Verizon's new upgrade policy, courtesy of Android Central.

Verizon Wireless is making changes to their handset upgrade programs, all to the benefit of their bottom line and not to yours.

In training materials obtained by Android Central, Verizon is discontinuing its “New Every Two” handset discount program for customers who sign new contracts after Jan. 16 and will stop allowing customers to obtain early upgrade discounts on new phones before their contract nears expiration.

The “New Every Two” promotion has been a familiar part of Verizon Wireless service for years.  Customers finishing their two year contracts receive a $50 discount on their next new phone with the carrier, as long as they sign a new two year contract.

Early upgrades, which used to qualify customers for discounts during months 13-20 of their 24 month contract, are coming to an end as well.

There is some speculation the early upgrade plan is being curtailed to try and stop a rush on the rumored Verizon iPhone due early this year.

Since many customers upgrade to more expensive smartphones, the “New Every Two” program only delivers a discount, not the new free phone it provided in an earlier era.

Still, the loss of discounts will effectively give the biggest benefits to Verizon Wireless’ bottom line, allowing the company to reduce subsidies it pays on behalf of customers demanding the latest and greatest new phones.

Don’t want blazing fast fiber optic broadband speeds?  Unhappy with fiber optic quality video and want to go back to putting a satellite dish on your roof?  If the answer to either question is “yes,” Frontier Communications has good news for you.

The phone company, which assumed control of a handful of communities formerly served by Verizon’s fiber-to-the-home FiOS network, has announced it will begin marketing DSL and satellite TV services to its fiber customers.

Frontier CEO Maggie Wilderotter told investors on a third quarter results conference call that FiOS broadband could be too expensive.

Wilderotter noted Verizon would not allow customers in a FiOS neighborhood to buy DSL service, which leaves budget-minded customers behind.

“Now, FiOS starts at like 50Mbps and it’s very expensive. It’s like $50 a month for a customer. So they left a whole host of customers behind from an affordability perspective who didn’t need that kind of capability on broadband.” Wilderotter explained. “We have just over the last 30 to 60 days opened up DSL in all of the FiOS markets to give the customer choice. So the customer can choose whether they want FiOS broadband or they want high-speed Internet service, typically, and in those markets we’re offering around 6 to 7Mbps.”

Time Warner Cable occasionally runs promotions helping customers break free from Frontier's multi-year service contracts.

Of course, Frontier FiOS starts at 15Mbps — not 50, and that costs $50 a month for standalone service.  For $99, ($89 in Verizon FiOS areas), customers can get broadband, cable TV and unlimited phone service.  Frontier’s “Turbo” DSL service is priced at $40 a month for up to 7.1Mbps service.

Wilderotter also noted their FiOS customers can also choose to skip fiber video and go with DirecTV.

“We think that customers should be able to choose what kind of video they want,” she said. “We have aggressive offers in the market for both DirecTV and for FiOS video, but in our vernacular, what we care about is keeping the customer, getting the customer to take more products and services from us and making sure the customer is happy with the choice.”

Wilderotter said Frontier is prepared to tolerate more congestion on its DSL circuits than Verizon permitted, which opens the door to potential traffic slow-downs down the road.

“We’ve opened up in many of these locations the opportunity to sell high-speed service up to 95% capacity on the equipment that we have out in the field. Verizon had set a parameter at 75%,” Wilderotter said.

The company continues to study whether Frontier FiOS is worth maintaining or expanding outside of the Verizon territories where it was originally constructed.

“We are still evaluating it from a financial perspective and a customer perspective, and from a cost perspective and a revenue perspective,” Wilderotter told investors. “In terms of what that does for us overall, what it does for churn, how much does it really cost to extend this capability in the markets that we’re in today — we think that analysis and evaluation will go on through the first quarter [of 2011] and then we’ll be able to make some [decisions] in terms of what we want to do with FiOS from an expansion perspective or a maintenance perspective.”

Frontier Communications CEO Maggie Wilderotter answered questions about broadband expansion and the impact of the fall elections on telecommunications policy in Washington. (11 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

<

p style=”text-align: center;”>

Frontier's largely rural service areas provide a captive audience for the company's DSL broadband service.

