Losing customers.

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

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

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

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

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

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

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

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

Wilderotter

Frontier Claims Its DSL Service is Better Than Cable Broadband

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

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

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

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

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

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

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

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

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

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

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

Frontier Faster? Frontier announces line bonded DSL.

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

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

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

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

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

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

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

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

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

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

One of the conditions Comcast had to agree to as part of its multi-billion dollar deal to acquire NBC-Universal was to throw a bone to some of America’s poorest households by offering discount Internet access for three years.  Comcast agreed and is rolling out low-speed Internet at a discount in time for the upcoming school year.

“Comcast Internet Essentials,” is the ultimate in bare-bones Internet.  For $9.95 a month, customers in Comcast service areas will get 1.5Mbps download speed and 384kbps upstream, with the usual 250GB usage limit Comcast applies to everyone.  But not just anyone can qualify.  Comcast has limited the program only to households with at least one child qualified to receive free (not discounted) school lunches under the National School Lunch Program.  So if your income-challenged household doesn’t include children, or you pay for your own school lunches, you are out of luck.

Comcast is also denying access to anyone who has had any level of Comcast Internet service within the last 90 days.  So if you’ve scraped enough money together to pay Comcast’s regular prices, the cable company is not going to give you a break.

If your kids graduate or are removed from the school lunch program, your inexpensive Internet service goes with it.

If you have been late on a Comcast bill, or owe the company for unreturned cable equipment, you also cannot receive the service.

The company will also provide vouchers for a “discounted laptop” for $150 — a computer that turns out to be a netbook.  At least it comes with Windows 7 (Starter Edition).

Comcast requires would-be customers to start with an application, available by phone, at 1-855-8-INTERNET (1-855-846-8376).  The merger approval agreement required Comcast to provide the service for three years.  Guess what happens to it when the requirement ends.  No matter — Comcast is turning the entire affair to its public relations advantage, showing up on various media outlets promoting the program as if Comcast thought it up on its own.  Not quite.  We have three questions:

1. How many consumers would sign up for the service if Comcast offered $9.95 1.5Mbps to anyone who wanted it?
2. How many might consider downgrading their current service for something less expensive, especially if they are only interested in occasional web browsing?
3. Will the “digital divide” Comcast decries today be magically gone at the end of three years, when they quietly drop the program?

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/KRIV Houston Comcast Internet Essentials 8-8-11.mp4[/flv]

KRIV-TV in Houston explores the various conditions Comcast places on its Internet Essentials program.  (2 minutes)

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/CNN Low Cost Internet 8-10-11.flv[/flv]

Comcast’s David Cohen appeared on CNN promoting Comcast’s Internet Essentials as a way to “bridge the digital divide” — a disparity of access American ISP’s originally created with their excessively high-priced Internet services. (3 minutes)

Despite the ongoing loss of cable television subscribers who are dropping video packages, broadband remains an incredibly important, and profitable component of today’s telecommunications industry.  Comcast, America’s largest ISP, now has 17.55 million customers, earning the company $2.2 billion dollars every quarter, which amounts to nearly $9 billion a year.  That amounts to an addition of 418,000 broadband customers for Comcast during the last quarter alone, the most Comcast has ever added since the first quarter of 2008.

For the second quarter of 2011, Comcast’s capital expenditures increased 5.5% to $1.2 billion, reflecting increased investment in network infrastructure to enable product enhancements, including faster speeds in high-speed Internet, as well as increased investment to support expansion in business services. Cable capital expenditures equaled 12.6% of Cable revenue in the second quarter of 2011.

For the six months ended June 30, 2011, Cable capital expenditures increased 10.0% to $2.2 billion, representing 12.1% of Cable revenue.

Time Warner Cable scores a distant second among cable companies with 9.99 million subscribers; Cox is third with 4.4 million.

Among the phone companies, AT&T remains the largest with 16.48 million customers.  Verizon is a distant second with 8.49 million customers.

Leichtman Research Group, Inc. found nearly 77 million Americans have broadband service from the 19 largest providers, which represent about 93 percent of the broadband market.

Almost every customer had the choice of two or fewer providers — a cable company and/or a telephone company.

Sources: The Companies and Leichtman Research Group, Inc.
* LRG estimate
** Includes LRG estimates for Bright House Networks, Mediacom, and RCN
^ CenturyLink acquired Qwest on 4/1/11
Company subscriber counts may not represent solely residential households
Totals reflect pro forma results from system sales and acquisitions
Top cable and telephone companies represent approximately 93% of all subscribers

The Federal Communications Commission today released MEASURING BROADBAND AMERICA, the first nationwide performance study of residential wireline broadband service in the United States.  The study examined service offerings from 13 of the largest wireline broadband providers using automated, direct measurements of broadband performance delivered to the homes of thousands of volunteers during March 2011.

