Customer satisfaction with fiber to the home internet service is so high, one industry leader says the only time customers cancel service is if they move or die.

Carl Russo, CEO of internet equipment vendor Calix, says phone companies are relying on fiber optic networks to turn their struggling businesses around except in the most rural areas of the country.

“Fixed wireless will sometimes be the right choice and Calix’s software supports it. But our telco customers with fiber will lose very few customers. If they provide strong, customer-focused service, no one will have a reason to switch,” Russo told Dave Burstein’s Fast Net News. “It’s only a slight exaggeration to say customers only churn if they move or die. This is provided the service provider chooses to ‘own’ the subscriber experience. A service provider that invests in fiber but doesn’t further invest in an excellent subscriber experience is still vulnerable.”

Russo argues that fiber to the home service has been the right choice for most of the developed world for several years now, at least where there is hearty competition between providers.

Where competition is lacking, phone companies often still rely on archaic DSL service, which is increasingly incapable of competing with even smaller cable operators. Phone companies are now up against the wall, forced to recognize that existing, decades-old copper wire infrastructure cannot sustain their future in the broadband business. Companies that drag their feet on fiber upgrades are bleeding customers, and some companies are even in bankruptcy reorganization.

Russo

Fiber networks are future-proof, with most offering up to gigabit speed to consumers and businesses. But upgrading to 10 Gbps will “add little to the cost” once demand for such faster speed appears, Russo said.

Fast Net News notes that France Telecom, Telefonica Spain, Bell Canada, and Telus have all proven successful using fiber to the home service to compete with cable companies to market internet access. Companies that approved less costly fiber to the neighborhood projects that relied on keeping a portion of a company’s legacy copper network, including AT&T, BT in the United Kingdom, and Deutsche Telekom in Germany, have had to bring back construction equipment to further extend fiber optic cables to individual customer homes — a costly expense.

Even public broadband projects like Australia’s National Broadband Network (NBN) paid dearly for a political decision to downsize the NBN’s original fiber optic design to save money. The NBN was hobbled by a more conservative government that came to power just as the network was being built. Many NBN customers ended up with a more advanced form of DSL supplied from oversubscribed remote terminals, which delivered just 50 Mbps to some subscribers. For-profit companies have also been pressured to keep costs down and limit fiber rollouts by Wall Street and investors. Verizon FiOS is the best known American example, with further network expansion of the fiber optic service essentially shelved in 2010 at the behest of investors that claimed the upgrades cost too much.

Underfunded upgrades often bring customer dissatisfaction as speeds cannot achieve expectations, and many hybrid fiber-copper networks are less robust and more subject to breakdowns. In the United Kingdom, BT’s “super fast” broadband initiative has been a political problem for years, and communities frequently compete to argue who has the worst service in the country. BT’s fiber-to-the-village approach supplies fiber internet service to street cabinets in smaller communities that link to existing BT copper phone lines that are often in poor shape. Customers often get less than 50 Mbps service from BT’s “super fast” service while a few UK cable companies are constructing all-fiber networks in larger cities capable of supplying gigabit internet speed to every customer.

Calix is positioned to earn heavily by selling the equipment and infrastructure that will power future fiber network upgrades that are inevitable if companies want to attract and keep customers. A new round of federal rural broadband funding will help phone companies pay for the upgrades, which means many rural Americans will find fiber to the home service in their future.

Frontier Communications has revealed to investors what many probably realized long ago — the independent phone company chronically underinvested in network upgrades and repairs for years, giving customers an excuse to switch providers.

Remarkably, the phone company did not just underperform for its remaining voice and DSL internet customers. In a sprawling confidential “Presentation to Unsecured Bondholders” report produced by Frontier’s top executives, the company admits it was even unable to achieve significant growth in its fiber territories, where Frontier-acquired high-speed FiOS and U-verse fiber networks held out a promise to deliver urgently needed revenue.

Frontier’s bondholders were told the company’s ongoing losses and poor overall performance were unsustainable, despite years of executive “happy talk” about Frontier’s various rescue and upgrade plans. In sobering language, Frontier admitted its capital structure and efforts to deleverage the company’s massive debts were likely to cut the company off from future borrowing opportunities and deter future investment.

