Earlier this year, Gov. Sam Brownback (R-Kansas) signed legislation into law that allows AT&T to deregulate itself, and its rates, at will.  Kansas ratepayers are about to pay the price for that law as basic phone rates are expected to increase as much as $84 a year for residents that have few alternatives.

AT&T wants to eliminate price caps on landline service, which currently limit pre-tax prices to $15.70 in rural areas, $16.70 in larger Kansan cities with enhanced local calling areas.  After AT&T won similar deregulation in Oklahoma, Texas, Missouri and Arkansas, AT&T has been regularly raising basic phone rates, which are now $5 to $7 more a month for basic service than before deregulation.

AT&T intends to divert much of the additional revenue away from upkeep of its landline network, which in several states it has won the right to abandon in rural areas, and use the money to enhance its cell phone network instead.

AT&T spokesman Aaron Catlin told The Wichita Eagle AT&T intends to supply communities currently bypassed by AT&T DSL with heavily usage capped, and much more expensive, 3G wireless broadband instead.

AT&T currently sells that service for $60 a month with a 5GB usage limit and an overlimit fee of $50 per gigabyte.

Catlin told the Eagle AT&T was excited with the possibilities, although rural Kansans facing those prices might not be.

“A lot of bad things are going to happen long-term,” Steve Rarrick, an attorney for the Citizens’ Utility Ratepayer Board told the newspaper. “Over time, they (customers) are going to see their phone bills go up. That’s been the experience of other states.”

Mediacom, America’s eighth largest cable company, lost 20,000 video subscribers in the second quarter of 2011, joining a growing parade of cable companies reporting increased cord-cutting by customers who either cannot afford, or don’t need increasingly-costly cable TV service.

The cable operator, which largely serves small cities and suburban areas, has suffered from notoriously poor consumer ratings for several years, and some customers have apparently had enough.  Mediacom, which went private earlier this year, provided fewer details about its performance in its first quarter as a private company, but the information it did provide showed attempts to make up the losses with rate increases on remaining customers and increased revenue from phone and broadband sales, and Mediacom’s advertising business.

The company’s customers in its strongholds in the southeastern and midwestern United States have been impacted hard by declining property values and high unemployment.  Impacted consumers are paring back expenses, and while they are keeping phone and broadband service, cable TV is increasingly being dropped.

Earlier conference calls with Mediacom company officials note an increasing number of customers are only being rescued when the company discounts the cost of the service as a customer retention tool.  The company has been hard selling its “VIP Pak” — a triple play package of cable TV, phone, and Internet for $90 a month, but it comes with lots of fine print: mandating a 24-month contract, a required subscription to HBO, and gradually increased rates after the first year.  Mediacom’s bundled offers lock in customers with two year contracts, but don’t protect them from periodic rate increases, which are automatically applied as implemented.

Customers looking for standalone broadband or a “double-play” will also find high prices, two-year contracts and early termination fees in their future:

• Cable TV & Broadband: $79.90 for the first year, $99.90 for the second, with a $240 early termination fee
• Cable TV: $49.95 for the first year, $64.95 for the second, with a $240 early termination fee
• Broadband Only (12/1Mbps): $49.95 for the first year, $54.95 for the second, with a $240 early termination fee

Verizon Wireless is expected to enter the Alaskan mobile market sometime in 2013-2014, according to incumbent competitors, who expect Verizon’s largest impact will be to bleed AT&T of customers.

Alaska’s two primary local providers — Alaska Communications, Inc. (ACS) and General Communications, Inc. (GCI), are telling shareholders to relax because they don’t expect to see Big Red in the Alaskan market for at least 2-3 years.  Both companies reported net losses for the quarter, and GCI lost 2,400 subscribers recently when more than 4,000 soldiers at Fort Wainwright in Fairbanks were deployed to Afghanistan.

Both ACS and GCI have been using the current poor economic climate and their respective stockpiles of cash-on-hand to retire debt or reissue long-term-debt at more favorable low interest rates.  Both companies are also hurrying to outdo each other’s 4G wireless network deployments before Verizon Wireless shows up, making use of spectrum it acquired last August to enter the Alaskan market.  Government rules require Verizon to sign-on its new network by June 13, 2013.  But Verizon admits it will take up to five years after that to completely build a new network from scratch.

