Charleston, West Virginia is just one of many cities potentially served by Frontier

Frontier Communications has won approval from state utility commissions in California, South Carolina, and Nevada to take over telephone service currently provided by Verizon Communications.  The decisions were unanimous in all three votes by Commission members, and involve telephone service in several small communities in all three states.

Circles represent Verizon service areas transferred to Frontier in Nevada and California

Verizon’s castoffs serve a small percentage of customers, which made the transaction fly under the media radar in most cases.  In California, Verizon dumps customers in a small section on the northwest border with Oregon.  In Nevada, several small communities south of Reno are involved.  In South Carolina, Verizon drops scattered groups of customers in small clusters across the state.

These state regulatory approvals follow an October 27 announcement by Frontier that its shareholders have approved the transaction, which will result in Frontier owning Verizon’s wireline operations in all or parts of 14 states.

While the approval appeared pro forma in those three states, West Virginia is another matter.  Strong employee union and consumer group protests continue across the state, with many consumers concerned about the implications of Frontier controlling nearly all wired phone lines in the state.  The Communications Workers of America held a conference call with the media Wednesday to outline its opposition to the deal.

The CWA has been a vocal opponent of the deal, claiming it will risk West Virginia’s telecommunications future with a company without the financial capacity to provide the type of advanced services Verizon is providing in other states.  Kenneth Peres, an economist with the Communications Workers of America, said the deal was extremely risky for consumers, workers and the affected communities.

Peres pointed to the perfect record of three out of three failures for earlier Verizon spinoffs.  FairPoint Communications declared bankruptcy early this week after trying to take on the service needs of three New England states.

Peres told the Charleston Daily Mail that if the deal goes through, Frontier “will find it extremely difficult” to meet its $8 billion in debt obligations while simultaneously investing enough capital to maintain its physical plant, improve service quality, set up a new system in West Virginia, lease systems from Verizon in 13 other states, provide video service for the first time (in Indiana), and ensure adequate staffing “while paying out a lot more in dividends than it makes in profits.”

Frontier went on the attack Thursday, accusing the union of interfering just to grab concessions for itself.

Verizon service areas sold off to Frontier in South Carolina

Steve Crosby, Frontier spokesman, said, “They’re just throwing stuff up against the wall. They know this is a good transaction and they’re trying to extract their pound of flesh. They want more concessions. This is their opportunity to ask for more money for their union membership and more benefits. That’s what they want. Union membership across the country is declining. This is how they’re trying to extract as much as they can from either Frontier or Verizon.”

As for Frontier’s debt load, “This is actually a de-leveraging transaction,” Crosby said. “We’re taking on debt but we’re taking on a whole lot more revenue. We’re currently at a 3.8 times revenue-to-debt ratio, going down to 2.6. So we actually get better in terms of revenue to debt. And today we’re fine. We’re able to pay a nice dividend. The day the transaction closes, we are approaching investment-grade borrowings.

“Our board of directors made the decision to lower our dividend by 25 percent when the transaction closes to give us even more cash to invest in infrastructure and to give us even more financial flexibility,” Crosby said.

“Every time we have an argument we win and they bring up other stuff,” Crosby said. “They never bring up the de-leveraging because it undermines their argument. They never bring up the fact that we will reduce our dividend because it undermines their argument.

“We have said we will maintain employment levels for 18 months” after the transaction closes, Crosby said. Because of required regulatory approvals and other factors, the deal can’t close before April 2010.

“So you can figure that’s two years,” Crosby said. “Who nowadays has that kind of job security? I think we’re bending over backwards. I wish I had the pension plan, the job security the CWA has. They’re looking at extracting more from Verizon and Frontier.”

When asked by the newspaper why Frontier shareholders would approve a deal that was destined for failure, Peres told the newspaper:

Frontier’s business model is built on acquisitions. Frontier bought a portion of Global Crossing’s business which increased revenue and access lines “but that began to decline,” he said. “They bought Commonwealth Telephone but that’s flat-lining. What’s the next step? What were they going to do – improve infrastructure or go through the acquisitions route again?” Continuing with acquisitions “postpones the day of reckoning,” he said.

Commentary: Our Take

Crosby’s comments seem more suited for a talk show audience that hates unions.  Obviously the union does not think this is a good deal for West Virginia, and considering the track record of earlier Verizon deals, and the correct predictions from employee unions on their inevitable outcomes, they have every right to oppose the deal on its face.  Crosby apparently has time to address declining union membership, but not the much more relevant decline in the traditional phone company’s bread and butter business – landlines.  Frontier, like other phone companies, continues to see disconnect requests coming from coast to coast as customers dump the phone company for a cable digital phone product, Voice Over IP line, or rely on their cellphone.

