Lost more customers than it gained for the first time.

Phone companies depending on DSL to keep them in the broadband business are in growing trouble, unless they lack a nearby cable competitor. Subscriber numbers from nine different major phone and cable companies over the summer of 2012 show cable broadband continues to grow as customers cancel DSL service from their local phone company. But for rural customers, DSL often remains the only option. That leaves rural providers like Frontier, Windstream, and CenturyLink in better standing than larger companies like AT&T and Verizon.

Phone Companies

• AT&T‘s U-verse service is the only thing keeping AT&T broadband numbers on the rise. AT&T added 553,000 new U-verse customers during the summer and now serves 6.5 million customers on its fiber-to-the-neighborhood network. AT&T continues to lose DSL customers, primarily to local cable competitors.
• CenturyLink, Inc. has been upgrading its DSL service in several areas to better compete with cable broadband, and is also deploying a fiber-to-the-neighborhood service in select cities. The network upgrades are helping, bringing the company 18,000 new broadband customers. CenturyLink currently serves 5.76 million Internet customers nationwide.
• Frontier Communications has lost broadband customers in its larger service areas, mostly to cable, but those losses have been offset by its DSL expansion in rural areas that have never had broadband before. But the company only managed to add just under 6,000 new broadband customers during the last quarter, serving 1.78 million customers across the country.
• Verizon Communications: Verizon was willing to turn away potential DSL customers for the first time, as it discontinued selling DSL to those who don’t want Verizon landline service. That, and pervasive cable competition, meant Verizon only picked up 2,000 new DSL customers this quarter — the worst showing in four years. Verizon FiOS’ recent price hikes also cost the company some growth for its fiber to the home service,  but still earning a respectable 134,000 new customers (5.1 million total). Time Warner Cable, Cablevision, and Comcast have all managed to win back FiOS customers with attractive discount offers.
• Windstream Corp. faces cable competition in a number of its semi-rural service areas, and its DSL service has not been able to keep up with the growing speeds available to cable broadband subscribers. For the first time, Windstream reported it lost more customers than it added, losing 2,200 DSL subscribers. Windstream still has 1.36 million customers signed up for its broadband service.

Cablevision has won back some of its former customers who went with Verizon FiOS but do not like the recent rate hikes.

Cable Companies

• Cablevision, which serves mostly suburban New York City, New Jersey, and Connecticut added 25,000 new high speed customers, many coming back to the cable company from Verizon. Cablevision serves a relatively small geographic area, but a densely populated one. Nearly 3 million broadband customers have remained loyal to the cable company.
• Charter Cable picked up 37,000 new broadband customers, a number fleeing phone company DSL for Charter’s higher speed broadband services. Charter serves 3.8 million broadband customers.
• Comcast added 156,000 new customers to its roster of 18.7 million Internet customers, again mostly from former DSL customers.
• Time Warner Cable expanded with 59,000 new high speed customers, primarily from DSL disconnects. Time Warner provides service for 10.8 million broadband customers.

TekSavvy, an independent Canadian Internet Service Provider, just announced some speed upgrades, changes, and some price adjustments for DSL customers in Quebec and Ontario:

Ontario

• The 12Mbps tier is being downgraded to 10Mbps with no price change;
• Current customers on the 12Mbps tier are being upgraded to 15Mbps free of charge;

Quebec

• Quebec customers who were on the 10Mbps/300 GB package will receive a price decrease to $41.99;

General Changes

• Customers subscribed to 25Mbps service will now have 10Mbps upload speed free of charge (up from 7Mbps);
• Packages at 640kbps & 2Mbps speeds have been discontinued;
• The 16Mbps package is being converted to 15Mbps with existing customers grandfathered at the higher speed.

The speed changes will take effect by Monday, Aug. 27.

TekSavvy uses phone lines from Bell and Telus for DSL service and also uses cable broadband networks owned by Rogers, Shaw, and Vidéotron. Unlike most Canadian providers, TekSavvy sells packages with generous usage allowances or, for a few dollars more, unlimited service.

TekSavvy Solutions, Inc., is one of the leading independent providers of telecommunications services in Canada. Founded in 1998, TSI provides residential, business and wholesale Internet and phone services in Canada.

AT&T lost 649,000 DSL customers in three months.