Right now, Verizon Wireless customers taking their phones to Alaska roam on ACS’ network, for which the company is compensated with an increasing amount of extra revenue.  ACS boosted earnings in part on that roaming revenue, even as it lost more of its own customers.  When Verizon switches on its own network, that roaming revenue will rapidly decline, but ACS executives reassured shareholders their knowledge and experience of construction seasons in Alaska guarantee Verizon won’t be able to get its network together until 2013 at the earliest.

But when Verizon opens their doors, Ron Duncan, CEO of GCI expects a hard fight on his hands.

“We recognize ultimately they’ll be a significant competitor, although I see AT&T share more at risk because Verizon’s main claim to fame when they get to Alaska is going to be devices. We’ll still outpace them on coverage. We’ll continue to be the only ones with statewide coverage,” Duncan said. “People who want to buy the coverage buy from us today; people who want devices buy from AT&T because AT&T gets much better devices than we do.”

Just months after Verizon announced they were headed north, both ACS and GCI accelerated plans to roll out respective “4G” networks for wireless customers, although each company is deploying different standards.

GCI

GCI’s cell phone network is a combination of some of its own infrastructure, the acquisition of Alaska Digitel, and a resale agreement to use parts of AT&T Wireless’ coverage it acquired from Dobson Communications Systems.  In and around Fairbanks, Anchorage, Glennallen, Valdez, Prudhoe Bay, Wasilla, and Kenai, GCI offers CDMA service.  In those communities and many other rural regions in western Alaska, GCI relies on AT&T Alascom GSM networks.  GCI pitches its CDMA network’s 3G wireless data capabilities, which offer faster wireless data speeds, if you can get coverage.  For wider coverage in Alaska’s smaller communities, GCI markets GSM phones, which currently only offer 2G EDGE/GPRS data speeds.  If you use a cell phone mostly for voice calls, the wider coverage afforded by GCI’s GSM network is a popular choice.  But if you want faster data, CDMA 3G data speeds are required.

Eventually, GCI’s 4G network may help deliver coverage and faster speeds in both urban and rural areas, particularly as GCI plans to invest up to $100 million to construct more of its own network, instead of relying on resale agreements and acquisitions.

GCI has chosen HSPA+ for 4G service on the GSM network, and will introduce the service in Anchorage later this month.  That’s the same standard used by AT&T and T-Mobile in some areas.  It’s not as fast as LTE service from Verizon Wireless, but is much cheaper to deploy because cell sites need not be linked with fiber optic cables — an expensive proposition.

ACS

Alaska Communications has a large 3G CDMA network in Alaska all its own.  Its coverage is primarily in eastern Alaska adjacent to major cities like Anchorage, Juneau, and Fairbanks, and where it does provide 3G data coverage, the company claims it extends further out than GCI.  ACS doesn’t offer much coverage in small villages and communities in western Alaska, however.

ACS expects to skip incremental upgrades and launch its own 4G LTE service in the future.  It may help the company regain its second place standing, lost to GCI last year, and protect it from Verizon Wireless poaching its customers.

Losing customers.

A year after Frontier Communications assumed control of Verizon’s assets in the Pacific Northwest, customers are fleeing the company’s inherited fiber-to-the-home service FiOS, after announcing a massive (since suspended, except in Indiana) 46 percent rate hike for the television portion of the service.  A new $500 installation fee has kept all but the bravest from considering replacing customers who have left for Comcast and various satellite TV providers.

Frontier’s second-quarter financial results revealed the company has lost at least 14,000 out of 112,000 FiOS TV customers in the region (and in the Fort Wayne, Ind. market, where the service is also available.)

Early reaction to the original rate hike announcement started customers shopping for another provider — mostly Comcast, which competes in all three states where Frontier FiOS operates.  Even after the rate hike was suspended in some markets, intense marketing activity by Frontier to drive customers towards its partnership with satellite provider DirecTV managed to convince at least some of those customers to pull the plug on fiber in return for a free year of satellite TV, although an even larger number presumably switched to the cable competition.

D.A. Davidson, a financial consulting firm, told The Oregonian the message was clear.

