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Charter/Spectrum Only Sells Up to 100Mbps in Time Warner Cable Territories

charter-spectrumAlthough existing Time Warner Cable Maxx customers will be able to keep their broadband speed upgrades up to 300Mbps, new customers and those switching to a Charter Spectrum plan will find Spectrum’s advertised broadband options reduced to just one: 100Mbps in TWC Maxx cities like New York and 60Mbps in territories never upgraded to Maxx service.

Charter Spectrum has soft launched their new plans in the New York City market and will begin heavily promoting them later this month. But customers will find their choices dramatically limited, except for television service.

Spectrum is marketing just three triple play plans on its revamped website in the NYC area, varying only with respect to the number of channels included in the TV package:

spectrum-nyc

When we selected internet-only service, we were presented with only one option in New York City: 100Mbps

spectrum-internet

Time Warner Cable plans are no longer promoted in areas switched to Charter Spectrum service.

TWC plans are no longer promoted in areas offered Charter Spectrum service.

At least the modem rental is included in the promotional price, which incidentally rises in the second and third year until it reaches $60 for 60Mbps service, and $100 for 100Mbps service, assuming your promotion has expired.

The promotional prices are not too bad if you are a devotee of cable television, and the broadband price is affordable as well, at least for the first year. After the first 12 months, prices rise and company officials have already warned they will be far more stingy about offering customers repeat retention pricing than Time Warner Cable was.

Charter has announced it will continue to roll out Spectrum packages across the Time Warner Cable and Bright House service areas until the conversion is complete early next year. New York City and Florida are the next targeted markets, but it is clear Charter has already begun offering Spectrum plans instead of continuing to market Time Warner Cable plans that customers can still buy upstate.

Customers will be able to keep their existing Time Warner Cable plans, but any promotional pricing deals will not likely be renewed when they expire, causing your Time Warner Cable bill to spike dramatically in some cases.

We are unsure if existing TWC Maxx customers will be forced to give up their 300Mbps TWC Maxx plan if they switch to a Spectrum plan. There may be several non-publicized plans for these customers. Time will tell.

Editor’s Note: These prices/packages were obtained from timewarnercable.com using a residential street address on W 72nd St, New York, NY, 10023

Charter Still Losing Time Warner Cable Customers With Hard Line on Retention Deals

charter-twc-bhAt least 54,000 Time Warner Cable customers downgraded or canceled their cable TV service in the last three months as Charter Communications continues to take a harder line on offering or renewing customer retention discounts for customers unhappy with their bill.

Time Warner Cable customers are “mispriced” with discounts and deals that lower the cost of service but face bill shock when the promotion ends, according to Charter CEO Thomas Rutledge.

“Third quarter customer results were more inconsistent with good performance at Legacy Charter and Bright House, but higher churn and downgrades in the Time Warner Cable markets, as we expected, given the way Time Warner Cable had marketed promotional pricing,” said Rutledge. “Until our Spectrum pricing and packaging is launched across the newly acquired service areas, we continue to expect higher levels of churn and downgrades where Time Warner Cable was the operator.”

“Over the next few quarters, our operating results will reflect reversing certain product and packaging strategies, in particular at TWC, in which in our view are not sustainable, given high promotional roll-offs and annual rate increases, high customer equipment fees, including modem fees, all coupled with complex and stacked offers,” added Charter’s chief financial officer Christopher Winfrey.

Traditionally, Time Warner Cable has dealt with price sensitive customers rolling off special pricing promotions by gradually resetting rates higher or, when necessary, by renewing the promotion for another year in an effort not to lose the customer. That will stop under Charter’s ownership, according to Mr. Rutledge. As a result, Charter Communications is seeing significant customer losses at Time Warner Cable when customer service representatives won’t budge on pricing.

Rutledge is seeking more discipline in product pricing so Charter does not have to extend cut-rate retention promotions to customers. As part of the Charter Spectrum rebrand, the cable company introduces new cable, broadband, and phone plans while allowing Time Warner Cable’s legacy plans to stay in effect until a customer elects to switch. While Texas and California Time Warner Cable customers have already been introduced to Spectrum plans, much of the rest of the country is still being offered plans only from Time Warner Cable or Bright House.

