Frontier Communications plans to leverage their existing fiber-copper infrastructure to offer broadband-powered television service for up to half of their national customer base over the next four years.

Like many Frontier initiatives, the company’s IPTV effort relies on minimal spending, with just $150 million in capital budgeted for the project, spread out over several years.

“Our plans are to introduce video service to more than 40 markets representing approximately three million households over a three- to four-year period,” said Frontier CEO Daniel McCarthy. “Once complete, video service will be available to about 50% of the 8.5 million households in Frontier’s existing footprint, not counting the pending Verizon acquisition.”

Frontier intends to sell the service to the 57% of customers it claims can receive at least 20Mbps broadband speed. The video streams will co-exist with customers’ data service.

“Our IPTV applications employ the latest very advanced compression technology,” said McCarthy. “[Each] HD television channel will require approximately 2.5Mbps of capacity, meaning a household with four HDTVs active at once will require 10Mbps of capacity into the home, leaving the remainder available for data usage.”

Frontier’s IPTV approach is similar to AT&T U-verse. The company will depend on fiber to the neighborhood service already in place in certain markets, coupled with existing copper wiring already on telephone poles or buried underground in each neighborhood. To further minimize expenses (and customer inconvenience), Frontier will rely on customer-installable wireless set-top boxes that can be relocated to any television in the home.

McCarthy

Frontier has experimented with its video service since last fall in its test market of Durham, N.C. That city also benefits from an extensive fiber upgrade undertaken by Frontier. Frontier’s website sells the service as Frontier FiOS TV, even though Durham’s fiber network was built by Frontier, not Verizon.

For customers, it will likely be a welcome change from Frontier’s ongoing dependence on its partnership with satellite provider Dish Networks to offer video service. One clue Frontier has not well withstood heavy competition from competing cable operators comes from the company’s latest quarterly earnings report. Frontier executives admitted voice service disconnects are accelerating beyond expectation and average revenue per customer dropped 1.1% to $63.14 for the fourth quarter of 2015.

Frontier also continues to feel the wrath of former AT&T customers in Connecticut that withstood a messy “flash cut” from AT&T to Frontier that left some customers without service for days. Despite the expiration of special pricing promotions for Connecticut customers resulting in the prospect of higher revenue, Frontier still recorded a $7 million decline from Connecticut alone, which it mostly blamed on customers ditching landlines. In the rest of the country, Frontier’s “legacy service areas” (those still dependent on aging copper infrastructure) delivered another $4 million decline in revenue for the quarter.

Where are those customers going? Cable operators continue to grab Frontier’s unhappy DSL customers and wireless companies continue to benefit from landline disconnects.

To prevent a repeat of Connecticut in the Frontier-acquired Verizon territories in Florida, California, and Texas, Frontier will keep Verizon’s service plans and only gradually shift services away from Verizon, with the ability to back out of the transition immediately if something goes wrong.

Frontier’s IPTV service will depend on the classic cable television model — 100+ local, network, and cable channels delivered in a bundle with broadband and voice service. At the outset, Frontier won’t be emphasizing skinny bundles of TV channels, but will allow existing Verizon FiOS customers to keep the slimmed down packages they already have.

Frontier Communications has topped AT&T’s penchant for grandiose Fiber to the Press Release announcements with a new gigabit fiber to the home service now being promoted in Connecticut, despite being available to only two homes in a single upscale subdivision in North Haven.

Frontier FiberHouse is Frontier’s answer to Verizon FiOS, says Joseph Ferraiolo, Frontier’s regional general manager in New Haven County. Ferraiolo told the New Haven Register Frontier has introduced the service to a pair of homes in Lexington Gardens, a new single-family subdivision.

Frontier’s expansion of the service in 2016 does not appear to be exactly aggressive, with plans to only wire up to 200 newly built homes in the immediate area.

Frontier’s fiber network relies on a Gigabit Passive Optical Network (GPON) and is intended to replace copper telephone wiring.

Ferraiolo admits Frontier is currently favoring new housing developments where fiber can be dropped in a conduit/pre-existing trench during construction without the cost of tearing up yards and streets. But he also claims Frontier will make a commitment to any municipality that gets the fiber service that it will be available to every part of the community, not just those likely to be most profitable. If Frontier keeps its promise, it will be the first time the phone company has provided customers with universal access to uniformly high-speed broadband. Even its acquired FiOS networks in Indiana and the Pacific Northwest are not guaranteed to be available to every resident.

“We think this is a good option for us: new builds, small complexes,” Ferraiolo said. “The developer is very happy with it and we’re very happy with it.”

Customers like William Morico will believe it when they see it.

