While AT&T is in no hurry to expand and upgrade U-verse broadband to its wireline customers in the United States, the Dallas-based company has spent more than $7 billion trying to attract wireless customers in Mexico that so far don’t show much interest in the U.S. company.

AT&T last month reported it is losing big south of the border. After spending $4.4 billion to acquire two competing wireless companies in Mexico and committing another $3 billion to upgrade their networks to 4G service, customers are continuing to abandon the carrier.

The losses AT&T continues to incur improving wireless service in Tabasco, Veracruz, and Baja California has not bothered AT&T to date — in fact the company plans to dump even more money into the Mexican cellular market, despite achieving a market share of only around 8.5 percent, effectively making it about as relevant as Sprint in the United States. Its largest competitors are the gigantic América Móvil, which has nearly 70 percent of the market and Telefónica, which holds a 22 percent share.

So far, AT&T has been forced to support different websites for its two different carriers – Iusacell and Nextel Mexico. The former also maintains the Unefon brand, which targets low income Mexicans with cheap prepaid service.

Part of AT&T’s problem recouping its investment is the fact Mexicans cannot afford the pricing Americans pay for cell service. While AT&T charges $50+ for a low-end cell plan in Texas, just across the Mexican border AT&T offers a $13 basic plan offering 500 calling minutes and 500MB of data.

AT&T’s decision to spend billions in Mexico while it reduces spending on further expansion of its U-verse network has nothing to do with Net Neutrality or Title II enforcement by the Federal Communications Commission. It is all about finding new customers. Wireless penetration has now topped 100 percent in the U.S. (because some families maintain multiple devices, sometimes with different carriers). In Mexico, less than 50% of the population has a cell phone and even fewer own smartphones. AT&T believes that gives it plenty of room to grow. AT&T believes wireless service brings the best potential for profits both inside and outside of the U.S., and the company thinks it can dramatically improve market share in Mexico and charge prices that will bring it a healthy return.

Their customers apparently disagree. In Mexico, for the first nine months of the year, AT&T lost 689,000 wireless subscribers — a decline of almost 8 percent. Even customers attracted to try AT&T for the first time often decide to leave, giving AT&T Mexico a churn rate exceeding 5% — five times worse than what AT&T experiences in the United States.

Some Wall Street analysts are critical of AT&T throwing good money after bad down south. Michael Hodel of Morningstar doesn’t like what he sees. The incumbent Mexican telecom giant América Móvil has kept the lion’s share of the market for years and has vastly more scale than AT&T. Hodel sees losses for AT&T until 2018.

Others wonder how AT&T Mexico will be able to introduce the premium priced services it will depend on to get a return on its investment. The Mexican economy is unlikely to allow customers to pay substantially more for wireless service.

AT&T CEO Randall Stephenson has told investors if AT&T builds a 4G network, customers will come and pay AT&T’s asking price.

“We are convinced that what we experienced in the U.S., we will experience in Mexico,” Stephenson said at an investor conference in May. “So you are going to see the mobile Internet revolution take off in Mexico. We intend to ride that wave.”

Free trade supporters and those who support the deregulation of the Mexican telecom market are trying to use AT&T’s experience as evidence that free markets and trade works.

“AT&T’s moves are the clearest evidence of success in Mexico’s reforms, and it’s hard to overstate the importance,” said Christopher Wilson, deputy director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington.

For customers, it isn’t a matter of free trade. It’s good coverage at a reasonable price that matters most, and AT&T Mexico has not yet achieved that.

Arturo Diaz, originally an Iusacell customer in Mexico City, recently dropped his AT&T Mexico service.

“Their coverage is not very good outside of large cities and AT&T’s reputation is to raise prices, which they seem to do a lot in the U.S.,” Diaz said. “If you can afford a better phone and plan, you switch to América Móvil. With the stronger American dollar, the peso is devalued again, so more people will likely want a budget prepaid plan which they can get from Telcel. I’m not sure what AT&T is doing in Mexico and their plans from two different companies are a mess. I signed up with América Móvil last month.”

With one less significant competitor in the marketplace, AT&T feels safe cutting back customer promotions to raise prices and profitability, even if it means losing customers.

AT&T’s original argument for acquiring DirecTV was to negotiate cost savings from cable programmers by qualifying for greater volume discounts available from combining 5.7 million U-verse TV customers with DirecTV’s roughly 20.3 million U.S. subscribers. But AT&T has now made it clear it is keeping those savings for itself.

