As AT&T joins Verizon selling off its Yellow Pages publishing unit and payphones keep disappearing from street corners, the media is writing the landline obituary once again.

CNN Money asks today whether we’re witnessing the death of the landline.

In as little as 20 years, the concept of a wired phone line may become the novelty a rotary-dial phone represents today.  Yes, traditional phone lines will still be found in businesses and in the homes of those uncomfortable dealing with a mobile phone, but America’s largest phone companies are well aware the traditional telephone line is in decline.

The Bell System, as it was known until the 1980s, used to comprise AT&T, Bell Labs, Western Electric, Long Lines, and two dozen local “operating companies” like New York Telephone, Mountain Bell, etc.  This AT&T documentary, from 1976, explores how “the phone company” used to function.  New innovations like “lightwave” are showcased, promising to deliver voice phone calls over glass fibers one day.  

Much of the technology seen in the documentary may be unfamiliar if you are under 30 (and check out how customer records were maintained back then), but those who remember renting telephones in garish colors from your local phone company will recognize the phones that occupied space in your home not that long ago.  The only part of the landline network that hasn’t changed much in the last 40 years is the wiring infrastructure itself, which has been allowed to deteriorate as customers continue to depart.

Why was the company so darn big back then?  Because it had to be, the documentary says, to serve a big America.  Hilariously, the company defends its then-status as a “regulated monopoly” telling viewers “[a] regulated monopoly works well in communications because you don’t duplicate facilities and you produce real economies over the long haul.”  (14 minutes)

CNN reports nearly one-third of all American homes no longer have landline service, double the rate from 2008, triple that of 2007.  Verizon is feeling the heat the most, with revenue down 19% over the last five years.  AT&T has seen their revenue drop 16.5% over the same period.

But things are not all bad for phone companies willing to spend money upgrading their networks.  Verizon’s top-rated FiOS fiber to the home service is a compelling competitor to Comcast and Time Warner Cable.  AT&T’s U-verse has gotten a respectable market share larger midwestern cities and draws customers who like its DVR box and the chance to stick it to the local cable company they’ve hated for years.

But where both companies have decided against investing in upgrades — notably in their rural service areas — the traditional phone line is trapped in time.  Only the network it depends on is changing, and not for the better.

Back in 1993, AT&T produced seven advertisements dubbed the “You Will” series, showcasing future technologies AT&T would “deliver to you.”  Eerily, the vast majority of these predictions came true, but mostly from companies other than AT&T.  While the phone company predicted what would eventually become E-ZPass, Apple’s iPad, Apple’s Siri, the smartphone, Skype, Amazon’s Kindle, the cable industry’s home security apps, video on demand, and GPS navigation, most of those innovations were developed and sold by others.  

AT&T spun away Bell Labs and became preoccupied selling Internet access, cell phones and reassembling itself into its former ‘hugeness’ through mergers and buyouts. With limited investment in innovation, AT&T risks being left as a “dumb pipe” provider, selling the connectivity (among many others) to allow other companies’ devices to communicate. (Alert: Loud Volume at around 2 minutes) (4 minutes)

Verizon decided to ditch its rural service areas to FairPoint Communications in northern New England and Frontier Communications in 14 other states.  The results have not been good for the buyers (and often customers).  FairPoint went bankrupt in 2009, overwhelmed by the debt it incurred buying phone lines in Vermont, New Hampshire, and Maine.  Frontier has watched its sales fall ever since its own landline acquisition, and the company has gotten scores of complaints from ex-Verizon customers about broken promises for improved broadband, billing errors, and poor service.

Analysts predict AT&T will start dumping its rural landline customers in the near future as well, letting the company focus on its U-verse service areas.  But who will buy these cast-offs?  CNN reports nobody knows.  CenturyLink and Windstream, two major independent phone companies, don’t appear to be in the mood to acquire neglected landline facilities they will need to spend millions to repair and upgrade.

One thing is certain — both AT&T and Verizon are tailoring business plans to favor Wall Street approval.  The companies’ decisions to temporarily boost revenue selling pieces of its operations has helped stock prices, but has also made the companies shadows of their former selves.  Nearly 30 years ago, customers still paid the phone company to rent their home telephones, relied extensively on the companies’ lucrative White and Yellow Pages for directory information, and discovered new technology innovations like digital switching thanks to Bell Labs, the research arm of AT&T — today independent and known as Alcatel-Lucent.  Today, people in some cities cannot even find a telephone company-owned payphone.

WJBK in Detroit this week ventured out across Detroit to see if they could find a pay phone that actually works.  That old phone booth on the corner is long gone, and some admit they haven’t touched a pay phone in 20 years.  (2 minutes)

The Republican takeover of the North Carolina legislature in 2010 was great news for some of the state’s largest telecommunications companies, who successfully received almost universal support from those legislators to outlaw community broadband service in North Carolina — the 19th state to throw up impediments to a comfortable corporate broadband duopoly.

Dialing Up the Dollars — produced by the National Institute on Money in State Politics, found companies including AT&T, Time Warner Cable, CenturyLink, and the state cable lobby collectively spent more than $1.5 million over the past five years on campaign contributions.  Most of the money went to legislators willing to enact legislation that would largely prohibit publicly-owned competitive broadband networks from operating in the state.

North Carolina consumer groups have fought anti-community broadband initiatives for the past several years, with most handily defeated in the legislature.  But in 2010, Republicans assumed control of both the House and Senate for the first time since the late 1800s, and the change in party control made all the difference.  Of 97 Republican lawmakers who voted, 95 supported HB 129, the corporate-written broadband competition ban introduced by Rep. Marilyn Avila, a legislator who spent so much time working with the cable lobby, we’ve routinely referred to her as “(R-Time Warner Cable).”

Democrats were mostly opposed to the measure: 45 against, 25 for.  Stop the Cap! called out those lawmakers as well, many of whom received substantial industry money in the form of campaign donations.

The Institute for Local Self-Reliance pondered broadband speeds and value in North Carolina and found commercial providers lacking.  (3 minutes)

*AT&T’s total includes contributions from BellSouth in 2006 and 2008 and AT&T Mobility LLC. **CenturyLink’s total includes contributions from Embarq Corp.

