Kyle "What Broadband Problem?" McSlarrow

In Kyle McSlarrow’s world, the only broadband problem is the one invented by the Federal Communications Commission when it claims that service is not being deployed to all Americans on a “reasonable and timely” basis.  The head of the National Cable and Telecommunications Association (NCTA), the cable industry’s lobbying group, has declared today’s broadband a U.S. “success story that keeps getting better.”

Writing in the group’s “CableTechTalk” blog, McSlarrow tells his readers that 95 percent of Americans already have broadband service available to them that meets the 4Mbps minimum speed standard proposed by the FCC, so where is the big problem?

McSlarrow’s interest in the economics of rural broadband is ironic considering the cable industry routinely bypasses rural Americans.  Where cable lines do predominate, meeting the FCC’s anemic 4Mbps minimum speed standard is not the biggest problem — cost is.  Where cable lines don’t reach, speed is an issue for many wireless and DSL subscribers.  For others, broadband service is not available at any price.

McSlarrow plays cable’s advantage on speed issues to promote minimum speeds higher than those sought by phone companies like AT&T and Verizon.  Of course, cable broadband does not rely on antiquated copper wire telephone networks.  In rural areas, many of these networks are held together with minimal investment.  DSL at any speed can be a luxury when available.

McSlarrow’s recognition that most of rural America will continue to be served by telephone companies doesn’t stop the cable industry from seeking an advantage over their nearest competitors by advocating for reduced subsidies for rural areas and policies that guarantee no potential competitor can ever see a dime in government broadband money.

Because the report plainly acknowledges that there is no reasonable business case to be made for extending broadband facilities to many of the unserved homes.  So instead of viewing the report’s finding as an indictment of broadband providers, it’s  perhaps better read as a statement of principle by the Chairman and two commissioners that, in their opinion, broadband already should be universally available, and, if there is no business case for that universal deployment, the government may have to step in to achieve it. So far as that goes, we agree.  For example, we support the report’s call to action on specific items that will speed broadband deployment to unserved communities.  Immediate FCC action on Universal Service Fund (USF) reform and pole attachment policy is critical to connecting unserved areas.

As explained in comments we filed last week, our industry strongly supports the USF reforms recommended in the National Broadband Plan (NBP).  To fund the FCC’s broadband USF proposals, we recommend adopting our proposal – filed in a November 2009 rulemaking petition – to reduce subsidies in rural areas where ample phone competition exists.  The sooner the Commission reduces unnecessary funding in the existing high-cost support program, the sooner it can direct funding to broadband deployment and adoption.

McSlarrow’s comments neglect to tell the whole story about what the NCTA actually wrote in its comments filed with the FCC:

The 4Mbps/1Mbps standard reflects today’s marketplace reality that most consumers choose not to purchase the highest speed tiers that are offered by their broadband provider. By setting a standard based on the services actually purchased by consumers, the Plan strikes the appropriate balance – not so low that it deprives consumers of the ability to purchase a service that meets their needs and not so high that it will require a significant infusion of new government funding.

Second, based on this definition of broadband, the Plan found that the vast majority of Americans – 95% of households – already have access to broadband, and that 80% of those consumers live in geographic areas served by two or more providers. For these areas where broadband has already been deployed, there is no basis for any increase in support; indeed, as NCTA has demonstrated, in many of these areas there is no basis for any high-cost support at all.

Consequently, the only areas that should see an increase in the support they receive are those areas that do not have broadband and qualify for CAF support, i.e., areas where there currently is no business case for private investment in broadband facilities.

In Great Britain, speeds promised don't match speeds delivered. The FCC is studying whether the same is true in the United States.

McSlarrow is disingenuous about Americans’ interest in improved broadband.  It’s not surprising many do not choose the highest speed tiers available from telephone and cable providers when one considers the premium prices charged for that service.  Some NCTA members charge $99 for 50/5Mbps service, which in other countries like Hong Kong sells for a fraction of that price.  One need only consider Google’s plan to deliver 1Gbps service to a handful of American communities.  It’s easier to count the communities that were not interested in this super-fast service.