Among the key findings:

Providers are being more honest about their advertised speeds: Actual speeds are moving closer to the speeds promised by those providers.  Back in 2009, the FCC found a greater disparity between advertised and delivered speeds.  But the Commission also found that certain providers are more likely to deliver than others, and certain broadband technologies are simply more reliable and consistent.

Fiber-to-the-Home service was the runaway winner, consistently delivering even better speeds than advertised (114%).  Cable broadband delivered 93% of advertised speeds, while DSL only managed to deliver 82 percent of what providers promise.  Fiber broadband speeds are consistent, with just a 0.4 percent decline in speeds during peak usage periods.

Cable companies are still overselling their networks.  The FCC found during peak usage periods (7-11pm), 7.3 percent of cable-based services suffered from speed decreases — generally a sign a provider has piled too many customers onto an overburdened network.  One clear clue of overselling: the FCC found upload speeds largely unaffected.

DSL has capacity and speed issues.  DSL also experienced speed drops, with 5.5 percent of customers witnessing significant speed deterioration, which could come from an overshared D-SLAM, where multiple DSL customers connect with equipment that relays their traffic back to the central office, or from insufficient connectivity to the Internet backbone.

Some providers are much better than others.  The FCC found some remarkable variability in the performance of different ISPs.  Let’s break several down:

• Verizon’s FiOS was the clear winner among the major providers tested, winning top performance marks across the board.  Few providers came close;
• Comcast had the most consistently reliable speeds among cable broadband providers.  Cox beat them at times, but only during hours when few customers were using their network;
• AT&T U-verse was competitive with most cable broadband packages, but is already being outclassed by cable companies offering DOCSIS 3-based premium speed tiers;
• Cablevision has a seriously oversold broadband network.  Their results were disastrous, scoring the worst of all providers for consistent service during peak usage periods.  Their performance was simply unacceptable, incapable of delivering barely more than half of promised speeds during the 10pm-12am window.
• It was strictly middle-of-the-road performance for Time Warner Cable, Insight, and CenturyLink.  They aren’t bad, but they could be better.
• Mediacom continued its tradition of being a mediocre cable provider, delivering consistently below-average results for their customers during peak usage periods.  They are not performing necessary upgrades to keep up with user demand.
• Most major DSL providers — AT&T, Frontier, and Qwest — promise little and deliver as much.  Their ho-hum advertised speeds combined with unimpressive scores for time of day performance variability should make all of these the consumers’ last choice for broadband service if other options are available.

Some conclusions the FCC wants consumers to ponder:

1. For basic web-browsing and Voice-Over-IP, any provider should be adequate.  Shop on price. Consumers should not overspend for faster tiers of service they will simply not benefit from all that much.  Web pages loaded at similar speeds regardless of the speed tier chosen.
2. Video streaming benefits from consistent speeds and network reliability.  Fiber and cable broadband usually deliver faster speeds that can ensure reliable high quality video streaming.  DSL may or may not be able to keep up with our HD video future.
3. Temporary speed-boost technology provided by some cable operators is a useful gimmick.  It can help render web pages and complete small file downloads faster.  It can’t beat fiber’s consistently faster speeds, but can deliver a noticeable improvement over DSL.

More than 78,000 consumers volunteered to participate in the study and a total of approximately 9,000 consumers were selected as potential participants and were supplied with specially configured routers. The data in the report is based on a statistically selected subset of those consumers—approximately 6,800 individuals—and the measurements taken in their homes during March 2011. The participants in the volunteer consumer panel were recruited with the goal of covering ISPs within the U.S. across all broadband technologies, although only results from three major technologies—DSL, cable, and fiber-to-the-home—are reflected in the report.

Comcast's touch control panel delivers alarm functions, home automation, and even weather updates.

Verizon Communications, Bright House Networks, Comcast/Xfinity, and Time Warner Cable are all on the verge of making a major new push to get customers to consider signing up for home security through their respective bundled offerings.  It’s just the latest new way telecommunications companies are responding to Wall Street’s insatiable quest for growth in the average revenue earned from each customer.  But how good are these services, and how much are they going to cost?

Time Warner Cable has offered security monitoring in a number of legacy markets inherited from their former owners.  But now the company is beta testing an entirely new suite of home security applications in cities like Rochester, N.Y., with the hope of introducing the service later this year in additional markets.

