Otero

When a former labor leader suddenly starts advocating for the interests of AT&T and other super-sized telecommunications companies, even as AT&T’s unionized work force prepared to strike, the smell of Big Telecom money and influence permeates the air.

Jack Otero, identified in the Des Moines Register as “a former member of the AFL-CIO Executive Council and past national president of the AFL-CIO’s Labor Council for Latin American Advancement,” penned a particularly suspicious love letter to deregulation that might as well have been written by AT&T’s director of government relations:

[…]Industries — like broadband Internet — are thriving and creating innovations. Tossing a regulatory grenade into these businesses could wreck markets that create value for consumers and jobs for workers.

The United States is one of the most wired nations in the world. More than 95 percent of households have access to at least one wireline broadband provider, and the vast majority can connect at speeds exceeding 100 Mbps. And monthly packages start as low as $15. That means more families can go online to improve their job skills, look for work or help the kids with their school assignments.

More choices and higher speeds — the signs of a vibrant market — are the product of private investment, not public dollars. Internet service providers have invested over $250 billion in the last four years alone. This has created roughly half a million jobs laying fiber-optic and coaxial cable.

But some squeaky wheels are demanding heavy-handed regulations that would move our broadband Internet to the European model, where taxpayers have to subsidize outdated networks with slow speeds. Some want broadband providers to be required to lease their networks to competitors at discounted prices — as they do in Europe. But lawmakers in both parties agree that this policy, tried in the 1996 Telecommunications Act, failed miserably.

Others argue that broadband Internet providers should not be able to impose a small surcharge on the tiny percentage (less than 1 percent) of consumers who download hundreds of movies and tens of thousands of songs every month — effectively the data usage of a business. They say these fees discriminate against online video companies like Netflix. But that’s silly. More than 99 percent of users can watch plenty of Apple TV or Netflix without approaching the lowest data allotment. Without tiered pricing plans, the rest of us would have to underwrite these super-users.

Okay then.

Otero’s Fantasy World of Broadband sounds great, only it does not exist for the vast majority of Americans. Are most of us able to connect at speeds exceeding 100Mbps?

If you happen to live in a community served by a publicly-owned broadband provider Otero effectively dismisses, you can almost take this fact for granted.

Some of America’s most advanced telecommunications providers are actually owned by the public they serve in dozens of communities small and large. EPB Fiber, Greenlight, Fibrant, Lafayette’s LUS Fiber, among others, deliver super-fast upload and download speeds at very reasonable prices while the giant phone and cable companies offer less service for more money.

The only major telecommunications company with a wide deployment of fiber-to-the-home service is Verizon Communications.

You cannot easily buy residential 100Mbps service from Time Warner Cable, AT&T, CenturyLink, Frontier, FairPoint, or a myriad of other telecom companies at any price, unless you purchase an obscenely expensive business account. From the rest, 100Mbps service typically sets you back $100 a month.

Otero’s quote of affordable $15 broadband is not easy to come by either. It usually requires the customer to qualify for food stamps or certain welfare programs, have a family with school-age children, a perfect payment history, and no recent record of subscribing to broadband service at the regular price.

The only people who believe America is the home of a vibrant market for broadband service are paid employees of telecom companies, paid-off politicians, or their sock-puppet friends and organizations who more often than not receive substantial contributions from phone or cable companies. The fact is, the United States endures a home broadband duopoly in most communities — one cable and one phone company. They charge roughly the same rates for a level of service that Europe and Asia left behind years ago. Broadband prices keep going up here, going down there.

Simply put, Mr. Otero and actual reality have yet to meet. Consider his nonsensical diatribe about the impact of the “heavy-handed” 1996 Telecommunications Act, actually a festival of mindless deregulation that resulted in sweeping consolidation in the telecommunications and broadcasting business and higher prices for consumers.

Otero is upset that big companies like AT&T and Verizon originally had to open up their networks in the early 1990s to independent Internet Service Providers who purchased wholesale access at fair (yet profitable) prices. Those fledgling ISPs developed and marketed third-party Internet service based on those open network rates. Remember the days when you could choose your ISP from a whole host of providers? In some markets, this tradition carried forward with DSL service, but for most it would not last.

The telecommunications industry managed to successfully lobby the government and federal regulators to change the rules. Phone companies did not appreciate the fact they had to open their networks for fair access while cable operators did not. So in 2005, the FCC allowed both to control their broadband networks like third world despots. Competitors were effectively not allowed. Wholesale access, where available, was priced at rates that usually guaranteed few ISPs would ever undercut the cable or phone company’s own broadband product.

The lawmakers who believed open networks represented awful policy were almost entirely corporate-friendly or recipients of enormous campaign contributions from the telecom companies themselves.

So which market is actually on the road to failure?

The LCLAA couldn’t do enough to help AT&T swallow up competitor T-Mobile USA.

The American broadband business model is a firmly established duopoly that charges some of the world’s highest prices and has rapidly fallen behind those “failures” in Europe.

In the United Kingdom, BT — the national phone company, is required to sell access at the wholesale rates Otero dismisses as bad policy. As a result, UK consumers have a greater choice of service providers, and at speeds that are increasingly outpacing the United States. Nationally backed fiber to the home networks in eastern Europe and the Baltic states have already blown past the average speeds Americans can affordably buy from the cable company.

Even Canada requires Bell, the dominant phone company, to open its network to independent ISPs selling DSL service. Without this, Canadians would rarely have a chance to find a service provider offering unlimited, flat rate service.

Otero’s final, and most-tired argument is that data caps force “average” users to subsidize “heavy” users. In fact, as Stop the Cap! reported this week, that fallacy can be safely flushed away when you consider the largest ISPs pay, on average, just $1 per month per subscriber for usage, and that price is dropping fast. The only thing being subsidized here is the telecom “dollar-a-holler” fund, paid to various mouthpiece organizations who deliver the industry’s talking points without looking too obvious.

The Des Moines Register omitted the rest of Mr. Otero’s industry connections. We’re always here to help at Stop the Cap!, so here is what the newspaper forgot:

• Mr. Otero is a board member of Directors of the U.S. Hispanic Leadership Institute (USHLI), a group funded in part by AT&T and Verizon;
• He is the past president of the Labor Council for Latin American Advancement, a group that enthusiastically supported the anti-competitive merger of AT&T and T-Mobile USA;

Mr. Otero has a side hobby of penning nearly identical editorials with largely these same broadband talking points. One wonders what might motivate him into writing letters to the Des Moines Register, the Lexington Herald-Leader, the Gainesville Sun, the Star-Banner, and the Ledger-Inquirer.

Otero may have a case for plagiarism, if he chooses to pursue it, against Mr. Roger Campos, president of the Minority Business RoundTable (the top cable lobbyist, the National Cable & Telecommunications Association is labeled an MBRT “strategic partner” on their website). Campos uses some of the exact same talking points in his own “roundtable” of letters to the editor sent to newspapers all over the place, including the Ventura County Star, the Leaf Chronicle, and the Daily Herald.

Nearly 100 Frontier employees may be visiting Idaho’s unemployment offices by September.

On the second anniversary of Frontier Communications assuming control of landline operations in Idaho formerly owned by Verizon Communications, Frontier has announced plans to close its Coeur d’Alene call center this summer, putting nearly half of Frontier’s workers in Idaho out of work.

“There’s nothing wrong with the employees or the work they’re doing. It’s more about efficiencies,” Frontier’s senior vice president Steve Crosby told CDA Press. “What we’re trying to do is work through efficiencies, consolidations, really moving people around, having work groups working closer together.”

Those hoping to remain with Frontier will need to move to another state and accept a large pay cut if they want to keep their jobs. Other Frontier call centers around the country will assume the responsibilities of the 100 Idaho-based employees who face termination by Sept. 18, including one opening near Myrtle Beach, S.C., that will pay substantially lower salaries.

The closure will reduce Frontier’s workforce in Idaho almost in half. Crosby said Frontier had roughly 260 employees in the state as of last week.

Two years ago, Frontier was telling Idaho a very different story about its takeover of Verizon landlines.

“I think we’ll have better service for customers,” David Haggerty, then a Verizon manager staying with Frontier, told the Bonner County Daily Bee. “Frontier brings with it a small-town mentality. It used to be you were able to pay bills in town and make human contact. That was taken away by Verizon.”

In 2010, Haggerty promised the transition would have no impact on former Verizon workers now heading to work at Frontier.

“We focus on putting the customer first,” said Frontier’s regional manager Vickie Bullard said. “That’s one of the 11 value statements we have at Frontier.”

Some of Frontier’s customers in Idaho wonder if Frontier’s “value statements” are also being downsized.

“I just switched from Frontier to Time Warner Cable for my Internet,” says Scott Mead. “Frontier started out great in the beginning, but shortly after went downhill as issue after issue started.”

Mead reports his calls to Frontier’s national 800 customer support number, which promises 100 percent of the company’s workers are American-based, often left him flummoxed dealing with foreign-accented employees with poor English language skills.

The last one out can turn off the lights.

Another Coeur d’Alene customer endured bad service from Frontier before finally leaving, with the phone company’s collection agency chasing him not far behind:

“As far as I’m concerned Frontier can take a long walk off a short pier. When they first took over from Verizon, from whom we had good service, they sent out a service guy to get us back online. He installed the wrong equipment so another serviceman came out and replaced the wrong one with a bigger, better, and faster wrong one. Over the next 6 weeks we were down all but 12 days and we heard one excuse after another with nothing getting resolved.

So a month later, after switching companies, not only did we get a bill from Frontier for the entire 6 weeks but they charged us for several wrong pieces of equipment. When we tried to resolve the issues they simply sent us to collection and refused to talk. Se we ended up paying for over 4 weeks of service they did not provide and for 4 Internet boxes that the servicemen could not get to work.

I can only hope that Frontier has an office at the bottom of a honey bucket at a chili feed. Flippin crooks.”

One former Verizon/Frontier employee suggests the “efficiencies” Crosby is concerned with is paying call center workers less, and offering fewer benefits:

“Frontier closed a center in Elk Grove, Calif. back in June leaving 50+ people unemployed there,” he writes. “When Verizon sold their landlines and DSL to Frontier back in 2009 they only guaranteed the acquired employees jobs for two years. July 1, 2012 was the second anniversary of that acquisition. This does not surprise me at all. The leadership of both Verizon and Frontier is like any other large corporation. Bottom line is the new call center in South Carolina is cheaper to operate. Why pay people over 50K (this is including 401k, stock & medical benefits) when you can pay half that in a center that has no union.”

Another Idaho employee is bitter about the extra work Frontier employees managed for the company during its great billing and systems transition away from Verizon.

“We will be out of a job, after working massive amounts of overtime to transition this company to get them through the largest conversion in telecommunications history,” the worker shared. “They needed us to get them through it and now they don’t.”

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WMBF Myrtle Beach New Frontier Call Center 5-11-12.mp4[/flv]

Race to the bottom. Frontier Communications closes an “unneeded” 100-worker call center in Idaho that reportedly paid workers over $50,000 a year in salary and benefits while announcing a new, “much-needed” call center with 110 workers near Myrtle Beach, S.C. that will pay workers only $30,000 a year. WMBF in Myrtle Beach calls the new South Carolina call center a “success” for Horry County’s efforts to recruit new business to the area. Frontier applauded South Carolina’s “excellent business environment.” But that success comes at a cost to other workers in other states.  (2 minutes)

A new wave of industry consolidation has begun to pick off smaller independent cable operators who find profits squeezed by increased programming costs and dwindling subscriber numbers.

This month, the private equity firms that back Atlantic Broadband have put the company up for sale. ABRY Partners, which controls the cable venture as well as much larger RCN and Grande Communications, is ready to ditch the Atlantic venture and its 255,000 subscribers in Pennsylvania, New York, West Virginia, Florida, Maryland, Delaware, and South Carolina. Most of the cable systems controlled by Atlantic Broadband were considered “non-strategic assets” by former owner Charter Communications, which sold them to the Atlantic Broadband start-up in 2004.

Although profitable, Atlantic has been losing customers — 4 percent last year alone — and that worries investors. Acquiring television programming continues to grow more difficult for smaller operators who do not receive the volume discounts larger players do. As programming costs rise, pressure on profit margin results.

Atlantic Broadband was the 14th largest cable operator in the country. The sale could bring $1.4 billion to the equity firms, and industry analysts predict another equity firm will likely emerge as the buyer. Most of Atlantic’s systems are outside of the the areas where large cable operators create enormous regional clusters of operations. Time Warner Cable dominates in New York, Comcast in Pennsylvania, Maryland, and Delaware, and Suddenlink in West Virginia.

Atlantic Broadband is not the first smaller cable venture to find itself for sale.

• Time Warner Cable acquired Insight Communications last August;
• WideOpenWest announced plans to buy Knology for $750 million in April;
• WaveDivision Holdings LLC, which serves more than 325,000 residential and business customers in Washington, Oregon and California, also is exploring a sale.

Consolidation of the wireless industry into two or three mega-carriers is a dream come true… if you are one of those carriers (or Wall Street). But for everyone else, it’s a competition wasteland, where innovation and disruptive marketing wane into comfortable and predictable businesses where participants learn not to rock the boat. If they did, a lot of their accumulated money could fall overboard.

AT&T believes consolidation is already upon us, despite their setback in failing to acquire T-Mobile USA.

John Stephens, AT&T’s chief financial officer, tried to calm Wall Street’s fears that the government has signaled its intent to preserve robust competition.  At yesterday’s Nomura investment conference, Stephens said a reduction in the number of wireless companies in the United States is part of the natural order:

I think it is just logical that the industry is going to consolidate in some form or fashion. I think the marketplace has spoken to that with what it has done to pricing in the valuations on some of the companies. From an economic perspective and a highly CapEx-intensive business, I think it is logical to assume you’re going to have two or three and certainly not six and seven competitors in any marketplace. So I think consolidation is logical.

We’ve heard this argument before. It is commonly trotted out in opposition to community broadband initiatives when existing phone and cable companies fear a third player will ruin the market for everyone. AT&T joins the chorus with the same old excuses: the costs to build and run networks are too high for several players to comfortably compete. Consolidation reduces that pressure as customers are forced to choose among one or two providers, giving each a larger market share and healthier revenue to cover upgrades.

What companies like AT&T always obscure to their customers is the resulting pricing power, where price increases from one often lead to price increases from others. But Stephens has no trouble letting his investors know:

We are going to grow margins year-over-year. Last year’s margins were about 38.5% in wireless and our guidance says we are going to grow. I have said publicly, and some of my peers and coworkers have said publicly we expect we are going to have north of 40% margins this year in our wireless business and still believe that.

Margins = profits. In the absence of aggressive competition which forces companies to invest more in their networks, provide more value in their service offerings, or reduce pricing, increased profits are always the result.

Unfortunately, ZDNet’s editor in chief Larry Dignan seems to buy AT&T’s arguments and talking points, telling readers:

[…] It’s hard to argue against the idea. All industries boil down to two or three players eventually. The big question for wireless consolidation is timing. When will get to two or three carriers? And if so will this consolidation lead to price increases or will the mergers occur after wireless services is commoditized?

Stephens

It is actually very easy to argue against the idea, and the evidence is plainly visible if Dignan would take a look.

First, there is no evidence “all industries boil down to two or three players eventually.” Auto companies, banks, retailers of all kinds — even cell phone manufacturers all compete with more than just one or two other players in the market. A germinating monopoly or duopoly in any market is a signal federal regulators have failed to do the job assigned to them since the days of trust-busting railroads, oil, steel, and the securities business.