The presentation found multiple points of weakness in Frontier’s current business plan:

Voice landline service remains in perpetual decline. Like other companies, Frontier’s residential landline customers left first, but now business customers are also increasingly disconnecting traditional phone service.

About 51% of Frontier’s revenue comes from its residential customers. That number has been declining about 5% annually, year over year as customers leave. Frontier’s internet products are now crucial to the company’s ability to stay in business. Less than 30% of Frontier’s revenue comes from selling home phone lines. For Frontier to remain viable, the company must attract and keep internet customers. For the last several years, it has failed to do either.

Frontier customers are disconnecting the company’s low-speed DSL service in growing numbers, usually leaving for its biggest residential competitor: Charter Spectrum. Frontier remains saddled with a massive and rapidly deteriorating copper wire network. The company disclosed that 79% of its footprint is still served with copper-based DSL. Only 21% of Frontier’s service area is served by fiber optics, after more than a decade of promised upgrades. Frontier’s own numbers prove that where the company still relies on selling DSL, it is losing ground fast. Only its fiber service areas stand a chance. Just consider these numbers:

• Out of 11 million homes in Frontier’s DSL service area, only 1.5 million customers subscribe. That’s a market share of just 13 percent, and that number declines every quarter.
• Where Frontier customers can sign up for fiber to the home service, 1.2 million customers have done so, delivering Frontier a respectable 40 percent market share.

Frontier has been promising DSL speed upgrades for over a decade, but the company’s own numbers show a consistent failure to deliver speeds that can meet the FCC’s definition of “broadband,” currently 25 Mbps.

At least 30% of Frontier DSL customers receive between 0-12 Mbps download speed. Another 35% receive between 13-24 Mbps. Only 6% of Frontier customers get the “fast” DSL capable of exceeding 24 Mbps that is touted repeatedly by Frontier executives on quarterly conference calls.

Despite the obvious case for fiber to the home service, Frontier systematically “under-invested in fiber upgrades” in copper service areas at the same time consumers were upgrading broadband to acquire more download speed. Frontier’s report discloses that nearly 40% of consumers in its service area subscribe to internet plans offering 100 Mbps or faster service. Another 40% subscribe to plans offering 25-100 Mbps. In copper service areas, Frontier is speed-competitive in just 6% of its footprint. That leaves most speed-craving customers with only one path to faster speed: switching to another provider, typically the local cable company.

So why would a company like Frontier not immediately hit the upgrade button and start a massive copper retirement-fiber upgrade plan to keep the company in the black? In short, Frontier has survived chronic underinvestment because of a lack of broadband competition. Nearly two million Frontier customers have only one choice for internet access: Frontier. For another 11.3 million, there is only one other choice – a cable company that many detest. Frontier has enjoyed its broadband monopoly/duopoly for at least two decades. So long as its customers have fewer options, Frontier is under less pressure to invest in upgrades.

For years Frontier’s stock was primarily known for its generous dividend payouts to shareholders — money that could have been spent on network upgrades. But what hurt Frontier even more was an aggressive merger and acquisition strategy that acquired castoff landline customers from Verizon and AT&T in several states. In its most recent multi-billion dollar acquisition of Verizon customers in California, Texas, and Florida, Frontier did not achieve the desired financial results after alienating customers with persistent service and billing problems. The longer term legacy of these acquisitions is a huge amount of unpaid debt.

Frontier’s notorious customer service problems are now legendary. Frontier’s new CEO Bernie Han promises that customer service improvements are among his top four priorities. Improving the morale of employees that have been forced to disappoint customers on an ongoing basis is another.

Frontier executives are proposing to fix the company by deleveraging the company’s debt and restructuring it, freeing up capital that can be spent on long overdue network upgrades. Executives claim the first priority will be to scrap more of Frontier’s copper wire network in favor of fiber upgrades. That would be measurable progress for Frontier, which has traditionally relied on acquiring fiber networks from other companies instead of building their own.

