Fort Collins Colo. to Build Own Gigabit Network

The City of Fort Collins will build its own retail municipal broadband network. The city expects to build the entire network over three to four years.

Target residential pricing is  $50 per month for 50-Mbps service, and $70 per month for 1-Gbps service.

An “affordable Internet” tier also will be offered, the business plan says. The city expects to borrow between $130 million and $150 million to fund network construction and activation.

The city estimates a cost per passed home to be $984, with the cost to connect a customer location at about $600 each.

It is obvious that most of the customers will come from one of the two dominant providers, Comcast and CenturyLink, as more than 91 percent of households already buy a fixed network internet connection.

Comcast has about 57 percent market share, while CenturyLink has about 37 percent share, the city says.

Comcast already has launched gigabit services in Fort Collins, ahead of the municipal network launch.

City consultants estimate the new municipal network could get as much as 30 percent share of market. That is based, in large part, on experience. Other municipal networks have gotten share in about that range.

One caveat is that it is unclear how the other networks measure penetration. One way is to count by connected homes. The other method, where a network offers multiple services, is to count “units sold” and then divide by the number of households.

source: City of Fort Collins

In such cases, the actual number of connected homes is less than the penetration figures would suggest, as a single home, buying three services, generates three revenue units. When measuring penetration rates, that has the same impact as three homes buying one service.

So some of us would guess that the actual household penetration can range from less than 20 percent to perhaps 35 percent.

Much also will hinge on what Comcast and CenturyLink decide to do to hang on to existing customer accounts.

Comcast’s gigabit pricing originally was set at  $159.95 per month without a contract, and $110 per month with a one-year contract.

But few might predict Comcast is willing to lose huge chunks of market share rather than lower its prices to about $70 a month (or whatever level is needed to remain competitive with the municipal network).

Comcast has offered $70 a month pricing in other markets where it faces serious competition for gigabit internet access.

source: City of Fort Collins

Some idea of operating costs (exclusive of marketing) can be seen in estimates for personnel.

source: City of Fort Collins

The larger point is that more competition in the internet access space keeps coming, despite fears of a duopoly and limited consumer benefits. For most potential consumers, the real options are going to be mobile services, though, as 5G services are launched nationwide.

Antitrust Lawyers Lean Towards Blocking Comcast Acquisition of Time Warner Cable

Staff attorneys at the Justice Department’s antitrust division are nearing a recommendation to block Comcast Corp.’s bid to buy Time Warner Cable Inc., according to Bloomberg. At least initially, many observers believed the deal would be approved, in large part because the relevant market was deemed to be “linear video.”

Comcast said it would divest enough video customers to keep the company’s share of the national market at or below the 30-percent threshold historically applied by antitrust authorities.

The problem, others pointed out, is that video increasingly is not the relevant market. That would be market share in the high speed access market, where a combined Comcast and Time Warner Cable would have about 40 percent share of the high speed access market, and an incomparably high share of faster speed connections, even before Comcast upgrades all U.S. locations to a gigabit.

If the Comcast acquisition were allowed, Comcast would have more than 57 percent market share of all U.S. high speed access connections operating at 25 Mbps or faster.

Looking only at homes able to buy gigabit high speed access, Comcast would, at more than 21 million locations, vastly outstrip all other gigabit providers put together. If one assumes that networks capable of a gigabit, supplied by all other competitors, could soon pass half a million U.S. homes, Comcast would represent 98 percent of all connections.

That is likely to be too great a degree of concentration for antitrust lawyers.

Will FCC Allow Massive Merger to Protect Net Neutrality Gains?

Publication of the new Federal Communications Commission mandated network neutrality rules opens the way for court challenges, and the first lawsuit has been filed.

There are many potential ironies. Consider the present situation the FCC faces with respect to the Comcast acquisition of Time Warner Cable. On one hand, since Comcast is upgrading 21 million--virtually all--of its residential locations to gigabit levels of service, plus offering 2 Gbps to 18 million of its customers, Comcast already is the biggest Internet service provider in the United States, with the most gigabit-capable networks.

Adding Time Warner Cable would allow Comcast to extend that lead. Even before that announcement, and before changing the definition of broadband, Comcast arguably is the largest U.S. Internet service provider, and arguably the provider with the greatest share of faster-speed connections.

By about 2007, average advertised cable TV high speed access speeds were 2.5 times the average telco digital subscriber line speeds, while cable peak speeds were three times faster.

