A Wall Street research firm is asking questions about the “mixed messages” AT&T is sending consumers over its broadband offerings.

Ovum Research senior analyst Kamalini Ganguly said AT&T’s fiber to the home (FTTH) network in Austin — set to upgrade customers to 1Gbps next year — is likely to confuse AT&T and its shareholders over the future direction of AT&T’s current fiber to the neighborhood (FTTN) upgrade effort, dubbed Project VIP.

Having spent eight years deploying the U-verse FTTN service, a year ago AT&T chose to expand household coverage and upgrade speeds. That effort, called Project VIP, is still ongoing and until now has reflected AT&T’s projection that 45Mbps downstream (and 6Mbps upstream) should be good enough for the majority of its customers.

AT&T says it intends to boost part of its Project VIP footprint to 75Mbps or 100Mbps with VDSL2 vectoring, but the extent of this is unknown. It has also deployed a small amount of GPON FTTH in greenfield markets, typically designed to support 80–100Mbps to each household. Also as part of Project VIP, it plans to reach 1 million businesses with symmetric 1Gbps FTTH.

However, the GigaPower offering in Austin will be AT&T’s first 300Mbps or 1Gbps mass-market FTTH offering targeting consumers, not just businesses, in a major market. It is also a symmetric offering, meaning upstream will be 1Gbps as well. Those speeds are far higher than what Project VIP will deliver to the majority of consumers. The jump from 45/6Mbps to 1/1Gbps for consumers raises questions around its strategy. The cost issue looms large. Deploying 1Gbps point-to-point FTTH will continue to cost much more than GPON FTTH, which in turn still costs a lot more than FTTN – even with vectoring. AT&T needs to explain better what has changed from last year in the business case for FTTH over FTTN.

Wall Street is asking questions because AT&T has repeatedly denied its fiber project in Austin has anything to do with Google’s intention to offer a similar fiber network in Austin next year and everything to to do with its general broadband strategy. There is increasing skepticism about AT&T’s veracity on that point, particularly after AT&T announced pricing that was suspiciously similar to what Google charges its fiber customers in Kansas City and is likely to charge in Austin. Ovum’s researchers also took special note of AT&T’s intention to “examine its customers’ browsing habits in order to generate incremental revenues with targeted ads and commercial offers.”

There is evidence Google is proving a growing market disruptor, turning cable and telco industry pricing models upside down where the search engine giant threatens to compete. Industry plans to charge premium prices for incrementally faster broadband speed tiers is at risk with Google’s gigabit offer, priced at just $70 a month. Comcast charges up to $300 a month for considerably less speed. Community owned fiber broadband providers are increasingly adopting Google’s pricing model themselves. EPB in Chattanooga reduced the price of its 1Gbps tier from $300 to $70 earlier this year.

“By accepting a ceiling of $70, AT&T may be making it harder to break even,” writes Ganguly. “We may see lower prices cascading down for all broadband services. AT&T runs the risk of de-valuing its own broadband business and ultimately that of others too. On a more positive note, demand for 1Gbps was seen as questionable when prices were unaffordable for consumers and when multiple HD streams can be supported by 40–50Mbps. With these price levels however, demand may spike and boost the business case for 1Gbps.”

AT&T today announced it was selling off its residential wireline network in Connecticut to Stamford-based Frontier Communications for $2 billion in a deal that includes an expanded license for U-verse TV that could eventually be available to Frontier customers nationwide.

Frontier will assume control of the Southern New England Telephone Co. (SNET), a wholly owned subsidiary of AT&T, and its 2,700 employees and 900,000 telephone lines. Included in the deal is AT&T’s U-verse network in the state and the right to expand U-verse TV into all 27 states where Frontier provides service. The deal comes three years after Frontier paid $8.6 billion in stock and cash to buy landline operations in 14 states from Verizon Communications.