The cable industry can afford to relent on a 4Mbps minimum speed standard for downloading as virtually all cable broadband providers already offer “standard service” plans well above that rate.  The cable industry’s own “lite” plans, usually 1.5Mbps or less, are not exactly the industry’s most popular.  Americans will choose higher speed service at the right price.

Broadband availability figures have become an important political issue, which is why controlling broadband mapping is so important to cable and phone companies.  Being able to offer that “95 percent of Americans already have access,” a figure in dispute by the way, can make a big difference in the debate.  As Stop the Cap! readers have seen repeatedly, broadband maps that depict broadband service as widely available in many areas actually is not, especially from phone company DSL service, which depends heavily on the quality of the existing infrastructure.

Most importantly, the NCTA seeks a new, even stricter standard for broadband funding under Universal Service Fund reform that would immediately deny money to any applicant that cannot prove there is no chance for any private investment in broadband.  As we’ve seen from broadband improvement applications filed under the Obama Administration’s broadband stimulus program, cable and phone companies routinely object to most proposals, claiming “duplication” of existing broadband service even in areas they have chosen not to provide service.  The NCTA would have us set the bar even lower, allowing any private entity to kill funding projects based solely on their claimed interest in providing the service themselves.

One sensitive spot the FCC did manage to hit was taking providers to task for advertising broadband speeds they don’t actually provide to customers.  While DSL speeds vary based on distance from the telephone company’s central office, cable broadband speeds vary depending on how many customers are online at any particular moment.  The cable industry’s shared access platform can create major bottlenecks in high-use neighborhoods, dramatically reducing speeds for every customer.  While some cable operators are better than others at re-dividing neighborhoods to increase capacity, others won’t spend the money to upgrade an area until service becomes intolerable.  That means consumers sold 10Mbps service may actually find it running at less than half that during evening hours.

A sampling of British cable and telephone company DSL providers, all of which aren't giving their customers what they are paying for.

McSlarrow’s view is there isn’t a problem there either — the FCC is relying on old data:

The key statistics in the report are drawn from Form 477 data for December 2008, data that was out of date when it was released earlier this year and is now 18 months old.  Broadband providers have made two subsequent Form 477 filings (with another one scheduled in a few weeks), so the reliance on stale data is frustrating.

Equally troubling is the Commission’s repetition of the NBP’s claim that “actual” broadband speeds are only half of “advertised” speeds.   After the NBP was released, we submitted an expert technical report demonstrating that the comScore data used was deeply flawed.  Since then, cable and telco ISPs have been working constructively with Commission staff on a hardware-based testing regime that should produce more accurate results.  Given the hard work that has been devoted to produce accurate speed measurements, it is disheartening that the 706 Report chose to perpetuate the NBP’s flawed speed data conclusions.

Finally, some of the data relied on in the 706 Report is not publicly available.  The report relies extensively on a cost model created for the NBP, but that model hasn’t been released, making it impossible to validate its results.  The Commission also repeatedly refers to an FCC staff report on international trends, but that report also has not been released.

The frustration McSlarrow writes about is shared by cable subscribers stuck in overloaded neighborhoods where service does not come close to marketed speeds.  The FCC is conducting an independent speed analysis that goes beyond speedtest data, and the results will be forthcoming.  In other countries where similar speed claims have not met reality, providers were usually found culpable for promising service they didn’t deliver.

Just ask Ofcom, the British regulatory agency charged with addressing this dilemma.  Earlier today they released evidence that 97 percent of UK broadband customers were not actually getting the speeds they were promised, and the gap between marketed speed and actual speed was growing. Will things be any different for American providers who use fine print to disclaim their bold marketing promises about speed?  Time will tell.

Finally, McSlarrow’s concerns about withheld data is ironic enough to call it a “pot to kettle” moment.  As those challenged with broadband mapping can attest, nobody keeps raw data about broadband availability and speeds closer to the vest than cable and telephone companies.

Of course, the ultimate agenda of the NCTA is to defend its industry’s record in broadband service, which means reducing any broadband challenges into little more than whining by Americans who don’t know how good they have it.

