Frontier’s “High Speed” Fiber Fantasies

Frontier Communications has jumped on the gigabit broadband promises bandwagon with an announcement to investors the company will make available 1,000Mbps broadband speeds available later this year to a small handful of customers.

“I want to note that nearly 10% of our households are served through a fiber to the home architecture,” said Frontier’s chief operating officer Dan McCarthy. “Over the next several quarters we will introduce expanded speed offerings in select markets including 50-100Mbps services. Some residential areas will also be able to purchase up to 1Gbps broadband service. We are excited to bring these new products to market and look forward to making these choices available to our customers.”

Most of Frontier’s fiber customers are part of the FiOS fiber to the home infrastructure Frontier adopted from Verizon in Fort Wayne, Ind., and in parts of Oregon and Washington. The rest of Frontier customers accessing service over fiber are in a few new housing developments and some multi-dwelling units. The majority of customers continue to be served by copper-based facilities.

Despite the speed challenges imposed by distance-sensitive DSL over copper networks, Frontier customers crave faster speeds and more than one-third of Frontier’s sales in the last quarter have come from speed upgrades. As of this month, 54% of Frontier households can receive 20Mbps or greater speed, 75% can get 12Mbps and 83% can get 6Mbps. Here at Stop the Cap! headquarters, little has changed since 2009, with maximum available Frontier DSL speeds in this Rochester, N.Y. suburban neighborhood still maxing out at a less-impressive 3.1Mbps.

Frontier’s plans for the next three months include a growing number of partnerships with third-party equipment manufacturers and software companies, as well as integrating former AT&T service areas in Connecticut into the Frontier family:

Sale of AT&T Connecticut Assets to Frontier Communications Wins Approval from State Attorney General

Connecticut’s Attorney General has announced a deal with Frontier Communications to approve its acquisition of AT&T’s wired assets in the state. The office asked for and got a three-year rate freeze on basic residential telephone rates and a commitment to keep selling standalone broadband at or below Frontier’s current rates. Low-income military veterans would receive basic broadband service for $19.99 per month, a substantial discount off the regular price of $34.99. The first month of service is free.

Frontier will make $500,000 in donations annually to various Connecticut charities, give $512,500 to the University of Connecticut basketball teams, and commit $75,000 to sponsor the Connecticut Open tennis tournament in New Haven.

The phone company has also committed to invest $64 million on network upgrades between 2015-2017, primarily to expand DSL broadband and U-verse service. The company also must undertake to inspect the wireline network it is buying from AT&T and replace deteriorating infrastructure including lines and telephone poles as needed.

Frontier announced it was buying AT&T’s wired assets in December for $2 billion. AT&T will continue to own and operate its wireless network assets in the state. Connecticut was home to AT&T’s only significant landline presence in the northeast. The Southern New England Telephone Company of Connecticut was originally bought by SBC Communications for $4.4 billion in 1998. After SBC purchased AT&T, the telephone company changed its name to AT&T Connecticut. Its primary competitor is Cablevision Industries, which also serves eastern New York and parts of New Jersey. AT&T has aggressively deployed its U-verse platform in Connecticut. Frontier will continue to run and expand U-verse in the state.

Frontier Services and Partnerships Expand

• Customers may have already received marketing for Frontier’s Emergency Phone, a $4.99/mo landline that can only reach 911. Frontier CEO Maggie Wilderotter told investors that global climate change has made weather patterns more unpredictable, making the reliability and resiliency of traditional landlines a “true life line” in the event of an emergency knocking out Voice over IP lines or cell phone service;
• Frontier Texting, powered by Zipwhip, allows customers send and receive text messages using their existing landline numbers. The service appears most popular with business customers, with more 800 signed up so far;
• Frontier third-party technical and security support offers a large range of computer security, home automation, and support services for both hardware and software. Frontier added the Nest thermostat during this quarter, as well as tech support for Intuit QuickBooks and Dropcam remote video monitoring.