But the company will also continue to benefit from a chronic lack of competition and Wall Street’s inherent dislike of large capital spending projects. The proposal does not come close to advocating the scrapping of all of Frontier’s copper service in favor of fiber. In fact, a rebooted Frontier would only incrementally spend $1.4 billion on fiber upgrades until 2024, $1.9 billion in all over the next decade. That would bring fiber to only three million additional Frontier customers, those the company is confident would bring the highest revenue returns. The remaining eight million copper customers would be stuck relying on Frontier’s existing DSL or potentially be sold off to another company.

Frontier seems more attracted to the prospect of introducing or upgrading service to approximately one million unserved or underserved rural customers where it can leverage broadband subsidy funding from the U.S. government. To quote from the presentation: Frontier plans to “invest in areas that are most appropriate and profitable and limit or cease investments in areas that are not.”

Another chronic problem for Frontier’s current business is its cable TV product, sold to fiber customers.

“High content/acquisition costs have made adding new customers to the Company’s video product no longer a profitable exercise,” the company presentation admits. If the company cannot raise prices on its video packages or successfully renegotiate expensive video contracts to a lower price, customers can expect a slimmed down video package, likely dispensing with regional sports networks and other high cost channels. Frontier may even eventually scrap its video packages altogether.

To successfully achieve its goals, Frontier is likely to put itself into Chapter 11 bankruptcy reorganization no later than April 14, 2020. The company’s earlier plans may have been impacted by the current economic crisis caused by the coronavirus pandemic, so the exact date of a bankruptcy declaration is not yet known.

With the average speed of DSL service under 10 Mbps in rural counties across the United States, this legacy technology is disenfranchising a growing number of rural Americans and is largely responsible for dragging down overall U.S. internet speed scores. Only satellite internet offers overall lower speed and poor customer satisfaction, according to consumer surveys.

In some areas, customers cannot even get bad DSL service, despite the fact the Federal Communications Commission marks many of those addresses as well-served. According to a new report by the company Broadband Now, the FCC could be claiming at least 20 million Americans have access to robust internet service that, in fact, does not exist, especially in rural counties.

Citylab:

To get its estimate, the Broadband Now team manually ran 11,663 randomly selected addresses through the “check availability” tool of nine large internet service providers that claim to serve those areas. All in all, the team analyzed 20,000 provider-address combinations. A fifth of them indicated that no service was available, suggesting to the researchers that companies may be overstating their availability by 20%, said John Busby, the managing director of Broadband Now. The results also show that 13% of the addresses served by multiple providers didn’t actually have available service through any of them. They then applied these rates across the country to get their final estimate of 42 million people without broadband.

The disparity between their estimate and the FCC’s largely comes from the agency’s reliance on Form 477 reports, in which internet providers self-report the locations they serve. Providers can claim to serve the population of an entire census block if service is provided to just one household in that block. After the release of FCC’s May report, the agency’s Democratic commissioners dismissed the report, berating their colleagues for “blindly accepting incorrect data” and using the numbers to “clap its hands and pronounce our broadband job done.”

Across DSL-heavy rural Ohio, weary residents have nothing to clap about as they desperately look for something better than slow speed DSL from the local phone company.

“It’s a good day when Frontier DSL breaks 2 Mbps, although they advertise (and we pay for) 10 Mbps,” said Fred Phelps, a Frontier DSL customer for more than a decade. “In rural Ohio, it is take it or leave it internet access and we have no choice other than Frontier.”

Phelps has longed for Charter Spectrum to wire his area, next to a large farm operation, but the nearest Spectrum-connected home is a half-mile down the road. Phelps was lucky to get DSL at all. That aforementioned farm paid Frontier a handsome sum to extend its commercial DSL service to the farm’s office, putting Phelps in range for a residential DSL connection.

“It is always slow and frequently goes offline on rainy and snowy days because water is getting into the phone cable somewhere,” Phelps told Stop the Cap! “Service calls are a waste of time because the problem always disappears by the time the repair crew shows up.”

Cindy B (last name withheld at request) is in a similar situation in Ohio. She has a CenturyLink DSL line that averages 1 Mbps, although some of her relatives have managed to get almost 12 Mbps from CenturyLink closer to town.

Warren County, Ky.

“CenturyLink treats you like they are doing you a favor even offering DSL service in this part of Ohio. There is no cable TV service for at least 20 miles, so cable internet is out of the question,” Cindy tells us. “They have also made it crystal clear there are no plans to upgrade service in our area.”