Rutledge

Rutledge

Customers are most likely to cancel service as their promotion expires. The resulting price hike can be a considerable shock as rates quickly reset to Bright House or Time Warner’s “regular price.”

Charter wants an incentive to get customers to forfeit their Time Warner or Bright House plan and switch to a new Spectrum plan as they are introduced. By making the grandfathered plans as unattractive as possible, the alternative Spectrum plans appear to be a better deal. Unfortunately, until Spectrum-branded plans arrive nationwide, many customers are stuck in limbo rolling off a promotion, are unable to renew it, and forced to wait for new Spectrum plans to be introduced.

Rutledge announced last week that the next markets to be introduced to Spectrum this month are in New York City and Florida, the latter former Bright House territory. Rutledge predicted half of Time Warner Cable customers will be offered Spectrum plans by the end of this year. But some Time Warner Cable customers may have to wait until next spring before Spectrum rebranding is complete.

Time Warner Cable Maxx is Still Dead, Earning Charter $36 Million in Reduced CapEx

Charter also reported significant financial benefits from prematurely terminating the Time Warner Cable Maxx upgrade effort. Time Warner’s upgrades would have given customers free speed upgrades up to 300Mbps. But Charter pulled the plug on the upgrade project just after completing its acquisition, and has no plans to restart it.

“Cost to service customers declined by about 2% despite overall customer growth of 5.1%, which reflects lower service transactions at Legacy Charter, the lack of all-digital activity at TWC this quarter versus last year’s third quarter, and some benefit from less physical disconnects in all-digital markets,” reported Winfrey. “Capital expenditures totaled $1.75 billion, including $109 million of transition spend. Excluding transition CapEx, our third quarter CapEx was down by $36 million year-over-year, about 2%, driven by all-digital spending at TWC, primarily on [equipment], which did not recur in the third quarter of this year.”

Winfrey

Winfrey

Charter expects to increase CapEx next spring, as the company continues its less ambitious transition to all-digital cable service, which includes broadband speeds topping out at 100Mbps, three times less than what Time Warner Cable was implementing.

Charter is Less Enthusiastic About Digital Phone Service

Time Warner Cable maintained a healthy market share for its digital phone service by bundling it at a promotional price of $10 a month, a rate that remained relatively stable for customers sticking with a triple play package bundle. Time Warner Cable also enhanced its phone service by adding the European Union nations, Mexico, and several popular Asian calling destinations as part of the local calling area, making those calls free of charge.

Charter’s own plan is less feature-rich and customers have to buy an add-on plan to cover international long distance, making the product considerably less attractive to customers. Some customers also find the cost of the phone service has increased under Spectrum, a problem acknowledged by Winfrey, who noted Time Warner Cable’s low-price voice offer in prior year quarters had been discontinued, resulting in higher voice downgrades and relationship churn.

Charter’s Plans for Legacy Charter Customers and Newly-Adopted Time Warner Cable and Bright House Customers

charter spectrum logoRutledge made clear that despite any product changes or rebranding, the long term goal of Charter Communications is to see revenue grow. Whether that will come from gradual repricing of cable products and services to a higher rate or from improved products and services that attract new upgrade business is not yet certain. But Rutledge outlined key areas Charter expects to focus on in the next few years:

  • Charter will complete the all-digital transition at Time Warner Cable and Bright House over the next two years, but it will resemble the kind of service legacy Charter customers get today, not TWC Maxx;
  • Over the next five years or so, with relatively small infrastructure investments, Charter plans to implement DOCSIS 3.1 which will be able to deliver symmetrical multi-gigabit speeds to all 50 million homes and businesses in their service area;
  • Charter plans to aggressively market and grow its services for commercial customers, targeting businesses large and small, at prices that more closely resemble residential service pricing, instead of the price premium Time Warner Cable has traditionally charged its commercial customers;
  • Charter is activating its MVNO agreement with Verizon, which will allow Charter to create and market its own wireless/cellular service using Verizon’s nationwide network. The company is also exploring using millimeter-wave (5G) service to offer better broadband coverage in large commercial spaces like malls and rural properties currently not wired for cable service. Expect the company to create its own wireless/cellular bundle first, because it will rely entirely on Verizon’s network, keeping Charter’s costs low.

Frontier’s Follies: Company Blames Marketing, On-Shoring Call Centers for Customer Flight

Road to nowhere?