“We have been trying to get ‘high-speed’ Internet in our neighborhood for years, well before the Frontier disaster,” Morico writes. “All we want is the 12-18Mbps service that is advertised and available elsewhere in New Haven. [We] cannot get any answers from Frontier. Even their customer service and tech staff are frustrated with this company. It’s time for the state gig project.”

The company claims it is “exploring” other rollouts of Frontier FiberHouse in Stamford and New Haven, but there are no specifics.

Some observers question the timing of Frontier’s fiber announcement, noting state and local officials are still considering a private-public partnership that could lead to a public statewide gigabit fiber network in Connecticut. News that a private company is willing to shoulder the entire expense of a fiber project could be used in legislative efforts to derail Connecticut’s CT Gig Project. But Frontier has offered no guarantees whether or if it intends to blanket its service area across the state with fiber or limit FiberHouse to a de-facto demonstration project in a handful of homes in new housing developments.

The Communications Workers of America today filed comments with the Federal Communications Commission opposing the proposed sale of Cablevision to Patrick Drahi’s Altice NV, arguing the claimed public interest benefits are illusory.

The CWA, which represents some of Cablevision’s workers in Brooklyn, took a hard look at Altice’s merger proposal and the $8.6 billion in debt Altice will take on to close the deal and called it dangerous, resulting in “considerable harm with no offsetting concrete, verifiable benefits for consumers, workers, and communities.”

“Altice’s track record in France and Portugal clearly shows the danger this deal poses to Cablevision’s customers and employees,” said Dennis Trainor, vice president of Communications Workers of America District 1. “Altice takes on too much debt, outsources as much work as possible and then downsizes its workforce. Customers get worse service and employees lose their job. Unless Altice makes commitments to protect customer service and Cablevision employees, the FCC should reject this deal.”

The CWA is also concerned about the disparity between what Altice is telling regulators and what the company is saying to Wall Street.

Altice’s Public Interest Statement, which outlines the benefits to the public of the proposed transaction, stands out for its lack of specificity. In fact, the application’s only concrete commitments are vague promises to bring Altice’s “expertise” and access to capital for Cablevision’s use. Altice also promises to upgrade Cablevision’s IT systems, including customer care, service, and billing systems, and alluded it would expand Cablevision’s fiber optics deeper into its network, but comes short of promising a direct fiber to the home connection. In fact, the only promised benefit of pushing fiber further out would be “the removal or reduction from the network of coaxial RF amplifiers, which consume substantial electricity and can be the cause of difficult-to-detect service outages (RF amplifier failures).”

“Deeper fiber deployment would enable Cablevision to reduce its power costs and to further improve network reliability, resulting, in turn, in a greater ability to invest further in the network and improved service delivery to subscribers,” Altice dubiously claimed.

Many of Altice’s claims appeared “disingenuous and misleading” to the CWA. From the CWA’s filing:

To finance its $17.7 billion acquisition of Cablevision, Altice is taking on $8.6 billion in new debt, which when added to Cablevision’s already heavy debt load of $5.9 billion, will leave the new Cablevision with a total net debt of $14.5 billion.  Given the high cost of the new debt financing, the annual interest payments needed to finance the $8.6 billion in new debt amount to $654 million on top of Cablevision’s current interest payments of $559 million for a total of $1.2 billion in annual interest payments at the new Cablevision, representing a full 112 percent increase in Cablevision debt. The new interest payment ($654 million) plus Altice’s announced $ 1.05 billion in cuts means that the new Cablevision will have $1.7 billion less cash available to spend on the network and service.

“Altice’s business model, the one that it has used to fuel its explosive global growth, requires the acquired company – in this instance, Cablevision — to finance its own acquisition and to provide cash to the parent for future acquisitions,” the CWA argues. “Altice chief financial officer Dennis Okhuijsen explained the capital structure of post-transaction Cablevision: ‘[W]e’re not going to lever up the existing business. This is a stand-alone capital structure, so we’re levering up the target for Cablevision….’”

Translation: Cablevision alone is responsible for the debt Altice raised to pay for Cablevision. Or, as Altice explained to investors in its third quarter 2015 earnings report, the parent company operates its various subsidiaries as “distinct credit silos in Europe and the U.S.”

Altice CEO Patrick Drahi’s business formula is always the same. To raise money to help offset the mountain of debt dumped on the acquired company, Altice’s designated managers helicopter in to the acquired company to begin slashing expenses and find money it can send to Altice headquarters to help fill its coffers to acquire even more companies. French telecom giant Numericable-SFR, while on the road to losing one million customers in just one year, was preoccupied borrowing nearly $2 billion, not to improve the company’s service, but rather to pay Altice a special dividend to help pay down the huge amount of debt Altice incurred when it bought the 60 percent stake in the French mobile and cable company it did not already own.

