November 7 will be an important day if you are a rural AT&T landline customer. On that date, AT&T, in concert with Wall Street, plans to announce the future of its rural and “tier two-smaller city” landline business.

The implications for customers are enormous. AT&T could elect to exit and auction off its rural customers to companies like Windstream, Frontier Communications, CenturyLink, and FairPoint Communications. AT&T could also announce it will aggressively petition the Federal Communications Commission to decommission its copper landline facilities in favor of a new wireless IP network based largely on its national 4G LTE expansion, or it could be a combination of both: keeping existing landline facilities but transitioning them to Voice over IP technology with a gradual shift towards wireless.

AT&T CEO Randall Stephenson delivered important clues about the company’s direction in remarks at yesterday’s Goldman Sachs Communacopia Conference, attended primarily by Wall Street investors. Stephenson drew clear distinctions between valued customers in areas upgraded to AT&T’s U-verse platform and more problematic customers in smaller communities where AT&T refuses to invest in landline upgrades.

“Where you look at the footprint where we have deployed U-verse technology we do very well,” Stephenson said. “In fact we are the share leader in virtually all U-verse markets. Those markets grow nicely. Where we have not deployed fiber and U-verse technology, we are losing share and those markets are in decline and that is the whole reason behind this analysis and evaluation that we will be laying out Nov. 7. What do we do with those markets? Because we have demonstrated if you go invest you can grow the market.”

Stephenson

“We said coming into the year that we have to find a broadband solution for these assets that is cost-effective or we need to look at selling them,” Stephenson said. “I would just tell you at the 30,000 foot [line length] level we think we’re finding line of sight to some investment theses here. We can get a good competitive broadband product to a large portion of our footprint and would avoid us having to go through a number of regulatory approval processes to sell [landlines] across a large geography. There will probably be a mix of actions here, but the bottom line is we think we may have line of sight but we will flush that out on Nov. 7 in an analyst conference here in New York.”

Early indications suggest the company is considering deploying DSL extenders to reach a larger share of rural customers without a complete overhaul of its copper wire network. The upgrades could deliver results similar to what Frontier Communications has been doing in territories it acquired from Verizon Communications, which includes extending fiber optics further into neighborhoods and finding ways to reduce copper wire length to improve speeds. Frontier has set its sights on delivering up to 25Mbps over copper landlines, a speed it feels is competitive with cable broadband. AT&T could come close to these speeds without the amount of investment required in a typical U-verse deployment.

But just as likely is a largely wireless broadband solution to replace the company’s aging copper wire-based DSL service. Stephenson says he strongly believes that a wireless solution exists for rural America over the company’s new LTE 4G network.

“I don’t envision in major metropolitan dense population centers that LTE will serve as a broad-based fixed-line replacement or surrogate,” Stephenson said. “I do believe in less dense markets and especially when you begin to think about rural America and tier two towns, that LTE can become a fixed line replacement or even better than what you can get in fixed line out in those markets. This is one of the exciting things about the WCS spectrum [AT&T plans to acquire]. It allows you to truly begin to think about investing in and doing this.”

But AT&T’s solutions will come with strings attached: a lobbying effort to get the FCC to loosen up on regulations, acquire more wireless spectrum, and allow the company to dispose of its landline infrastructure.

“You don’t go out and put in LTE capability in rural America and leave up all your copper infrastructure in the long haul,” said Stephenson. “It just wouldn’t make sense to do both. So this is the big regulatory issue. The FCC would require us to leave that copper and TDM fixed-line infrastructure up by some mandated rules and you can’t do both. You can’t support both infrastructures. We have got to work through the regulatory implications of this, but I think LTE can prove over time to be a fixed line replacement in rural and less dense populations. I think in a five year time horizon that can become significant.”

Thus far, AT&T has been unwilling to consider upgrading smaller communities to its U-verse platform, primarily because of the cost and return on investment. The company is content with its current U-verse footprint and has begun to enjoy increased wireline margins from a growing number of urban customers as programming costs decline.

LTE: AT&T’s wireless rural broadband solution?

“The U-verse margins continue to expand,” Stephenson noted. “U-verse is one of those where you go make a really significant capital investment and then you go in as a new entrant to do programming contracts and you’re paying multiples of what the big scale guys are paying and then as you scale that over time then margins really begin to expand. We’re riding that right now and we’re getting really good margin expansion just out out of scaling U-verse and getting better economics on content terms as well.”

