Robert Cyran, writing for BreakingViews, is concerned about the profit capacity of telephone and cable companies in the coming years.

Noting that wired, high speed services often account for more than half the revenue of providers, anything that challenges those margins could provoke hostile reaction from Wall Street, dissatisfied with diminishing returns.

Cyran specifically calls out Frontier Communications, FairPoint Communications, and Qwest for not having wireless (mobile phone) divisions and for their high level of debt.

He’s also been absorbing Sanford Bernstein’s views on the telecommunications industry, which typically guarantees Verizon fiber-to-the-home cost bashing.  And yes, it’s in there:

True, in urban areas where Verizon and AT&T are laying optical fibre, their fixed-line businesses are doing relatively well. Customers like super-fast internet connections, and the companies can pump bundles of services such as voice and television through it. But in rural areas, fibre is prohibitively expensive to lay, and customers without high-speed service options have more reason to rely solely on a mobile phone.

Verizon and AT&T won’t escape unharmed. Verizon is spending about $4,000 per customer to lay fibre.

Verizon is spending money on fiber service that customers like and are generating healthy revenues, but the fiber optics “harms” Verizon.  At least the bashing is consistent.

Cyran claims cable’s biggest problem is that margins for their broadband divisions have been slowly dropping.  Should customers defect en masse to competitors, things could get bad fast:

And when businesses like these with high fixed costs see customers defect, margins can contract quickly and even go negative.

One way to guarantee mass defections is to try to gouge consumers with Internet Overcharging schemes.  In markets where equivalent levels of service are available, customers have the option of leaving the Overcharger behind for a more customer-friendly option.  Unfortunately, not every market has equivalent competitors.

Cyran’s predictions for the future?  Big troubles for Frontier, FairPoint, and Qwest who he predicts will see ongoing declines in their cash flow and increasing difficulty in paying back their debts.  The companies will also struggle with the limitations of aging copper infrastructure to provide advanced class services (high speed broadband, video, and telephone) customers increasingly expect.  In larger communities, many customers will leave for competitors who can provide those services (in these cases that means the cable company).  In rural communities, customers will increasingly rely on cell phones as their only telephone line.

Fairpoint’s stock has fallen about 70% over the last 12 months and Hawaiian Telecom, which Carlyle bought in 2005, filed for bankruptcy at the end of last year. Yet Quest and Frontier’s stocks both still trade at more than 10 times estimated 2010 earnings. Since there’s little chance customer defections from wired telecom businesses such as theirs will stop, their stocks could have much further to fall.

FairPoint customers pay $25 fee to stop automatic payment withdrawals FairPoint failed to make, causing accounts to fall past due

By late March, those customers who had dial tones from their FairPoint lines began to grow concerned about the newest nightmare from the company that took over telephone service across three New England states.  Billing problems began immediately after FairPoint converted to its own billing systems, and customers noticed.

The company explained it had a “loss of data” when their own billing system went online, and information from Verizon’s old billing system never made it to the new FairPoint system.

The result was loss of confidence in FairPoint, as customers grew increasingly concerned about inaccurate bills, lost payments, and as one New Hampshire couple discovered, the company’s inability to process “automatic payments” from customers on time, generating past due bills.  Concerned about the impact late notices will have on their credit rating, they spend $25 to get their bank to stop automatic payments that FairPoint failed to make on time.  WMUR reports:

[flv width=”480″ height=”360″]http://www.phillipdampier.com/video/WMUR Manchester Fairpoint Customers Report Problems With Phone Service 3-30-09.flv[/flv]

In Vermont, customers frustrated with bills that never arrived wanted out.  As one customer working in Saint Johnsbury discovered, there was no way to reach the company to tell them to cancel service.  Vermont state regulators finally grew tired of FairPoint’s Public Relations excuses.  They demanded evidence service was improving.  WCAX reports:

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“One customer may have to move his business [from New Hampshire] to Massachusetts because he can’t get [phone] service in his store.” — WMUR Manchester (3/13/09)

Third world phone service?  Now into spring, the saga of FairPoint continues with no end in sight.  Customer complaints achieve alarming proportions in all three New England states where FairPoint Communications assumed control of customers discarded by Verizon.