She used to be a Viasat satellite internet customer but quickly canceled service.

“Satellite internet should be considered torture and banned as illegal,” Cindy said. “You can spend five minutes just trying to open an email, and the only time we could download a file was overnight, but even that failed all the time.”

Cindy and Fred are collateral damage of the country’s broadband dilemma. They are stuck with DSL, a service that often wildly over-claims advertised speed that it actually cannot deliver in rural areas. In much of rural Ohio, DSL speeds are usually under 6 Mbps, although companies often claim much faster speed on reports sent to the FCC.

“According to the FCC website, we should be getting 24 Mbps internet from Frontier and two other companies, but that simply does not exist,” said Phelps. “I really don’t understand how the FCC can rely on its own database for broadband speed that is not available and never has been.”

Cindy said her children cannot depend on their DSL line and have to do their homework at school or in the library, where a more dependable Wi-Fi connection exists.

“The problem is getting worse because websites are becoming more elaborate and are designed for people who have real internet connections, so often they won’t even load for us,” she said.

Warren Rural Electric Co-Op’s service area.

But according to the FCC, neither Cindy nor Fred live in a broadband-deprived area. For this reason, public funding to improve internet access is hard to come by because the FCC deems both areas well-served.

South of Ohio, in Warren County, Ky., a local rural electric co-op is not waiting for the State of Kentucky or the federal government to fix inaccurate data about broadband service in the rural exurbs around Bowling Green, usually stuck with slow DSL or no internet access at all. Warren Rural Electric Cooperative and Lafayette, Tenn.-based North Central Telephone Co-Op are working together to lay fiber optic cables to bring fiber to the home internet service to some broadband-deprived communities in the county. Warren RECC serves eight counties in south central Kentucky with over 5,700 miles of electric transmission and distribution lines, mostly in rural parts of the state. Two communities chosen for service as part of a pilot project — Boyce and September Lakes, are more than a little excited to get connected.

The Bowling Green Daily News reports that an informational meeting held in early February drew 300 residents (out of nearly 800) ready to hear more information about the project. Almost 150 signed up for future fiber service on the spot. Many more have subsequently signed up online. The new service will charge $64.95/mo for 100 Mbps service or $94.95 for 1,000 Mbps service. That is about $5 less than what Charter Spectrum charges city folks and is many times faster than what most phone companies are offering in rural Kentucky.

No service.

Despite New York Gov. Andrew Cuomo’s $500 million, 2015 Broadband for All initiative which guaranteed broadband service for anyone  that wanted home internet access, five years later rural broadband gaps continue to plague the state.

A bill that would set aside funds to complete a feasibility study to launch a state owned broadband provider of last resort was quietly vetoed by Cuomo at the end of 2019. Assembly member Aileen Gunther (D-Monticello) sponsored the bill after hearing scores of complaints about terrible or non-existent internet access from constituents in her district, which covers the parts of the rural Catskills region north of the Pennsylvania border.

Gunther complained that despite the governor’s broadband initiative, private phone and cable companies were still ignoring rural customers, leaving them with slow DSL service or no internet access at all. Gunther’s bill was a first step in potentially allowing the state to step in and provide service to New Yorkers unable to get broadband from any private provider.

New York has spent over $500 million on its Broadband for All program and made Charter Spectrum an integral part of its broadband expansion plans in return for approval of its 2016 acquisition of Time Warner Cable. But a growing number of the governor’s critics claim the program has failed to deliver on its mandate, stranding thousands of New Yorkers without internet service and tens of thousands more with just one option — unpopular satellite internet access.

Gunther

Gunther was upset to learn that New York was prepared to hand over more than a half billion dollars to large private telecom companies including Frontier Communications and Verizon while not being willing to spend a penny to fund projects to reach New Yorkers for-profit companies could not be dragged kicking and screaming to service.

“We’re all spending millions and millions of dollars on privately owned internet service providers,” said Gunther. “In return for promises, a lot of our communities do not have access to the internet, or if they do have access to the internet, it’s slow and these companies are not, I think, fulfilling the promises made.”

