Take the money and run

The Federal Communications Commission’s approval of Frontier’s takeover of 4.8 million Verizon landline customers in 14 states comes a year after the company announced the deal.  Frontier joins three other independent phone companies — FairPoint Communications, Windstream Communications, and CenturyLink zealously trying to grow their companies with additional mergers and acquisitions to avoid being swallowed up themselves.

What is common among all four companies is they rely heavily on dividend payouts to keep their stock price as high as possible.  That was a formula for disaster for FairPoint, the first of the four to end up in bankruptcy after a similar deal with Verizon in northern New England caused the company to falter.  Service and billing deteriorated, customers fled, and promises for better broadband were broken.  Now Frontier is following in FairPoint’s footsteps with more than 4.8 million new customers Frontier hopes they can swallow.

The FCC’s statement approving the merger reads like a press release for all involved, and delighted FCC Chairman Genachowski, who called these meager requirements “robust”:

Coming one week after the final state approval for the transaction, the FCC’s Order holds the applicants, Verizon and Frontier, to enforceable voluntary commitments, including:

• Extend faster broadband to more Americans: Frontier will significantly increase broadband deployment for the lines involved in this transaction, only 62 percent of which are broadband-capable today. Specifically, Frontier will deploy broadband with actual speeds of at least 3 Mbps downstream to at least 85 percent of transferred lines by the end of 2013, and actual speeds of at least 4 Mbps downstream to at least 85 percent of the transferred lines by the end of 2015, with all new broadband deployment offering actual speeds of at least 1 Mbps upstream.

Frontier's Fast One: 3 Mbps DSL Service with a 5GB Monthly Usage Allowance

Frontier’s broadband commitment gives the company a full five years to meet the bare minimum speed considered to constitute broadband in the National Broadband Plan.  One hopes Frontier doesn’t break into a sweat offering a piddly 3 Mbps service to homes using yesterday’s DSL service until then.  While Verizon’s rural castoffs get stuck eventually with 4 Mbps DSL, many of the company’s remaining customers are enjoying 50Mbps service over an all fiber network.  The FCC is accepting an urban-rural divide for broadband which will benefit the phone companies while leaving rural customers in the dirt.

Deploy fiber to libraries, hospitals, and other anchor institutions: Frontier will launch an anchor institution initiative to deploy fiber to libraries, hospitals, and government buildings, particularly in unserved and underserved communities.

Fiber for these locations sure, but no fiber for you or I.  Frontier, like most other telecom companies, loves to promote the benefits of fiber without actually deploying it to homes.

Promote competition: Frontier and Verizon have made a series of commitments to protect wholesale customers, including honoring all obligations under Verizon’s current wholesale arrangements that are in effect at closing.

Since wholesale customers often depend on the same network other customers do, if a company doesn’t deliver robust broadband into a state like West Virginia, there isn’t a robust service to sell to those wholesalers.

Improve data quality and collection: Frontier will make available to the Commission data on its broadband deployment progress at an unprecedented level of detail to enable effective monitoring of Frontier’s compliance with its commitments.

The Commission concluded that the commitments that applicants have offered, coupled with monitoring and enforcement by the Commission, will minimize the risks of harm and ensure that this transaction is in the public interest.

Phillip "Living on the Frontier" Dampier

Considering how weakly the FCC is committing itself to protecting rural customers from being dumped into the broadband backwater Frontier has on offer (complete with the 5GB monthly usage allowance), does collecting statistics help when things go sour?  Regulators collected statistics in New England when FairPoint failed, but that didn’t get service levels back until Maine, New Hampshire, and Vermont threatened to toss FairPoint out.  Now the company is in bankruptcy and regulators are negotiating which of the promises FairPoint made can be let go ‘for the sake of the company.’

That’s why it’s so ironic to read editorials that proclaim the FCC is on some sort of power grab when they seek to restore what meager authority they exercised over broadband before a DC Court effectively excluded broadband oversight from their portfolio.

