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Even Frontier Hints Without Major Broadband Upgrades, It’s Dead

Phillip Dampier September 18, 2017 Consumer News, Frontier 5 Comments

Frontier Communications spent $2 billion in 2014 to purchase AT&T’s Connecticut wireline business, believing it could make a fortune selling internet and cable television service to wealthy Nutmeg State residents over a network AT&T upgraded to fiber-to-the-neighborhood service several years earlier.

But thanks to a combination of management incompetence, cord-cutting, and Frontier’s competitors, the phone company’s dreams have turned bad in Connecticut, where the company lost hundreds of millions in the last three years along with at least 22% of its customers in the state. As a result, Frontier has turned a business that made AT&T $1.3 billion four years ago into one that earned Frontier $901.9 million last year.

Hartford Business notes Frontier’s biggest challenge is holding on to customers once they disconnect their landline service. In Connecticut between 2014 and 2016, Frontier lost 154,000 landline customers in the state, leaving just under 522,000 remaining landline customers. That is way down from the 675,000 customers AT&T had just before it sold the service area to Frontier. AT&T struggled with a similar problem, having more than one million landline customers in 2011, according to numbers from Connecticut’s Public Utilities Regulatory Commission (PURA). What made AT&T different is its investment in U-verse — AT&T’s answer to the challenge of lost landline customers. AT&T invested in a new fiber to the neighborhood network to boost broadband speeds and sell television service, giving departing landline customers a reason to continue doing business with AT&T.

For millions of Frontier Communications customers in its “legacy service areas” — owned and operated by Frontier for years, if not decades, those upgrades have been slow to come, if they have come at all. As a result, dropping Frontier service in favor of a wireless or cable company is not a difficult decision for many customers, and cable operators report significant growth where their only competition is DSL service from Verizon or Frontier.

Frontier’s own executives admit broadband upgrades are essential if Frontier is to survive the challenges of landline disconnects.

Customers are increasingly taking a pass on landline service.

“It’s a surprise to no one that we have voiceline declines in Connecticut,” Mark Nielsen, Frontier’s general counsel and executive vice president told the business newspaper. “The challenge is to build our internet and video business so as to offset the declines in voice. We are very committed to the Connecticut operation, we see great potential in it.”

That commitment is coming in the form of internet speed upgrades. Frontier’s primary competitors in the state are cable operators Comcast, Charter, and Cox, some offering speeds as high as a gigabit. Frontier is trying to compete by introducing speeds at or greater than 100Mbps, but so far only in a few parts of the state.

According to Nielsen, Frontier’s profitability is less important to investors than maintaining positive cash flow, which means assuring more money is coming into the operation than going out.

“Cash is what’s available to make investments to return capital to shareholders,” Nielsen said.

But that represents a conflict for Frontier, because many shareholders are attracted to the stock’s long history of returning money to shareholders in the form of dividend payouts. If Frontier has to invest more of its capital on upgrades and network upkeep, that can result in a dividend cut, which usually causes the share price to decline, sometimes dramatically. If Frontier can manage to invest less and cut costs, that frees up more money that can be paid to investors.

For the past several years, Frontier’s business plan has been to avoid spending large sums on network upgrades. But the company was willing to spend handsomely to acquire more customers from a three-state deal with Verizon that cost $10.5 billion. Frontier’s acquisition of Verizon landline customers in Florida, California, and Texas made sense for many shareholders because it would dramatically increase the number of customers served by Frontier, and that in turn would boost revenue and cash flow, from which Frontier’s dividend to shareholders would be paid. Frontier acquired a fiber rich, FiOS service area in all three states, which automatically meant the company would not need to undertake its own significant and costly upgrades.

But Frontier did have to transfer its newest customers from Verizon’s systems to those operated by Frontier. If a company spends enough time and money to protect customer data during such “flash cutovers,” they are usually successful. A company that attempts it without careful planning causes service to be disrupted, sometimes for weeks, which is exactly what happened after Frontier switched customers in the three states to its systems. Customers have never forgotten, and have left every quarter since the deal was first announced.

Financial analysts see where this is headed.

“Each and every quarter their revenues decline, and each and every quarter their customer totals decline,” David Burks, a financial analyst at Hilliard Lyons, told the newspaper. He called Frontier a company that is struggling. He added Frontier needs to stem revenue erosion. He downgraded Frontier’s stock last month after the company reported a second-quarter net loss of $662 million. He could not ignore what he called “disturbing trends,” such as an 11.5 percent year-over-year decline in total customers across Frontier’s entire operation.

 

To win new customers Frontier must improve its network with upgrades that will cost the company billions — spending that is certain to affect Frontier’s shareholder dividend. Even if it does spend money to upgrade, some analysts are wondering whether it is too late.

“The time to play catch up has passed, given the time to market advantage that cable has, and we expect continued pressures from cable as DOCSIS 3.1 steps up the speed advantage that cable already enjoys,” wrote Jeffries in a a report written about by FierceTelecom. “In our view, it is far too late for the ILECs to ramp spend to compete, particularly given high leverage and the significant cost required to expeditiously play catch up.”

N.Y. Settles With Charter Communications; Rural Expansion Website Now Available

New York residents can click the image above and input their address and see if Charter’s expanded service area will include their home or business.

The New York State Public Service Commission (PSC) today announced approval of a $13 million settlement agreement with Charter Communications after the cable company failed to build-out its cable network as required in last year’s approval of Charter’s acquisition of Time Warner Cable. The $13 million settlement is the largest cable company financial settlement of its kind in state history and possibly the largest in the nation’s.

“In its approval of the merger, the Commission required Charter to undertake several types of investments and other activities,” said Commission Chair John B. Rhodes. “While Charter is delivering on many of them, it failed to expand the reach of its network to un-served and under-served customers at the pace it committed. We are taking these additional steps to ensure full and complete compliance.”

Charter Communications was required, as a condition of approval of its merger with Time Warner Cable, to expand its broadband service to 145,000 unserved/underserved homes and businesses in New York over the next four years. Rural broadband expansion was one of the conditions Stop the Cap! recommended to the New York regulator in our testimony regarding the merger proposal.

In the first year, Charter failed to meet its buildout requirements, only reaching 15,164 locations — less than half of the 36,250 it agreed to serve by May, 2017. The cable company first tried to blame utility companies for dragging their feet allowing Charter to place its cables on their utility poles, an argument that failed to impress the PSC. Even if utility companies instantly cleared the way for Charter, the cable company admitted it would not be ready to proceed because of necessary preparatory work needed to begin the buildout.

As a result, Charter has been forced to place $13 million in an escrow-type account that New York can tap into in amounts of up to $1 million increments to penalize the company for further delays. Charter can win back all $13 million if it stops missing its six-month buildout targets. Each time it does miss a deadline, the State reserves the right to withdraw funds in amounts that will vary based on the seriousness of the violation. Some forfeited funds will be used to acquire computers and internet training for low-income New Yorkers. The rest will be channeled into New York’s general fund.

Charter’s new targets require the company to expand its cable service in increments of 21,646 homes over six periods through May 18, 2020.

Many rural New Yorkers with no access to broadband service have complained Charter has not been forthcoming about whether the broadband expansion will reach their individual home or business, so the cable company has also agreed to launch a new website where New Yorkers can input their home or business address to learn if they are included in the broadband expansion. Charter warns that inclusion on the build-list database is not a guarantee that a home or area will be actually be reached.

“Build plans, timelines, and all other information provided are subject to change and areas designated for build may not be built,” the website states.

Charter is also required to deliver broadband speeds up to 100Mbps statewide by the end of 2018 — something the company has already accomplished in almost every part of the state where it provides service. The company is not subject to broadband rate regulation, and Charter charges a $199 setup fee for customers who seek to upgrade to speeds in excess of 60Mbps (except in former Time Warner Cable Maxx service areas, where 100Mbps is already the standard broadband speed). Charter must also make 300Mbps available to all New York residents by the end of 2019, something the company will likely achieve in most parts of the state sometime late next year.

Charter Communications is by far the largest cable company serving New York State. The company provides cable television, internet and telephone service in the major metropolitan areas of Buffalo, Rochester, Syracuse, Albany and the boroughs of Manhattan, Staten Island, Queens and parts of Brooklyn. Cablevision, now owned by Altice, covers the other boroughs and Long Island, as well as part of the Hudson Valley and Westchester County.

Deutsche Telekom: We’ll Build a Nationwide Fiber Network If You Let Us Monopolize It

German Chancellor Angela Merkel examines fiber optic telecommunications cables.

Germany has an internet access problem not very different from the one afflicting the United States and Canada. The national phone company, still partly owned by the government, remains mostly dependent on a decades-old wireline telephone network to deliver landline and DSL broadband service. The only way Deutsche Telekom will invest adequately to replace it with optical fiber is if they get assurances from the federal government they will be allowed to monopolize access to it.

According to the business weekly WirtschaftsWoche, a sister publication of Handelsblatt, Telekom executives have agreed to build a fiber-optic network everywhere in Germany provided that it is excluded from European anti-monopoly rules so that Deutsche Telekom wouldn’t be forced to open its network to competition.

The proposal from the German telecom giant was particularly audacious because many in the country blame it and its uncompetitive behavior for creating Germany’s slow broadband problem, but that did nothing to stop the company from asking to be shielded from competition.

“A fundamental departure from the kind of logic that viewed regulation of Deutsche Telekom (DT) as the normal state in the last 20 years is urgently needed,” the company said in a filing with the German Federal Network Agency, which regulates the internet in the country.

For most Germans, DT is the problem. The phone company has proven itself a formidable competitor across many parts of eastern Europe, where it bought control of privatized telecommunications companies that used to operate as government monopolies. But back home in Germany, it has been happy to continue offering DSL service that the rest of Europe cannot get rid of fast enough. In certain larger cities like Munich and Cologne, upstart fiber to the home providers have filled the broadband gap and have wired significant parts of both cities, and DT has responded with a fiber offering of its own without complaining about the cost of building a fiber network or the return on its investment.

Oberbürgermeister Wolff

But in smaller towns and villages across Germany — particularly in the eastern states, broadband has been terrible for years and under DT’s “leadership” it has not gotten much better, allowing other countries in the EU to sail past Germany in broadband rankings. Like AT&T and Verizon in the U.S., DT claims that where it has not upgraded its network, there is either no demand for fiber fast internet speed or inadequate return on investment. Also like in the U.S., DT has spent its money on other technologies, notably wireless, while investment in landline networks has not kept up.

Some German communities like Bretten, fed up with inaction, have taken charge of their own broadband future and are building their own fiber to the home networks. Martin Wolff has dreamed of a digital economy boost for his town of 28,000 located near Karlsruhe in western Germany.

As mayor, he has begged and pleaded with DT to give Bretten something beyond lackluster DSL service, which is now too slow to handle the kind of 21st century internet applications that better wired communities take for granted. Mayor Wolff wants Bretten known as a gigabit city. DT, in contrast, wants to leave Bretten as a forgotten digital backwater. The phone company had repeatedly told the community the broadband it gets now is more than good enough and nobody should hold their breath waiting for something better. DT’s few competitors, including Britain’s Vodafone, weren’t interested either. Bretten is too small… too… irrelevant to matter to their investors.

“They are only interested in serving the cream of the crop in the cities and don’t come to rural areas,” the mayor said.

Like in North America, Germans are asking themselves who should be in charge of their digital future — investor-owned telecom companies or the community itself. The country’s continued embarrassing showing in European broadband rankings has become an issue of national pride and has sparked a loud debate between established telecom companies and the public that wants faster and better broadband.

The noise of the debate has attracted the politicians, and the issue of German broadband has now taken center stage in the parliamentary elections, which will be held Sept. 24. Handelsblatt reports the issue of inadequate broadband now interests German voters more than the latest economic policy position paper or how Germany will manage to deal with U.S. President Donald Trump for the next three years. Many Germans have plenty of time for these kinds of offline debates, because online, it can take a minute to load a webpage on some of the country’s dial-up like DSL connections.

“Germany is one of the most under-supplied countries in Europe, especially in terms of rural coverage,” wrote Bernd Beckert, an internet expert at the Fraunhofer Institute for Systems and Innovation Research, in a recent study of European broadband. He said countries such as Switzerland, Spain and even tiny Estonia are far ahead of Germany. In fact, the Baltic states and many former Eastern bloc countries are moving towards a fiber future while Germany considers wrapping itself even tighter in copper wiring installed in the 1960s. More than 70% of German internet users get internet access through a DT-provided, ADSL-equipped landline. Many connect at just 1-6Mbps, about the same speed users were getting in the late 1990s when DT’s internet monopoly was abolished.

Since then, DT has done everything possible to encourage “competitors” to not build competing networks. In fact, most competing ISPs like 1&1, Versatel, Telefonica Deutschland, and Vodafone rent DT DSL-capable landlines to provision service to their customers. That means they cannot compete on speed and they are forced to rely on DT to maintain its wireline network. It is no accident that German adoption of fiber optics is stuck at only 1.8%, fifth from last place among the 35 member states of the Organization of Economic Cooperation and Development (OECD). In comparison, Japan and South Korea have more than 70 percent of their customers on fiber to the home connections.

Germany’s largest political parties that have been in government since 2005, the Christian Democratic Union (CDU) and the Christian Social Union in Bavaria (CSU) have tolerated DT and its anemic upgrade policies. Broadband stagnancy, many believe, would not be possible without acquiescence and appeasement by those in control of the country. That conspiracy theory is backed by many of Germany’s smaller political parties which believe it is time to change the government’s involvement with DT.

The Left Party’s platform supports nationalizing DT and returning it to a state-owned enterprise that will answer to the public policy priorities of the next government. The capitalist, pro-business Free Democratic Party wants to get the government completely out of its 32% remaining stake in DT and hope that free market solutions will emerge. In the meantime, that party proposes to use the proceeds of any sale to fund a national broadband subsidy fund to convince private telecom companies to upgrade their networks in underserved areas.

DT has not stayed quiet in the public policy debate either. After disappointing the German public by rejecting a proposal to build an open, nationwide fiber to the home network, the company has instead promised to upgrade existing DSL lines to newer technologies like VDSL and vectoring, which DT claims could deliver up to 100Mbps service. American phone companies like Verizon have been reluctant to head in a similar direction, admitting many of the next generation DSL technologies work better in the lab than in the field. Many of the technologies promoting the most dramatic speed improvements have also proved to be vaporware so far.

Deutsche Telekom HQ Bonn, Germany

“We are committed to vectoring, because it is the only way to provide people in rural areas with faster lines quickly,” Deutsche Telekom said in a blog post published in August. “If we are fixated on [fiber to the home], those in the countryside will remain left behind for years. It is simply impossible to roll out fiber lines to homes everywhere in the country. Neither the construction capacity nor the funding is available for that. Plus, there is quite simply no demand for it.”

Some of the other competitors in the market seem to agree with DT.

“No provider can achieve fiber optic expansion on its own,” said Valentina Daiber, a member of the board of Telefonica. Daiber said DT was already nearly $60 billion in debt. Daiber said she hoped a solution could be found after the election.

But just a week after Daiber made that claim Vodafone announced it will spend $2.4 billion on a new fiber to the premises network targeting 100,000 companies in 2,000 German business parks. The company will also spend up to $450 million partnering with municipalities to extend the network to about one million rural homes, in addition to boosting its current broadband speeds delivered to German cable customers to 1Gbps.

That announcement could cause DT’s DSL plans to eventually collapse, if Vodafone follows through on its fiber buildout.

Mayor Wolff has no intention of waiting to see how it all plays out. Wolff has convinced private fiber optics company BBV to install the fiber infrastructure and has a Dutch investor partner arranging $12 million in financing, which is always the biggest stumbling block to get fiber buildouts underway. Upfront construction costs often deter many municipalities and would-be competitors from launching. But for Wolff, where there is a will, there is a way to deliver fiber fast broadband, and he is making certain it happens sooner rather than later.

American Enterprise Institute’s Shallow Formula for Broadband Nirvana

AEI: If you bought broadband service, that means you like your service and don’t need or want anything better.

The American Enterprise Institute wants the FCC to judge to quality of America’s broadband based on what customers are able to buy today and how much they are willing to pay to get it.

Section 706 of the Telecommunications Act of 1996 requires the FCC to report to Congress whether broadband “is being deployed to all Americans in a reasonable and timely fashion.” As part of that process, the FCC must determine if Americans are getting internet connections capable of providing “advanced telecommunications capability.”

If the FCC reports to Congress that the country’s biggest telecom companies are letting their customers down with inadequate service or no service at all, that can create conditions for the FCC to step in and start insisting on more competition and oversight as well as setting benchmarks for providers to meet. If the report shows that broadband service is adequately provided, the FCC need not regulate, and in some cases such a finding will fuel calls to further deregulate the industry by getting rid of “unnecessary regulation.”

Not surprisingly, findings since 2001 have varied depending on which political party holds the majority on the Commission. Under President George W. Bush, the FCC consistently found broadband service was being adequately deployed to Americans. The FCC also set the bar pretty low on broadband speed, claiming anything at or above 4/1Mbps service constituted “broadband.” That definition comfortably accommodated DSL service from the phone companies.

Wheeler – Argued for better broadband and more competition.

During the Obama Administration, the FCC set the bar higher. With dissent from the Republican minority, the FCC raised the minimum speed that could be defined as broadband to 25/3Mbps, immediately excluding most DSL and wireless connections. In 2015, former FCC Chairman Thomas Wheeler specifically excluded satellite and wireless connections from that formula, despite objections from FCC Commissioner Ajit Pai. Particularly under Wheeler’s watch, the Democratic majority frequently complained about inadequate broadband and competition, and used Section 706 as its authority to override state laws in North Carolina and Tennessee that placed onerous restrictions on municipal broadband networks. Wheeler felt such laws were anti-competitive, but the courts ruled the FCC exceeded its authority and overturned his pre-emption orders.

Under the Trump Administration, FCC Chairman Ajit Pai seems to be headed down a similar path taken during the Bush Administration, which was optimistic about the state of broadband service and, as a result, applied a lot less pressure on the telecommunications industry.

Chairman Pai is seeking to overturn current Net Neutrality regulations and seems ready to support efforts to undermine the broadband speed standard established by his predecessor. That would allow mobile/wireless companies to offer 10/1Mbps speed and have it qualify as broadband service. Even better, ISPs — wired or wireless — would be considered “competitive” in many cases, even if only one provider offered service in the area.

Pai’s proposal was met with serious objections from Democratic Commissioner Mignon Clyburn who claimed even the current 25/3Mbps standard no longer met the definition of “advanced telecommunications capability.”

“The statute defines advanced telecommunications capability as broadband that is capable of ‘originat[ing] and receiv[ing] high-quality voice, data, graphics, and video telecommunications. High-definition video conferencing is squarely within the rubric of ‘originating and receiving high-quality… video telecommunications,’ yet the 25/3Mbps standard we propose would not even allow for a single stream of 1080p video conferencing, much less 4K video conferencing. This does not even consider that multiple devices are likely utilizing a single fixed connection, or the multiple uses of a mobile device.”

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Pai: Wants broadband providers and the competitive marketplace to determine whether broadband is good enough.

AEI dismissed the entire debate, claiming the only people who will respond to the FCC’s request for comments on the subject will be “pundits, special interests, and companies with skin in the game.”

Instead, AEI proposes the FCC rely on watching customers navigate their broadband options — a monopoly for some, duopoly for many others — and only address problems if something unusual emerges. AEI’s test is to see if “a location or demographic is inexplicably different and purchases less than would be expected.”

If something odd does happen in a particular area, AEI argues there could only be two reasons for that:

  • Barriers to competition;
  • Outdated government regulations and policies standing in the way of progress.

Missing from AEI’s list of possibilities is the presence of an abusive monopoly provider, a comfortable duopoly among two providers with no interest from a third competitor to enter the market, or an area served by two lackluster providers that won’t invest in their networks.

AEI’s test depends entirely on gathering data about what internet services are available for sale in any particular area now and then study who is buying what. But this does not measure customer satisfaction or consider whether those speed tiers and prices are adequate.

Under AEI’s test, “if a geographic area does not have broadband, the FCC could use the results of its customer study to determine what customers in the area would likely find valuable. Then, the FCC could do a cost-benefit study and an economic feasibility study — and conduct a reverse auction if a subsidy is potentially needed — to determine what, if any, financial incentive might be appropriate for the area.”

In other words, the same think tank that has been on record for decades opposing government subsidies to private companies now wants to offer telecom companies government funding to build what would become largely unregulated privately-owned broadband networks that would run with little or no oversight.

AEI’s willingness to let “customers express their opinions through their purchases” is hardly an adequate replacement for current broadband policies designed to keep the U.S. competitive with the rest of the world and ensure adequate service and competition. As any cable subscriber knows, you can subscribe to Comcast or Charter/Spectrum and still loathe your options and want something better. AEI doesn’t appear interested in seeing you get those options, much less preserve what little oversight, consumer protection, and broadband benchmarks we have now. Neither does current FCC Chairman Ajit Pai.

Verizon Has No Interest in G.fast, Other DSL Improvements

Phillip Dampier August 17, 2017 Broadband Speed, Competition, Consumer News, Verizon 1 Comment

VDSL2 vectoring and G.fast are only as good as the copper wiring that extends to each customer. Up to 45 percent of North American wire pairs are in some state of disrepair.

Verizon has no interest in using advanced forms of DSL as part of its next generation broadband service.

Speaking at ADTRAN’s Broadband Solutions Summit, Verizon’s director of network planning Vincent O’Byrne made it clear DSL variants and copper wiring were not going to be a part of Verizon’s future network platform.

“We have no strategy for G.fast,” O’Byrne told Telecompetitor in response to a question about whether the company would upgrade or deploy advanced forms of DSL as part of overhauling its broadband networks.

Some telephone companies with large legacy copper networks have promoted DSL advancements including bonding, VDSL, and G.fast in lieu of costly fiber upgrades to shareholders and customers to improve the sluggish 6-10Mbps speeds many customers get from DSL service. But O’Byrne said Verizon has had nothing but headaches trying to make its legacy copper network actually deliver the improved broadband speeds those technologies promise on paper.

O’Byrne admitted Verizon’s copper network has not aged well, calling it “poor” in some areas. Verizon’s previous efforts to deploy VDSL and ethernet over copper to multiple dwelling units (MDUs) like apartment buildings and condos turned out so poorly, O’Byrne does not want to repeat those mistakes in the future.

For urban areas and MDUs, O’Byrne stressed he plans to take fiber all the way to each condo unit or apartment and get rid of the copper.

Verizon’s next generation fiber strategy will depend heavily on NG-PON2 technology, which is managed by unpowered splitters and filters — dramatically cutting the hardware costs associated with active fiber networks. Many PON networks are fiber to the premises, but then rely on Wi-Fi or Ethernet wired networks once inside a building. Verizon prefers an all-fiber solution, which is unusual among U.S. carriers. AT&T, CenturyLink and Windstream still use G.fast for relatively short runs of existing copper phone wiring inside MDUs and homes.

Verizon’s O’Byrne believes an all-fiber solution may cost more upfront, but will deliver better longevity, value, and fewer problems over time.

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