In the financially difficult world of landline service, there has been one bright spot for Verizon — its state-of-the-art fiber optic service FiOS.  The cost of replacing obsolete copper phone with 21st century fiber optics has proved to be an expensive, but successful endeavor, at least in the eyes of customers.  Hated by Wall Street for its costs but loved by those who enjoy the service, FiOS has successfully proven traditional phone companies can earn money by providing the kinds of services consumers want, just so long as investors are willing to hang in there while the investment pays off over time.  But many investors aren’t.

Some of Verizon’s critics in the investment community complain the company is n0t earning enough from FiOS — in fact, for some critics who didn’t want Verizon spending money on a fiber-to-the-home network in the first place, financial returns provide the evidence used to claim they were right all along.

Despite the naysayers, revenue for Verizon FiOS is up by almost one-third each year, with average revenue per user now reaching $145 a month.  That’s well above the money Verizon earns on its legacy copper network phone customers keep leaving, especially outside of major cities where DSL service is spotty.  There is plenty of room for Verizon FiOS to grow in the limited communities it reaches.  Unfortunately, Verizon has stopped expanding its FiOS network to new communities, in part from pressure from investors who want to see cost cutting from the telecommunications giant.

Despite the positive reviews (subscription required) FiOS earns from consumer publications like Consumer Reports, Verizon slashed marketing and promotion expenses, resulting in second-quarter net additions for FiOS TV coming in at 174,000, compared with 300,000 a year earlier.

With Verizon now deploying service to communities on a reduced schedule, the results have been underwhelming according to the Wall Street Journal:

Verizon Communications may want to tweak the ad slogan for its TV and ultrafast Internet service to “This is FIOS. This is pretty small.”

Not catchy, but it would be more accurate than the current “This is Big” line.

[…]It eventually became clear that Verizon had slowed the time frame of the buildup, originally scheduled to be mostly done this year. Instead, it now expects to meet its target of passing 18 million homes with the network by 2012.

The slower timetable allows Verizon to trim capital spending this year. The problem is that FiOS’s expansion could stall with a less aggressive approach to growth. Already, Verizon has retreated from its target of adding one million subscribers a year, in favor of boosting penetration to 40% of homes passed. At June 30, its 3.2 million TV subscribers was about 20% of homes passed.

[…]And that can only reinforce questions about long-term returns on the $23 billion FIOS investment.

Evidence that Verizon is looking for more customers in its existing FiOS markets can be found in the news the company dropped its contract commitment for new customers.  The term contracts may have held some potential customers back out of fear of a lengthy term commitment with a $360 early cancellation fee.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Verizon FiOS goes contract free ad.flv[/flv]

Verizon started running this ad several weeks ago touting its new “no contract” FiOS service.  (15 seconds)

But a change in strategy isn’t enough for investors who demand immediate results through further cost cutting measures.

In Verizon’s second quarter earnings reports, company executives speak to this perception, proudly noting they have slashed costs through job-cutting and reduced spending on infrastructure and services.  Some of those services include DSL expansion for rural Verizon customers, many who are now left on hold waiting for broadband from Verizon indefinitely.

In many states, Verizon’s DSL expansion was incremental at best, with the company issuing press releases touting new service for literally hundreds of potential customers.

Verizon’s traditional landline business continues to lose customers year after year, and is abandoning millions of others through sell-off deals with companies like Frontier Communications.  Light Reading notes Verizon eliminated 11,000 jobs in its Mid-Atlantic and Eastern regions through early retirement incentive programs, an idea soon to spread to other regions, particularly California and Texas in the coming months.  This kind of cost cutting saves cash and allows companies to report positive financial results in quarterly reports.

According to John Killian, executive vice president and CFO of Verizon, the job cuts are just getting started.  As Verizon further alienates its non-FiOS landline customers who can find better service and lower prices elsewhere, the company expects “further force reductions” in the coming months.  Verizon is also slashing costs by selling off real estate, consolidating operations and vacating buildings.