It will be a good day when federal agencies like the FCC start worrying first and foremost about consumers instead of how to make a parade of overpriced mergers and acquisitions succeed for the companies involved.

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WANE-TV in Fort Wayne warns viewers their landline company is about to change asVerizon vacates the area by July 1st.  (1 minute)

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Too late.  The Communications Workers of America ran this ad spot asking the West Virginia governor to intervene and stop the sale.  (1 minute)

West Virginia residents are assured of an indefinite future with 1-3Mbps usage-capped “broadband” as Frontier won conditional approval of its plan to assume control of the majority of the state’s landlines.

Frontier Communications, the phone company with the 5 gigabyte monthly acceptable usage allowance, won approval from West Virginia’s Public Service Commission after nearly a year of opposition from several unions and consumer advocacy groups.  The opposition, led by the Communications Workers of America, charged that Frontier’s balance sheet made it impossible for the company to fulfill promises to deliver quality phone and broadband service to the majority of the state’s residents.  Consumer groups, including Stop the Cap!, argued Frontier’s DSL broadband service is inadequate for the state’s needs, because it typically only provides 1-3Mbps speed and is usage-limited for residential customers.

Verizon’s history of bad service in the state helped drive some to believe Frontier can do better

Verizon’s West Virginia division has frequently achieved a poor rating among many West Virginians upset with the company’s service record and broadband deployment.  Last Monday, the PSC announced that Verizon’s service in the state was so poor, it ordered the company to place $72.4 million in an irrevocable escrow account to be used to improve the quality of service.  The PSC found Verizon’s disinterest in delivering service in West Virginia had resulted in the deterioration of Verizon’s essential infrastructure.

The PSC-ordered escrow account will be used to maintain and improve everything from restoring copper wiring to vegetation control and pole replacement.

With a history of complaints like that, it comes as no surprise West Virginians are ready to wave goodbye to Verizon, hoping for better times with Frontier Communications.

Bray Cary

Bray Cary, a TV station owner in West Virginia, has hosted editorials on his network of local stations across the state promoting the transaction, believing it will bring a better future for the state’s telecommunications needs.  Just two weeks ago, he demanded the PSC make a decision on the proposed merger, claiming the state needs a “modern, cutting edge communication system that will bring high-speed Internet to every corner of this state.”  Unfortunately for Cary, there is nothing from Frontier that comes close to “cutting edge,” with the exception of the company’s brazen Internet Overcharging scheme now being tested in Minnesota that threatens to bring $250 monthly broadband bills to some residents.

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WOWK-TV’s Bray Cary criticized the West Virginia Public Service Commission for stalling on a decision to move forward the Verizon-Frontier landline transfer in the state.  Just about ten days later, the PSC conditionally approved the deal.  [Video problems were a part of the original clip] (Aired: May 4, 2010 — 1 minute)

Frontier specializes in delivering slow-speed DSL service to most of its rural service areas, usually less than 3Mbps in speed.  Even in its largest service area, Rochester, N.Y., the company’s broadband options are an also-ran against the far faster and more reliable cable modem service from Time Warner Cable, which also beats Frontier’s out-the-door price.

Unfortunately, West Virginian media has never given important details to residents about the specific services Frontier is willing and able to offer residential customers.  It also never informed customers about the important limitations the company attaches to its “high speed Internet” Cary hopes to see available in every corner of the state.

Sometimes change for change’s sake is not an improvement.

