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Price rises cost Verizon 107K DSL subs
Tuesday, 26 January 2010 15:35
Dave_Ivan_Seidenberg_Dick_WileyFiOS grew 153K, lousy when you consider they are opening for sale 700K additional homes every quarter. Some of those are DSL conversions, while in non-FiOS areas Verizon is significantly losing DSL customers. "You've raised prices for FiOS and some of the low-end DSL stuff," Bank of America noted in the investor call. Chris King adds, "subscriber growth continues to slow as the company has placed a renewed emphasis on profitability over market share." Ivan Seidenberg explains why they are taking the short term fix of a price rise. "We do need to balance a little bit of profitability to make sure that where the economy is hurting us that we offset some of that by not being too aggressive on the FiOS side." That's me on the left asking Ivan a question about femtocells.

Verizon and AT&T have raised basic DSL prices by a third the last few years, by far the most significant reason people aren't taking broadband. They've just raised wireless data prices by as much as 50% (Pali Research), trying to create a wireless data price cartel as the wireless voice cartel is fraying. I have excellent Verizon mobile voice (via TRACFONE/Telmex) for about $15/month for 150 minutes, which is all I need if I don't make long calls. While serving all the data customers is straining some networks (not Verizon), there is massive overcapacity on mobile voice, with a negligible marginal cost/minute. The overcapacity will only expand as LTE deploys, doubling and quadrupling bandwidth. Ivan explains

"As we move into 2011 and we start to get into full deployment of LTE, we're going to get a big, big improvement in terms of our efficiency. And so we are feeling good about that. ... I don't think at this point there's anything to worry about.”

Verizon announced another 13K layoffs, bringing the 2008-2010 total over 40,000.

Last Updated on Tuesday, 26 January 2010 19:30
 
British Telecom: $40 for "40" down, 10 up
Thursday, 21 January 2010 14:28
bt_booth_ingyVirgin is selling 50 down DOCSIS 3.0 for £28 and winning many customers from BT according to rumor. BT responded by finally starting construction on their DSL/fiber upgrades, after delaying in the hope of a big government subsidy.  To stay in the game BT has set the price at £20 for a 20 gigabyte/month "up to 40 down" plus initial charge and £25 for a more appropriate "unlimited" 40 down, 10 up service. $32-40 is cheaper than AT&T (24 meg $65) but more expensive than France. Fewer than 40% of Britain will be reached in the next two years, the vast bulk in the half the country that Virgin is serving. Most of the other half of Britain will half to wait years before they get 21st century Internet speeds. Andrew Parker (FT) reports BT is demanding a government subsidy to do even DSL/FTTN upgrades for most of the country. Given that AT&T will already have reached 70% with FTTN by then without subsidy, and Verizon 70% with fiber all the way home, it's hard to see why BT can't afford more investment.

"Up to" speeds are inherently deceptive, of course,

Last Updated on Monday, 25 January 2010 23:26
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Premier ministre Demands Broadband Price Cut
Wednesday, 20 January 2010 02:44

Fillon_a_true_geek20 euro ($28) is the right price for broadband + phone, Le Premier ministre Francois Fillon has decided, and has asked the Minister of Industry to make it so  That's unlimited landline calls nationwide + DSL "up to 22 meg", which would cost twice as much or more in the U.S. "I hope that within six months, all operators who wish to can offer a special social to allow low-income households access the Internet at attractive conditions. This offer social should be around 20 euros"(LePoint, Google translation)

"The Internet has become an essential tool in the same way as electricity.Access to an affordable price is an imperative of social justice. I hope that by six months, all operators who wish to can offer a special social to allow low-income households access the Internet at attractive conditions,"
Last Updated on Monday, 15 February 2010 00:52
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Broadband economic impact: Probably good
Tuesday, 12 January 2010 00:33
John_Henry_hardworking_manJed Kolko has just finished the most thoughtful paper on the economic benefits of broadband I've read. He's presenting it at NAF in D.C. on Wednesday 13 January. Kolko finds a "positive empirical relationship" between availability of broadband in the U.S. early this century and economic growth. He goes on to point out that doesn't imply "broadband expansion causes economic growth." "The reverse might actually be true," he points out, "if broadband providers choose to offer or expand service in areas that are growing faster." During that period Bellsouth emphasized a "smart build" that looked at factors like the local economy. That might be a substantial confounding variable, although Kolko looked for effects like that and sees little evidence they are the explanation.