West Virginia would be solidly Frontier territory if the state approves the sale

Verizon recognizes their traditional business is a dying one, which is why they are in a hurry to diversify into competitive broadband and video services over their fiber optic FiOS network.  Where it doesn’t make economic sense (under their current business plan) for Verizon to deploy FiOS, decisions are being made about whether to keep those smaller phone operations within the Verizon family, or sell them off to companies like Frontier.  What Frontier acquires today from the standpoint of customers and revenues could represent the high water mark, and without offering robust options for a digital future, Frontier will likely continue to see customer erosion.

FairPoint acquired seemingly healthy Verizon companies serving the entire states of Maine, New Hampshire, and Vermont.  When their efforts to seamlessly combine Verizon’s legacy systems with FairPoint’s own systems failed, that along with an inability to properly service customers, caused a death spiral as customers dropped service, which led FairPoint straight into bankruptcy.

Frontier’s record of investment and service in western New York speaks for itself.  Time Warner Cable eats Frontier for lunch, with less expensive “digital phone” service, much faster and more reliable broadband, and a video package that Frontier doesn’t offer (reselling DISH Network is hardly the same as providing video service that doesn’t come from a third party company’s satellite dish nailed to the roof).  Frontier is ready and willing to stick with DSL service at speeds that are basically maxed out.  Time Warner Cable evidently doesn’t even consider Frontier a significant enough player to deploy upgrades in this area while they are in a hurry to provide them where Verizon FiOS is under construction.

When a company isn’t prepared to keep up with the rest of New York with fiber deployment to the home, the chances of that kind of service reaching West Virginia anytime soon are near zero.

But Frontier’s unique position as a specialist in “rural service” allows it to eke out an existence in areas where cable isn’t a big competitive threat, and where *any* broadband is better than no broadband at all, at least for now.  But without a plan for keeping up with the fast changing broadband world, customers happy with 3Mbps service today will despise the company for being stuck with those speeds later.  A lot of people in Rochester sure aren’t happy being stuck with Frontier DSL, and that nasty 5GB “reasonable use” language in the Acceptable Use Policy.

Crosby’s comments about CWA member job security, which he evidently envies, says more about the union’s commitment to its members than Frontier has to him.  Perhaps Crosby can quit his spokesman job and switch to a position that gets him CWA membership with a pension and job security.  Perhaps if the people of West Virginia say thanks, but no thanks, Frontier will be in a better economic state than it would be if this mega-deal collapses under the weight of debt and integration challenges.  Then Crosby can keep his job with the evidently lousy benefits.

Peres’ assumption that Frontier lives only through acquisitions isn’t the complete story.  Just like the myth sharks must constantly swim to survive, Frontier doesn’t constantly have to acquire to survive either.  It does have to concern itself with an ever-consolidating telephone line industry, where the smaller independent companies continue to be snapped up by a dwindling number of players.  If a Windstream or CenturyTel comes along with a great offer, Frontier itself may have a new name — Windstream or CenturyTel.

The economies of scale and cost savings are routinely cited by investors promoting consolidation.  It’s no surprise Frontier shareholders voted for the deal.  Bigger is often better for many investors, as long as the quarterly financials play to their interests.  Listening to Frontier investor conference calls, the Wall Street bankers, and the media that support them, are constantly concerned with keeping costs cut to the bone, customer defection limited, risk reasonable, and that dividend being paid.  They are satisfied with Frontier’s rural, less competitive market focus, even if the customers that end up served by them are not.

It’s appropriate that it is snowing heavily in Denver as attendees of the Society of Cable Telecommunications Engineers meet at Cable-Tec Expo ’09, under the banner “Touch the Technology.”

Yesterday’s Technology Leadership Roundtable, according to Lightwave’s Steven Hardy, was reserved for out of touch Verizon fiber bashing:

The title of this morning’s Technology Leadership Roundtable was “Enough Already!” “Enough of what?” you ask. Answers the roundtable description: “Growing a little weary of all that FiOS in your face?” The short answer, not surprisingly, is yes. Roundtable moderator Leslie Ellis (Ellis Edits LLC) opened the discussion by asking whether the cable-TV community should be defensive about the fact that it hasn’t fully embraced FTTH — particularly since the industry invented video over fiber and carries more video over fiber than anyone else.

Much pooh-poohing of FTTH and telcos ensued. Paul Liao, president and CEO of CableLabs, said that the MSOs are the big dogs when it comes to video and becoming big dogs in voice delivery — and when you’re a big dog, you’re going to attract competitive attention.