In the near term Frontier has several plans to get more aggressive in the marketplace to meet its target goal of losing only 8 percent of their customers per year — a goal that illustrates legacy phone companies are still on a trajectory towards fewer and fewer customers:

1. Don Shassian, executive vice president and chief financial officer of Frontier reports expansion of DSL remains a top priority for Frontier.  The company is on track to deliver access to 300,000 additional homes by the end of the year.  Verizon delivered access to 64 percent of Frontier’s acquired territories.  Frontier wants to get that number up to 85 percent.  But part of that target is not just expanding service to unserved areas.  It’s also trying to win back customers lost to other providers through promotions and incentives.
2. Frontier plans to resume aggressive promotions in the coming weeks and months, including its “free Netbook” promotion, which provides a Netbook computer to new customers signing up for several packages of services, committing to remain with Frontier for at least two years.
3. Frontier intends to push “price protection agreements” on as many customers as possible.  Their “Peace of Mind” program locks customers into multi-year contracts with stiff cancellation penalties.  Wilderotter noted: “I think, as you know, in our legacy markets, 96% of all of our sales are on a price protection plan and we have close to 60% of our residential customers on a one-, two- or three-year price protection plans. That number is below 15% in the acquired markets. So we’re also driving for price protection plans with every sale that we’re doing in these new markets as well.”  Such contracts dramatically discourage a customer from disconnecting Frontier, because fees for doing so can exceed $300 in some cases.  Frontier has been heavily criticized by some customers and State Attorneys General for deceptive business practices regarding contracts.

Frontier continues to enjoy a lack of solid cable competition in its largely rural service areas.  Shassian reports Comcast competes with Frontier in only about 32% of homes in some areas, Time Warner Cable in about 23%, and Charter below 15%.  With reduced competition, Frontier often represents the only broadband option in town.

Frontier is also spending an increased amount of time coping with copper thefts, especially in West Virginia where the company is warning would-be thieves it will prosecute to the fullest extent of the law.

“Damage to our facilities can affect communications access in an emergency, increase company costs and consumer rates, and disrupt community phone and broadband connections,” said Lynne Monaco, Frontier’s Director of Security. “When network connections are severed by copper thieves, it endangers customers and emergency responders and poses significant risks of personal injury and property damage.”

Just last week, West Virginia state police solved another copper caper that disrupted service for some customers.

The Charleston Daily Mail reports:

Stephanie Burdette of Charleston was arrested in connection with a copper wire theft.

Trooper A.B. Ward from the South Charleston detachment went to the Fishers Branch area of Sissonville last Thursday afternoon when a Frontier worker discovered a section of the communications line missing. The worker found that 300-feet of the 400-pair line, valued at about $5,000, was missing, according to a complaint filed in Kanawha Magistrate Court.

A trooper who had worked on a similar investigation told Ward to check the home of Ervin “Tubby” Page, 49, where troopers had previously found evidence of wire burning. Ward went to Page’s home, described as a Goose Neck travel trailer parked next to the Guthrie Agricultural Center in Sissonville, and found three burn barrels about 50 feet in front of the trailer. One of them was on fire.

Page’s girlfriend Stephanie Marie Burdette, 25, of Cross Lanes, was at the scene when the trooper arrived. Ward spoke to her then checked out the barrels where he found aluminum wrap, which is used to cover the copper communications wiring, and pieces of copper cabling, the complaint said.

Frontier customers are encouraged to report any suspicious activity around telecommunications equipment and facilities by calling the company’s toll free security line 1-800-590-6605. Anyone witnessing a theft in progress should not confront the suspects but should immediately call 911 and then call Frontier. Vehicle and suspect descriptions are very useful. This is a community safety problem, and the cooperation of the public is critical.

[flv width=”500″ height=”395″]http://www.phillipdampier.com/video/WOWK Charleston Copper Thieves 11-15-10.flv[/flv]

WOWK-TV in Charleston covers Frontier’s difficulties with copper wire thieves across the state of West Virginia.  (1 minute)

Residents of these Virginia homes are required to pay $146 a month for Cox Cable, Broadband, and Phone service whether they want it or not.

Marilyn Castro decided she did not need her landline phone any longer.  The Virginia Beach resident learned her provider would be happy to oblige her request to disconnect service, but she is still required to pay her phone bill, even without the service, for at least the next 25 years.