Wall Street has been applying pressure to Stephenson to extract higher margins and cut costs from its traditional landline business. Stephenson sought to placate concerns about the cost profile of AT&T landlines before investors.

“We have done a nice job controlling our labor costs and that has been very helpful to continue to sustain margins in the fixed line business,” Stephenson said. “Those labor costs savings we take and reinvest back in the business in the form of U-verse and looking at some future investments as well.”

Stephenson hopes the FCC will eventually let AT&T abandon traditional landline service everywhere, which could also deliver serious cost savings for AT&T.

“I do believe if we can find a path to an all-IP infrastructure in not just your major metropolitan areas but your tier two markets there are significant cost savings in the five or six year time horizon that could come out of these businesses as well,” he noted.

AT&T CEO Randall Stephenson took questions at Goldman Sachs’ Communacopia Conference about its wireless network and the future of the rural landline business. (September 19, 2012) (41 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

Despite industry propaganda touting an “unlimited broadband future” (possibilities, that is, not an end to usage caps) and good sounding headlines about robust competition in the broadband market, the reality on the ground isn’t as rosy.

Americans looking for a better deal for broadband are largely stuck negotiating with the local cable company or putting up with less speed from the phone company to get a cheaper rate.

That is hardly the “success story” being pushed by the Mother of All Broadband Astroturf Front Groups, Broadband for America. BfA, backed by money from some of America’s largest telecom companies calls today’s marketplace “dynamic” and “rapidly changing.” For them, competition is not the problem, the way we define competition is.

Tell that to San Jose Mercury News columnist Troy Wolverton, whose dynamic and rapidly changing Comcast cable bill has now reached $144 a month, and threatens to go higher still when his two-year contract expires.

Wolverton is a case study of what an average American consumer goes through shopping around for broadband service. Despite assertions of a vibrant, competitive Internet access paradise from groups like Broadband for America, Wolverton found very little real competition on the menu, despite being in the high tech heart of Silicon Valley.

Valley residents can typically choose between AT&T and Comcast, if they have any choice at all. Neither company offers a great deal for consumers.

Comcast offers faster speeds at considerably higher prices that can be reduced somewhat by signing up for a costly triple-play service. AT&T’s prices are lower, but its service is slower and is based on a technology that in my experience is less reliable.

So it goes for millions of Americans who face the same dilemma: take a higher-priced package from the cable company or settle for less from the phone company. With the exception of Verizon FiOS, most large telephone companies still rely on basic DSL service to deliver broadband. AT&T’s U-verse and CenturyLink’s Prism are both fiber to the neighborhood services that deliver somewhat faster speeds than traditional DSL, but also have to share bandwidth with television and traditional phone service, leaving them topped out at around 25Mbps.

Wolverton could not believe his only choices were Comcast and AT&T, so he visited the California Broadband Availability Map, one of the state projects earnestly trying to identify the available choices consumers have for broadband access. Despite California’s vast size, it quickly became apparent that even companies like AT&T and Comcast largely don’t deliver broadband outside of cities and suburbs. Several smaller, lesser-known providers emerged from the map that were open to Wolverton, which he explored with less-than-satisfying results:

In addition to Comcast and AT&T, it listed Etheric Networks, which offers a wireless Internet service directed at home users that’s based on Wi-Fi technology, and MegaPath, which offers Internet access through a variety of wired technologies, including DSL.

After further research I found that neither of those companies was a legitimate option. MegaPath can’t deliver residential service to my house that’s faster than 1.5 megabits per second. Etheric, which focuses on business customers, offers a service level with speeds of up to 22 megabits per second, but it costs a cool $400 a month.

Other non-options for Wolverton included the highly-rated Sonic.net, which in his neighborhood is entirely dependent on AT&T’s landlines for its DSL service. That was a no-go, after Wolverton discovered he would be stuck with 3-6Mbps service. Clearwire also offers service in greater San Jose, but not at his home in Willow Glen.

That left him back with AT&T and Comcast.

But that is not really a problem in the eyes of industry defenders like Jeffrey Eisenach, managing director and principal at Navigant Economics and an adjunct professor at George Mason University Law School. Navigant is a “research group” that counts AT&T as one of its most important clients. The firm provides economic and financial analysis of legal and business issues cover for clients trying to sell their agenda. Navigant’s “experts have provided testimony in proceedings before District Courts, the Department of Justice, the Federal Trade Commission, the Federal Communications Commission, the Federal Energy Regulatory Commission, and numerous state Public Utilities Commissions.”

