AT&T to Rural America

While Verizon leverages its 4G LTE wireless network as a rural broadband solution, AT&T shows no signs of sharing Big Red’s enthusiasm (and investment).

In fact, while AT&T celebrates the end of its U-verse fiber-to-the-neighborhood expansion and admits it has no answer to America’s rural broadband problem, the always excellent DSL Prime by Dave Burstein reports AT&T is mulling a sale of its rural DSL operations to a third party provider, essentially letting the new owner(s) deal with the rural broadband problem:

[AT&T] is “doing a rapid tech evaluation” of whether they can upgrade their DSL + wireless to “a competitive broadband product.” But Randall “doesn’t see a solution.” If that’s confirmed, “we’re looking for others who might want the properties.” […] It’s unclear if any of the “rural carriers” – Century, Frontier, Windstream – have the financial ability to make an attractive offer. If operators can’t raise the money, [AT&T] would need to make a financial transaction.

Verizon has sold off its entire “wireline” (landline infrastructure and business) operation in smaller, rural states — often properties it acquired years earlier from GTE — to focus on more lucrative urban markets.  AT&T could either spinoff its broadband operation to a third party to run or follow Verizon and sell off entire rural service areas not already upgraded for AT&T’s more modern U-verse.

Likely buyers include FairPoint Communications, Frontier Communications, CenturyLink, and Windstream — all independent traditional landline operators trying to focus on less-competitive rural markets pitching DSL broadband service.

AT&T has shown little interest investing in rural service areas located primarily in the southern and central United States.  As Karl Bode writes on Broadband Reports, AT&T is on record stating that they can’t find an “economically viable” way to upgrade these users, despite a looming increase in faster and less expensive last mile DSL technologies.

As AT&T has sought to redefine itself as a wireless company, the buildout of its wireless network could bring AT&T to also eventually pitch 4G wireless Internet service to its former DSL customers.  But like Verizon, those plans would likely include severely usage-capped service, while leaving its traditional DSL product starved for investment.

Verizon Wireless today introduced HomeFusion Broadband: a new service that provides high-speed in-home Internet access using the company’s 4G LTE wireless network.

Designed primarily to reach households with limited broadband options, HomeFusion will deliver download speeds of 5-12Mbps and upload speeds of 2-5Mbps. While installation will come free of charge, a one-time equipment charge of $199.99 applies.  Pricing is nearly identical to Verizon’s mobile broadband service:

• Up to 10GB — $60/month
• Up to 20GB — $90/ month
• Up to 30GB — $120/month
• Overlimit fee: $10/GB

Verizon's 4G LTE antenna must be mounted on an outside wall of your home to assure good reception. (Picture: The Verge)

Verizon says HomeFusion is their broadband answer for rural America.

“HomeFusion Broadband is just one of the new products and services that is made possible with our 4G LTE network,” said Tami Erwin, vice president and chief marketing officer, Verizon Wireless. “Customers want to connect more and more devices in their homes to the Internet, and HomeFusion Broadband gives them a simple, fast and effective way to bring the most advanced wireless connection from Verizon into their homes.”

A third party company, Asurion, will handle installation of Verizon’s cylinder-shaped antenna, installed on the side of a customer’s home.  The antenna is designed to pick up the best possible signal from Verizon’s growing 4G network.  The antenna transmits the signal to a company supplied router capable of connecting up to four wired and 20 wireless devices.

HomeFusion Broadband will be available beginning later this month in Birmingham, Ala., Dallas and Nashville, Tenn., with additional markets to follow.

Verizon’s product is unlikely to attract substantial interest in more populated areas where a 10GB monthly usage cap would prove unacceptable in many homes where multimedia content is a growing part of the Internet experience.  But is could compete with satellite broadband, which also has low monthly usage caps.  Verizon may also win back customers in service areas it sold to independent providers like FairPoint and Frontier Communications, which have since saddled most of their rural customers with 1-3Mbps DSL service.  But Verizon’s pricing puts rural America at a usage disadvantage because of the low monthly limits and higher price tag.

The development of HomeFusion could reduce Verizon’s investment and interest in further expanding its traditional rural broadband product — DSL.  But Verizon will have to expand its still-urban focused LTE 4G network further into the countryside for HomeFusion to serve its intended market.

Frontier Communications faced unhappy investors Thursday after announcing it was slashing its dividend nearly in half in an effort to raise money to sustain the company’s cash flow and reduce its debt.

The company’s earnings fell 8.1% as customers continued to leave for the competition, seeking better service and lower prices.

