Thursday
Jan122012

For ILEC with 210k-Mile Network, IPTV Just "Another Application"

It appears CenturyLink didn't want to miss making an announcement at last week's Citi Entertainment and Media Conference, going with a "me too" approach to IPTV services. The "announcement" was modest, as CenturyLink revealed that they would be extending their IPTV services to one or two new markets in the former Qwest territory. Currently CenturyLink's Prism IPTV service passes 1m homes in select markets and, as of 3Q11, had 50k subscribers. For a telecom provider as large as CenturyLink, however, those numbers are relatively small—but what's interesting is how CenturyLink executive vp and cfo Stephen Ewing characterized IPTV: as just “another application.”

Ewing said, “The incremental cost of us rolling out IPTV is not significant. Once you get a 20 Mbps service out there to a customer the incremental cost of layering IPTV on top we view it as another application.” These sentiments, of course, square with what we've been saying for a while—that since so many providers spent so much time and money on network build-outs and improvements, this was the year to capitalize on those networks with new services, content, and applications.

But CenturyLink's "announcement" seems pretty modest, and offering IPTV in only two markets seems like a paltry "expansion," considering that the company has 210k miles of fiber. With its acquisitions and its expansive network, rollouts like IPTV appear to be an obvious next step. For now, Ewing said that, “The (IPTV) customer base is still small, but we did increase the customer base 25% during the third quarter.”

CenturyLink's network design also makes IPTV easier to distribute, as all of its video content is put into a head end in Missouri and, from there, distributed to each of the 8 markets currently served with IPTV. Each market also has its own mini-head end for local content, and all content is delivered over CenturyLink's fiber network.

Last fall, the company denied speculation that it would expand its Prism service to former Qwest markets. CenturyLink had just inherited Qwest's 1m DirecTV subscribers and was committed to satellite TV. But now the Louisiana-based ILEC says it's following a two-pronged approach to video services: satellite and IPTV. It's a strategy that allows CenturyLink to hedge its bets, capitalize on the satellite subs it's already inherited, and continue to anticipate consumer trends, as greater numbers of Americans access over-the-top video services like Netflix. Ewing said, “If over the top eventually takes some of the traditional TV market, we think we'll be well positioned with the bandwidth with have to our customers to participate in that.”

What is surprising, however, is that CenturyLink does not seem to have an overarching strategy to build out broadband to former Qwest markets. So far the company has just said, vaguely, that it plans to "expand its broadband footprint." Broadband has been a key component to the ILEC's business strategy for a while now, and in 3Q11, the service provider added 57k high-speed Internet subscribers, versus only 12k in 2Q11. Part of these gains, however, come from Qwest's FTTN initiative, which CenturyLink has continued after the acquisition. By the end of this year, CenturyLink estimates that it will pass 5.4m homes with FTTN.

In FTTN service areas, 75% of customers enjoy 20 Mbps speeds, while the remainder of subscribers have speeds of 10 Mbps or higher. As for CenturyLink's big picture, about 20% of subscribers can get 20 Mbps, over half can get 6 Mbps, and two-thirds can get 6 Mbps or higher. According to Ewing, “The speeds will continue to improve over 2012 and future years as we continue to build out the IPTV footprint and the Fiber to the Node footprint in the Qwest markets primarily,” he said.

Of course, CenturyLink will find itself increasingly in competition with LTE services (which we will look into more next week), but for now Ewing said CenturyLink seemed to have an edge, due to its increasing bandwidth. Ewing said that average customer usage is continuing to rise to about 18 Mbps, double where it was a year ago.

Tuesday
Jan102012

NTCA: Include Text and Broadband to Cut USF Contribution Rate in Half 

With $2b Decrease to Revenue Base in 2 Years, “The USF is Being Starved”

When you glance at the National Broadband Plan action item website, you will see that it is reportedly at the 80% completion mark as the plan nears its 2 year anniversary. Then, look at the section called “Accelerate Universal Broadband Access and Adoption”—this is where all the “good stuff” on USF/ICC lives—and you will see that the FCC’s goals have largely been achieved. Except for one: the elusive USF Contributions NPRM. According to the action item agenda, “To stabilize support mechanisms for universal service programs, in Q4 2010 propose rules to reform the process for collecting contributions to the USF.” Well, here we are a year after this objective should have been achieved and still no progress on USF contributions reform…and NTCA is not letting the FCC forget about it, as evidenced by a January 9, 2012 Ex Parte meeting with FCC staff.