Eisenach goes all out for the broadband industry in his paper, “Theories of Broadband Competition,” which throws in everything but the kitchen sink to defend the status quo:

• The cost of broadband service is declining;
• The duopoly of cable and phone companies are still competing for customers and introducing new services;
• Competition can take the form of provider innovation (ie. providers compete by offering a better services, not lower prices);
• Wireless competition is accelerating, citing LightSquared and Clearwire as two conclusive examples of competition at work;
• The cost of service on a per-megabit basis has declined.
• Competition in today’s broadband market delivers ancillary benefits not immediately evident when only considering the customer’s point of view;

Eisenach’s pricing proof stopped in 2009, just as cable providers like Time Warner Cable began raising broadband prices. TWC’s Landel Hobbs to investors: “We have the ability to increase pricing around high-speed data.” (February, 2010)

Eisenach has appeared at various industry-sponsored evidence touting his views of broadband economics and competition that later turns up as headline news on Broadband for America’s website. But just as Wolverton’s initial optimism finding other choices for broadband faded with reality, so do Eisenach’s conclusions:

1. Eisenach’s evidence of broadband price declines stops in 2009, coincidentally just prior to the recent phenomena of cable broadband rate increases, which have accelerated in the past three years;
2. Competition still exists in urban and suburban markets, as long as phone companies attempt to stem the tide of landline losses, but it’s largely absent in rural markets and in decline in others where companies “reset” prices to match their cable competition. AT&T’s U-verse and Verizon’s FiOS both effectively ended their expansion, leaving large swaths of the country with “good enough for you” service. Cable operators have even teamed up with Verizon Wireless to cross-market their products — hardly evidence of a robustly competitive marketplace;
3. Innovation can take the form of services customers don’t actually want but are compelled to take because of bundled pricing or, worse, the decline in a-la-carte add-ons in favor of “one price for everything” models. Verizon Wireless set the stage for providers of all kinds to consider mandatory bundling for any product or service that can no longer deliver a suitable return on its own. For customers already taking every possible service or fastest speed, this pricing  may deliver lower prices at the outset, but for budget-focused consumers, compulsory packages or high prices on a-la-carte services assures them of a higher bill;
4. Eisenach’s examples of competition are a real mess. LightSquared is bankrupt and Clearwire has shown it cannot deliver an equivalent broadband experience for customers and throttles the speeds of those perceived to be using the service too much. Other wireless providers typically limit customer usage or cannot deliver speeds comparable to wired broadband;
5. While the cost per megabit may have declined in the past, cable providers are still raising prices, and as Google and community-owned providers have illustrated, delivering fast speeds should not cost customers nearly as much as providers continue to charge, with no incentive to cut prices in the absence of equally fast, competitive networks;
6. While broadband may open the door for additional economic benefits not immediately apparent, competitive broadband would further drive innovation and reduce pricing, delivering an even bigger bang for the buck.

Wolverton recognized taking a promotional offer from AT&T will temporarily deliver savings over what Comcast charges, but he would have to set his expectations lower if he switched:

I’m reluctant to switch to AT&T. [U-verse] Max Plus is the fastest level of service it offers at our house, but with a top speed of 18 megabits a second, it’s significantly slower than Comcast’s Blast. Speed matters to us, because my wife and I often share our Internet connection, and we frequently use it to transfer large files such as apps, videos, photos or songs to or from the Net.

[…] What’s more, as the FCC outlined in another recent report, Comcast does a better job of delivering the speeds it advertises than does AT&T.

What’s worse in my book is that AT&T’s U-verse’s Internet service is a version of DSL. It’s faster than regular DSL, because the copper wires in your house and neighborhood are connected to nearby high-speed fiber-optic cables. Even with that speed boost, though, I’m hesitant to go back to any kind of DSL service, because my wife and I suffered through years of unreliable DSL service from AT&T predecessor PacBell and then EarthLink, which piggybacked on AT&T’s lines.

