PhoniesMillions of dollars are being spent to persuade Ajit Pai FCC decisions on pole attachments, broadband paperwork, local regulations, neutrality and backhaul prices will "incent investments and more broadband deployment. I've listened to CTO's, CFO's and CEO's explaining investment strategy for nearly two decades. I'm convinced none of his policy proposals will have significant impact on actual investment or deployment. Pai can determine whether I'm right by making six phone calls and asking one question on each. Just call the CEOs or CFOs of AT&T, Charter, Comcast, Sprint, T-Mobile, & Verizon. They control 90% of mobile and 65% of landlines. 

Ask them, "If I make these changes, how much will you increase your capital spending and rural deployment?" Verizon made a point of telling Wall Street that despite the 5G build, they wouldn't increase capex in the coming years. Charter/Time Warner has said they will cut and I believe AT&T similar. Sprint has said they will not come close to their fiscal 2016 capex. Most of the remaining companies - Century, Frontier, Altice - are financially weaker and even less likely to invest.

Capital spending is mostly driven by technology change, competition, market demand, underlying financial problems, and equipment cost.

Some technology examples:

Verizon in 2008 realized they were about to fall behind AT&T in the 3.5G generation. AT&T's GSM network could easily be upgraded to about 4x the speed/capacity. Verizon's CDMA technology was falling behind. Jumping to 4G LTE was the best solution. They bit the bullet and built the world's first large LTE network.  

Ambani at Reliance Jio realized the new LTE technology could give them an enormous edge over the other Indian networks. He invested $20B in building one of the best networks in the world and has 89M active customers in less than nine months.   

Competition can be a driving force:  

Vodafone and Bharti, to match Jio, have both raised their capital spending by about $6B.  

Similarly, AT&T raised capex from ~$18B to ~$22B. Verizon LTE was killing them and they had to catch up. When they got to 97% LTE coverage, they reduced capex. A year after AT&T told Wall Street about the reductions, the FCC made a surprise move on neutrality. Some blockheads in D.C. claimed the neutrality decision drove the capex drop. That would be true iff Randall Stephenson had a time machine and could jump ahead a year before he made the capex decision.

Verizon CEO Ivan Seidenberg told me ~2013 he was going to build Fios because, "We have to get cable out of the house." They were losing too many customers. Two years later, folks in D.C. gave Verizon some relief from competition

Comcast CEO Brian Roberts explained why he moved quickly to DOCSIS 3.0. "I looked Ivan in the eyes when we shared a stage. I could see he was going to build Fios and we would have to do something. When I got back to the office, I told my people to do what we had to do to keep up." What became DOCSIS 3 was then just some proposals from engineers like John Chapman. Suddenly, Comcast wanted it, funded CableLabs to advance the research, and pushed suppliers, like Chapman's Cisco, to deliver the equipment ASAP.

Market Demand

AT&T was overwhelmed by the success of the iPhone and the network couldn't handle it. Meeting that demand was the second reason they raised capex from ~$18B to ~$22B for a few years.

Underlying financial problems

Charter actually went broke a few years ago. Before and after the bankruptcy, they cut capex drastically. When Malone took over, they were able to again invest and soon were beating the DSL competition.

Deutsche Telekom has not made enough profit to cover its dividends the last few years. So they held off upgrading their DSL despite losing many customer to the cablecos that cover 2/4rds of Germany.

(Would an increase in profits mostly go to investment? Probably not. In most cases, including DT & AT&T, the companies have pledged they would use the money to increase dividends. That is the primary fallacy in "investment incentives," a euphemism for higher profits. The telco lobbyists and those who believe them assume most of the increased profits would be reinvested. Some will be, but it's usually just a small fraction. The policy goal is "investment," not "investment incentives." Unless you have reason to believe the "incentives" would actually be invested, you been bamboozled.)

Equipment cost

DOCSIS 3 upgrades cost as little as $20/home, so 80-90% of cable lines in the U.S. were upgraded within a few years. The increased speeds (from ~ 10 megabits down to ~50 megabits down) allowed that repaid the costs many times over. Europe wasn't far behind. The economics were so favorable that most of   

(The $20 estimate comes from a NY TImes interview by Saul Hansell of  Liberty CTO Balan Nair. I think Balan's cost was  lower than others because he had planned ahead, but even using my higher figures the upgrade cost was minimal.)

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In D.C., even the smartest and best informed severely overestimate the regulatory impact on investment. Increasing telcos profits does give them some "incentive," but I've never seen evidence it's been more than minimal. For example, Michael Pai used a deep,y flawed study to claim that U.S. "lighter regulation" produced higher speeds than European "stronger regulation." A smart scholar I think honorable made that claim based on the datum U.S. landlines were somewhat faster.