The poor earnings results and the dividend cuts delivered a one-two punch to Frontier stock, which slid to $4.20 a share, down 16 percent in the last three months.

Among Frontier’s biggest challenges remains the quality of its broadband service to customers.  Where competition exists, Frontier DSL continues to lose the speed battle, and recent junk fees padding customer bills, including a “High Speed Internet surcharge,” and increasing modem rental fees have alienated some customers.

Frontier’s chief operating officer and executive vice president Dan McCarthy told investors 83 percent of Frontier’s service area has access to the company’s broadband product.  However, fewer than 20% of Frontier’s customers have access to speeds as high as 20Mbps.  Only just over half can access the Internet at 6Mbps.  Many of Frontier’s customers can only access lower speed service (66% can choose 4Mbps, 76% — 3Mbps, and the rest 768kbps-3Mbps).

“We’ll be investing throughout the year to improve speed-reaching capability in all our markets,” McCarthy told investors on a conference call last week.

In the second half of 2010, Frontier is expected to increase the amount of Ethernet in its middle mile network, which McCarthy expects will allow the company to deliver faster speeds over VDSL2 and VDSL2 bonding as means of driving both speed increases in the residential and the commercial markets.

However, Frontier’s preoccupation with an internal system conversion, to integrate its acquired Verizon service areas with the rest of its network, has stalled much of the company’s marketing.  Promotions, in particular, have been anemic over the last several months and will likely remain that way until later this year.  Where competition exists, cable operators have successfully been picking off Frontier’s customers.

• Broadband and satellite TV additions are down, in part due to the lack of promotions and marketing;
• FiOS video losses continue as the company shuns its fiber video service in favor of satellite TV cross-marketing;
• Line loss rates remain very high: 8.3% of Frontier’s customers disconnected their landline service in the last quarter, 5.9% in areas that were not acquired from Verizon.
• Once customers leave, they rarely return.  Churn rate of Frontier customers coming and going is at just 1.6%.

As with similar Verizon landline sales in the past, initial revenue growth from acquired customers starts out high, boosting revenue numbers and often the value of a company’s stock.  But the heavy debt load incurred from acquisitions and ongoing line losses to the competition eventually take their toll, and Frontier’s revenue now reflects the reality of a company trying to sell more services to a declining number of customers.

Morningstar notes the company’s debt problems are significant:

Frontier has struggled to bring leverage down and hasn’t successfully placed new debt since closing the Verizon transaction in 2010. Management has talked about taking care of the $580 million maturity it faces in early 2013 for the better part of a year, with no result to date. Yields on the firm’s existing debt have increased over the past year, despite the sharp decline in Treasury rates.

Standard & Poor’s Ratings Services reduced its outlook on the company from stable to negative, noting the competition is increasingly hurting Frontier’s capability to raise revenue.

The company’s decision to slash its dividend in an effort to reduce debt has created consternation for some investors who stuck with the company when the share price was above $7 and the dividend was declared safe for two years.  Neither seems to the be case any longer.

CenturyLink runs specials on their website that offer extra savings when ordered online.

Your $50 monthly broadband bill has been burning a hole in your wallet and you think there should be a cheaper price available somewhere, right?

The answer is, for most of us, there is.  You just have to look.

The most expensive Internet access around comes when you buy broadband-only service from a provider.  Both cable and phone companies have been incrementally punishing their “broadband-only” customers for years, tacking on $5, $10, even $15 to the price because you have chosen not to bundle broadband with other services the company sells.  It is not unusual to see some cable companies charging $55-60 for standard Internet service.  When you call to inquire, they are sure to begin aggressively upselling you to a bundled service package, arguing you can add cable TV and phone service for $20-30 more a month.  That sounds like a better deal, unless you honestly don’t care about either service.

Welcome to the world of marketing, where the “value perception” is key to driving the average revenue collected from each subscriber higher and higher.  You end up buying services you probably would not have considered, but because they seem so inexpensive when compared with the price of the service you are interested in, why not?

Phone companies do the same thing, but many of them also love to bury hidden charges in the fine print and commit you to 1-3 years of service to guarantee the advertised price.  Companies like Frontier Communications may pitch DSL service for just $15 a month, but keep reading and you will discover the taxes and fees raise that price substantially.  In fact, that particular phone company is notorious for charging substantial modem rental fees and what they call a “High Speed Internet” surcharge.  To get the lowest price from them, you will be a Frontier customer for at least a year, depending on the promotional offer selected.

