AT&T’s Magic Fiber Fairy brings fiber to you, if you approve AT&T’s business agenda.

If it wins approval from regulators to buy satellite TV provider DirecTV, AT&T says it will have enough money to afford to expand its gigabit fiber network Gigapower U-verse to an extra two million homes.

That bit of non-sequitur was the highlight of AT&T’s regulatory filing with the Securities and Exchange Commission. AT&T claims money for the fiber expansion will come from anticipated savings from programming volume discounts AT&T will get combining DirecTV’s 20.3 million customers with AT&T’s 5.7 million U-verse TV subscribers.

AT&T expects cost synergies to exceed $1.6 billion annual run-rate by three years after closing.  These savings will begin in the first year after closing, ramp up over four years and grow with the addition of video subscribers thereafter.  It is anticipated that at least 40% of these total synergies will be realized by year two after closing.  These synergies are conservative and derived from items such as programming cost reductions, operational efficiencies and reductions in redundant broadcast infrastructure.  Programming cost reductions are the most significant part of the expected cost synergies.  At this time, AT&T’s U-verse content costs represent approximately 60% of its subscriber video revenues.  With the scale this transaction provides, we estimate AT&T’s U-verse content costs after the completion of the transaction will be reduced by approximately 20% or more as compared with our forecasted standalone content costs.

AT&T believes that despite perennially increasing programming costs, especially for popular over-the-air and cable networks, the 20 percent of anticipated savings will give AT&T enough money to vastly expand its fiber network.

“The economics of this transaction will allow the combined company to upgrade two million additional locations to high-speed broadband with Gigapower FTTP (fiber to the premise) and expand our high-speed broadband footprint to an additional 13 million locations where AT&T will be able to offer a pay TV and high-speed broadband bundle,” AT&T wrote.

On AT&T’s budget, the company can send you this really nice star ceiling kit, but it won’t pay for gigabit broadband.

Before announcing its intent to buy DirecTV, AT&T already promised to expand Gigapower U-verse to up to 100 cities, while telling investors it anticipated flat spending on network improvements. On Tuesday, AT&T went further and dramatically cut investments in its wireline network to a level that raised concerns for the financial security of several of its vendors, including those supplying fiber optic cable and equipment.

AT&T predicted savings from the merger will amount to $1.6 billion a year, but not until three years after the merger closes. There are questions whether this amount is enough to fund the kind of fiber expansion AT&T promises.

In 2012, AT&T committed to expanding U-verse to 8.5 million more customer locations at a cost of $6 billion. That investment paid for AT&T’s less-costly fiber to the neighborhood service. Based on AT&T’s figures, the cost to deploy fiber into each neighborhood, while still utilizing existing copper wiring to bring service into each home, was $705 per home or business.

AT&T Gigapower U-verse requires AT&T to spend considerably more to extend fiber service directly to each premises it intends to serve. Google is spending approximately $4,000 to reach each home with fiber optics in Kansas City. But AT&T’s math suggests it only has to spend about $800 per home (based on the $1.6 billion savings figure it expects to begin receiving in 2017) for decommissioning the remaining copper and extending U-verse fiber for each of two million customer homes passed. What does AT&T know that Google does not?

But wait. AT&T is also committing to use that $1.6 billion to expand traditional fiber to the neighborhood U-verse to 13 million additional homes as well. That means AT&T has a budget that limits it to $106 per home for a combined 15 million new locations passed. That amount is enough for a fiber optic star ceiling kit or a really nice fiber strand light fixture, but it isn’t nearly enough to bring gigabit broadband to AT&T customers.

One thing is certain: AT&T will not be passing on any cost savings to customers in the form of lower bills. AT&T’s proposed investment is a blatant appeal to regulators with promises of broadband expansion the company has already made and shows few signs of actually delivering.

Supporting Comcast’s merger agenda

A conservative think tank with ties to corporate money and the American Legislative Exchange Council says the FCC should not reject the Comcast and Time Warner Cable merger for emotional, “big is bad” sloganeering.