The PSC attaches conditions to its approval

The Commission did not grant blanket approval to the transaction.  The PSC is requiring that Frontier:

• Honors all existing obligations of Verizon following the close of the sale, including the currently effective Retail Quality Service Plan approved by the Commission to continue through at least July 2, 2011.
• Makes capital investments in Verizon of $30 million during the second half of 2010, $75 million in 2011 (including $12 million targeted at service quality), $63 million in 2012 and $63 million in 2013.
• Makes additional capital investments of at least $48 million to increase broadband deployment and subscription in the Verizon service territory.
• Expands broadband availability in Verizon service areas so that by no later than the end of the fourth year following the close of the sale, access to broadband service will be available to no less than 85 percent of the households within Verizon service areas.
• Locates its Southeast regional headquarters in Charleston, WV, after closing the sale. Charleston will be Frontier’s Southeastern regional headquarters, and will be a major employment center for Frontier in the region. It will be the hub for engineering, technical, operation and executive personnel for Frontier’s operations in West Virginia, Tennessee, North Carolina, South Carolina, Mississippi, Alabama, Georgia and Florida.
• Adopts all of Verizon’s tariffs, price lists and contracts, including long distance, under the same terms and conditions at closing.
• Caps all regulated rates subject to jurisdiction of the Commission for one year after close of the transaction.
• Provides E-911 functionality provided by Verizon prior to close.
• Waives early termination fees for current Verizon customers participating in a Verizon bundled service package for the first 90 days after closing.

Reactions from all over

“We’re pleased the commission has approved the transaction. The record developed in this case provides comprehensive evidence and assurances that the transaction with Frontier Communications is in the public interest and will provide many benefits to West Virginia residents, including increased investment and broadband availability in the state, while protecting jobs and promoting employment.”

— Verizon-West Virginia President B. Keith Fulton

“We’re in the process of evaluating the order. After full review we’ll look at what we can do that will best serve West Virginia consumers and CWA members. Of course, we’re disappointed but we’re heartened by the fact that at least one person on the three-member commission agreed with us and more than 80 legislators, several county commissions and a broad coalition of consumer, union and first responder organizations that this deal is too risky and not in the public’s interest. The split decision shows our arguments about the deal had validity.”

— Communications Workers of America, District 2 Vice President Ron Collins

Byron L. Harris heads the Consumer Advocate Division of the West Virginia Public Service Commission

“There are many areas of West Virginia that will always be dependent on landlines, absent some sea of change in technology. Those are the people I’m most concerned about. They’re the truly captive customers of now Verizon and, in the future, Frontier.”

— West Virginia Public Service Commission’s consumer advocate Byron Harris

“We’ve seen how Wall Street’s investments can backfire. Like Frontier today, Wall Street once put its confidence in Global Crossing and that led to a disastrous bankruptcy. We’re concerned that the Rochester-area and other existing Frontier properties may be starved to fund this expansion.”

— John Pusloskie, President of CWA Local 1170 in Rochester, N.Y.

“Today’s approval is a welcome and important step. Our goal is to gain the approval of the FCC so that we can close the transaction and begin bringing its benefits to consumers and businesses.”

— Maggie Wilderotter, Chairman and Chief Executive Officer of Frontier

West Virginian media covers the conditional approval

A handful of television stations covered the conditional approval, most without much depth.  West Virginian newspapers covered the fight between Verizon and Frontier and the unions and consumer groups, but no paper really provided in-depth coverage into the challenges of West Virginia broadband and what precisely Frontier is capable of providing to solve it.  Consumers will discover soon enough that West Virginia has yet again gotten the short end of the online stick.  Only this time, they better not wave it around too much — it might exceed your monthly stick-waving allowance.

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WOWK-TV in Charleston delivered the most substantial report on the sale, including this brief interview with PSC spokeswoman Sarah Robertson.  (2 minutes)

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WTAP-TV in Parkersburg ran this brief in-studio report about the Verizon-Frontier approval.  (1 minute)

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WDTV-TV in Bridgeport explained the requirements of the conditional approval.  This was the only report on the approval that included the opposition’s perspective.  (1 minute)

While several residents of Mound, Minnesota try to negotiate to keep their broadband service from Frontier Communications after the company sent them letters threatening to cut off their service, a Rochester, N.Y. television station handed over five minutes of airtime during its morning newscast that was little more than a promotion piece for Frontier’s broadband packages, right down to quoting inaccurate pricing, but no time to mention to viewers the company maintains a 5GB “appropriate usage limit” in its Acceptable Use Policy.