According to Catharine Rice, president of the SouthEast Association of Telecommunications Officers and Advisors, HB 129 received the greatest lobbying support from Time Warner Cable, the state cable lobbying association — the North Carolina Cable and Telecommunications Association (NCCTA), and CenturyLink.

Following the bill’s passage, the NCCTA issued a press release stating, “We are grateful to the members of the General Assembly who stood up for good government by voting for this bill.”

CenturyLink sent e-mail to its employees suggesting they write thank you letters to supportive legislators:

 “Thanks to the passage of House Bill 129, CenturyLink has gained added confidence to invest in North Carolina and grow our business in the state.”

http://www.phillipdampier.com/video/CenturyLink Frustration.flv

A CenturyLink customer endures frustration from an infinite loop while calling customer service. Is this how the company will grow the business in North Carolina?  (1 minute)

Consumers Pay the Price

In North Carolina, both Time Warner Cable and AT&T increased prices in 2011.

After the bill became law without the signature of Gov. Bev Purdue, Time Warner Cable increased cable rates across North Carolina.  CenturyLink’s version of AT&T’s U-verse — Prism — has seen only incremental growth with around 70,000 customers nationwide.  The phone company also announced an Internet Overcharging scheme — usage caps — on their broadband customers late last fall.

Someone had to pay for the enormous largesse of campaign cash headed into lawmaker pockets.  For the state’s largest cable operator — Time Warner Cable — another rate increase handily covered the bill.

In all, lawmakers received thousands of dollars each from the state’s incumbent telecom companies:

• Lawmakers who voted in favor of HB 129 received, on average, $3,768, which is 76 percent more than the average $2,135 received by the those who voted against the bill;
• 78 Republican lawmakers received an average of $3,824, which is 36 percent more than the average $2,803 received by 53 Democrats;
• Those in key legislative leadership positions received, on average, $13,531, which is more than double the $2,753 average received by other lawmakers;
• The four primary sponsors of the bill received a total of $37,750, for an average of $9,438, which is more than double the $3,658 received on average by those who did not sponsor the bill.

Even worse for rural North Carolina, little progress has been made by commercial providers to expand broadband in less populated areas of the state.  AT&T earlier announced it was largely finished expanding its U-verse network and has stalled DSL deployment as it determines what to do with that part of its business.

In fact, the most aggressive broadband expansion has come from existing community providers North Carolina’s lawmakers voted to constrain. Salisbury’s Fibrant has opted for a slower growth strategy to meet the demand for its service and handle the expense associated with installing it.  Wilson’s Greenlight fiber to the home network supplies 100/100Mbps speeds to those who want it today.

In Upside-Down World at the state capitol in Raleigh, community-owned providers are the problem, not today’s duopoly of phone and cable companies that deliver overpriced, comparatively slow broadband while ignoring rural areas of the state.

Key Players

Some of the key players that were “motivated” to support the cable and phone company agenda, according to the report:

Tillis collected $37,000 from Big Telecom for his last election, in which he ran unopposed. Tillis was in a position to make sure the telecom industry's agenda was moved through the new Republican-controlled legislature.

Thom Tillis, who became speaker of the house in 2011, received $37,000 in 2010–2011 (despite running unopposed in 2010), which is more than any other lawmaker and significantly more than the $4,250 he received 2006–2008 combined. AT&T, Time Warner Cable, and Verizon each gave Tillis $1,000 in early-mid January, just before he was sworn in as speaker on January 26. Tillis voted for the bill, and was in a key position to ensure it moved along the legislative pipeline.

The others:

• Senate President Pro Tempore Phil Berger received $19,500, also a bump from the $13,500 he received in 2008 and the $15,250 in 2006. He voted for the bill.
• Senate Majority Leader Harry Brown received $9,000, significantly more than the $2,750 he received in 2006 and 2008 combined. Brown voted in favor of the bill.
• Democratic Leader Martin Nesbitt, who voted for the bill, received $8,250 from telecommunication donors; Nesbitt had received no contributions from telecommunication donors in earlier elections.

The law is now firmly in place, leaving North Carolina wondering where things go from here.  AT&T earlier announced it had no solutions for the rural broadband challenge, and now it and other phone and cable companies have made certain communities across North Carolina don’t get to implement their solutions either.

What You Can Do

1. If you live in North Carolina, check to see how your elected officials voted on this measure, and how much they collected from the corporate interests who supported their campaigns.  Then contact them and let them know how disappointed you are they voted against competition, against lower rates, against better broadband, and with out of state cable and phone companies responsible for this bill and the status quo it delivers.  Don’t support lawmakers that don’t support your interests.
2. If you live outside of North Carolina and we alert you to a similar measure being introduced in your state, get involved. It is much easier to keep these corporate welfare bills from becoming law than it is to repeal them once enacted.  If you enjoy paying higher prices for reduced service and slow speeds, don’t get involved in the fight. If you want something better and don’t appreciate big corporations writing laws in this country, tell your lawmakers to vote against these measures or else you will take your vote elsewhere.
3. Support community broadband. If you are lucky enough to be served by a publicly-owned broadband provider that delivers good service, give them your business.  Yes, it may cost a few dollars more when incumbent companies are willing to slash rates to drive these locally owned providers out of business, but you will almost always receive a technically superior connection from fiber-based providers and the money earned stays right in your community. Plus, unlike companies like CenturyLink, they won’t slap usage caps on your broadband service.

http://www.phillipdampier.com/video/Time Warner Cable -- Fiber Spot.flv

What do you do when your company doesn’t have a true, fiber to home network and faces competition from someone that does?  You obfuscate like Time Warner Cable did in this ad produced for their Southern California customers. (1 minute)

Won 1.1 million new customers in 2011

Comcast and Time Warner Cable collectively picked up more than 1.5 million new customers in 2011, with most of the growth coming from dissatisfied DSL subscribers seeking better broadband speeds.

Leichtman Research Group, Inc. (LRG) found the eighteen largest cable and telephone providers in the US — representing about 93% of the market — acquired 3 million net additional high-speed Internet subscribers in 2011. Annual net broadband additions in 2011 were 88% of the total in 2010.

