AT&T CEO John Stankey is still looking to wring costs out of the business, and the company’s rural landline customers are next to take the cut.

At this morning’s J.P. Morgan Technology, Media and Communications Conference for investors, Stankey said AT&T is considering mothballing landline facilities in rural parts of its service area and offer wireless service instead.

“We have a voice replacement service now, so that allows us to look at our options around the footprint […] and begin the work of starting to shed some of that footprint and reduce the number of square miles that have that fixed infrastructure in place [where] you’re never going to have an incentive to ultimately upgrade to fiber,” Stankey told investors, quickly correcting himself over use the word ‘never’ in favor of “the next several years.”

“The best way to serve them is with robust wireless infrastructure and stepped up investment in that case and we will do that,” he added.

AT&T has been testing fixed wireless replacement phone service in parts of the southern United States for several years, to very mixed reviews. In these trials, AT&T rural landline customers receive a wireless modem that connects with existing home phone lines. Internet service is provided over AT&T’s 4G LTE network.

Stankey

AT&T ceased marketing its DSL service last October, although some Stop the Cap! readers claim they still occasionally receive targeted invitations for DSL service in some areas. The company has allowed its current rural DSL customers to keep their service, but many don’t. The company lost almost 39,000 DSL customers in the first three months of this year, with so signs of stopping. Across AT&T’s landline footprint, which extends from the Great Lakes region to the South as far west as Texas and east to Florida, there are only about a half-million AT&T DSL customers remaining. Most of those customers keep the service because they have no other options.

If AT&T wins FCC approval to decommission its wired network in rural areas where it has no plans to provide fiber to the home service, customers will lose traditional landline phone service and DSL.

Stankey said any serious effort in that direction is unlikely to begin until 2023, largely because AT&T will not make the investments to bolster its rural wireless infrastructure until then.

The CEO also foreshadowed no immediate plans to follow Verizon into the 5G wireless home internet business. In fact, Stankey admitted AT&T’s network is likely inadequate to support the data demands of home broadband customers.

That leaves rural customers in AT&T’s service areas with no hope of high-speed upgrades unless a community broadband provider launches or a cable operator agrees to wire rural areas. There are still questions about the capacity next generation satellite internet service will have in rural areas and whether service will be adequate to meet today’s data demands.

AT&T’s customers in urban and major suburban areas have a brighter future, however. Stankey told investors AT&T will expand its fiber to the home service to another three million households in 2021 and at least four million more in 2022. Overall, AT&T plans to provide fiber service to around 30 million homes and businesses in its wireline service area. If adequate returns on investment can be realized, along with reduced upgrade costs to reach each home, Stankey suggested another 10 million customer locations could one day see fiber service as well.

Nick Jeffery will be appointed president and CEO of Frontier Communications effective March 1, 2021, succeeding Bernie Han.

Frontier Communications today announced a “holistic transformation” of its business from a copper-based landline company to a fiber to the home internet service provider, with plans to eventually offer fiber to the home service to nearly six million residential customers, approximately three million already served by fiber networks acquired from Verizon and AT&T.

As part of that transformation, Frontier today announced yet another new CEO, Nick Jeffery, will take over from current CEO Bernie Han in March 2021. Jeffery was CEO of Vodafone UK, one of Great Britain’s largest mobile operators. Jeffery agreed to replace Han, who became CEO and president only a year ago, in return for a $3.75 million signing bonus, a $1.3 million annual salary, and eligibility for more than $8 million in annual bonuses and equity awards.

“I am honored to be appointed Frontier’s next CEO, and I am excited to lead the company in its next phase,” Jeffery said in a statement. “Frontier owns a unique set of assets and maintains a competitive market position. My immediate focus will be on serving our customers as we enhance the network through investments in our existing footprint and in adjacent markets while building operational excellence across the organization.”

Frontier has been in Chapter 11 bankruptcy since April 2020 and is being reorganized to eliminate about $10 billion in debt and another billion annually in debt-servicing interest payments. Frontier’s bankruptcy plan will give four investment firms — Elliott Management, Franklin Mutual, Golden Tree Asset Management, and HG Vora, effective control over Frontier. The four are reportedly behind the decision to install Jeffery as Frontier’s new CEO to protect their financial interests. He has a reputation of repairing damaged customer relationships and improving sales, while also being willing to cut costs and simplify services sold to customers. Jeffery will also be joined by former Verizon executive John Stratton, who has accepted a position of executive chairman of the board. Jeffery is expected to lead the company out of bankruptcy sometime in early 2021.

Frontier has repeatedly promised to retire significant parts of its copper wire network and expand fiber to the home service, but over the last decade most of Frontier’s fiber footprint has been acquired from other phone companies, notably Verizon and AT&T. Most of Frontier’s own fiber expansion has come from installing service in new housing developments and in rural areas where it received taxpayer or ratepayer-funded subsidies to expand service to unserved areas.

In a conference call held earlier today, Frontier executives signaled the company will not hurry to deliver fiber upgrades to Frontier customers. In some of the most opaque language ever uttered in a Frontier conference call, company officials warned some Frontier customers may actually find themselves sold to another service provider. The company plans to divide its copper customers into two categories: those destined to be a part of Frontier’s fiber future and those left stuck on copper or sold off after Frontier “strategically reevaluates individual state operating performance employing a virtual separation framework” — all to “optimize our returns on invested capital.”

Frontier emphasizes its planned total of “nearly 6 million fiber-enabled households” will come to fruition “over the long term.” In 2020, the company plans to bring fiber service to approximately 60,000 new households in six states, many in new housing developments Frontier was already expected to serve.