Wolverton also objected to Comcast’s bundled pricing scheme, which delivers the best value to customers who sign up for broadband, television and phone service. Wolverton does not need a landline from AT&T or Comcast, and would like to drop the service. He’s not especially impressed with Comcast’s TV lineup (or pricing) either. But he noted if he switched to broadband-only service, Comcast would effectively penalize him with a broadband-only rate of $72 a month, exactly half the current cost of Comcast’s triple-play package.

In a later blog post, Wolverton confessed he liked Comcast’s broadband service and speeds, and with the carefully-crafted pricing the cable and phone companies have developed, he expected to remain a Comcast customer given his choices and pricing options, which are simply not enough.

AT&T has sent the Federal Communications Commission a bait and switch checklist that, despite the stated purpose of modernizing telecommunications networks, would also allow the company to completely abandon its landline network and win near-complete deregulation of its broadband service.

On Tuesday, August 28, Christopher Heimann and I met with Matthew Berry and Nicholas Degani, respectively Chief of Staff and Legal Advisor to Commissioner Pai, to discuss actions the Commission can and should take to facilitate the retirement of legacy TDM-based networks and services and transition to an IP-based Network/Ecosystem, consistent with federal policies and objectives, including those enunciated in the National Broadband Plan.

At the request of Commissioner Pai, AT&T has prepared and is submitting herewith a checklist of those actions, which identifies the critical first steps the Commission should undertake without delay to begin the transition as well as additional steps that would facilitate completion of that transition.

Under the existing statutory and regulatory framework, carriers already can undertake the steps necessary to make the transition, including, in some cases, steps requiring Commission approval (such as withdrawing legacy TDM-based services). But, insofar as the transition raises a number of novel and likely contentious issues, Commission action on the items included on the attached list would greatly facilitate and thus hasten completion of the transition. The steps we identify implicate an array of issues raised in the above-referenced dockets. Accordingly, we are filing the checklist in each such docket.

Respectfully submitted,

Robert W. Quinn, Jr.

AT&T’s letter and attached checklist are documents only a policy wonk or careful observer of Big Telecom could easily navigate. Despite the thicket of opaque terms like “TDM” and the not-immediately-apparent importance of the difference between an “information service” and a “telecommunications service,” AT&T has, to borrow a phrase from President Obama, some brass ones making its intentions perfectly clear.

With the help of Bruce Kushnick, executive director of New Networks Institute and a former telecom industry insider, we will guide you through AT&T’s filing and what it really means.

AT&T lists several “critical first steps” (we have put them in bold) to achieve the transition to an all-IP telecom world, retiring the traditional “public switched telecommunications network” (PSTN) which you know better as a landline.

1. Establish a date certain for an official TDM-services sunset, after which no carrier would be required to establish and maintain TDM-based services/networks, and purchasers of such services (including circuit-switched and dedicated transmission services) would have to switch to IP or other packet-based services.

No casual observer of FCC filings would be expected to understand the implication of setting a date to officially sunset “TDM services.” TDM is synonymous with the landline network Ma Bell established more than 100 years ago — the one that gives you a dial tone, DSL, and access to dial-up Internet where broadband is unavailable. AT&T wants the FCC to manage what the company has not been able to consistently accomplish on the state level: setting a final date when traditional landline service can be permanently disconnected, preferably at the convenience of the phone company.

2. Clarify that any state requirements forcing service providers to maintain TDM networks and services […] following the TDM sunset are preempted. Such requirements could deter investment in broadband, and thus are inconsistent with and pose an obstacle to federal law and policies encouraging the transition to all IP networks and services.

This provision would effectively eliminate any existing state laws or regulations that require AT&T to deliver a fairly-priced, well-run landline service for customers throughout its service area. Some states have not bought into AT&T’s lobbying juggernaut, often delivered with the help of the American Legislative Exchange Council (ALEC). Despite the enormous sums spent lobbying legislators, some states have kept oversight in place requiring AT&T to serve everyone that wants phone service. With this provision, those state laws and regulations would be pre-empted.

AT&T claims state requirements somehow deter broadband investment, a curious conclusion considering AT&T has already largely ceased its expansion of DSL and U-verse services.

3. Complete action in the IP-enabled services proceeding, and classify such services as information services, subject to minimal regulation only at the federal level. The Commission could permit service providers to offer DSL or other broadband transmission services on a common carrier basis if they so choose, but in no event should a provider be required to do so. 