The top broadband providers now account for 78.6 million subscribers — with cable companies having over 44.3 million broadband subscribers, and telephone companies having over 34.3 million subscribers.

Stalled growth

Despite AT&T’s position as the second largest Internet Service Provider in the country, the company only picked up 117,000 new customers in 2011.  In contrast, Time Warner Cable, with 6 million fewer customers, added almost a half-million new broadband subscriptions last year.

Frontier Communications, which made broadband a primary target for expansion, has not seen considerable growth either.  The company only added just short of 38,000 new broadband customers last year, almost all getting DSL, often at speeds of 1-3Mbps.

Other key findings include:

• The top cable companies netted 75% of the broadband additions in 2011;
• The top cable companies added 2.3 million broadband subscribers in 2011 — 98% of the total net additions for the top cable companies in 2010;
• The top telephone providers added 750,000 broadband subs in 2011 — 68% of the total net additions for the top telephone companies in 2010;
• In the fourth quarter of 2011, cable and telephone providers added 765,000 broadband subscribers — with cable companies accounting for 82% of the broadband additions in the quarter.

Now serving 10.3 million

“Despite a high level of broadband penetration in the US, the top broadband providers added 88% as many subscribers in 2011 as in 2010,” said Bruce Leichtman, president and principal analyst for Leichtman Research Group, Inc. “At the end of 2011, the top broadband providers in the US cumulatively had over 78.6 million subscribers, an increase of nearly 25 million over the past five years.”

Americans are increasingly treating broadband as an essential “utility” service, as fundamental as electricity or clean water.

The majority of consumers who lack the service either consider it irrelevant in their lives (a factor that increases with the age of the surveyed respondent), cannot obtain service from their provider because of their location, or cannot afford the service.

Sources: The Companies and Leichtman Research Group, Inc.
* LRG estimate
** Includes LRG estimates for Bright House Networks, and RCN
^ Totals prior to Time Warner Cable’s acquisition of Insight completed on 2/29/2012
^^ LRG estimate does not include wireless subscribers
Company subscriber counts may not represent solely residential households
Totals reflect pro forma results from system sales and acquisitions
Top cable and telephone companies represent approximately 93% of all subscribers

Sen. Paul Hornback (R-AT&T)

A Kentucky state senate panel on Tuesday approved a bill admittedly-authored by AT&T that could allow the company to abandon providing basic telephone service in areas deemed not sufficiently profitable.

Senate Bill 12 is just the latest effort by AT&T to end “Universal Service,” the basic principal that all Americans should have equal access to basic landline telephone service.

The proposed legislation would allow the three largest phone companies in Kentucky — AT&T, Windstream, and Cincinnati Bell to abandon customers who, in one possible scenario, do not agree to a more deluxe feature package that includes long distance calling, wireless service, and/or broadband.

“This bill represents a grave threat to continued, stand-alone, basic telephone service for many Kentuckians who don’t have the luxury of access to Twitter and all the things that we in urban areas tend to take for granted,” Tom FitzGerald, director of the Kentucky Resources Council told the Lexington Herald-Leader.

AT&T says allowing it the right to terminate rural landline service would “spur innovation and create jobs.” It would also strip Kentucky of its power to investigate and force resolutions of consumer complaints.

The optics of the bill’s primary sponsor, Sen. Paul Hornback (R-Shelbyville/AT&T), sitting next to the two AT&T executives who authored the bill as he testified before the Senate Committee on Economic Development, Tourism and Labor was not lost on the bill’s opponents.

“It’s obvious who he is really working for,” said our regular Kentucky reader Paul in Louisville.

Daniel, the Stop the Cap! reader who first shared the story with us, is not happy either.

“This infuriates me,” he writes. “If AT&T gets their way, they will have less reason to invest in areas that are underserved or not served at all, and allow them to further push people to their horrific cell service.”

Daniel barely gets DSL from AT&T — 3Mbps if he’s lucky, and most of his neighbors cannot get any broadband from the company because they don’t officially service the area with broadband.  Daniel suspects once AT&T is deregulated further, they will have even fewer reasons to focus on less-populated regions of the state.

Hornback: "Nobody knows better than AT&T what the company needs the legislature to do for it."

“AT&T is my only reliable option – and if I can’t keep their Internet service then I will lose my job,” he says.

In 2006, AT&T helped push through a deregulation measure that stripped the Kentucky Public Service Commission of its ability to oversee prices for telecommunications services in the state. Customers of both AT&T and Cincinnati Bell soon saw price increases after the legislation passed with arguably no improvement in service.

Hornback argues S.12 will help “modernize telecommunications in the state of Kentucky,” without explaining exactly how abandoning customers enhances their level of service.

AT&T says they will not completely exit rural Kentucky if given the power to disconnect its landline network.  It can sell rural customers AT&T cell phone service instead. Critics say that comes at a substantially higher price and offers only limited broadband.

Hornback defended that, suggesting the company is wasting money and resources keeping its current antiquated landline facilities when it might be better spending that money on wireless services.

But customers would face charges starting at nearly $40 a month after taxes and fees for a basic AT&T wireless plan with as few as 200 calling minutes a month.

Hornback got around initial opposition to an earlier measure he introduced — SB 135, by reintroducing essentially the same measure inside another unrelated bill.  Hornback said that was an effort to give the legislation “a fresh start” in light of heated criticism from consumer groups, the AARP, and even Kentucky businesses.

The committee voted 9-1 for Hornback/AT&T’s measure and sent the bill forward to the Senate floor.  The single “no” vote came from Sen. Denise Harper Angel (D-Louisville).

Phone companies in Kentucky

AT&T’s clout in the state capital is unparalleled according to the newspaper:

It employs 31 legislative lobbyists, including a former PSC vice chairwoman and past chairs of the state Democratic and Republican parties, spending about $80,000 last year on legislative lobbying. Its political action committee has given at least $91,000 in state political donations since 2007.

Remarkably, Hornback defended AT&T’s authorship of his bill that would directly benefit the company’s interests.

Nobody knows better than AT&T what the company needs the legislature to do for it, Hornback said.

