Spending money to earn more money is a fiscally sound principle of doing business, but short term investors often decry increased spending as harmful to the value of a company’s stock and dividend payout. That is why Hawaiian Telcom (HawTel) earns mixed reviews from Wall Street about the company’s aggressive infrastructure improvement project, a fiber to the neighborhood network that intends to bring television, phone, and faster broadband service to an increasing number of Hawaiians.

HawTel’s stock price has bounced up, down, up, and then down again as investors digest the company’s ongoing effort to reinvent itself as a 21st century telecom company.

The Old HawTel

HawTel’s fiber buildout began on the island of Oahu in 2011, eventually passing 27,400 homes on the island. At the end of 2011, 1,600 (6%) of those homes signed up for the service. That’s an acceptable number, especially for a service barely promoted. HawTel does not mention the television service on its primary website, and approaches potential customers one-on-one with in-person and targeted mail marketing.

At the end of the second quarter or 2012, HawTel TV had 6,400 subscribers. The company hopes to have an additional 50,000 homes enabled for its TV service by the end of 2012, with the goal of enabling 240,000 households across Hawaii over the next five years. HawTel hopes to eventually capture 30% of the Hawaiian market.

HawTel’s principal competitor is Oceanic Time Warner Cable, which provides traditional cable service across the Hawaiian Islands. HawTel had been at a substantial disadvantage competing with Time Warner’s television package and faster broadband service. But the fiber upgrades are allowing at least some customers to purchase speeds up to 50/10Mbps, slightly faster than what the cable operator offers.

Time Warner has taken note of the phone company’s re-emergence as a strong competitor, targeting Oahu with special promotional offers that lock customers in place with triple play discounts designed to make it inconvenient to switch providers.

The New HawTel

Unfortunately for HawTel, fiber upgrades do not come cheap, and the company’s earnings have taken a hit.

Capital expenditures totaled $41.2 million for the six-months ended June 30, 2012, up from $35.4 million for the six-month period a year ago due primarily to investments in broadband network infrastructure and expansion of video enabled households.

Hawaiian Telcom reported an 18 percent decline in second quarter earnings, which it blamed primarily on broadband network expansion.

The company also announced it lost another 6% of traditional landline customers during the second quarter, but that was offset by expansion in its broadband and television service. For HawTel, the solution to ending landline losses is to upgrade their network to compete with the types of communications services consumers are interested in buying today.

But those plans can and do conflict with at least some stock traders who are interested primarily in short term financial results. Spending can cut into profits, so some analysts downgrade stocks of companies spending the most, even if only to compete more effectively down the road.

So far, HawTel executives have not been discouraged carrying their network expansion plans forward. In July, Hawaiian Telcom announced it would acquire Wavecom Solutions Corporation’s local exchange carrier business in a stock purchase transaction valued at $13 million.

Wavecom’s undersea fiber network

The acquisition would give Hawaiian Telcom access to Wavecom’s fiber optic network connecting the main Hawaiian islands. Wavecom, formerly known as Pacific Lightnet, Inc., serves more than 1,700 customers across Hawaii.

In an application with the Federal Communications Commission, HawTel officials said access to Wavecom’s 400-mile undersea telecommunications cable network will permit the company to expand and enhance its broadband and television services beyond Oahu to other Hawaiian islands, and help position the company to effectively compete with Time Warner.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Hawaiian Telcom TV Tour.flv[/flv]

Watch a HawTel-produced video tour of the company’s new TV service.  (4 minutes)

AT&T is being fingered as the party responsible for rendering Oakland’s $18 million dollar P25 digital public safety radio communications system unreliable, because police and fire radios are often inoperable near the company’s cell towers.

After more than a year of repeated failures and complaints from Oakland police over garbled communications, dead spots, and reception problems, investigators dispatched from the Federal Communications Commission finally identified the source of most of the problems: AT&T.

“If the officer is in an area close to one of their cell sites, essentially the cell site overpowers their radios,” said David Cruise, Oakland’s public safety systems adviser.

The system, built by Harris Corporation of Melbourne, Fla. is suspected of being intolerant of strong cell signals operating on nearby frequencies. The digital nature of the system means degraded communications often go unheard, and firefighters and police officers have complained loudly and repeatedly they have been unable to summon dispatchers while experiencing interference problems. The investigation found the problems are worst within a quarter to a half-mile from one of AT&T’s many cell sites.

The source of the interference is AT&T’s 2G network, operated on 850MHz. Oakland’s public safety P25 system operates on multiple frequencies nearby from 851-854MHz.

Under federal law, public safety communications have priority over cell phone service, and AT&T has cooperated by shutting down 2G service on 850MHz on at least 16 cell towers, immediately reducing complaints from police officers and firefighters.

“AT&T would never do anything to jeopardize law enforcement,” AT&T spokesman John Britton told the San Francisco Chronicle. “This spectrum has been out there since the 1990s. Thursday or Friday was the first time we were notified by Oakland. We reacted quickly.”

AT&T won’t say exactly how many cell sites are located in Oakland, but there are more than 1,000 AT&T-owned towers across the greater San Francisco Bay Area. Oakland officials plan to press AT&T to shut down more 2G data service on 850MHz until a solution can be found.

AT&T says only customers with the oldest phones are likely to notice the network shutdowns, because most current customers use 3G or 4G data service, which has not posed an interference problem. AT&T says it still maintains 2G service in San Francisco on 1900MHz, which should be accessible to customers with older phones, although the service may not operate as well on the higher frequency band when obstructions are present between a cell phone user and the nearest cell tower.

Representatives for law enforcement personnel hope the city is on the right track, but point out the Harris-built digital radio system has been nothing but trouble since it was first activated. The system has suffered repeated glitches, does not work inside hundreds of area buildings, and failed the night President Obama visited Oakland in July. Some critics note the Harris system does not even provide reception in the basement of Oakland’s police headquarters.

