AT&T Customers in southeastern Tennessee continue to get bill shock from company mistakes

AT&T continues to bill some of its customers across Tennessee for long distance calls that were supposed to be free under the unlimited long distance calling plans.  Stop the Cap! first reported this story back on April 12th, with company officials apologizing for what they called a “computer glitch.”  But the bills just keep on coming.

One Clarksville woman has been forced to call AT&T almost daily to address overcharges now exceeding $3,o00 for an AT&T Unlimited Nationwide Calling plan that is supposed to cost her $25 a month.

Although AT&T keeps crediting the overcharges on her account, Belinda Horton is exasperated having to first confront an inaccurate bill and then deal with AT&T customer service to credit back the charges.  That has been part of her routine for at least four months, with no resolution in sight.

“I’m not trying to get anything off of then and I don’t except charity, I just want them to fix my bill and fix it correctly,” she told WKRN News 2 in Nashville.  A reporter sat in on a typical call Horton makes to AT&T’s customer service to cope with the routine overcharging.  At the end of the call, the customer service agent tells Horton she’s sorry she can’t completely resolve the matter to her satisfaction.

Company officials continue to blame the billing error on computer problems.  Although Horton’s calling plan is supposed to let her make unlimited long distance calls for a flat monthly rate, the company keeps billing her calls by the minute at standard long distance rates.  The result has been staggering bills in the hundreds or thousands of dollars.

Belinda Horton from Clarksville, Tenn. is exasperated to learn she has been overbilled yet again while she speaks with AT&T customer service (Photo: WKRN News - Nashville)

WKRN News talked with Tom Jarkovitch at AT&T, who admitted the glitch has impacted 15,000 Tennessee residents.

“There were a few folks, those are the ones were working on manually and again, as a sub set of people that were not captured for whatever reason we think that’s going to be corrected in a matter of days,” he said.

Unfortunately for AT&T, there are indications the problem is impacting a larger number of customers than Jarkovitch admits.

Another customer in the Nashville area also being overbilled every month since last October said they had enough — they disconnected their AT&T service and went with a competitor:

“I have had the same problem since October of 2009. Every month, I have to call AT&T and ask why the problem has not been fixed. Again and again I am told that it should be fixed before the next billing cycle.  It is now nearly May and I still have to call them on a monthly basis. As a matter of fact, I just received my bill yesterday, and again, same thing. Well, that is my last bill because as of last month, I changed my home phone service carrier. I will no longer use AT&T services.”

With complaints like these still rolling in, the Tennessee Regulatory Authority (TRA) Monday compelled AT&T to appear to discuss the ongoing billing problems and AT&T’s plans to resolve them once and for all.

AT&T’s legal counsel, Guy Hicks, apologized for AT&T.

“It has already gone on too long, and for that AT&T apologizes,” Hicks told the Authority.

Month after month, many AT&T Unlimited long distance customers in Tennessee are billed by the minute for every long distance call, leading to staggering bills like this.

But Hicks also claimed the problem only impacted customers from periods ranging from August 18 to September 8 and October 31 to December 2, a claim that doesn’t ring true in light of Belinda Horton’s ongoing billing issues.

When asked specifically whether every dime unjustly charged to Tennessee customers had been refunded, Hicks did not say yes, instead claiming that “the vast majority of credits or refunds have been made and are continuing to be made.”

“As late as Friday, we were called and charges were still on their bill,” said TRA’s Tevin Thompson. “She didn’t have a paper bill yet, but she was quoted a total, and there were still errors on the bill.”

Our Take

It was disappointing to see the TRA praising AT&T at the end of Monday’s meeting.  This is an ongoing nightmare for some customers, and TRA officials seemed all too ready to applaud the company for its promises to fix the problem while Tennessee residents continue to be overbilled.  The time for praise comes after the company resolves the issue and every customer has been credited for every error.  AT&T has promised it would resolve these billing problems for nearly a month, with complaints still arriving even as the Authority met.

The Leaf Chronicle, the daily newspaper serving Clarksville, notes TRA officials seemed satisfied with AT&T’s Apologypoloza:

State regulatory directors appear to be satisfied AT&T has made an effort to correct a billing glitch that could have affected as many as 15,000 customers.

AT&T officials were called before the Tennessee Regulatory Agency on Monday to explain why some customers have been incorrectly billed for services since the fall.

“From what I gathered, the response they received (from AT&T) was satisfactory,” said Shirley Frierson, senior policy adviser to the TRA chairman. “That is as long as in a month or so, we don’t get more complaints about the same problem.”

