If “follow the money” is a maxim in business, then it should come as no surprise Verizon favors the making the bulk of its investments and expansion in its enormously profitable wireless business.

Verizon Wireless earned the company $12.9 billion in operating profits during the first six months of 2013 while landlines and Verizon’s fiber optic network only delivered $87 million. That inconsistency may help explain why Verizon FiOS expansion is stalled while Verizon throws enormous sums into its 4G LTE wireless upgrade project.

The average Verizon Wireless bill is now over $150 a month. FiOS customers pay an average of over $150 a month as well, but Verizon’s costs to reach its smaller customer footprint are higher. Revenues for basic landline service are considerably lower than either wireless or fiber service.

With wireless providing a virtual ATM for Verizon Communications, the New York Times notes it is unsurprising that Verizon wants to buy out its European partner Vodafone, which owns 45% of Verizon Wireless. Once the $130 billion transaction is complete, Verizon will keep wireless profits all to itself as it continues lobbying for permission to decommission rural landlines and encourage those customers to use its vastly more profitable and almost entirely unregulated wireless network instead.

Exactly 100 years after Verizon predecessor AT&T/The Bell System voluntarily agreed to be a regulated monopoly provider of telephone service, Verizon Wireless and AT&T have successfully established unregulated wireless networks that serve most Americans with cell service and wireless data at prices that would be shocking to people 20 years ago.

That bi-monthly visit from your local utility’s meter reader may eventually be a thing of the past.

Verizon Communications is moving rapidly to establish itself as an “end to end smart grid solutions provider,” providing utility smart meters for gas, electric, and water service that communicate over Verizon Wireless’ cellular network.

“We’re in the midst of a pilot right now, and what we’re piloting is more than the meter data management — we have a meter-to-cash system that includes an advanced metering infrastructure partner as well,” said Ernie Lewis, industry partner with Verizon’s global energy and utility practice.

Verizon hopes to capitalize on forthcoming smart meter adoption, replacing current mechanical meters for natural gas, electricity and water with new electronic meters that have two-way wireless communications capability with the parent utility. Smart meters can offer customers time of day savings for running high consumption appliances during off-peak hours, automatically deliver meter readings to the utility without having to dispatch an army of meter readers to customers’ homes, and support pay-per-use billing that turns the power off when your prepaid account is depleted.

Verizon will manage the potential data demands of such services through cloud networks, potentially through its acquired subsidiary Terremark. Verizon already operates its own energy and utilities enterprise solutions business.

Before -and- After

Hopes for increased Canadian wireless competition were dashed last week when Industry Canada released an official list of approved spectrum auction bidders mostly filled with familiar names.

Fifteen Canadian participants including market-dominant Bell, Rogers and Telus each put down a refundable 5% deposit for the Jan. 14 auction. Most of the rest of the bidders are regional providers or suspected spectrum speculators hoping to sell any acquired spectrum at a profit.

It was good news for the three largest cell companies which feared the possibility of a well-funded new entrant like Verizon Wireless. Instead of facing the deep pockets of Verizon, the three cell companies will be competing against regional providers like Quebec’s Vidéotron, Bragg Communications’ EastLink which serves Atlantic Canada, and provincial telephone companies MTS in Manitoba and SaskTel in Saskatchewan.

Two private equity firms are also participating: a subsidiary of Birch Hill Equity Partners and Catalyst Capital which holds the debt for independent Wind Mobile. Wind Mobile’s owner Globalive Communications is also registered as a participant. Both could use the airwaves in the Wind Mobile business or sell them to another provider.

“Ultimately, what would have been great is to have a well-capitalized startup, a feisty competitor coming in,” telecom analyst Troy Crandall told the Canadian Press news agency. “That would have been the best thing for consumers.”

But Canada’s best hope for lower cell phone bills was never to be found from Verizon Wireless.

“I can assure our investors that we never have and never will be leading on price,” Lowell McAdam told investors at a conference last week.

Frontier Communications believes it can win back disconnected customers, many taking their business to competing cable companies, with marketing offers that avoid tricks, traps, and hidden fees.

Frontier executives told investors on a recent quarterly results conference call that the phone company was adding new broadband customers poached from local cable operators, unusual as DSL market share has eroded in favor of cable broadband.

“A lot of folks in [the markets we inherited from Verizon] took cable because that was the only game in town, and it didn’t mean that they liked their cable operator,” said CEO Maggie Wilderotter. “We did surveys in these markets, 75% of their customers don’t like them and 50% of them said they’d be willing to switch for the right offer.”

Wilderotter said a significant part of the phone network it acquired from Verizon was initially not compatible with broadband service. Frontier’s market share in broadband was predictably low until it expanded broadband service in those areas.

Wilderotter: Most of our customers are satisfied with 6Mbps broadband.

As the invests in its broadband facilities, market share has improved, as have speeds in some areas.

“Forty percent of our footprint has 20Mbps today, so we’ve continued to invest even though 80% of what we sell is 6Mbps and if we look at the usage patterns of our customers, it’s under 6Mbps on a monthly basis,” said Wilderotter. “Somewhere between 12 and 40Mbps is probably going to be the sweet spot of what we’re going to have to build to but we put in the right backbone in order to make that happen.”