NTCA discussed with FCC staff “prompt and effective reform of the contributions mechanism that enables the federal universal service fund.” NTCA argued for a revenue-based contributions mechanisms that “is technology neutral and best captures the value that consumers place on competing services;” “reflects the balance that consumers strike between different service offerings and the evolution of consumer preference;” is the “most equitable means of sharing responsibility;” and “can be implemented quickly with little burden to providers or the industry.” NTCA further argues that a revenue-based mechanism would be stabilizing and not overly complex, unlike a mechanism based on numbers or connections.

NTCA believes that the FCC has ample authority to extend the contributions base. One of the most convincing arguments was that the FCC has obviously made it a key mission to reform USF for the broadband era, so it logically follows that contributions should also be broadband-centric. NTCA explains, “Given that the Commission has indicated that retooling the USF program to support broadband-capable networks is among the most significant policy priorities, it would be both self-defeating and ironically anomalous for the Commission to build a broadband-focused fund of tomorrow on a foundation comprised solely of legacy services that fewer and fewer customers are buying.”

“Fewer and fewer” is certainly no exaggeration—if the USF contribution base is kept as it is, there literally won’t be anyone to keep it afloat in the coming years. NTCA estimates that “Over the past 2 years, assessable Telecommunications Revenues declined by $2 billion.” Just looking ahead three years, JSI Capital Advisors has projected that total wired access lines will decline from 86.49 in 2012 to 56.55m in 2015; meanwhile broadband connections will increase from 102.30m in 2012 to 115.48m in 2015 (The ILEC Advisor: Communications Industry Forecast 2011-2020: ILEC and CLEC Access Lines; Communications Industry Forecast 2011-2020: Broadband Connections and Market Share). So… why hasn’t the FCC broadened the contribution base to include broadband connections yet?

Much of the fault likely lies in the challenge of deciding exactly who should contribute, and how much. NTCA recommends a revenue-based methodology, and suggests that the contributions base should be broadened to include non-interconnected VoIP revenue, fixed and mobile broadband revenues (a $49b base in 2012), and texting revenue (a $20b base in 2012). NTCA argues, “Non-interconnected VoIP and texting cannot function without supported networks, and should thus contribute.” Furthermore, “texting is increasingly a substitute for voice calls.” According to NTCA, including broadband and texting revenues in the contributions base could likely cut the steadily-increasing contributions factor in half. Fixing the supply side of USF is crucial, and NTCA stresses that “The shrinking Contributions Base must be fixed or all of Universal Service is at risk.”

So you include voice lines, broadband lines, all VoIP and texting in the contributions base—is that it? Probably not, according to NTCA, but the FCC should not hesitate to implement initial reforms before they decide who else should contribute. NTCA urges the FCC to study “how to address business models that rely heavily upon driving traffic from others to specific websites or web-based enterprises.”

Determining contributions for web-based businesses that “place substantial burdens on networks” and probably wouldn’t exist if not for the networks they utilize is definitely a murky area, but as NTCA suggests, this could be a longer-term goal. How would the FCC begin to determine which web-based businesses should pay into USF? Would it be based on traffic, revenue, bandwidth utilization, or something else? With the lines between service provider and content provider becoming increasingly blurry (Google being the prime example), how will the FCC apply a new methodology for companies that fall into different categories? One can expect content providers to cry foul that the FCC is attempting to stifle innovation by imposing fees in this realm, but if it weren’t for the networks, these businesses would not exist. They certainly wouldn’t be generating billions in revenue, or contributing massive strain on broadband networks, thus requiring service providers to continually invest in upgrading their facilities…

The debate over contributions reform is likely to heat up in the coming months, and it will be very interesting to see what the FCC—and the industry—comes up with for new methodologies and solutions to address the rapidly shrinking contributions base. What do you think should happen…and what do you think will happen?

NTCA’s Ex Parte filing is available here.

Monday
Jan092012

A Picture is Worth... A Reduction in Churn

When an ILEC as big as TDS Telecom says that IPTV has allowed them to gain “30% share against two national cable operators in just three years,” and that, “based on that success we're planning to roll out to... 19 [additional] markets during 2012,” perhaps it's time to take IPTV seriously. Speaking at Citi Entertainment and Media Conference this past Friday, TDS president and ceo, LeRoy Carlson Jr., said that the company's wager on IPTV had proved wise, warranting these additional markets. Carlson added that, after these 19 markets, “we'll see if there are additional markets to roll out into in future years."

