AT&T shareholders are frustrated. They are not getting the dividend payouts and shareholder value they expected after AT&T put itself $170 billion in debt last year — the highest debt load of any non-financial American corporation.

As AT&T has bet big in recent years on video-related acquisitions, including DirecTV and Time Warner (Entertainment), investors are skeptical AT&T can properly monetize its video business. Many have sold shares after criticizing company executives over the company’s strategy and high debt, driving AT&T’s market capitalization down to around $225 billion, comparable with considerably smaller Verizon Communications.

But no worries, AT&T CEO Randall Stephenson, has reassured. AT&T expects those investments to yield results this year, helped by forthcoming broad price hikes for AT&T’s consumer services.

“2019 candidly is the money year,” Stephenson said in an interview with the Wall Street Journal. “This is a year when we get everything rationalized.”

According to AT&T, customers are irrationally paying too little for AT&T’s video-related services, which include DirecTV (~19 million customers) and DirecTV Now — the two-year old streaming service that has attracted nearly two million subscribers.

Stephenson

Although DirecTV has recently been extremely aggressive about offering deep discounts to convince satellite customers to stay, AT&T plans to pull back on those discounts as two million DirecTV customers see their two-year contracts end this year. Instead of granting renewed discounts for signing another contract, AT&T plans to deliver significant rate increases.

“As those customers come due, we’ll get closer to market pricing,” AT&T’s John Donovan told investors at a November investor conference. “We’ll be respectful of our customers, but [prices] will move up.”

That may prove a difficult sell for DirecTV satellite customers, who have recently been abandoning the satellite platform in favor of cheaper streaming TV alternatives. Even with package discounts, DirecTV is the pay television industry’s most expensive provider, collecting an average of $120.36 a month for its TV packages. In contrast, Dish Networks gets an average of $103.99, Charter Spectrum earns $91.14 and Comcast, $84.50.

DirecTV defections, largely over price, have been growing at an accelerated rate, with 1.4 million customers turning their back on the satellite provider over the last two years. Analysts expect AT&T will report 300,000 more lost subscribers in the last three months alone. At that rate, AT&T will lose at least $1 billion in operating profits in 2019 from its declining satellite TV unit alone.

(Image courtesy: WSJ)

DirecTV Now customers, who already absorbed a $5 rate hike last summer, and will face even more rate increases and channel reductions in 2019. Stephenson expects DirecTV Now’s price point to be in the $50-60 range, which means many customers will likely face an average of $10 in rate hikes this year. For AT&T, that would deliver “the right price” and gets the service “to where it is profitable,” according to Stephenson.

But customers are likely to balk if AT&T reduces channel lineups at the same time it raises prices. AT&T has already faced substantial DirecTV Now customer defections after last summer’s rate increase, and the company has also reduced new customer sign-ups by cutting back on new subscriber promotions, which often included a free set-top streaming device. Waiting to pick up exiled streaming and satellite customers are AT&T’s competitors, especially Google. YouTube TV has proved to be a DirecTV Now killer, now charging $40 a month for 60+ channels. It also comes with an unlimited cloud DVR feature and a complete lineup of local channels across most of the country. YouTube TV is reportedly still growing, attracting more than one million customers so far. AT&T executives claim the service is popular only because Google is suspected of subsidizing what they believe to be an unprofitable venture by around $9 a month.

Investors are also unhappy about customers slimming down their TV packages, because average revenue per customer is cut in the process, sometimes dramatically. Wall Street was accustomed to video packages bringing in at least $100 a month. In many cases, that revenue is cut in half after a customer switches to a streaming provider. AT&T hopes investor pressure on those new ventures and ongoing wholesale programming rate increases will both conspire to bring back familiar annual rate hikes for streaming services as well. Programming cost inflation almost feeds itself. As programmers set new wholesale rate records for their networks, other programmers believe there is now room to raise their wholesale rates as well.

