Frontier Communications continues to lose access line customers at a rate of 8.5 percent overall, 9.8 percent in the former Verizon service areas they acquired more than a year ago.  The company’s third quarter results show lackluster performance as revenue declines of 30 percent impacted both their residential and business customer units.

Company officials spent most of the question and answer session responding to Wall Street concerns about revenue, spending, promotions, customer churn, the company’s pension fund, and the outright defection of Frontier FiOS TV customers away from the fiber network the phone company inherited from Verizon.

Mike McCormack of Nomura Securities suggest the weak figures should concern investors because it may show Frontier unable to compete effectively with cable companies, which also offer phone service.

Frontier CEO Maggie Wilderotter put her best face forward trying to promote the company’s successes, particularly bringing DSL broadband to former Verizon service areas:

“Our broadband expansion reached an additional 126,000 new homes in the acquired properties during the quarter, bringing our year-to-date total to 352,000 which is on track to reach our 2011 goal of increasing broadband availability to more than 400,000 additional homes. Broadband availability in the acquired properties is now 80%, a significant increase from the mid-60% range when we acquired them. As a result of our expansion and sales efforts, we had a very strong quarter for broadband growth, adding 16,900 total DSL subscribers, a 38% sequential increase from Q2. We also added 2,300 wireless data customers. This growth reflected the effectiveness of our local engagement model, as well as organic demand for broadband in both legacy and acquired properties.

“We have also largely completed our efforts to migrate middle mile congestion, which now gives us the ability to more effectively market higher speeds in markets that were already enabled.”

Frontier executives sought to portray West Virginia as their biggest success story.

Daniel J. McCarthy, Frontier’s chief operating officer and executive vice-president, claims Frontier’s installation of 12 integrated fiber rings throughout the state provides broadband capacity and integrated network capability beyond what is available anywhere else in the United States from a state-wide perspective.  McCarthy claims Frontier is on track to turn West Virginia from one of the least connected states in the nation to one of the most connected.

But Margaret Kings from MacArthur, W.V. says she’ll believe it when she sees it, and she hasn’t seen it yet.

“My extended family has experienced endless problems dealing with Frontier in this state, and I have relatives in the Panhandle to boot,” Kings says. “We have collectively won more than $300 in service credits for out of service broadband and phone service, slow speeds when it rains, and missed appointments, billing errors, sneaky charges, and contract disputes.”

Kings’ immediate family left Frontier for Suddenlink more than a year ago when she moved.

“Why pay Frontier more for phone service and 1.7Mbps broadband when I can pay Suddenlink less for their phone service and 10Mbps Internet access,” she asks.

Frontier hopes to win back former customers with new broadband services, such as their newly-introduced “Second Connect” service, which delivers a second DSL line for existing broadband homes for what the company claims is $14.99 a month.  Frontier says a few thousand customers have signed up for the service, which is now being pitched aggressively by Frontier’s call centers.

But some customers who have signed up for the service are accusing Frontier of billing fraud for wildly misleading customers about the true cost of the service.

The $14.99 price tag Frontier advertises omits modem rental fees, taxes, surcharges, and other fees customers first discover on their monthly bill.

Chris Photoni discovered, after five calls and a combined two hours on hold, the true out-the-door price for Frontier Second Connect is actually $48 for him.  The Broadband Reports reader elaborates:

Don’t waste your time. Even after the ‘corrections’ the Second Connect line cost around $48. I say ‘around,’ [because] I haven’t met a staff member yet that could correctly calculate tax. How convenient for you Frontier. Their computer system can calculate it for your bill, but is unable to calculate it when inquiring about the service.

The new ‘taxes’ come to $27.64!

Frontier is one of the worst phone companies. They have terrible customer service, and the wait times usually seem to be 20-30 minutes per call. Most issues take at least THREE calls to resolve. I’ve actually have been on hold for 25 minutes as I’m writing this.

Kings said she wouldn’t have bothered inquiring about Second Connect in the first place.

“Let me understand this,” she writes. “The same phone company that offers 1.7Mbps to my house wants another $15 a month to ‘double my speed?’  I could pay $100 a month to Frontier for 3Mbps broadband along with my phone line or pay Suddenlink $100 for 10Mbps broadband, phone and cable-TV service.”