Seth Cooper, a former director of the ALEC Telecommunications and Information Technology Task Force and current Amicus Counsel for the corporate group made his comments about the merger under the moniker of the Free State Foundation.

The FCC’s due diligence in that examination of the deal, Cooper says, must “disregard pleas for it to reject Comcast/TWC out of hand, based on appeals to emotional incredulity or ‘big is bad’ sloganeering; Stand firm against calls that, under the guise of protecting consumers, the agency impose conditions in order to protect market rivals…; reject dragging out its review process…; and avoid the imposition of any conditions on the merger unrelated to demonstrable concerns over market power and anticompetitive conduct.”

Cooper parrots Comcast’s press releases promoting the multi-billion dollar merger, claiming it will lead to a faster transition to digital cable, faster Internet speeds via DOCSIS 3.1, and expanded wireless backhaul services.

Unfortunately for Cooper, the facts are not on his side.

As part of Time Warner Cable’s Maxx initiative, the march to digital cable in unmistakable at Time Warner. TWC Maxx-upgraded cities now get faster speeds at a lower cost than what Comcast offers, and no data caps. Both cable companies are already in the wireless backhaul market, installing fiber to cell towers to support 4G LTE broadband. But LTE-enabled towers are highly likely to already have fiber connections, limiting future growth. A merger between the two cable companies won’t dramatically change that market reality.

AT&T’s claim it wants to expand gigabit fiber to the home service to as many as 100 cities nationwide requires closer inspection on news this week it has slashed spending on its wireline business.

Investors knocked AT&T’s share price today as they learned earnings from AT&T’s wired networks will be lower than expected.

TheStreet reported this morning the spending cuts are so significant, they are creating a financial risk for a number of AT&T’s major vendors.

Research firm Jefferies issued a research note warning that AT&T’s spending cuts began last month and seem to be ongoing. As a result the companies that have the most exposure to AT&T’s wireline business are at increased financial risk. Those suppliers include optical fiber equipment manufacturer Alcatel-Lucent, as well as Ciena, Juniper, ADTRAN, Finisar, and JDS Uniphase. As a result, all but Finisar saw their share prices drop significantly in morning trading.

Earlier today, AT&T reported it was ahead of schedule to complete its Project VIP expansion of its 4G LTE wireless and U-verse networks. As U-verse expansion nears an end, vendor orders may be in decline. Wall Street analysts see no evidence AT&T is preparing to spend much on any other expansion efforts, including fiber to the home service.

As Broadband Reports’ notes, without significant capital to invest in fiber upgrades, they are not going to happen.

These cuts make it hard to take the company’s claims of meaningful 1 Gbps fiber expansion seriously as there’s simply no budget cordoned off for such a project (“Project VIP” funds are already in use on other efforts). While AT&T has the press believing they’re deploying 1 Gbps to “up to 100 cities,” AT&T’s shrinking CAPEX tells a different story entirely.

Fiber to the home service is more costly than AT&T U-verse’s fiber to the neighborhood service because it requires a fiber cable be brought directly to each home or business — a more costly endeavor that requires careful cable burial or overhead drop line replacement, as well as the possibility of in-home wiring adjustments. Considering the billions spent on U-verse expansion to date, at least as much will be required to upgrade to fiber to the home service and there are no signs AT&T is ready to invest in anything beyond press releases.

CenturyLink does not believe it will face much of a competitive threat from AT&T and Verizon’s plans to decommission rural landline service in favor of fixed wireless broadband because the two companies’ offers are too expensive, overly usage-capped and too slow.

Both AT&T and Verizon have proposed mothballing traditional landline service in rural areas because both companies claim wireline financial returns are too low and ongoing maintenance costs are too high. In its place, both companies are developing rural fixed wireless solutions for voice and broadband service that will rely on 4G LTE networks.

CenturyLink does not traditionally compete against either AT&T or Verizon because their landline service areas do not overlap. But as both AT&T and Verizon Wireless continue to emphasize their nationwide wireless networks, independent phone companies are likely to face increased competition from wireless phone and broadband services.