Frontier redefines "value": This attractive looking offer "fine prints" the $6.30 modem rental fee, is for service "up to" 1Mbps (so much for "high speed"), has a one-year service commitment with a $50 early termination fee, and does not include unspecified "taxes and surcharges" which run extra.

You can break free of the marketing circus by concentrating on finding the best possible deal for the service(s) you really care about.

1. Check advertising offers on television and in newspapers, but always read the fine print;
2. Visit the website of each local provider and look for “Internet-only” offers that may deliver extra savings, but only when you order online;
3. Call providers and ask them about their various deals and inquire “is this the best offer you have right now?;”
4. Use search engines and type in your provider’s name and words like “deals,” “offers,” or “promotion.”  Third party authorized resellers may have an offer that works better for you.

Sometimes you can get excellent results playing providers off each other.  Try contacting the social media representatives of different providers in your area to unlock hidden deals, and more importantly, customer retention offers.  One Rochester reader of ours got Time Warner Cable to open negotiations to keep his business with this tweet:

Getting ready to schedule my @TWCable disconnect after rate increase – should I go with @dishnetwork over @DirecTV or vice versa?

He received a substantial retention offer within hours of alerting Time Warner of his discontent (he’s also a rabid hockey fan, and the ongoing MSG-Time Warner Cable dispute made satellite an attractive alternative.)

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/KNXV Phoenix Which broadband provider saves you the most money 2-7-12.mp4[/flv]

KNXV in Phoenix helped residents in that Arizona city figure out who was cheaper, CenturyLink or Cox Cable.  And what about using mobile broadband for a home broadband replacement?  (3 minutes)

The Bailiwick of Jersey, one of the British Channel Islands off the coast of Normandy, France, is being wired for fiber broadband speeds as high as 1Gbps and the island’s 100,000 residents are thrilled.

Jersey Telecom (JT), a government-owned service provider, expects to reach every one of the island’s 42,000 homes with Gigabit Jersey — a super-fast fiber network by the end of 2016.  The first 24 homes were switched on for service this week, with new homes coming online daily.

Graeme Millar, JT CEO, says Jersey’s new fiber network replaces the island’s antiquated copper wire based DSL service, and will result in much faster speeds for residents.  The initial trial is focused on La Rocque, Fauvic, and La Moye, and all commercial broadband providers are welcome to use the network to sell their services to residents and businesses on the island.

JT is offering a minimum of 40/40Mbps service to casual users and 1Gbps for Internet addicts.

Millar

The fiber project makes no distinctions between urban and rural residents and provides the same speeds to both businesses and residences.  Broadband has become such an important part of island life, it is essential every home have equal access.  With home-based businesses and home-based workers, it doesn’t make sense to only sell fast service to business customers.

The government spent £19m ($29.8 million) on the fiber network it calls an investment in the future.  None of the funding comes from the pockets of the island’s taxpayers.

Jersey officials claim the project will attract new high-tech businesses to the island, which is closer to France than England.

Government officials, and many residents, have rejected complaints from private providers like Airtel-Vodafone who claim the Internet’s future is mobile/wireless, not fiber.  Airtel-Vodafone fought Gigabit Jersey, claiming “fast enough” Internet access was possible over their mobile broadband network.  The company claimed the government investment interfered with private companies’ business plans for Jersey.

“Airtel had no intention of delivering anything close to the speeds we are going to get from JT, and they would hand us plans with small usage allowances and high prices to boot,” says Stop the Cap! reader Marie, who lives on Jersey.  “These companies believe it is more important to let private business dictate the Internet future of Jersey instead of letting people, through our local government, make that choice for ourselves.”

JT’s Gigabit Jersey project claims to be the most ubiquitous and comprehensive Gigabit fiber network in the western world, because it will reach every resident and business on the island.

“Why would anyone want an expensive, slower, and congested wireless network from Vodafone when you can have 1Gbps fiber broadband instead?” asks Marie. “If you want to walk around with a tablet, put a wireless router up and point it into the garden and be done with it.”

JT will gradually replace the island’s existing copper infrastructure as the project continues over the next four years.  The fiber network is expected to also bring down broadband prices, which run as high as $79 a month for 20Mbps service.

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/ITV Channel Islands Ozouf under fire over Gigabit Jersey 12-11.mp4[/flv]

ITV in the Channel Islands reports on Gigabit Jersey, the island’s new fiber to the home network, and the controversy over its funding and opposition from private providers.  (2 minutes)