WHAM-TV ran a virtual infomercial (thanks to PreventCAPS for the tip) that was supposed to be about changing service providers, but devolved into a promotional puff piece for Frontier.  Among the services promoted were high bandwidth applications you can ostensibly use with Frontier DSL, despite the company’s continued insistence on defining an acceptable amount of usage at a level so low, you can’t possibly use those applications much and stay within the limits.

Michael Johns, from Frontier’s Network Operations Center misquoted Frontier’s own rates for DSL service, claiming the company sells service for between $18-26 a month, which seemed quite low.  We called Frontier Communications this morning to ask for those prices, telling the representative we saw them on WHAM’s sister CW Network station “CW16.”  The customer service representative in DeLand, Florida didn’t know what we were talking about.

In fact, we were quoted a far higher price for Frontier High-Speed Internet Lite – 768kbps service, with no term commitments starting at $39.99 a month. The representative claimed they could reduce the price, but only with a multi-year term commitment and a service bundle that included phone service. Even with those discounts, the price was still more than $20 a month. Considering Frontier’s term commitments carry a steep early disconnect penalty, there isn’t much value to be found here.

For standard 10Mbps DSL service, $26 a month isn’t going to get you far. In fact, Frontier wants around $45 a month for the service, not including a modem rental fee/equipment charge of $4 per month. Again, there were some discounts available for bundling, but they always carried those pesky term commitments and never brought the price down to what Johns claimed was available.

Michael Johns (left) from Frontier speaks with WHAM reporter Evan Dawson (right)

Also along for the ride was a hard sell for add on products like “anti-spam technology,” hard drive backup, technical support for your computer and Internet service — each carrying an additional monthly price.

Getting Frontier pinned down on prices is next to impossible as the representative kept coming back with new offers when I didn’t agree to “begin the sign up process today.” Apparently there is plenty of room for negotiation when signing up for Frontier service in a market where Time Warner Cable eats their DSL service for breakfast.

But the most fun came last when I asked about Frontier 5GB monthly usage allowance. The representative promised me “we don’t do that in your area so you can ignore that,” and “we’re never going to hold you to that. It’s there so we can control the pirate downloaders.” When I asked why Mound, Minnesota was apparently a hotbed of pirates (who knew?) the representative didn’t understand what I was talking about. When I explained, she put me on hold and came back apparently now acquainted with Frontier’s experimental hard capping in Mound, and asked me how I found out about that.

How did I, indeed.

If such experiments are deemed successful by the company, all of Frontier’s customers will find out about them soon enough.

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On Monday, WHAM-TV’s sister station “CW16” handed over five minutes of the morning news for an extended-length commercial for Frontier Communications.  Judge for yourself whether this story was about how to change providers or how to change to Frontier DSL.  (5 minutes)

Today’s merger between CenturyTel (soon to be CenturyLink) and Qwest will combine 10 million Qwest customers and 7 million from CenturyTel into a single company serving 37 states in every region of the country except the northeast and much of California and Nevada.  CenturyLink gains access to Qwest’s highly valued portfolio of services sold to business customers and Qwest gets a partner that can help manage its $11.8 billion debt and help grow the last remaining Baby Bell, formerly known as US West, into a national player capable of withstanding ongoing erosion of landline service.

The deal will impact consumers and businesses, and will challenge regulatory authorities to consider the implications of ongoing consolidation in the traditional telephone service marketplace.  It brings implications for broadband service strategies for both companies, which we’ll explore in greater detail.