Woodland Park, Virginia resident Allan Pineda got a similar story when he wanted out of Cox Cable’s landline service.  Yes, Cox will schedule a visit to disconnect service at his convenience, but he’ll still have to pay his cable bill, including landline charges, every month.

Frederic Martin, who lives at a Mid-America Apartment Communities-owned complex in Dallas, learned he was on the hook for cable-TV service, even though he has not owned a television set for more than a decade.

In Weston, Florida, some 15,000 homeowners pay for cable television whether they want it or not and if they don’t pay, their homes are at risk from foreclosure.

It’s all thanks to the concept of “bulk billing,” a practice growing in popularity that delivers mandatory cable, phone, and broadband service to renters and homeowners whether they want the services or not.  It’s a multi-million dollar racket, and thanks to the Federal Communications Commission, it may be coming to your community or apartment complex soon.

Castro

For almost five years, mandating cable service has become a growing problem in many parts of the country, especially in Florida and Virginia.  Most of the controversy comes when large housing management and homeowner associations, builders, and corporately-owned apartment complexes cut “discount deals” with a cable company to wire a community or complex for service.  Their mission is not always altruistic.  Many builders receive generous signing bonuses and ongoing kickbacks earned from condemning residents to mandatory cable service contracts that may not expire in their lifetime.

Some apartment complexes have added charges for cable-TV service to the rent. Many earn ongoing compensation from grateful cable companies who pay 3-5 percent of revenue back to the complex.  Even homeowner associations have gotten into the act, adding cable-TV costs to required association dues for upkeep and maintenance.  For those who can’t or won’t pay, liens and even foreclosure can soon follow.

LM Sandler of Virginia Beach, a Virginia builder, is a typical player.

Sandler has built entire neighborhoods of new homes across Virginia, most of which are covered by a “bulk billing” contract with Cox.  When residents buy or rent a Sandler-built property, a triple-play package of phone, cable, and Internet service comes along with the deal.  It’s not cheap, running $146 a month.  Even worse, your grandchildren could still be paying Cox Cable if they stayed in the family home, because Sandler’s contract with Cox runs up to 75 years.

Although residents are not required to take service from Cox, they are required to pay for it, in full, every month.

It gets worse for residents in Florida.  Most contracts with cable operators include provisions that can terminate service for entire communities if even a single homeowner is 60 days past due.  To keep that from happening, homeowner associations aggressively pursue slow-paying residents.  JMB Partners, who built much the residential housing in Weston, and the governing bodies in Weston committed residents to an agreement that has enormous implications if they miss a payment:

Between Jan. 1 and Dec. 17, 2004, the Town Foundation, Weston’s homeowner association, filed liens against more than 200 homes in the city. Most of these, according to Broward County court records, are for unpaid cable TV bills, which until 2003 were collected by the foundation. The city utilities department now handles that task.

One of the upset residents is Vincent Andreano, whose mother, Lita Andreano, was faced with the predicament of losing her Weston Country Club Home for a $109 cable bill that he said had been left outstanding by the previous owner.  The Andreanos said that when closing on the home about a year and a half ago, they came upon the outstanding debt and sent a check.

”No one ever contacted me or my mother afterwards to tell us they had not gotten the check or that the debt was still outstanding,” said Andreano, an attorney. “Then a year and a half later, they slap my mother with a foreclosure lawsuit. It’s legal brutality.”

Andreano said he tried to reason with Town Foundation attorney Douglas Gonzales, whose signature appears in the lawsuit paperwork, to no avail. He said he was told to pay the debt, plus legal fees billed at a little more than $200 per hour, in addition to court filing fees and other miscellaneous charges. The final tab: more than $1,500.

In the Tampa area, mandatory cable service bills for some neighborhoods and planned communities have increased by an eye-popping 44 percent because of the foreclosure crisis.  That’s because of mandatory payment clauses many have with providers like Bright House that demand full payment even when homes are unoccupied.  When a resident’s home is in foreclosure or a resident refuses to pay, all of the remaining area residents pick up the tab for unpaid cable bills.  This wreaks havoc with homeowner association budgets, who must find the money to pay the cable company, in full, every month.  Many have slashed security, road maintenance, refuse collection, landscaping, and other quality-of-life expenses just to keep the cable company happy.