Frontier claims its entire middle mile network between central office facilities and individual neighborhoods has been upgraded with fiber, giving Frontier added capacity.

Wilderotter told attendees at the Goldman Sachs Communacopia Conference that Frontier will continue the practice of selling simplified pricing packages that de-emphasize temporary discounts and high value awards like Apple gift cards or television sets. The company renewed its current commitment not to leverage modem fees, impose lengthy contracts, or offer temporary discounts that expire midway through a term commitment.

“Our current bundles really resonate well,” said Frontier chief operating officer Dan McCarthy. “It gives people predictability, it doesn’t really require commitment from a price protection plan, and there are no hidden fees.”

Price seems to matter a lot to Frontier customers.

“It isn’t always about speed for customers — 80% of the customers’ sales that we have today are for more the basic speed level of 6Mbps,” said McCarthy. “They have the ability to take 12 or 20Mbps max in many cases but they still choose 6Mbps. It’s really more about service, it’s about the price value equation, it’s about simplicity and really not having surprises.”

Time Warner Cable believes it has room to raise broadband prices and get away with it without much customer backlash.

The cable company’s chief financial officer, Arthur Minson, raised the prospect of more price hikes at Tuesday’s Goldman Sachs 22nd Annual Communacopia Conference.

“Look, the modem [fee] was really just a form of a High Speed Data rate increase,” Minson said, referring to the company’s introduction of a $4 cable modem rental fee last fall and a later increase to around $6 a month introduced this summer. “I do see an ability for us to continue to have ARPU increases on that product.”

“ARPU” refers to the Average Revenue Per User — a term that reflects what companies earn in revenue divided by the number of customers. In most cases, an ARPU increase comes from price hikes or customers subscribing to additional value-added services.

Minson

Minson suggested that the company’s gradual rollout of optional usage-based pricing tiers provides an alternative for price-sensitive customers that cannot afford rate increases on flat-rate service or are seeking a price reduction.

“I think we’re very pleased with where we are in the usage-based pricing front and I think that’s something we will continue,” Minson concluded. “I think over time it will be interesting to see how many people ultimately take the usage-based pricing, or will people say I just want to have unlimited and I think the market will speak on that.”

Time Warner Cable has focused investment on several fronts this year, and plans continued investments to expand offerings in these key areas:

1. Business broadband expansion. Some of the company’s biggest investments target wiring businesses and office parks for cable service, primarily to expand commercial broadband. “Commercial services is success-based capital that we see real meaningful returns on,” Minson said.
2. Wi-Fi expansion. Time Warner Cable will continue expanding Wi-Fi hotspots in select cities. Customers with Standard (15/1Mbps) service or above can use the service for free. Minson said that the company was very happy to offer customers subscribed to unlimited use tiers free access to Wi-Fi. Not so for those choosing usage-based pricing plans. They will have to upgrade to an unlimited plan to get free access. “That’s a real incentive to drive people into the higher tiers,” Minson noted.
3. DOCSIS 3.1. Time Warner plans to adopt and invest in DOCSIS 3.1 cable modem technology when it is officially released. DOCSIS 3.1 will offer more efficient broadband transport and will let companies offer even faster speeds. Minson noted that broadband is increasingly the company’s anchor product, so it will continue investments accordingly.

Customers looking for aggressive pricing won’t find much at Time Warner Cable. Minson noted the company will continue its year-long pullback on low-priced promotions.

“We have a $79 bundle out in the marketplace and you would say okay, that sounds similar to the offer in the marketplace last year,” Minson said. “It may be similar but in terms of what you get for that $79 it is very different from what we gave a year ago and what we have now is the ability to meaningfully up sell the customers from the beacon price.”

A year ago, Time Warner Cable didn’t have a modem rental fee and typically bundled its Standard tier Internet service in its promotional packages. A traditional triple-play package of phone, cable TV and Internet service starts at $89 today, but only includes 3Mbps broadband, doesn’t bundle DVR service, and doesn’t include a mandatory set-top box which now costs a minimum of $8.99 a month each. Combining the modem fee with the mandatory box charge raises the promotional price to $104.97 a month.

• Upgrading to Standard 15/1Mbps service costs an extra $10 a month.
• Adding a DVR? That costs an additional $21.94 a month.
• The “whole house” DVR package is now priced at $37.47 a month.
• Time Warner Cable has also recently increased the price of premium movie channels to a uniform $15.95 each for HBO, Cinemax, Showtime, and Starz.

Taking into account these popular upsold add-ons, the promotional price of $79-89 might be seen as bait and switch by some customers. The true cost for most choosing a triple play package including cable TV with DVR service, one set-top box, a Time Warner-supplied cable modem, and a speed upgrade to 15/1Mbps service is $127.92 a month before taxes and fees.

Customers unhappy with their cable bill who call to complain are now routed to specially trained retention operators, Minson said.

“We’ve taken about a 1,000 dedicated employees and focused them on retention and even within those centers there are areas of expertise,” Minson said. “For our Spanish language customers we have retention centers set-up to help them when they call in. For people who are coming off a promotional offer, we have dedicated reps who can deal with that group of customers. So it’s having a deeper set of expertise in those areas and the returns so far are well within our expectations and we are really pleased with how it’s going.”