Of course, we've been hearing more about successful IPTV rollouts recently, usually by ILECs who are trying to offset significant voice line losses. In the past, it seemed so many IPTV ventures were deemed “defunct” after initial trials, never actually making good on the promise of additional revenue.

But TDS says its initial two-market roll-out, last year, was successful in both markets. Now the Madison, Wisconsin-based telecom giant isn't just dabbling in video services; instead, Carlson and company see IPTV as a way both to retain and attract subscribers. Last year, TDS rolled out VDSL services in 20 markets of its 30-state operating area, offering up to 25 Mbps, and it operates ADSL and ADSL2+ services as part of its broadband offering.

So it's safe to say that building out broadband, through a variety of pipes, has been an emphasis for TDS. With a staggering $100m in broadband stimulus funding, the company has been working to extend high-speed services into many of its rural territories, then bundling data with voice and, in some cases, video services. To date, Carlson said that TDS had approximately 55% market share of broadband in its traditional ILEC markets—something he said was "quite different than the other ILECs that typically have only 40 percent share compared to cable's 60 percent."

And broadband has been working to reduce churn. "What we have found is that when we have three services in a household our churn rate drops from over 2% for a single service to 1.5% for two services and down to 0.5 and 0.6% when we have three services," Carlson said. "As we add DSL on top of voice and we add video on top of voice and DSL we dramatically reduce our churn in the consumer household."

That's something ILECs across the country have been waiting to hear, as many smaller companies and cooperatives have also started to (re)consider IPTV for its “stickiness.” Carlson said that, by bundling its services, they're able to moderate voice line losses, but also "drive our top line revenue in our consumer business.” The company's IPTV services will be revenue on top of its $37 ARPU.

“On the ILEC side,” Carlton said, “the primary drivers of growth have been on pushing DSL further to our customer base. Sixty-one percent of our lines now have some form of DSL and we're pushing faster speeds out there.”

Carlton also announced that TDS's new IPTV markets would incorporate Microsoft's Mediaroom platform—an interface that many smaller ILECs and co-ops are adopting as well (several of whom we've profiled last year). Mediaroom allows for the bells-and-whistles services many consumers have come to expect and ILECs now want to provide: VOD, whole-home DVR, caller ID over the TV, and even remote DVR services.

TDS's IPTV announcement comes after a year of investment and diversification at the company. In the past two years, TDS has pursued both the data center and cloud services markets, most recently with its acquisition of OneNeck for $95m this past summer. But as I predicted for 2012 (and we're only a few days in), companies like TDS will also want to find new ways of making their broadband expansion count for even more. We'll be interested to see the numbers when all 21 IPTV markets are live.

Wednesday
Jan042012

A New High Wire Act Along New Hampshire Roads

Sometimes when we discuss the need for broadband in remote or rural areas, it's easy to forget just how much work it takes and how many hours are necessary to complete a fiber build-out. As a case in point, consider New Hampshire, where this winter residents will see more than just snow along the road. There, crews are working demanding hours for Network New Hampshire Now (NNHN), hanging fiber from already-existing telephone poles. Last week, Seacoast Online reported that the BTOP-funded, 750-mile fiber network was “moving into the next phase,” thanks to diligent work and considerable man-hours. But the project is taking time, thanks to a complicated build-out process that involves “stringing cables from pole to pole to pole—over 750 miles in cities, suburban streets and back woods—a lot of hours spent in 'bucket trucks' doing the physical work, but just as many [crew members] figuring out how the cables can fit on the poles, which are owned either by the electric company or telephone company.”

As a public-private consortium, NNHN oversees the $65m project, with $44.5m in grants from the federal stimulus package and $21m in matching funding from other sources. It's an ambitious and far-reaching broadband initiative that, according to NNHN, will “ensure that residents of ten counties in New Hampshire will be able to plug into a powerful future with internet connectivity.”

There are three main components of the network: the middle-mile fiber backbone, last-mile fiber-to-the-premises (FTTP), and a closed middle-mile public safety microwave network.