AT&T’s broadband customers are taking their business elsewhere as second quarter results show the phone company lost 649,000 DSL customers in the last three months, while only picking up 553,000 new U-verse Internet users to replace those leaving. The result was a net loss of nearly 100,000 broadband customers in a single quarter. The company also only managed to attract 155,000 new U-verse television customers away from satellite or cable operators during the quarter.

AT&T blames the losses on “seasonality” — code language for part-time residents, college students, and other fluctuations that occur as customers come and go. Total broadband connections dropped 0.2% for AT&T, with 16.43 million remaining customers.

Landline customers also continue to depart AT&T in droves. More than one million home phone customers pulled the plug on AT&T this quarter. AT&T has lost nearly 11 percent of their landline customers over the past year.

For those remaining, a combination of rate increases, cost cutting and fierce marketing of bundled packages of services are keeping revenue growing on both the residential and business side.

AT&T is getting closer to announcing a “rural landline solution,” which some analysts predict will be the company’s exit from the rural landline business.

Executives continue to hint the company is reviewing its future in the rural landline business. AT&T lobbyists have shepherded new laws in several states that would allow them to abandon rural landline customers where the company is no longer required to be “the carrier of last resort.”

AT&T U-verse is turning out to be not much of a threat to cable and satellite operators, only achieving a 17.3% penetration rate in areas where the service is available.

The real money for AT&T is being made in the wireless sector, where increasing prices, changes to service packages, and data usage-based billing are all paying off  — revenue for wireless data alone is up 18.8% to $1 billion during the second quarter. AT&T earned $14.3 billion from its wireless business in just the second quarter alone.

At the same time, the company is slashing investments in parts of its network and cutting employees.

Capital expenditures in the second quarter amounted to $4.48 billion, down 15% from the $5.27 billion AT&T spent a year ago. AT&T also cut its workforce by 6.4% since June 2011, with a reported 242,380 total remaining employees.

Despite the company’s talking points, AT&T’s upgrade fee is designed to slow down customers considering upgrading their smartphones.

In other highlights:

• Wall Street analysts are praising AT&T’s stricter upgrade policies and device upgrade fees. In fact, at least one analyst wants to see AT&T raise the fee to $50 for every phone upgrade. The fees discourage customers from upgrading their phones, which dramatically reduces AT&T’s costs. AT&T subsidizes phones for customers. The longer customers hold off from upgrading, the more revenue AT&T keeps for themselves and shareholders. AT&T has made it clear it will continue to “introduce discipline”  in the handset market to enforce “rational pricing,” which means customers will continue to see further reductions in device subsidies and face higher prices when upgrading phones.
• Much of AT&T’s investment will be in its LTE 4G network. AT&T’s spending on wireline services including U-verse is on the decline.
• AT&T admitted its policy of monetizing data usage for profit is well underway: “[We are getting] ourselves set up for revenues that are going to be tied to usage, which will then be tied to our capital requirements and a really profitable situation.”
• AT&T is aggressively pushing customers to upgrade to smartphones so they can earn additional revenue. “Smartphone subscribers now number 43 million and make [up] 62% of our total postpaid base. But smartphones accounted for 77% of postpaid sales during the quarter, showing continuing opportunity for growth. And when you look at our total smartphone base, we’ve added 9 million high-value smartphone customers in just the last 12 months.”

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/ATT 2Q2012 Results.flv[/flv]

AT&T spins its 2nd Quarter results for shareholders in the best possible light. Although revenues are up, the number of customers leaving AT&T for other providers may challenge future growth and earnings. (4 minutes)

The Federal Communications Commission’s July report on America’s broadband speeds shows virtually every major national provider, with the exception of Frontier Communications, made significant improvements in delivering the broadband service and speeds they advertise to customers.

Utilizing thousands of volunteer testers agreeing to host a router that performs automated speed tests and other sampling measurements (full disclosure: your editor is a volunteer participant), the FCC speed measurement program is one of the most comprehensive independent broadband assessments in the country.

Hourly Sustained Download Speeds as a Percentage of Advertised, by Provider—April 2012 Test Data

The FCC found Cablevision’s improvements last year paid off handsomely for the company, which now effectively ties with Verizon Communication’s FiOS fiber-to-the-home service for delivering promised speeds during peak usage times. The cable operator was embarrassed in 2011 when the FCC found Cablevision broadband customers’ speeds plummeted during Internet use prime time. Those problems have since been corrected with infrastructure upgrades — particularly important for a cable operator that features near-ubiquitous competition from Verizon’s fiber network.