Road to nowhere?

Frontier Communications has lost more than 150,000 customers in the last six months as company executives blamed bad marketing and the on-shoring of call centers that formerly supported Verizon customers in Texas, California, and Florida.

Some 99,000 customers dropped Frontier service in the last three months, and another 77,000 departed during the three months before that. In addition to losing customers, Frontier saw a net loss of $80 million in its third quarter, up from a the $14 million the company lost during the same quarter a year ago.

A clearly distraught Dan McCarthy, Frontier’s CEO, knew he was in for a pummeling from Wall Street analysts on a conference call with investors on Tuesday.

“I wanted to assure you, that I’m focused on addressing and resolving the issues hindering our performance,” McCarthy said. “I’m fully aware that the third quarter results underscore the urgent need for our expanded business to perform at the higher level, where I know it can and should. And you have my personal commitment that we will do so.”

Frontier lost $52 million in revenue in the last three months in part because of its disastrous transition of former Verizon customers in California, Texas, and Florida and because a growing number of broadband users have realized Frontier’s endless promises of better service have rarely come to fruition and those customers chose other providers.

“This decline is unacceptable and reflects a level of performance, [and] I’m committed to change it,” McCarthy promised.

Unfortunately for customers and investors, that “change” is primarily rearranging the deck chairs with a haphazard, and likely soon-to-be-an-afterthought “reorganization,” and the usual treatment prescribed when executives fail to deliver Wall Street the results they expect: big layoffs of employees that had nothing to do with Frontier’s problems and have in fact been warning the company about some of their more boneheaded moves. The idea for quick layoffs may have come from Frontier’s newest chief financial officer R. Perley McBride, a pick McCarthy said will be “laser focused” on cost management. That’s code for cost-cutting, not exactly the best idea for a company that has shown a near-constant aversion to investing adequately in its network and on necessary broadband upgrades.

Analysts didn’t seem to be terribly interested in Mr. McCarthy’s grand reorganization plan either, detailed in this veritable word salad:

Let me also highlight that today, we announced a new customer-focused organizational structure, and the creation of commercial and consumer business units. This change is designed to improve our execution and operational effectiveness, increases spans of control in the organization and makes us more nimble, while at the same time eliminating duplicative costs associated with our former structure. In the first month of operating our new properties, it became apparent that this change was necessary.

McCarthy

McCarthy

Some investors pondered if these operational problems were all so readily identifiable and apparent, why didn’t Mr. McCarthy carry out changes after assuming leadership of the company more than a year ago.

McCarthy’s realization that big changes were needed is not what he was telling investors in May, when he was downplaying the impact of the Verizon customer cutover as affecting less than 1% of customers and wasn’t material. That level of happy talk puts McCarthy dangerously close to Wells Fargo territory, where a few million fake bank accounts weren’t material either.

McCarthy loves to use catchphrases to minimize the problems experienced at Frontier, as well as countering any negative developments with aspirational talk about the future.

For example, Frontier’s decision not to carefully scrutinize customer data provided by Verizon before cutting over customers to Frontier’s systems, leaving many without service for days to weeks was the result of “imperfect data extracts and network complexities” according to McCarthy. That cost Frontier plenty as the company issued bill credits to potentially tens of thousands of customers left without service because of ‘imperfections.’ Many just decided to leave and never looked back.

In May, McCarthy told investors “After a month of operating these properties, we are very pleased with the progress we have made, and we want to thank customers for their patience during the transition period. The entire Frontier team remains focused on cultivating growth by retaining and attracting new customers. We will continue to drive Frontier’s performance to maintain free cash flow that provides an attractive and sustainable dividend payout ratio.”

Not so much anymore. This week, McCarthy hit the red alert button and suddenly declared an urgent need for a major reorganization, oddly pegging Frontier’s problems partly on organizational inefficiencies:

“Historically, Frontier was organized around a regional structure, each one of the regions had its own resources that included marketing, finance, engineering, human resources. And in doing that, we – when we were a much smaller entity, it really did serve us well at that point in time. The more we looked at it today, the less differences there are in a lot of the markets and the way we’re going to market whether it’s around a Vantage product or it’s around FiOS or it’s around next-generation broadband products. So, when we looked at it, we did a really a trade-off on it, so we’ve essentially eliminated all of that redundancy in the organization.”