The gap since has widened, principally because Comcast is upgrading all its locations to gigabit speeds by the end of 2015, and because more cable operators will be adopting DOCSIS 3.1, which will enable gigabit speeds.

To be sure, many ISPs, including AT&T and CenturyLink, many independent ISPs and Google Fiber, are upgrading to gigabit speeds as well. But those roll-outs are coming neighborhood by neighborhood, and at a measured pace. All will be playing catchup to Comcast.

In other words, Comcast’s share of the gigabit access market will be very high, given its installed base of potential connections (21 million homes), where the other contestants would be lucky to be able to market to hundreds of thousands of homes.

In recent years, cable TV companies also have been getting 83 percent share of net new high speed access connections.  

So if the FCC approves the merger, it will sanction unusually high levels of concentration by one service provider, arguably in the most-crucial product segment of all.

Under normal circumstances, one would be skeptical.

But there is another twist. If the FCC does approve the merger, it could likely win network neutrality agreements from Comcast that would stand, even if the FCC’s network neutrality rules later were struck down.

And some believe the rules will be invalidated. “The FCC may have violated the Constitution’s separation of powers in its attempt to ‘modernize’ the 1934 Communications Act.

By reclassifying broadband as a telecom service and then selectively and arbitrarily forbearing from most of Title II, the agency has effectively rewritten the Act — something only Congress can do through legislation,” said Berin Szoka, President of TechFreedom.

There also will be procedural objections. “The agency failed to open a new comment round after scrapping its initial, more modest proposal, in favor of the President’s Title II plan,” said Szoka.

So might the FCC try to protect some net neutrality gains by sanctioning a merger that will violate most of the market share rules the FCC and Dept. of Justice normally apply when screening and evaluating mergers at the top of telecom markets?

Verizon Buying Comcast or Charter--Absent Huge Divestitures--Would Not Pass Horizontal Antitrust Review

Rumors about big mega-mergers get floated from time to time for all sorts of reasons, sometimes to test the waters or encourage deal making. That seems to be the case for rumors about Verizon buying Comcast, or Verizon buying Charter Communications. Either combination would clearly run into major antitrust issues using the standard screens used by the Justice Department.

So such rumors might be intended to gauge just how far antitrust rules can be bent. But barring major divestiture of assets, it seems virtually impossible that antitrust officials would have an easy time with such huge horizontal mergers.

Some might try to argue that Verizon fixed network triple play services and Comcast or Charter triple play services do not represent horizontal concentration. Or Verizon might contemplate divesting its whole fixed network operation, though it is hard to see who the logical buyers might be.

Some might like to point out that AT&T bought Tele-Communications Inc., the biggest US. cable TV company, but that was totally different. AT&T (not SBC) had zero consumer fixed network assets. So buying TCI did not bring AT&T more than about 30 percent access to U.S. homes.

SBC, now that it has acquired the former AT&T, did so only after AT&T sold off those former TCI assets to Comcast, allowing Comcast to become the biggest U.S. cable TV company.

As Comcast and Charter now are the largest U.S. ISPs, and the largest U.S. cable TV companies, adding Verizon’s fixed network customer base and either cable company’s households passed would easily surpass the 30 percent maximum reach that historically has been the size limit for any local access provider.

Verizon could try and divest enough Comcast or Charter assets to stay under, or at, the 30-percent reach of U.S. households, keeping all its own fixed network assets.

Still, all those would be complex divestitures, with other complications. It isn’t so clear how much Verizon would want to operate hybrid fiber coax, all copper and all-fiber access networks, with all the differences in outside plant operations that would represent.

Nor is it so clear that Verizon would want to get bigger in fixed networks, since it has built its business on mobile services. Likewise, it is not so clear Verizon wants to be as big in media as owning Comcast would entail.

Charter’s footprint, meanwhile, is more rural than Comcast’s footprint, something Verizon definitely would not prefer.

To be sure, assets could be divested. They would almost certainly have to be, on the fixed network side of the business. Then there are all the cultural issues, union and non-union workforces to blend.

It seems unlikely Verizon would be looking strictly for a vertical merger, as AT&T proposed with Time Warner. Talk of Verizon using the HFC network for small cell and other backhaul makes sense, but the issue is the 30-percent homes passed test.

It all seems too complex, too likely to draw antitrust rejection, to be a likely outcome.

Comcast to Ditch HFC for FTTH for 2 Gbps

Comcast's 2-Gbps Internet access offer, to be introduced in Atlanta and then other locations, is a watershed moment for the U.S. cable TV industry.