The middle-mile network will stretch all across the Granite State—from the Seacoast, across the more populated southwest, up to the northwest, and all the way to the remote North Country and mountainous Lakes Region. NNHN says it will “place network access points in or near existing central telephone office locations along the path, allowing all commercial broadband providers to potentially leverage the fiber optic network build across the state regardless of protocol, service or technology.” This portion of the broadband network is being overseen by University of New Hampshire Information Technology—a leader in the initiative.

A variety of partners are coming together to provide last-mile connectivity through what NNHN is deeming an “innovative model called FastRoads,” which will provide fiber-optic connectivity in 35 communities in the southwest part of the state. According to NNHN, these 35 communities translate into 1,300 homes and businesses.

Finally, a closed middle-mile microwave network called NHSafeNet will be made available for public safety, public television, transportation and mobile broadband communications on mountaintops across New Hampshire covering 3,800 square miles.

As with any statewide broadband initiative, the list of partnerships for NNHN is quite long. Last April, Chelmsford, Massachusetts-based Waveguide announced that it would “provide engineering and construction services,” along with New Hampshire Optical Systems, based in Nashua. Additionally, Green Mountain Communications is constructing NHSafeNet, along with other state organizations and departments.

But, despite good planning and an impressive assembly of partners, the issue of actual, physical work remains. And it takes time.

Waveguide president Rob Carmichael described the process of preparing for and hanging fiber to Seacoast Online last week: "We have a right to the space, but the space has to be made available. First we do a survey, walk the pole line with both utilities. We look at the pole, take measurements, engineers in the field decide on this one, power can move up, phone can move down, cable TV can be rearranged, whatever is needed, then you'll have space," he said. "There are no unique issues, other than the timelines. Building 750 miles in this time period is fast.” Completion date for the network is slated for June 30, 2013.

Of course, in addition to deadlines and man-hours in the cold, the network has also faced criticism from existing providers in the area. FairPoint Communications has already built a similar fiber backbone in the area, which it uses to provide its DSL service. In more populated areas like Nashua, in the southern part of the state, FairPoint's FAST provides fiber-to-the-home for residents. But in many “overlooked” regions of the mountainous state, there is no fiber connectivity.

With an impressive scale, NNHN's 750 miles of fiber is just one of many New England fiber builds, as Vermont, Massachusetts, and Maine are all stringing fiber to underserved areas of their states. In Maine alone, 1,100 miles of fiber will crisscross the state, connecting businesses and residents who cannot currently get high-speed service.

But just like in New Hampshire, these networks, too, will be completed in difficult terrain, in a variety of weather—one measurement, one survey, and one cable line rearrangement at a time. No faster.

Tuesday
Jan032012

Blooston Rural Carriers to FCC: Keep Tier One Wireless out of Mobility Fund

Petition for Reconsideration of USF/ICC Order Focused on Pitfalls of Reverse Auctions  

Eighteen rural wireless stakeholders, collectively the Blooston Rural Carriers, submitted a Petition for Reconsideration of the USF/ICC Transformation Order on December 29, 2011. The law firm of Blooston, Mordkofsky, Dickens, Duffy & Prendergast, LLP wrote arguments against reverse auctions and several aspects of the Mobility Fund Phase I on behalf of these companies. The Blooston Rural Carriers argued that reverse auctions will create a “race to the bottom” and may provide opportunities for deceptively low and anti-competitive bidding. Additionally, the process favors large carriers and does not include sufficient provisions to ensure small rural providers will participate or be successful in winning Mobility Fund support. The Blooston Rural Carriers also argue that the FCC has essentially ignored several of their previous comments (and warnings) about reverse auctions in the Mobility Fund NPRM and CAF proceedings.

The FCC alleges that reverse auctions are the best possible methodology to distribute Mobility Fund Phase I support (and most likely CAF and Mobility Fund Phase II support too), but the Blooston Rural Carriers ask, are reverse auctions really the best way? The petition explains that reverse auctions are “susceptible to a number of shortcomings that ultimately undermine the Commission’s intention of expanding existing coverage to unserved areas in the most economic way possible.”

The Blooston Rural Carriers have made several attempts over the past year to convince the FCC that reverse auctions would be detrimental not only to small carriers, but the goals of USF overall. However, it appears as though many of Blooston’s pleas have gone unacknowledged by the FCC despite the fact that “Courts have long held that an agency must respond to ‘relevant’ and ‘significant’ comments.” The Blooston Rural Carriers snipe, “The opportunity to comment is meaningless unless the agency responds to significant points raised by the public.”