Other highlights from the conference call:

• Frontier is getting into the home security business in a two state trial with ADT and Protection 1.  Customers will be strongly encouraged to bundle the home security service with other telecommunications products to hold them in contracts and provide discounts up to 15 percent;
• Frontier will begin to resell AT&T wireless voice and data services in bundles with existing products. Frontier plans to trial this service during the first half of 2012 before expanding it nationally.  This service is only going to be available to bundled service customers.  Why customers wouldn’t pursue an agreement with AT&T themselves, without the phone company’s involvement, isn’t well-explained;
• The company plans no significant high-value promotional offers for the 4th quarter.  They didn’t pitch any during the 3rd quarter either.  Customers with pre-existing promotions, including “free satellite TV for 2011” or “six months of free DSL” will find their bills rising considerably as those promotions expire in the next few months;
• Frontier’s pension plan is not in the best shape.  The company had to contribute $58 million of real estate to the plan fund to manage investment losses for the year;
• Frontier’s $500 FiOS installation fee has effectively kept new customers away from the fiber network.  Although the company claims it wants to maintain support for FiOS, video customers have left in droves and a smaller number of broadband customers have left as well, primarily for Comcast;
• Frontier plans to continue investment in its middle mile network to handle broadband traffic growth in 2012 and 2013.

Windstream disappointed Wall Street Friday when it reported a 16 percent income drop for the third quarter of the year, surprising investors who expected more from the Little Rock, Ark. phone company.

Windstream is attempting a makeover as it attempts to shed its image as a residential landline service provider for brighter prospects delivering business telecommunications services.  But shareholders weren’t impressed as company officials noted the company has increased spending on capital projects like data centers and wiring cell phone towers with fiber optics and the $840 million acquisition of Fairport, N.Y.-based PAETEC Holding Corporation.

Most of Windstream’s successes are tied to the company’s business products and services.  The company reported growth selling advanced Internet products to corporate customers, including virtual LAN services and dedicated Internet access.  A considerable amount of the company’s Internet revenue growth is coming from data center services such as webhosting and wireless backhaul circuits sold to cell phone providers.

Windstream’s residential customers can be split into two groups: traditional landline users who are increasingly disconnecting their service and those who are buying DSL service to accompany their existing phone line.  Windstream reported another 4.6% of their residential customers permanently disconnected service this year.  Windstream’s largely rural customer base has remained more loyal and the company added an additional 8,000 DSL customers during the quarter, a growth of 4.4%.  Windstream’s penetration rate for broadband among their landline customers is 65%.

Keeping broadband customers loyal to DSL requires regular service improvements to avoid customer poaching by cable competitors, and Windstream is attempting to keep up with a $40 million investment to improve broadband speeds, including the introduction of advanced VDSL service in selected areas.

Whittington

“We increased broadband speeds to residential and business customers that can now offer 12Mbps service to over 40% of our footprint and 24Mbps service in our most competitive markets,” said Windstream chief operating officer Brent K. Whittington. “We expanded our Raleigh data center to increase the floor space by 10,000 square feet to keep up with the rapidly growing customer base and demand for cloud-based services.”

Whittington notes customers that hunger for faster broadband speeds are using them largely to watch online video, and Windstream has begun marketing campaigns targeting video-hungry customers.  Customers using the Internet for basic web browsing and e-mail are not very interested in paying more for faster service, however.

“Customers still don’t want to pay incrementally for higher speed services,” Whittington said. “We try to position Windstream as all the speed you need, which is really trying to help make sure customers understand our parity with cable as it pertains to speeds because some of the perceptions around traditional ADSL services, they’ve used against us, and that’s working for us. But again, customers really just, we find, don’t want to spend a lot more for incremental speeds. We see that as revenue upside in the future, but not seeing a great deal of demand there right now.”

While Windstream customers will likely find current product pricing stable over the coming year, the FCC’s recent approval of Universal Service Fund (USF) reform does allow the phone company to raise rates on customers.  Some Wall Street investment firms have suggested Windstream do precisely that to boost revenues.

Timothy Horan from Oppenheimer & Co., Inc. noted Windstream’s local rates seem low.

“I don’t think they’ve been raised for a long period of time,” Horan observed. “I think you have to go through some [state regulators], but can you do that without having rate cases, and is that part of the plan at all?”