Quinn

This is AT&T’s provision to kill regulation and destroy competition. Government rules, regulations, and oversight apply largely to “PSTN” landline services, not to IP-based or broadband networks. Basic landline service is designated a “telecommunications service” by the FCC, which makes it subject to regulator review. Broadband, on the other hand, and anything else using IP, is typically classified as an “information service,” where most oversight regulations do not apply.

AT&T’s plan is to shut down today’s landline “telecommunications” service in favor of IP-based Voice over IP, which would effectively reclassify your phone line as an “information service.” That means by changing just one word — “telecommunications” to “information” — AT&T can walk away from a century of basic consumer protection rules and regulations. AT&T also gets a divorce from its telecommunications service obligations as a “common carrier,” which requires AT&T to deliver service to any customer who requests it, at a fair and reasonable price, without changing its form or content.

If AT&T’s broadband networks were reclassified as a “telecommunications service,” Net Neutrality would be easy to enforce under the “without changing its form or content” provision of common carrier rules. Back in the 1996 Telecommunications Act, AT&T’s lobbyists had already made their mark, creating new “distinctions” of telecommunications services, some more regulated than others. Now AT&T is back to kill off the last regulatory obligations it still has to endure, taking Net Neutrality to the grave once and for all.

4. Reform Interconnection – after the official date for the TDM sunset, no carrier or other provider of TDM based services should be entitled to require others to interconnect in TDM. The Commission should take action to maintain the market-based, regulation-free interconnection regime that has applied to IP-based interconnection for decades.

[…] Reform wholesale obligations under section 251/271 to eliminate unbundling, resale, collocation and other requirements that could require ILECs to maintain TDM networks and services.

These particularly opaque sections give AT&T’s competitors real nightmares because they would wipe out requirements that phone companies open certain facilities to competitors who deliver services over AT&T’s network. If AT&T’s recommendation is adopted, no competitor would be safe if AT&T eventually padlocks access to its network.

But AT&T does not want its intentions to be that obvious. It throws a transparent bone to regulators to offer a facade of competition in both this and the preceding recommendation.

AT&T instructs the FCC it can mimic the time-honored patina of an open, competitive industry by allowing AT&T’s competitors to sell DSL or other broadband services over AT&T facilities, but only if AT&T feels like it (at comfortable prices that don’t undercut AT&T).

5. Eliminate regulatory underbrush/superstructure that accompanies TDM-based services. For example, phase out equal access, residual ONA/CEI, record-keeping, accounting, guidebook, dialing parity, payphone, and data collection (which should be limited to that which is collected on the Commission’s Form 477) requirements.

AT&T leaving town.

What AT&T calls “underbrush,” consumers and regulators call oversight and consumer protection.

“Sayonara any telco rules, regulations and oh yes, your rights,” says Bruce Kushnick. “Your service breaks… tough. Prices go up and there’s no direct competition — too bad. Networks weren’t upgraded — so what.”

Kushnick notes this provision would allow AT&T to avoid maintaining a public record of its performance (and its potential abusive practices, bad service, and high prices), including any requirement on the state or federal level to tell the public anything about how well we are being served by the wired monopoly.

Other things on AT&T’s hit list: “Equal Access,” which opened the door to competitive long distance calling and lower rates, “Dialing Parity” which lets you avoid dialing ten (or more) digits for every call (or being forced to learn more complicated numbers for things like directory assistance or other shortened dialing numbers), and public payphones. AT&T’s desire to kill off “residual ONA” refers to the costs to establish Open Network Architecture — the framework for opening up the nation’s phone monopoly for competition. Re-establish the monopoly and there is no reason to fret about the costs to maintain access for competitors AT&T will eventually eliminate.

6. Further reform USF to provide support for broadband regardless of the regulatory classification of broadband services, eliminate any obligation to offer such services on a common carriage basis to be eligible for such support, and provide incentives for service providers to invest and offer services necessary to ensure that no one is left behind by the transition to an all-IP, broadband ecosystem.

The reform of the Universal Service Fund has already opened up opportunities for rural telecommunications companies to apply for broadband infrastructure grants to expand broadband in rural America. Only AT&T has refused to participate in the current round of broadband grants because they do not like the rules. AT&T wants a free hand to receive broadband funding, so long as it faces no questions about where the money gets spent. Under AT&T’s recommendation, the company would receive money with no obligation to ensure everyone who wants broadband in rural America can get it. It also wants the government to hand out money to providers to implement their goal of regulatory nirvana — the conversion of basic landline service to Voice over IP, idolized as the golden calf of ultimate deregulation.