Ethernet over Copper is becoming an increasingly popular choice for business customers stuck in areas where companies won't deploy fiber broadband (Graphic: OSP Magazine)

With Verizon and AT&T effectively stalling expansion of their respective “next generation” fiber and hybrid fiber/coax networks, and independent phone companies fearing too much capital spent improving their networks will drive their stock prices down, telephone companies are desperately seeking better options to deliver the faster broadband service customers demand.

The options over a copper-based landline network are not the best:

• ADSL has been around for more than a decade and is highly distant dependent. Get beyond 10,000 feet from the nearest switching office and your speeds may not even qualify as “broadband;”
• DSL variants represent the second generation for copper-broadband and can deliver faster speeds, but usually require investment to reduce the amount of copper between the customer and the switching office;
• Fiber networks are more expensive to build, and some companies are using it to reduce, but not eliminate copper wire in their networks. But companies traditionally avoid this solution in rural/suburban areas because the cost/benefit analysis doesn’t work for shareholders;
• Ethernet Over Copper (EoC) is increasingly the solution of choice for independent phone companies because it is less expensive to deploy than fiber and can quickly deliver service at speeds of up to 50Mbps.

Unfortunately for consumers, EoC is typically way above the price range for home broadband.  Most providers sell the faster service to commercial and institutional customers, either for businesses that have outgrown T1 lines or where deploying fiber does not make economic sense.  Some companies have tried to improve on DSL by bonding multiple connections together to achieve faster speeds, but Ethernet is quickly becoming a more important tool in the broadband marketing arsenal.

With phone companies pricing EoC service from several hundred to several thousand dollars a month, depending on the speed of the connection, they hope to remain competitive players against a push by the cable industry to more aggressively target business customers.  In more rural areas, phone companies lack cable competition, so they stand a better chance of success.

Fierce Telecom‘s Sean Buckley published an excellent series of articles outlining the current state of EoC technology and what phone companies are doing with it:

• AT&T: Inherited EoC from its acquisition of BellSouth, and barely markets it. Instead, AT&T uses it as a quiet solution for challenging customers who cannot affordably be reached by fiber.  AT&T will either deliver the service over copper, copper/fiber, or an all-fiber path depending on the client’s needs.
• CenturyLink: No phone company is as aggressive about EoC as CenturyLink. When CenturyLink acquired Qwest, interest in the technology only intensified. EoC is a CenturyLink favorite for small businesses that simply cannot get the speeds they need from traditional DSL.  Most EoC service runs up to 20Mbps.
• Verizon: Verizon’s network is the most fiber-intense among large commercial providers, so EoC is not the first choice for the company. However, it does use it to reach multi-site businesses who have buildings and offices outside of the footprint of Verizon’s fiber network/service area.
• Frontier: In the regions where Frontier acquired Verizon landlines, EoC has become an important component for Frontier’s backhaul traffic. EoC has been deployed to reach cell tower sites and handles broadband traffic between central office exchanges and remote D-SLAMs, used to let the company sell DSL to a more rural customer base.  Frontier looks to EoC before considering spending money on fiber service, even for commercial and institutional users.
• Windstream: EoC is the way this phone company gets better broadband speeds to business customers without spending a lot of money on fiber. Small and medium-sized customers are often buyers of EoC service, especially when DSL can’t handle the job or the company requires faster upstream speeds.  Windstream markets upgradable EoC capable of delivering the same downstream and upstream speeds and can deliver it more quickly than a fiber project.
• FairPoint: Much of this phone company’s EoC efforts are in territories in northern New England acquired from Verizon.  FairPoint targets small and medium sized companies for the service, especially those who have remote offices or clinics that need to be interconnected. FairPoint has also gotten more aggressive than many other companies working with ADSL2+ or VDSL2 to deliver faster broadband to office buildings and complexes more economically than fiber.
• SureWest: This company is strong believer in fiber to the premises service, so its interest in EoC has been limited to areas where deploying fiber makes little economic sense. In more out-of-the-way places, EoC is becoming a more common choice to pitch businesses who need more than traditional broadband.
• Hawaiian Telcom: HawTel uses copper-based EoC to provide connectivity across the diverse Hawaiian Islands.  Speeds are generally lower than in mainland areas, partly because HawTel still relies heavily on traditional copper-based service. But fiber-based EoC is increasingly available in more densely populated areas.

The Great Plans Communications Company has taken to notifying their customers about the growing problem of rural phone calls that never go through.

Rural Americans in 37 states are experiencing unprecedented problems making and receiving telephone calls on their landline phones.  The problem has grown so much, the Federal Communications Commission has announced it will investigate the 2,000 percent increase in complaints from customers who are fed up with bad phone service.

In a Stop the Cap! special report published this week, we shared details about the deteriorating landline networks owned by AT&T and Verizon.  But the problem extends beyond those phone companies, and is causing more than a little inconvenience for affected customers.

Hospitals report they are increasingly unable to reach rural patients and 911 emergency call centers say a growing number of emergency calls are not getting through.  Callers assume the problem isn’t with their landline telephone company, but with the hospital or 911 call center.

In response, the FCC has created the Rural Call Completion Task Force to investigate delayed, uncompleted, or poor quality calls.

“It’s not only an economic issue, it’s a public safety issue,” said Jill Canfield, the director of legal and industry at the National Telecommunications Cooperative Association.

In parts of Minnesota, problems are not limited to local dial tone service, but also extends to long distance calling.

Members of the Minnesota Telecom Alliance, which represents rural phone companies in Minnesota, discovered growing problems completing calls nearly a year ago.  Customers would dial numbers and be met with silence or uncompleted call intercept recordings.  Other customers, especially in area codes 320 and 218 couldn’t hear or be heard by the other calling party.  Other calls sounded like they were made underwater.

Phone companies also dealing with frustrating long distance problems have taken to their blogs to alert customers.  Great Plains Communications is one example:

For a while now, we’ve been aware of a particularly frustrating situation affecting rural telephone customers around the country.

Across the country, residents of rural communities are unable to receive long distance phone calls or are receiving calls of poor quality due to incomplete or blocked long distance calls. The issue affects landline, toll-free and wireless long distance calls.