"The overall relationship between broadband expansion and employment growth, as measured by the NETS, is positive." That's good news, and corresponds to my belief that broadband is a good thing. However, "both the average wage and the employment rate—the share of working-age adults that is employed—are unaffected by broadband expansion. The economic benefits to residents appear to be limited. ... Broadband expansion is associated with no change in average pay per employee and a decrease in median household income. Broadband expansion has no statistically significant relationship with the employment rate. ... the economic development benefits of broadband are ambiguous."

Last Updated on Monday, 15 February 2010 01:02
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Lantiq: Wireless HD TV Works
Wednesday, 06 January 2010 11:36
Christian Wolff promises "flawless and unobstructed HD-Video streaming over Wireless-LAN without making any compromise to Quality-of-Service," after taking over the Metalink 802.11n MIMO. Wireless HDTV has been promised so many times, by Metalink and many others, that no one believes it's finally working. Wolff is confident the new 65 nanometer Metalink chips will convince people. His investors are putting up $17M to buy key assets after Metalink itself ran out of funds.

Metalink was a remarkable outfit whose VDSL chips were close in performance but half the price of the competing DMT designs that eventually won out. Send me some thoughts and company history for my next issue,
Last Updated on Wednesday, 31 March 2010 05:50
 
Hundreds of DSL Orders Hostage in Pakistan
Monday, 04 January 2010 03:33
As Pakistan reports thousands of deaths in a civil war, business as usual continues in much of the country. Pakistan Telecommunication Company Limited - controlled by Etisalat - is failing to connect hundreds of orders from customers of competitors. PTCL "said there is a technical glitch which is being sorted out and the provisioning shall resume as soon as possible. The PTCL did not give a timeframe." (The News International).

The incumbent tactices resemble those in the developed world not long ago. PTCL "is creating delays in connections of its competitor ISPs. ISPs and PTCL have a history of bitter relations with formers accusing the only fixed line operator to adopt strong-arm tactics, anti-competitive behaviour, and predatory pricing. (Daily Times)"

DSL has doubled to 332K lines in the last year, while WiMAX from Wateen has come from nowhere to 150K lines. Ultimately, the Pakistani Internet will be wireless. The country has fewer than 3.5M landlines and the number is falling, compared to an official figure of 96M wireless connections. Thanks to Aamir Attaa and propakistani.pk for reporting that informed this article.


Last Updated on Monday, 04 January 2010 13:04
 
Vodafone, O2, Bouygues: Emerging DSL Giants
Friday, 22 January 2010 03:37

Giant_Ainu_StatueJust as we were giving up on new DSL competitors, the European wireless companies have been ramping up. Vodafone has added 1.1M fixed broadband lines in 12 months, reaching over 5M customers and investing to go after more. That includes 3.3M in Germany and 1.1M in Italy. Voda has plenty of room to grow; they have 34M mobile lines in Germany, 22M in Italy, 18M in Britain, and 16M in Spain. Voda in Germany is offering seven months free for new customers, with a price of 29,95 € for “up to 16 megabit” service + telephone.

O2/Telefonica has 22M mobile customers in Britain but only 527K DSL lines. So they are offering “up to 8 meg DSL” plus unlimited landline calls to 20 countries for £20, about $32. Their German branch is offering four months free. Bouygues Telecom, the #3 French wireless company, decided they had to offer a bundle with DSL and built a network. With a quadplay at 44 euro, including wireless, they won 100,000 customers last quarter.

Except for Italy, these deployments are all in countries with relatively strong competition policies. The pattern has been to sign on to the incumbents' resale to offer immediate coverage in most of the nation while building an unbundled network. There's no reason to think mobile carriers in countries without strong CLEC results are likely to enter the market. For example, there's no sign any of the U.S. or Canadian mobile companies are expanding fixed offerings.