The rural broadband problem is not resolved in the Finger Lakes or Southern Tier regions of New York either. This week, Yates County announced it was joining an effort by Schuyler, Steuben, and Tioga counties, and the Southern Tier Network, to complete a broadband feasibility study to improve internet access in the four counties. Fujitsu Broadband will manage the study and hopes to have results by June. The study will target the pervasive problem of inadequate broadband service in the region, which includes crucial tourist, winery, and agricultural businesses vital to New York’s rural economy.

Gov. Andrew Cuomo announcing rural broadband initiatives in New York in 2015.

Gov. Cuomo has called such initiatives “well-intentioned” but was non committal about contributing more state funds to construct new networks or underwrite further expansion of existing ones. New York is about to begin its annual hard-fought budget negotiations in hopes of completing the state budget by April. Finding funding for such projects will probably require a powerful political advocate able to wrestle funding for further broadband improvements.

Even after spending $500 million, New York’s rural broadband problem has not been resolved. That offers insight into the merits of other state broadband programs, which often limit annual broadband expansion funding to under $30 million annually.

Those still without service are likely in high-cost service areas, where each customer could cost over $20,000 to reach. New York’s Broadband for All program relied on a reverse auction that required private companies to bid to service each unserved address. No wireline provider bid on any high-cost service areas, leaving Hughes Satellite as a subsidized satellite provider of last resort. But inadequate broadband mapping left scores of rural New Yorkers behind without even the option of subsidized satellite internet access.

AT&T was unhappy with the low internet speed score the FCC was about to give the telecom giant, so it made a few phone calls and got the government regulator to effectively rig the results in its favor.

“Regulatory capture” is a term becoming more common in administrations that enable regulators that favor friendly relations with large companies over consumer protection, and under the Trump Administration, a very business-friendly FCC has demonstrated it is prepared to go the distance for some of the country’s largest telecom companies.

Today, the Wall Street Journal reported AT&T successfully got the FCC to omit DSL speed test results from the agency’s annual “Measuring Broadband America” report. Introduced during the Obama Administration, the internet speed analysis was designed to test whether cable and phone companies are being honest about delivering the broadband speed they advertise. Using a small army of test volunteers that host a free speed testing router in their home (full disclosure: Stop the Cap! is a volunteer host), automated testing of broadband performance is done silently by the equipment on an ongoing basis, with results sent to SamKnows, an independent company contracted to manage the data for the FCC’s project.

In 2011, the first full year of the program, results identified an early offender — Cablevision/Optimum, which advertised speed it couldn’t deliver to many of its customers because its network was oversold and congested. Within months, the company invested millions to dramatically expand internet capacity and speeds quickly rose, sometimes beyond the advertised level. In general, fiber and cable internet providers traditionally deliver the fastest and most reliable internet speed. Phone companies selling DSL service usually lag far behind in the results. One of those providers happened to be AT&T.

In the last year, the Journal reports AT&T successfully appealed to the FCC to keep its DSL service’s speed performance out of the report and withheld important information from the FCC required to validate some of the agency’s results.

The newspaper also found multiple potential conflicts of interest in both the program and SamKnows, its contracted partner:

• Providers get the full names of customers using speed test equipment, and some (notably Cablevision/Optimum) regularly give speed test customers white glove treatment, including prioritized service, performance upgrades and extremely fast response times during outages that could affect the provider’s speed test score. Jack Burton, a former Cablevision engineer said “there was an effort to make sure known [users] had up-to-date equipment” like modems and routers. Cablevision also marked as “high priority” the neighborhoods that contained speed-testing users, ensuring that those neighborhoods got upgraded ahead of others, said other former Cablevision engineers close to the effort.
• Providers can tinker with the raw data, including the right to exclude results from speed test volunteers subscribed to an “unpopular” speed tier (usually above 100 Mbps), those using outdated or troublesome equipment, or are signed up to an “obsolete” speed plan, like low-speed internet. Over 25% of speed test results (presumably unfavorable to the provider) were not included in the last annual report because cable and phone companies objected to their inclusion.
• SamKnows sells providers immediate access to speed test data and the other data volunteers measure for a fee, ostensibly to allow providers to identify problems on their networks before they end up published in the FCC’s report. Critics claim this gives providers an incentive to give preferential treatment to customers with speed testing equipment.