The unemployment line is in the future for 1,000 Frontier employees.

The unemployment line is in the future for 1,000 Frontier employees.

So what is the “redundancy” Frontier claims it has essentially eliminated? The forthcoming layoffs of 1,000 employees nationwide which Frontier management believes will make things much better for customers, at least according to McCarthy:

The impact is approximately 1,000 individuals that will be leaving the organization, and that translates directly into cost savings. And the nice part about it too is that the enhanced focus on commercial as well as consumer and Frontier has historically been a very consumer-focused organization. We’ve done well on the commercial side, but I really believe we can do much better with more focus, more attention and really putting the resources on those opportunities and making it, that’s what they do every day when they get up and they come to work, all they’re trying to do is grow the commercial revenue base.

So that’s really what we’ve done. It does change the focus on the field operations to really be engaged with the community as well as providing excellent service to customers and being that bridge, but really sales for both consumer and commercial are more centralized in a way that we can apply better resources and do it in a more efficient manner.

analysisSo Frontier plans to become more engaged with the community and deliver better service locally by… getting rid of 1,000 local employees and centralizing its resources somewhere else, probably in another state. The cherry on top? Frontier also implemented a rate hike for customers to enjoy.

McCarthy claimed Frontier has been a “very consumer-focused organization,” which seems hard to believe considering how many customers are saying goodbye to Frontier for good. He also implied customer sales are down because Frontier hasn’t effectively used their call center employees to sell service and Frontier alienated customers by moving those call centers from overseas back to the United States. Really?

The executive team at Frontier shrugs off further evidence of deepening customer dissatisfaction by ignoring customer losses in their “legacy” service areas — Frontier territories served by copper yesterday, today, and probably tomorrow. But ignoring problems is nothing new at Frontier:

  • It’s not a problem that customers cannot order Frontier products and services on its website because of managerial ineptitude.
  • It’s not a problem that customers are still stuck with 1-6Mbps copper-based DSL from Frontier while their cable competitor offers 200Mbps or more.
  • It’s not a problem that several years after assuming control over almost all landlines in West Virginia, Frontier has only accomplished broadband speed upgrades for 23% of customers stuck in Frontier’s broadband molasses, and only after the company settled with the West Virginia Attorney’s General office in December 2015. For the record, that amounts to 6,320 customers. Don’t break a sweat there. Frontier’s performance in West Virginia has been so abysmal, the settlement between the state and the company represents the largest, independently negotiated consumer protection settlement in West Virginia history, which extends back to June 20, 1863.
  • It’s not a problem that customers in Connecticut are still plagued by aftershocks from the tumultuous transfer from AT&T to Frontier in October 2014. On Oct. 19, 2016 countless DSL customers were reminded of that transition when they suffered another multi-hour outage and to add insult to injury, Frontier decided the time was also right to raise rates $4 a month for its Vantage TV service, which caused another round of customer cancellations.

McCarthy called the operational reorganization a “bridge” between field operations and providing excellent service to customers. We call it just another bridge to nowhere.

We’ve written for years that Frontier’s real problem isn’t cost management, organizational structure, or where it places employees and call centers. The real elephant in the room is that Frontier’s broadband service is terrible, especially where Frontier built the network all by itself or acquired it from another phone company decades earlier.

We are convinced Frontier’s management understands this, and so do many investors, but they just don’t care. One summed up the Frontier story this way:

So Frontier buys the whole wireline shooting match in one geographic area after another (labor force, wires, customers, DSL, even FIOS) paid for with billions in junk bond proceeds. Looking at an asset base that is disappearing before their eyes, the game is to squeeze as much out of it as possible before it crumbles completely. Minimum possible maintenance, minimum possible [investment], minimum possible headcount, and less every year.

From an investor’s standpoint, the key question is to figure out when the final collapse is going to take place.

Frontier's "High Speed" Fantasies extend back to 2010 when former CEO Maggie Wilderotter was telling customers Frontier was loaded with fiber.

Frontier’s “High Speed” fantasies extend back to 2010 when former CEO Maggie Wilderotter was telling customers Frontier was loaded with fiber.

