The road to 5G wireless home broadband is paved with good intentions and a lot of hype, but at least one Wall Street analyst hints Verizon’s millimeter wave 5G project may be a bad idea, unable to achieve a proper return on investment and potentially a worse performer than originally thought.

Craig Moffett, a key analyst at MoffettNathanson, has analyzed and commented on the telecommunications industry at least as far back as the 1990s. He slammed cable operators for overpriced upgrades in the 1990s, talked down AT&T’s U-verse project, and spent years telling the media and investors that Verizon FiOS — a fiber to the home project, was an expensive failure.

Moffett’s latest research examines Verizon’s six-month old 5G millimeter wave wireless network in Sacramento, Calif., which relies on a large number of small cells to provide a $50 wireless home broadband replacement. But after taking a closer look at the technology, its performance, and costs, Moffett has warned investors Verizon has a “steep climb” to convince Wall Street it can attract enough revenue from paying customers to justify the tens of billions in new spending required to roll out small cell technology across the country.

How does Moffett know this and can his views derail or alter Verizon’s long-term plans for millimeter wave 5G? The answer is clearly “maybe.”

In this series, we will look at how Wall Street’s view of the telecom industry is often focused on short term profits at the expense of long term growth and customer satisfaction.

The telecom industry analyst presents detailed analyses tracking industry developments, mergers and acquisitions, technology shifts, competition, regulation, expenses, and shifting consumer behavior into reports for investment banks, institutional investors, or in some cases individual investors looking for both hard numbers and perspective on what is going on in the industry.

The metrics analysts use to describe success or failure are typically different from what customers use, and many analysts don’t spend much time focused on technical trivia, public policy goals, and ways of overcoming problems for which there are no obvious market solutions, such as rural community broadband. Some analysts are particularly friendly and non-confrontational with executives, who know and recognize them by their first name, while others are more willing to challenge company press releases and policies and can eventually develop an adversarial relationship with at least some of the companies they cover. The analyst’s reputation for getting the correct analyses to clients means everything. Good research and advice does not come cheap, and subscription fees can be breathtakingly high. Many Wall Street analysts also make frequent appearances in the media, often on business cable news channels and newspapers.

Moffett is one of the most frequently-quoted telecom analysts, known for his favorable coverage of the cable industry and skepticism towards telephone companies attempting to reinvent themselves. He has advocated for the adoption of usage caps and usage-based billing to further monetize broadband, but has not been as aggressive as others, such as Jonathan Chaplin, a Wall Street analyst with New Street Research, who has frequently called on the cable industry to aggressively raise broadband prices to $90 a month or more. Moffett, in contrast, worried last year that Cable One, an operator specializing in serving small and medium sized cities, was pricing its service far too high, driving off potential customers.

Cable’s Hybrid Fiber/Coax vs. Telco’s Copper: Dueling Legacy Technologies Confront a Fiber and Wireless Future

Most of the nation’s cable television systems were built in the 1970s and 1980s and were primarily dependent on copper-based coaxial cable. By the 1990s, many cable operators embarked on system wide “rebuilds” to prepare for the era of digital cable television. It was during this decade that most cable systems moved beyond 50-70 analog TV channels and also began offering new services, including home phone, broadband, home security, and large on-demand video libraries. To support these new services and to increase the reliability of cable systems, operators began replacing some of the coaxial cable in their networks with more reliable fiber optics. Investments in these upgrades were significant, but to the cable industry not extravagant. A loud chorus from Wall Street disagreed, complaining cable systems were overspending on upgrades. Moffett, an analyst for Sanford Bernstein at the time, complained the cable industry collectively wasted $100 billion on network upgrades.

But like many Wall Street analysts who complain about almost any significant investment or spending, once a company has gone ahead and spent the money, analysts start looking at how those companies are monetizing those upgrades to recover the investment, boost revenue, and maximize shareholder value. Moffett flipped on a dime from being a critic of cable’s spending to commenting on how well the cable industry was now positioned to lead the telecom industry.

“Cable built a plant that was more expensive than they ever should have built,” Moffett told the New York Times in 2008. “But now that the cable companies have spent that money, their network is in place to deliver phone service more cheaply than any other alternative.”