Breaking Up Was Too Hard to Do, So Let’s Put It Back Together

Ultimately, the genesis of this, and most of the other big telecom deals that we’ve witnessed over the past few years comes from the 1996 Communications Act, which deregulated large parts of the telecommunications industry and triggered a massive wave of consolidation that is still ongoing.  That legislation was the antithesis of the 1984 court ruling which ultimately led to the breakup of AT&T and the Bell System monopoly in 1984.  When President Clinton signed the 1996 bill into law, it allowed much of the Bell System to eventually recombine into two major entities:

• AT&T ultimately pieced itself back together with the acquisitions of:

BellSouth — serving the southeastern United States

Ameritech — serving the upper Midwest

SBC/Southwestern Bell — serving Texas and several southern prairie states

Pacific Telesis — serving California and Nevada

• Verizon became a regional powerhouse by combining:

NYNEX — serving New England and New York

Bell Atlantic — serving mid-Atlantic states

Qwest Tower - Denver

The remaining orphaned Baby Bell was US West, which comprised Mountain Bell serving the Rocky Mountain states, Northwestern Bell which covered the Dakotas, Minnesota, the prairie states not covered by SBC, and Pacific Northwest Bell which managed service for Oregon, Washington, and northern Idaho.  US West was subjected to a hostile takeover in 2000 by an upstart telecommunications company that was laying fiber optic cable in the late 1990s alongside the railways its owner, Philip Anschutz, also happened to own.  Qwest assumed control of US West that summer and rechristened it with its own name.  Owned by a Bell outsider, Qwest has always been the company that didn’t quite fit with the rest.

The company gained respect for its enormous fiber backbone that weaves across many American cities, including several in the northeast.  It is best known for its services to business customers.  On the residential side, the story is less impressive.  The company’s customer service record is spotty and the company has accumulated an enormous amount of legacy debt left over from earlier acquisitions.  Despite the company’s repeated efforts to find a partner, it took until today for it to finally find one.  There are several reasons for this:

1. Qwest’s service area is notoriously rural and expensive to serve.  Outside of its corporate headquarters in Denver, the majority of its service area is either mountainous or rural.  Even today, Qwest serves only 10 million residential customers, almost matched by CenturyTel’s own seven million largely rural customers scattered across the country.
2. Qwest’s history has been littered with financial scandals, starting with a series of deals with disgraced Enron from 1999-2001.  That was followed with charges of fraud and insider trading in 2005.
3. Qwest does not own its own wireless division and its previous efforts to deliver television service to customers were largely unsuccessful.  That made Qwest’s ability to withstand erosion in its core business – landline phone service, more difficult.
4. Qwest’s debt is downright frightening for would-be suitors.

Why Does CenturyTel Want to Buy Qwest?

CenturyTel claims such a transaction allows a combined company to become a larger player on the national scene.  By combining Qwest’s good reputation in the business telecommunications sector with combined efforts to deliver broadband products including high speed Internet, the company thinks the combination can’t be beat.  CenturyTel envisions packages of video entertainment, data hosting and managed services, as well as fiber to cell tower connectivity and other high bandwidth services to deliver replacement revenue lost from disconnected landlines.  It also believes it can realize cost savings from the merger and keep the company relevant on a stage dominated by Verizon, AT&T, and a few large cable companies.

But there are other reasons.  For the three super-sized independent phone companies that Americans are growing increasingly familiar with — Frontier Communications, Windstream Communications, and CenturyTel, their business models depend on their ability to constantly engage in deal-making and acquisitions.  All three companies have built their businesses on investors who see their stocks as “investment grade” financial instruments that dependably return a dividend back to shareholders.  As we’ve seen in countless quarterly financial results conference calls, all three companies are preoccupied answering questions from Wall Street about the all-important dividend.  TV personalities like Jim Cramer has specifically recommended these telecom stocks based, in part, on their dividend payout.  If that dividend dramatically shrunk or stopped, the share price for all three stocks would likely plummet.