It appears that Comcast will use a fiber-to-the-home architecture to provide the service, ditching the hybrid fiber coax network for the first time in a mass consumer application.

That doesn't mean Comcast is abandoning HFC for most of its customers, at most locations. Much hinges on the price, and how many consumers are willing to pay what it will take to get the 2-Gbps service.  One suspects that is a rather low number. 

The new service will require replacing HFC connections with all-fiber access, and Comcast, as well as other cable TV operators, will resist "rip and replace" to the greatest extent possible. 

So, in a sense, Comcast might reasonably expect that a relatively small percentage of consumers actually will opt for the service, which will require overlaying new optical fiber drops from existing optical nodes. 

But it is a watershed moment, as Comcast would, for the first time, use FTTH as its consumer access network, at least for some customers, at some locations. 

Comcast has suggested it will  potentially reach 18 million of some 21 million homes, as 18 million Comcast consumers live within a third of a mile of an optical node. 

Comcast Expects 10-Gbps Downstream Upgrade to Cost "Less than $200 Per Passing"

Comcast says it can initially upgrade its network to eventually handle symmetrical 10-Gbps internet access (supporting 10 Gbps initially) for “less than $200 a home passed,” according to Elad Nafshi, Comcast EVP and chief network officer. 

It is a nuanced statement. 

That initial upgrade cost includes revamping networks from low-split to mid-split, including changes to active and passive network elements when necessary to support an upgrade to DOCSIS 4.0 10-Gbps downstream bandwidth. Upstream will increase to perhaps 1 Gbps. 

Significantly, Comcast’s initial deployment does not require full fiber distribution, but can accommodate as many as four amplifiers in cascade. 

That means the upgrade to 10-Gbps downstream service can be done without upgrading the whole network to fiber, which uses passive coaxial cable only for the last 100 feet or so of drop cable. 

Upgrading to symmetrical 10-Gbps service will require replacing all the radio frequency amplifiers. Typically, Comcast has built out fiber to an optical node, then delivered signals to home using a string (cascade) of up to four amplifiers running on coaxial cable. 

In the first stage of DOCSIS 4.0 deployment,  most of Comcast’s facilities can continue to operate with fiber distribution to a node, then retain as many as four RF  amplifiers for service to homes. There are huge cost implications for retaining that capability, since Comcast can continue to use the in-place amplifiers and coaxial cable. 

Future “Node + 0 amplifier” networks will transition to Full-Duplex (FDX) DOCSIS, to significantly increase the upstream bandwidth to multi-gigabit speeds, such as symmetrical 10-Gbps service. But that also will require deploying a full fiber network, using coaxial cable only for the drops. 

The first step will be a shift to a 5-MHz to 204-MHz upstream bandwidth and 1218 MHz downstream bandwidth, supporting a 1 Gbps upstream tier and multi-Gbps downstream. In the following illustration, blue frequencies are available for downstream traffic, while red frequencies are available for upstream traffic. 

As usual, the upgrades can be implemented incrementally, in stages, with incremental capital investment. . 

source: Comcast 

Then overlapping bidirectional spectrum from 108 to 204 MHz can be activated. that eventually increases up to the full 108-MHz  to 684-MHz FDX limit. In that implementation DOCSIS 3.0 can be supported up to the 1002 MHz limit and legacy DOCSIS 3.1 to the 1218-MHz limit.

The point is that Comcast still believes it can upgrade its bandwidth over time to symmetrical 10-Gbps service while remaining the low-cost provider compared to rival fiber-to-home networks.

Some Customers Need More Fiber, Some None

Sometimes the truth emerges even when not intended; at times even when the opposite argument is being made. Consider the argument for gradual introduction of more optical fiber into hybrid fiber coax networks, which is sound thinking.

Though making that case, one optical supplier executive has said that “connectivity is increasingly transforming from static wireline to mobile or wireless delivery,” said Cate McNaught, Corning Optical Communications emerging applications market development manager.

That is not to say fixed network access is going away, or will not underpin wireless or mobile network backhaul (fronthaul, anyhaul). It is to acknowledge that content and video consumption on mobile and untethered devices seems to be the main trend right now, with mobile over the top video services proliferating, and more content supplied by all OTT services being consumed on mobile devices.

The issue then is not the need for more optical fiber in access networks, but the business models and rationale for doing so. The problem is stranded assets Today, fiber to the home networks in the U.S. market strands as much as 60 percent of the deployed FTTH capital. That creates a bigger return on investment problem.  