The cable industry’s hybrid fiber-coax (HFC) systems upgraded in the 1990s are still partly in wide use today. Cable operators are using incremental technology upgrades to squeeze more performance out of these systems, notably by retiring space-hogging analog cable television in favor of digital. That analog to digital video conversion, along with regular updates to the cable broadband technical standard, known as DOCSIS, has allowed most cable operators to claim they do not need to upgrade to an all fiber network to support the services offered today, which includes hundreds of TV channels and gigabit speed downloads. Altice USA, which operates Cablevision in suburban New York City, is among a few operators claiming it was time to discard HFC technology in favor of fiber to the home (FTTH) service. Altice argues fiber further increases available bandwidth and is much more reliable, reducing costs. So far, other major operators like Comcast, Charter, and Cox are still taking a more incremental approach towards fiber, in part to keep costs down.

The upgrade spending that Wall Street complained about in the 1990s ultimately paid off handsomely for the cable industry. Moffett himself only occasionally criticizes cable operators these days, preferring to target most of his negative coverage on phone companies. In fact, in an interview in 2008, Moffett called effectively called phone companies obsolete.

“In 1996, as soon as you saw that the technology existed for a cable network with vastly higher capacity and vastly lower margin cost to be able to do voice calls over the same network, you would have said the end game is obvious: Cable will win and the telcos will go into bankruptcy. The only question is how long it will take,” Moffett said.

The phone companies, having no interest in voluntarily sacrificing themselves in bankruptcy court, have moved to meet the cable industry’s challenge by upgrading their own networks to compete, something Moffett is not a big fan of either. Back in 2008, he gave top marks to Qwest, the orphaned Baby Bell serving the sparsely populated Pacific Northwest that would later be bought by CenturyLink. Lacking its own mobile business, or a large amount of capital for upgrades, Moffett praised Qwest for making the right decision (according to him) in the cable vs. phone wars of the early 2000s: “do nothing.”

That advice was simply not acceptable to the top executives at two of the biggest phone companies in the country. Both rejected Moffett’s philosophy of living with the technology they had instead of putting investors through the agony of spending money to completely overhaul the existing copper wire phone network. For Moffett, that was throwing good money after bad, and it was too late to try.

“It is an obsolete technology,” Moffett said. “It’s not like horses lost share of the transportation market until they stabilized at 40 percent market share.”

Phone Company Fiber Optic Upgrades = ‘Shareholder Value Destruction’

Large phone companies saw the same writing on the wall about landline telephone service Moffett did back in the 1990s. Their emerging wireless mobile businesses were cannibalizing in-home landlines and the introduction of the cable industry’s “digital phone” Voice over IP product, often bundled with a range of calling features and a nationwide long distance plan, quickly began eroding the revenue phone companies earned from per-call charges, calling features like Caller ID, and long distance revenue.

AT&T and Verizon had a problem. Telephone networks were designed and built to handle voice-grade phone calls, not broadband or television. Repurposing the traditional landline to support a popular package of phone, internet, and television service was complex and costly. DSL had already emerged as the phone company’s best effort to compete with cable broadband over the traditional copper phone wire network. Phone companies experimented with competing television service, sending one channel at a time down a customer’s phone line. When a customer changed channels, one streaming channel stopped and another began. It did not always prove to be very reliable or dependable, because performance degraded significantly the farther the customer lived from the phone company’s switching office. Something better was needed, and it was going to cost billions.

The 1992 Cable Act, which guaranteed competing video providers could offer popular cable networks on fair and competitive terms, was crucial to laying the groundwork for a reimagined local phone company. Telephone company executives began approaching state and local officials with proposals to replace existing phone networks with newer fiber technology that could support voice and video, giving local cable monopolies long-awaited competition. The sticking point was money. Some large phone companies sought regulator approval to raise telephone rates to create a fiber fund that would be used to cover some of the costs of scrapping copper wire networks and replace them with fiber optics. The cable industry understood the threat and immediately launched a fierce lobbying campaign to block attempts to bill captive phone ratepayers for the cost of fiber upgrades. The phone companies were largely unsuccessful winning approval to cross-subsidize their fiber future, but some companies did make deals with state regulators to approve rate increases with the promise the extra revenue would fund future fiber upgrades.