Programming costs are not just important for consumers, either. Wholesale programming rate inflation was one of the reasons AT&T spent $49 billion to acquire DirecTV. Volume discounts for DirecTV meant the satellite provider was paying an estimated $20 a month less on programming than AT&T’s own U-verse unit, which had a much smaller customer base. AT&T’s purchase of Time Warner, which owns several popular cable networks, was also a hedge against programming rate increases because AT&T would effectively pay any increases to itself.

(Image courtesy: WSJ)

The Journal reports AT&T executives were unprepared for the speed cord-cutting has taken hold. Most most under-30 have abandoned the concept of paying for live, linear cable television at any price, preferring a combination of on-demand streaming from Netflix, Hulu, and other video streaming services with an over the air antenna to watch local stations for free. Older Americans are gradually following suit.

According to the Journal, AT&T’s latest tactic to slow down customer departures is to make cancellation as difficult as possible:

“There’s no way that we could make the numbers we were told to make,” said Altrina Grant, former manager of a Chicago-area AT&T call center. She said some agents would promise to call back a customer about a request to drop service rather than immediately disconnecting, which would count against their compensation. Irate customers would later call another employee to ask why their request wasn’t honored, she said.

“These reps were getting thousands of dollars because they knew how to manipulate the system,” Ms. Grant said.

Cyrus Evans, a former call-center manager in Waco, Texas, said employees’ pay could swing between $50,000 and $80,000 a year depending on their performance, which was often influenced by how many disconnection requests they could deflect. Mr. Evans said employees often got angry calls from customers who had been promised their service would end, only to receive a bill the next month. He said the incentive structure rewarded bad behavior.

Former AT&T workers said the company launched a new audit team in 2017 to crack down on support staffers making promises they couldn’t keep. Ms. Grant said this initiative led the company to fire some workers but several customer-care executives are still in their jobs.

AT&T disputes these allegations, claiming false promises to customers violate AT&T’s Code of Business Conduct and are “extremely rare.”

“Charter Spectrum has been kicked out of the state of New York and has a 60 day transition period to allow those customers time to find a new provider,” a sales representative told a Charter customer in New York recently. “[She] would love to be the first to put together a proposal.”

That sales pitch was part of two exhibits offered by Charter Communications to back its claims it is being treated unfairly in New York because regulators have asked the company to make preparations to leave the state and competitors are taking full advantage.

“Although highly sophisticated entities familiar with regulatory litigation may understand that there will be legal proceedings regarding the Revocation Order and that it may ultimately never take effect, the potential for confusion among other current and prospective customers who lack such experience with the legal and regulatory process is significant,” company officials argued. “Charter’s competitors have already attempted to take advantage of the Revocation Order. For example, Verizon has already begun reaching out to several of Charter’s significant customers, including residential management companies in New York City. Verizon representatives have asserted that Charter will no longer be permitted to operate in New York State as a result of the Revocation Order, and have offered Verizon’s services as a substitute.”

Charter also claimed Verizon representatives were suggesting Charter was leaving the New York market and that customers had to (falsely) disconnect their Charter service.

“Such exploitation by Charter’s competitors is likely to increase and be amplified if Charter is required to file a public wind-down plan for exiting the state,” the company added.

Homeowners in Greenhills, Ohio woke up one morning recently to discover anonymous contractors unspooling cable and planting orange-colored PVC pipes along a Hamilton County right of way on Sharon Road, straddling the communities of Greenhills and Forest Park.

Technological mysteries are uncommon in Greenhills, a planned community built in the 1930s as part of President Franklin Roosevelt’s New Deal program. Greenhills was designed to be surrounded by a “belt” of nature, drawing people out of dilapidated urban settings and into quiet, tree-filled neighborhoods. Many who were offered homes in Greenhills by the Resettlement Administration never left, and their descendents still live in the homes their parents or grandparents once did.

Considering the slow pace of change and the desire to stay a quiet enclave, it should come as no surprise that many residents are disturbed about the quiet invasion of 5G small cells that will be going up all over town, especially because the owner won’t come forward and explain the project.

That layer of secrecy has brought suspicion among neighbors, even those younger ones that understand how much faster 5G service could be over 4G service available today.