Consumer spending on communications and entertainment services has not changed all that much, in most countries, although the specific products purchased have changed.  

At the same time, the profit margin from many services also has compressed. Prices per gigabyte for consumers using internet access services have declined by about an order of magnitude since 2012, in the U.K. market, for example.

source: Department for Digital, Culture, Media & Sport

The stranded assets problem simply is that when a ubiquitous network is built, not every single home or business buys every service. Not every consumer buys fixed network voice, entertainment video or internet access. Not every business buys the same mix of voice and data services, or mobility.

The problem really is compounded, however, as multiple suppliers compete. If the demand for any single product is 95 percent, and there are three competent suppliers, on average, any supplier can only expect to get revenue from 32 percent of locations passed by the network.

In other words, 68 percent of locations passed earn no revenue.

Such problems can intensify when the demand curve changes, as when consumers abandon use of fixed network voice in favor of mobile voice. The remedy, up to this point, has been product bundles.

One set of numbers from the Comcast third quarter 2017 results is instructive: Comcast details the number of customers taking single, dual-product and three-product or four-product packages.

About 30 percent of consumer customers buy just one product, a third buy two products, while 37 percent buy three or four products as a bundle. Looking at each buy as a “unit sold,” those figures help service providers deal with stranded assets.

If 37 percent of Comcast customers buy an average 3.5 products, that equates to an average of 1.3 products per home passed. If 33 percent buy two products, that equates to one unit sold across 66 percent of the homes passed. The 30 percent of homes that buy only a single product, when added to the dual-product homes, equate to one product sold to 96 percent of homes passed. Altogether, those figures mean Comcast sells an average of two products per home passed.

And that is how the economics work, even when stranded assets range from 40 percent to 60 percent.

The business model will come under more stress if and when mobile alternatives emerge more strongly. So two apparently contradictory claims can be made: there will be a growing need for more access optical fiber, and there also will be less need for some of it.

The remaining customers will need optical fiber advantages more; but fewer customers will buy.  

What if it is Verizon, Not Google Fiber, that Disrupts U.S. Internet Access?

Within a few years, we likely will count Verizon as the largest U.S. “overbuilder,” not firms such as Google Fiber, Ting or others. The reason is that Verizon is launching an assault as a fixed wireless overbuilder in a number of larger markets, including Los Angeles and Houston, as well as Indianapolis and Sacramento, Calif.

So, in a major irony, it might be Verizon, not Google Fiber, that dramatically disrupts the U.S. internet access market, at least the fixed network part of that market.

Generally speaking, earlier overbuilders have chosen rural areas, small towns or suburban communities as venues. Google Fiber was among the few to have tackled a whole major market such as Kansas City.

Verizon’s attack will matter for a few reasons. Verizon has the resources and brand name to shift national market share in the fixed networks business. Up to this point, no overbuilder has attacked markets big enough to change national market shares and subscriber counts.

And, in its chosen markets, Verizon will be challenging several of the biggest ISPs in the fixed networks business: Comcast, Charter and AT&T. This is not an incremental approach in out-of-the-way or small markets, but a deliberate effort to take significant market share, at scale.

Just how much share Verizon can get is the issue, and how soon it can do so. Verizon suggests its fixed wireless opportunity is about 30 percent of all U.S. homes, so possibly 35 million to 39 million U.S. homes, depending on which estimates one uses.

Market share will matter. New Street Research predicts that Verizon could achieve 24 percent market share in those markets. That would change national internet access market share by about seven percent (using a base of 114 million U.S. homes), or some eight million accounts.

Of course, Verizon might do better than that.

TDS in Sun Prairie, Wisc. gotten 46 percent market share in its first year of operation as an overbuilder That is practically unheard of.  

With possibly hundreds of local governments actively considering launching their own municipal internet access services, and with a growing number of private internet service providers also looking to enter as the third providers in existing markets, it looks as though many more U.S. communities will see a trio of fixed network service providers over the next decade.

How well they might fare, and what the implications are for incumbents, are logical questions.

Ting, the internet service provider that overbuilds telcos and cable TV firms, has argued it can get to about 50 percent market share in perhaps five years in virtually all of its internet access networks, with a first-year goal of 20 percent share.

EPB, a municipal service provider in Chattanooga, Tenn., is the poster child for government-operated triple-play providers, and often is said to have 46 percent market share. That is true if one counts units of service (video, voice, internet access), instead of household account share.