So what’s the reason for this? Well, in the U.S., phone calls are carried on a network of phone lines that may be owned by a wide range of companies who charge a fee to carry long distance calls. To cut costs, some long distance companies attempt to use the lowest cost route available even if that route includes providers who aren’t capable of providing good call quality or even completing the call.

The result is thousands of dropped calls or calls with almost no sound quality occurring across the nation. Additional problems that customers have experienced are:

• The caller hears ringing but the receiving party hears nothing.
• The caller’s phone rings, but then hears only “dead air” when the call is answered.
• The call takes an unusually long time to place.
• Garbled, one-way, or otherwise poor call quality on completed calls.
• Callers receive odd or irrelevant recorded messages.

Investigators examining the problem confirm that company’s suspicions that fierce cost-cutting has a lot to do with the problem, especially as phone companies try and save money using cheaper Voice Over IP technology.  While most of the problems seem to afflict long distance calls (and the carriers that handle them), local phone companies like Windstream are also being targeted in the review.

A decade ago, consumers chose their long distance provider.  But today’s bundled service packages often include unlimited long distance, using the phone company’s preferred provider.  Some long distance calls are routed over the least expensive route, even if call quality suffers.

What particularly provokes customers are quality reductions coming at the same time companies like Windstream are raising prices in states like Minnesota.

Windstream defends its network and says it isn’t to blame for the problems.

“The fault is not in our network and not in our system,” Windstream spokesman Scott Morris told the SCTimes. “We do feel like we’re providing high-quality service … in what we can control and fix.”

Windstream disappointed Wall Street Friday when it reported a 16 percent income drop for the third quarter of the year, surprising investors who expected more from the Little Rock, Ark. phone company.

Windstream is attempting a makeover as it attempts to shed its image as a residential landline service provider for brighter prospects delivering business telecommunications services.  But shareholders weren’t impressed as company officials noted the company has increased spending on capital projects like data centers and wiring cell phone towers with fiber optics and the $840 million acquisition of Fairport, N.Y.-based PAETEC Holding Corporation.

Most of Windstream’s successes are tied to the company’s business products and services.  The company reported growth selling advanced Internet products to corporate customers, including virtual LAN services and dedicated Internet access.  A considerable amount of the company’s Internet revenue growth is coming from data center services such as webhosting and wireless backhaul circuits sold to cell phone providers.

Windstream’s residential customers can be split into two groups: traditional landline users who are increasingly disconnecting their service and those who are buying DSL service to accompany their existing phone line.  Windstream reported another 4.6% of their residential customers permanently disconnected service this year.  Windstream’s largely rural customer base has remained more loyal and the company added an additional 8,000 DSL customers during the quarter, a growth of 4.4%.  Windstream’s penetration rate for broadband among their landline customers is 65%.

Keeping broadband customers loyal to DSL requires regular service improvements to avoid customer poaching by cable competitors, and Windstream is attempting to keep up with a $40 million investment to improve broadband speeds, including the introduction of advanced VDSL service in selected areas.

Whittington

“We increased broadband speeds to residential and business customers that can now offer 12Mbps service to over 40% of our footprint and 24Mbps service in our most competitive markets,” said Windstream chief operating officer Brent K. Whittington. “We expanded our Raleigh data center to increase the floor space by 10,000 square feet to keep up with the rapidly growing customer base and demand for cloud-based services.”

Whittington notes customers that hunger for faster broadband speeds are using them largely to watch online video, and Windstream has begun marketing campaigns targeting video-hungry customers.  Customers using the Internet for basic web browsing and e-mail are not very interested in paying more for faster service, however.

“Customers still don’t want to pay incrementally for higher speed services,” Whittington said. “We try to position Windstream as all the speed you need, which is really trying to help make sure customers understand our parity with cable as it pertains to speeds because some of the perceptions around traditional ADSL services, they’ve used against us, and that’s working for us. But again, customers really just, we find, don’t want to spend a lot more for incremental speeds. We see that as revenue upside in the future, but not seeing a great deal of demand there right now.”

While Windstream customers will likely find current product pricing stable over the coming year, the FCC’s recent approval of Universal Service Fund (USF) reform does allow the phone company to raise rates on customers.  Some Wall Street investment firms have suggested Windstream do precisely that to boost revenues.

Timothy Horan from Oppenheimer & Co., Inc. noted Windstream’s local rates seem low.

“I don’t think they’ve been raised for a long period of time,” Horan observed. “I think you have to go through some [state regulators], but can you do that without having rate cases, and is that part of the plan at all?”

Anthony W. Thomas, Windstream’s chief financial officer, tried to put Horan at east.

“The FCC has provided a mechanism, it is our understanding, in the order that will allow us to pass along price increases up to $0.50 per month to our customers over a 5-year period,” Thomas explained.

Irony: Chesonis' 2007 book has this description on Amazon.com -- "When you put people first, you win. When you operate by the highest principles, you'll see the results in the bottom line. When you put a caring heart into how you operate, in your organization and your community, you build the only true foundation of long-term success."

Eight acres of rubble and a big hole in the ground.

That’s what residents of Rochester, N.Y., are calling the former site of Midtown Plaza, America’s first indoor shopping mall, torn down to make room for the new headquarters of PAETEC Corporation — headquarters that may never be built.

Now the city of Rochester has declared war on the proposed acquisition of PAETEC by Little Rock, Ark.,-based Windstream, suggesting the combined company may renege on its commitment to construct new headquarters in downtown Rochester after New York State and Rochester city taxpayers spent $60 million on an economic development package for the company.

In a letter to the Federal Communications Commission, the mayor’s office declared its official opposition to the merger proposal, citing the economic impact of wasted tax dollars and the deal’s impact on local jobs:

The Commission will note from the body of this correspondence that the City may be negatively affected if the transfer of PAETEC to Windstream takes place. The federal, state and local governments have worked to develop the site for the purpose of establishing a PAETEC headquarters in Downtown Rochester; tailoring a development package and investing millions to make this location shovel ready for development. New York State provided the Project’s most significant monetary investment, proceeding with the understanding that the Project would retain and grow employment in the Rochester region. It is in the public interest to examine, not just the financial and planning impact that this will have on the City, but to also study the effect this will have on employment, the communities surrounding the City and the lives of the individuals who may be affected.

[...] In anticipation of the PAETEC Project, New York State and the City invested $60 million to demolish the former improvements on the Midtown Site and create a shovel ready building site. To insure the success of the PAETEC Project, the City produced a development package (“Development Package”) which expedited and customized the demolition of the existing buildings at the Midtown Site to accommodate PAETEC’s construction schedule and provide a foundation for PAETEC’s corporate headquarters.

[...] The Development Package was intended to benefit a New York State employer and help that employer retain its current employees and hire additional employees to grow its business. Despite all the efforts of the City to facilitate and provide the positive economic environment for the PAETEC Project, Windstream has indicated that it intends to reduce PAETEC’s current 850-employee Monroe County workforce.

The two companies filed a joint response with the Commission essentially telling the city to stay out of the merger deal, and their concerns about PAETEC’s headquarters and how many jobs will ultimately be lost are not within the Commission’s power to review anyway.

PAETEC CEO Arunas Chesonis, who earlier put the highest praise for his company’s success on the employees who helped build it into what it is today, told a group of fellow business leaders a different story than he told readers of his 2007 book.

“For people who feel let down, we in Rochester should want to be let down like this 50 times a year,” Chesonis said. “Rochester will be a major operating center for the company. So along those lines, we have to figure out how many jobs will be in Rochester. We should be talking about the people that are going to lose their jobs. What are those people going to do next?”

Presumably collect unemployment, critics charge.  Among them is former Mayor William Johnson, who has criticized the city for bending over backwards for the ever-evolving plans for new PAETEC headquarters, which have been downsized repeatedly since they were originally announced.  Johnson thinks Windstream may have effectively put a knife in the back of taxpayers and the mayor’s office, and could ultimately exit the city of Rochester leaving countless local employees out of work.

Windstream seems resolute in its plans to cut what it calls “duplicative staffing positions.”  It reminded the FCC the agency “has routinely approved transactions in which—as will be the case in this transaction—increased efficiencies and economies of scale and scope are expected.”

That is code language for PAETEC employees: Update your resume.  You may need it.

Finger-pointing over a messy, uncompleted downtown construction project. PAETEC may be planning to renege on a $60 million taxpayer-financed economic development package after it announced plans to merge with Windstream.  Reports from WHEC and WHAM-TV.  (6 minutes)

The primary backers of the ABC Plan

Today, Federal Communications Commission Chairman Julius Genachowski is scheduled to deliver a major announcement on reforming the Universal Service Fund (USF) — a federal program designed to subsidize the costs of delivering telecommunications services to rural America.

The reform, long overdue, would transition a significant percentage of USF fees every telephone customer pays towards broadband deployment — a noble endeavor.  For years, Americans have paid more than $5 billion annually to phone companies large and small to maintain rural landline service.  Small co-op phone companies depend on the income to deliver affordable service in places like rural Iowa, Kansas, and Alaska.  But large companies like AT&T and Verizon also collect a significant share (around $800 million annually) to reduce their costs of service in the rural communities they serve.

That’s particularly ironic for AT&T, which time and time again has sought the right to abandon universal rural landline service altogether.

Genachowski’s idea would divert USF funding towards broadband construction projects.  The argument goes that even low speed DSL requires a well-maintained landline network, so phone companies that want to deploy rural broadband will have to spend the money on necessary upgrades to provide just enough service to earn their USF subsidies.  The lower the speed, the lower the cost to upgrade networks and provide the service.  Some may choose wireless technology instead.  Since the telephone companies have fought long and hard to define “broadband” as anything approaching 3-4Mbps, that will likely be the kind of speed rural Americans will receive.

At first glance, USF reform seems like a good idea, but as with everything at the FCC these days, the devil is always in the details.

Dampier: Another day, another self-serving plan from the phone companies that will cost you more.

While headline skimmers are likely to walk away with the idea that the FCC is doing something good for rural broadband, in fact, the Commission may simply end up rubber stamping an industry-written and supported plan that will substantially raise phone bills and divert your money into projects and services the industry was planning to sell you anyway.

Stop the Cap! wrote about the ABC Plan a few weeks ago when we discovered almost all of the support for the phone-company-written proposal comes from the phone companies who back it, as well as various third party organizations that receive substantial financial support from those companies.  It’s a dollar-a-holler astroturf movement in the making, and if the ABC Plan is enacted, you will pay for it.

[Read Universal Service Reform Proposal from Big Telcos Would Rocket Phone Bills Higher and Astroturf and Industry-Backed, Dollar-a-Holler Friends Support Telco’s USF Reform Plan.]

Here is what you probably won’t hear at today’s event.

At the core of the ABC Plan is a proposal to slash the per-minute rates rural phone companies can charge big city phone companies like AT&T and Verizon to connect calls to rural areas.  You win a gold star if you correctly guessed this proposal originated with AT&T and Verizon, who together will save literally billions in call connection costs under their plan.

With a proposal like this, you would assume most rural phone companies are howling in protest.  It turns out some are, especially some of the smallest, family-run and co-op based providers.  But a bunch of phone companies that consider rural America their target area — Frontier, CenturyLink, FairPoint and Windstream, are all on board with AT&T and Verizon.  Why?

Because these phone companies have a way to cover that lost revenue — by jacking up your phone bill’s USF surcharge to as much as $11 a month per line to make up the difference.  In the first year of implementation, your rates could increase up to $4.50 per line (and that fee also extends to cell phones).  Critics have been widely publicizing the increased phone bills guaranteed under the ABC Plan.  In response, advocates for the industry are rushing out the results of a new study released yesterday from the Phoenix Center Chief Economist Dr. George S. Ford that claims the exact opposite.  Dr. Ford claims each customer could pay approximately $14 less per year in access charges if the industry’s ABC Plan is fully implemented.

Genachowski

Who is right?  State regulators suggest rate increases, not decreases, will result.  The “Phoenix Center,” unsurprisingly, has not disclosed who paid for the study, but there is a long record of a close working relationship between that research group and both AT&T and Verizon.

But it gets even worse.

This shell game allows your local phone company to raise rates and blame it on the government, despite the fact those companies will directly benefit from that revenue in many cases.  It’s a real win-win for AT&T and Verizon, who watch their costs plummet while also sticking you with a higher phone bill.

The USF program was designed to provide for the neediest rural phone companies, but under the new industry-written rules being considered by the FCC, just about everyone can get a piece, as long as “everyone” is defined as “the phone company.”  There is a reason this plan does not win the hearts and minds of the cable industry, independent Wireless ISPs, municipalities, or other competing upstarts.  As written, the USF reform plan guarantees virtually all of the financial support stays in the Bell family.  Under the arcane rules of participation, only telephone companies are a natural fit to receive USF money.

Genachowski will likely suggest this plan will provide for rural broadband in areas where it is unavailable today.  He just won’t say what kind of broadband rural America will get.  He can’t, because the industry wrote their own rules in their plan to keep accountability and oversight as far away as possible.

For example, let’s assume you are a frustrated customer of Frontier Communications in West Virginia who lives three blocks away from the nearest neighbor who pays $50 a month for 3Mbps DSL broadband.  You can’t buy the service at any price because Frontier doesn’t offer it.  You have called them a dozen times and they keep promising it’s on the way, but they cannot say when.  You may have even seen them running new cable in the neighborhood.

Frontier has made it clear they intend to wire a significantly greater percentage of the Mountain State than Verizon ever did when it ran things.  Let’s take them at their word for this example.

The telephone companies have helpfully written their own rules for the FCC to adopt.

Frontier’s decision to provide broadband service in West Virginia does not come out of the goodness of their heart.  At a time when landline customers are increasingly disconnecting service, Frontier’s long-term business plan is to keep customers connected by selling packages of phone, broadband, and satellite TV in rural markets.  Investment in DSL broadband deployment has been underway with or without the assistance of the Universal Service Fund because it makes financial sense.  Our customer in West Virginia might disconnect his landline and use a cell phone instead, costing Frontier any potential broadband, TV and telephone service revenue.

Under the ABC Plan, Frontier can be subsidized by ratepayers nationwide to deliver the service they were planning to provide anyway.  And what kind of service?  The same 3Mbps DSL the neighbors have.

If your county government, a cable operator, or wireless competitor decided they could deliver 10-20Mbps broadband for the same $50 a month, could they receive the USF subsidy to build a better network instead?  Under the phone company plan, the answer would be almost certainly no.

Simon Fitch, the consumer advocate of the Federal-State Joint Board on Universal Service, which advises the FCC on universal service matters, says the ABC Plan is a consumer disaster.

“Although a stated goal of the FCC’s reform effort is to refocus universal-service funding to support broadband, the industry’s ABC plan requires no real commitment to make broadband available to unserved and underserved communities,” Fitch writes. “Companies would receive funds to provide broadband with upload and download speeds that are already obsolete. States would be given no real enforcement power.”

Fitch is certain companies like AT&T and Verizon will receive enormous ratepayer-financed subsidies they don’t actually need to provide service.

Back to AT&T.

In several states, AT&T is seeking the right to terminate its universal service obligation altogether, which would allow the same company fiercely backing the ABC Plan to entirely walk away from its landline network.  Why?  Because AT&T sees its future profits in wireless.  Under the ABC Plan, AT&T could build rural cell towers with your money to provide “replacement service” over a wireless network with or without great coverage, and with a 2GB usage cap.

At the press conference, Genachowski could still declare victory because rural America would, in fact, get broadband.  Somehow, the parts about who is actually paying for it, the fact it comes with no speed, coverage, or quality guarantees, and starts with a 2GB usage cap on the wireless side will all be left out.

Fortunately, not everyone is as enamored with the ABC Plan as the groups cashing checks written by AT&T.

In addition to state regulators, Consumers Union, the AARP, Free Press, and the National Association of Consumer Advocates are all opposed to the plan, which delivers all of the benefits to giant phone companies while sticking you with the bill.

There is a better way.  State regulators and consumer groups have their own plans which accomplish the same noble goal of delivering subsidies to broadband providers of all kinds without increasing your telephone bill.  It’s up to the FCC to demonstrate it’s not simply a rubber stamp for the schemes being pushed by AT&T and Verizon.

So who is for the ABC Plan?  Primarily phone companies, their business partners, and dollar-a-holler astroturf friends:

American Consumer Institute:  SourceWatch called them a telecom industry-backed astroturf group.  Karl Bode from Broadband Reports discovered “the institute’s website is registered to ‘Stephen Pociask, a telecom consultant and former chief economist for Bell Atlantic [today Verizon].”  The group, claiming to focus “on economic policy issues that affect society as a whole,” spends an inordinate amount of its time on telecommunications hot button issues, especially AT&T and Verizon’s favorites: cable franchise reform and opposition to Net Neutrality.

Anna Marie Kovacs:  Determining what is good for Wall Street is her business, as founder and President of Regulatory Source Associates, LLC. RSA provides investment professionals with analysis of federal and state regulation of the telecom and cable industries.

Dollar-a-holler support?

Consumer Awareness Project: A relatively new entrant, CAP is AT&T’s new darling — a vocal advocate for AT&T’s merger with T-Mobile.  But further digging revealed more: the “group” is actually a project of Washington, D.C. lobbying firm Consumer Policy Solutions, which includes legislative and regulatory advocacy work and implementation of grassroots mobilization.

That is the very definition of interest group-“astroturf.”

Randolph May from the Free State Foundation supports "state's rights," but many of them want no part of a plan his group supports.

Free State Foundation: A misnamed conservative, “states rights” group.  Leader Randolph May loves the ABC Plan, despite the fact several individual states are asking the FCC not to impose it on them.

Hispanic Technology & Telecommunications Partnership:  Whatever Verizon and AT&T want, HTTP is also for.  The group was embroiled in controversy over its unflinching opposition to Net Neutrality and love for the merger of AT&T and T-Mobile.  Its member groups, including MANA and LULAC, are frequent participants in AT&T’s dollar-a-holler lobbying endeavors.

Robert J. Shapiro: Wrote an article for Huffington Post calling the ABC Plan worth consideration.  Also worth mentioning is the fact he is now chairman of what he calls an “economic advisory firm,” which the rest of the world calls a run-of-the-mill D.C. lobbyist firm — Sonecon.  It comes as no surprise AT&T is a client.  In his spare time, Shapiro also writes reports advocating Internet Overcharging consumers for their broadband service.