“We have our target to get to $2.5 billion or more in savings,” said John J. Stephens, AT&T’s chief financial officer, in a conference call with investors. “We already are realizing some of that in our content and supplier relationships. We really like our momentum here, and we are confident we can continue to expand margins and cut costs, even with pressure from our international operations.”

At the same time AT&T is enjoying billions in savings, in recognition of the fact its customers now have fewer competitors with whom they can do business, the time is right to cut back on money-saving promotional plans, effectively raising prices for customers.

“Because of our focus on profitability, we really got away from promotional pricing, and those customers who were cost-sensitive just had a propensity to churn,” Stephens said, referring to an industry term that means customers canceled service either because it got too expensive or they found a better deal elsewhere.

Stephens

Stephens told investors its new pricing strategy, as expected, brought reductions in the number of U-verse video subscribers during the latest quarter. The company is also pushing more customers towards DirecTV and away from U-verse because programming costs are lower on the satellite platform. The new focus on profits means fewer customers are choosing AT&T and many existing DSL customers are resisting efforts to force them on to the U-verse platform.

“Net adds dropped with fewer promotions and shifting our focus to the lower content cost DirecTV platform,” Stephens admitted. “We added 192,000 IP broadband customers in the quarter, as migrations from our DSL base continued to slow. U-verse video losses also put some pressure on broadband numbers due to our high attachment rates.”

Stephens noted the customer growth declines occurred at the same time pressure on AT&T’s costs are dropping significantly. In October, the company signed an agreement with Viacom for its cable programming networks Stephens says represents “best-in-industry pricing,” made possible from the enhanced volume discounts AT&T now receives.

DirecTV will also allow AT&T to curtail additional U-verse expansion into its more rural service areas.

“They don’t have television in these areas, or I should say we didn’t have a video offering,” Stephens said of AT&T’s rural customer base, mostly still dependent on DSL. With its ownership of a satellite TV provider, there is less urgency to expand rural U-verse. “These were generally out of the U-verse footprint, but now we do. And now we’ll be able to provide them with a video offering through DirecTV, and we’re very pleased with that. So we are hopeful that now this nationwide video service will help us in improving our overall broadband positioning.”

AT&T’s deal with the government to win approval of its merger with DirecTV committed the company to expand high-speed fiber optic broadband to at least 12.5 million customer locations and offer discounts to low-income customers. AT&T’s interpretation of the agreement means it will expand broadband service mostly in urban areas while continuing to allow its rural DSL broadband networks to lose customers.

“Over the last few years, the real trend has been a migration from DSL to IP broadband [eg. U-verse],” Stephens said. “And that’s been something that we’ve encouraged ourselves, and we’re beginning to complete that process or near completion where the DSL customers we have left is a much lower percentage than [those with U-verse] broadband capabilities from us.”

“I’m going to tell you, I think on the consumer side we’re down into the two million range on total DSL customers,” Stephens said. “[…] I would suggest to you it has changed dramatically over the course of four or five years, where it used to be 90% plus of our broadband base and now it’s a much lower percentage. So we’ve gone through that migration not completely, but almost completely.”

AT&T’s commitment to aid low-income customers is not clear, as customers report AT&T less willing to offer or extend money-saving promotions. On the wireless side of AT&T’s business, the company is increasingly pushing price-sensitive customers out of its network.

“Our focus is to provide the best customer experience while increasing profitability and not just chase customer counts,” Stephens said. “Our third quarter results drive that point home. We had our highest ever wireless service [profit] margins at 49.4%.”

In particular, AT&T is sacrificing its low-revenue feature phone customers by cutting back on handset choices and trying to shift certain prepaid customers to the less venerable Cricket brand. AT&T acquired Cricket from Leap Wireless in the spring of 2014. It completed a nationwide shutdown of Cricket’s competitive CDMA wireless network this fall and has pushed Cricket’s current customer base onto AT&T’s GSM network, often at a higher cost to customers.

Stephens reported AT&T Cricket customers now pay nearly $10 more a month than departing AT&T customers that maintained postpaid feature phones until the end of their two-year contracts.

“On the churn, first and foremost, yes, the feature phone churn is hitting us and having an impact on us, and those are decisions we made not to chase those customers,” Stephens informed investors. “[We] can’t make the math work not only on the pricing for those customers but the impact throughout our base.”

Stephens claimed profits are now AT&T’s number one priority.

“We’re going to be focused on profitable growth, not just chasing customer counts or specific targets,” Stephens said. “We’re going to really be focused on just getting the most profits out of the business.”