In fact, the U.S. networks would have been faster if the FCC Chairs were Democratic, Republican, or even trained monkeys. SInce ~1997 or so, the U.S. has had 95% cable coverage, built for video. Nearly all of that was upgraded to DOCSIS 3.0 by the time C. did the study a few years ago. Conversely, the major countries in Europe have much lower cable availability. Italy has almost none, France and Spain about 35%, England ~50% and Germany ~65%. Cable is so much faster than most DSLs, the difference in cable penetration explains much or all of performance difference. 

The study was wrong because it wasn't adjusted for "confounding variables." The end of AT&T's LTE rollout and the near insolvency of Sprint two years ago had such a large effect any claim about NN was swamped.   

Anyone who doesn't realize how few of the telecom policy analyses are worthwhile needs to read John Ioannides' historic paper, Why Most Published Research Findings Are False. In 2005, Stanford Professor Ioannidis took a sample of papers from the leading medical journals and discovered about half of them fell apart because of sloppy statistics. Few believed him at first but his findings have been repeatedly confirmed. The policy papers are far worse than the medical ones, many of which included a double-blind control group and much larger samples. Ignoring confounding variables was one of the common problems.  

Read the paper closely if you haven't. I bet if the papers submitted to the FCC or presented at TPRC were similarly examined, 90% would be found inadequate.  

B______ is nearly universal in the statistics presented by both sides in telecom policy.

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Note: No new company has gained even a 2% market share in the last 15 years. I strongly support community networks and small entrepreneurs, but it's highly unlikely any will have enough coverage to make a difference in the next decade. If we want to have an impact on the service and costs of 90%, policy needs to influence these very few dominating companies.

Nobel Laureate Gary Becker, in a 2009 Verizon-funded paper, pointed out there were circumstances where modest competition or even the threat of competition could have an impact. He drew on the work of University of Chicago colleagues George Stigler and Milton Friedman, who also won Nobels. Since essentially none of the smaller companies have grown to significant size in fifteen years, that shouldn't apply here. Becker suggested Clearwire and Open Range as possible factors. Both failed miserably in the interim. 

From Leichtman, recent broadband totals. They all have different amounts of video, wireless, etc. but broadband figures are a fairly robust proxy

Broadband Providers Subscribers at End
of 1Q 2017
Net Adds in
1Q 2017
Cable Companies
Comcast 25,131,000 430,000
Charter 23,051,000 458,000
Altice* 4,002,000 39,000
Mediacom** 1,179,000 17,000
WOW (WideOpenWest) 729,000 10,100
Cable ONE 523,327 9,419
Other Major Private Company^ 4,830,000 40,000
Total Top Cable 59,445,327 1,003,519
Phone Companies
AT&T 15,695,000 90,000
Verizon 7,011,000 (27,000)
CenturyLink 5,945,000 0
Frontier 4,164,000 (107,000)
Windstream 1,047,600 (3,500)
Cincinnati Bell 307,400 4,200
FairPoint 305,353 (1,271)
Total Top Telco 34,475,353 (44,571)
Total Top Broadband 93,920,680 958,948

The world needs a good news source on Internet and telecom policy. I hope to create one. Catch a mistake? Email me please.  Dave Burstein

Latest

Professor Noam's "Many Internets" http://bit.ly/ManyNets

Until about 2010, everyone agreed the Net was a "network of networks," not a monolithic entity. There was a central authority, ICANN, keeping track of domain names, but that was a minor administrative function.
Columbia Professor Noam suggests we might be better off accepting that some nations or groups might want to organize their networks differently. It's easy to see demand for an Internet with much more effective filters against material some think harmful to children. (Any 10 year old can easily find porn today. Many do.)
Internet translation is getting better very quickly. You might want an "Internet" that translates everything into your language. Google Chrome translation isn't perfect but I was able to research most of this story on Russian language sites. With a few more years progress, I might welcome an alternate that brings me everything in English, including caching for better performance.
De facto, Internet news is already split, as hundreds of millions only get their news from Facebook. Google AMP pages, including for news, also favor selected parts of the net
Centralizing the DNS doesn't prevent censorship, as the Chinese have demonstrated. There are many Jewish and Muslim fundamentalists who want to block what they consider blasphemy and limit free speech. See http://www.nytimes.com/2012/05/21/nyregion/ultra-orthodox-jews-hold-rally-on-internet-at-citi-field.html . More from Noam http://bit.ly/ManyNets