Some have claimed internet companies have gained almost total leverage over the FCC speed testing project.

The Journal:

Internet experts and former FCC officials said the setup gives the internet companies enormous leverage. “How can you go to the party who controls the information and say, ‘please give me information that may implicate you?’ ” said Tom Wheeler, a former FCC chairman who stepped down in January 2017. Jim Warner, a retired network engineer who has helped advise the agency on the test for years, told the FCC in 2015 that the rules for providers were too lax. “It’s not much of a code of conduct,” Mr. Warner said.

An FCC spokesman told the Journal the program has a transparent process and that the agency will continue to enable it “to improve, evolve, and provide meaningful results as we move forward.”

The stakes of the FCC’s speed tests are enormous for providers, now more reliant than ever on the highly profitable broadband segment of their businesses. They also allow providers to weaponize  favorable performance results to fight off consumer protection efforts that attempt to hold providers accountable for selling internet speeds undelivered. In some high stakes court cases, the FCC’s speed test reports have been used to defend providers, such as the lawsuit filed by New York’s Attorney General against Charter Communications over the poor performance of Time Warner Cable. The parties eventually settled that case.

In 2018, the key takeaway from the report celebrated by providers in testimony, marketing, and lobbying, was that “for most of the major broadband providers that were tested, measured download speeds were 100% or better of advertised speeds during the peak hours.”

Comcast often refers to the FCC’s results in claims about XFINITY internet service: “Recent testing performed by the FCC confirms that Comcast’s broadband internet access service is one of the fastest, most reliable broadband services in the United States.” But in 2018, Comcast also successfully petitioned to FCC to exclude speed test results from 214 of its testing customers, the highest number surveyed among individual providers. In contrast, Charter got the FCC to ignore results from 148 of its customers, Mediacom asked the FCC to ignore results from 46 of its internet customers.

Among the most remarkable findings uncovered by the Journal was the revelation AT&T successfully got the FCC to exclude all of its DSL customers’ speed test results, claiming that it would not be proper to include data for a service no longer being marketed to customers. AT&T deems its DSL service “obsolete” and no longer worthy of being covered by the FCC. But the company still actively markets DSL to prospective customers. This year, AT&T also announced it was no longer cooperating with SamKnows and its speed test project, claiming AT&T has devised a far more accurate speed testing project itself that it intends to use to self-report customer speed testing data.

Cox also managed to find an innovative way out of its poor score for internet speed consistency, which the FCC initially rated a rock bottom 37% of what Cox advertises. Cox claimed its speed test results were faulty because SamKnows’ tests sent traffic through an overcongested internet link yet to be upgraded. That ‘unfairly lowered Cox’s ratings’ for many of its Arizona customers, the company successfully argued, and the FCC put Cox’s poor speed consistency rating in a fine print footnote, which included both the 37% rating and a predicted/estimated reliability rating of 85%, assuming Cox properly routed its internet traffic.

The FCC report also downplays or doesn’t include data about internet slowdowns on specific websites, like Netflix or YouTube. Complaints about buffering on both popular streaming sites have been regularly cited by angry customers, but the FCC’s annual report signals there is literally nothing wrong with most providers.

Providers still fear their own network slowdowns or problems during known testing periods. The Journal reports many have a solution for that problem as well — temporarily boosting speeds and targeting better performance of popular websites and services during testing periods and returning service to normal after tests are finished.

James Cannon, a longtime cable and telecom engineering executive who left Charter in February admitted that is standard practice at Spectrum.

“I know that goes on,” he told the Journal. “If they have a scheduled test with a government agency, they will be very careful about how that traffic is routed on the network.”

As a result, the FCC’s “independent” annual speed test report is now compromised by large telecom companies, admits Maurice Dean, a telecom and media consultant with 22 years’ experience working on streaming, cable and telecom projects.

“It is problematic,” Dean said. “This attempt to ‘enhance’ performance for these measurements is a well-known practice in the industry,’ and makes the FCC results “almost meaningless for describing actual user experience.”

Tim Wu, a longtime internet advocate, likened the speed test program as more theoretical than actual, suggesting it was like measuring the speed of a car after getting rid of traffic.