Verizon FiOS expansion is still dead while cash cow Verizon Wireless will continue to get the bulk of Verizon’s attention this year, according to a top executive.

Verizon chief financial officer Fran Shammo delivered the latest quarterly financial results to Wall Street analysts Tuesday and had few specifics about how the Cadillac of wireless carriers will handle increasingly meddlesome competition from T-Mobile, which has torn up the comfortably profitable mobile industry’s business plan and threatened to launch an all-out price war.

Verizon Wireless remains a major earner for Verizon, delivering nearly $18 billion in revenue and $8.3 billion in adjusted profitability during the last quarter alone. Verizon is relying on the quality of its network to keep customers from bolting to less expensive competitors. This month, T-Mobile announced it was prepared to cover the early termination penalty of AT&T customers ready to switch. It’s only a matter of time before Verizon customers are treated to a similar offer and that worried investors enough to send Verizon’s share price downwards even though the company beat analyst’s earnings estimates.

Clues about Verizon’s game plan for 2014 became clearer as Shammo took questions and outlined the company’s strategy.

Wireless Will Get Most of Verizon’s Attention

Again this year, Verizon Wireless will get the bulk of Verizon’s attention and financial resources. Verizon Wireless finished 2013 with $81 billion in wireless revenue — up $5.2 billion from 2012 — which represents two-thirds of Verizon’s total earnings. The wireless business has delivered a profit margin of 49% or higher for five of the last seven quarters.

Where do the increased earnings and profits come from?

“Service revenue growth continued to be driven by more customers and devices, increase of data usage, and smartphone penetration,” said Shammo. “Our Share Everything Plans are doing exactly what we expected — driving device adoption and stimulating higher usage — resulting in increases in both the number of devices and revenue per account.”

Shammo said little about the spectrum shortages Verizon claimed were responsible for an end to unlimited use data plans in favor of usage-capped, consumption-based billing. On the contrary, Shammo admitted Verizon expects to grow average revenue per account and profits on the back of usage billing as customers boost wireless data usage and have to upgrade to higher-priced plans in the future. Shammo also noted the company’s restrictions on early upgrades and charging upgrade/activation fees have delivered more revenue to Verizon and deterred customers from phone upgrades, which saves Verizon money.

Verizon Wireless customer bills rose an average of 7.1 percent during the fourth quarter to more than $157 per month.

“We have seen consistent growth in this metric,” said Shammo. “For the full year, average revenue per account was up nearly $10 or 6.9%.”

Some of that increase is attributable to Verizon’s higher cost Share Everything plans, which often cost customers more than the plans they abandon.

Share Everything = a higher Verizon Wireless bill for many customers.

“In just 18 months more than 46% of our postpaid accounts are on these plans,” said Shammo. “In 2013 we effectively doubled the number of accounts on Share Everything from 8.1 million to 16.2 million.”

In the coming year, Verizon plans to spend up to $17 billion on network maintenance and expansion, but the bulk of it will be spent on the wireless side of the business. Verizon has again cut investment in its wired networks.

Shammo noted Verizon Wireless plans to repurpose some of its 3G spectrum to 4G LTE service this year, which cuts costs for Verizon while stimulating usage which will eventually force many customers into data plan upgrades.

“If you look at a 3G usage moving to a 4G, we know that — and we have seen it in our base — as soon as you get on the 4G with video consumption and the quality of video your usage goes up,” said Shammo.

Verizon FiOS Expansion is Still Dead

Verizon has no plans to expand its FiOS fiber network beyond the areas where the company previously signed franchise agreements several years ago. In fact, Shammo is already reallocating money that in years past targeted FiOS expansion, shifting it to Verizon Wireless.

Verizon’s FiOS expansion is still dead. No plans for further expansion in 2014.

Shammo added Verizon will continue upgrading to fiber and decommission its copper network within existing FiOS areas, pushing customers with traditional landline service to basic FiOS phone service.

For those bypassed by FiOS, Shammo indicated it will be business as usual for Verizon, still selling DSL and phone service. But he hinted that within three years, Verizon might be open to selling off wireline customers in non-FiOS areas if a company approached Verizon with a lucrative deal. Verizon is under increased regulatory scrutiny in states like New York where there is concern Verizon is diverting resources away from deteriorating landline infrastructure in favor of its unregulated wireless network.

Shammo admitted Verizon stepped back from competing as hard as usual with cable competitors during the third quarter, believing consumers don’t want installers in their homes during the holiday season. As a result, the number of new FiOS customers was down from October-December. But with recent rate increases and voluntary upgrades, revenue remains up. With less than one million potential customers in the FiOS footprint still waiting for the fiber network to arrive, Shammo was comfortable stepping back from promotions temporarily.

Verizon FiOS has been highly successful for Verizon’s wireline division, now representing about 73% of Verizon’s consumer revenue. More than half of Verizon’s FiOS customers have upgraded to FiOS Quantum Internet speeds, starting at 50Mbps. With that kind of success, what holds Verizon back from further expanding FiOS? Verizon’s current CEO Lowell McAdam comes from a Verizon Wireless background and seems preoccupied with the wireless business. Wall Street is also firmly against Verizon increasing investment in fiber when diverting that spending to high-profit wireless can earn a much faster, more lucrative return.

Those lucky enough to have FiOS will continue to see upgrades in 2014. Chief among them is a new proprietary router that will assure Wi-Fi service in the home more closely matches the broadband speeds customers are buying, up to 100Mbps or more.

Verizon’s Intel OnCue Acquisition Doesn’t Mean Online Cable Competition is Coming

Despite a piece in GigaOM suggesting Verizon’s acquisition of Intel’s OnCue technology was all about competing head-to-head with Comcast, Shammo downplayed any expectation Verizon was about to declare war on  that cable company or anyone else:

Shammo

As far as the OnCue acquisition, look, the focus here is really to accelerate the availability of the next-generation IP video service which we will integrate into the FiOS video service. And really what we are trying to do is differentiate this even more so with fiber to the home versus others with the TV offerings and reducing the deployment costs. And this really accelerates us from if we were trying to build IP TV versus buying the IP TV technology.

From an FiOS customer perspective, we expect the benefits that they will have more elegant search and discovery activity and cost stream ease of use. But also keep in mind, with the acquisition of Verizon Wireless and becoming 100% ownership of that we also plan to take that platform and integrate it more deeply with our Verizon Wireless 4G LTE network. So that really was the strategy behind this.

 Verizon Wireless Has Enough Spectrum for the Next 3-4 Years

Shammo told investors Verizon Wireless has plenty of wireless spectrum to meet customer needs for the next 3-4 years, but he did outline Verizon’s short-term plans on spectrum management:

As far as our portfolio, obviously we like the 700 megahertz for the coverage of the LTE that we did. AWS is our sweet spot at this point in time, which is the spectrum that we have been swapping for [with competing carriers], so we have a very efficient portfolio of spectrum and I think we have shown through the years that we are very efficient on how we use spectrum.

Keep in mind that, as I said, we will participate in the auctions because we will need more spectrum, but right now our current position is that with the AWS that we have and that we are launching in markets that you know in New York and San Francisco, Chicago we are lighting that spectrum up. It is pretty much completed in New York. We will continue to add to that, but keep in mind though too that we will also re-appropriate our 3G spectrum to 4G.

So we will take that PCS spectrum that has been running in our 3G network — as the volume of that network continues to decrease as we move more 3G phones to 4G, we will bring re-appropriate that spectrum over to the 4G LTE. So three to four years we are in very good shape from a spectrum holding position, but we will participate in the upcoming auctions.

Phillip “Free Trade in Bad Broadband” Dampier

Sure we’ve had our cultural skirmishes in the past,  but on one thing we can all mostly agree: our largest cable, phone, and broadband providers generally suck.

Outside of hockey season, Canada’s national pastime is hating Bell, Rogers, Vidéotron, Telus, and Shaw. The chorus of complaints is unending on overbilling, bundling of dozens of channels almost nobody watches but everybody pays for, outrageous long-term contracts, and bloodsucking Internet overlimit fees. In fact, dissatisfaction is so pervasive, the Conservative government of Stephen Harper spent this past summer waving shiny keys of distraction promising Canadians telecom relief while hoping voters didn’t notice their tax dollars were being spent by the country’s national security apparatus to spy on Brazil for big energy companies.

The Montreal Gazette is now collecting horror stories about dreadful service, mysterious price hikes, and promised credits gone missing on behalf of readers fed up with Bell and Vidéotron.