In a Stop the Cap! exclusive story published last year, we reported Frontier was interested in acquiring licensing rights to the U-verse brand to potentially offer its customers a unified product suite of television, broadband, and phone service over a fiber to the neighborhood network. Maggie Wilderotter, CEO of Frontier Communications, told the Wall Street Journal the deal between AT&T and Frontier had been on the table for years waiting to be finalized. With today’s announcement, AT&T New England president Patricia Jacobs acknowledged Frontier will use the U-verse name at a secondary brand for video service. Frontier now relies on satellite reseller agreements to bundle video service into its packages for consumers.

Frontier’s acquisition will give the company hands-on experience with AT&T’s U-verse network in Connecticut and offer a path to bring improved service to Frontier customers elsewhere. Company officials also acknowledged a key reason for the transaction was boosting Frontier’s lagging dividend, a critical part of its share price. By taking on nearly 1,000,000 new customers, Frontier will boost its cash flow, returning some of that new revenue in a higher dividend payout to shareholders. But the company will take on an extra $2 billion in debt to manage higher dividend payouts.

JPMorgan Chase & Co. arranged the financing for the acquisition and Frontier will likely raise about $1.9 billion from debt markets by selling bonds. Frontier already has $8.13 billion in debt on the books, much of it acquiring landlines originally owned by Verizon.

AT&T’s departure from Connecticut was no surprise to analysts. AT&T operates most of its landline network in the midwest, south, and in the state of California. The company has focused primarily on serving business customers and its wireless network in the northeast, not residential landlines. Frontier described the deal as a perfect fit for Connecticut residents, because Frontier specializes in residential phone and broadband service.

“AT&T has been trying to sell its rural wireline businesses for some time,” Gerard Hallaren, an analyst with Janco Partners Inc., told Bloomberg News. “It looks to me like Frontier cherry-picked a nice asset at a nice price from AT&T.”

SNET began operations in 1878 as the District Telephone Company of New Haven and pre-dated the Bell System. The company founded the first exchange and printed the world’s first telephone directory. It remained independent of Bell System ownership until 1998, when SBC Communications (formerly Southwestern Bell) acquired the company. In late 2005, SBC purchased AT&T and AT&T Connecticut was born.

Over the past seven years, AT&T has watched customers decline from more than two million customers to fewer than one million. AT&T introduced U-verse to improve its position in the market to mixed results. The company’s investments in fiber upgrades have not been as profitable as its wireless network, likely leading to today’s sale.

AT&T says it is not leaving Connecticut altogether. The company plans to keep business and wireless customers in the state.

Much of the proceeds from the deal will be invested by AT&T in its wireless network, mostly to help pay for 4G LTE upgrades. The rest will be spent bringing U-verse to more customers in the midwest and southern U.S.

The acquisition faces regulator approval from both the Federal Communications Commission and Department of Justice, likely to be forthcoming in the first half of 2014.

Frontier executives promised shareholders the deal will result in $125 million in cost savings over the next three years — code language for layoffs. Some of them are likely to be among the 2,400 workers represented by the Communications Workers of America, which has had a contentious relationship with AT&T Connecticut over job cuts in the past.

AT&T has got your number.

AT&T wants to know what you are doing on the Internet.

If you agree to share your browsing history and view targeted contextual advertising from AT&T and its partners, the company will give you a monthly discount off the price of its new GigaPower gigabit fiber network.

Now launching in Austin, AT&T GigaPower charges $99 a month for 300Mbps standard service (speeds will be raised to 1,000Mbps in 2014 at no extra cost — equipment, installation and activation fees are extra). But customers can knock $30 off the monthly price and skip the new customer fees by enrolling in AT&T’s new “Premier” package, which runs $70 a month.

GigaOm discovered some interesting language in AT&T’s fine print about its Premier service: “[The discount] is available with your agreement to participate in AT&T Internet Preferences. AT&T may use your Web browsing information, like the search terms you enter and the Web pages you visit, to provide you relevant offers and ads tailored to your interests.”