Time Warner Cable and Bright House seem to be jointly testing a similar system, designed to compete with 24/7 home alarm monitoring providers like ADT or GE Home Security.  Although price points have not yet been announced, Stop the Cap! has learned the cable company intends to test a basic package of home monitoring including a limited number of monitored doors and windows for between $25-30 a month, not including upfront costs and installation.

Like other alarm providers, additional services and protected points of entry will cost extra.  The next generation of home security from Time Warner Cable will be controllable from apps for iPad and smartphones, in addition to a touchscreen control panel supplied with the system.  By integrating the system with your home broadband connection, you can stream video from security webcams and configure alerts for any number of events.

Bright House’s proposed system, for example, would let you set a text message alert when the kids got home from school.  Want to know if someone sneaked out of the house in the middle of the night?  The security system can alert you to that as well.

Comcast/Xfinity has been rolling out a similar system in some of their markets. XFINITY^® Home Security also delivers monitoring services, and provides remote access over the Internet.  It will also let you remotely control home appliances, lighting, and any installed web cameras.  Away from home and want to see if your spouse is up to no good?  Now you can quietly spy on anyone in your home while you are away.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Comcast Home Security.flv[/flv]

XFINITY Home Security System from Comcast is explained in this promotional video from Comcast.  (3 minutes)

Comcast’s basic monitoring package doesn’t include many of the coolest add-ons like video monitoring and access to a modern touch-based control panel that also serves up weather forecasts and even sports scores.  Many customers end up with the “Preferred Package” because it delivers a much wider range of protective services.  The service tested successfully in Houston and is now also available in Philadelphia, Portland, Jacksonville, Sarasota/Naples, Chattanooga and Nashville.

Comcast didn’t reinvent the wheel with their security system.  They rebranded iControl Networks’ Open Home automation and security platform.  Pricing?  $199 for the “basic package” that didn’t impress us, or $299 for the “preferred” package which comes with the bells and whistles.  Installation is sometimes included in those prices, but a $50 “activation fee” also applies.  Expect to pay $30 for basic monitoring, $40 for “preferred” monitoring each month for a minimum of three years — an early termination fee applies if you cancel early.  Also expect to pay more for any optional extras you add.

Verizon's alarm system was promoted at this year's Consumers Electronics Show.

Verizon Communications’ new ominously-named “Home Monitoring and Control” system is powered by its fiber to the home FiOS service.  Introduced at this year’s Consumer Electronics Show, Verizon has teamed up with lock-maker Schlage, who manufactures the “smart door locks,” and Motorola, which throws in 4Home, their home automation platform.  Trane even includes a smart-thermostat, remotely controllable.

Unlike systems sold by cable competitors, Verizon’s is budget-minded, priced at just $9.99 per month.  But the system package at that price is not remotely monitored and was designed to be sold to the do-it-yourself type. For ten bucks, you get to control everything through your television set top box, smartphone, or tablet computer.  If you want more, you pay more.  An upgraded package includes remote door locking/unlocking and remote controllable webcams that you can pan and zoom.

The deluxe package throws in the remote monitoring service and a smart-home energy use suite that let’s you monitor and control energy consumption of your home appliances.

“The more services they can get someone to sign up for, the stickier that customer is to them,” said Bill Ablondi, director of home systems research for the Parks Associates market research firm.

Most systems will come with a term contract of 12-36 months, and many could fetch discounts for heavily-bundled customers.  Most insurance companies also provide up to a 15 percent discount on homeowner policies for remotely monitored burglar and fire detection systems.

For the cable and phone companies, home security could easily bring another $40 a month in revenue and put many cable bills north of $200 a month in combined services.  Since virtually all of the systems were developed by third parties, development costs are low, and since existing broadband service in most homes provides ready connectivity to an alarm monitoring center, the costs to provide the service are minimal.

For existing security companies, the pending threat of big cable and phone companies eating their business for breakfast isn’t one they are taking lying down.

ADT is developing its own suite of home automation and security monitoring, and didn’t waste anytime taking a swipe at the cable companies.

“We’ve been in this business for 135 years,” said ADT spokesman Bob Tucker, starting with telegraphs and personal security. As for Bright House and Verizon, he said, “Would you really want to trust the security of your home and family to the same people that install HBO?”

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Verizon Makes a Connected Home a Reality.flv[/flv]

Verizon’s forthcoming home security and automation system is promoted in this company-supplied video.  (1 minute)