At this point, appropriate compensation for impacted customers that have coped with overcharges for months on end should be more than simply crediting back their mistakes.  For folks like Belinda Horton, a year of free long distance calling would go a lot farther to demonstrate AT&T’s goodwill.  After all, she had to spend countless hours trying to fix a problem that wasn’t her fault.  Take it out of AT&T’s massive lobbying budget and do the right thing by your customers.

[flv]http://www.phillipdampier.com/video/WKRN Nashville ATT Overbilling in Tennessee 4-27-10.flv[/flv]

WKRN-TV in Nashville spoke at length with Clarksville resident Belinda Horton who faced months of staggering phone bills.  The reporter even sat in on a call Horton made to AT&T customer service.  (2 minutes)

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/WSMV Nashville ATT Answers To Long-Distance Billing Errors 4-26-10.flv[/flv]

WSMV-TV in Nashville also spoke with Horton and covered Monday’s meeting with the Tennessee Regulatory Authority, a public utility commission, over ongoing AT&T billing problems.  (2 minutes)

[flv width=”368″ height=”228″]http://www.phillipdampier.com/video/WTVF Nashville ATT Meets With Regulators Regarding Overcharging 4-27-10.flv[/flv]

Finally, WTVF-TV in Nashville also ran a report showcasing Horton’s billing problems and interviewed an AT&T representative about what will be done about it.  (2 minutes)

Sometimes you have to wonder who telecom front groups hire to push their agenda.  In the Stop the Cap! e-mail box came a news tip last week that a new study proved beyond doubt that passing Net Neutrality would put up to 1.5 million jobs at risk by the year 2020.  Just as bad, the study warns, broadband investment would plummet as a result, causing an investment retreat worth up to $5 billion dollars.  They thought I should know.

All of this ruinous news results from a government that wants to make sure your Internet Service Provider doesn’t block, impede, or censor the traffic of independent websites that don’t  pay a protection fee to keep their content online and accessible.  What’s that I smell?  The easily recognized scent of plastic grass — more astroturfing from a broadband industry intent on keeping broadband regulation as far away from them as possible.

The Employment and Economic Impacts of Network Neutrality Regulation: An Empirical Analysis, by Dr. Coleman Bazelon — working on behalf of something called “The Brattle Group, Inc.,” is a real page-turner.  I tore right through it myself.

Just reading the background of Dr. Bazelon rang all sorts of warning bells:

• Dr. Bazelon consulted and testified on behalf of clients in numerous telecommunications matters;
• Dr. Bazelon frequently advises regulatory and legislative bodies;
• Dr. Bazelon was a vice president with Analysis Group, an economic and strategy consulting firm.

More ordinary folks use a different, less fancy term to cover all this: lobbyist tool.

The key finding for the report:

New network neutrality regulations proposed by the FCC could slow the growth of the broadband sector, potentially affecting as many as 1.5 million jobs, both union and non-union, by the end of the decade.

So how does Bazelon come to this conclusion?

The academic literature on possible effects of network neutrality regulation does not provide a consensus view on whether such regulations should be expected to help or harm the broadband sector, although several economists have concluded that such regulation would be harmful.

I tore right through Bazelon's report.

Many of those economists were paid by the broadband industry to conclude that in their own “reports.”  Many of Bazelon’s footnotes reference himself, telecommunications company executives, or other connected parties who have a financial interest in opposing Net Neutrality or broadband regulations.

At the heart of Bazelon’s theory is that content-related jobs, those involving the development of the websites you like to visit to read, listen, watch, or download from, cost more money to create than broadband “dumb pipe” jobs.  In other words, if you’re developing iTunes content or a network to stream Netflix movies, your job cost more (and probably pays more) than a line splicer at AT&T who is rolling out 3 Mbps DSL service in Rolla, Missouri.

So, if we penalize content developers with Internet Overcharging schemes or speed throttles that discourage your use of iTunes or Netflix, AT&T can use the savings from dramatically lower demand and hire more people to wire up communities for basic DSL service.  That’s okay, because it creates new jobs: “to the extent that the absence of network neutrality regulations leads to a transfer of ‘wealth’ (or sector revenues) from the Internet content sector to the broadband sector, such a transfer would be expected to have a positive impact on employment.”

That’s a great deal for you, right?

Net Neutrality doesn’t impede bigger profits for broadband providers – it just insists that they don’t earn those profits parasitically on the back of someone else’s content.  If your cable or phone company owned Netflix, there wouldn’t be an issue.  They would provide a service and earn from it.  But they don’t, and demand a piece of the pie anyway.