Wilderotter Flip-Flops on Gigabit Broadband: You Don’t Need a Gig

Less than three weeks ago, Wilderotter told the Pacific Northwest readers of The Oregonian they didn’t need gigabit broadband speeds:

“Today it’s about the hype, because Google has hyped the gig,” said Wilderotter, in Portland this week for a meeting of her company’s board. She said Google is pitching something that’s beyond the capacity of many devices, with very few services that could take advantage of such speeds, and confusing customers in the process.

“We have to take the mystery and the technology out of the experience for the user because it’s a bit disrespectful to speak a language our customers don’t understand,” said Wilderotter, in Portland this week for a meeting of her company’s board.

Frontier’s pitch: Better prices for more modest speeds. For most people, Wilderotter said, 10 to 12 megabits per second will be perfectly adequate for at least the next couple years. She said Frontier is upgrading its networks in rural communities where it doesn’t offer FiOS to meet that benchmark.

Now that Frontier proposes to offer those speeds, company officials are excited they will be available. Customers shouldn’t be. Most won’t have access for some time to come, if ever.

NETGEAR 7550 Wi-Fi Router

Frontier has also introduced a “pay as you go” broadband plan, selling prepaid, up to 6/1Mbps DSL service (speeds not guaranteed) to customers on a daily, weekly, or monthly basis to its customers in Michigan, Ohio, and Washington without a term contract or credit check. The cost to get started is substantial, designed to discourage current broadband customers from considering a switch to a prepaid plan.

If Frontier is not offering a promotion waiving equipment and installation fees, customers must buy Frontier’s Welcome Kit ($39.99) which includes:

• NETGEAR 7550 Wi-Fi Router
• Power Cord
• Ethernet Cable
• Phone Cord
• 3 In-Line Filters
• Installation Guide

Customers who need Frontier to handle the installation or clear up any line problems will need to pay a $99.99 installation fee.

Those capable of managing the installation themselves will have to pay a $19.99 activation fee.

Three different plans are available:

• 1 day = $9.99
• 7 days = $24.99
• 30 days = $39.99

Frontier says the plans are perfect for seasonal residents, but it also penalizes those who take a break during the off-season. Once service is inactive for more than 60 days, a $34.99 reactivation fee applies to switch it back on.

Frontier is introducing a new $5 a month disaster landline service in June.

With plenty of talk about the impact of global climate change, Frontier Communications will soon introduce a new inexpensive landline service to help customers plagued by weather disasters.

Frontier Security Phone is a $5 a month landline that can only reach 411 and 911 — perfect for those who lose their Voice over IP phone service in a power failure or find cell service clogged or otherwise unavailable.

“Our [service areas] are very prone to severe weather, lots of hurricanes, tornadoes and the mud slides in Washington State,” said Frontier CEO Maggie Wilderotter. “We have markets that are very plagued by bad weather and having a landline phone that works when your power goes out where we have a density of 34 homes a mile is important.”

Frontier will market the bare bones landline service to customers planning to disconnect service in favor of another provider as well as those that already have. Unlike basic budget service, Frontier Security Phone will not be able to make or receive regular phone calls — it is intended for emergency-use only.

Little known to most Frontier customers (and only mentioned on their website in a thicket of tariff filings) is that different types of landline service are available. By switching away from flat rate service to a measured-rate plan, where each local outgoing call is charged at a prevailing per-call rate (usually under 10 cents), customers can still have the option of making and receiving calls on a budget, especially considering incoming calls are free. In large cities like Rochester, Frontier charges $18.03 a month for flat rate local calling. If one switched to a measured-rate plan, the charge is $12.07 a month. Those interested will have to call Frontier at 1-800-921-8101 and specifically inquire about measured rate local telephone service.

Frontier is also exploring a market trial of a new Voice over IP landline service sold as a bundle with DSL.

Wilderotter told investors attending the JPMorgan Global Technology, Media and Telecom Conference that Frontier believes streaming, on-demand video is the future of Frontier, not traditional linear/live television.