CenturyLink isn’t worried.

“About two-thirds of our customers can get access to 10Mbps or higher [from us and] that continues to increase year by year,” CenturyLink chief financial officer Stewart Ewing told attendees at Bank of America Merrill Lynch’s 2014 Global Telecom & Media Conference. “Our belief is that with the increasing demands customers have for bandwidth — the Netflix bandwidth requirement — just the increasing amount of video that customers are watching and downloading over their Internet pipes, we believe will drive customers to using a provider that basically has a wire in their home because we believe you will get generally higher bandwidth and a much better experience at lower cost.”

Ewing

CenturyLink customers consume an average of slightly less than 50GB of Internet usage per month, and that number is growing. Ewing said that CenturyLink has long believed that as bandwidth demand increases, wireless becomes less and less capable of providing a good customer experience.

“At this point, we don’t really have any concerns because people on the margin — the folks that don’t use much bandwidth — probably use a wireless connection today to download,” Ewing said. “But as the bandwidth demands grow, the wireless connection becomes more and more expensive and that could tend to drive people our way. So as long as we have 10Mbps or better to the customers, we don’t really think there is that much exposure.”

CenturyLink does not measure the difference in Internet usage between urban and rural residential customers, but the company suspects rural customers might naturally use more because alternative outlets are fewer in number outside of urban America.

“Folks in rural areas might actually can use Internet more for buying things that they can’t source [easily], but it’s hard to really count,” said Ewing. “I think our customers in the rural areas probably are not that much different from folks in urban areas.”

Prism is CenturyLink’s fiber to the neighborhood service, similar to AT&T U-verse. It is getting only a modest expansion in 2014.

CenturyLink’s largest competitor remains Comcast, which co-exists in about 40% of CenturyLink’s markets. The merger with Time Warner Cable won’t have much impact on CenturyLink, increasing Comcast’s footprint in CenturyLink territory by only about only 6-7%. CenturyLink believes most of any new competition will come in the small business market segment. Comcast’s residential pricing is unlikely to attract current CenturyLink customers in Time Warner Cable territory to consider a switch to Comcast if the merger is approved.

Ewing also shared his thinking about several other CenturyLink initiatives that customers might see sometime this year:

• Don’t expect CenturyLink to expand Wi-Fi hotspot networks. The company found they are difficult to monetize and is unlikely to expand them further;
• Any change in the FCC’s definition of minimum broadband speed to qualify for federal broadband expansion funds would slow rural broadband expansion. Ewing admitted a 10Mbps speed minimum is considerably more difficult to achieve over DSL than a 4 or 6Mbps minimum;
• Don’t expect any more merger/acquisition activity from CenturyLink in the Competitive Local Exchange Carrier business. CenturyLink shows no sign of pursuing Frontier, Windstream, FairPoint, or other independent phone companies. It is focused on expanding business services, where 60% of CenturyLink’s revenue now comes;
• CenturyLink fiber expansion will primarily be focused on reaching business offices and commercial customers in 2014;
• CenturyLink will only modestly expand PrismTV, its fiber-to-the-neighborhood service, to an additional 300,000 homes this year. The company now offers the service to two million of its customers, with 200,000 signed up nationwide. Last year, CenturyLink expanded PrismTV availability to 800,000 homes.

Toy Alarm: No peace of mind here.

A Houston couple paid Comcast $30 a month over seven years for Comcast’s home security system they believed would help keep them safe. But the alarm system hadn’t worked right from the day Comcast’s technicians installed it, and the cable company’s final offer of compensation was a $20 service credit.

Understandably, the couple wasn’t happy paying for Comcast’s pretend peace of mind.

“I’m a loyal customer and my thing is I don’t mind paying for a service if you’re providing the service,” Lisa Leeson told KPRC-TV, “but they weren’t.”

Comcast’s Insecurity System finally revealed its true self one windy February day. The Leeson family had left to do some errands and just as they had done more than 2,500 times before over the past 80 months, they armed Comcast’s home security system from its control panel before heading out.