“They would love to get rid of the FiOS TV customers,” Donna Jaegers, who follows Frontier, told the newspaper. “They’re programming costs are very high compared to the rates that they charge.”

Jaegers said Frontier Communications completely botched their efforts to transition customers away from FiOS TV towards satellite, because most of those departing headed for the cable competition, attracted by promotional offers and convenient billing.

Many others simply don’t want a satellite dish on their roof, and are confounded about Frontier’s message that satellite TV is somehow better than fiber-to-the-home service.

Frontier admits its FiOS service is now underutilized, but claims it will continue to provide the service where it already exists.

Wilderotter

Frontier Claims Its DSL Service is Better Than Cable Broadband

Frontier’s general business plan is to provide DSL service in rural areas where it faces little or no competition, and most of Frontier’s investment has been to upgrade Verizon’s landline network to sustain 1-3Mbps DSL service, for which it routinely charges the same (or more) for standalone broadband service that its cable competitors charge for much faster speeds.

But Frontier Communications CEO Maggie Wilderotter says their DSL service is better than the cable competition.

“A key differentiator between our network and cable competition is that you consistently get the speed you pay for,” Wilderotter told investors on a conference call. “There’s no sharing at the local level. High demand for bandwidth-intensive applications like video are putting pressure on all wired networks. To that end, we want to make sure that we have more than enough capacity to satisfy the expectations of our customers. We’re spending capital in all parts of the network with specific emphasis in the middle mile, which will enable us to consistently deliver a quality customer experience for our customers of today and tomorrow.”

Frontier Communications CEO Maggie Wilderotter defends anemic broadband additions during the 2nd quarter of 2011 and tries to convince investors DSL service is better than the cable competition. August 3, 2011. (4 minutes)
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Netflix Traffic Represents 25% of Frontier’s Broadband Traffic; Online Video — 50%

Wilderotter admitted Frontier’s broadband network is overcongested in many regions, which she partly blamed for the company’s anemic addition of new broadband customers.

She noted Netflix, which has itself consistently rated Frontier the worst wired broadband provider in the country for being able to deliver consistent, high quality access to their streaming service, represents one-quarter of all capacity usage of Frontier’s broadband network.

“Video is about 50 percent,” Wilderotter added.  In an investor conference call, she explained network congestion in more detail:

“In [the second quarter], we had many areas with unacceptable levels of network congestion, which negatively impacted our growth in net high-speed additions.” Wilderotter said. “We believe all of the major congestion issues will be fixed by the end of [the third quarter], and that will enable us to drive higher growth and net broadband activation in [former Verizon service areas.]”

“What we decided to do is to go for fixing the middle mile, which is the [central office] to the […] neighborhood and to expand that capability by 100-fold. And then also, expand from the [central office] out to the Internet and make sure that we have huge capacity to deliver and receive capability to our customers. So when we sell 6 meg, 10 meg, 25 meg, 50 meg, the customer gets what we sell them and that was extremely important for us.”

“So what we did is in the areas where we saw the congestion increase based upon usage increases, and we’ve built new households. We’ve held off on marketing to a lot of those new households until we fixed the congestion problem because we didn’t want to exacerbate what we had already. We’ve shifted capital in terms of the mix of how we’ve spent capital to fix this problem. I’d say we’re probably 75% of the way there in fixing congestion. This quarter is another big quarter for us to get all of the major issues out of the network, which will allow us in the back end of this quarter through the fourth quarter, to really start pushing the penetration levels where we’ve built new households in the areas that have been affected by congestion.”

Frontier Introduces Line Bonded DSL — Two Connections Can Improve DSL Speeds

Frontier Faster? Frontier announces line bonded DSL.

Frontier Communications also announced the introduction of Frontier Second Connect, a DSL line bonding product that delivers two physical connections to a single household.  Line bonding allows for improved broadband speeds.

“Second Connect gives our customers two exclusive connections in one household, and we’re the only provider in every market that can do that,” Wilderotter claimed.

In more urban markets, Frontier’s DSL speeds are woefully behind those available from most cable competitors.  Frontier has begun upgrading some of their legacy service areas and retiring older equipment in an effort to improve the quality of service.