To keep Altice afloat, Drahi’s business strategy requires a steady supply of company acquisitions to deliver the increased cash flows Altice needs to finance its debt. The CWA warned regulators Altice may require Cablevision to spend its cash flow to help Drahi acquire other companies in the future, further reducing the amount of money Cablevision needs to attract and keep subscribers.

To make the deal a long term success, Altice-Cablevision will either have to cut its return to shareholders, raise its prices, and/or slash expenses and jobs. Past experience with Altice shows shareholders come first, which means company management will likely preside over a harvest of Cablevision’s assets to meet the expectations of Wall Street banks and investors. Customers will feel the cuts from the reduction in service and slowed investments and upgrades.

At the same time Altice was promising the FCC it would continue Cablevision’s “first in class” level of service, the company was telling Wall Street it was planning cuts to the bone. Among Altice’s already-proposed cuts for Cablevision:

• Capital expense: $150 million cut
• Network and Operations: $ 315 million cut
• Customer operations: $135 million cut
• Sales and marketing: $45 million cut
• Eliminate duplicative functions and “public company” costs: $135 million cut
• Other unspecified cuts: $135 million cuts.

The impact of these cuts shift costs onto others, argues the CWA, including making the acquired firm pay for its own demise, making the workforce pay through job loss and reduced compensation, making customers pay through deteriorating service, and making suppliers become Drahi’s bankers by delaying payments.

The CWA says customers will also pay for the privilege of getting declining service.

“In Israel, the cable provider Hot Telecommunications has raised prices multiple times since it was bought by Altice, including a cable rate increase of 20 percent in 2014 and the attempt to raise prices again this year,” the CWA argues. “The top Israeli cable regulator called the price hike ‘greed for its own sake’ which was not justified based on the company’s profit margins.”

In the United States, nobody oversees cable pricing.

“In summary, the experience in France, Portugal, Israel, and elsewhere provides concrete evidence that the Altice business model – one that it plans to replicate with its Cablevision acquisition – does not serve the public interest,” concludes the CWA. “Making an acquired company pay off massive debt load with service-impacting cost cutting has serious and negative consequences for customers, suppliers, communities, and workers. The lesson from France is clear: cutting to the bone leads to massive customer defection. It is not a business model that will benefit the people of New York, Connecticut, and New Jersey.”

Next year’s upgrade to DOCSIS 3.1 will support cable broadband speeds up to one gigabit shortly after introduction.

Telephone companies relying on traditional ADSL service to power their broadband offering will likely face a renewed competitive assault in 2016 that will further reduce their already-challenged market share in areas where cable companies compete.

Cable operators are hungry for profitable broadband customers and the best place to find new prospects is at the phone company, where DSL is still a common technology to deliver Internet access. But while cable Internet speeds have risen, significant DSL speed hikes have proven more modest in the residential market.

In 2016, the cable industry intends to poach some of the remaining price-sensitive holdouts still clinging to DSL with revised broadband offers promising more speed for the dollar.

Cable broadband has already proven itself a runaway success when matched against telephone company DSL service. Over the last year, Strategy Analytics found Comcast and Time Warner Cable alone signed up a combined 71 percent of the three million new broadband customers in the U.S.

“Cable operators continue to increase market share in U.S. broadband,” said Jason Blackwell, a director at Strategy Analytics. “Over the past twelve months, Comcast has accounted for 42 percent of new subscribers among the operators that we track.  Fiber growth is still strong, but the telco operators haven’t been able to shake off the losses of DSL subscribers.  In 2016, we expect to see a real battle in broadband, as cable operators begin to roll out DOCSIS 3.1 for even higher speed offers, placing additional pressure on telcos.”

That battle will come in the form of upgraded economy broadband plans, many arriving shortly after providers upgrade to the DOCSIS 3.1 cable broadband platform. Currently those plans offer speeds ranging from 2-6Mbps. Starting next year, customers can expect economy plan prices to stay generally comparable to DSL, with promises of faster and more consistent speeds. A source tells Stop the Cap! at least two significant cable operators are considering 10Mbps to be an appropriate entry-level broadband speed for 2016, in keeping with FCC chairman Thomas Wheeler’s dislike of Internet speeds below 10Mbps.

Just a few years earlier, most providers wouldn’t think of offering discounted 10Mbps service, fearing it would cannibalize revenue as customers downgraded to get lower priced service. Increasing demands on bandwidth from online video and multiple in-home users have gradually raised consumer expectations, and their need for speed.

Unfortunately for many phone companies that have neglected significant investment in their aging wireline networks, the costs to keep up with cable will become unmanageable unless investors are willing to tolerate significant growth in capital expenses to pay for network upgrades. Frontier Communications still claims most of their customers are satisfied with 6Mbps DSL, neglecting to mention many of those customers live in areas where cable competition (or faster service from Frontier) is not available.