 
Goldman. Morgan behind Calix IPO
Wednesday, 20 January 2010 04:14
E7_CalixCarl Russo wasn't able to IPO his last company, Cerent. Cisco pre-empted the stock offering with a $7B takeover, probably the most remarkable of the boom era. That's not likely to be repeated, but with two of the biggest names on Wall Street the Calix IPO has great prospects.

Calix as a private company has reached annual sales of over $200M, selling access systems to the regional U.S. carriers. About a third of their sales went to CenturyLink, while a second company (?Windstream) took another 11%. TDS, one of the few funded in RUS stimulus round one, has also been a Calix customer. These carriers have been actively installing 20 meg ADSL2+/VDSL systems for several years, including field terminals, as they deploy more aggressively than the bells. The smaller U.S. telcos are often installing Calix GPON gear, which CenturyLink is using for cell tower backhaul as well. Many of the smaller carriers are buying GPON systems from Calix. Leaving out the Verizon contract, Calix/Optical Solutions is the leading GPON merchant in the U.S. other than at Verizon.

Russo put in $12M earlier this year, part of a private funding round that included $10M from Adam Grosser's Foundation Capital. Foundation had invested $20M in 2007, and is one of five VC firms that own between 6% and 9% of the company. Russo owns 15% of the company, 7M shares.

Last Updated on Monday, 25 January 2010 23:35
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Rural France, Ireland, Australia, U.S.: You Get Satellite
Tuesday, 19 January 2010 21:39
KA_coverageFrance's Natalie Kosciusko-Morizet has allocated 250M euros to satellite while Jonathan Adelstein at RUS has added a dedicated round of stimulus funding. Using satellite for about 1% of homes cuts the cost of universal U.S. "broadband" from $20-35B by about half.  Les Echoes/EUTELSAT estimates 750,000 French homes won't get fiber and are candidates for satellite. In Australia, NBN chief Mike Quigley will reach a "few percent" with satellite, capacity he may build or buy. They just started an RFP. 

Mark Dankberg of Viasat told an FCC workshop the new satellites for 2011 can deliver 5-10 megabits with improved latency, and EUTELSAT has a similar megabird planned for Europe later this year. Satellite bandwidth is shared in a complex fashion, but with a gigabit of spot beams available that speed is plausible.

The current French offering from SFR/Tooway is 34.90€ for download speeds of up to 3.6 Mbps and between 2.4 and 4.7 GB of data.

Last Updated on Sunday, 30 January 2011 20:44
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AT&T Wrong About ~Half the Broadband Unserved
Wednesday, 06 January 2010 11:58
"The customers who are easiest to serve already have access to broadband; the remaining unserved customers overwhelmingly live in sparsely populated, high-cost areas that cannot economically be served absent government support", from AT&T seems to make sense and similar is often said in D.C. Actually, it turns out that something like half the remaining unserved do not "live in sparsely populated, high-cost areas that cannot economically be served absent government support," as AT&T's filing presents as though it were fact. Getting this right leads to policy that would reach the unserved at billions less than the commonly estimated cost. Combined with using improved satellite for perhaps 1%, the $20B and $35B projections in the September broadband plan can easily be cut in half. So this is important.
  • Between 25% & 70% of the "unserved" do not cost prohibitively much because of sparse population but instead are hard to serve because backhaul locally is not competitive and costs 5-20 times what backhaul costs in competitive markets. I can buy transit for $5-15/megabit across several hundred U.S. cities, but some rural carriers are asked to pay $100 and even $200/megabit because there aren't competitive suppliers. This came up time and again at the FCC broadband workshops. This is not because of a shortage of fiber capacity; fiber in place can easily handle any likely increased load at very modest cost. Sometimes, this is monopoly suppliers "charging what the market will bear" when there's no effective market. Other times, the sole fiber supplier is the telco who does not want to make backhaul available to a possible competitor at a fair price.
  • This is the whole "middle mile" problem so visible in D.C. these days. There are some places without fiber, but they turn out to be amazingly few. The problem is cost. As I explain elsewhere, overbuilding to create a little competition is rarely the right policy. I believe the FCC will use "special access" to get rid of the worst examples.
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Moffett's The End of the Line(s)
Monday, 04 January 2010 20:27

End_of_the_lineWireline is declining worldwide, including fast-growing economies like China and India. Craig Moffett, one of the most interesting analysts, has run some numbers and come to the conclusion U.S. wireline is in worse shape than many think. He's advising underweight of the U.S. Telecommunications sector because of the issues. He calls it a "crisis."