“We would set it,” explained Leeson. “It would make the little noise that it makes like it was activating.”

When they arrived home, the family was surprised to find their back door wide open. Fearing a break-in, they wondered why Comcast’s alarm wasn’t blaring, with notified authorities standing by to investigate.

Despite more than 26,000 burglaries in Houston every year, the Leeson family was lucky. A wind gust had blown the door open and their possessions were safe. The revelation the family was robbed anyway only came after calling Comcast to ask why their alarm never went off.

A representative promptly told the family it had monitored the status of the Leeson’s alarm 24/7 for the last seven years and it was offline for almost the entire time. Comcast knew about its non-security system since 2007, but never bothered to tell the family. A follow-up visit from a Comcast technician this month quickly revealed the alarm was installed improperly by the cable company.

“It was unable, even if wanted to, to actually call the police and or Comcast once it was activated,” explained Leeson.

So ultimately whose fault is it that Comcast’s home security system never worked? The company that improperly installed it and knew it wasn’t working for the duration of 80 monthly payments it faithfully collected for service never rendered, or the customer?

In the corporate world of Comcast, it’s absolutely the customer’s fault — exactly what both a customer service representative and a corporate spokesman told the Leeson family.

A Comcast customer service representative was only willing to offer a one-time $20 “inconvenience credit” and the corporate spokesman apologized but pointed to a line in Leeson’s alarm agreement where she agreed to “test her system on a regular basis.”

It simply wasn’t good enough to trust Comcast’s alarm control panel notifying the family the alarm was armed and security monitoring was enabled. She’d have to trigger the system, potentially annoying the neighbors and first responders to prove the system worked properly.

Houston police and fire officials beg to differ.

In an ongoing effort to reduce costly and unnecessary false alarms, the city has implemented alarm permit and penalty fees for wasting the time of emergency personnel.

A residential burglar alarm in the city of Houston requires an annual permit ranging in cost from $37-50. A fire alarm permit costs $80.29 the first year, $53.52 each year thereafter. Three false burglar alarm calls are allowed without a charge with a burglar alarm permit per year. The 4th and 5th false alarm call is chargeable at $50.00 each and the 6th and 7th call is chargeable at $75.00 each. Thereafter each false alarm call is chargeable at $100.00 each. Permits are subject to revocation after the 7th false call. Burglar alarm systems without a permit are chargeable at $107.05 per response and/or no response.

Hold-up/panic alarm systems are allowed one false call without charge with a hold-up/panic permit. Thereafter the 2nd call is chargeable at $128.45, the 3rd false call at $256.92 and the 4th false call is chargeable at $385.37. Thereafter the 5th false alarm and above are chargeable at $513.84 (each). Panic alarm systems without a permit are chargeable at $282.61 per response and/or no response.

False fire alarms carry penalties up to $385.37 per incident with a $115.61 collection fee.

After a local television station got involved in the dispute, Comcast softened their hard-line and refunded every penny Leeson paid for the home security system that had left the family vulnerable since the day Comcast incorrectly installed it.

But after what the Leeson family endured, other alarm system customers should check their contracts and make sure they verify their system is working properly. Don’t depend on the alarm provider to notify you.

Most modern alarm systems alert the monitoring company when activated. That company in turn notifies the police, fire department or ambulance. All three agencies recommend using a monitoring company to reduce the instances of false alarms. Older systems often used a built-in message tape recorded by the homeowner. When the alarm triggered, the system would phone 911 and play back the recorded message. Those systems are responsible for the largest percentage of false alarms.

Comcast says customers with its XFINITY alarm can test their systems using the My Account app on their smartphones. The Leeson family uses an older model Comcast security system that doesn’t work with the app.

[flv]http://www.phillipdampier.com/video/KPRC Houston Comcast Insecurity System 5-28-14.flv[/flv]

KPRC in Houston has words of wisdom for Comcast security system owners. Are you really protected? (2:07)