Where competition does exist, it’s especially bad news for phone companies that still rely on DSL. Earlier this year, Frontier’s former CEO Maggie Wilderotter admitted Frontier’s share of the residential broadband market had dropped to less than 25% in 26 of the 27 states where it provides service. In Connecticut, the one state where Frontier was doing better, its acquired AT&T U-verse system has enabled the phone company to deliver broadband speeds up to 100Mbps. But even those speeds do not satisfy state officials who are seeking proposals from providers to build a gigabit fiber network in a public-private partnership.

DSL speed upgrades have been spotty and more modest.

Frontier’s recent experiments with fiber to the home service in a small part of Durham, N.C., and the unintentional revelation of a gigabit broadband inquiry page on Frontier’s website suggests the company may be exploring at least a limited rollout of gigabit fiber service in the state. But company officials have also repeatedly stressed in quarterly results conference calls there were no significant plans to embark on a major spending program to deliver major upgrades across their service areas.

Some phone companies may have little choice except to offer upgrades where cable operators are continuing to rob them of customers. In the northeast, where Frontier has a substantial presence, cable operators including Charter, Comcast and Time Warner Cable are committing to additional speed upgrades. Time Warner Cable’s current standard speed of 15Mbps will rise to 50-60Mbps in 2016, up to ten times faster than Frontier’s most popular “up to” 6Mbps DSL plan.

Most of the broadband customer gains won by Comcast and Time Warner Cable come as a result of DSL disconnects. AT&T said goodbye to 106,000 customers during the third quarter. Verizon managed to pick up 2,000 new subscribers overall, almost all signing up for FiOS fiber to the home service. No cable operator lost broadband market share, reported analyst firm Evercore. Leichtman Research offered additional insight, finding AT&T and Verizon were successful adding 305,000 U-verse and FiOS broadband customers, while losing 432,000 DSL customers during the same quarter.

The message to phone companies couldn’t be clearer: upgrade your networks or else.

Frontier Communications continues to face challenges keeping customers in its legacy copper wire service areas, where only modest investments in network upgrades have proved insufficient to stop customers shopping around for better service.

Company officials reported a loss of about 30,000 residential customers during the last quarter, a drop of nearly 1% of its total customer base. Nearly 2% of Frontier’s business customers also took their business elsewhere, leaving the company with 3.1 million remaining residential customers and 294,000 business customers.

Frontier CEO Dan McCarthy blamed many of the customer losses on customers moving.

“During the summer, we do tend to see an uptick in customer [losses] that might have double play and in some cases triple play, as they move or make their decisions about moving their homes to a different location,” McCarthy said, claiming that most of Frontier’s losses overall came from voice-only customers.

As Frontier expands rural broadband opportunities, the phone company is still adding Internet customers, picking up a net gain of 27,200 broadband accounts. The company depends heavily on broadband to replace revenue lost from landline disconnects.

“We continue to see more customers choose higher-speed broadband products,” McCarthy said on a conference call to investors earlier today. “In the third quarter, 47% of the broadband activity was above the basic speed tier of 6Mbps. More than 70% of our residential broadband customers are still utilizing our basic speed tier, so we have substantial opportunity to improve our average revenue per customer as they upgrade their service.”

McCarthy offered no statistics about how many of Frontier’s DSL customers can substantially upgrade their speeds using Frontier’s existing infrastructure. Many Frontier broadband customers have complained their speeds reflect the maximum capacity of Frontier’s network in the immediate area, and many claim they do not consistently receive the speed level Frontier advertises.

Service is appreciably better in areas upgraded before being acquired by Frontier. McCarthy said some areas of Connecticut, acquired from AT&T, are now able to get speed “in excess of 100Mbps over our copper infrastructure.”

“Over time, we will be expanding the technology we use for 100Mbps in Connecticut to more of our markets elsewhere,” McCarthy promised. “In our FiOS markets, we already offer speed up to one gigabit and we have seen the benefit of offering these higher speeds as customers choose speed tiers to match their lifestyle choices.”

Frontier also separately notified the Federal Communications Commission it has no immediate plans to slap usage caps or metered service on customers.

“Frontier does not apply usage-based pricing to any of its broadband offerings,” Frontier said in an FCC filing. “Frontier has no plans at this time to offer a metered broadband service. We continue to monitor the market and continue to consider a usage-based offering as an option.”

Frontier suggested several factors would be considered when discussing usage-based billing: “the FCC’s Open Internet rules, policies of other companies, consumer demand, network capacity, and cost, among other factors.”