In Bexar County, Texas Public Radio found only a few customers (shown in green) qualify for AT&T GigaPower service. (Image: TPR)

AT&T charges customers $40 a month/$480 a year more for its U-verse with GigaPower gigabit broadband service in cities where it does not face direct competition with Google Fiber.

AT&T has announced six new cities will eventually get gigabit speed service, including Chicago, Atlanta, Nashville, Orlando, Miami and San Antonio. Whether customers will pay $70 or $110 for the same service depends entirely on one factor: Google Fiber.

The Consumerist notes communities with forthcoming competition from the search engine giant will pay $40 less for gigabit service from AT&T than communities without Google Fiber.

In San Antonio, Nashville, and Atlanta — all forthcoming Google Fiber cities, customers will pay AT&T $70 a month. In Google Fiberless Orlando, Chicago, and Miami, customers will pay $80 for a 300Mbps tier or $110 for 1,000Mbps service.

Although AT&T is usually the first to market 1,000Mbps service in its service areas, actually qualifying to buy the service is another hurdle customers have to overcome. In San Antonio, most customers will have to wait.

In an informal survey conducted by Texas Public Radio on social media, about 60 Bexar County residents checked to see if their home addresses could connect to AT&T’s GigaPower. Only 11 could, most in far west Bexar County beyond Leon Valley. Other limited service areas south of Live Oak also qualified. Most of the rest of metro San Antonio does not qualify for GigaPower and AT&T will not say when customers can get the service.

AT&T later admitted gigabit service was available in “parts” of San Antonio, Leon Valley, Live Oak, Selma, Schertz, Cibolo, as well as portions of New Braunfels, Medina, and unincorporated Bexar County.

The Consumerist writes AT&T is proving the importance of robust broadband competition. Communities that have it pay less and get quicker upgrades for faster Internet speeds. Those without pay AT&T a premium or are long way down on the upgrade list.

In the northeastern United States, now a no-go for Google Fiber, broadband is often a feast or famine proposition. Those served by Verizon FiOS in New York City also have the competing options of network-upgraded Cablevision or Time Warner Cable Maxx. Those in New York not served by FiOS have a much poorer choice of Time Warner Cable (up to 50/5Mbps) or <10Mbps DSL service from Verizon, Frontier, Windstream, and other phone companies. In Northern New England, Comcast routinely outclasses DSL service from FairPoint Communications, but significant parts of Vermont, New Hampshire, Maine, and western Massachusetts often have no broadband options at all.

[flv]http://www.phillipdampier.com/video/KSAT San Antonio GigaPower Internet coming to San Antonio 9-21-15.mp4[/flv]

KSAT-TV in San Antonio covered AT&T’s launch of U-verse with GigaPower in San Antonio. As elsewhere, AT&T routinely invites city officials to share the good news with local residents. But it may take a year or more for the service to become available to everyone in the area. Even when it is, a snap poll conducted by KSAT found just over half of its viewers had no interest in getting gigabit service from AT&T. (1:51)

Disputes over money may leave AT&T U-verse, Dish, and DirecTV customers staring at black screens on Thursday as three major station groups collectively representing more than 150 local over the air stations threaten to drop them if their respective carriage renewal deals are not signed.

• AT&T U-verse customers would lose access to 42 Tribune Media stations in markets like Chicago, Los Angeles, San Diego, Washington, and New Orleans.
• Media General’s 71 stations would be removed from DirecTV in cities like San Francisco, Buffalo, Austin, and Columbus, Ohio.
• Tegna (formerly Gannett) is ready to pull the plug on its 51 stations on Dish Network in cities like Washington, Dallas, Houston, Atlanta, Buffalo, New Orleans, and Seattle.

Weary customers are now enduring dire warnings their favorite local stations are about to be removed, with suggestions greedy providers won’t pay a fair price for their programming. Providers counter the station owners often demand double the rate providers paid under the old contract. Providers then pass those price increases along to the same customers that also get upset when stations and networks are blocked during hardball negotiating sessions.

Customers are fed up watching different disputes play out several times a year, often resulting in the loss of programming they paid to receive.

“It’s bad enough that we are losing channels but the bill never goes down either,” noted Dish customer Allen Gayla Shaw on the satellite provider’s Facebook page.

“I’m tired of providers holding viewers hostage for your egos,” echoed Sandi Montgomery Cockroft.