One of the side effects of companies dependent on dividend payouts is their constant need to be on the lookout for additional merger and acquisition opportunities.  Here’s how it works.  Let’s say CenturyTel’s debt load and reduced revenue, caused by customer defections to cell phones or cable phone service, delivered a bad fiscal quarter for the company.  Cash flow was down, and company officials simply couldn’t keep the dividend payout at the same level as the previous quarter.  Since many people hold CenturyTel stock specifically because of the dividend, a downward turn in that payout could cause some to sell their shares, driving the stock price downwards.

CenturyTel is still digesting a previous merger with EMBARQ, which led it to rechristen the company CenturyLink

One way around this is to seek out a new merger or acquisition target.  By bringing two companies together, preferably one with a healthy cash flow, suddenly the big picture changes.  Your balance sheet now reflects the combined revenue from both companies, which incidentally makes the percentage of debt versus revenue look a lot healthier.  Cash flow immediately improves, especially if you can slash redundant costs.  Come next quarter, that dividend payout is right back up in healthy territory.

Sometimes companies become so preoccupied with their dividend and corresponding stock price, it can lead them to pay out more in dividends than a company earns in revenue.  While that’s great for investors, it is unsustainable in the long run.

Many critics of telecommunications companies employing this strategy claim it’s evidence that a company is biding time and unwilling to invest in innovation for the future.  Some also believe dividend payouts shortchange customers because they can eventually bleed a company’s ability to invest in service improvements, research and development, and capital investments to maintain their network and expand service.

As consolidation continues, the number of new buyout opportunities begins to shrink, and one shudders to think what happens when there is no one else to buy.  How long is this business model sustainable?

Both CenturyTel and Qwest also recognize the impact of ongoing disconnections from landline service, now averaging 10 percent of their customers a year.  Those departing customers are now relying on their cell phones or alternative calling services like cable company “digital phone” service or broadband-based calling from companies like Vonage or Skype.

The one service they hope can stem customer defections is broadband.  Unfortunately, telephone companies are increasingly losing ground against their cable modem competitors, who have an easier time increasing broadband speeds for customers now seeking online video and other high bandwidth applications.

Of course, one of the benefits of being a “rural phone company” is the fact cable competition is often unlikely.  In fact, some of the lowest erosion rates for landline service are in rural communities where the telephone company is the only game in town.  There is plenty of money still to be made offering high priced slow speed DSL service in communities with no cable competitor and spotty wireless broadband that is often slower and usage-limited.

All three of these big independent players are well aware of this, and maintaining a strong position in relatively slow speed DSL service also protects another revenue stream — Universal Service Fund revenue given to rural providers to equalize telephone rates.  CenturyTel recognizes the increasing likelihood much of that money will be diverted to stimulating broadband expansion, something the phone company is more than willing to do if it means preserving their subsidies.

The new combined Qwest-CenturyTel company hopes the merger can help both survive obsolescence.

For Qwest, a debt reduction may make it possible to spend more to deliver fiber-to-the-curb service, similar to AT&T U-verse.  That could increase broadband speeds and prompt them to reconsider their earlier decision to abandon IPTV in the western half of the country.

CenturyTel can continue to offer traditional DSL service with a more incremental upgrade approach in its more rural service areas, but tap into Qwest’s fiber network to reduce backhaul expenses and potentially pick up new business customers by offering Qwest-branded business services.  Company officials strongly hinted that, at least for now, CenturyTel’s existing customers will continue to find the video portion of their “triple play” package delivered by DirecTV satellite service, so no IPTV for them.

CenturyTel and Qwest's combined local service areas

What Does This Mean for Employees of Both Companies?

Mergers like this always generate great excitement over “cost savings” made possible by the merger.  Much of these savings typically come from employee expenses.  When you hear “cost savings,” think layoffs and pay cuts for all but top management.  Based on past precedent, Qwest employees can anticipate some serious job losses if this transaction closes, especially in the business office.  The combined company will be henceforth known as CenturyLink, with headquarters remaining in Monroe, Louisiana.  That is potentially bad news for Qwest’s employees in Denver.