Exactly how AT&T intends to implement its contextual advertising program remains largely a mystery. Google includes contextual ads in its Gmail service, its search engine results, and in online advertising from participants in Google’s AdWords program. AT&T lacks an advertising platform as large as Google or Microsoft’s Bing, so questions are being raised about how exactly AT&T will be able to find enough places to present online ads.

GigaOm suspects AT&T might use deep packet inspection to monitor customers’ web traffic to collect browsing information for contextual ads. Others suspect AT&T will replace certain existing third-party ads found on independent websites with its own advertising. Either is likely to bring the company scrutiny, both from Internet Privacy advocates and website owners that find their advertising replaced by ads from AT&T and its partners.

AT&T’s response to GigaOm left a number of questions unanswered:

We use various methods to collect web browsing information, and we are currently reviewing the methods we may use for the Internet Preferences program. Whichever method is used, we will not collect information from secure (https) or otherwise encrypted sites, such as online banking or when a credit card is used to buy something online on a secure site. And we won’t sell your personal information to anyone, for any reason.

[…] We won’t sell your personal information. Rather, AT&T may use your personal information to direct another advertiser’s ad to you, but that advertiser would never have access to your Personal Information. For example, after you browse hotels in Miami, you may be offered discounts for rental cars, but that rental company doesn’t know who you are.

AT&T is experimenting with consumer acceptance of discounting service in return for giving up some privacy. It says it is giving customers the choice to opt out by signing up for the more expensive “standard” service.

U-verse television service is also available to customers of both packages for an extra $50 a month. Telephone service adds another $30 a month.

AT&T has started rolling out its GigaPower service in the French Place, Mueller, Zilker, and Onion Creek neighborhoods and will select future places to expand based on interest registered by local residents on AT&T’s GigaPower website.

“We’ve already received great input from thousands of Austinites eager for the fastest speeds,” said Dahna Hull, general manager of Austin’s AT&T Services, Inc. “These votes are helping us identify where the need for speed and advanced TV services is the greatest and will help guide our future GigaPower expansion plans.”

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Options for super high-speed Internet are heating up in Austin as AT&T introduces AT&T U-verse with GigaPower this week. KXAN reports the service will initially launch with 300Mbps service in a handful of neighborhoods, but upgrade to 1,000Mbps speeds in more locations next year. (2:30)

AT&T has informed Google it will not allow the search engine company to use its utility poles to build a fiber optic network that will compete with AT&T’s own GigaPower fiber service, which launched in Austin this week.

Current rules require utilities to provide non-discriminatory access to poles for all electric and telecommunications companies. AT&T has declared Google is neither, but is willing to work with the company once it is “qualified,” said Tracy King, AT&T’s vice president for public affairs.

“By challenging the city to force an employer to share its equipment contrary to federal law and without transparency, Google appears to be demanding concessions never provided any other entity before,” said King.

The dispute now threatens to involve Austin’s city council, which fears AT&T’s position could result in thousands of new utility poles being installed next to AT&T-owned poles. City officials warn they are willing to settle the matter by changing the rules for all utility companies, using their authority as the owner of the land on which the utility poles are placed.

“We don’t want people to put up their own poles,” Rondella Hawkins, Austin’s telecommunications and regulatory affairs officer, told the Austin-American Statesman. “We want to avoid anybody putting up redundant utility poles. Could you imagine a city where all the (telecommunications) providers individually have their own utility poles? It would be a mess.”

Google said it wants to bring its fiber network to Austin in the least disruptive way possible, and AT&T’s actions may complicate the project.

Martinez

The proposed rules change threatened by the city council brought immediate opposition from both AT&T and the unions that represent AT&T workers.

“The city of Austin should not jump into what amounts to a business dispute and create winners and losers before everyone can present data on all the stakes that are involved,” wrote Becky Moeller, president of the Texas AFL-CIO.

This afternoon, with the rules change pending on the calendar, Google and AT&T apparently decided to work out the dispute before the city imposed a solution.