Dermot O’Carroll, SVP, engineering and network operations, at Rogers Cable Communications up in Canada, asserted that fiber “doesn’t do much” for voice or video (I assume he meant fiber access versus HFC) and perhaps only a little bit when it comes to Internet access. This last shortfall should go away with deployment of DOCSIS 3.0, he said.

Liao agreed that DOCSIS 3.0-enabled HFC should prove more than adequate for customer needs today and into the future, adding that DOCSIS 3.0 should enable more bandwidth than anyone will ever need. (This sounds like one of those “eat your words in 10 years or less” statements, but Liao is certainly smarter than I am and more versed in DOCSIS 3.0 capabilities.)

Meanwhile, at least two workshops later in the week will discuss how to migrate HFC networks to FTTH. It doesn’t hurt to hedge your bets, apparently. Getting a better understanding of how MSOs really feel about FTTH is one of my goals here.

The cable industry has routinely confronted the threat of fiber optics by dismissing it as irrelevant wizardry until they are forced to upgrade their networks to try and match the capabilities a well run fiber to the home system can provide.  Broadband service with equal upload and download speeds on cable?  Not so much.  The sheer bandwidth potential of fiber optics?  Quite nice, thank you.  The potential for Verizon FiOS to be positioned to meet the current and future needs of customers without a lot of expensive upgrades?  Very high, assuming it’s priced competitively.

Fiber bashing snowjob from Time Warner Cable

Rogers Cable has a point when they dismiss fiber’s potential for broadband.  That’s because the company treats its customers to a host of Internet Overcharging schemes which provide blazing fast speeds that customers can’t use for very long without facing overlimit charges on next month’s bill.  Few companies want to provide robust video broadband service in a country where such usage limits and other schemes prevail from Vancouver to St. John’s.

Road Runner is pulling the plug on its network of dial-up access numbers, effective November 30th.  Customers who registered for the service at some point are receiving e-mail notification letting them know they’ll need to make other arrangements if dial-up is still valuable to them.  Road Runner has always offered dial-up access for customers on the go, or who experience cable service outages, providing a backup means to connect to the Internet.

No explanation for the decision to drop service is provided, but with many subscribers now using wi-fi and mobile wireless broadband, usage of the service may have declined over the years.

Last June, Road Runner dropped newsgroup service because a dwindling number of customers used it (if they even realized what ‘newsgroups’ were.)

Stop the Cap! reader Bruce sent word our way even before we got our copy — we’ve been Road Runner customers since 1998 and had registered years ago ourselves.

The Great Wall of Pay

Newspaper, broadcasting, and cable magnates have had enough of online web visitors accessing all of their content for free.  Free is naughty.  Free must be stopped.  Free threatens to devalue everything.

For the last few years, content producers have been looking for ways to recoup investments in online publishing.  Newspapers publish articles online and fear that causes people to stop paying for the printed edition.  Studios and networks make their shows available on Hulu, and people find on-demand viewing more convenient than watching ad-packed live television.  Cable magnates worry about people dropping cable subscriptions and watching all of their video online.

Broadcasting & Cable generated a firestorm late last week when it quoted one of Hulu’s partners — News Corporation’s Deputy Chairman Chase Carey telling the B&C OnScreen Summit “it’s time to start getting paid for broadcast content online.”

“I think a free model is a very difficult way to capture the value of our content. I think what we need to do is deliver that content to consumers in a way where they will appreciate the value,” Carey said. “Hulu concurs with that, it needs to evolve to have a meaningful subscription model as part of its business.”

CNN picked up the story in one of their news blogs, and promptly generated more than 700 responses, most hostile to paying for anything on Hulu, and that included the blog’s author:

“I certainly won’t be pulling out my credit card if the service puts up a subscription pay wall. And I doubt many other customers will be happy to start paying money for a service they previously received for free.”

Most comments indicated they’ll go back watching online TV shows and movies the old fashion way – downloading them from peer to peer torrent networks or newsgroups.

“The Internet abhors a content vacuum, especially one created artificially by a subscription wall,” Stop the Cap! reader Jake writes.  “Just like what happened with digital rights management schemes and viewing rights blockades, enterprising net users will always find a way around them and distribute the content a few don’t want us to have.”

The quest for control is increasingly becoming more contentious among super-sized corporate entities that create and distribute content.  Comcast seeks ownership of NBC-Universal, a content creator and partner in Hulu, which currently gives away content for free Comcast charges customers to watch.  A newly constructed Great Wall of Pay could help stop these business model challenges.

When online content was successfully monetized by advertising, few cared about handing it out for free.  In fact, providers like AOL abandoned many of its ‘subscriber-only’ walls to “go free” and attract a larger audience, and corresponding increased ad revenue.  In a post-bailout recession era, ad dollars have become scarce and no longer pay all of the bills Hulu’s owners want paid.  Advertising industry consultants say Hulu cannot simply increase the number of advertisements to make up the difference.  Even though Hulu users confront far less advertising than traditional broadcast television, research has shown online TV watchers resent a lot of the advertising they see now.  Many Hulu viewers actively develop a form of ad blindness based, in part, on the resentment those ads bring to the experience.  Hulu occasionally offers viewers one extended ad at the start of a show, instead of having them seeded throughout the program.  Many take Hulu up on the offer and use that 90 seconds to grab a snack.

Interestingly, the shorter a web ad, the more viewers retain information contained within it.  Some web ads run only 10 seconds, and are sold to clients with this in mind, and at a budget price to boot.

For web-ad haters, the worst of all worlds would be a Hulu that retains its limited commercial interruptions -and- charges a subscription fee.  For many, that would be the equivalent of “basic cable on the web.”  Many will drop Hulu “like a rock” should this happen.

A day after the hue and cry was raised by the Broadcasting & Cable article, skeptics said it was unlikely Hulu would entirely abandon free programming.  It may provide a premium pay service offering extra episodes, or perhaps remove commercials entirely for premium customers, a proposition at least some were willing to entertain, depending on the price.

“I would consider paying a very small (less than $3.00) monthly fee to watch Hulu if, and only if, they removed the commercials. Otherwise there are other alternatives,” one commenter wrote on CNN’s blog.

Newspapers are also feeling the bite, even more than online video sites.  The printed “dead tree format” of the daily paper has become anathema to the under-30 crowd, despite valiant efforts by some publishers to appeal to younger audiences with feature stories and even free weeklies that mix light news with entertainment features.  The only answer has been to take the paper online.  For years, concepts like online subscriptions, micropayments (paying a few cents per story), free access only for print subscribers, and charging per story for access to week-old and beyond news archives have been considered, tried, abandoned or ignored when web visitors flee or simply skip the pay content.  The daily local newspaper is not what it used to be, and when the “pay here” box pops up, many web visitors simply take their news reading business elsewhere, thanks to the near-universal access to wire service reports and competing media covering stories of interest for free.

Newsday, the Long Island newspaper owned by Cablevision, abandoned its “freeloading” audience yesterday with a new Great Wall of Pay charging a steep $5 a week for those who do not subscribe to either the newspaper or have a broadband account with Cablevision.

The newspaper’s Wednesday edition teased non-subscribers with stories that suddenly drifted off into ellipsis… with an invitation to open your wallet to read more.

Sports media blogger Neil Best, who writes for Newsday, seemed resigned to the fact he was losing a lot of his audience in his farewell-to-free column published Tuesday:

The inevitable decline in my national visibility (and page views) mostly is an ego thing. More to the point, Long Island advertisers understandably have little interest in readers in Dubuque.

For those readers who won’t be coming along for the ride – especially those outside Cablevision territory who in many ways are innocent bystanders in all this – thank you for your readership, input and support.

You will be missed.

Best realistically assessed the number of web visitors he’d see post-Wall, particularly from outside of the immediate area.  Best and his readership seemed to collectively sense this project was destined to fail, another bad experiment from aloof and out of touch management to the realities of the web world.  One commenter lamented the real victim would probably be Best himself:

What’s most frustrating of all, though, is that everyone knows this venture will fail. It’s never succeeded before and there’s truly no reason it will now. Pay for blogs? Are you kidding me? Even the pay-for-columns model is a one-in-a-million risk. But blogs? We all know this is not just you and I missing Neil, it’s Newsday destroying a commodity that could have helped it promote its other products. So Newsday loses– this has no chance– none– to succeed. And Neil loses –immediately– the majority of his followers. He will suffer the most immediate and quantifiable of harms. His readers, his fans, the people who support him and have helped him grow. Now his bosses shut us out and help him dwindle. And we lose. We lose our beloved journalists– we lose their thoughts and every day muses– things that dont even belong in a newspaper.

The use of the word “commodity” would no doubt cause much consternation among Newsday’s management and Wall Street types.  It is the “commoditization” of the news business, with endless debt-laden mergers and acquisitions and the cost-cutting that followed, that trained readers to realize that with the decrease in unique, local content in many newspapers, and their increasing reliance on partnerships with broadcast news operations, wire services, and syndicated feature content, why pay when you can get nearly the same (if not the same) content for free on the next website in the Google results list?

The big believers in the Great Wall of Pay fear what happened to newspapers could happen to their cable, broadcasting, or video rental operations.  The commoditization “crisis” is largely self-made: cable and phone companies with their “dumb pipes,” the cost-cutting local broadcaster that dispensed with nightly news, or the alienating video rental chain store made obsolete by Netflix or the Redbox ‘Tardis’ positioned in the entrance to your local supermarket.  When companies extract maximum revenue through minimal devotion to quality, uniqueness, and integrity, and either overcharge or irritate customers, why be surprised when consumers rebel when being asked to pay or pay more?

One of the rare success stories in pay content has come from Consumer Reports, which charges an annual fee for access to its online reviews.  Consumers notice the dramatic difference between a publication that accepts no advertising and keeps its integrity because of it, and other news sites contemplating pay schemes that are so cluttered with online advertising, autoplaying loud video ads, pop-ups and unders, they can barely find the content they are now being asked to pay for.

Consumers can and will pay for quality content, but many will not be forced into doing so with a corporate blockade on content from “walled gardens” and other “pay me to watch this, right after this ad” schemes.  Online, there is more than one way around the Great Wall of Pay.

I realize this is a bit off topic for us, but I was bemused to learn Cablevision, the cable operator in suburban New York (and elsewhere), has launched iO TV Quick View, three new channels that display nine different kids, sports and news networks all on one screen.

Who is this for?  I suppose the carpel tunnel-suffering channel surfer that has worn his finger out moving up and down the cable dial looking for something to watch and never making it all the way to the end of the lineup.

Cablevision says these three channels will let viewers highlight each window showing a network and, with one button press, jump to the channel they want to see.

No doubt these three channels will be part of the pointless bragging rights cable companies play over the number of channels they offer customers, as if most are still concerned with counting them.

The 500 channel universe already threatens to become littered with networks like Cat Fur Entertainment, Dorm Room Cooking Channel, Log Rolling 24/7, Uncle Fred’s Aquarium TV, and the Uighur News Network, before someone came up with this.

Channel 670 (like you’ll find that):  Kids Quick View channel features box views of Disney Channel, Cartoon Network, Nickelodeon, Boomerang, Discovery Kids, Disney XD, Nicktoons, Nick Jr. and Kids Thirteen.

Channel 671: News Quick View channel features News 12, News 12 Traffic & Weather, MSNBC, CNBC, CNN, Fox News Channel, CNN Headline News, Bloomberg TV and BBC World News.

Channel 672: Sports Quick View, featuring MSG, MSG+, YES Network, ESPN, ESPN2, Speed Channel, Golf Channel, SportsNet NY and Versus.

Versus TV

I can already guess there will be some clashing between Cartoon Network’s more-adult oriented cartoons and Nick, Jr., among others.  Putting channels with Glenn Beck, Nancy Grace, and Ed Schultz all on one channel will blow a hole in the fabric of space on 671, and few will pay attention to actual sports on 672 when the scantily clad ladies on Versus turn up… regularly.

“Our focus in the development of iO TV Quick View has been on discoverability and helping our customers find the perfect program to watch,” Cablevision’s SVP of strategic product development, Patrick Donoghue, said in a prepared statement.

“With so many channels to choose from, this new enhancement allows us to present current options in a number of popular programming categories, literally at a glance. And the end result is a visually beautiful presentation with easy navigation both within the mosaic and to the specific channels being spotlighted.”

Yeah, you’re going to pay for it.

Mountain Cablevision becomes part of the Shaw Cable family with the approval of the CRTC

The Canadian Radio-television and Telecommunications Commission has given approval to Shaw Communications for its acquisition of Hamilton-based Mountain Cablevision, Ltd., a small independent cable operator in southern Ontario.  The $300 million dollar transaction brings 41,000 cable customers, 29,000 Internet subscribers, 30,000 digital phone lines, and 135 Mountain Cablevision employees into the Shaw family, making the Calgary-based cable company Canada’s largest.

“This is a great move for us to come in there and be able to start being around that market. We always said that [...] we want to be in Alberta, British Columbia, and Ontario,” Shaw chief executive Jim Shaw said Friday.

“Rogers had passed on the acquisition so we decided to go in there,” Shaw told analysts. “This is a great move for us, being around that market.”

Mountain Cablevision serves a small part of Hamilton and surrounding communities in southern Ontario

Shaw’s entry into Ontario upset Rogers Communications, eastern Canada’s dominant cable provider.  Rogers sued Shaw in an Ontario court, claiming the purchase violated a near-decade long agreement made personally between Ted Rogers and Jim Shaw to stay out of each other’s territories — Shaw stays out of eastern Canada if Rogers moves no further west than Ontario.

Canadian courts aren’t compelled to recognize handshake deals made over dinner, and the court ruled against Rogers.

With the agreement swept away, some analysts predict Rogers will investigate acquisition opportunities in western Canada, probably in the more populated regions.

Shaw claims it will upgrade Mountain Cablevision’s small cable footprint, which serves only a portion of greater Hamilton – Hamilton Mountain and East Hamilton, as well as the communities of Mount Hope, Caledonia, Hagersville, Jarvis, Dunnville/Byng, Cayuga and Binbrook, all in Ontario.  The company promises better broadband, cable, and telephone service after the upgrades are complete.  Shaw also says it will expand the Mountain Cablevision system into several unserved neighborhoods and townships.  That’s an important distinction, because it indicates Shaw has no intention of competing head to head with Rogers or Ontario’s other dominant cable company Cogeco.

The deal comes during challenging times for Shaw, who announced a 6% decline in profits in the fourth quarter, with gains only from new digital cable additions.  More than 110,000 Shaw customers signed up for digital cable in the third quarter, up from 23,000 in the third quarter a year ago.

In other areas, Shaw lost customers — 5,000 canceling broadband, 4,500 dropping Shaw’s direct to home satellite service, and nearly 9,000 disconnecting their Shaw digital phone line.

Shaw’s next product introduction will likely be its new cell phone service.  The company spent $190 million dollars last year acquiring 18 airwave licenses in northern Ontario, Manitoba, Saskatchewan, Alberta, and British Columbia.

Mountain Cablevision's concentrated service area in the city of Hamilton (click to enlarge)

But Shaw is taking a “very cautious approach” to wireless mobile services, according to the company.  It has refused to set a timetable when service would begin.  Shaw faces a growing number of wireless competitors introducing service in Canada late this year and into early 2010.  DAVE Wireless, Wind Mobile, and Public Mobile are all poised to launch in major Canadian cities, expecting to put competitive pressure on pricing and bring about lower priced, more generous service plans.

Shaw claims it’s not concerned, telling The Financial Post, “If they’re in there, we don’t really care. We already have a relationship with customers and they have zero,” Shaw said. “We have 3.4 million customers we have a relationship every month with.”

Telecommunications companies are increasingly concerned with offering customers “bundles” of telecommunications services from video, broadband, wired phone lines, and now increasingly wireless data and mobile phone services.  Customers purchasing bundles tend to remain loyal to the companies offering them.

LUS Fiber - Lafayette, Louisiana's public utility municipal broadband provider, offers fast speeds with great rates

Frustrated communities across America, take note.

If your town or city government starts making serious noises about constructing your own, municipally-owned broadband network (especially one built with fiber optics to the home), existing providers who have repeatedly said “no” to requests for faster service at more reasonable prices have a track record of quickly turning around and saying, “yes — why didn’t you ask us before?”

Big existing telecommunications players loathe the thought of facing a new competitor in their midst.  They are accustomed to the usual arrangement of one cable operator and one phone company.  Cable companies provide cable modem service, phone companies mostly provide DSL.  In smaller cities, and where a competitor is missing (or provides a lower quality service), there is almost no drive to upgrade.  Cable will set speeds just above what the phone company is offering, and both will co-exist happily ever after.

For communities being bypassed by the fiber revolution now underway by Verizon, and to a lesser degree AT&T, requests from civic leaders, businesses, and consumers for upgraded service fall on deaf ears.  ‘What you have now is good enough for this market, so be quiet and be lucky we give you what you’ve got now.  Oh, and we’re raising rates, too.’

In Rochester, the one upstate New York city not on the “to-do” list of Verizon (which is merrily wiring urban and suburban communities across their service areas with fiber optic cable FiOS), Time Warner Cable sees little incentive to raise speeds or upgrade to DOCSIS 3 with a phone company competitor that has no apparent plans to move beyond traditional old school DSL service.  Where FiOS does threaten, Time Warner Cable is in a hurry to provide “wideband” broadband as quickly as possible.

In Wilson, North Carolina, years of pleading from local officials to provide something beyond anemic broadband in their community was met with yawns from Time Warner Cable and Embarq, the local phone company.  Wilson decided to build their own municipal fiber network, offering faster speeds at better pricing.  Time Warner and Embarq did what most existing competitors do — they moved through the Four Stages of Telecommunications Competition Grief:

1) Behind the Scenes Threats and Anger: Companies work the phones with local officials trying to browbeat them into dropping the plans to construct municipal broadband, try to gin up partisan opposition, issue overinflated cost estimates, issue warnings about the trouble they’ll cause local politicians who support such initiatives, and snow a blizzard of documents illustrating how wonderful and reasonable their existing service is;

2) Stall Tactics Through Negotiation: Once home office is notified, a series of negotiations to attempt to forestall the project begins, such as throwing crumbs for incrementally better service, offers to build showcase mini-projects that represent a “win” for local politicians, or “looks good on paper” concessions that end up amounting to far less.  Most of these discussions are designed simply to stall to allow the company to prepare for stage three.