Indiana Exchange Carrier Association: A lobbying group representing rural Indiana telephone companies, primarily owned by TDS Telecom.  It’s hardly a surprise the companies most likely to benefit from the ABC Plan would be on board with their support.

Indiana Telecommunications Association: A group of 40 telephone companies serving the state of Indiana.  For the aforementioned reasons, it’s no surprise ITA supports the ABC Plan.

Information Technology and Innovation Foundation:  Reuters notes this group received financial support from telecommunications companies, so lining up behind a plan those companies favor comes as little surprise.  ITIF also believes usage caps can deter piracy, so they’re willing to extend themselves way out in order to sell the telecom industry’s agenda.

Internet Innovation Alliance:  Another group backed by AT&T, IIA also funds Nemertes Research, the group that regularly predicts Internet brownouts and data tsunamis, which also hands out awards to… AT&T and Verizon.

The Indiana Exchange Carrier Assn. represents the phone companies that will directly benefit from the adoption of the ABC Plan.

Bret Swanson:  He penned a brief note of support on his personal blog.  When not writing that, Swanson’s past work included time at the Discovery Institute, a “research group” that delivers paid, “credentialed” reports to telecommunications company clients who waive them before Congress to support their positions.  Swanson is a “Visiting Fellow” at Arts+Labs/Digital Society, which counted as its “partners” AT&T and Verizon.

Minority Media & Telecom Council: Tries to go out of its way to deny being affiliated or “on the take” of telecom companies, but did have to admit in a blog posting it takes money from big telecom companies for “conference sponsorships.”  Some group members appear frequently at industry panel discussions, and mostly advocate AT&T’s various positions, including strong opposition to reclassify broadband as a utility service.

MMTC convened a Broadband and Social Justice Summit earlier this year that featured a range of speakers bashing Net Neutrality, and the group’s biggest highlighted media advisory on its website as of this date is its support for the merger of AT&T and T-Mobile.  Yet group president David Honig claims he can’t understand why some consumer groups would suspect groups like his of engaging in dollar-a-holler advocacy, telling The Hill, “We’ve seen no examples of reputable organizations that do things because of financial contributions. It’s wrong to suggest such things.”

Mobile Future: Sponsored by AT&T, Mobile Future curiously also includes some of AT&T’s best friends, including the Asian Business Association, LULAC, MANA, the National Black Chamber of Commerce, and the United States Hispanic Chamber of Commerce.

Montana Independent Telecommunications Systems: Primarily a group for Montana’s independent telephone companies, who will benefit enormously from the ABC Plan.

What major corporate entity does not belong to this enormous advocacy group?

The National Grange:  A group with a long history advocating for the interests of telephone companies.  Over the years, the National Grange has thrown its view in on Verizon vs. the RIAA, a request for Congress to support industry friendly legislation, a merger between Verizon and NorthPoint Communications, and USF issues.

The Keep USF Fair Coalition was formed in April 2004. Current members include Alliance for Public Technology, Alliance For Retired Americans, American Association Of People With Disabilities, American Corn Growers Association, American Council of the Blind, California Alliance of Retired Americans, Consumer Action, Deafness Research Foundation, Gray Panthers, Latino Issues Forum, League Of United Latin American Citizens, Maryland Consumer Rights Coalition, National Association Of The Deaf, National Consumers League, National Grange, National Hispanic Council on Aging, National Native American Chamber of Commerce, The Seniors Coalition, Utility Consumer Action Network, Virginia Citizen’s Consumer Council and World Institute On Disability. DSL Prime helps explain the membership roster.

Taxpayers Protection Alliance:  One of the tea party groups, TPA opposes higher USF fees on consumers.  The ABC Plan website had to tread carefully linking to this single article favorable to their position.  Somehow, we think it’s unlikely the group will link to the TPA’s louder voice demanding an end to broadband stimulus funding many ABC Plan backers crave.

TechAmerica: Guess who is a member?  AT&T, of course.  So is Verizon.  And CenturyLink.  TechAmerica call themselves “the industry’s largest advocacy organization and is dedicated to helping members’ top and bottom lines.”  (Consumers not included.)

Tennessee Telecommunications Association: TTA’s independent phone company members stand to gain plenty if the ABC Plan is enacted, so they are happy to lend their support.

Rep. Terry's two biggest contributors are CenturyLink and Qwest.

Representative Greg Walden (R-Oregon):  His top five contributors are all telecommunications companies, including CenturyLink, Pine Telephone, and Qwest.  He also gets money from AT&T and Verizon.  It’s no surprise he’s a supporter: “We are encouraged by the growing consensus among stakeholders as developed in the ‘America’s Broadband Connectivity Plan’ filed with the Federal Communications Commission today, and we hope that consensus will continue to grow.”

Representative Lee Terry (R-Nebraska): He co-signed Rep. Walden’s statement.  Rep. Terry’s two biggest contributors are Qwest and CenturyLink.  Now that CenturyLink owns Qwest, it’s two-campaign-contributions-in-one.  And yes, he gets a check from AT&T, too.

Representative Steve Scalise (R-Louisiana): “Today’s filing of the ‘America’s Broadband Connectivity Plan’ is welcomed input on the intercarrier compensation and Universal Service Fund reform front,” Scalise said.  Now Scalise is ready to welcome this year’s campaign contribution from AT&T, which he has not yet reportedly received.  In 2008, Scalise received $13,250.  In 2010, $10,000.  This cycle, so far he has only been able to count on Verizon, which threw $2,500 his way.  Scalise voted earlier this year to overturn the FCC’s authority to enact Net Neutrality.

USTelecom Association: The only news here would be if USTA opposed the ABC Plan.  Included on USTA’s board of directors are company officials from: Frontier Communications, AT&T, CenturyLink/Qwest, Windstream, FairPoint Communications, and Verizon.  That’s everyone.

Wisconsin State Telecommunications Association:  Their active members, including Frontier Communications, are all telephone companies inside Wisconsin that will directly benefit if the ABC Plan is enacted.