Back in 2008, when Florida first began a downward housing spiral, the impact was already being felt:

The Chapel Pines subdivision in Wesley Chapel found itself stuck in a cable contract that requires $15,000 a month payment to Bright House, and is seeing the strain of foreclosed homes no longer paying their fees. That payment represents nearly half their total association budget.

The South Fork 1 development in Riverview has a 15-year contract with Bright House that requires a $9,700 a month payment, roughly one-third of the neighborhood’s total budget.

“We still have to foot the bill whether people live in those homes or not,” said Fred Perez, the former president of the South Fork association. “You end up with a big, bad debt line item on the budget.”

With the problem worsening, that homeowner’s association even contemplated bankrupting itself just to free it from obligations to Bright House.

Other communities are levying “special assessments” on homeowners to cover cable bills in high foreclosure areas:

To cement a good deal, the community, South Bay Lakes in Gibsonton, years ago signed a bulk contract with Bright House Networks to provide cable TV in the neighborhood, in exchange for a regular fixed payment.

That arrangement worked out fine when the neighborhoods filled up and residents paid their association fees – and the association turned over the cable TV payments to Bright House. The problem occurs when neighbors go into foreclosure and stop paying their fees.

The South Bay Lakes homeowners association still must pay about $140,000 a year to Bright House, even though there’s less money coming in from homeowners.

Because about numerous homes in the 300-home development are in foreclosure, South Bay Lakes had to issue “special assessments” on residents.

Fees rose from $150 a quarter to $216, and that probably won’t cover the shortfall, according to association officials. The Bright House bill represents almost half of the association’s annual budget of $261,000.

To make matters tougher, the community is locked into that deal with Bright House until 2019, with cable rates that rise “from time to time” according to the contract.

The city of Weston collects cable payments from residents forced to pay for service from Advanced Cable Communications.

Earlier this year, Stop the Cap! covered the story of residents in Tennessee and Texas who discovered the corporate owners of their apartment complexes were making cable-TV mandatory and adding the resulting charges to lease agreements.

Defenders of these bulk billing arrangements claim they deliver savings residential customers could not obtain on their own and ensure that complexes and planned living communities are fully wired for service.  Besides, they claim, there is no obligation to use the services provided and customers can obtain service from another provider.

But they still face paying for service they don’t use.  In some communities, it is service many don’t want to use.

John Carter, who lives in Weston, told the FCC as a senior on a fixed income he cannot afford to pay a second cable bill, even though his existing service is terrible.

“I am stuck with poor programming options, outages during stormy weather, slow Internet speeds of 15kbps and poor customer service,” he wrote the agency.

In other instances, sweetheart deals fuel incentives for builders to sign lucrative contracts with providers even before a homeowner’s association is formed.  In some cases, the provider turns out to be a family member or associate of the developer.  In many others, perpetual kickbacks through “royalties” and fees are paid to the builder or complex owner as long as the agreement remains in place, even long after the builder is no longer on scene.

For impacted residents like Castro stuck with landline service she didn’t want, it was time to fight back.  She launched Ban Bulk Billing, an online forum for those who oppose mandated cable-TV service. Castro asked consumers to join her in protesting the fees with the FCC.  But it’s hard to keep a movement going when giant corporate providers and other special interests have the resources to shout down consumers.

In March, the FCC collected its thoughts and submissions from property owners, apartment complex management companies, cable and phone companies, and consumers and rendered its decision — which threw consumers under the bus:

We conclude that the benefits of bulk billing outweigh its harms. A key consideration for us is that bulk billing, unlike building exclusivity, does not hinder significantly the entry into an MDU by a second MVPD and does not prevent consumers from choosing the new entrant. Indeed, many commenters indicate that second MVPD providers wire MDUs for video service even in the presence of bulk billing arrangements and that many consumers choose to subscribe to those second video services. We find it especially significant that Verizon, which more than any other commenter in the earlier proceedings argued that building exclusivity clauses deterred competition and other proconsumer effects, makes no claim in its filings herein that bulk billing hinders significantly or, as a practical matter, prevents it from introducing its service into MDUs. Bulk billing, accordingly, does not have nearly the harmful entry-barring or -hindering effect on consumers that exists in the case of building exclusivity.

In other words, because Verizon didn’t have a problem with these bulk billing arrangements, they’re fine by the FCC.  Verizon wants into this arrangement themselves, so it’s hardly a surprise they are not objecting.  The significance of Verizon’s change in position is hardly a mystery — the earlier barriers the FCC wrote about were designed to keep Verizon out of apartment complexes and condos.