3) PR and Legal Blitzkrieg: Assuming local officials haven’t been discouraged away from their idea, or dropped it after starring in a company-sponsored press event – ribbon cutting a small wi-fi or school connectivity project, the next stage is a multi-front battle involving company legal teams filing lawsuits to delay or kill projects, public relations and astroturf lobbying efforts to distort issues and build public opposition, legislative maneuverings to make such projects untenable through industry-friendly laws, and often vague promises about impending upgrades making the entire project unnecessary.

4) Acceptance, Competition, and Better Service: The final stage is the realization consumers don’t always get suckered by astroturf groups and company scare tactics.  They accept the project is moving forward, and send out the press release saying they welcome the competition and are announcing their own significant service upgrade because “customers asked for it.”  Price increases slow, speeds increase, and service improves, all because of the reality that an aggressive competitor is in their future.

Wilson city officials tried negotiations for better service, got nowhere, and had to fight back against a blizzard of nonsense from the telecommunications industry trying to legislate such projects out of existence with changes to state law.  Americans for Prosperity, an astroturf group, even hassled residents in other nearby communities with robocalls to try and stop similar projects.

The arrival of Wilson’s Greenlight service, which offers speeds far faster than Time Warner and Embarq ever did, at lower prices, was a shock to Time Warner’s call centers.  As customers canceled, representatives taking those calls were in denial residents were actually achieving the speeds Time Warner failed to deliver.

Chattanooga’s public power utility fought back against telecommunication company propaganda to construct fiber to the home service across the city, which launched this year. (5 minutes)

In Monticello, Minnesota, local telephone company TDS had spent years refusing requests to improve service in the city.  Speed and access issues plagued the community, northwest of Minneapolis.  Local officials had enough and voted to construct their own fiber to the home municipal network.

Enter the four stages.  TDS started by telling city officials the company’s network was state of the art for Monticello, and couldn’t be immediately improved because there was insufficient return on investment.  Companies want to be assured they are paid back for investments they make, and because Monticello is a relatively small city, there were questions whether the costs for a fiber network would be paid back quickly enough through revenues.

When that didn’t work, the company sued the city as a stalling tactic.  Despite the fact Monticello won case after case, TDS kept filing.  A full assault by large telecommunications interests also began, trying to gin up public opposition.  While the project was approved by voters, and Monticello was tied up in court, TDS quickly moved to stage four and started rapidly building their own fiber network in Monticello, actually putting down fiber the city was prohibited to wire themselves as the lawsuits dragged through the courts.

The company told Ars Technica that despite its earlier refusals to provide fiber service, TDS didn’t act earlier because it didn’t actually know that people really, really wanted fiber; once the referendum was a success, the company moved quickly to give people what it now knew they wanted.

Then, in June, the company said with the advent of its own fiber network, the city of Monticello should back away from constructing theirs, because its economic viability report was partly premised on the fact TDS refused to provide that service.

To underline that, TDS’ new fiber network doubled customer speeds to 50Mbps, trying to keep customers from taking their business to  FiberNet Monticello.

Lafayette staged a multi-year battle with Cox and other providers to bring municipal fiber broadband to it’s corner of Louisiana.  This 30 second ad promoted a “yes” vote on the project.

In Louisiana, Cox Cable is facing accusations it’s engaged in predatory pricing to kill Lafayette Utility System’s fiber to the home network and EATel’s fiber network in Ascension Parish.  Cox Cable froze rates and moved in with DOCSIS 3 upgrades, delivering up to 50Mbps service.  Cox chose to upgrade Lafayette before any other Cox-served community.

The Lafayette Pro-Fiber Blog found this EATel billboard taunting Cox

EATel, an independent phone company that wired fiber across Ascension Parish, also faced down Cox.  When the cable company began promoting cut-rate pricing in Ascension, EATel took out advertising promoting Cox’s special prices — in other cities, much to Cox’s consternation.  EATel’s ads, much like those run by Novus against Shaw in British Columbia, tell Cox’s customers to call the company and ask for the lower price they are advertising elsewhere.

“Cox came in with an incredibly aggressive promotion for TV service with every bell and whistle you could imagine. We couldn’t figure out how they could even make money on it. So we took out an ad in the Lafayette newspaper that basically said, ‘Hey Lafayette, look at the great prices you are going to get from Cox.’ Cox was not amused,” Trae Russell, communications manager for EATel told Telephony Online.