“For me, I’d rather not be the guinea pig,” Andrew Steele told WCPO-TV. “That would be terrible,” Anna Steele, Andrew’s wife, added. “That would be horrible. Also, do we really even need it?”

A closer inspection of the infrastructure being installed shows Verizon is the most likely silent operator, which makes the prospect of millimeter wave 5G service for the community of 3,600 very likely. That could mean a new home broadband competitor in the area. But many residents do not want an option that includes small cell antennas.

Monique Maisenhalter told the TV station she was concerned about cell tower radiation causing damage to health and the environment, although such evidence is open to debate.

She and nearly 50 of her neighbors have signed a petition asking for the construction to cease until “more is known.”

Some believe there is no need for 5G service when 4G works well enough. Others are concerned about property values being lowered by the presence of multitudes of small cell antennas. Others object to the fact the equipment is being installed without full disclosure about exactly who is behind it. Even town leaders are flummoxed, as WCPO reports:

The mayor of Greenhills, David Moore, said he has no say over the fiber line installation because the lines are actually going up across the border in Forest Park, on a Hamilton county right-of-way on Sharon Road.

So we went to Hamilton County engineer Ted Hubbard, who said he, too, is struggling to find out who is laying the fiber and what their plan might be.

“The ownership is a big question,” Hubbard said. “And I have asked that. We are having a hard time finding out who actually owns it.”

Hubbard said several small contractors have received permits to install the lines but won’t tell the county who is behind the whole project.

“Who’s going to operate it?” Hubbard asked. “And who do we contact if there is an issue?’

WCPO in Cincinnati investigates mysterious new 5G infrastructure appearing in northern suburbs of Cincinnati (3:19)

Sprint debuted its new $15/month Unlimited Kickstart plan on June 7th, and will stop taking new orders for it tomorrow evening, making it one of Sprint’s shortest-lived plans ever.

The plan, intended to steal customers from competitors, offers those bringing a qualified device (or buying one) the opportunity of paying just $15 a month for unlimited talk, texting, and data, with some caveats:

• Video streams are throttled to support up to 480p, music streams are limited to 500 kbps, and gaming streams don’t exceed 2 Mbps.
• Customers on this plan are subject to speed throttles, known at Sprint as “data deprioritization” when towers are congested, regardless of usage.
• Customers must enroll and maintain autopay.
• Requires customers to sign up for a new line, port an existing number, and either bring your own device or buy one from Sprint.

Unlimited Kickstart gives Sprint a chance to report a big boost in new customer signups during its next quarterly report to Wall Street. But the company claims the plan also allows customers of other carriers the opportunity of sampling Sprint’s upgraded network, or return to Sprint as an ex-customer to see how the network has improved. There are no contracts, and the offer also extends to other family members — each line up to four will cost just $15/month.

Sprint will attempt to upsell customers to its Unlimited Freedom plan, which offers more features at a higher price.

“At Sprint, we’ve worked incredibly hard to improve our network,” the company claimed in a press release. “In fact, Sprint’s national average download speed increased 34.5 percent year-over-year, more than any other national carrier. Plus, we’ve increased our investment to make our coverage, reliability and speed even better as Sprint prepares to launch the first mobile 5G network in the U.S. in the first half of 2019.”

The company claims interest in the offer is extremely heavy, but the press release announcing it also mentioned an expiration date for enrollees of Friday night (June 15) at 11:59pm EDT, which means time is running out. Customers have to sign up for the offer online, which isn’t particularly intuitive. A Live Chat button is located on the web page which may offer some help to those trying to enroll. If you own a qualified phone already, or acquire a new one, you will need to acquire a Sprint SIM card to activate the plan no later than June 22, 2018.

Providers attempting to wire rural communities to offer broadband service or a competitive alternative to cable and phone companies face unfair tax and pole attachment fees that often give the advantage to existing companies and deter would-be competitors.