“After hard work, lots of meetings and tons of input – AT&T and Google agree to negotiate their issues with the city,” Austin council member Mike Martinez wrote on his Facebook page. “A postponement of [the ordinance change] is highly likely. Thank you to them and all who helped make this happen.”

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KVUE in Austin reports the pole attachment dispute between AT&T and Google threatens to involve the city council. (3:09)

AT&T supervisors ordered operators to aid Nigerian fraudsters making free calls that cost millions in credit card fraud and the life savings of some victims, while AT&T collected more than $16 million in reimbursements paid by telephone ratepayers across the country.

Last week, AT&T admitted no wrongdoing but agreed to pay a $3.5 million settlement to the operator the company fired after complaining about widespread fraudulent use of a service intended to help the hearing and speech impaired.

The story is now the subject of a movie script, reports The New Castle News. It begins in 2003, when AT&T was required by the Americans with Disabilities Act to provide operators willing to relay conversations from hearing or speech impaired individuals typing on a computer or device and the people they called.

AT&T employed at least 150 operators at a western Pennsylvania call center in a former shopping mall just to assist with international relay calls. One of them was Constance Lyttle.

AT&T’s international relay service offered those overseas the opportunity to make a free, untraceable relay phone call to any number in the United States. AT&T billed the FCC-administered fund $1.30 a minute for calls placed through the relay operator.

The service quickly became popular… with Nigerian scammers who used it to make free calls to American businesses. In fact, according to a lawsuit filed in 2010, around 95 percent of all calls placed through AT&T’s international relay service came from con artists peddling various scams and ordering merchandise with stolen credit cards from unsuspecting businesses.

The Nigerians used hard-to-track public Internet terminals to initiate calls through AT&T’s relay center. An AT&T operator would read the words typed by the con artist over the phone to the person called and type back any responses.

Lyttle testified the usual target for the scam was a unknowing small business willing to accept credit card orders from Nigeria or an individual willing to advance their life savings in return for promised larger payout unlocked by their deposit. It was all made possible with the help of AT&T, which earned several dollars for every successfully completed call.

Lyttle said the operators in the call center immediately understood what was going on and complained repeatedly about the abuse of the system. In response, AT&T “made workers sign agreements that they would put through the scam and fraudulent calls, and they actually used those words,” said Lyttle’s attorney, who also happens to be her sister. “The workers at the call center were afraid they would lose their jobs. AT&T paid very well and good-paying jobs are hard to come by in western Pennsylvania.”

Nigerians exploited the AT&T Relay service call center located at this former mall in New Castle, Penn.

The lawsuit against AT&T alleged the phone company had full knowledge of what was going on but didn’t want to lose a lucrative contract that resulted in at least $16 million in reimbursements.

“They were getting $1.30 per minute for these calls,” said Lyttle’s attorney. “Think about the volume of calls that were being made.”

Lyttle’s attorney said Constance would sabotage some calls to stop the fraud, falsely claiming the party at the other end had hung up. Her 2010 lawsuit alleged her effort to protect the public from Nigerian scam artists was the reason she was fired in 2010 after 13 years with AT&T.

Her lawsuit soon attracted the interest of the U.S. Department of Justice. In March 2012, the federal agency joined the case. Lyttle was designated a “whistleblower” and her involvement in the federal lawsuit was initially kept secret. Earlier this year AT&T agreed to reimburse the Federal Communications Commission more than $18 million for abandoning their responsibility to block the overseas scammers not qualified to use the relay service. AT&T also admitted a percentage of callers did use the service for illicit purposes.

Lyttle herself received a settlement proposal of $3.5 million in her whistleblower case. AT&T also offered her old job back but she turned them down, saying she preferred her current part-time job over returning to AT&T.

It’s just as well. The New Castle, Penn. call center at the epicenter of more than $20 million in reimbursements and settlements was ordered closed by an unnamed AT&T executive in November.

“I was told 125 employees would lose their jobs in the next 12 to 15 months,” said New Castle Mayor Anthony Mastrangelo. “I don’t know if the local people will lose their jobs or have the option to be transferred.”