The transaction is expected to generate annual operating cost savings (which CenturyTel calls “synergies”) of approximately $575 million, which are expected to be fully realized three to five years following closing.  The transaction also is expected to generate annual capital expenditure “synergies” of approximately $50 million within the first two years after close.  That means spending less on infrastructure improvements.

Billing and customer service are traditionally handled by CenturyTel when a company joins the CenturyTel family.  North Carolina customers can attest to that as EMBARQ, an earlier CenturyTel target, finally moves to CenturyTel’s billing system in the coming weeks.

For the sake of pushing the merger through state regulatory agencies, cutbacks in unionized technicians who handle service installations, repairs, and maintain the lines are not expected.  The Communications Workers of America issued a statement today that mildly acknowledged the merger announcement, saying the union “looked forward to serious negotiations with both companies” regarding employment security and assurances of aggressive high speed broadband rollout throughout both companies’ territories.

How the combined CenturyTel-Qwest company stacks up against other independent phone companies. (Q-Qwest, CTL-CenturyTel, FTR-Frontier, WIN-Windstream)

What Does This Mean for Qwest and CenturyTel Customers?

In the short term, nothing.  This merger will take at least a year to complete, assuming regulatory approval in every state where a review is required by state officials.  In 2011, should the merger be approved, Qwest customers can anticipate transition headaches as the Denver-based company winds down operations in favor of CenturyTel.  Billing and customer service will both be impacted.  Long term plans for major projects are likely to be stalled until the merger settles into place.  CenturyTel business customers will eventually see Qwest’s strong business products line become available in many CenturyTel service areas.  Eventually, some larger CenturyTel-served cities may find Qwest’s more advanced DSL service arriving on the scene delivering faster speeds.

Although CenturyTel has hinted it may review whether it’s now large enough to operate its own wireless mobile division, for the near term, expect the partnership to resell Verizon Wireless service to continue.

What is the View of Stop the Cap! on the CenturyTel-Qwest Merger?

Generally speaking, most of the industry consolidation that has been fueled by a deregulatory framework established by the Clinton Administration has not benefited consumers anywhere near the level promised by deregulation advocates.  The three largest independent phone company consolidators — Frontier, Windstream, and CenturyTel are spending more time and resources looking for new acquisitions and schemes to pay out dividends than they are working to enhance service in their respective service areas.  Smaller independent phone companies are deploying fiber to the home networks and answer to the communities where they work and live.  From companies like Frontier, we get Internet Overcharging schemes combined with slow DSL service, tricks and traps from “price protection agreements” that automatically renew, rate increases, and cost cutting.  Windstream plagues some of their customers with extended service outages, and CenturyTel’s promised broadband speeds often don’t deliver.

Unfortunately, bigger is not always better in telecommunications.  While the biggest players like Verizon seek to discard rural American customers, getting one of these three companies instead doesn’t always represent progress.  Our regulators are too often satisfied with basic answers to questions about broadband and service improvements that come with few details and deadlines.  It is just as important to ask what kind of broadband service a company will bring, at what speeds and price, and what usage limits, if any, will accompany the service.

Companies engaged in these mergers hope regulators don’t pin them down to specific service commitments and standards, which could harm the financial windfall these deals bring to a select few.  But they must be the first thing on the table, guaranteeing that customers also get the enjoy the “synergies” these deals are supposed to bring.

Bell Labs, a division of Alcatel-Lucent, has found a way to extract more speed over aging copper wire most phone companies still rely on to deliver service.  Its latest achievement, in the lab anyway, proved those wires could accommodate 300Mbps downstream speeds, at least if you were within 400 meters (that’s just over 1,300 feet) from phone company facilities.  Further on, the company was able to achieve 100Mbps speeds over a distance of one kilometer (0.62 miles).