By the way, Bazelon’s myopic report completely misses another fundamental fact.  In today’s non-Net Neutral world, large phone companies like Verizon and AT&T have slashed tens of thousands of jobs just fine without pesky Net Neutrality or other broadband regulations getting in the way.  It’s like telling a New Orleans resident standing in four feet of water during Hurricane Katrina that if we don’t do something about the levees next year, the city could be flooded.

The author also states the obvious:

Broadband open access and net neutrality regulations are both regulatory interventions aimed at restricting a broadband network owner’s ability to exercise market power. The first acts at a structural level to eliminate any potential market power in the provision of the good; the second acts at a behavioral level restricting the broadband provider’s ability to benefit from any such market power.

Sounds like a plan to me and millions of other consumers who see the results of the industry’s market power workout routine… in the form of ever-increasing monthly bills.

Bazelon's vision for the Internet's future

Bazelon is even willing to predict some winners and losers with the FCC’s proposed Net Neutrality regulations:

Under the strict network neutrality regime being considered by the FCC, different Internet content might flourish. In particular, some Internet content is less commercial and generates very little revenue. Content that does not generate much economic value may be advantaged by a network neutrality regime. It is worth noting, however, that such content, by not primarily being engaged in the economy, does not significantly impact employment. Larger commercial sites have the potential of doing better or worse under network neutrality regulations. On the one hand, potentially lower costs of access should benefit them; on the other hand, potentially less developed broadband infrastructure could harm their businesses. With some content winning and some content losing, there is no reason to believe that the total amount of content will be more or less (or more or less valued by Internet users) under one regime or the other. Some business models will do well under one regime, others under the other regime.

In other words, in Bazelon’s world, the formerly level playing field where content is king and website value is decided on its merits is replaced with a corporate-controlled broadband network where only the big, well-financed players will get to play.  If you’re CNN or Amazon.com, you’ll have no problem meeting the protection racket prices providers could demand to guarantee your content isn’t blocked or slowed to a crawl.  But if you’re a poor blogger, a new business start-up, or use the web to argue for and against various causes, get to the back of the line (if you are allowed in the line in the first place.)

The Internet gets reincarnated as Prodigy, for those old enough to remember using that online service.

Ultimately, Bazelon believes only big broadband providers can create economic success stories in our online future.  Making them play by certain rules will kill that success, he argues.

Only one problem – when Bazelon gazes up into the sky, he sees AT&T logos everywhere he looks.  That’s because Mobile Future, the group that paid for the study, is yet another creature of AT&T.  To hide the fact this is yet another AT&T front group, several of AT&T’s usual friends also turn up on the membership roster.  Just a few days after calling out LULAC – the League of United Latin American Citizens for selling out the Latino community to AT&T’s agenda, here they are again — joined at AT&T’s hip as a member of Mobile Future.

A selection of other Mobile Future (brought to you by AT&T) members

Asian Business Association – No national website, which already makes this suspicious, but the San Diego chapter admits AT&T is a corporate sponsor.

Asian Women in Business – AT&T underwrote their website.

Bump.com – The company is self-described on Mobile Future’s website as “the world’s largest purpose-formed safety, communication and marketing network. BUMP uses safe and convenient voice recognition and ALPR (automatic license plate recognition) to provide drivers worldwide with a communication platform that promotes safety on the roads and builds a unique global network.”  They should win an award for puffery.  In fact, this “world’s largest” enterprise doesn’t even have a website.  It claims it was founded in 2009, but its Facebook page just showed up April 15th of this year with a handful of photos showing… license plates.  Why license plates?  Because the group’s real aim is to set up a registry of those willing to receive text messages sent by typing in someone’s license plate and quietly linking it to your cell phone.

The Century Council – Public interest group padding.  Ask yourself what a group fighting underage teen drinking and driving built from and run by distilleries has to do with mobile broadband, Net Neutrality, spectrum demand, and wireless phone taxes — the primary issues Mobile Future seeks to address.

Climate Cartoons – The group’s CEO is a Washington, DC lobbyist specializing in fighting telecommunications issues.  Among Arnold Consulting Group’s “accomplishments:” building a “telecommunications coalition that successfully opposed federal and state ‘Net neutrality’ legislation” and a “cable television coalition that successfully opposed federal, state and local efforts to enact open access broadband regulations.”  Need I say more?

Hispanic Technology and Telecommunications Partnership – Another LULAC — follows AT&T policy initiatives around like a friendly puppy.  HTTP was busted by Ars Technica when asked whether AT&T had any hand in helping the group draft its opposition to Net Neutrality.  HTTP’s Sylvia Aguilera insisted she initiated the drive to oppose Net Neutrality, but was silent on whether AT&T helped draft the letter opposing it.