The Blooston Rural Carriers did indeed raise one significant point in their petition that should produce an interesting response from the FCC: Tier One wireless carriers be limited or prohibited from receiving Mobility Fund support. The Blooston Rural Carriers explain, “USF funds are limited, and the Mobility Fund rules must recognize that no Tier One carrier requires financial assistance to complete its buildout.” The USF/ICC Transformation Order makes $300m available in Phase I via reverse auction, where any carrier can participate in the auction and no areas will be prioritized (The ILEC Advisor: Introducing the Mobility Fund: “A National Priority”).  This means that Verizon and Sprint, who voluntarily surrendered USF support in exchange for merger approval, will actually be able to participate in (and possibly win) reverse auctions for support they have allegedly given up.

The Blooston Rural Carriers refer to Verizon, explaining, “Were it not for the Commission’s conditioning the Alltel merger upon a phase-down of USF receipts, it stands to reason that the merged entity would have remained the largest recipient of high-cost funding.” Verizon and AT&T saw profits in 2010 of well over $10b, which certainly begs the question of exactly why the big companies need money to deploy a few extra towers in unserved areas. According to the Blooston Rural Carriers, “Notwithstanding the fact that the recent annual profits of either AT&T or Verizon could fund the entire proposed $4.5b annual high-cost program budget with room to spare…the Commission is looking to give them substantial new CAF and Mobility Fund support…without any reference to their earnings;” which is tantamount to corporate welfare.

Even though the FCC contends that Phase I Mobility Fund support is not intended to go to particular classes of carriers, the Blooston Rural Carriers argue that “The only way to effectively encourage high-quality expansion into unserved areas is to ensure that funding is directed to carriers that have a legitimate interest in building and maintaining high-quality services in those areas;” and rural carriers have a “vested interest” in doing just so. The Blooston Rural Carriers explain that small rural carriers have only been able to achieve mild success in regular spectrum auctions because of special provisions like bidding credits—“without such measures, small carriers would have had no realistic chance.”

There are no bidding credits or special provisions for small companies in the Mobility Fund—at least not in Phase I. The Blooston Rural Carriers warn that “participation in the Mobility Fund will significantly favor large, nationwide carriers whose capital and operating costs are significantly lower than small and rural service providers.” Furthermore, large carries may have opportunities to game the system though unreasonably low and anticompetitive bids, and determining winners based on costs alone might produce undesirable results. The Blooston Rural Carriers insist, “It is important to take into account more factors than simply which entity can claim to do the job for the least amount of money.”

As an alternative, the Blooston Rural Carriers recommend that the FCC “choose a method of distributing funds that takes into account an equitable comparison and evaluation of the differing costs and service characteristics of different technologies, rights of creditors and repayments of outstanding loans, and the treatment of carrier of last resort obligations, costs, as well as past performance and experience providing service in the kinds of areas that generally remain unserved.” In addition to bidding credits for small carriers, the Blooston Rural Carriers’ list of recommendations for improving the Mobility Fund for small rural carriers includes:

  • Ensuring affordable roaming agreements for rural carriers who receive mobility support
  • Facilitating greenfield projects and “economic ‘jump starts’” for RLEC spectrum holders interested in deploying new wireless systems in their service areas,
  • Prohibiting competitively harmful exclusive equipment and handset arrangements
  • Require 3G systems deployed with Mobility Fund support be easily upgradable to 4G

Finally, the Blooston Rural Carriers are concerned about the future direction of the Mobility Fund, since many of the finer details are still unclear and will be left to the Bureaus to determine: “The Commission’s reliance on undetermined further procedures provides little comfort for rural carriers who are routinely at a disadvantage to larger carriers.” The Blooston Rural Carriers hope that the FCC will finally notice and respond to some of the arguments mentioned in this petition—arguments that the Blooston Rural Carriers and other rural stakeholders have been delivering for over a year with little acknowledgement by an FCC determined to make reverse auctions work. However, there is a real threat that the efforts to make reverse auctions work will undermine the goals of the USF and misallocate the precious little funding that is available in the tight $4.5b budget.

The Blooston Rural Carriers recommend that the FCC, “on reconsideration, take real, concrete, active steps to ensure equal opportunity and competitive participation among all carriers.” What do you think the FCC should do to ensure small rural wireless carriers can actively participate in Phase I Mobility Fund reverse auctions?

The full Petition for Reconsideration is available here.