The issue is that when service providers sell multiple services, one has to decide how to measure market share: by units sold, by homes that are active accounts or some other measure. These days, the preferred metric typically is units sold, not homes.

EPB’s internet access share might be about 27 percent, its video share lower than that. Comcast might have 61 percent video share, while EPB might have 36 percent video share.

AT&T also competes in that market, but seems to have low share of video and internet access.

Other earlier overbuilders, focusing on video entertainment, might have been able to reach 10 percent to 15 percent market share.

Many of us would be surprised if Verizon failed to break the 20-percent share market rather quickly. And that means other major ISPs--AT&T, Comcast or Charter--are going to lose that share.

Ironically, it might well be Verizon--not Google Fiber--that pushes the major U.S. ISPs to upgrade to gigabit access on a faster tempo.

Comcast Will Launch 1 Gbps in 2015

Comcast plans to offer gigabit access service in U.S. markets starting in 2016, said Jorge Salinger, Comcast VP. The service will enabled by use of DOCSIS 3.1 technology that Comcast now is testing at employee homes. Salinger was too conservative, though.

Comcast will do so by the end of 2015.

"Our overall goal is to be able to deploy DOCSIS 3.1 and gigabit-per-second in a broad scale starting in 2016,” said Salinger.

DOCSIS 3.1 is in many ways a departure from past cable TV transmission schemes, in that it is the first to abandon the 6-MHz (8-MHz in many other countries) channelization plan that is a legacy of the industry’s origins as a TV retransmission network.

One question many will have is how Comcast will price the 1-Gbps service, to protect its legacy high speed access pricing. Comcast’s existing 505 Mbps service, primarily aimed at business customers, costs $300 a month, Comcast’s 105 Mbps high speed access services, aimed at consumers, costs perhaps $50 a month, depending on the package a consumer buys.

Most Internet service providers will face similar dilemmas, as they introduce gigabit services. In fact, some ISPs might find they sell more packages at slower speeds, even if gigabit access is the marketing headline.

Much depends on what speeds an ISP offers, at what price points. Google Fiber has a simple offer: a gigabit for $70 a month, or 5 Mbps for free. That pushes buyers immediately to 1 Gbps.

Other ISPs face tougher packaging choices. In my own Denver neighborhood, CenturyLink will sell a 100-Mbps service that costs $70 a month, with the price guaranteed for a year.

The 40-Mbps service costs $30 a month, guaranteed for a year. All those prices are for stand-alone service, with no phone service.

In that sort of environment, many consumers are going to conclude that 40 Mbps is “good enough,” and provides a better price-value relationship.

Are FTTH Take Rates Really 50%?

According to the Fiber to the Home Council, half of homes passed by fiber actually buy service.

That seems too high, and is almost certainly a statistical artifact caused by a Verizon sale of assets that subtracted millions of copper-served homes from the actual “homes passed” base.

Verizon supplies most FTTH connections in the United States, so any big change at Verizon will affect the whole market (AT&T’s FTTH passings are growing, and other ISPs operate, but Verizon is the dominant provider of fiber-to-home connections.

In the first quarter of 2016, Verizon FiOS Internet access connections reached 7.1 million accounts, on a base of about 15 million homes. So adoption of FiOS Internet services could be as high as 47 percent.

It all depends on how many homes passed Verizon has. Prior to asset sales to Frontier Communications, there were 19.8 million homes passed by FiOS networks, so take rates for customers able to buy it were once about 36 percent.

Then Verizon sold 4.8 million lines (and more homes passed than that) to Frontier Communications. After the asset sales, Verizon now passes about 15 million homes.

In other words, because Verizon sold assets that mostly did not have FTTH activated, the denominator was reduced more than the numerator when calculating fiber adoption. But nothing really changed in terms of Verizon adoption rates or availability.

It is correct to say that Verizon FTTH take rates (Internet and video) are about 50 percent, where the services are available for purchase.

Still, it has to be noted that other competitors will find it hard to match those levels of adoption. Verizon FiOS has been marketed the longest in the U.S. market, and generally has faced access competition primarily from cable operators. If Verizon gets 47 percent adoption, then cable could potentially get 53 percent.

We will see what happens as competition grows, especially as Comcast activates gigabit capabilities that operate faster than FiOS. Eventually, we also should see additional fixed wireless and mobile competition, plus potential independent ISP market entry in a few instances.