Critics question the wireless industry’s claim LTE-U and Wi-Fi can co-exist peacefully. (Image: EVOLVE)

Consumer groups and cable operators are warning the Federal Communications Commission a plan by the nation’s largest wireless carriers to introduce premium Wi-Fi services for their mobile customers may create serious interference problems for existing Wi-Fi users.

AT&T, Verizon, and T-Mobile are all members of EVOLVE, a group advocating for LTE-U and LAA, technologies that will depend largely on the unlicensed Wi-Fi bands to deliver wireless data to their mobile customers.

Cable operators fear the proposal will give mobile providers an unfair advantage, introducing more traffic into the already crowded Wi-Fi bands while mobile operators reserve the right to use a licensed control channel to shift their customers’ traffic back and forth between unlicensed and licensed spectrum at will. Cable industry critics of the plan claim allowing mobile operators to dump customer traffic into the Wi-Fi bands is likely to worsen interference, harming the cable operators’ investment in a growing network of Wi-Fi hotspots and in-home Wi-Fi.

Consumer groups agree with the cable industry.

The Open Technology Institute at New America, Public Knowledge, Free Press, and Common Cause have filed a joint statement with the FCC warning the agency “mobile carriers will have both the ability and strong incentives to use LTE-U and LAA to engage in anti-competitive behavior harmful to consumers,” all while making a tidy profit charging customers for the use of a service comparable to Wi-Fi, now a free alternative to the carriers’ 3G and 4G data networks.

The groups argue Wi-Fi standards were developed with unlicensed users in mind, able to co-exist peacefully with other similar Wi-Fi signals. The proposed LTE-U technology from wireless carriers is far less sensitive to neighboring signals.

“LTE-U/LAA is designed to be centrally controlled by a network anchored in a separate, exclusively licensed frequency band,” the consumer groups wrote. “3GPP, the mobile industry standards body, may ultimately design LAA in a manner that shares fairly with Wi-Fi and other unlicensed technologies; yet several studies filed by commenters demonstrate that the version of LTE-U that U.S. carriers plan to deploy by next year coexists poorly with Wi-Fi, degrading both throughput and latency (delay).”

Critics contend the wireless industry’s proposed service is not as likely to use “Listen Before Talk” effectively, a standard that checks for existing traffic before powering up on an unlicensed frequency. Consumer groups fear mobile carriers will have both the ability and a strong incentive to use LTE-U and LAA to charge consumers for the use of unlicensed spectrum and give themselves an unfair advantage by escaping the interference its own technology can cause other users.

“Carriers also have powerful incentives to use LTE-U to deter mobile market entry by ‘Wi-Fi First’ providers, such as wireline ISPs,” argue the consumer groups, also referring to independent providers like Republic Wireless that depend primarily on Wi-Fi for smartphone connectivity. “Carriers deploying LTE-U will have the apparent option to adjust their access points to introduce just enough latency to frustrate consumer use of real-time applications, such as video calling.”

Another incentive is money. For several years, wireless carriers have encouraged customers to offload their mobile data traffic to Wi-Fi. But since Wi-Fi traffic does not count against the customer’s usage allowance, it also reduces revenue opportunities. LTE-U is a variant of LTE, and carriers traditionally do count that traffic against a customer’s usage allowance. For the first time, mobile customers will accrue usage charges based on their use of unlicensed frequencies. For some, they may have no other choice.

Ellen Satterwhite, a spokesperson for WifiForward, a coalition of companies advocating for more unlicensed spectrum for Wi-Fi, said LTE signals never play well with traditional Wi-Fi.

“When LTE and Wi-Fi signals collide, LTE wins,” Satterwhite said.

“The wireless carriers have completely changed their tune about Wi-Fi—because they have to,” said David Callisch, vice president of corporate marketing for Ruckus Wireless, a Sunnyvale, Calif.-based maker of Wi-Fi hardware, whose customers include Verizon and AT&T. “Wi-Fi for them is like a train going down the track,” Callisch told Bloomberg BNA in an interview. “You could get hit by it or you could jump on the train. They’re jumping on the train.”

“Carriers have historically hated Wi-Fi, because they can’t control it,” Callisch added. “They’ve always liked the licensed band, because they can buy it and they can control it and they can deliver a quality of service to customers over it. With Wi-Fi, you can’t do that.”

But with LTE-U they have the control they crave, able to use network management technology that prioritizes their customers over other conventional Wi-Fi users. Even better, they can charge customers for using it.

Both cable operators and consumer groups want engineers, not business executives, to carefully develop standards and rules that guarantee Wi-Fi users can co-exist with other users of unlicensed frequencies before the technology is switched on.