The impact can become a vicious circle of deteriorating service, customer defections, and additional cost cutting, which starts the circle all over again.  In West Virginia, deteriorating Verizon phone lines reached the point of serious service outages whenever major storms hit the state.  Then Verizon simply sold off its network in West Virginia.  Those customers are now served by Frontier Communications.

Verizon previously declared the era of the landline dead, and is now seeking to prove its point, even as it demonstrates it can make money by spending money on FiOS, if only investors would give them the chance.

[flv width=”576″ height=”344″]http://www.phillipdampier.com/video/CNN Behind the scenes at Verizon Fios 3-15-10.flv[/flv]

CNN took a behind the scenes tour of Verizon’s FiOS network in New York City, from the central offices to individual apartments.  (4 minutes)

Qwest provides local service in 14 states in the Midwest and West.

Antitrust regulators have given the green light for CenturyLink to proceed with its buyout of Qwest Communications, but Qwest executives on their way out are hardly complaining about the deal.

Stop the Cap! has reviewed recent filings with the Securities and Exchange Commission and learned the proposed deal will bring almost $110 million in bonuses and golden parachutes for seven senior Qwest executives, some of whom will leave Qwest as a consequence of the merger.

Qwest CEO Ed Mueller will receive the largest amount: nearly $43 million — $10.8 million in cash he can spend now and $32 million in stock which he can sell later.  Mueller has already made a mint as CEO of Qwest, getting a five percent raise in his base salary to $12 million dollars in 2009, a nine percent boost in his performance bonus — $2.5 million, nearly $250,000 towards personal use of the Qwest corporate jet fleet, and $7.6 million in new stock awards.  While Mueller won, some 2,800 Qwest employees lost — their jobs.  As part of broad cost cutting moves, Qwest eliminated 8.5 percent of its workforce in 2009.  That helped the company achieve an increase in profits of 2 percent despite a 9 percent loss in revenue for the year.

Most of the generous compensation packages were part of the executives’ employment agreements which guaranteed golden parachute payouts and stock options in the event of a merger.  Those employee agreements were well-positioned to pay off for the executives, as Qwest’s “for-sale” sign had been public knowledge for years.

Last week, the Federal Trade Commission determined the deal between CenturyLink and Qwest did not bring any antitrust issues to the table.  But the deal still faces a review from state regulators and the Federal Communications Commission.  Qwest shareholders will have their say August 24th in a special shareholder meeting to vote on the deal.  Qwest has already been negotiating with significant shareholders who have sued the company, claiming the deal did not adequately compensate Qwest’s investors.  Sixteen of those lawsuits have since been quietly settled on undisclosed terms.

Meanwhile, opposition to the merger has come from smaller independent phone companies, consumer groups, labor unions, and some of Qwest’s competitors who rely on Qwest’s facilities to bring services to customers.  The Communications Workers of America is the largest union expressing concerns about the deal and has filed to intervene in public service commission proceedings regarding the merger in four states: Arizona, Colorado, Iowa and Minnesota.  Those are the only four states in Qwest’s 14 state territory receptive to hearing the union’s point of view, according to the CWA.  The others have oversight agencies that exist little beyond rubber-stamping the requests of the companies they oversee or have commission members who are openly hostile to unions.

Despite the opposition, most analysts believe the deal will win approval because CenturyLink only has a limited presence in most of Qwest’s service areas, which are in the mountain west and desert south.

AT&T’s idea of “unlimited service” has its limits.  Five gigabytes to be exact, as some customers are now learning.

Weeks after promising AT&T customers enrolled in unlimited smartphone data plans that they could keep them, AT&T is now calling some subscribers of an earlier unlimited plan, telling them they need to limit their use of the “unlimited service.”

AT&T’s Data Connect Unlimited plan was discontinued by AT&T back in 2008, but the company promised current customers they could keep their unlimited plan.  But now, the company has started calling customers when they exceed 5GB of usage during a month.

The Washington Post reports AT&T has been sending mixed messages to customers, and is cracking down on those customers exceeding the company’s arbitrary limits.