Critics contend AT&T and Verizon’s wireless mobile networks ended up the biggest beneficiaries of the revenue raked in from rate increases, with some accusing companies like Verizon of shifting money away from landline service to help pay for the construction of their growing wireless businesses. With billions spent on cell tower construction and network buildout costs, there was not much money left for fiber to the home upgrades. The cost to wire each home for fiber was also a concern, as were regulatory requirements surrounding universal service, which meant phone companies might have to serve any customer seeking service, while cable companies were allowed to skip serving rural America altogether.

It would take until 2004 for phone companies to begin major upgrades. At the same time, deregulation was once again stirring up the marketplace, triggering a gradual re-consolidation of the old Bell System, coalescing primarily around AT&T (SBC, Ameritech, BellSouth, and Pacific Telesis) and Verizon (Bell Atlantic, NYNEX, independent telephone company GTE, and former long distance carrier MCI). Both AT&T and Verizon were exploring fiber upgrades.

AT&T U-verse vs. Verizon FiOS – Wall Street Not Impressed Either Way

Project Lightspeed was developed by SBC in 2004 and later renamed AT&T U-verse in time for its commercial launch in 2006. AT&T chose a fiber to the neighborhood approach, leaving intact existing copper phone wiring already in place in neighborhoods and homes. U-verse was capable (at the time) of delivering just over 20 Mbps internet service while customers also watched TV,  and/or made a phone call. The advantage of U-verse was that it was cheaper to deploy across AT&T’s more sprawling local telephone territories than fiber all the way to each customer’s home.

Verizon, which serves a number of densely populated cities in the northeast and mid-Atlantic region, believed a fiber to the home upgrade would future proof their network and deliver better, more reliable service than U-verse. Verizon FiOS launched in September 2005 and completely did away with existing copper phone wiring in favor of optical cable. Verizon argued that although it was more expensive, a complete fiber upgrade would cost the company less over time, and was essentially infinitely upgradable as customer needs changed. Verizon also argued that with scale, the cost of wiring each home or business would fall, making the technology more cost-effective. Verizon launched its FiOS business with great fanfare among customers, some who bought homes specifically because they were located in a FiOS service area.

As with the cable industry’s rebuilding (and spending) wave of the 1990s, many on Wall Street were unhappy with both AT&T and Verizon. Moffett’s calculations were based on the premise that projects like this have 15 years not only to pay back investors in full, but also generate shareholder value from increased revenue. If the costs are not covered in full and then some, it is deemed a failure and value destructive. What customers want is only a tiny part of the means test Wall Street analysts use to determine if a project is good news or bad news:

Good News

• The provider successfully raises prices and accelerates payoff of outstanding debt.
• A project attracts new customers and prompts current customers to upgrade, generating more revenue.
• An upgrade can be expensed in a way that results in extra tax savings.
• Customer churn drops, as a more satisfied customer remains a customer.
• An upgrade offers new revenue opportunities not available before.

Bad News

• A project causes a surprise increase in capital expenses, especially if those costs are higher than anticipated.
• An upgrade results in increased competition, or worse, a price war that forces providers to cut prices.
• The project cannot be paid off within ~15 years. Short term results matter. Long term results only matter to future investors.
• An upgrade forces competitors to also undertake upgrades.
• A provider is forced to choose between share buybacks and dividend payouts and spending money on upgrades and chooses the latter. Shareholders matter more.

Moffett’s 2008 calculations argued that Verizon would lose $769 on each FiOS customer signing up for service. AT&T U-verse would come close to breaking even, but not generate much in the way of profit for AT&T. After determining that, he was a frequent and vocal critic of upgrade efforts, particularly in the case of FiOS. Verizon argued his calculations were wrong and that the company was pleased with the progress of its fiber buildout. But Moffett claimed vindication when Verizon shelved future FiOS expansion in 2010, leaving many cities with only a smattering of fiber service — often in a handful of wealthy suburbs and nowhere else.

Verizon clearly changed direction in 2010, but probably not because of Moffett and other critics. Verizon’s CEO at the time came from Verizon Wireless, and his executive team was focused predominantly on the phone company’s wireless unit, which was earning Verizon plenty of revenue. Verizon so valued its wireless business, in 2014 it bought out its partner Vodafone’s 45% interest in Verizon Wireless in a transaction valued at approximately $130 billion. That kind of money would have wired a considerable amount of the United States with fiber to the home service.