“The real initiatives that we have underway are called middle mile, interoffice facilities, as well as some of the more aged equipment that’s in the network,” said Dan McCarthy, Frontier’s chief operating officer. “So as we go through, there’s about 600 projects that are underway today that will improve both the speed and capability.”

“We’ve inherited markets that there has not been upgrades to capacity in these markets for many years and fixes to the networks, plus the elements as the DSLAMs, even the DSLAMs themselves are old,” Wilderotter said. “So we’re replacing network elements in the neighborhood. We’re splitting them and moving customers to other network elements to make sure that they have a good experience.”

Frontier executives answer a question from a Wall Street banker about DSL speeds and congestion problems on Frontier’s broadband network. A detailed technical discussion ensues as the company tells investors it is redirecting some capital to fixing Frontier’s overcongested network. August 3, 2011. (5 minutes)
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Frontier Still Losing More than 8% Of Its Landline Customers Every Year

Despite broadband rollouts and incremental improvements, more than eight percent of Frontier’s landline customers disconnect service permanently every year.  Frontier called that disconnect rate an improvement over its line losses last year, which exceeded 11 percent in some areas.

“Total line losses improved to an 8.6% year-over-year decline, our lowest level since taking ownership when the pro forma loss rate was 9.7%,” reported Wilderotter. “We also improved [the] loss rate [in former Verizon service areas to] 10.1% compared to 11.4% in Q2 2010.”

Most of Frontier’s departing customers are switching to cable providers and/or cell phone service.

(Update 8-23-2011: We are now told in many areas, Frontier’s Second Connect service is not actually a bonded DSL product, but rather a “dry loop” second DSL line that carries the same speed as your primary line.  Presumably, household members can divide up who uses which DSL circuit for Internet access.  The charge for Second Connect in ex-Verizon service areas is $14.99 per month plus a second mandatory monthly modem rental fee of $6.99. If the web link does not work, it means the service is not available in your service area.)

AT&T: Suing its own customers

AT&T has filed suit against at least eight of their wireless customers who are opposed to the company’s attempts to buy T-Mobile.

The lawsuits, filed in federal court, include a request for an injunction against what AT&T calls abuse of the court with “meritless” arbitration claims being filed as a class action lawsuit.

Stop the Cap! earlier covered the efforts by law firm Bursor & Fisher to seek an end to the merger between AT&T and T-Mobile, and payments of up to $10,000 in damages per customer if the merger goes through.

Now AT&T is pushing back.

Bursor and Fisher’s legal theory is that customers can use the arbitration provisions found in AT&T’s terms and conditions to seek relief against the company for what attorney Scott Bursor suggests will be a future of higher wireless prices for AT&T Wireless customers.

AT&T’s suit seeks to dispel that legal theory:

“Defendant is among the 1,000 (and counting) ATTM [AT&T Mobility] customers whom the law firm of Bursor & Fisher P.A. (‘Bursor’) has solicited and now claims to have recruited as part of a scheme to pressure ATTM into settling meritless claims.”

“Bursor and Faruqi’s [another attorney partnering with Bursor & Fisher’s lawsuit] scheme plainly violates the arbitration agreement between ATTM and defendant. Among other limitations on the scope of arbitration, the agreement expressly precludes ‘any form of representative or class proceeding’ and permits claims for injunctive relief ‘only in favor of the individual party seeking relief and only to the extent necessary to provide relief warranted by that party’s individual claim.'”

Bursor

AT&T may have gotten serious after losing an appeal to the American Arbitration Association to block administration of the cases.  In a rare move, the Association overrode AT&T’s objection and started processing cases last week.  Arbitration has never been considered consumer-friendly, because the arbitration industry is heavily dependent on businesses and their arbitration agreements to survive.

AT&T’s general counsel stated the arbitration actions will “place a $39 billion merger in jeopardy.”

Bursor and Fisher appeared to be unintimidated by AT&T and suggested a wireless company willing to sue its own customers is “desperate.”

“AT&T now realizes it faces a substantial likelihood that one or more of these arbitration [cases] will indeed stop the takeover from happening,” Bursor said. “But AT&T’s legal arguments are frivolous. We expect the courts will reject AT&T’s arguments and dismiss these cases very quickly.”