This series comes at a time when another independent telephone company, Frontier Communications, is trying to take on millions of Verizon customers also being shed for business purposes.  The lessons learned from this cautionary tale regarding FairPoint should be taken to heart by affected customers, local communities, and regulatory authorities to make sure any transaction benefits customers more than the balance sheets of the companies involved.  Mistakes were made, too much trust was given, and as readers will come to understand, unacceptable customer nightmares over bad service are still a problem today.

This is a good point to summarize where we’ve come in this series over the last week or two.  Verizon customers in Maine, New Hampshire, and Vermont awoke one day to discover that Verizon had decided they were no longer worth the trouble to service, and sold their business to an independent upstart telephone company from North Carolina, FairPoint Communications.  It was a concerning prospect, because FairPoint was a relatively tiny telephone company serving only a few hundred thousand customers in rural communities here and there.  Now they were taking on the telephone needs of three New England states.  Plenty of concern was raised about whether FairPoint had bitten off more than it could chew.

After much contention, a deal was hammered out between state regulators and the company to approve the sale, as long as the company kept its promise to expand broadband offerings, clean up some of Verizon’s sloppy practices (particularly the ‘double pole’ problem where replacement telephone poles were erected that Verizon never used), and that FairPoint had enough funding available to cover its debt load from the transaction through any economic downturns, which turned out to be particularly relevant considering where our economy has gone in the last 10 months.

Throughout 2008, the company was expected to make the final transition from Verizon to FairPoint by fall.  A lot of speed bumps hampered their progress, including major failures of the emergency 911 system in Maine in spring and summer of that year, resulting in a $25,000 fine.  By late June, a consulting group hired to monitor the transfer reported that FairPoint had not yet adequately prepared for the transition, lacked sufficient staff, and recommended delaying the transfer.  FairPoint announced in late June the original scheduled target date of September was being pushed back to November.  Then, in mid-September, the company was back with a second delay announcement, now pushing the transition from November to January 2009.  FairPoint blamed concerns about staff training and that “data transfer and testing be done properly.”

We pick up the story in January, when customers learned that FairPoint’s culmination of its year-long adventure to finalize the transition would mean a “blackout in service,” a delay for a minimum of two weeks before the company would process service calls, new installations, or make other changes to customer accounts.  FairPoint’s unprecedented announcement would mean a backlog of calls that could bring about delays of “30-45 days” before service requests would be answered, as WCAX in Burlington warned on January 15th:

[flv width=”368″ height=”208″]http://www.phillipdampier.com/video/WCAX Burlington FairPoint Installations On Hold 1-15-09.flv[/flv]

Customers weren’t happy one bit.  Despite rosy scenarios and downplaying the impact of this event by Vermont Public Service Commissioner Dave O’Brien, many residents depend on their telephone service, particularly for those with health-challenged family members.  Over in Maine, WCSH covered the story of one woman who was forced to rely on her cell phone in a rural area while she waited, and she has a son with severe asthma:

[flv width=”480″ height=”360″]http://www.phillipdampier.com/video/WCSH Portland FairPoint Tells Customers to Wait Up to 6 Weeks for Service 01-21-09.flv[/flv]

Tomorrow: The anger level rises to the temperature of a red hot poker, as FairPoint not only drops the ball, it loses it.

Although Time Warner Cable has downplayed the impact of deploying DOCSIS 3 upgrades to their broadband network outside of New York City, other cable operators making the switch are now enjoying the benefits of bragging rights, higher returns from “heavy users,” and a whole lot of happy customers.

Cablevision delighted the cutting edge crowd when it announced the launch of the fastest residential broadband service in the country — 101Mbps for $99 a month, and absolutely no cap on usage.  Now other players are maneuvering to follow their speed lead.  Broadband Reports noted this morning it had a source claiming that the nation’s largest cable operator, Comcast, was cutting prices on its 50Mbps tier by $40 a month to $99.95 for customers taking a product bundle.    The website earlier noted the company may have a 100Mbps plan in place shortly as well.  Comcast’s cap at 250GB per month does seem to apply.

Even bankrupt Charter Cable is enjoying the benefits of their super premium 60Mbps broadband service in the St. Louis area.