That’s only halfway down their so-called “coalition” list.  You get the point.  The only name that truly matters among all of Mobile Future’s members is AT&T because they are the ones spreading the money around to pay for it.  At the same time, if AT&T is writing contribution checks to your public interest group, or hiring your consulting/lobbying firm to represent your agenda, those are two compelling reasons for both to hurry on over to sign up for the cause in this, and other astroturf front groups.

On behalf of Climate Cartoons, which purports to “lure people into earth friendly behavior,” please be sure to give all due respect to this latest industry-backed study from Dr. Bazelon by tossing it into the nearest recycling bin.

Plale

Consumer advocates are celebrating the defeat of telecommunications bills designed to favor AT&T’s corporate interests in Wisconsin.

Assembly Bill 696 and Senate Bill 469 were designed to give AT&T and other telephone companies the option of no longer being classified as telecommunications utilities.

Once that happened, the state Public Service Commission would lose the authority to oversee much of their operations.  In practical terms, it means phone companies could raise their rates at will and never have to justify them by reporting their profits and expenses to the Commission.  Another provision would have eliminated the PSC’s authority to deal with phone service complaints on behalf of consumers and businesses.  But considering the bills would have also eliminated the universal service requirement, AT&T and other phone companies could have simply disconnected land lines in unprofitable areas of the state and left rural Wisconsin with no phone service to complain about.

The legislation was introduced by Senator Jeff Plale in the Senate and Representative Josh Zepnick in the Assembly.  Both men are Democrats serving districts in Milwaukee.

Zepnick

Potentially motivating the legislation were substantial campaign contributions from AT&T.  For Plale, who is the top recipient of telecom contributions among all Democrats across the state, AT&T provided $4,000 and the cable industry donated $6,446 from 2003 through 2009, according to the Wisconsin Democracy Campaign. Zepnick received $1,400 from cable providers and AT&T during the period.  In total, at least a half million dollars in contributions from the phone and cable companies have been spent on Wisconsin legislators over the past six years.

Zepnick’s legislative maneuvering to push through the bill in the waning days of the state legislative session collided with Senate Majority Leader Russ Decker, who pulled the rug out from under AT&T and other telecom interests by referring the bill to the Legislature’s budget committee for review — a black hole from which the bill had no chance of emerging.

That triggered a reaction from Zepnick and his friends in the telecom front group community.

Zepnick told Wisconsin newspapers he wasn’t sure what to make of Decker’s diversion of his legislation, which political observers suggest is nonsense.  At the end of every legislative session, large numbers of orphaned bills are dumped in study committees or never taken up in both bodies.

“If it doesn’t get done, that’s going to be a huge missed opportunity for Wisconsin,” Thad Nation, executive director of AT&T-backed Wired Wisconsin told the Associated Press.  Nation claimed the bill would have traded regulatory authority away in return for more investment in the state by communications providers. “As other states move forward, Wisconsin will be left behind.”

Consumer advocates suggested Nation had it exactly backwards.

“It eliminates the regulations the Public Service Commission has used to ensure affordable and reliable landline telephone service for decades,” said Charlie Higley, executive director of the Citizens Utility Board, who told the AP three million landlines still exist in Wisconsin.  That turns back the clock on service standards.

Nation

With AT&T and other providers left to increase rates at a whim, the only thing moving forward, and upwards, would be Wisconsin phone and cable bills.

Not every legislator bought AT&T’s position that less regulation equals more service.

Rep. Gary Hebl (D-Sun Prairie), opposed the legislation from the day it was introduced, suggesting he would push for amendments to ensure the PSC would continue to protect landline phone customers and, for the first time, extend that power to cell phone service.

“If a service provider is not doing their job, consumers should have recourse. That’s one of our jobs as legislators,” he told AP. “We have to be sure that consumers get the service they paid for and it’s properly provided to them.”

As late as last week, AT&T had a dozen lobbyists working the Wisconsin legislature for votes.  Wired Wisconsin, which is actually an extension of corporate lobbying firm Nation Consulting, pushed the idea that Google would bypass Wisconsin for its Think Big With a Gig fiber to the home network if the state didn’t adopt the deregulation bill the firm was promoting.

Ultimately, the proposed legislation passed the Wisconsin Assembly but was never taken up by the state Senate.  Since being shelved for the session, Wired Wisconsin has moved on to re-tweeting Broadband for America pieces bashing Net Neutrality and FCC broadband oversight.  As Stop the Cap! readers know, Broadband for America is the largest telecom Astroturf effort ever, with dozens of members that are funded by Verizon or AT&T or equipment manufacturers whose businesses depend on contracts with large telecom companies.