Rogers Cable, always thoughtful and pleasant, punished a Ottawa man coping with multiple sclerosis and cancer with a $1,288 bill, quickly turned over to a collection agency after his home burned to the ground. It took headlines spread across Ontario newspapers to get the cable company to relent.

Things are no better in the United States where the American Customer Satisfaction Index rates telecom companies worse than the post office, health insurers airlines, and the bird flu. National Public Radio opened the floodgates when it asked listeners to rate their personal satisfaction with their Internet Service Provider — almost always the local cable or telephone company.

The phone company Canadians love to hate.

Many responded their Internet access is horribly slow, often goes out, and is hugely overpriced. In response, the cable industry’s hack-in-chief did little more than shrug his shoulders — knowing full well American broadband exists in a cozy monopoly or duopoly in most American cities.

Breann Neal of Hudson, Ill., told NPR she has one choice — DSL, which is much slower than advertised. Hudson is Frontier Communications country, and it is a comfortable area to serve because local cable competition from Mediacom, America’s worst cable company, is miles away from Neal’s home.

“There’s no incentive for them to make it better for us because we’re still paying them every month … and there’s no competition,” Neal says.

Samantha Laws, who gets her Internet through her cable provider, says she also only has one option.

“It goes out at least once a day, and it’s been getting worse the last few months,” Laws says. She works with a pet-sitting company that handles all of its scheduling through email and the company website. At times she can’t do her job because of the unreliable connection.

Chicago is in Comcast’s territory and the company is quite comfortable cashing your check while AT&T takes its sweet time launching U-verse in the Windy City. AT&T isn’t about to throw money at improving DSL while local residents wait for U-verse and Comcast doesn’t need to spend a lot in Chicago when the alternative is AT&T.

Where there is no disruptive new player in town to shake things up, there is little incentive to speed broadband service up. But there is plenty of room to keep increasing prices for a service that is becoming as important as a working telephone. Companies are using broadband profits to cover increasing losses from pay television service, investing in stock buybacks, paying dividends to shareholders, or just putting the money in a bank, often offshore.

NPR’s All Things Considered:

“[For] at least 77 percent of the country, your only choice for a high-capacity, high-speed Internet connection is your local cable monopoly,” says Susan Crawford, a visiting professor at Harvard Law School. She is also the author of Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.

Crawford says that today’s high-speed Internet infrastructure is equivalent to when the railroad lines were controlled by a very few moguls who divided up the country between themselves and gouged everybody on prices.

She says the U.S. has fallen behind other countries in providing broadband. At best, Crawford says, the U.S. is at the middle of the pack and is far below many countries when it comes to fiber optic penetration. Given that the Internet was developed in the U.S., she says the gap is a result of failures in policy.

“These major infrastructure businesses aren’t like other market businesses,” Crawford says. “It is very expensive to install them in the first place, and then they build up enormous barriers of entry around them. It really doesn’t make sense to try to compete with a player like Comcast or Time Warner Cable.”

So Crawford is calling for is a major public works projects to install fiber optic infrastructure — a public grid that private companies could then use to deliver Internet service.

Powell

That’s an idea met with hand-wringing and concern-trolling Revolving Door Olympian Michael Powell, who made his way from former chairman of the Federal Communications Commission during the first term of George W. Bush’s administration straight into the arms of Big Cable as president of their national trade association, the NCTA.

Powell, well compensated in his new role representing the cable industry, wants Americans to consider wireless 3G and 4G broadband (with usage caps as low as a few hundred megabytes per month) equivalent competitors to the local cable and phone company.

“I think to exclude [wireless] as a substitutable, competitive alternative is an error that leads you to believe the market is substantially more concentrated that it actually is,” Powell says.

Of course, Powell’s new career includes a paycheck large enough to afford the wireless data bills that would shock the rest of us. All that money also apparently blinds him to the reality the two largest wireless providers in America are AT&T and Verizon — the same two companies that are part of the duopoly in wired broadband. It’s even worse in Canada, where Rogers, Bell, and Telus dominate wired and wireless broadband.

Although America isn’t even close to having the fastest broadband speeds, Powell wants you to know the speeds you do get are good enough.

“I think taking a snapshot and declaring us as somehow dangerously falling behind is just not substantiated by the data,” he says. He says it is like taking a snapshot of speed skaters, where there might be a few seconds separating the leaders, but no one is “meaningfully out of the race.”

That is why we still celebrate and honor Svetlana Radkevich from Belarus who competed in the speed skating competition at the Vancouver 2010 Winter Olympics. She made it to the finish line and ranked 33rd. Ironically, South Korea ranked fastest overall that year, taking home three gold and two silver medals. In Powell’s world, that’s a distinction without much difference. You don’t need South Korean speed and gold medals when Belarus is enough. That argument always plays well in the United States, where Americans can choose between Amtrak or an airline for a long distance trip. Who needs a non-stop flight when a leisurely train ride will get you there… eventually.

There are a handful of providers uncomfortable with the mediocre broadband slow lane. Google is among them. So are community broadband providers installing fiber broadband and delivering gigabit Internet speeds. EPB in Chattanooga is among them, and it has already made a difference for that city’s digital economy neither AT&T or Comcast could deliver.

Unsurprisingly, Powell thinks community broadband is a really bad idea because private companies are already delivering broadband service — while laughing all the way to the bank.

If a community really wants gold medal broadband, Powell says, they should be able to have it. But Powell conveniently forgets to mention NCTA’s largest members, including Comcast and Time Warner Cable, spend millions lobbying federal and state governments to make publicly owned broadband illegal. After all, cable companies know what is best.

All Things Considered recently asked its fans on Facebook, “How satisfied are you with your Internet service provider?” Many responded that they didn’t like their Internet service, that it often goes out and that their connection was often “painfully slow.” Listen to the full report first aired Jan. 11, 2014. (11:30)
You must remain on this page to hear the clip, or you can download the clip and listen later.

SaskTel is raising prices … and broadband speeds. (Image: CBC)

Internet access on the prairie is getting more expensive as provincial-owned phone company SaskTel notifies its Saskatchewan customers it is raising certain DSL and fiber broadband prices by $5 a month — a 14% rate hike.

Effective Feb. 1, prices for High Speed Classic DSL and fiber service will rise to at least $39.95 a month. For DSL customers, that means nearly $40 a month for 1.5Mbps service.

SaskTel, a crown corporation, is telling customers it needs the money to upgrade its network and maintain customer support.

The phone company has a bold plan to replace copper wire infrastructure with fiber to the home service in each of Saskatchewan’s nine largest communities: Saskatoon, Regina, Moose Jaw, Weyburn, Estevan, Swift Current, Yorkton, North Battleford, and Prince Albert. The fiber network, dubbed infiNET, is already operational in parts of Moose Jaw and will be introduced in Prince Albert this spring.

SaskTel has a range of price points for its fiber network ranging from $39.95 a month for 2/1Mbps service to 260/30Mbps service for $139.95 a month.

[flv]http://www.phillipdampier.com/video/SaskTel – Building the future with infiNET 5-30-13.mp4[/flv]

Sasktel’s $800 million fiber to the home project is Canada’s most ambitious, because it will blanker urban, suburban, and near-rural customers. This video explores innovations Sasktel is finding to deal with Saskatchewan’s harsh climate, including fiber cables that stay flexible at -40 degrees and directional boring to quickly and inexpensively install underground fiber to homes. (3:28)

A Wall Street research firm is asking questions about the “mixed messages” AT&T is sending consumers over its broadband offerings.

Ovum Research senior analyst Kamalini Ganguly said AT&T’s fiber to the home (FTTH) network in Austin — set to upgrade customers to 1Gbps next year — is likely to confuse AT&T and its shareholders over the future direction of AT&T’s current fiber to the neighborhood (FTTN) upgrade effort, dubbed Project VIP.

Having spent eight years deploying the U-verse FTTN service, a year ago AT&T chose to expand household coverage and upgrade speeds. That effort, called Project VIP, is still ongoing and until now has reflected AT&T’s projection that 45Mbps downstream (and 6Mbps upstream) should be good enough for the majority of its customers.

AT&T says it intends to boost part of its Project VIP footprint to 75Mbps or 100Mbps with VDSL2 vectoring, but the extent of this is unknown. It has also deployed a small amount of GPON FTTH in greenfield markets, typically designed to support 80–100Mbps to each household. Also as part of Project VIP, it plans to reach 1 million businesses with symmetric 1Gbps FTTH.

However, the GigaPower offering in Austin will be AT&T’s first 300Mbps or 1Gbps mass-market FTTH offering targeting consumers, not just businesses, in a major market. It is also a symmetric offering, meaning upstream will be 1Gbps as well. Those speeds are far higher than what Project VIP will deliver to the majority of consumers. The jump from 45/6Mbps to 1/1Gbps for consumers raises questions around its strategy. The cost issue looms large. Deploying 1Gbps point-to-point FTTH will continue to cost much more than GPON FTTH, which in turn still costs a lot more than FTTN – even with vectoring. AT&T needs to explain better what has changed from last year in the business case for FTTH over FTTN.

Wall Street is asking questions because AT&T has repeatedly denied its fiber project in Austin has anything to do with Google’s intention to offer a similar fiber network in Austin next year and everything to to do with its general broadband strategy. There is increasing skepticism about AT&T’s veracity on that point, particularly after AT&T announced pricing that was suspiciously similar to what Google charges its fiber customers in Kansas City and is likely to charge in Austin. Ovum’s researchers also took special note of AT&T’s intention to “examine its customers’ browsing habits in order to generate incremental revenues with targeted ads and commercial offers.”

There is evidence Google is proving a growing market disruptor, turning cable and telco industry pricing models upside down where the search engine giant threatens to compete. Industry plans to charge premium prices for incrementally faster broadband speed tiers is at risk with Google’s gigabit offer, priced at just $70 a month. Comcast charges up to $300 a month for considerably less speed. Community owned fiber broadband providers are increasingly adopting Google’s pricing model themselves. EPB in Chattanooga reduced the price of its 1Gbps tier from $300 to $70 earlier this year.

“By accepting a ceiling of $70, AT&T may be making it harder to break even,” writes Ganguly. “We may see lower prices cascading down for all broadband services. AT&T runs the risk of de-valuing its own broadband business and ultimately that of others too. On a more positive note, demand for 1Gbps was seen as questionable when prices were unaffordable for consumers and when multiple HD streams can be supported by 40–50Mbps. With these price levels however, demand may spike and boost the business case for 1Gbps.”

HissyFitWatch

A senior executive at Frontier Communications stormed out of a public meeting in Charleston Wednesday after being questioned about Frontier’s DSL broadband speeds that critics claim are below state standards.

Dana Waldo, senior vice president and general manager of Frontier’s West Virginia operations, got up and left the meeting after Citynet CEO Jim Martin began questioning Waldo about Frontier meeting the minimum broadband speed requirements mandated by the state legislature. It was not the first time the two have sparred.

Martin has been a frequent critic of the way the state has spent broadband stimulus funding. Much of it, Martin alleges, paid for the construction of a Frontier-owned and controlled statewide fiber network that will benefit the company more than the state and its residents.

Frontier and the State of West Virginia received more than $126 million of taxpayer money to subsidize the fiber network and the expansion of broadband service into rural areas of the state. Frontier agreed to offer a minimum of 4/1Mbps service to each home connected through the subsidy program.

Martin alleges Frontier has failed to offer consistent access to at least 1Mbps upstream speed, a charge Waldo vehemently denied.

“That is not correct, Jim,” Waldo said. “I wasn’t going to bring this up, but I am absolutely beside myself. I feel so sorry for you, that you are so desperate to make you and Citynet relevant and, apparently, keep it afloat. You make all these characterizations about us and everybody else.”

Waldo also accused Martin of making “misleading and defaming” comments about “my company and myself.”

Waldo

“My God,” Waldo added, “every allegation you make and everything you said, [federal officials] dispute, and you still bring up these allegations. I’m tired talking to you about this stuff. I’m tired of the misrepresentations you make. Jim, it’s over. I’m done talking to you. I’m done wasting my time responding to your mischaracterizations. I’m not going to sit here and waste my time and hear more of his nonsense. I’ll excuse myself.”

Martin said nothing in response as Waldo picked up his papers and left the Broadband Deployment Council meeting room.

Martin later told The Charleston Gazette he was just asking a question and repeated his assertion Frontier’s rural DSL service does not offer rural West Virginians at least 1Mbps upload speeds across the state. Martin added Waldo’s defense relied on news articles and documents now three years out of date.

“Both an independent consultant hired by the Governor’s Office, and the legislative auditor have confirmed what I said was true,” Martin said.