When Rochester Telephone rebranded itself Frontier Communications in the 1990s, it did so looking forward to the future. The Frontier Communications experience of today is like immersing oneself in the History Channel. Nearly everything about Frontier these days is about the past and a promised future that never seems to arrive. Everything surrounds a legacy network still almost entirely dependent on last-century DSL for residential customers and various acquired networks from Verizon and AT&T mismanaged at conversion, forcing customers to clean up after Frontier’s repeated mistakes.

In legacy service areas where little has changed over the last decade, the four words that come to mind are “too little, too late” as customers make one last call to permanently drop service despite promises faster speeds are coming soon.

Too little investment in suitable broadband: Frontier dwells on its dividend payout to shareholders while customers languish with internet speeds that do not come close to the FCC’s definition of broadband. Instead of spending billions acquiring Verizon’s throwaway service areas, invest that money in your network and offer truly competitive 21st century broadband service.

Too late to matter: Frontier’s commitments to broadband upgrades happen too slowly and for too few customers. Much of Frontier’s state-of-the-art networks were built by other companies and simply acquired by Frontier, which now provides sleepy caretaker service. When people think Frontier Communications, they sure don’t think of words like “modern” and “innovative” and “excellence.” They think “yesterday,” “out of service,” and “slow.” There is a good reason why cable operators eat Frontier’s market share. People don’t love the cable company more than Frontier, but at least they are no longer stuck with broadband speeds that were common during the latter half of the Clinton Administration.

You’re a communications company, not the Geek Squad: While Frontier fritters away their customer base, those remaining are literally assaulted with promotions for dubious value services like tech support, virus protection, and cloud storage backup. There is a reason other phone and cable companies have not followed Frontier’s lead on emphasizing these services. They don’t matter to most customers and many of those who do have them are surprised when they find them on their phone bill because they don’t remember signing up. Sell reliable and fast phone, broadband, and video service, not gimmicks.

It is unfortunate another 1,000 Frontier employees are about to pay for the mistakes made at the top. Until that changes, customers would do well to consider their options and act accordingly. If reporting by The Hour is any indication, customers shouldn’t hold their breath. Frontier is still looking out for their most important asset: their shareholders.

If Frontier’s customer relations remain a work in progress, so does McCarthy’s job convincing investors to see the promise of his plan and that of his CEO predecessor Maggie Wilderotter to create a national broadband company from territories AT&T and Verizon have been willing to cast aside. Since closing at $6.54 on Oct. 31, 2014, on the eve of the switch [in Connecticut], two years later Frontier shares have hovered for the most part just above the $4 threshold.

With a new chief financial officer in place in former Frontier executive Perley McBride, McCarthy promised to get Frontier on track from an investor perspective, even as the company works to get its customer relations on an even keel.

Google Fiber’s CEO Out of a Job; Fiber Expansion on Hold Indefinitely in Many Cities

Down the rabbit hole

Down the rabbit hole

Google has quietly announced an indefinite suspension of further fiber expansion as it prepares to downsize fiber division employees and re-evaluate its fiber business model.

In a blog post tonight from Craig Barratt, senior vice president of Alphabet and CEO of Google’s Access division, it becomes clear Google is rethinking its entire fiber strategy and is likely moving towards fixed wireless technology going forward:

Now, just as any competitive business must, we have to continue not only to grow, but also stay ahead of the curve — pushing the boundaries of technology, business, and policy — to remain a leader in delivering superfast Internet. We have refined our plan going forward to achieve these objectives. It entails us making changes to focus our business and product strategy. Importantly, the plan enhances our focus on new technology and deployment methods to make superfast Internet more abundant than it is today.

Barratt outlines the immediate implications of Google’s dramatic shift:

  • In the cities where we’ve launched or are under construction, our work will continue;
  • For most of our “potential Fiber cities” — those where we’ve been in exploratory discussions — we’re going to pause our operations and offices while we refine our approaches. In this handful of cities that are still in an exploratory stage, and in certain related areas of our supporting operations, we’ll be reducing our employee base.
Barratt

Barratt

Barratt himself is jumping ship (or was pushed). He announced in his blog entry he is “stepping away” from his CEO role, but will remain as an “adviser.”