Frontier’s modernization plan will likely sell unprofitable service areas and selectively upgrade many customers over a ten-year period to fiber optics. (Source: Frontier Communications)

“We have completed construction of about 60% of our target locations and continue to ramp quickly and remain on target to reach our year-end goals,” said Han. “Although, it is still very early in the process, our offer is very appealing to customers. While we are successfully converting existing copper customers to fiber, most of our early gains are coming from winning net new customers. Early penetration and ARPUs are performing at or above targets.”

In 2021, the company announced it had “planning and engineering” underway for unspecified fiber to the home service upgrades in copper service areas “in select regions.” But most of Frontier’s fiber upgrades will take place over the next decade. Specifically, Frontier plans to wire up to 2.9 million homes with fiber using a combination of its own money and subsidy funds provided by the FCC. Frontier’s new owners have signaled they will not go out on a limb to finance rapid fiber upgrades, and you better live in a state where fiber upgrades are being given priority.

“Of the 2.9 million new fiber homes passed for the modernization plan, roughly 2.6 million of them are in […] California, Texas, Florida and Connecticut and […] West Virginia, Illinois, New York and Ohio,” Han noted.

“The modernization plan is expected to be completely self-funding […] and has been developed with strict return on capital hurdles, allowing for very attractive returns,” said Robert A. Schriesheim, chairman of the Frontier’s Finance Committee of the Board. “The expected shift in the subscriber base from the modernization plan will increase the percent of fiber subs from 45% today to 87% over the plan horizon and will drive a transformation of business mix that is expected to result in 75% of revenue coming from fiber products in the long-term as compared to about one-third today.”

Frontier is the dominant phone company in West Virginia.

The West Virginia Public Service Commission has ordered Frontier Communications to make significant improvements in its aging copper wire telephone network after a comprehensive investigation found the company’s landline phone service and broadband to be lacking.

The order comes two years after the state began investigating the phone company and six months after a service audit was completed. In the last year, 1,342 complaints about poor service were filed with the state’s Public Service Commission.

“Frontier customers in this state remain plagued with service problems even as the customer base – and the corresponding revenue – declines. The Focused Management Audit was designed to find the underlying service quality problems, and possible solutions, in the hopes of placing Frontier on a better path,” the report concluded.

Over the past two years, Frontier gradually implemented some of the recommendations made by the state, particularly a more robust tree-trimming program to pre-emptively reduce tree-related outages and an automated system that can detect service issues and outages before customers call to complain. But Frontier’s larger problem is its lack of investment in network upgrades, particularly related to replacing old copper wire infrastructure with fiber optics. The study identified the 25 worst exchanges in the state most plagued by service outages and complaints and demanded that Frontier rehabilitate or upgrade those areas to improve service. But the company has refused the Commission’s request to deploy fiber optic connections to every cross-box in the state, which connects Frontier’s network to neighborhood phone lines. Such an upgrade would dramatically reduce Frontier’s reliance on copper wiring and improve phone and internet service.

Frontier rejected the idea as “unfeasible,” claiming it would cost $100 million to complete fiber connections to each of Frontier’s 3,255 existing cross box locations. If the company moved to digital phone service across those fiber lines, the cost would rise to $200 million, according to Frontier, adding it would have no choice but to pass these costs onto customers in the state.

“Given the exorbitant expense associated with such a comprehensive endeavor, the cost of voice service would consequently increase to unsustainable levels,” the company claimed.

Yet earlier this spring, at the height of the pandemic and after declaring bankruptcy, Frontier paid out $38 million in retention bonuses to its top executives, urging the same people who presided over the company as it went bankrupt to remain on the payroll at least until the bankruptcy was discharged.

The state was given an early warning about Frontier’s decreasing performance in July 2019 after an auditing firm found the company financially troubled and had cut back dramatically on ongoing maintenance spending. The auditor also reported Frontier was likely losing customers fast and would soon feel the financial pressure of lost revenue. Just as bad, the auditor reported Frontier’s ability to stay ahead of its service problems could be compromised further by the likely retirement of more than half of the company’s most experienced service technicians in the next five years.

The auditor correctly predicted Frontier’s financial health. The company declared Chapter 11 bankruptcy in April and is reorganizing. The company claims it will exit bankruptcy in much better financial shape, with much of its debt discharged or renegotiated by creditors. In turn, Frontier has promised to boost investment in network fiber upgrades, but has not been specific about what areas it will target. A hearing to discuss some of these matters is scheduled for Oct. 28.

Even with Frontier’s imminent exit from bankruptcy, West Virginia officials remain concerned about the phone company’s commitments and whether the new management will continue to honor earlier agreements with state officials.

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.

If you’ve ever lived in small-town America, you know how bad the internet can sometimes be. So one town in North Carolina decided: If we can’t make fast internet come to us, we’ll build it ourselves. And they did, despite laughter and disbelief from Time Warner Cable (today known as Spectrum).

When the city started installing fiber optics, the incumbent cable and phone companies did not like the competition and fought back, hiring an army of 40 lobbyists. The telecom companies enlisted the support of the now Republican-controlled state legislature, often with the help of the American Legislative Exchange Council (ALEC) and other conservative groups. Together, they hammered home scare stories with suspect studies critical of municipal broadband written by not-so-independent researchers ghost-funded by many of the same big cable and phone companies.

National Public Radio’s “Planet Money” looks at what happened when the City of Wilson decided to try and start its own internet provider, and how it started a fight that eventually spread to dozens of states, a fight about whether cities should even be allowed to compete with big internet providers, and what the effect the outcome might have on working remotely. But the citizens of Wilson seem to love Greenlight Community Broadband, right down to its well-regarded customer service, which includes dropping by elderly customers’ homes during lunch to troubleshoot set-top boxes and nefarious remote control confusion. (22:47)