The Telecom Value Story, The FCC Router Ban Threatens a New Digital Divide

Full Transcript

Don Kellogg 0m10s

Hello and welcome to the two hundred and eighty ninth episode of the week with Roger, a conversation between analysts about all things telecom, media, and technology by Recon Analytics. I'm Don Kellogg, and with me as always is Roger Entner. How are doing, Roger?

Roger Entner 0m23s

I'm great. How are you?

Don Kellogg 0m24s

I'm good. So there's a couple news items I thought would be good for us to talk through. The first of which is we've now got some router bans that have been announced. Why don't you tell us about it?

Roger Entner 0m36s

So the FCC instituted a router ban for all routers that are not built in The United States.

Don Kellogg 0m44s

Which is basically all routers, right?

Roger Entner 0m46s

Mean Which means all routers, right? For all intents and purposes. Yeah. You know, one of the major components in routers is memory. And memory, as everybody hopefully knows, has become ridiculously expensive, to the point where it has become very difficult for routers to get these.

Roger Entner 1m5s

And now, the second whammy is they have to be built in The United States. My son wasn't born when the last router was built in The United States, and he's 24 years old. We have moved this low value add activity overseas. Now, should we have put this into China? Maybe not.

Roger Entner 1m24s

But we put it in the cheapest place. Is there a supply chain risk that somebody might put a component in the router that allows some people we don't want to, to have like a backdoor that you can't close? Yes, it's possible. Now, do we need to shut down the entire supply chain? No, because that genie is out of the bottle, right?

Roger Entner 1m48s

Everybody has now a router made in China. Without a new router, when you move, you either need a old router and how much people want to have refurbished routers, I don't know. Or if they want to switch to something like FWA, there's nothing. A router ban de facto closes down switching for a ton of people. It makes it almost impossible for FWA to grow.

Roger Entner 2m17s

When people are moving, they can't be reconnected with a new router. We are all concerned about a digital divide. The new digital divide will be between the people who move and the people who don't move.

Don Kellogg 2m30s

Well, I mean, good news is interest rates are still high, right? So we know that a lot of people get new Internet when they move, and that's one of the primary drivers of moving. So if that's down but that having been said, you know, we don't wanna create a digital divide between people who have routers and people who don't. Right?

Roger Entner 2m45s

Exactly. And it's 11,200,000 households moved last year. So that's a lot of people. And a lot of them couldn't take their router with them. And so if this ban is held up for too long, this has major, major follow in effect for the industry.

Roger Entner 3m8s

People who are unhappy with their current provider can't go to a new provider.

Don Kellogg 3m13s

Well, maybe folks will finally get a chance to use all those hotspot gigs, right, that nobody uses.

Roger Entner 3m18s

Well, you can't have that either. Yeah, or it will

Don Kellogg 3m21s

go Yeah, to the make Yeah. Your

Roger Entner 3m23s

You know, and if you're an AT&T customer, you suddenly get 20 gigs more for a $20 price increase, which happened this week too, which I found interesting. But okay. And talking about things getting more expensive, at the same time, you know, I published a note last week on how actually when we look at wireless service, it got significantly cheaper since the beginning of 2017. It got 10% cheaper. Home internet got like 11% more expensive.

Roger Entner 3m54s

On average, everything got 33% expensive since '17. And I wrote this in a particular look of for rural America. Everything else is getting like a lot more unaffordable. The outlier that I saw was like car insurance, 73% more expensive. Vehicle maintenance, 56% more expensive.

Roger Entner 4m17s

And so the telecom industry, in an inflationary environment where everybody talks about affordability, has delivered in wireless case for cheaper or for the home internet substantially below the rate of inflation. Remember, they employ people and they had pay raises for this. And so that's really a significant contribution that the telecommunications industry, wireless and wireline, has done for the American people.

Don Kellogg 4m46s

Yeah, I mean, feel like, as you say, everything has seemed to have gotten more expensive and the aggregate numbers ferret out,

Guest Speaker 4m52s

you know, my phone bill is still the

Don Kellogg 4m54s

same as it was four years ago.

Roger Entner 4m56s

Yeah, and people in a way take it for granted when everything goes up. And even if for people, the nominal amount went up, what they get for it is a lot more. And yes, in AT&T's case, people on legacy plans, the price went up by $10 for individual lines and 20 for people on a family plan. They're getting 20 gigabytes of data more. They are delivering data when they're delivering value for this.

Roger Entner 5m23s

And we know that the people who who like hotspots absolutely love hotspot. It's one of those things.

Don Kellogg 5m30s

Yeah. It looks like you don't need it all the time, but when you do really need it, you really need it. Right?

Roger Entner 5m34s

Yeah. And that 20 gigs will come handy. But yeah.

Don Kellogg 5m37s

Right. Exactly.

Roger Entner 5m39s

Okay. Alright.

Don Kellogg 5m40s

We'll talk to you next week.

Roger Entner 5m42s

Talk to you next week. Bye bye.