But although providers won’t be left behind, consumers might be:

7. Establish/reform rules to facilitate migration of customers from legacy to IP-based services and to prevent customers that procrastinate or fail to migrate from holding up the transition. For example, establish a process for identifying a default service provider if a customer fails to migrate, and/or permit service providers to notify customers that they will be dropped from service as of a date certain if they have not migrated to an alternative service/service provider. 

This particularly arrogant provision would put a stop to Aunt Maude holding up AT&T’s grand plan to live a regulation-free lifestyle. How dare she drag her feet with AT&T’s agenda at stake? If your elderly parents or extended family don’t understand why AT&T is meddling with their landline service and don’t want to change, AT&T has an unsympathetic solution. Under their recommendation, your parents would find themselves with a “default service provider” they might not want to do business with or, even worse, simply leave them with a dead phone line AT&T has no interest in repairing. But AT&T would likely still get their way. In rural areas they already cover, AT&T would be the “default service provider” because it is the only service provider. If Maude wants her phone line back, the only way she will get it is choosing the migration to Voice over IP AT&T intended all along.

AT&T’s language is remarkably frank, but was never intended to be viewed and explained to the public at large. It was the product of a phone company lobbyist talking to a politician, staffer, or regulator that one day could become an employee of that phone company. The only way to stop this cozy relationship is to tell regulators you are watching (and understanding) the game being played here.

Verizon is pulling back on its traditional landline service and FiOS expansion to continue focusing on its more-profitable wireless service.

Verizon Communications’ landline customers will endure continued cost cutting as the company focuses on its increasingly profitable wireless division, now set to bring in even more profits with Verizon Wireless’ transition to new, often higher-priced service plans.

Verizon executive vice-president and chief financial officer Fran Shammo yesterday told investors attending Bank of America-Merrill Lynch Media’s Communications & Entertainment Conference that the company is pleased with Verizon Wireless’ successful transition to Share Everything, which includes a shared data plan for multiple wireless devices.

Shammo characterized the true nature of Share Everything as a data plan that happens to include unlimited calling and messaging.

“It really comes down to data consumption and that is what drives revenue,” Shammo told investors. “And really the reason we did this was because we saw what happened in Asia with some of the text messaging and the dilution and voice migration.  So you are protecting that revenue stream going forward and we think that is beneficial to the consumer and the company.”

Shammo sees increased profits in Verizon’s future as customers transitioning away from unlimited data plans eventually bump up and over their new plan limits. But the revenue gains actually begin the moment customers sign up, as those bringing various wireless devices to a shared data plan are immediately told to upgrade for a larger data allowance at an additional cost.

“We are telling them that they really need 2GB per device,” Shammo said. “So if they want to bring five devices, they really should be buying the 10GB ($60/month) plan. What we are finding is customers are very receptive to that formula because they can get their head around the 2 gigabytes. They understand what their usage is. So part of it is that they are actually buying higher up packages than we’ve anticipated.”

Verizon also has a plan to deal with potential bill shock from customers using their wireless devices for high bandwidth applications. The company is receptive to letting content producers pay Verizon to cover customer usage charges.

Share Everything = a data plan that happens to include unlimited calling and messaging

“So when you look at that, revenue per account may not go up, but service revenue will because you are just getting it from someone else,” Shammo said. “So the LTE network allows the differentiation, and the way I like to classify it as you can have an 800 service over here, which is ‘free data’ because somebody else is paying for that and then you have your consumption data over here.”

Shammo believes customers who gave up their unlimited data plan believing Verizon’s basic data allowance will suffice for years to come will be surprised at how fast they will hit their limits as wireless data becomes more important.

“I think we are going to see this accretion faster than people think,” Shammo said. “If you look at our SpectrumCo [cable operators Cox, Comcast, Bright House Networks, and Time Warner Cable] deal, [CEO Lowell McAdam] and the team did an outstanding job convincing the Department of Justice about the innovation that can happen here and maybe being the first in the world to really integrate wireless with inside the home and content outside the home. And if you think about how that content can be streamed outside the home within cars, you really say this is unlimited as to where this can go. So I think the innovation is going to come very, very quickly here.”