Heavy broadband users, as these companies have learned, often turn out to also be the “early adopters” that will readily respond to marketing for higher priced tiers of service offering higher speeds, as long as those companies don’t also bring along draconian usage caps which completely devalue the deal.  Cable operators enjoy the extra revenue they earn from these customers, retain customer loyalty, and earn praise from customers.

When Time Warner Cable proposed a 50Mbps/5Mbps service for $99 a month, we heard from several readers who were interested in the offer, right up until they learned it would come with a usage cap starting at 150GB per month, which meant customers would pay a whopping 67c per gigabyte, which represents an enormous markup.  Interest evaporated immediately.

The contrast could not be more clear — Cablevision gets industry and customer praise for offering an uncapped premium plan at twice the speed proposed by Time Warner Cable for $100 a month, while Time Warner Cable  dangled a 50/5 tier for the same price, but only after customers supported a consumption billing system and a vague, non-specific timeline for the eventual deployment of DOCSIS 3 which would make that possible.

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911 Nightmare! After the ink was dry on the approval to transfer Verizon customers to FairPoint Communications, and the transition had begun, the foreshadowing of problems started in the late spring of 2008 when Maine experienced several 911 system crashes and outages, putting safety at risk for citizens whose urgent pleas for help went unanswered for hours at a time.

WMTW in Portland led the newscast on May 19th with the latest developments:

Not every municipal broadband provider assures customers of a cap-free broadband experience.  Some of the smaller providers serving the municipalities that cable passed by constructed their own networks decades ago to meet the cable television needs of their citizens.  But because they lack the economy of scale, volume discounts the big boys get are simply not available to smaller independents.  Often the result is a system compelled to charge higher prices, because its wholesale costs are greater.  That’s the case in San Bruno, California — a city of 40,000 12 miles south of San Francisco.

San Bruno Municipal Cable TV has been the incumbent, municipally owned operator since its inception in 1971.  In the late 1960s, local government officials asked residents whether they preferred a private or municipal operator.  The majority wanted local government to provide the service, and so it did.  San Bruno was an early adopter of cable television, building a system at least a decade before many other communities across the country saw their first cable television truck.

San Bruno is surrounded by Comcast, which has made a conscious decision to avoid San Bruno, despite the fact it could apply for a franchise, and one would likely be granted.

The company introduced broadband service to its customers in 1999 after completing a system rebuild.  Historically, the company has always made usage limits a part of its acceptable use policy, and enforcement over the years has varied between throttling speeds once a limit was reached, to threats of overlimit fees as high as $10/GB.  But most customers report those kinds of fees were never actually charged.  The company sought to use the limits to scare people into compliance.

San Bruno, California

Today, San Bruno’s cable TV company has three tiers of broadband service defined by consumption levels – 50, 100, and 150GB per month.  The company defends these policies by indicating their wholesale costs are higher to obtain Internet connectivity.  San Bruno’s high speed provider has fewer than 5,000 broadband subscribers.  Despite those higher costs, the company’s current “overlimit” fee is $0.25/GB, which is much lower than TWC’s proposed $1-2/GB overlimit fee.

So what do customers think?  Online reviews are consistently negative about the quality of service, and we’ve received many complaints about the consumption-based tiering, particularly when nearby Comcast customers live under a simple “please don’t exceed 250GB with a residential account per month” policy.  But San Bruno residents enjoy a respectable 12Mbps/512Kbps level of service for $32.95 a month, $10 less than Comcast subscribers pay, as long as they avoid exceeding 50GB of usage per month.

What everyone agrees on is the need for additional competition.  Currently, AT&T offers 3Mbps DSL service in parts of San Bruno for around $40 a month.  That’s hardly comparable in speed or cost.  Comcast has refused to compete across San Bruno, so another cable provider is unlikely.  Ultimately, the deployment of AT&T U-verse, if it happens, would be the closest equivalent competitor, because it can match and exceed the municipal cable provider’s speeds.

Another compelling question — why does San Bruno Municipal Cable, serving fewer than 5,000 broadband customers, find that charging just a quarter per gigabyte in overlimit fees recoups their expenses, while the far larger TWC proposes charging considerably more — $1-2/GB?  Perhaps overlimit fees aren’t as much about cost recovery as they are about emotionally conditioning customers to ration their use out of fear of a shocking cable broadband bill with overlimit fees at the end of the month.