Reach Out and Touch Someone... With Cash

Stop the Cap! readers Terry and Scott write to let us know it was an Astroturf weekend in the pages of the New York Times‘ ‘Letters to the Editor’ section as two traditional allies in big telecom’s fight against Net Neutrality and broadband regulation blasted the newspaper’s recent pro-FCC regulatory authority editorial.

Mike Wendy, vice president of the Progress and Freedom Foundation, a disingenuously-named telephone and cable-backed front group, was first up, proclaiming the bipartisanship of the glorious Telecommunications Act of 1996 which made unregulated broadband’s growth possible:

Over the last five years alone, American companies — incentivized by the absence of Internet regulation — have invested more than half a trillion dollars to build broadband infrastructure. Consequently, this has exploded broadband choice and access, boosting jobs, productivity and commerce, as well as other important societal-civic benefits, for more than 90 percent of America. This growth will continue, fostered by vibrant competition among cable, wireless, wire line and other evolving means.

It is understandable that you ignore the second fact: it reveals an inconvenient truth. The Telecommunications Act of 1996, which put Internet services outside of 75-year-old telephone regulations, was passed by a Republican Congress and signed into law by a Democratic president, in an overwhelmingly bipartisan manner. The Bush-era regulatory changes, which ensure that Internet services get treated in accord with the law, only followed through on the pro-deregulatory, pro-marketplace intent of the law.

Speaking of inconvenient truths, it took the newspaper’s editors to fully disclose that “the writer is vice president of […] a think tank that takes support from the information technology, telecom, wireless, media, cable and content industries.”  Kudos to the Times for disclosing that — too often such hackery goes unchallenged, without informing readers who is paying for it.

In the case of P&F, it’s all our favorites:

Translation: We don't represent consumers

• AT&T
• Comcast Corporation
• Cox Enterprises
• National Cable & Telecommunications Association
• Time Warner Cable
• T-Mobile
• USTelecom – The Broadband Association
• Verizon Communications

Of course, those big dollar amounts representing industry investments ignores the even bigger profits reaped from those investments, particularly in barely-competitive broadband.  Nobody in the broadband industry is lining up for a bailout, that’s for certain.

As to the group’s assertion that bipartisan bliss made telecom deregulation all worthwhile, the only thing they managed to prove is that both political parties are ready and willing to be suckered into believing the broken promises of lower pricing and better service for their constituents (helped along with a generous campaign contribution to ease any disappointment later on.)

President Clinton, who signed the Act, considers it one of his mistakes after he saw the results.

Just days after the governor of Arizona signed a highly controversial border enforcement measure into law, LULAC labels Net Neutrality opposition its "top news story." Is this a group that represents the real interests of America's Latino community, or that of its backers AT&T and Verizon?

Next up is a letter from Brent A. Wilkes, Executive Director, League of United Latin American Citizens (LULAC).  He doesn’t like Net Neutrality either, and regurgitates familiar industry talking points our readers can recite in their sleep:

We’ve seen more than $200 billion invested in broadband networks — more private investment than anywhere in the world — and the Internet in the United States has been an unquestioned success.

Second, network neutrality regulations are largely a solution in search of a problem. The F.C.C. adopted “Open Internet” principles in 2005. Since then, there have been only a few alleged breaches that were quickly resolved under this framework.

On the other hand, net neutrality regulations could shield the companies that make billions in profits from the Internet — search engines and other providers — from contributing toward the $350 billion in investment broadband upgrades needed to handle bandwidth demands, which double every two years. That would shift these bandwidth costs exclusively — 100 percent — onto consumers and could thereby deter broadband adoption in Latino and other communities.

Net neutrality could also bar broadband providers from managing, in a nondiscriminatory manner, the few bandwidth-hogging applications and services that can consume nearly all of a neighborhood’s bandwidth. If and when critics identify a real problem, Congress should quickly grant the F.C.C. the express authority to fix it.

Now why would a Latino interest group be so ready and willing to carry the industry’s water in the pages of the New York Times?  Whenever AT&T and Verizon have a public policy concern, LULAC is sure to follow.  For years, this group has been a part of more than a few industry-backed astroturf campaigns designed to trick consumers into buying their corporate agenda.  For disadvantaged Latino communities already hard hit with an ever-expanding price tag for telecommunications services, it’s shameful to see a group openly advocating an agenda that extracts more money from consumers’ wallets.

LULAC has received millions in support from General Motors, AT&T and Verizon

LULAC was there as a card-carrying member of both TV4Us and Consumers for Cable Choice, front groups promising consumers in states served by AT&T that statewide video franchises would lower their cable bills.  LULAC was front and center in the cheerleading section.  Only Latino Wisconsins, along with everyone else, got rate increases instead.  Thanks, LULAC!

