Tuesday, November 1, 2016

Hello Wireless Loops. Goodbye Fiber? (Part 2)

Last week, I posted three scenarios examining AT&T's mobile LTE coverage of high cost-eligible homes under the FCC's Connect America Fund Phase II program. That analysis assumed AT&T would be using their existing mobile network and licensed LTE spectrum...

Turns out, that was a rosy assumption.

Since last Friday, I received more information from Steve Blum about AT&T's plans to deploy wireless local loops (thanks, Steve!). Rather than revisit the issues, I want to make some corrections and comments to my previous post.
  1. AT&T plans to deploy a new technology for wireless local loops whose "success in the marketplace is thus unproven." (paragraph 51 of their SEC 425 filing). For more, see #1 below.
  2. Rather than use licensed LTE spectrum, which includes the incredibly valuable 700 MHz band, it appears AT&T will be using a higher frequency (2,300 MHz, or 2.3 GHz), which requires line of sight between cell tower and customer location. For more, see #2 below.
  3. Other risks include spectrum constraints on the number of subscribers who can use the service simultaneously during peak usage, and this "reduce[s] the prospects for a successful rollout by AT&T of fixed WLL as a standalone product." For more, see #3 below.
1. Did AT&T Say They'll Need More Cell Sites? 
Group President and Chief Strategy Officer John Stankey's testimony, which is part of AT&T's Form 425 filing for the DIRECTV acquisition, states: "A fixed [wireless local loop] service requires substantial upfront investments. AT&T must install additional antennas and other equipment at each cell site in areas it seeks to serve." (paragraph 50). 

There's no mention of needing more cell sites. 

Modifying existing cell sites is one thing. Acquiring, permitting, and building new sites is completely different. As one El Dorado County supervisor says, new sites are very controversial because of their "aesthetic downside." Aside from having to find property and possibly develop it, there's the sticky problem of getting community buy-in for more cell towers. 

If AT&T plans to use a higher frequency like 2,300 MHz for wireless, they will need to add cell sites. That takes time. Finding additional sites, much less building new ones, will have a significant impact on AT&T's ability to deploy wireless local loop services in a timely manner. It also puts more pressure on local governments to expedite site approvals. 

How many new sites are needed? To get an idea, here is AT&T's presentation to the El Dorado County Board of Supervisors. AT&T estimates they'll need to modify 4 cell towers and add 34 new locations -- either collocated on existing buildings or newly constructed cell sites. 38 locations seems insufficient to serve all of El Dorado County’s high cost-eligible CAF II households, so maybe this is the first phase in AT&T’s five-year rollout. 

2. Frequency Matters 
There are solid engineering arguments why 700 MHz is more valuable than 2,300 MHz for delivering wireless broadband to homes. I’ll address only the line of sight argument. The larger-wavelength 700 MHz frequency penetrates buildings and foliage better than the shorter-wavelength 2,300 MHz frequency. For 2,300 MHz service to reliably deliver broadband, there needs to be line of sight, meaning you can physically see, without obstruction, between cell tower antenna and customer antenna. Without line of sight, service will be less reliable than with 700 MHz. Many parts of rural California are mountainous and have trees, which makes line of sight broadband difficult and expensive to deploy.

Home in El Dorado County with Trees Obstructing Line of Sight


Diagram showing line of sight wireless broadband. No obstructions allowed.

Diagram showing non-line of sight wireless broadband, e.g. 700 MHz


Credit: L-Com Connectivity, www.L-com.com 

3. Is Wireless Local Loop Service Viable Without Video? 
AT&T’s Form 425 testimony mentions the importance to their revenue stream of bundling broadband (through WLL, U-Verse, or their fiber product, GigaPower) with video (through DIRECTV), voice, and even mobile. As John Stankey stated, capacity constraints reduce the prospects of WLL as a viable standalone service. Put another way, WLL might be financially viable only if a subscriber opts to subscribe to video and/or mobile as well.

The prospect of adding new satellite and cable television subscriptions is dubious in today’s marketplace. One study claims that more than 40% of satellite and cable subscribers are planning on cutting back or dropping their pay TV service. Broadband data from the CPUC's 2013 annual report on the Digital Infrastructure and Video Competition Act indicates that California's state video franchise holders now provide more broadband service than video service.

That doesn’t bode well for AT&T’s DIRECTV subscribers, some of whom may be switching to over-the-top services like Netflix or Amazon Prime and require only a reliable internet connection to watch shows. To underscore that point, AT&T's Form 425 filing for the DIRECTV acquisition includes an economic assessment, which states "higher Internet access speeds will erode the traditional advantage that DIRECTV's satellite network has given it" over video on demand providers like Netflix. (page 54)

More on AT&T’s proposed WLL broadband service (from the El Dorado County video):
  • Broadband speeds must meet or exceed 10 megabits per second down and 1 up
  • Latency should not exceed 100 milliseconds
  • Initial minimum usage allowance of 150 gigabytes per month
  • Monthly rates must be comparable to fixed wireline urban rates for the same level of service in urban areas or at or below the FCC Annual National Rate Benchmark (approx. $72/month)
  • AT&T must meet specified deployment milestone dates by state
    • 40% built by year-end 2017
    • 60% by year-end 2018
    • 80% by year-end 2019
    • 100% by year-end 2020-21

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