The drive to consolidation can be found first on Wall Street, where every industry is under pressure to cut costs, reduce profit-eroding competition, and return higher profits. The drumbeat for consolidation in the wireless industry starts there, is echoed in the executive offices of the cell phone companies themselves, and results in powerhouse deals that have picked off one competitor after another. That is why Cingular, Alltel, Cellular One, and Centennial Communications are no longer familiar names in wireless. They have all been swallowed nearly whole by AT&T or Verizon Wireless.

AT&T would argue that consolidation is a good thing, because through their willingness to sell, those companies indicated they wanted to exit the business. AT&T’s buyout of T-Mobile would have done everyone a favor because the company had lost interest in competing in the United States and wanted out.

The industry has held all of the cards of wireless consolidation until recently, primarily because supine regulators refused to provide a critical “check and balance” on industry pressure, accepting just about any premise to approve whatever wireless carriers wanted. Sure, a few companies had to divest certain assets, as Verizon Wireless did in certain Alltel markets. But AT&T ended up acquiring the majority of those divested territories. When AT&T bought Centennial Wireless, it had to divest a few markets in the southern United States. Verizon Wireless bought most of them. Customers were left in the middle, as always.

A remarkable thing happened when the federal government said no to AT&T over T-Mobile. Predictions of the smaller carrier’s imminent demise and its slow bleed to irrelevance has not happened. In fact, Deutsche Telekom picked its American asset up, shook the dust off, and is now investing in upgrades to keep the competition coming. At least $4 billion in improvements and some major network upgrades are on the way, and the company has even refreshed its marketing in a new, get-tough campaign against AT&T, Verizon Wireless, and Sprint. Now all three of those companies are watching to see what T-Mobile pulls next.

That is exactly the point.

The wireless world and Wall Street wants you to believe that consolidation is the only way the mobile phone marketplace of 2012 can work. Dignan has thrown in the towel, conceding they are likely right. But T-Mobile is proving they are exactly wrong. Instead of abandoning its asset, which DT still sees as valuable, it is investing in it to compete. Had the merger been approved, AT&T would never answer T-Mobile’s disruptive competition again. Rural America would still be waiting for better service. AT&T would have less pressure to keep prices down and upgrades up, and Wall Street would have turned its attention to the next targeted carrier ripe for the picking by AT&T or Verizon Wireless’ emerging duopoly.

Stephenson: Payback time.

Six weeks after AT&T’s colossal $39 billion dollar merger with T-Mobile USA fell apart, AT&T CEO Randall Stephenson opened his checkbook and donated $30,800 (the maximum allowed under federal law) to the Republican National Committee.

That contribution dwarfs Stephenson’s largest previous donation over the past twenty years: $5,000, according to the Center for Responsive Politics.

Bloomberg reports that Stephenson took a credibility and pay hit from the merger debacle, forcing AT&T to turn over $4 billion in deal penalties to its rival, T-Mobile, including precious wireless spectrum. The deal’s collapse personally cost Stephenson more than $2 million in bonus pay.

Although AT&T is not commenting, Wall Street analysts are, and they suspect Stephenson is sending the Obama Administration a clear message that he is upset with the decision to challenge the merger. The rest of AT&T appears to be following suit, with nearly two-thirds of political contributions, mostly from company executives, going to the Republican party which has traditionally maintained a much more friendly relationship with the communications giant.

Several Republicans criticized the Justice Department and Federal Communications Commission for interfering with the merger deal which consumer advocates argued would reduce competition and raise prices for wireless services. Republicans have also expressed near-universal support for AT&T’s policy positions on Net Neutrality, community broadband, usage-based pricing, spectrum and price deregulation, removal of state oversight of telecommunications services, and marketplace consolidation.

AT&T is a major sponsor of this summer’s Republican National Convention in Tampa, Fla. Several former lobbyists for AT&T are now working with the Romney campaign and its money bundling operations on behalf of the Republican presidential candidate.

The center reports no personal political contributions from the heads of either Verizon Wireless or Sprint.

Roger Entner, an analyst with Recon Analytics in Dedham, Massachusetts, notes AT&T was still trying to make nice with Obama Administration officials as late as last December, sending ornate cupcakes to various administration officials, including those at the FCC.

Entner noted it didn’t work.