Those differences have a meaningful impact on rural broadband providers in states like New York, where wiring rural upstate communities is being made difficult by bureaucratic pole attachment fee policies and wide differences in property taxation that give an edge to existing cable giants like Charter Communications while hampering small start-ups with costly and confusing tax policies that slow down broadband rollouts. For businesses navigating these complex tax challenges, expattaxthailand.com offers expert advice to simplify the process and ensure compliance.

The Watertown Daily Times recently published an in-depth special report on the broadband challenges impacting northern New York, where fast internet access has evaded some communities for more than two decades. That lack of access is becoming a critical problem for a growing number of employers who are now considering exiting those communities because companies like Verizon, Frontier Communications and Charter/Spectrum are refusing to provide 21st century broadband service in rural upstate communities.

One example is Tupper Lake Hardware in Tupper Lake, N.Y., which wanted to expand, but considered exiting the area instead after being stuck using satellite internet access because no phone or cable company offered broadband service in the area.

“It came to the point where if you are going to make a $1 million investment, we actually talked about this, we said ‘do we put our money into this place or do we just pick up and move?’” general manager Chris Dewyea told the newspaper. “It is real. It sounds dramatic, but that is the way it goes. The connectivity speed that we had with satellite internet was not good enough, so that is when we started on our journey to get high-speed here.”

Calling Verizon, Frontier, or Spectrum was fruitless, so the company picked up the phone and called… the Empire State Forest Products Association, a group that has tangled with internet connectivity problems in upstate New York before. The group pointed the company to Slic Network Solutions, owned by the independent Nicholville Telephone Company, which has spent the last several years slowly expanding the reach of its fiber optic network in the north country. Slic currently provides service to about 10,000 homes in small communities like Belmont, Lake Placid, Schroon Lake, and Titus Mountain.

Like many fiber overbuilders operating in New York, Slic has to plan its network expansion carefully, as it lacks the financial resources and staff of a company like Verizon or Charter. Slic’s fiber service is in very high demand, because the alternatives are almost always satellite internet access or appallingly slow DSL service from Verizon or Frontier, neither of which have shown much interest in delivering the FCC’s 25Mbps definition of broadband. Charter’s Spectrum service is available only in larger concentrated communities that can meet the cable company’s return on investment property density test. Many rural upstate communities don’t.

“In most of the places, there really was the option of satellite. Some places had DSL but it was usually pretty marginal,” said Kevin Lynch, vice president of technical operations & chief operations officer of Slic Network Solutions. “There are a few areas, but very limited, that might have had Spectrum.”

Slic is one of several small fiber providers operating in New York, each trying to cover territories larger phone and cable companies have ignored for years. Cooperation in commonplace among some companies operating in similar regional areas to keep construction and operating costs down. Some providers share their networks to extend their reach. Most target commercial or institutional users but will lease out their networks for residential providers. Some of the state’s middle mile fiber networks were built with economic stimulus money or through other grant or government programs. Others are privately funded. Many are underutilized but lack the funds to expand.

Westelcom, based in Watertown, counts Slic as one of its partners. Westelcom currently limits its business to commercial accounts in its six county service area, which includes Watertown, Malone, Clayton, Elizabethtown, Ticonderoga and Plattsburgh. But it is willing to provide wholesale access to third-party companies that want to serve residential customers.

One of the biggest and most surprising impediments to serving “last-mile” residential customers isn’t the cost of construction or the return on investment. It’s New York’s tax laws. Current tax policy requires fiber providers to pay taxes on the value of the infrastructure being used, regardless of revenue. At present, that tax rate can cost between $25,000 and $30,000 per fiber route mile. If it takes five miles of fiber to reach only a half-dozen homes, the provider would owe New York over $100,000 in taxes alone, making it impossible to recoup costs and drain the provider’s finances.