Across Vermont, New Hampshire, and Maine, local media present disturbingly similar stories of customers left weeks without service, unable to reach customer service representatives.  Palpable frustration over what seems to be an endless litany of excuses about why things have gone wrong, and how things are “getting better” start to ring hollow.

Now there is a new complication.  Questions about FairPoint’s financial health are now openly pondered by the media, as FairPoint asks for a three month delay in paying back its debt.  The Associated Press reports FairPoint is struggling.  Even before the transition problems erupted, the company lost 12% of its New England customers in 2008.  The Maine Public Utilities Commission received 1,200 complaints about the company and the company’s stock price was rapidly declining.

[flv width=”480″ height=”360″]http://www.phillipdampier.com/video/WMUR Manchester Fairpoint Says Payment Delay Request Not Due To Customer Problems 3-13-09.flv[/flv]

Of course, no nightmare with a phone company is ever complete without them botching your bill.  FairPoint doesn’t disappoint, and as customers begin to receive their monthly statements from the new “transitioned” FairPoint, all too often they were wrong.  Customer payments were applied late or not at all, late fees charged even to customers on “autopay” plans, and new charges billed for lines that were disconnected.  Even customers on their way out the door were snared, as WMUR discovered from one Manchester resident who swore “I’ll never go back to FairPoint.”

Kate Bailey from the New Hampshire Public Utilities Commission: “The level of service that FairPoint is providing to its customers is unacceptable right now.”

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“I can walk outside of this building and touch FairPoint, and they were telling me back in February that they couldn’t find my building!”

It takes a special kind of incompetence to run a telephone company into the ground and allow customers to achieve a level of exasperation unparalleled in history.  Well beyond a month after the “transfer” from Verizon to FairPoint, the company was literally tearing up the fabric of New England business customers, unable to obtain telephone service despite weeks of trying, as WCAX discovered up in White River Junction, Vermont:

[flv width=”368″ height=”208″]http://www.phillipdampier.com/video/WCAX Burlington Problems Continue for Some 3-15-09.flv[/flv]

Nearly a month without e-mail, Internet service interruptions, and six week waits before a repair or installation truck bothers to show up in your driveway.  Life under FairPoint this past spring was hardly a picnic.  Comcast ran a veritable festival of advertising telling customers there was an alternative, and where cable was available, they did a good business picking up customers fleeing FairPoint’s nightmarish service.

Up in Maine, business customers arriving for work started to discover their phone lines had been disconnected without warning, potentially costing them thousands in dollars of lost business when customers dialing their numbers heard “this number has been disconnected” in response.

How could this happen?  WCSH in Portland finds out:

[flv width=”480″ height=”360″]http://www.phillipdampier.com/video/WCSH Portland FairPoint Business Customers Angry 02-13-09.flv[/flv]

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Another day, and the problems just kept on coming.  Yesterday readers saw what happens when a small independent phone company is wholly unprepared for the task before it – to absorb three states’ worth of telephone and Internet customers into a company that used to serve just a few hundred thousand people.  Lost e-mail, Internet service down, multi-hour wait times on “live chat” support, and up to six weeks waiting for a service call.  With thousands of e-mail accounts apparently non-functional, the governor of New Hampshire had to personally intervene to get them to fix the problems.  Some desperate customers turned to the news media for help.  WMUR in Manchester found itself acting as an intermediary between FairPoint Communications and the customers who found it impossible to reach them directly for days on end:

[flv width=”480″ height=”360″]http://www.phillipdampier.com/video/WMUR Manchester Thousands Of Accounts Lost In Transition 2-4-09.flv[/flv]

One woman spent two and half hours waiting in the queue for an online support chat… and then it kicked her off.  She’s livid, and so are many other New England customers flooding WMUR’s newsroom with e-mails and videos, which a station reporter took directly to the FairPoint CEO.

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