I believe wireline only carriers - that's everyone in the U.S. except AT&T and Verizon - have an “uncertain future.” For two years I've seen the squeeze and Randall Stephenson saw it far before I did. Lines keep going down, DSL has little room to go up, price increases and job cuts are already extreme. It's tough.

Wireless is likely to continue growing for several years, with T & VZ likely pulling ahead. T & VZ have an enormous advantage over the other mobile carriers because they can efficiently shift much of the calling volume to their wired networks via WiFi of femtos. 40-50% of all calls are made from home or office, so that allows the two companies to virtually double their spectrum with an investment of a few $billion for gateways.

That means AT&T and Verizon, like wireless carriers everywhere, have strong incentive to maintain there wireline networks. Vodafone and Bouygues, recognizing that, have massively ramped their DSL. That's one more reason AT&T is unlikely to dump wireline. They need it for wireless competitive advantage.

What Craig is adding is that margins will be directly affected because there won't be any more room to cut because what remains is mostly fixed costs. DC has been passing this around with the question are they really dying, but not adjusting the broadband plan for that possibility. Major sand castles fall. Think about it. As Craig writes:
  • Wireline still accounts for more than half of Verizon's revenues (after adjusting for VOD's 45% stake in VZW), and a similar amount of AT&T's, yet, paradoxically, is often almost entirely overshadowed by the smaller Wireless business.

  • Investors tend to underestimate the likelihood that wireline revenue declines will be compounded by margin compression, and that the compression should accelerate relative to history, understating the importance of the segment to changes in profitability.

  • Since our analysis of state-level data though 2007, two things have happened. First, the rate of access line losses has accelerated. Second, broadband growth has slowed dramatically, reducing an offsetting ARPU tailwind for margins.

  • Indeed, if one were to also include the in-region wired portion of the wireless network as part of the broader wired picture (recall that the majority of any wireless network is… a wired network) then these companies' still-overwhelming dependence on their wired franchises becomes even more striking, with what is almost certainly three quarters or more of the revenues and assets depending on the wired infrastructure.

  • Because the margins of the to-be-sold properties are much higher than Verizon’s system
    average, a divestiture would reduce margins immediately by another 170 bps, all the way to the 22% range.
    Moreover, because their capex is much lower, it would leave operating cash flow (EBITDA less capex)
    lower by perhaps $900M in 2011.

Last Updated on Tuesday, 05 January 2010 16:52
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Special Report: Why AT&T Isn't Really in a “Death Spiral”
Monday, 04 January 2010 00:00

It turns out that AT&T (and almost all wireless companies) have powerful incentive to keep wireline alive because the wired backhaul is crucial to wireless success. Although Randall Stephenson's first speech as AT&T CEO was “We are a wireless company,” they are backtracking on letting the wired side die. Suddenly this quarter, AT&T and Verizon are massively promoting DSL. Wireless companies, they decided, need the copper to provide more bandwidth to wireless. DSL can thrive in a wireless world.

That's a crucial transformation that will preserve DSL/fiber's role long into the future. It's the path to “Thriving DSL in a Wireless World.” Wireless spectrum has important constraints and a crucial part of the solution is moving as much as possible over the existing wires. 40-50% of mobile calls are from home or office and can be carried via a femto or WiFi gateway. That's the design of the AT&T, Verizon, and most European networks in the next few years, wildly accepted in the industry.

The three parts

AT&T has a sensible filing that they should replace their big old switches with VOIP/softswitches, otherwise known as “turning off the PSTN.” I reported that back in 2003 from their CTO Ross Ireland (“it will take about ten years” because they were cutting capex) and BellSouth's CTO Bill Smith (who wanted to do it in five.) In effect, that's the architecture inside FiOS and U-Verse. No big news here, just common wisdom in the industry. Verizon's Paul Lacouture and Mark Wegleitner also planned this 2002.

AT&T has gone much further in their filing, talking about a “death spiral” and using that to demand:

  • major money ($billions) in increased universal service funding
  • knocking the remaining unbundled competitors off the network
  • eliminating any service quality requirements
  • and, most extreme, eliminating the fundamental requirement to serve everyone, which is absolutely required as part of public policy.


To justify such an extreme step, they make some extraordinary claims about their wireline network “death spiral” and the impossible costs they would face maintaining service. No government can accept ending universal service unless the company's financial situation is dire.

Unfortunately for the credibility of AT&T policy people, their CEO and CFO, as well as all their financial filings, suggest they are doing just fine.

My best guess (and Craig Moffett's analysis) is that AT&T is being somewhat optimistic on Wall Street (but not fraudulent). The FCC filing comes out of the rear end of a male cow. I welcome more facts.

 

AT&T's Death Spiral (?satire)
Written by Dave Burstein   
AT&T is telling the FCC they face a "death spiral" on the wired side. The solution they suggest: change USF to give them $billions in subsidy. "To achieve the "universal broadband" - a good thing - AT&T is asking for "explicit support" (Page 19) for their lines. Nearly none of the AT&T lines currently get USF, so this would be a substantial additional subsidy to AT&T.

The FCC has long argued that the Bells generally don't need a USF subsidy, which makes sense to me. As things stand, they are among the most profitable companies in the world. If that's really about to change unless they get "explicit support", they need to amend their financial filings.

AT&T also wants to kill any state or federal laws allowing competitors access and want the feds to eliminate any state "service quality requirements." Above all, they cannot accept the obligation to provide service to all, generally considered a crucial policy goal. (USF funding is about "universal service" in name only. Far too much is just a government giveaway like tobacco subsidies, unrelated to real needs.) To make the argument, T tries to separate their "POTS" business from DSL, but that's disingenuous. They run over and support the same physical network. Switching, fiber, and even billing systems are already in place and today contribute relatively little to the cost. T runs wireline as one network and the costs are shared.

If AT&T is telling the truth in D.C. about how desperate their finances are on wireline, CFO Rich Lindner apparently committed securities fraud in the last quarterly investor call. Half of T's revenue remains wireline; problems there imply severe problems for the company finances. If that's so, the December dividend increase was wildly inappropriate and the dividend should be heavily cut or perhaps eliminated. S & P would almost certainly need to drop the company's credit rating. Their last investor presentation would be "wildly misleading." (Suggestion: ask yourself whether it's more likely that AT&T's CFO and financial filings are fraudulent or that they are stretching the truth at the FCC?)

AT&T reported for the last quarter

* " $13.9 billion free cash year to date versus $ 7.9 billion over first three quarters of 2008"
* "Directional 32.1% year-over-year growth in Improvement in Wireline Consumer Trends"
* "Stable Consolidated Margins [with] Wireline operating expenses down 2.8%"
* "Continuing cost-improvement opportunities, including areas such as organizational and systems integration, order and billing center consolidation"
* Free cash flow of $13 9 for the first three quarters and dividends paid of $7.3B
* "Stable margins  – cost discipline across operations, wireline operating expenses down"
Three quarter capital expenditures totaled $11.6 billion versus $14.8 billion
Wireline revenues per household served increased 2.5 percent versus the year-earlier third quarter and were up 1.3 percent sequentially. This marked AT&T's seventh consecutive quarter with year-over-year growth in wireline consumer revenues per household.

As Craig Moffett points out in "End of the Line(s)" wireline is definitely hurting. But with $20B in cash flow annually, T is far from requiring a handout or a massive change in the regulations to favor them. Nor do they need this to cover the cost of extending broadband to the "unserved" beyond some fantasy figures. The September broadband plan estimate to bring ten megabits to 100% of the U.S. is $35B, of which the share covered by AT&T would be a total of perhaps $15B. Because the last 1% is truly remote and exceedingly expensive to serve, there's an emerging D.C. consensus that improved satellite is right for about 1%, which will cut that cost by a third. So the total cost to reach 99% of AT&T territory is about $10B, of which some will be covered by cable, profits from the customers reached, and government subsidy including the stimulus. Three months of AT&T cash flow - or 10% of three years spending - is enough for 99% coverage, without any additional subsidy. That's less than they have cut capex from 2008 to 2009, and clearly not an intolerable burden

Michael Balmoris of AT&T writes
"Our filing was the latest in a series of filings we’ve made over the last couple of years pointing out that the traditional POTS business model is in decline.  We did not ask for any additional USF in this filing; that is not that same thing as saying our view is that no additional USF funding is needed to achieve whatever broadband goal the administration may announce in its plan.