The incentives for providers earned from these bulk billing contracts are enormous:

• The cost of collections and billing are passed on to local government, homeowner associations, rental companies, or other agents.  The risk of non-payment by a homeowner’s association or city government is nearly non-existent;
• Marketing expenses and customer promotions can be slashed because customers already have the service when they move in;
• Competition is diminished, especially from capital-intensive wired competitors.  Would you contemplate wiring a community for competitive service knowing existing residents are held captive by mandatory cable contracts?;
• Innovation expenses can be curtailed because the customer is already captive to the existing level of service;
• Rate increases are built-in, allowing companies to raise rates and still keep all of their existing customers.

Residents of Staples Mills Townhomes in Richmond, Virginia understand this only too well.  When the new corporate owner, PRG Real Estate moved in a few years ago, they brought Comcast with them, mandating every resident pay for basic cable service as part of their rent.

PRG’s website highlights Staples Mills as an example of “an institutional equity partnership:” (underlining ours)

The PRG model for improvement is two-pronged — pay close attention to the details of management with a well thought out capital improvement plan. Imbedding [sic] PRG’s professional management structure would mean the implementation of aggressive PRG policies and procedures, taking virtually all contract services in-house to save the profit margin being captured by contractors. The upgrade to PRG-trained site personnel would particularly enhance the marketing effort. Although the property was 97% occupied we anticipated that, after the capital improvements, the same occupancy rate would be maintained with significantly higher rents.

[…]It was crucial that we succeed, not only in terms of return to our investor, but in terms of building our relationships and profile with other institutional investors. We needed to hit this one out of the ballpark.

New and improved Staples Mills?

Residents called a foul ball, one writing, “Residents were slapped in the face with the news that they will be forced to pay for mandatory cable (an extra $34 per month on the rent) from Comcast regardless if they don’t want it, already have satellite, or don’t even have a TV under the guise of ‘lowering cable rates.’ It’s called subsidizing the people who want it by juicing those who don’t.”

PRG may have succeeded in making their investors happy, but they alienated a number of tenants in the process, most of whom assumed Comcast was their only choice and wouldn’t contemplate paying another cable bill from a competitor.

The FCC’s decision recognized that competitors could enter a bulk-billed service area, but ignored the reality most won’t.

Indeed, the FCC itself recognized the impact of these bulk-billing arrangements on the competitive landscape in their own decision, quoting from a submission:

One bulk billing cable operator states that fewer than 5% of an MDU’s residents subscribe to another video provider. It estimates that if it lost its bulk billing contract, it would raise its prices substantially for the remaining 95% because of higher programming and labor costs per customer. The combined savings for 5% of the MDU’s residents would be dwarfed by the increased expenses for the 95%, making the MDU’s residents significantly worse off than they were before as a whole.

The Cowardly Lion is still working for the FCC.

This proves two points:

1. The FCC still cowers in fear from threats issued by providers that any attempt to rein them in will do everything from raising prices to killing jobs and innovation, despite the fact only five percent of customers in the cited case took service from a competitor.  A five percent loss of customers would create conditions for a “substantial” rate hike only in their minds.  AT&T U-verse has captured far more than 5 percent of cable customers in markets where it competes with cable, yet somehow cable manages to keep the lights on and their doors open;
2. The FCC pretends that these agreements don’t impact the marketplace when the 95 percent “take rate” for service plainly indicates otherwise.  Do 95 percent of residents in non-bulk-billed neighborhoods also take cable service?  Of course not.

Despite the FCC’s industry-friendly ruling, many impacted consumers are not giving up.

Martin, the Dallas renter paying for cable-TV even though he doesn’t own a television, is taking the fight to state Attorneys General, hoping a group effort on the state level will dislodge at least some consumers from being forced to pay for something they don’t want or need.

Martin believes it’s manifestly unfair to deliver mandated “discounted service” to some on the backs of others who don’t want a cable bill at all.

“No one should have the right to force you to buy what you don’t want from someone you don’t like,” Martin says.

He points out under Mid-America’s terms, even blind and deaf residents are forced for pay for cable service.

The only thing cheaper than a discounted cable bill is no cable bill at all.  Now that represents real savings.