Telecom analyst Bruce Kushnick tears the lid off:

This “deception … is about playing on America’s caring about the public interest and about minorities getting a fair shake,” Kushnick says . Worse, “these organizations have very deep-pocketed funders with lobbying groups, PR firms and others to get them the loudest ‘volume’ in the media or access to regulators and legislators. They often overwhelm the message of independent consumer groups.”

LULAC was there in states like New Jersey when Verizon was looking for its own statewide franchises.  To not offer them, LULAC suggested, would harm Latino communities across the region.  Actually, for many of them, the fact their cable and phone bills continue to march relentlessly higher actually hurts more.

The group is an equal opportunity sellout.  During discussions about XM Radio and Sirius merging, LULAC was ready with a letter of support for the merger.  Because when you think about pressing concerns for today’s Latino community, dwelling on the merger of two satellite radio services is a real front burner issue.

When Verizon wanted to acquire Alltel, guess what group was there to cheer the deal on:

LULAC supports this merger because the networks of the two companies are largely complementary. That means that when the merger is complete, even more consumers will enjoy the innovations Verizon Wireless plans to bring to market in years to come.

It’s getting hard to find a cause célèbre for AT&T or Verizon where LULAC doesn’t have their back.

But why?

Money, of course.

AT&T and Verizon have both donated millions of dollars over the years to LULAC.  General Motors, which had a direct interest in the outcome of the XM/Sirius merger is a donor as well.

Don’t fall for hackery.  Net Neutrality protects consumer interests and guarantees online freedom, something especially important as the forthcoming immigration reform debate begins anew.  That’s an issue Latinos are concerned with.  Too bad those issues don’t generate multi-million dollar contributions, which might get groups like LULAC to stop advocating against the interests of their own members.

Today’s merger between CenturyTel (soon to be CenturyLink) and Qwest will combine 10 million Qwest customers and 7 million from CenturyTel into a single company serving 37 states in every region of the country except the northeast and much of California and Nevada.  CenturyLink gains access to Qwest’s highly valued portfolio of services sold to business customers and Qwest gets a partner that can help manage its $11.8 billion debt and help grow the last remaining Baby Bell, formerly known as US West, into a national player capable of withstanding ongoing erosion of landline service.

The deal will impact consumers and businesses, and will challenge regulatory authorities to consider the implications of ongoing consolidation in the traditional telephone service marketplace.  It brings implications for broadband service strategies for both companies, which we’ll explore in greater detail.

Breaking Up Was Too Hard to Do, So Let’s Put It Back Together

Ultimately, the genesis of this, and most of the other big telecom deals that we’ve witnessed over the past few years comes from the 1996 Communications Act, which deregulated large parts of the telecommunications industry and triggered a massive wave of consolidation that is still ongoing.  That legislation was the antithesis of the 1984 court ruling which ultimately led to the breakup of AT&T and the Bell System monopoly in 1984.  When President Clinton signed the 1996 bill into law, it allowed much of the Bell System to eventually recombine into two major entities:

• AT&T ultimately pieced itself back together with the acquisitions of:

BellSouth — serving the southeastern United States

Ameritech — serving the upper Midwest

SBC/Southwestern Bell — serving Texas and several southern prairie states

Pacific Telesis — serving California and Nevada

• Verizon became a regional powerhouse by combining:

NYNEX — serving New England and New York

Bell Atlantic — serving mid-Atlantic states

Qwest Tower - Denver

The remaining orphaned Baby Bell was US West, which comprised Mountain Bell serving the Rocky Mountain states, Northwestern Bell which covered the Dakotas, Minnesota, the prairie states not covered by SBC, and Pacific Northwest Bell which managed service for Oregon, Washington, and northern Idaho.  US West was subjected to a hostile takeover in 2000 by an upstart telecommunications company that was laying fiber optic cable in the late 1990s alongside the railways its owner, Philip Anschutz, also happened to own.  Qwest assumed control of US West that summer and rechristened it with its own name.  Owned by a Bell outsider, Qwest has always been the company that didn’t quite fit with the rest.

The company gained respect for its enormous fiber backbone that weaves across many American cities, including several in the northeast.  It is best known for its services to business customers.  On the residential side, the story is less impressive.  The company’s customer service record is spotty and the company has accumulated an enormous amount of legacy debt left over from earlier acquisitions.  Despite the company’s repeated efforts to find a partner, it took until today for it to finally find one.  There are several reasons for this:

1. Qwest’s service area is notoriously rural and expensive to serve.  Outside of its corporate headquarters in Denver, the majority of its service area is either mountainous or rural.  Even today, Qwest serves only 10 million residential customers, almost matched by CenturyTel’s own seven million largely rural customers scattered across the country.
2. Qwest’s history has been littered with financial scandals, starting with a series of deals with disgraced Enron from 1999-2001.  That was followed with charges of fraud and insider trading in 2005.
3. Qwest does not own its own wireless division and its previous efforts to deliver television service to customers were largely unsuccessful.  That made Qwest’s ability to withstand erosion in its core business – landline phone service, more difficult.
4. Qwest’s debt is downright frightening for would-be suitors.

Why Does CenturyTel Want to Buy Qwest?

CenturyTel claims such a transaction allows a combined company to become a larger player on the national scene.  By combining Qwest’s good reputation in the business telecommunications sector with combined efforts to deliver broadband products including high speed Internet, the company thinks the combination can’t be beat.  CenturyTel envisions packages of video entertainment, data hosting and managed services, as well as fiber to cell tower connectivity and other high bandwidth services to deliver replacement revenue lost from disconnected landlines.  It also believes it can realize cost savings from the merger and keep the company relevant on a stage dominated by Verizon, AT&T, and a few large cable companies.

But there are other reasons.  For the three super-sized independent phone companies that Americans are growing increasingly familiar with — Frontier Communications, Windstream Communications, and CenturyTel, their business models depend on their ability to constantly engage in deal-making and acquisitions.  All three companies have built their businesses on investors who see their stocks as “investment grade” financial instruments that dependably return a dividend back to shareholders.  As we’ve seen in countless quarterly financial results conference calls, all three companies are preoccupied answering questions from Wall Street about the all-important dividend.  TV personalities like Jim Cramer has specifically recommended these telecom stocks based, in part, on their dividend payout.  If that dividend dramatically shrunk or stopped, the share price for all three stocks would likely plummet.

One of the side effects of companies dependent on dividend payouts is their constant need to be on the lookout for additional merger and acquisition opportunities.  Here’s how it works.  Let’s say CenturyTel’s debt load and reduced revenue, caused by customer defections to cell phones or cable phone service, delivered a bad fiscal quarter for the company.  Cash flow was down, and company officials simply couldn’t keep the dividend payout at the same level as the previous quarter.  Since many people hold CenturyTel stock specifically because of the dividend, a downward turn in that payout could cause some to sell their shares, driving the stock price downwards.

CenturyTel is still digesting a previous merger with EMBARQ, which led it to rechristen the company CenturyLink

One way around this is to seek out a new merger or acquisition target.  By bringing two companies together, preferably one with a healthy cash flow, suddenly the big picture changes.  Your balance sheet now reflects the combined revenue from both companies, which incidentally makes the percentage of debt versus revenue look a lot healthier.  Cash flow immediately improves, especially if you can slash redundant costs.  Come next quarter, that dividend payout is right back up in healthy territory.

Sometimes companies become so preoccupied with their dividend and corresponding stock price, it can lead them to pay out more in dividends than a company earns in revenue.  While that’s great for investors, it is unsustainable in the long run.

Many critics of telecommunications companies employing this strategy claim it’s evidence that a company is biding time and unwilling to invest in innovation for the future.  Some also believe dividend payouts shortchange customers because they can eventually bleed a company’s ability to invest in service improvements, research and development, and capital investments to maintain their network and expand service.

As consolidation continues, the number of new buyout opportunities begins to shrink, and one shudders to think what happens when there is no one else to buy.  How long is this business model sustainable?

Both CenturyTel and Qwest also recognize the impact of ongoing disconnections from landline service, now averaging 10 percent of their customers a year.  Those departing customers are now relying on their cell phones or alternative calling services like cable company “digital phone” service or broadband-based calling from companies like Vonage or Skype.

The one service they hope can stem customer defections is broadband.  Unfortunately, telephone companies are increasingly losing ground against their cable modem competitors, who have an easier time increasing broadband speeds for customers now seeking online video and other high bandwidth applications.

Of course, one of the benefits of being a “rural phone company” is the fact cable competition is often unlikely.  In fact, some of the lowest erosion rates for landline service are in rural communities where the telephone company is the only game in town.  There is plenty of money still to be made offering high priced slow speed DSL service in communities with no cable competitor and spotty wireless broadband that is often slower and usage-limited.

All three of these big independent players are well aware of this, and maintaining a strong position in relatively slow speed DSL service also protects another revenue stream — Universal Service Fund revenue given to rural providers to equalize telephone rates.  CenturyTel recognizes the increasing likelihood much of that money will be diverted to stimulating broadband expansion, something the phone company is more than willing to do if it means preserving their subsidies.