Paradox: 2008 – Don’t you dare spend that kind of money / 2013 – That was money well spent

Wall Street analysts, like many investors, like to focus on the short-term picture of the companies they cover. What appears to be really bad news today may not be so bad tomorrow, and as a result their advice often changes with time.

For example, Mr. Moffett spit nails over the cable industry’s “waste” of $100 billion on system rebuilds in the 1990s, but by the late 2000s he was a veritable cable stock promoter. Moffett told the New York Times it was clear cable was emerging on top in the telecom space and its competitors, including satellite and telephone companies, were dead companies walking. Cable’s success would likely not have come without the investments Moffett and other Wall Street analysts howled about.

Among the phone companies, AT&T initially won more respect from investors for not overspending on its U-verse project, which was less costly than FiOS, but also less capable. U-verse avoided the cost of ripping out copper cable from backyards and the sides of homes, but also had limits on broadband speed and the number of concurrent TV channels a customer could watch. As HDTV took hold, those limits became more clear, especially to customers. As a result, U-verse customer satisfaction was not that high. In contrast, Verizon FiOS consistently achieved top position in customer ratings year after year because it delivered more than customers expected and was ready-made for easy expansion and upgrades.

“There was a raging debate a couple of years ago about who got it right, AT&T or Verizon,” Blair Levin, then an analyst with Stifel, Nicolaus & Company, told the Times in 2008. “Initially the investment community thought it was AT&T, but increasingly Verizon got their begrudging respect.”

Even Moffett’s views on FiOS ‘evolved’ over time. In 2013, he sent a research note to his clients admitting his views were more positive about FiOS than before.

“FiOS will sustain subscriber growth longer than either we or Verizon had projected, and that FiOS will ultimately achieve higher penetration rates than either we or Verizon had originally targeted,” Moffett’s team wrote. “Verizon’s FiOS is overwhelmingly the largest and most important FTTH network in the U.S. For comparison, Verizon’s FiOS covers 14% of American homes; Google’s fledgling fiber network, at least based on the three markets that have been disclosed up to now . . . will cover less than ½% to 1% when it is eventually completed.”

Moffett himself predicted in 2008 his views would evolve over time, as would his clients. Those invested in Verizon during FiOS’ buildout years would suffer somewhat from the costs to deploy the fiber optic network. But those who bought shares around 2010 or after consider those expenses “sunk costs” at this point — already spent and dealt with on the balance sheet. The economics change from ‘who is going to pay for all this’ to ‘how is the company going to use this new asset to best monetize its business.’

To be sure, Moffett still frequently recoils when a company reports it is planning on significant and costly upgrades, like Verizon’s millimeter wave 5G network. He is more tolerant of gradual upgrades, like those undertaken by Charter Spectrum to retire analog cable television and upgrade its systems to DOCSIS 3.1 technology, allowing it to sell faster internet speeds.

Moffett and other analysts can present a problem for for-profit, investor-owned companies that are about to launch a disruptive product or service. Verizon’s 5G project is now facing new scrutiny, perhaps as a backlash against the excessive hype these wireless networks are enjoying in the media. The costs to deploy small cell wireless technology across the country will be staggering, and it is not a stretch to suggest some on Wall Street will champion efforts to consolidate costs by building a shared network, recommending a tough return on investment formula to determine where small cell technology will be deployed, or calling for higher prices on services. Companies like Verizon will have to be prepared to defend their business case for 5G, perhaps stronger than they did defending FiOS more than a decade ago.

We’ll explore Moffett’s latest findings about the performance of Verizon’s millimeter wave 5G wireless home broadband replacement in part two.

Craig Moffett was a featured guest on C-SPAN’s ‘The Communicators’ at the 2013 Cable Show, discussing cable’s inherent advantages over telephone companies and the emergence of video cord-cutting as a result of too many rate hikes on customers. (24:39)

Despite repeated claims from some in Washington that eliminating net neutrality would stimulate U.S. telecommunications companies to invest more in their networks, Charter Communications has announced a dramatic $1.9 billion cut in capital expenditures (CapEx) spending on its Spectrum cable systems for 2019.