Observing Google’s recent fiber efforts and acquisitions, it seems clear Google no longer thinks fiber-to-the-home service is an economically viable solution in light of competitors like AT&T rolling out increasing amounts of fiber and the cable industry is on the cusp of launching DOCSIS 3.1, which will dramatically boost internet speeds without a substantial capital investment.

Google’s investors have been lukewarm about the company’s economic commitments relating to its fiber broadband networks. Often built from the ground up, Google’s fiber construction complexities also include trying to navigate costly roadblocks established by their competitors (notably Comcast and AT&T), dealing with bureaucracies and red tape even in states where near-total-deregulation was supposed to make competition easy. Google Fiber has also not proved to be a runaway economic success, and now faces more challenges in light of upgrades from their competitors. Cable companies have slashed prices for customers threatening to cancel and have added free services or upgrades to persuade customers to stay, and Google’s proposition of selling consumers $70 gigabit access has proved tougher than expected.

It is highly likely the future of Google’s Access business will be deploying wireless broadband solutions powered by Webpass, a company Google acquired earlier this year. Webpass uses a high-speed point to point wireless transmission system the company claims can deliver gigabit broadband access to customers in multi-dwelling buildings and other urban areas. Webpass sells access for $60 a month (discounted to $550/yr if paid in advance) for 100Mbps-1,000Mbps speed depending on network density and capacity in the customer’s building. So far, Webpass has not been able to guarantee speed levels, and some customers report significant variability depending on their location and network demand.

Webpass’ wireless infrastructure costs a fraction of what Google has coped with building fiber to the home networks, and the installation of point-to-point wireless antennas on participating buildings has been less of a regulatory nightmare than digging up streets and yards to lay optical fiber.

webpassBut despite Webpass’ claim its performance is comparable to fiber, its inability to guarantee customers a certain speed level and its tremendous performance variability from 100 to 1,000Mbps exposes one of the weaknesses of fixed wireless networks. At a time when capacity is king, only fiber optic networks have shown a consistent ability to deliver synchronous broadband speeds that do not suffer the variability of shared networks, poor antenna placement/signal levels, or harmful interference.

There is room for wireless technology to grow and develop, as evidenced by the wireless industry’s excitement surrounding future 5G networks and their ability to offer a home broadband replacement. The emergence of 5G competition is almost certainly also a factor in Google’s decision. But even AT&T and Verizon acknowledge a robust 5G network will require a robust fiber backhaul network to support both speed and user demand. The more users sharing a network, the slower the speed for all users. No doubt Webpass has made the same assumption that cable operators did in the early days of DOCSIS 1 — current internet applications won’t tax a network enough to create a traffic logjam that would be noticed by most customers. The phone companies also learned a similar lesson trying to serve too many DSL customers from inadequate middle mile networks or traffic concentration points. (Some phone companies are still learning.)

Whether it was yesterday’s peer-to-peer file sharing or today’s online video, capacity matters. That is why fiber broadband remains the gold standard of broadband technology. Fiber is infinitely upgradable, reliable, and robust. Wireless is not, at least not yet. But technology arguments rarely matter at publicly-traded corporations that answer to Wall Street and investors, and it appears Google’s backers have had enough of Google Fiber.

Stop the Cap!’s View

tollAt Stop the Cap!, we believe these developments further the argument broadband is an essential utility best administered for the public good and not solely as a profit-motivated venture. The path to fiber to the home service in rural, suburban, and urban communities has and will continue to come from a mix of private and public utilities, just as local public and private gas and electric companies have served this country for the last century. Where there is a business model for fiber to the home service that investors support, there is a for-profit fiber provider. Where there isn’t, now there is often no service at all. So far, the FCC in conjunction with Congress has seen fit to solve broadband availability problems by bribing private providers into offering service (usually low-speed DSL that does not even meet the FCC’s definition of broadband) with cash subsidies, tax write-offs, or occasional tax abatement schemes. Imagine if we followed that model with the nation’s public roads and highways. We would today be paying tolls or a subscription to travel down roads built and owned by a private company often financed by tax dollars.

Not every product or service needs to earn Wall Street-sized profits. Nobody needs to get rich selling water, gas, and electricity… or broadband. Public broadband networks can and should be established wherever they are needed, and they should be priced to recover their costs as well as expenses that come from support, billing, and ongoing upgrades. Naysayers like to claim municipal broadband is socialism run wild or an instant economic failure, yet the same model has provided Americans with reliable and affordable gas, electricity, and clean water for over 100 years.