The POTS model is a collective model for all LECs.  Most of the remaining POTS lines are served by LECs for which the decline of the POTS model will be catastrophic. As consumers abandon POTS for other ways to communicate, the subsidies needed to maintain universal POTS will only increase, forcing carriers to spread the cost of providing POTS over a smaller customer base. At the same time, policy makers are intent on transforming the USF from a program that supports POTS to a program that supports broadband.   We can continue to meet the goals of universal service in a broadband world, but not as quickly or as efficiently as possible if we don’t plan for the end of the POTS model.  That is the point of our filing."

AT&T Wrong About ~Half the Broadband Unserved
"The customers who are easiest to serve already have access to broadband; the remaining unserved customers overwhelmingly live in sparsely populated, high-cost areas that cannot economically be served absent government support", from AT&T seems to make sense and similar is often said in D.C. Actually, it turns out that something like half the remaining unserved do not "live in sparsely populated, high-cost areas that cannot economically be served absent government support," as AT&T's filing presents as though it were fact. Getting this right leads to policy that would reach the unserved at billions less than the commonly estimated cost. Combined with using improved satellite for perhaps 1%, the $20B and $35B projections in the September broadband plan can easily be cut in half. So this is important.
  • Between 25% & 70% of the "unserved" do not cost prohibitively much because of sparse population but instead are hard to serve because backhaul locally is not competitive and costs 5-20 times what backhaul costs in competitive markets. I can buy transit for $5-15/megabit across several hundred U.S. cities, but some rural carriers are asked to pay $100 and even $200/megabit because there aren't competitive suppliers. This came up time and again at the FCC broadband workshops. This is not because of a shortage of fiber capacity; fiber in place can easily handle any likely increased load at very modest cost. Sometimes, this is monopoly suppliers "charging what the market will bear" when there's no effective market. Other times, the sole fiber supplier is the telco who does not want to make backhaul available to a possible competitor at a fair price.
  • This is the whole "middle mile" problem so visible in D.C. these days. There are some places without fiber, but they turn out to be amazingly few. The problem is cost. As I explain elsewhere, overbuilding to create a little competition is rarely the right policy. I believe the FCC will use "special access" to get rid of the worst examples. Bringing reasonable prices for backhaul to a very narrow set of poorly served rurals is the single most important thing Jules can for rural broadband. Really.
  • Between 10% and 25% of the unserved are not "high-cost" but are held back by problems at their local carrier. Earlier this year, there were 600K probably "unserved" at Charter alone, which was in bankruptcy. So they couldn't make even ordinary upgrades. That's perhaps 10% right there, an obvious target of opportunity. There are a significant number of similar but smaller cases.
  • A substantial number of the "unserved" are on systems held back because the carrier wanted to sell them. That applies to the better part of 1M in the territory Verizon wants to spin off with Frontier, and presumably others.
  • AT&T & Verizon refuse to use well-proven modest cost technologies if they only apply to a scattered few percent of homes, because they aren't committed to serving all customers. My source on this is former AT&T CEO Ed Whitacre, who told me he was able to serve "100%" with inexpensive DSL repeaters. Repeaters now go up to 5 megabits. 82% of the "unserved' are in AT&T, Verizon or Qwest territory, many (perhaps most) of whom can get megabit service at a cost the company recoups in a year or three.
  • When 95% are served, the remaining homes are Black Swans - exceptions that don't fit what seems like the logical pattern. While it true that "normally" a carrier would serve all but the uneconomical, high cost, there will always be some exceptions. Many, perhaps the majority, of the unserved fit one of those exceptions.
My best guess is that truly high cost are between 1% and 3% and less than half the "unserved." But there's no good data yet. Rob Curtis is working hard on this, since it's probably the most important data to drive the broadband plan.
 
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