With the spectrum deal with cable operators in place, Shammo said Verizon will not be in the market for any large spectrum acquisitions in the near future, and even plans to sell off some excess spectrum it does not currently need, so long as the company gets paid what it believes the spectrum is worth.

Verizon’s concern for keeping large amounts of cash on hand is evident as it continues to reduce investments in traditional landline service and FiOS. In fact, Verizon said it would continue increasing prices for its FiOS fiber network to more closely align with the higher prices cable companies are charging.

“We have really concentrated this year on getting our price points equivalent to where the rest of the market was,” Shammo said. “We were actually underpriced with a superior product to cable. So the concerted effort was we needed to do some price-ups and we are doing that over — we started in the first quarter. We did it in the second; we are doing it in the third. You saw some of that benefit come through in the second quarter where we delivered a 2.5% mass-market revenue increase, which was I think the best in years and I see that doubling by year-end. So I think that, coming out of this year, we will be on a very good path for a mass-market revenue increase.”

Two service calls in six months may get your traditional landline canceled and moved to Verizon FiOS phone service, which requires 10 digit dialing for every number.

But those rate increases will not deliver improved service. If fact, Shammo said Verizon will continue reducing costs and investments in its network. Much of its investment in the landline business has been to support Verizon Wireless’ growth through its IP backbone and fiber-to-cell-tower projects. Shammo predicts capital investments will continue to be flat to down.

One example where the cost-cutting is apparent is how Verizon deals with service calls for troubled phone lines.

Verizon landline customers in FiOS areas who report chronic service problems may find themselves disconnected and switched to FiOS Voice over IP phone service instead, because Verizon has quietly set new in-house rules about the number of permitted service calls for each customer.

“If we have a copper customer who is what we classify as a chronic (two truck rolls in a period of six months for that copper line), I am losing money on that copper customer,” Shammo said. “So if I can take that chronic customer and move them to FiOS, I deplete the amount of operational expense to keep that customer on and now I have moved them over to the FiOS network where they get the benefit of FiOS digital voice, which is clearer.”

Once a customer gets switched to FiOS, Verizon’s marketing machine swings into action.

“I now can put their DSL service onto FiOS Internet where they now realize the speeds of FiOS and what we are seeing preliminarily is even if we take a voice and DSL customer and move them, they are starting to buy up in bundles because they are starting to see the benefit of the higher speeds,” Shammo said. “Then we open up the sales routine to go after them, now for the FiOS TV product.”

Unlimited data holdouts can leave

Shammo added Verizon is becoming more concerned than ever about long term investments that leave the company waiting years for a return.

“Lowell and I have a very concerted effort to really make sure that the investments we make are returning their invested capital in a very short period of time,” said Shammo.

That spells trouble for landline service upgrades and future FiOS expansion, which both require the company to take a long term view recouping those investments. But even Verizon’s wireless business’ capital expenses are down — by $1.3 billion through the first half of this year.

Verizon Wireless has also picked up nearly $5 billion in cost savings through restructuring, including lucrative revenue earned from new activation and upgrade fees and also tightening up on subsidized wireless phone upgrades.

For customers holding onto unlimited data plans, intending to get their money’s worth from them, Shammo has a message:

“Quite honestly, they could leave my network because you are not making much money on those.”

Frontier Communications is ready to deliver some customers faster DSL speeds in portions of West Virginia that have, until now, been stuck with 3-6Mbps from the phone company.

Residential and business customers in certain exchanges within Kanawha and Putnam counties can now upgrade to speeds up to 25Mbps for $54.99 a month, which Frontier claims also includes a combination modem-wireless router. Small business customers can get up to 40Mbps DSL service, where available.

Dana Waldo, senior vice president and general manager for Frontier’s operations in the state told the Charleston Daily Mail the company’s new Broadband Ultra and Ultimate DSL will be gradually extended within both counties by the end of this year. In order to sell faster DSL service, Frontier has to replace portions of its existing network with fiber optics and install new equipment to reduce the length of copper wire between the phone company and the customer.

Larger businesses in West Virginia are being marketed an even faster Metro Ethernet product, which can deliver gigabit speeds and beyond, for an exceptional amount of money.

The speed expansion, which covers both the city of Charleston and the growing suburbs to the west in Putnam County along Interstate 64 towards Huntington, is likely designed to curb customer defections to competing cable providers, which have delivered faster speeds in the rapidly growing region.

Frontier has not indicated when it plans faster broadband service for the rest of the state.