Martin’s vociferous objections and intervention from his Texas state representative eventually managed to get him off the hook with Mid-America’s mandatory cable bill.  His rent was lowered by an amount equal to the monthly cable fee, but the cable company is still getting paid on his behalf.

Martin's petition to stop mandatory cable service

For Martin, that’s just plain wrong.

“I am still subsidizing an industry of which I do not wholeheartedly approve,” he writes.

Martin is now coordinator for Tenants United for Fairness and has launched an online petition demanding an end to mandatory cable-TV charges.

He has gathered more than 100 signatures from 13 states so far, and the petition is open for everyone to sign, even if they are not currently impacted.

Martin says getting signatures has proved challenging in some cases.

“It has been very hard to get tenants to sign my petition because they’re in fear of the landlords,” Martin says. “Very few of those who have signed have gone further and contacted their elected officials or the FCC to complain.”

The impact of the March decision by the FCC has given providers a green light to expand mandatory service even further.  Some communities are now finding mandatory broadband service fees being added to cable-TV charges.

The FCC’s response?  “Consumers complaining about these latest new fees are sent an unsigned form letter from the FCC advising them to “talk to your landlord,'” says Martin.

[flv width=”432″ height=”260″]http://www.phillipdampier.com/video/WVEC Virginia Beach Residents fight mandatory bundle agreement 3-16-10.mp4[/flv]

WVEC-TV in Virginia Beach covered the plight of residents struggling to understand why they should be forced to pay $146 a month to Cox for cable, broadband, and landline phone service.  (3/10/2010 — 4 minutes)

In the financially difficult world of landline service, there has been one bright spot for Verizon — its state-of-the-art fiber optic service FiOS.  The cost of replacing obsolete copper phone with 21st century fiber optics has proved to be an expensive, but successful endeavor, at least in the eyes of customers.  Hated by Wall Street for its costs but loved by those who enjoy the service, FiOS has successfully proven traditional phone companies can earn money by providing the kinds of services consumers want, just so long as investors are willing to hang in there while the investment pays off over time.  But many investors aren’t.

Some of Verizon’s critics in the investment community complain the company is n0t earning enough from FiOS — in fact, for some critics who didn’t want Verizon spending money on a fiber-to-the-home network in the first place, financial returns provide the evidence used to claim they were right all along.

Despite the naysayers, revenue for Verizon FiOS is up by almost one-third each year, with average revenue per user now reaching $145 a month.  That’s well above the money Verizon earns on its legacy copper network phone customers keep leaving, especially outside of major cities where DSL service is spotty.  There is plenty of room for Verizon FiOS to grow in the limited communities it reaches.  Unfortunately, Verizon has stopped expanding its FiOS network to new communities, in part from pressure from investors who want to see cost cutting from the telecommunications giant.

Despite the positive reviews (subscription required) FiOS earns from consumer publications like Consumer Reports, Verizon slashed marketing and promotion expenses, resulting in second-quarter net additions for FiOS TV coming in at 174,000, compared with 300,000 a year earlier.

With Verizon now deploying service to communities on a reduced schedule, the results have been underwhelming according to the Wall Street Journal:

Verizon Communications may want to tweak the ad slogan for its TV and ultrafast Internet service to “This is FIOS. This is pretty small.”

Not catchy, but it would be more accurate than the current “This is Big” line.

[…]It eventually became clear that Verizon had slowed the time frame of the buildup, originally scheduled to be mostly done this year. Instead, it now expects to meet its target of passing 18 million homes with the network by 2012.

The slower timetable allows Verizon to trim capital spending this year. The problem is that FiOS’s expansion could stall with a less aggressive approach to growth. Already, Verizon has retreated from its target of adding one million subscribers a year, in favor of boosting penetration to 40% of homes passed. At June 30, its 3.2 million TV subscribers was about 20% of homes passed.

[…]And that can only reinforce questions about long-term returns on the $23 billion FIOS investment.

Evidence that Verizon is looking for more customers in its existing FiOS markets can be found in the news the company dropped its contract commitment for new customers.  The term contracts may have held some potential customers back out of fear of a lengthy term commitment with a $360 early cancellation fee.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Verizon FiOS goes contract free ad.flv[/flv]

Verizon started running this ad several weeks ago touting its new “no contract” FiOS service.  (15 seconds)

But a change in strategy isn’t enough for investors who demand immediate results through further cost cutting measures.