Maine was made for municipal broadband.

Maine was made for municipal broadband.

In New York, publicly owned/municipal utilities often charge a fraction of the price charged by investor-owned utilities. In Rochester, where Stop the Cap! is headquartered, one need only ask a utility customer if they would prefer to pay the prices charged by for-profit Rochester Gas & Electric or live in a suburb where a municipal provider like Fairport Electric or Spencerport Electric offers service. RG&E has charged customers well over 10¢ a kilowatt-hour when demand peaks (along with a minimum connection charge of over $21/mo and a “bill issuance charge” of 72¢/mo). Spencerport Electric charges 2.9¢ a kilowatt-hour and a connection charge of $2.66 a month, and they issue their bills for free. There is a reason real estate listings entice potential buyers by promoting the availability of municipal utility service. The same has proven true with fiber-to-the-home broadband service.

The economic arguments predicting doom and gloom are far more wrong than right. Municipal utilities are often best positioned to offer broadband because they already have experience providing reliable service and billing and answer to the needs of their local communities. Incompetence is not an option when providing reliable clean water or electricity to millions of homes and customers have rated their public utilities far superior to private phone or cable companies.

Google’s wireless future may prove a success, but probably only in densely populated urban areas where a point-to-point wireless network can run efficiently and profitably. It offers no solution to suburban, exurban, or rural Americans still waiting for passable internet access. Clearly, Google is not the “free market” solution to America’s pervasive rural broadband problem. It’s time to redouble our efforts for public broadband solutions that don’t need a seal of approval from J.P. Morgan or Goldman Sachs.

Pondering the Future of AT&T’s Dead-Brand Walking U-verse, DirecTV, and Data Caps

att directvWith the advent of AT&T/DirecTV Now, AT&T’s new over-the-top streaming TV service launching later this year, AT&T is preparing to bury the U-verse brand.

Earlier this year, AT&T customers noticed a profound shift in the company’s marketing priorities. The phone company began steering potential customers to AT&T’s latest acquisition, satellite television provider DirecTV, instead of U-verse. There is an obvious reason for this – DirecTV has 20.45 million customers as of the second quarter of 2016 compared to 4.87 million customers for AT&T U-verse TV. Volume discounts make all the difference for pay television companies and AT&T hopes to capitalize on DirecTV’s lower programming costs.

AT&T’s buyout of DirecTV confused many Wall Street analysts, some who believe the days of satellite television are past their peak. Satellite providers lack the ability to bundle services, although some phone companies partner with the satellite company to pitch phone, broadband, and satellite TV to their customers. But consider for a moment what would happen if DirecTV introduced satellite television without the need for a satellite dish.

Phillip Dampier: The "U" in U-verse doesn't stand for "unlimited."

Phillip Dampier: The “U” in U-verse doesn’t stand for “unlimited.”

AT&T’s DirecTV Now will rely on the internet to deliver television channels instead of a satellite. AT&T is currently negotiating with most of the programmer conglomerates that own popular cable channels to allow them to be carried “over-the-top” through broadband connections. If successful, DirecTV Now could become a nationwide powerhouse alternative to traditional cable TV.

AT&T is clearly considering a potential future where DirecTV could dispense with satellites and rely on broadband instead. The company quietly began zero rating DirecTV streaming in September for AT&T Mobility customers, which means watching that programming will not count against your data plan. For current U-verse customers, broadband speeds have always been constrained by the need to reserve large amounts of bandwidth to manage television viewing. Although AT&T has been boosting speeds in selected areas, a more fundamental speed boost could be achieved if AT&T dropped U-verse television and turned the service into a simple broadband pipe that relied on DirecTV Now to manage television service for customers.

AT&T seems well on the way, adding this notice to customer bills:

“To make it simpler for our customers U-verse High Speed Internet and U-verse Voice services have new names: AT&T Internet and AT&T Phone. AT&T Internet product names will now align with our Internet speed tiers. Our voice plan names will remain the same.”

An earlier internal company memo suggested AT&T would eventually transition all of its TV products into “AT&T Entertainment” after completing a transition to its “next generation TV platform.” Increasingly, that platform seems to be an internet-powered streaming solution and not U-verse or DirecTV satellite. That transition should begin in January.