City officials are also investigating other contributing potential sources of interference, including T-Mobile, which also operates on similar frequencies in the area.

Ironically, the interference problem may have begun after Sprint Nextel committed to spending over a billion dollars to cover the costs of relocating public safety communications further away from its own cellular frequencies. Sprint Nextel paid $10.5 million to move Oakland’s radio system to a frequency further from its own network, but as it turns out, closer to AT&T’s.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KCBS San Francisco Oakland Police Radios Failed During Presidents Visit 7-26-12.mp4[/flv]

KCBS in San Francisco has been pursuing the dilemma of Oakland’s public safety communications system for months. Back in July, police were alarmed when the radio system failed the night President Obama arrived in town.  (3 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KCBS San Francisco Closer Look Oakland Police Fed Up With Flawed Radio System 8-14-12.mp4[/flv]

Oakland police are fed up with the year-old $18 million dollar emergency radio system that they say simply does not work. KCBS investigates in this mid-August report.  (4 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KCBS San Francisco ATT Cellphone Towers Blamed For Oakland Police Radio Failures 8-21-12.mp4[/flv]

Investigators from the Federal Communications Commission finally identified a major source of Oakland’s radio problems: AT&T cell sites.  (2 minutes)

Tribune-owned WCCT was seen on certain Cablevision systems in Connecticut.

Tribune Broadcasting Corporation’s WPIX-New York, KWGN-Denver, WPHL-Philadelphia, and WCCT-Waterbury/Hartford, Conn. were all dropped from Cablevision’s lineup late last week in the latest fee dispute between TV station owners and cable systems.

Tribune says the stations were taken off Cablevision as the two sides were in a negotiating session, even after offering the cable company an extension of their current agreement to avoid upsetting viewers.

“Cablevison took this action despite our offer of an unconditional extension of the current carriage agreement with no change in terms while negotiations continued,” Tribune said in a statement. “To be clear, Tribune was willing to provide Cablevision subscribers access to the valuable programming on these stations while working toward a new agreement. Tribune never made any threat to withdraw these stations or any demand that Cablevision remove them.”

Cablevision’s decision to discontinue the New York/Philadelphia stations affects subscribers in suburban Connecticut and New Jersey, Brooklyn, the Bronx, and Long Island. KWGN is a common superstation seen on Cablevision/Optimum West systems in Colorado, Montana, Wyoming and Utah.

Cablevision accused Tribune’s owners of anti-consumer behavior over their demands for higher retransmission fees.

“The bankrupt Tribune Co. and the hedge funds and banks that own it, including Oaktree Capital Management, Angelo Gordon & Co. and others, are trying to solve Tribune’s financial problems on the backs of Cablevision customers,” Cablevision said. “Tribune and their hedge fund owners are demanding tens of millions in new fees for WPIX and other stations they own. They should stop their anti-consumer demands and work productively to reach an agreement.”

WPIX management counters the station is asking for less than a penny extra per day per subscriber.

Both sides are appealing to the public, but city comptroller John C. Liu is fed up.

“These blackouts are happening all too often,” Liu said.  “Cablevision, as a city franchisee and service provider, should do all it can to ensure that this blackout is resolved swiftly because New Yorkers deserve to get what they pay for, not be unfairly punished because of battling corporate interests.  If a swift resolution cannot be achieved, the Department of Information Technology and Telecommunications must step up to hold the provider accountable to the subscribers, who feel the brunt of this irresponsible disagreement.”

Liu adds that New Yorkers are effectively paying Cablevision for channels they no longer receive, and the cable operator is not offering any refunds.

Eventually, both sides will come to an agreement for higher payments, which will be passed along to subscribers with the next rate increase.

[flv width=”640″ height=”380”]http://www.phillipdampier.com/video/Bloomberg Cablevision Blacks Out Tribune Channels in Dispute 8-17-12.flv[/flv]

Bloomberg News talks with Matthew Harrigan from Wunderlich Securities about the impact of the Tribune-Cablevision dispute. Does WPIX and Tribune have enough clout to get Cablevision to cave?  (2 minutes)

Alaska Communications has found a marketing angle to combat Alaska’s dominant cable operator — GCI, which has slapped arbitrary usage caps and overlimit fees (up to $30/GB) on its customers. ACS has made cap-free Internet browsing a hallmark of their marketing campaign:

Alaska Communications vs. the Cable Company

Why Alaska Communications Home Internet is the best choice.

No Nasty Surprises on Your Bill

Tired of nasty surprises on your cable company’s Internet bill from the cable company? With Home Internet Service from Alaska Communications, there are no overage charges. Surf, stream, download, watch, and play – all without worry of “extra fees” for going over your bill. With Alaska Communications Home Internet Service, you won’t go over – it’s unlimited!

No Data Limits

Say you hopped online just a bit more this month – surfing, watching your favorite streaming movies, or maybe the kids were trying to win the online tournament of their favorite game while you were posting to your favorite social media site. We don’t think your Internet should be capped or “throttled.” That means, if you get close to your data limit, the cable company will slow down your Internet to limit your connection. With our Home Internet Service, you’ll get to use the Internet the way you want to – at the speeds you deserve!

ACS recognizes the truth for most broadband customers: They loathe usage caps and throttled broadband speeds, overlimit fees and bill shock. Nobody should have to learn what a gigabyte is and be forced to watch a usage gauge before deciding whether or not to use the Internet as they wish. We congratulate ACS for delivering consumers a better choice in broadband and a worry-free Internet experience. We hope this will send a message to GCI  that Internet Overcharging is unacceptable.

Stop the Cap! recommends our Alaskan readers patronize the state’s largest cap-free ISP: ACS.