“This report demonstrates our commitment to delivering more than 100 percent of the speeds we advertise to our broadband customers – over the entire day and during peak hours – in addition to free access to the nation’s largest Wi-Fi network and other valuable product features and enhancements,” said Amalia O’Sullivan, Cablevision’s vice president of broadband operations.

Verizon also blew its own horn in a press statement released this afternoon.

“Verizon’s FiOS service continues to demonstrate its mastery of broadband speed, reliability and consistency for consumers as represented in today’s FCC-SamKnows residential broadband report,” said Mike Ritter, chief marketing officer for Verizon’s consumer and mass market business unit. “The FCC’s findings reaffirm the results from the 2011 report, which found that FiOS provides blazing-fast and sustained upstream and downstream speeds even during peak usage periods. This year’s results also show once again that FiOS Internet customers are receiving speeds that meet or exceed those we advertise, adding even more value to the customer experience.”

Average Peak Period Sustained Download and Upload Speeds as a Percentage of Advertised, by Provider—April 2012 Test Data

Cable operators’ investments in DOCSIS 3 technology also allowed their broadband networks to perform well even as broadband usage continues to grow. Comcast delivered 103% of promised speeds during peak usage, Time Warner Cable – 96%, and Cox – 95%.

Just one nationwide provider lost ground in the last year — Frontier Communications, whose DSL service has grown more congested than ever, with insufficient investment in network upgrades apparent by the company’s dead-last results.

Frontier managed 81% of promised speeds in 2011, partly thanks to its inherited fiber to the home network. This year, it managed only 79%.

Frontier performed adequately for customers choosing its lowest 1Mbps speed tier. It also performed well in areas where its fiber network can sustain much faster speeds. The biggest problems show up for Frontier’s DSL customers buying service at speeds of 3-10Mbps. At peak times, network congestion brings those speeds down.

On average, the FCC found fiber to the home service delivers the best broadband performance, followed by cable broadband, and then telephone company DSL. Five ISPs now routinely deliver nearly one hundred percent or greater of the speed advertised to the consumer even during time periods when bandwidth demand is at its peak. In the August 2011 Report, only two ISPs met this level of performance. In 2011, the average ISP delivered 87 percent of advertised download speed during peak usage periods; in 2012, that jumped to 96 percent. In other words, consumers today are experiencing performance more closely aligned with what is advertised than they experienced one year ago.

The FCC report also found that outlier performers in the 2011 study, with the exception of Frontier, worked hard to make their differences in performance disappear. Last year, the standard deviation from promised broadband speeds was 14.4 percent. This year it is 12.2 percent.

Peak Period Sustained Download Performance, by Provider—April 2012 Test Data

The FCC also found consumers are gravitating towards higher-priced, higher-speed broadband service. Last year’s average broadband speed tier was 11.1Mbps. This year it is 14.3Mbps, almost 30% higher. Along with faster speeds comes more usage. Customers paying for more speed expect to use their broadband connections more, and the FCC found they do.

Overall, the FCC was encouraged to see broadband speed tiers on the increase, some to 100Mbps or higher.

Highlights from the report:

• Actual versus advertised speeds. The August 2011 Report showed that the ISPs included in the Report were, on average, delivering 87 percent of advertised speeds during the peak consumer usage hours of weekdays from 7:00 pm to 11:00 pm local time. The July 2012 Report finds that ISP performance has improved overall, with ISPs delivering on average 96 percent of advertised speeds during peak intervals, and with five ISPs routinely meeting or exceeding advertised rates.
• Sustained download speeds as a percentage of advertised speeds. The average actual sustained download speed during the peak period was calculated as a percentage of the ISP’s advertised speed. This calculation was done for each speed tier offered by each ISP.
  • Results by technology:
    • On average, during peak periods DSL-based services delivered download speeds that were 84 percent of advertised speeds, cable-based services delivered 99 percent of advertised speeds, and fiber-to-the-home services delivered 117 percent of advertised speeds. This compared with 2011 results showing performance levels of 82 percent for DSL, 93 percent for cable, and 114 percent for fiber. All technologies improved in 2012.
    • Peak period speeds decreased from 24-hour average speeds by 0.8 percent for fiber-to-the-home services, 3.4 percent for DSL-based services and 4.1 percent for cable-based services. This compared with 0.4 percent for fiber services, 5.5 percent for DSL services and 7.3 percent for cable services in 2011.
  • Results by ISP:
    • Average peak period download speeds varied from a high of 120 percent of advertised speed to a low of 77 percent of advertised speed. This is a dramatic improvement from last year where these numbers ranged from a high of 114 percent to a low of 54 percent.
    • In 2011, on average, ISPs had a 6 percent decrease in delivered versus advertised download speed between their 24 hour average and their peak period average. In 2012, average performance improved, and there was only a 3 percent decrease in performance between 24 hour and peak averages.
• Sustained upload speeds as a percentage of advertised speeds. With the exception of one provider, upload speeds during peak periods were 95 percent or better of advertised speeds. On average, across all ISPs, upload speed was 107 percent of advertised speed. While this represents improvement over the 103 percent measured for 2011, upload speeds have not been a limiting factor in performance and most ISPs last year met or exceeded their advertised upload speeds. Upload speeds showed little evidence of congestion with little variance between 24 hour averages and peak period averages.
  • Results by technology: On average, fiber-to-the-home services delivered 106 percent, DSL-based services delivered 103 percent, and cable-based services delivered 110 percent of advertised upload speeds. These compare with figures from 2011 of 112 percent for fiber, 95 percent for DSL, and 108 percent for cable.
  • Results by ISP: Average upload speeds among ISPs ranged from a low of 91 percent of advertised speed to a high of 122 percent of advertised speed. In 2011, this range was from a low of 85 percent to a high of 125 percent.
• Latency. Latency is the time it takes for a packet of data to travel from one designated point to another in a network, commonly expressed in terms of milliseconds (ms). Latency can be a major controlling factor in overall performance of Internet services. In our tests, latency is defined as the round-trip time from the consumer’s home to the closest server used for speed measurement within the provider’s network. We were not surprised to find latency largely unchanged from last year, as it primarily depends upon factors intrinsic to a specific architecture and is largely outside the scope of improvement if networks are appropriately engineered. In 2012, across all technologies, latency averaged 31 milliseconds (ms), as opposed to 33 ms measured in 2011.
  • During peak periods, latency increased across all technologies by 6.5 percent, which represents a modest drop in performance. In 2011 this figure was 8.7 percent.
    • Results by technology:
      • Latency was lowest in fiber-to-the-home services, and this finding was true across all fiber-to-the-home speed tiers.
      • Fiber-to-the-home services provided 18 ms round-trip latency on average, while cable-based services averaged 26 ms, and DSL-based services averaged 43 ms. This compares to 2011 figures of 17 ms for fiber, 28 ms for cable and 44 ms for DSL.
    • Results by ISP: The highest average round-trip latency for an individual service tier among ISPs was 70.2 ms, while the lowest average latency within a single service tier was 12.6 ms. This compares to last year’s maximum latency of 74.8 ms and minimum of 14.5 ms.
• Effect of burst speed techniques. Some cable-based services offer burst speed techniques, marketed under names such as “PowerBoost,” which temporarily allocate more bandwidth to a consumer’s service. The effect of burst speed techniques is temporary—it usually lasts less than 15 to 20 seconds—and may be reduced by other broadband activities occurring within the consumer household. Burst speed is not equivalent to sustained speed. Sustained speed is a measure of long-term performance. Activities such as large file transfers, video streaming, and video chat require the transfer of large amounts of information over long periods of time. Sustained speed is a better measure of how well such activities may be supported. However, other activities such as web browsing or gaming often require the transfer of moderate amounts of information in a short interval of time. For example, a transfer of a web page typically begins with a consumer clicking on the page reference and ceases when the page is fully downloaded. Such services may benefit from burst speed techniques, which for a period of seconds will increase the transfer speed. The actual effect of burst speed depends on a number of factors explained more fully below.
  • Burst speed techniques increased short-term download performance by as much as 112 percent during peak periods for some speed tiers. The benefits of burst techniques are most evident at intermediate speeds of around 8 to 15 Mbps and appear to tail off at much higher speeds. This compares to 2011 results with maximum performance increases of approximately 50 percent at rates of 6 to 7 Mbps with tail offs in performance beyond this.
• Web Browsing, Voice over Internet Protocol (VoIP), and Streaming Video.
  • Web browsing. In specific tests designed to mimic basic web browsing—accessing a series of web pages, but not streaming video or using video chat sites or applications—the total time needed to load a page decreased with higher speeds, but only up to about 10 Mbps. Latency and other factors limited response time starting around speed tiers of 10 Mbps and higher. For these high speed tiers, consumers are unlikely to experience much if any improvement in basic web browsing from increased speed–i.e., moving from a 10 Mbps broadband offering to a 25 Mbps offering. This is comparable to results obtained in 2011 and suggests intrinsic factors (e.g. effects of latency, protocol limitations) limit overall performance at higher speeds. It should be noted that this is from the perspective of a single user with a browser and that higher speeds may provide significant advantages in a multi-user household or where a consumer is using a specific application that may be able to benefit from a higher speed tier.
  • VoIP. VoIP services, which can be used with a data rate as low as 100 kilobits per second (kbps) but require relatively low latency, were adequately supported by all of the service tiers discussed in this Report. However, VoIP quality may suffer during times when household bandwidth is shared by other services. The VoIP measurements utilized for this Report were not designed to detect such effects.
  • Streaming Video. 2012 test results suggest that video streaming will work across all technologies tested, though the quality of the video that can be streamed will depend upon the speed tier. For example, standard definition video is currently commonly transmitted at speeds from 1 Mbps to 2 Mbps. High quality video can demand faster speeds, with full HD (1080p) demanding 5 Mbps or more for a single stream. Consumers should understand the requirements of the streaming video they want to use and ensure that their chosen broadband service tier will meet those requirements, including when multiple members of a household simultaneously want to watch streaming video on separate devices. For the future, video content delivery companies are researching ultra high definition video services (e.g. 4K technology which has a resolution of 12 Megapixels per frame versus present day 1080p High Definition television with a 2 Megapixel resolution), which would require higher transmission speeds.