Russia Orders Alternate Root Internet System http://bit.ly/RussiaDNS
It's actually practical and not necessarily a problem.The Security Council of the Russian Federation, headed by Vladimir Putin, has ordered the "government to develop an independent internet infrastructure for BRICS nations, which would continue to work in the event of global internet malfunctions ... This system would be used by countries of the BRICS bloc – Brazil, Russia, India, China and South Africa." RT
Columbia University Professor Eli Noam and then ICANN CEO Fadi Chehadé have both said such a system is perfectly practical as long as there is robust interconnection.
Actually, the battle over ICANN and domain names is essentially symbolic. Managing the DNS is a relatively insignificant task, more clerical than governing. ICANN Chair Steve Crocker pointed out they had very little to do with policy.
Some will claim this is about blocking free speech but that's rhetoric. Russia doesn't need to fiddle with the DNS for censorship, as the Chinese have demonstrated. The wonders of the Internet will continue so long as the resulting nets" are robustly connected. The ICANN and U.S. policy goal should be to help create that system for interconnection.
I expect contentions that “The Russians are taking over our Internet” and “They are splitting the Internet.” The Internet is a “Network of Networks.” It is not a monolith so what would “splitting” it mean or do?
After the WCIT, China realized that ICANN and the DNS are side issues not worth bothering about. They have been building alternate institutions including the World Internet Summit in Wuzhan and the BRICs conferences.  The Chinese have put their main work where decisions that matter are made. Wireless standards are set by 3GPP, where nothing can be approved without China's consent.
The American battle at ITU is proving to be a historic mistake.
Why does Russia want an independent Internet?
They fear that Western sanctions on Russia could cripple the Russian Net. Communications minister, Nikolay Nikiforov, worries about, "a scenario where our esteemed partners would suddenly decide to disconnect us from the internet." I think that's highly unlikely but Nikiforov points out, “Recently, Russia is being addressed in a language of unilateral sanctions: first, our credit cards are being cut off; then the European Parliament says that they’ll disconnect us from SWIFT."
It makes sense for the Russians to be prepared for such a contingency as the Cold War has been warming up on both sides. "Britain's top military chief Air Chief Marshal Sir Stuart Peach just made headlines warning Russian subs "could CRIPPLE Britain by cutting undefended undersea internet cables." Much more http://bit.ly/RussiaDNS

ICANN Continues Excluding Russia & China From the Board http://bit.ly/CEOPromises
No wonder Russia wants an alternate root. Three years ago, ICANN CEO Fadi Chehadé promised "a seat at the table" to Chinese Premier Li. ICANN welched and this year added two more Americans.
Almost all the ICANN board is from the U.S. and close allies; only about 4 of the 18 board members are from countries on the other side of the North/South divide in Internet policy.  Claiming ICANN represents the Global Internet is inappropriate. China is 1/3rd of the Internet but has no representation on the board.
I know many of the board members. They are all basically honorable but generally share a strong opinion on North-South issues.
Larry Strickling of the U.S. government knew just what he was doing with the IANA transition. He handed over to a board with similar positions as the U.S. government.
"The system is unsustainable while it excludes half the world," I have been saying since 2012. More, including the transcript of Fadi's statements,http://bit.ly/CEOPromises

Sorry, Ajit Pai: Smaller Telcos Did Not Reduce Investment After NN Ruling http://bit.ly/SorryPai
Pai justifies his NN choice with the claim, "The impact has been particularly serious for smaller Internet service providers." #wrong (Actually, NN has minimal effects on investment, up or down, I’m convinced. Competition, new technology, customer demand and similar are far more important.)
The two largest suppliers to “smaller ISPs” saw sales go up. Adtran's sales the most recent nine months were $540M, up from $473M the year before. 2016 was $636M, 2015 $600M. Calix the last nine months sold $372M, up from $327M. The full year 2016 was $459M, up from $407M in 2015. Clearfield, a supplier of fiber optic gear, was up 8% in sales in the smaller ISPs.
There is nothing in the data from others that suggests an alternate trend. Anyone could have found this data in a few minutes from the company quarterly reports.
The results in larger companies are ambiguous. I can "prove" capex went up or went down by selecting the right data. The four largest companies' capex - two/thirds of the total - went up from $52.7B in 2015 to $55.7B in 2016. The result remains positive after making sensible adjustments for mergers and acquisitions. That's as close to "proving" that NN led to increased spending as the facts chosen to prove the opposite.
Actually, whether capex went up or down in 2016 tells us almost nothing about the choice on neutrality. Everyone knows a single datapoint could be random or due to other causes. Much more, including the source of the errors http://bit.ly/SorryPai

Elders Bearing Witness: Vint, Timbl, & Many More http://bit.ly/VintTim
Vint Cerf, Tim Berners-Lee, Steve Wozniak and more than a dozen true Internet pioneers wrote Congress to protect Neutrality. The best Congress money can buy didn't listen but I wanted to reproduce their letter.
I hope they are wrong believing "is an imminent threat to the Internet we worked so hard to create." My take is the impact will be moderate in the short run.
From the letter:
We are the pioneers and technologists who created and now operate the Internet, and some of the innovators and business people who, like many others, depend on it for our livelihood. ... The FCC’s proposed Order is based on a flawed and factually inaccurate understanding of Internet technology. These flaws and inaccuracies were documented in detail in a 43-page-long joint comment signed by over 200 of the most prominent Internet pioneers and engineers and submitted to the FCC on July 17, 2017.
Despite this comment, the FCC did not correct its misunderstandings, but instead premised the proposed Order on the very technical flaws the comment explained. The technically-incorrect proposed Order ... More, including the full list, http://bit.ly/VintTim