Top secret.

Gone by end of 2016.

It would represent a formidable change, but one that makes sense for AT&T’s investors. The transition to IP networks means providers will offer one giant broadband pipe, across which television, phone and internet access will travel. The bigger that pipe becomes, the more services customers are likely to use — and that means growing data usage. Having a lot of fiber infrastructure also lays the foundation for expansion of AT&T’s wireless network — particularly towards 5G service, which is expected to rely on small cell technology to offer faster speeds to a more localized area — fast enough to serve as a home broadband replacement. Powering that network will require plenty of fiber optics to provide backhaul access to those small cells.

Last week, AT&T announced it launched a trial 100Mbps service using point-to-point millimeter-wave spectrum to offer broadband to subscribers in multiple apartment complexes around the Minneapolis area. If the initial trial is successful, AT&T will boost speeds to include 500Mbps service to those same complexes. AT&T has chosen to provide the service outside of its usual service area — Minneapolis is served by CenturyLink. AT&T acquired a nationwide license to offer service in the 70-80GHz band back in 2009, and an AT&T spokesperson claimed the wireless signal can reach up to two miles. The company is also experimenting with new broadband over power lines technology that could offer service in rural areas.

cheapJust like its wireless service, AT&T stands to make money not just selling access to broadband and entertainment, but also by metering customer usage to monetize all aspects of how customers communicate. Getting customers used to the idea of having their consumption measured and billed could gradually eliminate the expectation of flat rate service, at which point customers can be manipulated to spend even more to access the same services that cost providers an all-time low to deliver. Even zero rating helps drive a belief the provider is doing the customer a favor waiving data charges for certain content, delivering a value perception made possible by that provider first overcharging for data and then giving the customer “a break.”

As of mid-September, streaming media analyst Dan Rayburn noted Akamai — a major internet backbone transit provider — was selling content delivery contracts at $0.002 per gigabyte delivered, the lowest price Rayburn has ever seen. Other bids Rayburn has reviewed recently topped out at 0.5 cents per gigabyte. According to industry expert Dave Burstein, that suggests large ISPs like AT&T are paying something less than a penny per gigabyte for internet traffic.

“If you use 139GB a month, that costs your provider something like $1/month,” Burstein wrote, noting doubling backbone transit costs gives a rough estimate of the cost to the carrier, which also has to carry the bits to your local exchange. In this context, telecom services like broadband and phone service should be decreasing in cost, not increasing. But the opposite is true. Large providers with usage caps expect to be compensated many times greater than that, charging $10 for 50GB in overlimit fees while their true cost is well under 50 cents. Customers buying a cell phone are often fitted with a data plan that represents an unprecedented markup. The extent of price increases customers can expect can be previewed by looking at the cost of phone service over the last 20 years. The average, often flat rate telephone bill in 1995 was $19.98 a month. In 2014, it was $73 a month. In 2015, it was $90 a month. Those dramatically rising prices in the last few years are mostly as a result of the increased cost of data plans providers charge to clean up on customers’ growing data usage.

Both Comcast and AT&T are dedicated to a campaign of getting customers to forget about flat rate, unlimited service at a reasonable cost. Even as both companies raise usage caps, they continue to raise prices as well, even as their costs to provide the service continue to drop. Both companies hope to eventually create the kind of profitable windfall with wired services that wireless providers like AT&T and Verizon Wireless have enjoyed for years since they abandoned unlimited flat rate plans. Without significant new competition, the effective duopoly most Americans have for telecommunications services offers the opportunity to create a new, more costly (and false) paradigm for telecom services, based on three completely false claims:

  • data costs are expensive,
  • usage must be monetized, and
  • without a bigger return on investment, investors will not finance the next generation of telecom upgrades.

But as the evidence clearly shows, profits from selling high-speed internet access are only growing, even as costs are falling. Much of the drag on profits come from increasing costs related to licensing television content. Voice over IP telephone service is almost an afterthought for most cable and phone companies, often thrown in for $10-20 a month.

AT&T’s transition puts all the attention and its quest for fatter profits on its broadband service. That’s a bad deal for AT&T customers no matter what the company calls its “next generation” network.

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