Year by Year Comparison of Sustained Actual Download Speed as a Percentage of Advertised Speed (2011/2012)

Our-verse

Last week, Stop the Cap! reported AT&T customers in Connecticut were being told to dump their long-standing DSL service in favor of a forced upgrade to AT&T U-verse. Now some Texans are in the same boat, only that “free upgrade” AT&T offered ended up costing one angry customer $337.

The Star-Telegram found Judith Hedges, who reports she was bullied and intimidated by AT&T’s increasingly threatening letters warning if she did not upgrade her Internet connection to AT&T U-verse, her DSL service will be summarily disconnected.

AT&T pulled the plug last week, leaving Hedges without Internet service.

Consumer reporter Dave Lieber writes, “AT&T has found a new way to lure customers to its supposedly faster U-verse service: Force them to take it.”

As AT&T installs U-verse fiber to the neighborhood service, the company has decided to stop investing in its older DSL technology, and when conditions are right, the company sends letters to their existing DSL customers imposing an “upgrade” to U-verse.

Hedges suspected the threatening letters were part of a high-pressure sales pitch to add TV and phone service, services she did not want, so she tossed the letter away. Big mistake.

AT&T is giving out different answers as to when and why they are forcing DSL customers to switch to U-verse. One told Lieber the company is now introducing forced upgrades wherever U-verse becomes established, another told the reporter the choice remains with the customer as long as the company does not decommission its DSL service in a particular exchange.

AT&T told the newspaper “the large majority of existing customers we’re reaching out to can upgrade to the same-speed package on U-verse without an increase to their broadband bill.”

But that does not always turn out to be true. Hedges signed up for the “free upgrade” to get her service back and promptly found it was more expensive than what she had. In fact, the company loaded her first bill with add-on equipment fees, installation charges, surcharges, taxes, and fees:

• AT&T U-verse temporary promotional rate: $29.95
• Internet Gateway fee: $100
• Installation: $149
• Taxes, fees, and surcharges

The total price for Hedges “free upgrade?” $337. AT&T will reserves the right to bill her a late fee if her check is not forthcoming.

“Apparently, this is the world we live in,” Hedges says. “And AT&T reigns supreme.”