Wilderotter

Therefore, despite the fact Frontier will continue to support legacy FiOS TV services in adopted Verizon markets in Indiana and the Pacific Northwest, and will likely take ownership of AT&T U-verse in Connecticut, the company has no plans to introduce cable-TV service anywhere else. The biggest reason is the cost of video programming for smaller competitors like Frontier.

“We’re never to going to be big like some of these big guys are, which is why we have a partnership with the Dish Network, because they’re big,” Wilderotter explained. “They go negotiate all the content deals and then we offer those packages to our customers and we get paid a sales commission and a monthly customer service and billing fee from Dish on behalf of that service.”

Although Frontier applauded AT&T for its announced intention to acquire DirecTV, Frontier customers in Connecticut currently subscribed to DirecTV through AT&T will eventually be switched to Dish Network — Frontier’s chosen video partner.

Wilderotter explained that Frontier can leverage its broadband network to support streaming video services without assuming the costs of licensing the content. As Comcast and AT&T grow larger, they can negotiate better volume discounts unheard of among smaller competitors, keeping companies like Frontier at a major cost disadvantage. But if a customer wants Netflix or YouTube, they will need a broadband connection to get it, which is where Frontier comes in.

“If you think about Frontier, we’re in 27 states today, soon to be 28 with the Connecticut acquisition, about 30,000 communities, predominantly rural and suburban. That’s sort of our footprint,” said Wilderotter. “So when we think strategically about the assets that we have as a company, first and foremost is [the] networks in all of those markets, and those networks have been upgraded. So for us, the cost of adding another customer to broadband is really the upfront sales cost, because the network is already in place and the capabilities are already [there].”

Wilderotter adds Frontier’s average payback on its investment to hook up a new broadband customer is about three months.

“We also have industry-leading margins in our company,” Wilderotter said. “Our margins are in the mid-40% range and we’ve typically always had very strong margins in terms of how we run the business from an efficiency and effective perspective.”

Wilderotter also told investors that Frontier plans to add several additional services powered by its broadband network over the course of this year.

“We’re really looking in the categories of home automation, security, lifestyle products and monitoring products,” Wilderotter said. “And with that, there is ongoing monthly recurring revenue in terms of the tech support that we put with that product set when we sell it to a customer.”

When Wilderotter was asked about recent price hikes implemented by Frontier, she admitted the primary reason for the increase was the lack of competitive cable pricing in the market.

“If you look at what cable is offering in our markets, they offer a standalone broadband product somewhere $35 and $65,” she said. “And that doesn’t include the modem. So we felt we could increase the price, still be very competitive in the marketplace and have a product set that made more sense for our customers at a convenient price.”

As of May 1^st, Frontier Communications has raised the price of its standalone DSL service $5 a month, primarily because its competitors have also raised prices.

Current subscribers to Frontier’s basic 6Mbps ADSL service Simply Broadband will continue to pay $29.99 a month for now, but new customers will see a rate increase to $34.99.

“We increased the price [… because it] better reflects the value of that offering, given the robust capability of our network and comparable pricing from our competitors,” Frontier CEO Maggie Wilderotter told Wall Street analysts on a quarterly results conference call.

Frontier also announced Frontier FiOS TV price increases that “reflect increasing programming costs” also taking effect this month.

Frontier added 37,000 new broadband customers during the first quarter, a record for the company and the fifth consecutive quarter of broadband customer growth. Frontier increasingly depends on broadband to retain existing customers and develop new customer relationships in rural areas where broadband service has not been available in the past.

“As of April, 74% of our customers have access to 12Mbps, up from 60% in the fourth quarter,” said chief operating officer Dan McCarthy. “Now 61% of households we pass can get 20Mbps or greater, and 83% can get 6Mbps. At the end of the fourth quarter in 2012 only 40% of our network was capable of 20Mbps and only 50% was capable of 12Mbps.”

Despite the speed increases, cable competitors still made their presence known. Most cable companies sell faster service than Frontier offers and on the low-end, Time Warner Cable’s 2Mbps $15 broadband package, marketed to current DSL customers, was acknowledged to have an impact by Wilderotter, but not enough to bring a significant change in competitive intensity.

Frontier continues to argue that broadband speeds are simply not that important to most customers. McCarthy claimed that less than 20% of Frontier’s broadband customers subscribe to speeds above 6Mbps.

“Quite frankly we’ve had focus groups with our customers and potential customers […] and what they say is that they don’t really know what speed they have,” McCarthy said. “They just need enough and that’s really what it’s about — providing a good quality product that’s reliable and gives them the speed that they need. It’s not necessarily a 60Mbps connection that they’re really never going to use.”

“We’ve also found [in the focus groups that we do] that a lot of customers, even those upgrading to higher speeds don’t really change their behavior,” Wilderotter added. “It’s not like they have 10Mbps more so now they’re a gamer. They just keep doing the same thing they were doing before. We still have the majority of our customers taking around 6Mbps and they have a choice to go up but they decide that that’s enough for what they’re doing and we’re happy to sell them just what they need.”

Frontier has also reduced its landline losses nationwide to 9,600 during the last quarter. It will begin running advertising this year that reminds customers landline service is often more robust than wireless or Voice over IP during power or weather-related outages. Wilderotter said emphasizing the traditional landline as a protective and security measure really resonates with Frontier’s customers.

A wireless Internet Service Provider serving rural northeastern Indiana has successfully challenged Frontier Communications’ application for federal funds to introduce DSL service in the region.

Great American Broadband (GAB) challenged Frontier’s request for funds from the Connect America Fund to wire homes in the Wells County community of Uniondale. It turns out the Bluffton-based wireless ISP already provides service to the community, making Frontier’s request redundant.

GAB’s OnlyInternet serves around 3,000 customers in Adams, Allen, Blackford, Delaware, Elkhart, Grant, Howard, Huntington, Jay, LaGrange, Madison, Randolph, Tipton, Wabash, Wells and Whitley counties. Founded in 1995, the wireless ISP uses a network of towers to offer a high-speed service comparable to Wi-Fi to residents who generally cannot get broadband from any cable or telephone company.

The FCC found Uniondale was already sufficiently served by OnlyInternet and denied funds earmarked for Frontier’s proposed expansion into the community of about 300. Wireless ISPs have had a hard time successfully defending their turf from phone companies that can subsidize expansion of their DSL service with federal tax money or funds provided by other telephone ratepayers. Many wireless ISPs are family owned and financed by private bank loans and small investors. They do not appreciate subsidized competition, particularly from the Connect America Fund, which is generally only available to telephone companies.

“We have to look out for the interests of our members,” Rick Harnish, executive director of the Wireless Internet Service Providers Association in Ossian, told the Journal Gazette. The group alerted OnlyInternet of Frontier’s FCC filing for rural dollars. “The Connect America Fund is a subsidy program set up for phone companies, which is why wireless providers are left out. We continue lobbying for equitable treatment, but we’re a small voice compared to the bigger companies.”

Rural ISPs have taken about a $10 million chunk out of Frontier’s application for $71.5 million in Connect America Funds by successfully challenging the phone company’s applications around the country. In general, Connect America Funding for broadband expansion is available only to unserved areas where customers cannot get broadband service.

In northern Indiana, Frontier can use the federal money to offer services in parts of Huntington, Jay and Wells counties.

Frontier is still free to use its own funds to wire Uniondale for DSL service, and customers might welcome the competition.

OnlyInternet currently provides wireless service at speeds ranging from 512/128kbps ($24.95) to 3Mbps/768kbps ($64.95). Until last year, Frontier generally provided most rural communities with up to 3Mbps broadband, but has upgraded service to speeds ranging from 6-40Mbps. Most of the higher speeds are available only in urban areas.