In Verizon’s second quarter earnings reports, company executives speak to this perception, proudly noting they have slashed costs through job-cutting and reduced spending on infrastructure and services.  Some of those services include DSL expansion for rural Verizon customers, many who are now left on hold waiting for broadband from Verizon indefinitely.

In many states, Verizon’s DSL expansion was incremental at best, with the company issuing press releases touting new service for literally hundreds of potential customers.

Verizon’s traditional landline business continues to lose customers year after year, and is abandoning millions of others through sell-off deals with companies like Frontier Communications.  Light Reading notes Verizon eliminated 11,000 jobs in its Mid-Atlantic and Eastern regions through early retirement incentive programs, an idea soon to spread to other regions, particularly California and Texas in the coming months.  This kind of cost cutting saves cash and allows companies to report positive financial results in quarterly reports.

According to John Killian, executive vice president and CFO of Verizon, the job cuts are just getting started.  As Verizon further alienates its non-FiOS landline customers who can find better service and lower prices elsewhere, the company expects “further force reductions” in the coming months.  Verizon is also slashing costs by selling off real estate, consolidating operations and vacating buildings.

The impact can become a vicious circle of deteriorating service, customer defections, and additional cost cutting, which starts the circle all over again.  In West Virginia, deteriorating Verizon phone lines reached the point of serious service outages whenever major storms hit the state.  Then Verizon simply sold off its network in West Virginia.  Those customers are now served by Frontier Communications.

Verizon previously declared the era of the landline dead, and is now seeking to prove its point, even as it demonstrates it can make money by spending money on FiOS, if only investors would give them the chance.

[flv width=”576″ height=”344″]http://www.phillipdampier.com/video/CNN Behind the scenes at Verizon Fios 3-15-10.flv[/flv]

CNN took a behind the scenes tour of Verizon’s FiOS network in New York City, from the central offices to individual apartments.  (4 minutes)

The days of AT&T’s exclusive American distribution of Apple’s iPhone are dwindling, but the mobile phone provider wants to make sure you tough it out with AT&T even after the iPhone becomes available from Verizon Wireless.  If you don’t, AT&T will charge you $325 to break your two-year contract.

Effective June 1st, AT&T’s near-doubling of its early termination fee from $175 to $325 for smartphones is a shot across the bow of regulators already annoyed with cell company fees.  But aggravating the FCC and Congress may be worth it if it means locking millions of AT&T customers into new contracts expected to be signed with the release of the next generation iPhone due next month.  AT&T is making it even easier by “upgrading” many current iPhone accounts to qualify for the latest phone at the new customer price… with another two year service contract.

AT&T claims the new fee more fairly represents the cost of subsidizing increasingly popular smartphones, and the fee will decrease by $10 for every month you stay over the life of your contract.  Without the subsidy, customers would pay nearly $600 for a phone AT&T reduces in price to $199 with a two year contract.  But companies like AT&T earn back the subsidy and then some from the monthly service plan fees collected over the life of a two year contract.  Customers who bring their own unsubsidized phones to AT&T get no benefit from doing so — they pay the same artificially higher prices subsidized phone owners pay.

AT&T also announced it was slightly reducing the cancellation fee for its basic phones by $25 to $150, decreasing by $4 every month a customer remains with AT&T.  That’s not much of a concession considering many basic cell phone users are dumping contract cell phone service plans for prepaid service, where significant savings can be had.

“It is ironic indeed that news of AT&T’s early termination fee hike falls one day after the FCC’s report on the wireless industry highlighted the substantial obstacles to effective competition and the restricting effect this has had on consumer choice, service quality and price, said M. Chris Riley, Free Press policy counsel. “AT&T’s move to further price-gouge consumers is evidence of its market dominance and the need for real reform of wireless markets. The FCC needs to take action to spur competition, which will lead to lower prices and more choices for consumers who don’t wish to be bogged down in long-term contracts.”

Holding customers to two year contracts dramatically reduces subscriber churn — the practice of customers jumping from one phone carrier to another.  That means stable revenue and reduced marketing expenses aimed at signing up new customers.

Verizon Wireless already doubled their early termination fee from $175 to $350 last November.

On Friday, AT&T released an “open letter” to customers which was written as if to suggest the increased fees benefited consumers: