A scheme to impose usage limits and speed throttles on Telekom Malaysia’s broadband customers was beaten back just a day after the plan was announced.

Malaysia’s largest telecommunications company announced the limitations at the same time in introduced new speed tiers and new pricing for them.

Customers were not pleased when they discovered TM’s UniFi broadband service came with high prices and usage caps:

TM UniFi Broadband Packages

• 5/5Mbps Service RM149/$46.73 now capped at 60GB per month.
• 10/10Mbps Service RM199/$62.41 now capped at 90GB per month.
• 20/20Mbps Service RM249/$78.09 now capped at 120GB per month.

In comparison, residents in nearby Singapore can buy 100Mbps service, with no limit, for RM200/$62.73 per month.

Those who exceed the limits would find their speeds throttled to about 10 percent of the speed they purchased, for the rest of the month.

Telekom Malaysia CEO Datuk Zamzamzairani Mohd Isa said the measures were part of its Fair Usage Policy.

“This policy is a standard industry practice to ensure that all subscribers get to enjoy the same web surfing quality,” he said.

Only it’s not standard industry practice, despite that often-heard excuse.  In countries where usage limits are common, those limits are being eased or discontinued as broadband expansion and competition drives the unpopular usage limits out of the market.

Malaysians weren’t willing to wait.

The social media firestorm of protest that followed the announcement forced the company to back down just one day after announcing the Internet Overcharging scheme.

An announcement on Twitter, noting customer feedback, stated “no volume cap 4 all #unifi packages 4 now.”  The company did say it would continue to “reserve the right to enforce a download limit to ensure all UniFi subscribers receive equal service quality,” but that type of language has been standard in service provider agreements for years.

Company officials told The Malaysian Insider customers “may abuse” the service, which is why they wanted the cap.

But customers feel they deserve value for money — the price being charged can be considered high for many countries in Asia even without the cap.

The Star newspaper notes:

With the latest announcement by Telekom Malaysia, many people are rejoicing. Among them is communications consultant Justin Then, who said he’s happy to note that Telekom Malaysia listens to consumers.

“Capping our high speed Internet access doesn’t make sense, if the Government wants Malaysians to seek out knowledge and be innovative,” he said.

A Twitter user, who asked to be identified only as Flo, said she’s glad Telekom Malaysia has decided not to employ the cap for now.

“We are paying a premium for technology that offers super high bandwidth, so a daily cap shouldn’t be applied. There’s no value in that; we would be better off with regular broadband,” she said.

One caveat.  As has been the case with a handful of U.S. providers seeking to monetize your broadband usage, rescinding usage caps today doesn’t guarantee they won’t be back tomorrow.  Indeed, TM has yet to remove them from their website, instead inserting in the fine print, “The monthly download volume policy will not be implemented until further notice.”

[flv]http://www.phillipdampier.com/video/Malaysia Telekom UniFi Promotional Video.flv[/flv]

TM’s slick promotional video unveiling the faster UniFi broadband packages asks y0u to “imagine.”  We did… imagining how in the world we can accomplish all of the things they show in the video with the company’s proposed arbitrary usage limits and speed throttles.  Imagine actually getting the service you paid to receive without a provider imagining how much use = “abuse.”  (6 minutes)

(This piece is written by Jay Ovittore and Phillip Dampier.)

The good news is that all the pushback on an all-out-moratorium on municipal broadband was successful and Senator David Hoyle (D-Gaston) withdrew the idea.  The bad news is he had an even worse idea to replace it.

Hoyle Wednesday unveiled a new draft bill that hopelessly ties up municipal broadband projects into knots of red tape that, if passed into law, will bury municipal broadband projects in North Carolina indefinitely.

Hoyle sprung his telecom-industry-friendly legislation on the public after getting plenty of input and encouragement from the state’s cable and phone companies who already knew what was in it because they helped craft it.

For a retiring state senator who doesn’t have to worry about the next election, what better parting gift can you give to your friends in the cable and phone industry than a bill that preserves the comfortable duopoly they’ve  enjoyed for years.

Hoyle and those supporting the legislation will argue their bill doesn’t ban municipal broadband — it simply places conditions on such projects before they can go forward.  But what are those conditions?

Section One of the draft bill requires local governments to get funding for “external communications services” (ie. municipal broadband) by way of a General Obligation Bond (a GO Bond).  In North Carolina, that requires a taxpayer-funded referendum to be held for public input at the next election.

On the surface, getting public approval for municipal broadband isn’t a bad idea — no local government official expecting to win re-election would ever proceed on such projects without voter support.  But this requirement also gives plenty of advance notice to incumbent providers that a new player could be invading their turf.

We know what that means.  A well-funded opposition campaign to demagogue the project.  Local cable companies can insert an unlimited number of free ads during every advertising break to slam the proposal.  Phone companies can release a blizzard of opposition mailers to convince consumers it’s as scary as Halloween — all tricks and no treats.

How can a local city or county government respond to the misinformation barrage?  They can’t.  Public officials can’t spend taxpayer dollars to promote such projects or refute industry propaganda.  They can’t even financially assist a citizen-run campaign.

That’s a fight with ground rules only Don King could love.

In the end, that leaves ordinary citizens of North Carolina facing down a multi-billion dollar statewide consortium of telecommunications interests hellbent on preserving and protecting the status qu0.

The earlier-discussed moratorium was a brick wall against municipal broadband.  Hoyle’s bill is the Great Wall of China with the logos of AT&T, Time Warner Cable, and CenturyLink plastered all over it.

But wait, there’s more.  To deal with municipal broadband projects that got an initial green light to dare to interfere with the phone and cable industries’ grand business plans, another provision provides a near endless supply additional referendums to get rid of the projects.  Hoyle’s bill actually demands more votes should existing systems need:

• refinancing to reduce the interest rate or restructure existing debt;
• to make repairs to the system’s “fixtures;” and/or
• to upgrade the system to meet subscribers’ needs.

Ponder the insanity:

• The legislation could be interpreted to demand a public referendum if your service goes out.  Can you wait until the next election to get back your cable service?
• If a municipal broadband fiber cable falls in your backyard, does it make a sound?  It won’t, but you will when you learn that cable might not be reattached to the pole until the whole town holds a referendum about it;
• Would you be upset if your local municipal provider could refinance its debt at a much lower interest rate, letting them cut their prices, but they can’t before the next election?
• While cable and phone companies refuse to upgrade their service to levels that would have made such municipal alternatives unnecessary, they also want to make certain the one provider that did meet your needs can’t upgrade… without a public vote.

These systems are not constructed with public tax dollars, but Senator Hoyle wants every citizen in a community, subscriber or not, to ponder the future of a local municipal broadband provider.  It’s like giving AT&T veto power over Time Warner Cable’s channel lineup.  Guess who has to pay for these constant referendums?  Taxpayers.  So while Senator Hoyle complains municipal broadband costs the state tax revenue, his legislation guarantees increased government spending on pointless referendums.  That’s logic only a politician working for the interests of big cable can appreciate.

For the cable and phone companies, and their good friends in the North Carolina legislature, this is their idea of a level playing field.  In reality it’s about as level as a downhill ski run.

Let’s extend that “fairness” out to incumbent cable and phone companies and consider whether you got a vote on:

• Whether or not the cable and phone companies got to put their wires on phone poles plunked down in front of your house;
• Whether or not you wanted either company to dig up your yard to bury their wiring;
• Whether you wanted that giant metal refrigerator-sized metal box installed on your street, in your yard, or on the phone pole you see from your window every day;
• Whether or not you want the cable company to repair Mrs. Jenkins’ problems with HBO up the street whenever it rains or replace the cable the squirrels chewed up;
• What channels and services you want to pay for, which ones you do not, and at what price you need to pay your local phone or cable company.
• What cable or phone company gets to provide service in your community.

Apparently the fairness concept only applies to potential new competitors, not the existing providers.

Let’s also consider the cable television industry didn’t just magically bloom into a multi-billion dollar business without government help.  In the early days of cable television, investors were assured that they were financing a monopoly provider, guaranteed through a franchise agreement process that gave newly built cable companies exclusivity to help repay construction costs.  Franchise wars broke out between 1978 and 1984 as competing companies promised the moon with state-of-the-art two-way cable systems with the capacity to offer 70 or more channels.  The players then included Time’s American Television and Communications Corporation, Warner’s Amex, and Telecommunications, Inc. (TCI).  ATC and Amex would later evolve into Time Warner Cable and TCI became AT&T Cable before being sold to Comcast.  Communities seeking cable television for their residents would later learn a lot of these promises made were promises broken – reneged on by large cable companies with few, if any consequences.

During the Reagan Administration, then-FCC Chairman Mark Fowler bestowed additional deregulation benefits on the cable industry.  The Museum of Broadcast Communications explains:

The Cable Communications Policy Act of 1984 addressed the two issues that still hindered cable television’s growth and profitability: rate regulation and the relative uncertainty surrounding franchise renewals. Largely the result of extensive negotiation and compromise between the cable industry’s national organization, the National Cable Television Association, and the League of Cities representing municipalities franchising cable systems, the act provided substantial comfort to the cable industry’s future.

Its major provisions created a standard procedure for renewing franchises that gave operators relatively certain renewal, and it deregulated rates so that operators could charge what they wanted for different service tiers as long as there was “effective competition” to the service. This was defined as the presence of three or more over-the-air signals, a very easy standard that over 90% of all cable markets could meet. The act also allowed cities to receive up to 5% of the operator’s revenues in an annual franchise fee and made some minor concessions in mandating “leased access” channels to be available to groups desiring to “speak” via cable television.

Additional reforms guaranteed pole attachment rights to the cable industry so they could wire and service their network unencumbered by utility company interference or high pole attachment fees.  Cable consolidation allowed formerly mom and pop cable systems to become part of a cable industry where just a handful of cable companies provide service to the majority of cable households.  Countless millions are spent each year by the industry to lobby state and federal governments to keep the party going without regulatory interference, suggesting competiti0n alone is the only regulation required.

Except when a new competitor enters the market, of course.  Fearing competition from municipal providers who will force cable and phone companies to charge reasonable rates and upgrade service, the best possible solution is to find a way to ban such projects.

Forcing regular referendums and the complexities and expenses associated with them guarantees no community in North Carolina would ever bother with the onerous requirements to launch municipal broadband projects.

That’s not just Jay and I saying that.  What Hoyle has proposed hardly breaks new ground.  It’s the same dog and pony show the industry has brought to other states to stop competition and keep prices high and service slow.

So let’s learn from the painful experiences of others:

First lobbying for legislation requiring referendums and then winning it, SBC (later AT&T) and Comcast used the opportunity to spend more than $300,000 of their subscribers’ money to launch a major misinformation campaign with misleading and inaccurate mailers that successfully fought off a proposition to deliver better and cheaper service through a municipal broadband project in Batavia, Geneva, and St. Charles, Illinois.  Fiber for Our Future documented the whole sordid affair from start to finish as a lesson to others confronting industry-backed referendum requirements.

[flv]http://www.phillipdampier.com/video/unproven.flv[/flv]

Want a preview of the distortion and misinformation-campaign cable and phone providers will bring to stop municipal broadband?  Watch this SBC (today AT&T) executive tell city officials in Illinois that fiber is “unproven,” that the phone company’s DSL speeds are comparable to Comcast Cable, and that consumers don’t need the 3Mbps speed the company was delivering back in 2004 when this video was taken.  “What are you going to do with 20 megabits.  I mean, it’s like having an Indy race car and you don’t have the race track to drive it on.”  (3 minutes)

Longmont, Colorado spent years suffering with bad broadband service from Comcast and Qwest and sought a better alternative with a municipally-run provider.  But then the cable and phone giants spent $200,000 to put a stop to that.  While local subscribers may have preferred that $200,000 be used to reduce their rates, for Comcast and Qwest it was an investment in maintaining future pricing only duopolies can achieve, all while delivering “good enough for you” broadband service to Longmont residents.  In 2006, the Baller Herbst Law Firm collected information on industry-backed barriers to municipal broadband, and the list went on for nine pages.  Many of them sound eerily familiar to what Hoyle proposes (after cable and phone companies whispered time tested, industry proven ideas into his ear).

The city of North St. Paul, Minnesota has advice for states like North Carolina after their own experience with a coordinated industry-backed smear campaign against municipal broadband enabled by legislation similar to what Hoyle proposes:

What should be of interest to all communities was the organized opposition.  It appears that the incumbent providers, industry associations and politically conservative think tanks teamed up to promote negative news stories, do polling and opposition phone calls, provide transportation for identified “no” voters and create web sites.

While we heard some advocates lamenting this high priced anti-municipal fiber effort, this response is something that community leaders must expect and be prepared for.  A strong community education and mobilization effort must be a part of any municipal telecommunications initiative.  A coalition of business owners and residents must be created and maintained that can counter the expected efforts of the incumbent providers.  The benefits of the community-owned network should be documented and promoted so that an overwhelming majority of voters will choose to vote yes.  We hope that, one way or the other, North St. Paul gets the “More, Better Broadband” that the MN Broadband Coalition supports.

Of course, when local communities are banned from spending a nickel on advocacy for their projects, it effectively hands a restraining order to broadband advocates who can’t even get on the playing field, level or otherwise.

Outraged yet?

It will only get worse if Hoyle’s bill ever becomes law.  Residents in communities like Salisbury endured a sampling of the kind of negative campaign this industry will launch wherever municipal broadband competition threatens to appear.  In 2009, residents were hassled with push-polling phone calls from industry-backed astroturf groups claiming to represent ordinary citizens, but were actually little more than sock puppets for big telecom.  Your mailbox will be filled with blizzards of misleading mailers that current cable and phone customers pay for.  If they need more money, they can always raise your rates to cover the difference.  In the end, with the help of elected officials who don’t care about North Carolina consumers, existing municipal projects can bleed themselves dry (later to be used by the industry as “failed examples” to claim such projects are too risky to try) and proposed ones will never see a spade plunged into the soil to bury the first strand of fiber optic cable.

But it’s not all bad news.  It doesn’t have to happen this way.  You can tell your state representative you are watching them like a hawk on this issue.  Any “yes” vote for legislation like that proposed by Senator Hoyle is a no vote for them at the next election.  Let them know you are well aware of the game plan here — it has been tried in other states with similar legislation that is little more than protectionism for big telecom. Tell your elected officials you already have the power to choose whether or not you want these projects simply by voting for or against the elected officials that propose them.  While the concept of a referendum sounds fair on the surface, it’s not when you consider the past experiences of other communities who faced well-funded opposition campaigns, helpless to correct the record or fairly argue their position on the matter.  Providers know that, which is why they advocate this type of legislation in the first place.  It effectively stops competition, stops better service, and stops North Carolina residents from enjoying lower priced cable, phone, and broadband service.

There are a few stand-up representatives of the people of North Carolina who do deserve our gratitude and thanks today.

Rep. Paul Luebke, (D-Durham County) (who co-chairs the Revenue Law Study Committee) [email protected] 919-733-7663 College Teacher

Rep. Jennifer Weiss, (D-Wake County) [email protected] 919-715-3010 Lawyer-Mom

They both will likely face fierce opposition from the incumbent providers and their fellow legislators. Please take the time to thank them for standing with consumers today and for trying to protect the future of North Carolina and its economy.

Stop the Cap! will have video of today’s remarks by both legislators soon.  We hope to follow with a complete video record of today’s events surrounding the anti-competition legislation proposed by Senator Hoyle.  It will serve as a testament to just how much work we have to do to remove legislators who have stopped representing the public interest, and renew our support for those who stand with consumers.

Meanwhile, check out these two delightful pieces paid for by the cable and phone industry, sent to homes where municipal broadband projects faced a referendum in 2003 and 2004.  More than a dozen different mailers were sent to every home in the communities of Batavia, Geneva, and St. Charles, Illinois from phone and cable companies.  Now imagine the repercussions when not one of those communities could respond with their own mailers correcting the record and giving their side of the argument.  There is a reason why special interests spend enormous sums of money to protect their turf, and the battle is over before it even begins when those interests demand the other side not have the opportunity to respond in kind.

What smears do providers in North Carolina have in store for you?

… Continue Reading

I had the pleasure of attending the SouthEast Association of Telecommunications Officers and Advisors (SEATOA) conference this past weekend in beautiful Asheville, North Carolina.  I was surrounded by some of the leading visionaries in the fields of next-generation broadband deployment, broadband policy and important Public, Educational, and Government (PEG) access networks.

Among those in attendance:

• Kyle Hollifield, representing Bristol Virginia Utilities/BVU OptiNet, a municipally-owned fiber optic broadband provider in Bristol, Virginia;
• Colman Keane, from municipal utility EPB Telecom in Chattanooga, Tennessee;
• Tommy Jacobson from MCNC;
• Ken Fellman from the National Association of Telecommunications Officers and Advisors (NATOA);
• Hunter Goosman from ERC Broadband, which operates a regional fiber optic network in the western Carolinas;
• Brian Bowman, Public Affairs & Marketing Manager of Wilson, North Carolina, home of municipal fiber network Greenlight, and
• Michael Crowell, Broadband Services Director of Salisbury, North Carolina’s forthcoming fiber to the home network Fibrant.

The conference included several informational sessions for those working on broadband projects.

Tom Power, chief of staff for the National Telecommunications and Information Administration (NTIA) and Jessica Zufolo from the Rural Utilities Service at the U.S. Department of Agriculture discussed rounds one and two of the broadband stimulus grant program and lessons learned along the way.

Thomas Koutsky, representing the FCC Broadband Opportunities Initiative, the legendary Jim Baller and FCC Commissioner Mignon Clyburn also spoke about the importance of developing better broadband networks across the country.

Thomas Koutsky, speaking about the National Broadband Plan said, “The National Broadband Plan is just a plan.  It doesn’t do anything by itself, it requires action.”  I couldn’t agree more.  The National Broadband Plan could culminate in a giant missed opportunity if we do not reach out and demand that our representatives in Washington get on board with a definitive plan to deliver better broadband across the country.  Washington is full of studies and recommendations that are little more than words on paper, sitting on a shelf because Americans didn’t demand action to implement them.

I could go on all day about Jim Baller and his inspiration that drives us all to fight for better broadband in America, but I will highlight this quote: “It is a disgrace that every American does not have affordable access.”  Baller rallied the crowd with a video clip from Al Pacino’s speech in Any Given Sunday.  It’s not difficult to carry Pacino’s message about football to our fight in the broadband arena, and the enthusiasm Baller brings can only be a positive.

Perhaps the most newsworthy event from the conference was a speech from the newest FCC Commissioner, Mignon Clyburn.  She gets it.  In an amazing 20-minute speech, Clyburn succinctly delivered a message we wish some of our state lawmakers would understand and support:

“Thus, the Plan recommends that Congress clarify that state and local governments should not be restricted from building their own broadband networks. I firmly believe that we need to leverage every resource at our disposal to deploy broadband to all Americans. If local officials have decided that a publicly-owned broadband network is the best way to meet their citizens’ needs, then my view is to help make that happen.

When cities and local governments are prohibited from investing directly in their own broadband networks, citizens may be denied the opportunity to connect with their nation and improve their lives. As a result, local economies likely will suffer. But broadband is not simply about dollars and cents, it is about the educational, health, and social welfare of our communities. Preventing governments from investing in broadband, is counterproductive, and may impede the nation from accomplishing the Plan’s goal of providing broadband access to every American and every community anchor institution.”

Clyburn’s speech clearly illustrates she’s an advocate for consumers and is interested in knocking down barriers that block Americans from enjoying world class broadband service.  Clyburn considers the National Broadband Plan a group effort developed by and for the American people, not just a policy document from the FCC.  It was truly an uplifting speech that gave me hope positive change in broadband and broadband policies are possible with her presence on the Commission.

[flv width=”540″ height=”380″]http://www.phillipdampier.com/video/CommClyburn.mp4[/flv]

FCC Commissioner Mignon Clyburn delivers the keynote speech at the SEATOA conference.  Clyburn goes on record advocating municipally-run broadband projects where communities deem them appropriate.  This clip comes courtesy of Communities United For Broadband and you saw it first here on Stop the Cap! (April 27, 2010 — 20 minutes)

(This video is large in size.  If playback stops, please pause the video to allow more of the clip to load into the player’s buffer to reduce the chance of stalled playback.  If you still experience problems, please Contact Us.)

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

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.

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.

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.

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.

When millions of dollars are at stake, some commercial broadband providers will stop at nothing to preserve the duopoly they enjoy across most of North Carolina.  Their formula for success — delivering the least amount of service at the highest possible price.  When communities like Wilson and Salisbury decided that formula wasn’t working for them, they embarked on their own municipally-built, fiber-based broadband networks.  It wasn’t something either community took lightly.  They asked, they pleaded, they begged for better broadband service from incumbent providers who decided what they were providing was already good enough.

The biggest shock of these providers’ lives came when both communities decided to build better networks themselves.

Now, the commercial providers who are challenged to upgrade to compete are instead spending enormous sums of money in the North Carolina legislature to put a stop to these municipal projects.  Why spend money on upgrading when you can simply ban the potential competition?

Last year, Stop the Cap! teamed up with other consumer advocates to put a stop to legislation custom-written by the cable industry and introduced by a very-compliant state legislator.  When our readers and others called to complain, some found the phone handed off to a cable lobbyist literally sitting in his office!

Your outrage over paying big bills for bad service from too few providers was heard in Raleigh, and the legislation was de-fanged and buried in a committee charged with “studying the issue.”  The legislator who introduced it resigned under an ethical cloud last fall.

Unfortunately for consumers in North Carolina, there is always someone else willing to pick up where the last one who sold his constituents down the river left off.

Our North Carolina issues coordinator Jay Ovittore, who is now working with Communities United for Broadband to promote better broadband, is here with a report about the latest developments in North Carolina and a Call to Action! for all of our readers.  Preserving successful municipal broadband projects and those working to get off the ground protects this option for every community faced with intransigent broadband providers who won’t improve service.  — Phillip Dampier

As I told everyone on Stop the Cap! last summer, they would be back.

They are, and now they’ve shown us their cards.

North Carolina’s incumbent cable and phone companies are once again trying to ram through an anti-municipal broadband bill, and their timing is designed to rush it through committee before a groundswell of consumer opposition has a chance to build.  Time is short — the bill will be taken up April 21st in the Revenue Laws Study Committee, so your immediate action is imperative!

This year’s push for anti-consumer legislation comes courtesy of Senator Daniel G. Clodfelter (D-Mecklenburg County).

He reportedly wants a moratorium on all municipal broadband deployments on the alleged basis that these are bad for the private sector and will harm state tax revenue.  Hello?  Virtually every municipal broadband project underway fuels job creation as crews work to install the fiber optic networks that will come to represent an economic catalyst and job creator.  When communities no longer have to turn away digital economy jobs lost because of inadequate broadband by existing providers, that’s an economic victory for hard-pressed North Carolina, where unemployment is at 11.2 percent these days — 10th worst in the country.

The FCC’s National Broadband Plan has prioritized stimulating the deployment of ultra high-speed broadband (100/50Mbps) service to 100 million households in ten years, so why are some in our legislature standing in the way of better broadband options for North Carolina?  You need to ask them!

Just look at Wilson’s community broadband project for evidence of a broadband success story.  Wilson pleaded with providers to deliver 21st century broadband service to no avail.  So Wilson did it themselves.

Cable and phone companies howled in protest.  They even brought in their astroturfing friends from corporate-funded groups like FreedomWorks and Americans for Prosperity to try and hookwink consumers into opposing municipal broadband.

It’s just another classic case of providers not wanting to spend money to upgrade their networks to compete.  Communities like Wilson getting the broadband service they deserve are good examples of why the industry is afraid such projects could spread.

[flv width=”480″ height=”292″]http://www.phillipdampier.com/video/Save NC Broadband Catherine Rice Compares Rates 12-2009.mp4[/flv]

Watch what happens when a municipal provider competes for your business.  Catherine Rice of Action Audits delivered the undeniable proof at a December NC House Select Committee on High Speed Internet Access in Rural and Urban Areas hearing, showing while cable and broadband rates across the state march ever higher, they strangely don’t in Wilson, where GreenLight, the municipal alternative, keeps rates in check. Click here to download a PDF copy of the slides Rice refers to in her presentation. (11 minutes)

Some members of the legislature will stand with their constituents and vote against this anti-consumer nightmare.  Some may not be fully informed on the issues and are only hearing the telecommunications industry talking points.  For some others, I’m afraid it’s a case of following the money.

The telecommunications industry in North Carolina is very generous to their benefactors, only too willing to return the favor writing the industry’s wish-list into state law.

You will recognize some of the names from the Follow the Money series I wrote last year (read Part 1, Part 2 and Part 3).  It’s a new year, so Part 4 will follow in the coming days, updating the financial contributions of incumbents and introducing new members and how much they’ve accepted from this industry.

Ironically, one of the legislators, Rep. Pryor Allan Gibson, III works as a contractor for Time Warner Cable!  His vote will be particularly interesting to follow.

North Carolina Legislature

North Carolina Call to Action!

Phone calls are always the most effective, and they are timely coming just days before the April 21st meeting of the Revenue Laws Study Committee.  But you can also e-mail representatives (and that’s not a bad idea even if you also called).  North Carolina deserves world-class, next-generation broadband.  Don’t allow a handful of the same companies overcharging you for today’s slow service strangle your best chance for competition!

Here is a sample e-mail message to send to all of the Committee members involved:

Subject: Don’t You Dare Vote for an Anti-Municipal Broadband Bill!

Message: As a consumer, I was disturbed to hear the Revenue Laws Study Committee was prepared to vote for an industry-sponsored Anti-Municipal Broadband Bill on April 21st.  Please do not vote for this or any other bill that removes competitive choice for broadband service.  Our local communities should not be stopped from deploying 21st century fiber to the home systems other providers refuse to deliver.  Such fiber networks create jobs, keep North Carolina business competitive, and stimulate economic development, which will deliver needed tax revenue.

The same providers backing this bill that are not delivering service to unserved communities, or offer inadequate service in others, have had a decade to deliver the service municipal providers are actually providing today in our state. Instead of delivering, they’ve offered a litany of excuses and now want special legislative protections to preserve their entrenched market position.

As a consumer, I am fed up with relentless rate increases year after year.  In communities like Wilson, where a municipal provider delivers excellent service, the rate increases from cable and phone companies have stopped.  A vote for this bill guarantees we’ll be paying higher and higher cable and phone bills indefinitely, and that’s something I would definitely remember come Election Day.  Make no mistake — this proposed legislation is an obvious gift to the telecommunications industry at the expense of all of your constituents, including myself.  That’s why I am confident you will stand up and make your opposition heard to this and similar measures.

At a time when the FCC’s National Broadband Plan envisions 100 million households with ultra-fast broadband service delivering economic benefits, it’s ironic our state legislature is even considering impeding the very providers that are on track to fulfill that goal.

With 11.2 percent unemployment — the 10th worst in the country, now is not the time to put a moratorium on North Carolina’s communities considering a better future through municipally-provided broadband.

With all this in mind, I am confident you will deliver for constituents like myself and oppose these industry-backed bills.  I look forward to hearing from you soon on this issue.

For best results, use your own wording and talk about the broadband market in your community.  You can reference the excitement over Google’s fiber to the home project.

Here are the Committee members to write or call, including their district area and what they do for a living:

(Please send individual messages to members, even if the contents are essentially the same — avoid simply CC’ing a single message to every representative.)

• Sen. Daniel Gray Clodfelter (Co-Chair) Mecklenberg [email protected] (919) 715-8331 Democrat (704) 331-1041 Attorney
• Sen. Daniel T. Blue, Jr. Wake [email protected] (919) 733-5752 Democrat (919) 833-1931 Attorney
• Sen. Peter Samuel Brunstetter Forsyth [email protected] (919) 733-7850 Republican (336) 747-6604 Attorney
• Sen. Fletcher Lee Hartsell, Jr. Cabarrus, Iredell [email protected] (919) 733-7223 Republican (704) 786-5161 Attorney
• Sen. David W. Hoyle Gaston [email protected] (919) 733-5734 Democrat (704) 867-0822 Real Estate Developer/Investor
• Sen. Samuel Clark Jenkins Edgecomb, Martin, Pitt [email protected] (919) 715-3040 Democrat (252) 823-7029 W.S. Clark Farms
• Sen. Josh Stein Wake [email protected] (919)715-6400 Democrat (919)715-6400 Lawyer
• Sen. Jerry W. Tillman Montgomery, Randolph [email protected] (919) 733-5870 Republican (336) 431-5325 Ret’d school teacher
• Rep. Paul Luebke (Co-Chair) Durham [email protected] 919-733-7663 Democrat 919-286-0269 College Teacher
• Rep. Harold J. Brubaker Randolph [email protected] 919-715-4946 Republican 336-629-5128 Real Estate Appraiser
• Rep. Becky Carney Mecklenberg [email protected] 919-733-5827 Democrat 919-733-5827 Homemaker
• Rep. Pryor Allan Gibson, III Anson, Union [email protected] 919-715-3007 Democrat 704-694-5957 Builder/TWC contractor
• Rep. Dewey Lewis Hill Brunswick, Columbus [email protected] 919-733-5830 Democrat 910-642-6044 Business Exec (Navy)
• Rep. Julia Craven Howard Davie, Iredell [email protected] 919-733-5904 Republican 336-751-3538 Appraiser, Realtor
• Rep. Daniel Francis McComas New Hanover [email protected] 919-733-5786 Republican 910-343-8372 Business Executive
• Rep. William C. McGee Forsyth [email protected] 919-733-5747 Republican 336-766-4481 Retired (Army)
• Rep. William L. Wainwright Craven, Lenoir [email protected] 919-733-5995 Democrat 252-447-7379 Presiding Elder
• Rep. Jennifer Weiss Wake [email protected] 919-715-3010 Democrat 919-715-3010 Lawyer-Mom