Stop the Cap! reader Jeff writes wondering what impact such improvements have when they are measured in distances more commonly associated with a sprinting event.  Phone companies are well aware of the limitations of their legacy networks.  Some, like Verizon, decided the network designed more than a century ago was destined for the scrap heap.  They began to deploy fiber-optic based networks instead.  Others are trying to extract as much as they can from copper, as cheap as they can for as long as they can.

The problem with copper wiring is that the longer the distance, the slower the data speed those lines will support.  Interference or crosstalk from neighboring cables crammed together into a bundle can also create major problems, especially at longer distances.

Bell Labs says it has devised a way around the crosstalk problem with the testing of its “DSL Phantom Mode” solution:

At its core, DSL Phantom Mode involves the creation of a virtual or “phantom” channel that supplements the two physical wires that are the standard configuration for copper transmission lines. Bell Labs’ innovation and the source of DSL Phantom Mode’s dramatic increase in transmission capacity lies in its application of analogue phantom mode technology in combination with industry-standard techniques: vectoring that eliminates interference or “crosstalk” between copper wires, and bonding that makes it possible to take individual lines and aggregate them.

In the eyes of Alcatel-Lucent, Bell Labs has found an answer to the dilemma of what role phone companies can play in a 100Mbps broadband future.

“We often think of the role innovation plays in generating technologies of the future, but DSL Phantom Mode is a prime example of the role innovation can play in creating a future for existing solutions and injecting them with a new source of value,” said Gee Rittenhouse, head of Research for Bell Labs. “What makes DSL Phantom Mode such an important breakthrough is that it combines cutting edge technology with an attractive business model that will open up entirely new commercial opportunities for service providers, enabling them in particular, to offer the latest broadband IP-based services using existing network infrastructure.”

Before getting too excited, remember these demonstration tests occurred in a laboratory environment.  No squirrels chewed up the cables. No water leaking into cracks in the cable’s insulation or a connection box caused issues.  No aging splices of corroded copper wiring up on poles since the late 1960s were found.  Your home’s own phone wiring was also never part of the equation.

Distance is still a considerable limiting factor in DSL deployments.  Most of the benefits of this research will go to companies like AT&T, which uses a hybrid fiber-copper wire network in its U-verse areas.  The fiber cuts down the distance from a phone company office to a neighborhood.  Once in your neighborhood, traditional copper wires run the rest of the way, right up into your home.  If AT&T can leverage additional speed from its weakest link — the copper-based phone line — it may be able to use the additional bandwidth to boost broadband speed or accommodate more concurrent applications they cannot support today.

For phone companies still dependent on long distances of copper wiring, the expense of bootstrapping Alexander Graham Bell’s century-old network begins to look silly.

Sometimes it’s better to build anew instead of repeatedly trying to fix the old.  And many are doing exactly that.

Hundreds of small independent telecoms, broadband service providers, municipalities and cable television companies have brought gigabit-enabled, all-fiber service to a total of more than 1.4 million North American homes – about a quarter of all fiber to the home connections on the continent – according to the Fiber-to-the-Home (FTTH) Council.

The FTTH Council noted in a recent study more than 65 percent of small independent telephone companies that have not upgraded to FTTH said they would very likely do so in the future, with another 11 percent saying they were somewhat likely. More than 85 percent of those that have already deployed FTTH said they would be adding more direct fiber connections going forward.

Surprisingly most of this expansion outside of Verizon’s FiOS service comes from small family-owned companies, cooperatives, and the remaining independent phone companies not snapped up by Frontier, Windstream, and CenturyLink.

“To continue to meet the rapidly growing bandwidth requirements for emerging applications and services, these companies know that they have to ‘future-proof’ their networks by running fiber all the way to the premises – and that’s why we are seeing all this activity,” says Joe Savage, President of the FTTH Council.

“In many cases, these small telephone companies are longtime family-owned businesses that are deeply involved in local affairs and are responsive to their community needs for faster broadband as a key to future economic development,” said Mike Render, president of RVA LLC and the author of the study. “That’s why so many of these companies are looking to get into FTTH or expand their deployments,” he said.