021 results that the company expected lower revenues by $9 billion; cash flow (EBITDA) lower by $1 billion and free cash flow lower by about $1 billion. AT&T also received about $7 billion in cash as part of the transaction. 

The now separated asset still means AT&T gets a 70 percent share of DirecTV cash flow and revenue, plus equity value upside. That answers the question. 

Assuming the primary use of free cash is payouts to the owners, rather than heavy reinvestment in the business, AT&T continues to receive the great bulk of cash flow value. Widely viewed now as a “mistake,” in large part because of the debt burden, the DirecTV acquisition still was a reasonable bet on boosting free cash flow immediately. 

Even now, after spinning out the asset, DirecTV offers AT&T most of the cash flow, though de-consolidating the asset, raising cash to pay down debt, and freeing up management time for other work.

Private Blockchain for Telecom?

Private blockchain might seem a non sequitur. After all, the whole foundation of blockchain is its distributed ledger. Private blockchain has a single entity as the keeper of the register. 

But that private aspect might be attractive to some connectivity providers, as a means of supporting transactions for its own business partners and customers. By definition, transactions can be a revenue driver only when the blockchain provider can impose a transaction cost. 

A private blockchain provides some advantages such as processing speed and transaction cost, many argue.  Perhaps private blockchain makes more sense for relatively closed ecosystems, while public blockchain is better suited for very loosely-coupled ecosystems. 

source: 101 Blockchains  

Blockchain has the potential to be for connectivity provider “value” what the Internet has been for “information.” A loosely-coupled system can innovate much faster, add partners with little friction and reduce costs and time to market. 

Think of the analogy of a marketplace or exchange: to the extent blockchain verifies identity and secures transactions, it facilitates any-to-any transactions. 

source: Deloitte 

To the extent that blockchain lowers transaction costs, it enables ecosystems to function with less friction. To that same extent, it might allow connectivity providers to construct platform business models, where revenue is generated in some way without direct payment of recurring subscription fees. 

The obvious example is a revenue model where transaction fees are the driver, as would be the case for e-commerce sites. 

source: Infosys