Anthony W. Thomas, Windstream’s chief financial officer, tried to put Horan at east.

“The FCC has provided a mechanism, it is our understanding, in the order that will allow us to pass along price increases up to $0.50 per month to our customers over a 5-year period,” Thomas explained.

This dollar-a-holler astroturf effort failed to impress Longmont voters, who turned back a Comcast-funded opposition campaign to open up the city's fiber network.

Longmont, Col. residents turned their backs on a Comcast-funded campaign to block the opening of the city’s 17-mile fiber loop to competing broadband providers in a strong vote of approval.

As of early this morning, 60.8% of voters approved Ballot Question 2A.  Just 39.2% opposed the measure.

Longmont’s fiber network, built in 1997 and paid for by the Platte River Power Authority, has heretofore been off-limits to the public.  Colorado’s 2005 corporate welfare laws guarantee that taxpayer or ratepayer-funded broadband networks are kept away from the public that paid for them, for the protection of companies like Comcast and CenturyLink.

This results in the construction of showcase institutional fiber optic networks open to government, public safety, hospitals, and libraries… and practically nobody else.  Once built, institutional networks often go underutilized.  In Longmont, at least two-thirds of the city’s fiber optic network still goes unused 15 years after it was built.

The city government hoped to open the fiber network in time to bolster their application to Google to construct a gigabit network for residential and business customers, but after Google selected Kansas City for its fiber project, Longmont wants to keep its options open.  Passing the ballot question does exactly that.

“I’m glad to see 2A won,” Mayor Bryan Baum told the Times-Call. “I think it shows that money isn’t the determinator.”

Longmont voters were subjected to one of the most expensive pushback campaigns they’ve ever seen, thanks to Comcast, who spent $300,000 and counting to get the public to turn against the fiber network ballot question.

George Merritt, a spokesman for the cable-funded group Look Before We Leap, claims the vote results show “the measure’s narrow margin of victory.”  Merritt’s group relied heavily on a highly-suspect 2006 case study by University of Denver professor Ron Rizzuto that claimed 80 percent of community-owned Wi-Fi broadband networks failed to make money.  But the group didn’t make any distinction between Wi-Fi and fiber optics, and more importantly they left out the fact Rizzuto was inducted into the Cable TV Pioneers in 2004 for service to the cable industry.  Rizutto’s “study” was a classic case of dollar-a-holler research on behalf of the New Millennium Research Council, a creature of the telecommunications industry.

New Millennium Research Council -> Issue Dynamics -> Comcast

In fact, the Council is a “project” of Issue Dynamics, Inc., a for-profit, high powered Washington lobbying firm. Issue Dynamics’ client list includes Verizon, Comcast, AT&T and the United States Telecom Association – the trade association for the telecom industry.  The direct relationship between Rizzuto’s findings, and cable companies like Comcast who paid for the research, never made it into the report (or onto the group’s website).

This is the second time Longmont voters have cast ballots on the issue of the city’s fiber optic network.

In 2009, voters faced another cable industry-funded astroturf effort, with $245,000 spent to successfully defeat a similar measure.  This time, thanks in part to public exposure of the companies pulling the strings behind the astroturf campaign, voters rejected the propaganda onslaught and passed the measure.  Cable bills have also increased several times since the 2009 measure, a reminder to the public why competition can make a real difference.

With the passage of 2A, the city can choose to leave the network exactly as it is today or partner with another provider to offer services to the public.  It’s now their choice, not Comcast’s.

Cablevision executives reported dismal financial numbers for the third quarter of this year, as the cable company lost 19,000 cable television customers while profits plummeted some 65% at the Bethpage, N.Y.-based company.

Not even 17,000 new broadband customers could erase the damaging losses incurred by Cablevision cord-cutting, some of it as a result of the cable operator’s damaging retransmission consent disputes that deprived viewers of popular local broadcast outlets and cable channels.  The company lost so much subscriber goodwill, company executives admitted they pared back an anticipated rate increase just to protect themselves from further customer defections.

Programming disputes like this one with WABC-TV and their parent company Disney caused more than a few Cablevision customers to head for the competition.

