Tech

Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

Complaining about mobile phone companies is pretty much a national sport. But Americans have a fresh reason to root for the big, bad monopolists at Verizon and AT&T.  

The companies are testing an emerging technology that lets them use wireless airwaves to replace the last bit of internet lines to homes and businesses. That "last mile" tends to be the most expensive part of building fast broadband networks because it requires digging up streets and sending technicians inside buildings to drill holes and stretch wires. 

Starting as early as next year, AT&T Inc. and Verizon Communications Inc. are saying their shortcut of mixing wired and wireless technology gives them a chance -- really for the first time -- to offer broadband across the U.S. on similar footing with cable TV companies, which are the country's dominant providers of high-speed internet service. (The technology, confusingly named "fixed-wireless" in telecom jargon, will also be the first use of 5G, the next phase of mobile networks.)

Look Ma, No Wires
Cable TV companies are the biggest providers of U.S. internet service, but AT&T and Verizon hope a new wireless technology can help them land more internet customers with faster speeds
Sources: Bloomberg Intelligence and SNL Kagan
Figures are from 1Q 2016. Charter customer numbers include Time Warner Cable, which Charter acquired in May. Figures for AT&T and Verizon include both fiber Internet and DSL customers.

It feels odd to urge one set of monopolists, the phone companies, to put competitive pressure on another set of monopolists, the U.S. cable industry. But internet ironies abound in the U.S., where people tend to pay more than citizens in other countries for often inferior broadband speeds. Given the challenges both technical and financial for wireless-aided broadband service, the best read right now is the phone companies may be able to improve America's sub-par internet service, although not necessarily for everyone.

That's not a great slogan to put on a banner, but it's better than the status quo. About 61 percent of Americans have at most one choice of a home internet provider that offers download speeds of at least 25 megabits per second, according to the FCC's 2016 Broadband Progress Report. And that's actually a pretty slow connection. Verizon and AT&T say their tests of wireless-aided broadband service have delivered internet speeds of 1 gigabit or more -- 40 times as fast as a 25-megabit connection -- which would mean downloading a high-definition movie in 10 seconds. Analysts say this new internet technology could lead to a 20 percent discount to broadband from the cable companies. 

Slim Pickings
About 61 percent of Americans have at most one choice of a home internet provider that offers download speeds of at least 25 megabits per second
Source: FCC's 2016 Broadband Progress Report

Faster internet service with lower bills sounds great, but it's too early for consumers to uncork the champagne. There are still technical challenges to overcome. For example, it's unclear how close the physical internet fiber lines have to be to a home or neighborhood to make it feasible to rely on wireless airwaves for the last hop of internet service. Some building materials like brick can be tough for wireless airwaves to penetrate, and even dense foliage from trees can be a problem. Suburban areas will prove particularly thorny. 

In short, the diverse geography and sheer size of the U.S. makes it a tough place to service with internet. Wireless technology is one weapon to tackle those challenges, but it won't be useful everywhere. Because of those difficulties and uncertain economics, New Street Research has estimated Verizon might be able to reach less than 5 percent of U.S. homes with wireless technology ferrying internet signals the last mile. 

Another worry is Verizon and AT&T have a history of talking up big commitments to broadband only to quietly shelve them when the return on capital invested didn't pan out as they hoped. Neither will want to splurge on capital expenditures to take on the cable industry for wireless-aided broadband unless it can be done profitably.

AT&T Chief Executive Randall Stephenson has been overselling the promise of wireless-assisted broadband as he lobbies for his planned takeover of media giant Time Warner Inc. He has said -- dubiously -- that the new wireless technology will help AT&T become a competitor to cable company broadband service in five years. It's way too soon to know whether this is true. 

The wireless broadband experiments will have implications beyond the United States as well. Telecom and cable companies globally tend to be wary of spending billions to build the much faster broadband networks that underpin the modern economy (and all our cat videos) because they aren’t sure they'll make decent returns. Regulators have tried every size of carrot and stick to little avail, save for simply offering big subsidies as Sweden, South Korea and Japan have done.

Continuing the ironies of U.S. internet service, wireless-aided broadband could actually make the U.S. cable industry stronger and decrease competition in internet service. That's because even with wireless airwaves helping in the last mile, the company with the most wires still wins, in the words of cable industry analyst Craig Moffett. Still, the phone companies don't need to beat the cable guys everywhere. When it comes to broadband in the U.S., every little bit of extra competition helps. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Cable companies are also deploying 1 gigabit speed internet services in some spots around the U.S.

To contact the authors of this story:
Leila Abboud in Paris at labboud@bloomberg.net
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net