“We’ve had a small group of customers on a DataConnect 5GB plan who were not being charged for overage when they went beyond that limit,” she wrote. “We’re now working to bring their accounts in line with the policy for the other DataConnect 5GB plan subscribers.”

Clark added that users who had signed up for AT&T’s earlier Data Connect Unlimited plans (which it stopped selling in 2008) could keep using them, but if they made “certain changes to their account” — for instance, transferring it to a new line — they would have to sign up for a new $60 plan with a 5-gigabyte usage cap.

That comes as news to several AT&T customers who have been in touch with the Post, who were switched, without permission, to limited service plans when they made minor changes to their account or were told AT&T was going to end unlimited service for all AT&T customers.

Rob Pegoraro, who writes the Fast Forward column for the Post, notes AT&T’s customer-care staff seems a little confused about these matters. He advises users with old, unlimited-data plans should be prepared for lengthy calls to customer service — and keep careful records of their interactions with the company.

Connected Texas is well-connected -- to AT&T and Verizon, charge critics.

Texas Agriculture Commissioner Todd Staples in under fire for choosing Connected Nation, a telecom industry-financed mapping group, to draw broadband availability maps for Texas.  Connected Nation has close financial and organizational ties to the nation’s largest telecommunications companies, several of which have also contributed heavily to Staples re-election campaign.

Critics contend Staples should have never chosen Connected Nation for the project, especially when two of its biggest backers — AT&T and Verizon, both made substantial campaign contributions towards his re-election.  Staples also owns small amounts of stock in both companies, according to a report published yesterday in the Dallas Morning News.

The Texas mapping project has been condemned by smaller Internet service providers for leaving them off the map altogether while providing plenty of details about large phone and cable company offerings.  For consumers shopping for broadband service, who is on the map may have a considerable influence over which provider they pick.

“They hit the big guys,” James Breeden, founder of LiveAir Networks, which covers rural parts of Central Texas told the Morning News. “I didn’t even know they were putting together a broadband map until I saw it on the news and went ‘Oh.’ Then I logged in and went, ‘Oh, really!’ ”

Staples

He said he couldn’t find his company or two nearby providers on the map. Some areas didn’t show the correct distributor. Others named one when none existed. “The map is just off. It’s not technically accurate,” he said.

As Stop the Cap! reported earlier, maps produced by Connected Nation are notorious for favoring the telecommunications companies that back the mapping group, in addition to being just plain inaccurate. But more importantly, their maps downplay broadband availability problems and conveniently serve the industry’s position that America doesn’t have a broadband problem.  Connected Nation maintains tight control over the raw data, citing provider confidentiality agreements.  That makes reviewing the data for accuracy impossible.

“It’s a scandal, a total scandal,” Art Brodsky, communications director of Public Knowledge, a public interest group that follows digital culture said in the Morning News piece. A longtime critic of Connected Nation, Brodsky has tracked the nonprofit since Kentucky officials accused it of overestimating broadband availability several years ago. The agency that grew into Connection Nation started there in 2001.

Brodsky said nondisclosure agreements make it difficult to see who really benefits from the mapping process.

The controversy has become campaign fodder for Democratic Ag Commissioner candidate Hank Gilbert, who has been bashing Staples in the press for spending taxpayer money to produce maps that benefit his campaign more than the people of Texas.

“Staples and … [the Agriculture Department] are willing to let a bid go to a company with such close ties to the telecom industry,” said Vince Leibowitz, Gilbert’s campaign manager. “That means they’re not doing their job as a consumer protection agency.”

Other groups given the opportunity to apply either were not given enough advance warning, or simply never heard anything back from the state.

Five other organizations responded to the Agriculture Department’s request for proposals. Luisa Handem of the Austin nonprofit Rural Mobile & Broadband Alliance said her group never heard back.

“We didn’t think the process was transparent,” she said. “We’re not even sure they looked at our application.”

The Agriculture Department restricted the opportunity to nonprofits, based on its interpretation of federal law. The agency told the University of Texas at Austin it could apply, but officials didn’t think they could complete the proposal in a month. The Agriculture Department said the federal government set the timeline.