Joey Durel, Jr., president of Lafayette parish, testifies before the House Committee on Energy and Commerce on Lafayette’s municipal fiber network on February 27, 2008. (7 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

Lesson learned — just threatening to bring in a municipal competitor is often all it takes to turn a persistent “no” from the local cable and phone companies into “yes, Yes, YES!”

Of course, not every project is successful.  Some, such as Burlington Telecom Stop the Cap! reported on yesterday face political and cost challenges.  Others are killed through stage managed opposition and astroturf campaigns paid for by the telecommunications industry before they even get started.

In North St. Paul this year,  “PolarNet,” a planned fiber optic broadband network to stimulate the local economy was killed by an astroturf propaganda campaign undertaken by Qwest, Comcast, and other telecommunications companies that would have to deal with PolarNet as a competitor.  The telecommunications companies claimed it would result in higher local taxes and “more government” where it wasn’t needed.  Citizens defeated the proposal 67-33%.

Windom, Minnesota faced similar challenges and their fiber project was shot down in 1999, but with lessons learned, proponents brought it back up and won in 2000.  To this day, the community of 4500 in western Minnesota face considerable envy from adjacent communities — they want service from the fiber-to-the-home system as well.

Almost universally, opponents to municipal broadband systems claim they are financial failures and saddle communities with debt.  In reality, most have forced those opponents to provide improved service in their competitive communities, or those companies will become the financial failure.

Terry Huval of Lafayette Utility System talks with the Fiber Revolution blog about the challenges Lafayette experienced building their own municipal fiber network.  Huval offers excellent advice for other municipalities exploring similar projects.  (April, 2009 – 10 minutes)

Thanks to Stop the Cap! readers Tim and Matt who suggested this story idea.

Your Money = Their Money

Time Warner Cable has mailed letters to subscribers in its Northeast Ohio and Western Pennsylvania division announcing that “with many of our fixed costs escalating, we are forced to adjust the prices of some of our services accordingly.”

That price adjustment takes Road Runner’s 7Mbps broadband service to $49.95 per month, if the subscriber also takes cable-TV service from Time Warner, according to one subscriber in Cleveland.  Another subscriber in Erie, Pennsylvania also noticed Road Runner Lite was also increasing in price to $24.95 per month with the rate change, effective November 24th.

A Canton, Ohio subscriber sent Stop the Cap! a copy of the letter their family received regarding the rate hike.

The company suggests customers might use the letter as a motivation to inquire about subscribing to even more services from Time Warner as part of a bundled package.

An Alliance, Ohio subscriber called the company’s rate increase pathetic, noting the division has some slow broadband speeds compared with other Road Runner service areas.

“With 768kbps upload speed, give us more then we will pay more,” he writes.

Time Warner's letter to customers in northeast Ohio and western Pennsylvania (courtesy: kba4)

Shaw Communications, western Canada’s largest cable company, has expanded its High-Speed Nitro DOCSIS 3 broadband service in British Columbia and Alberta.  Offering speeds of 100Mbps downstream and 5Mbps upstream, Shaw charges customers $149 per month for the new plan, assuming you also subscribe to other Shaw services.  The three latest cities to obtain upgraded service join Victoria in British Columbia, Saskatoon in Saskatchewan, and Winnipeg, Manitoba, where upgrades were unveiled earlier this year.

“The expansion of High-Speed Nitro into the cities of Calgary, Edmonton and Vancouver demonstrates Shaw’s commitment to continually enhancing our Internet services to meet our customers’ changing needs,” said Peter Bissonnette, President, Shaw Communications Inc.

Paying $150 a month doesn’t buy you unlimited broadband, however.  Despite the premium price, Shaw insists on slapping a usage allowance of 400 gigabytes per month.  While at first glance that limit seems generous, particularly compared with Comcast’s 250GB limit, paying $150 a month for Internet access apparently is not enough to spare their most generous customers from a pesky Internet Overcharging scheme.

Jeff from Calgary, a Stop the Cap! reader writes, “exactly how much profit does Shaw need to earn from customers before they turn the damn meter off?”

“It’s bad enough with a 100GB limit on their so-called High-Speed Extreme plan, which gives my family up to 15Mbps service for $45 a month.  If I am going to pay them $100 more a month for service, there shouldn’t even be a limit,” he adds.

The High-Speed Extreme plan seems to be the pricing “sweet spot” for Shaw, because the next step up in Calgary is High-Speed Warp, which brings 25Mbps service for the warped high price of $96 a month.  For nearly twice the price, Shaw only throws another 50GB towards customers’ usage allowances, limiting service to 150GB per month.