Cablevision, like Time Warner Cable before it, won’t admit that cable cord-cutting is responsible for what one investment bank fears could be the start of an “ex-growth” era in cable television.  Instead, Cablevision executives continue to blame the poor economy for subscription losses, as well as aggressive pricing competition from their biggest rival — Verizon FiOS.  Adding pressure is the relentless demand for higher programming fees, which directly translates into relentless annual rate increases for cable television service.

“With regard to programming [costs, they are] an issue and it is an expensive part of our business.  It is the single biggest cost item we have,” said Gregg G. Seibert, Cablevision’s chief financial officer and executive vice-president. “And the fact that retransmission consent became necessary from the eyes of broadcasters, particularly after the 2008 recession, has been flowing through our business, and there was a large step up [in fees]. I think that the overall rate of programming [costs] going forward will moderate to some extent naturally.”

Seibert called the aggressive retransmission consent fee disputes between broadcasters and cable operators evidence of the collapse of the traditional “free TV” business model.  Because ad revenues are down, broadcasters are increasingly dependent on fees charged to cable operators for permission to include their stations on the cable dial.  That means cable subscribers are increasingly subsidizing the broadcast television business.

Seibert

Seibert’s revelation came too late to stop some of the nation’s most visible retransmission consent battles between Cablevision and network-owned New York-area television stations and cable networks.  When Cablevision blacked out a local station showing coverage of the World Series during the last dispute, fed up customers decided to take their cable business to Verizon or a satellite TV provider.

Cablevision has been trying to lick their wounds ever since, launching increasingly aggressive pricing promotions and “free gift” offers to keep existing customers while trying to win back old ones.

“We’ve recently introduced an offer that includes a new Apple iPod Touch primarily for win back situations,” said Thomas M. Rutledge, chief operating officer.  “Selling for the Triple Play package of video, data, and voice is now at 74% and roughly half of this selling is for our new Ultimate Triple Play, which includes a new higher-priced Boost Plus [broadband] service and a wireless router.”

Cablevision achieves triple-play signups by heavily discounting the package for new and returning customers.  It also hopes to succeed with a ‘more for less’ pricing strategy, delivering new features and services without necessarily charging extra for all of them.  With discounts, free gifts, and additional services, Cablevision is getting some of their old customers back.

Selling faster broadband is a key component in Cablevision's strategy to attract more broadband customers. Boost Plus delivers 50/8Mbps service for an additional $14.95 a month.

“As of September 30, our win back total is more than 45% of customers who once tried Verizon FiOS,” Rutledge claims.

Rutledge noted Cablevision’s participation in the industry’s TV Everywhere online video initiative has grown even stronger with the recent agreement to provide Cablevision cable-TV customers free access to Turner-owned cable network programming.

Seibert admits the more competitive business environment and high profile programming disputes in suburban New York City are impacting profits.

“We had a few significant items in the quarter affecting our results including higher programing costs and higher sales in marketing as we continue to aggressively promote our products and services while revenue growth was essentially flat,” Seibert said.

Those challenges are creating a sense of unease on Wall Street regarding the cable business’ core product: cable television and the increasingly aggressive pricing promotions necessary to keep customers from disconnecting service.

“There is growing concern among the investor community about [the] whole [cable] industry going to ex-growth,” said Jason Bazinet from Citigroup.

Rutledge

“Programming costs are rising faster than video revenues,” Sanford C. Bernstein, an analyst for Craig Moffett, told the Wall Street Journal. “Unless there’s growth somewhere else in the business model, you’ve got the worst of all worlds: a slow-or no-growing business with lower margins.”

Rutledge outlined Wi-Fi and broadband enhancements as part of Cablevision’s priorities for the upcoming quarter:

“We’ve been building out a Wi-Fi network and we’ve had continuous subscriber utilization increases on that network.  We now have more than one-half-million devices out there that can use Wi-Fi and watch our full cable television service in the home.

“And we’re deploying a new Boost product with higher speed broadband, which includes a more sophisticated wireless router as part of that package.

“We think Wi-Fi is a major strategic part of our business. We think that we can continue to take advantage of that. We think our video product today as a result of Wi-Fi is a superior product to our competitors – all of our competitors, and we think that our data service is enhanced by the Wi-Fi outside the home, and we continue to try to build value for our customers and take market share.”

The cable company is already aggressively marketing its Boost Plus service, which delivers 50/8Mbps broadband for an additional charge of $14.95 a month on top of the standard broadband rate.