The National Conference of State Legislatures, a bi-partisan group, published Property Taxation on Communications Providers: A Primer for State Legislatures in 2015, outlining a legacy of inconsistent and often outdated state and local taxation policies across the United States that treat communications providers differently on issues like property tax. The group points out New York’s tax authorities treat cable and phone companies very differently than upstart fiber providers. Mobile phone companies are taxed differently as well:

The taxation of communications property varies widely in New York. There are several types of property taxes that are applied in varying ways to the communications sector. While New York does not generally tax tangible personal property, the state considers lines, wires, poles, electrical conductors, fiber optic equipment, and related equipment to be real property. Landline companies and cable companies are subject to a real property tax on “Special Franchise” property which is centrally administered and assessed using the reproduction cost method by the Office of Real Property Tax Services (ORPTS). The Special Franchise property tax applies to equipment located on public property. In addition, Nassau County and New York City have a “split roll” which  requires higher taxes on the “utility” class which includes landline telephone companies. Wireless companies and cable companies are assessed locally for their real property (land and buildings,  e.g., towers)

In plainer English, Lynch points out Slic is taxed about $465 per mile per year in St. Lawrence County, which is “significantly higher” than what cable companies like Charter pay, because they are taxed differently.

In the college town of Potsdam, Slic pays more than double the school and property taxes paid by Charter Communications, even though it serves fewer customers and earns much less. That disparity forces providers to target their networks in more dense areas like inside towns and villages, which means more customers per fiber route mile, reducing the bite of the tax man.

“Broadband infrastructure is considered real property, so it is taxed just like a house when it is in the right of way. So when we attach to these poles which are in the public right-of-way, we pay taxes on it and it is based on construction costs,” Lynch added. “There are a certain number of customers we have just to break even on those two operational costs and that does not include any of the other overhead and the content, the electronics and all that.”

After paying New York, Slic then faces the bureaucratic challenge of pole attachment permitting and fees. Every pole on which Slic attaches its fiber wiring is owned by someone else, typically utility companies like National Grid, Verizon, or Frontier. Some poles are jointly owned and maintained by the phone and electric company in the area. Fees and procedures vary in different parts of the state. There is generally a very costly pole attachment application fee and ongoing pole rental fees, which in this part of New York can run $400 a mile, per year.

Lynch said the costs of pole attachment fees alone can account for up to 40 percent of Slic’s expansion budget, and those initial fees can run between $10,000-14,000 per mile. This is why fiber overbuilders frequently decide on coverage areas based on customer commitments to sign up for service if it becomes available. This allows companies like Slic to secure the financing required to provision the service. But money alone doesn’t buy instant access.

“We apply to National Grid or whoever the pole owner is and say, ‘We would like to attach to these 30 poles on this road,’ and do a pole application and pay a fee,” Mr. Lynch explained to the newspaper. “They come out, they look at each pole and they determine if there is space on the pole, do they need to rearrange the electrical wires so they are in compliance with the electrical code, do they need to move down the phone lines. A lot of times these poles are jointly owned. It will be National Grid and Verizon, so they have to coordinate and then there might be a section that has Spectrum on it, so you have three or four companies that have to coordinate this effort.”

The state adds its own layer of bureaucracy with different Department of Transportation regions, regional economic regions, and Department of Environmental Conservation regions, each with its own rules and procedures. It is common for fiber projects to cross from one region into another, requiring additional paperwork and likely delays. If a project has to cross into the Adirondack Park, the rules and permits required to manage that are byzantine.

The result of all this is usually a significant delay in getting started, but once the paperwork is complete and fees are paid, the work can go faster than many realize.

“In these areas where we are constructing right now, Schroon Lake and Belmont and Lyon Mountain, we are building three to five miles of fiber per week. Our next group of projects that has been funded by New York state is 300-plus miles of fiber,” Lynch said. “And when I say three to five miles per week, that is per area.”

Fiber providers would like to see tax fairness and a lot less bureaucracy. The rules in states like New York may eventually leave fiber to the home service at a distinct disadvantage, because wireless networks don’t face pole attachment complications and pay lower taxes because their real property is generally a cell tower and the fiber line that connects to it. As it stands, some internet providers may gravitate towards wireless internet solutions in rural areas instead of fiber just to avoid excessive taxes and the pole attachment bureaucracy. Most homes and businesses prefer fiber optic service when given a choice, but without some changes to tax laws and a more centralized, less bureaucratic approach to pole attachments, fiber optics may never make financial sense in rural upstate New York.