The new combined Qwest-CenturyTel company hopes the merger can help both survive obsolescence.

For Qwest, a debt reduction may make it possible to spend more to deliver fiber-to-the-curb service, similar to AT&T U-verse.  That could increase broadband speeds and prompt them to reconsider their earlier decision to abandon IPTV in the western half of the country.

CenturyTel can continue to offer traditional DSL service with a more incremental upgrade approach in its more rural service areas, but tap into Qwest’s fiber network to reduce backhaul expenses and potentially pick up new business customers by offering Qwest-branded business services.  Company officials strongly hinted that, at least for now, CenturyTel’s existing customers will continue to find the video portion of their “triple play” package delivered by DirecTV satellite service, so no IPTV for them.

CenturyTel and Qwest's combined local service areas

What Does This Mean for Employees of Both Companies?

Mergers like this always generate great excitement over “cost savings” made possible by the merger.  Much of these savings typically come from employee expenses.  When you hear “cost savings,” think layoffs and pay cuts for all but top management.  Based on past precedent, Qwest employees can anticipate some serious job losses if this transaction closes, especially in the business office.  The combined company will be henceforth known as CenturyLink, with headquarters remaining in Monroe, Louisiana.  That is potentially bad news for Qwest’s employees in Denver.

The transaction is expected to generate annual operating cost savings (which CenturyTel calls “synergies”) of approximately $575 million, which are expected to be fully realized three to five years following closing.  The transaction also is expected to generate annual capital expenditure “synergies” of approximately $50 million within the first two years after close.  That means spending less on infrastructure improvements.

Billing and customer service are traditionally handled by CenturyTel when a company joins the CenturyTel family.  North Carolina customers can attest to that as EMBARQ, an earlier CenturyTel target, finally moves to CenturyTel’s billing system in the coming weeks.

For the sake of pushing the merger through state regulatory agencies, cutbacks in unionized technicians who handle service installations, repairs, and maintain the lines are not expected.  The Communications Workers of America issued a statement today that mildly acknowledged the merger announcement, saying the union “looked forward to serious negotiations with both companies” regarding employment security and assurances of aggressive high speed broadband rollout throughout both companies’ territories.

How the combined CenturyTel-Qwest company stacks up against other independent phone companies. (Q-Qwest, CTL-CenturyTel, FTR-Frontier, WIN-Windstream)

What Does This Mean for Qwest and CenturyTel Customers?

In the short term, nothing.  This merger will take at least a year to complete, assuming regulatory approval in every state where a review is required by state officials.  In 2011, should the merger be approved, Qwest customers can anticipate transition headaches as the Denver-based company winds down operations in favor of CenturyTel.  Billing and customer service will both be impacted.  Long term plans for major projects are likely to be stalled until the merger settles into place.  CenturyTel business customers will eventually see Qwest’s strong business products line become available in many CenturyTel service areas.  Eventually, some larger CenturyTel-served cities may find Qwest’s more advanced DSL service arriving on the scene delivering faster speeds.

Although CenturyTel has hinted it may review whether it’s now large enough to operate its own wireless mobile division, for the near term, expect the partnership to resell Verizon Wireless service to continue.

What is the View of Stop the Cap! on the CenturyTel-Qwest Merger?

Generally speaking, most of the industry consolidation that has been fueled by a deregulatory framework established by the Clinton Administration has not benefited consumers anywhere near the level promised by deregulation advocates.  The three largest independent phone company consolidators — Frontier, Windstream, and CenturyTel are spending more time and resources looking for new acquisitions and schemes to pay out dividends than they are working to enhance service in their respective service areas.  Smaller independent phone companies are deploying fiber to the home networks and answer to the communities where they work and live.  From companies like Frontier, we get Internet Overcharging schemes combined with slow DSL service, tricks and traps from “price protection agreements” that automatically renew, rate increases, and cost cutting.  Windstream plagues some of their customers with extended service outages, and CenturyTel’s promised broadband speeds often don’t deliver.

Unfortunately, bigger is not always better in telecommunications.  While the biggest players like Verizon seek to discard rural American customers, getting one of these three companies instead doesn’t always represent progress.  Our regulators are too often satisfied with basic answers to questions about broadband and service improvements that come with few details and deadlines.  It is just as important to ask what kind of broadband service a company will bring, at what speeds and price, and what usage limits, if any, will accompany the service.

Companies engaged in these mergers hope regulators don’t pin them down to specific service commitments and standards, which could harm the financial windfall these deals bring to a select few.  But they must be the first thing on the table, guaranteeing that customers also get the enjoy the “synergies” these deals are supposed to bring.