Charter posted 2018 revenue of $43.6 billion (up 4.9 percent over 2017), with especially healthy returns for its internet service, which grew 7.1%. Charter earned $11.2 billion in revenue, up 5.9% in the fourth quarter of 2018 alone, partly from rate increases, reduced costs, and additional broadband customers.

Republican FCC commissioners have repeatedly argued that deregulating the internet by sweeping away net neutrality would stimulate companies to invest more in their networks. But it now appears the reverse is true. In 2017, Charter spent $8.7 billion on network investments; in 2018 the company spent $9.1 billion. But this year, with net neutrality no longer the law of the land, the cable company is planning to dramatically cut investments in 2019 to just $7 billion. The combined company, which now includes Time Warner Cable (TWC) and Bright House Networks (BH), has never spent this little on capital expenditures. The 2016 merger between Charter and TWC and BH forced a 189.4% spike in spending after the deal was completed, as Charter began a cable system overhaul and upgrade.

Charter is expecting it can distribute more of its revenue to shareholders, share buybacks, and debt payments as a result of the completion of its all-digital conversion project, which eliminated analog television signals from cable systems to make more room for revenue-enhancing internet service. The company also gets to lease more set-top boxes to customers seeking to view digital television signals on older analog TV sets.

Charter also reports it has successfully completed its DOCSIS 3.1 internet upgrade to more than 99% of its cable systems, allowing the introduction of premium-priced gigabit internet speed.

Charter executives signaled investors earlier this month Charter expects to post greater revenue and profits as a result of the spending reductions, but these new-found gains will have no effect on the company’s ongoing plans to continue mildly aggressive rate increases in 2019.

Charter has not disclosed how much it plans to spend on its new mobile business in 2019. The company is marketing its mobile phone service more aggressively this year as it prepares to accept customers bringing existing phones to its cellular service, powered by Charter’s in-home and in-business Wi-Fi and Verizon Wireless’ 4G LTE network.

Minnesota regulators slammed the performance of Frontier Communications in a highly critical 133-page report released Friday, describing a rogue phone company that appears to have knowingly violated at least 35 state laws and operating rules, while jeopardizing the lives and wellbeing of 100,000 Frontier customers in parts of northeastern and southern Minnesota and the Twin Cities metro area.

“Many of the issues reported by consumers show direct violations of Minnesota law and Commission rules, and indicate broad, systemic problems with Frontier’s service quality, recordkeeping and business operations,” the report concluded.

A year-long investigation by the Minnesota Commerce Department found ample evidence of Frontier’s terrible customer service, fraudulent billing, and its rapidly deteriorating and often decrepit landline network, sometimes left in disrepair for months or years with little regard for the safety of customers, workers, or the public.

As part of the investigation, seven public hearings were held last fall in Frontier’s Minnesota service area. The resulting report is based on more than 1,000 consumer complaints and statements, as well as Frontier’s responses to information requests by the Commerce Department.

In many cases, Frontier left health-compromised customers using landline-based health/safety monitoring services without phone service for over a month, putting cost-saving measures ahead of the safety of customers that need reliable phone service the most. The investigation also found “that orders for new telephone or internet access service, being a new source of revenue for Frontier, and a sales commission for the customer service representative, take priority over repairs of internet or phone.”

The report also blasted Frontier’s shoddy customer service department, described as “shocking” in the report. In dozens of complaints, customers reported correcting service problems was often a nightmare.

Decrepit Network Facilities Falling Off Poles and Drowned in Ditches

Waterville, Minn. residents that have experienced frequent outages for years were given every excuse in the book by Frontier officials, at one point blaming a mouse in a central office for chewing through their phone lines. Frontier customer Harry Tolzman chronicled years of Frontier’s apparent ineptness in providing reliable phone and internet service to his rural part of Minnesota. His testimony to Minnesota regulators, reproduced in part below, explains a lot of what the report found wrong at Frontier Communications these days:

“[One day, Frontier] decided that they needed to rebury the telephone cable that was — that ran from Elysian to our rural route Waterville, so they contract[ed] with an outfit out of Indiana, Direct Line Communications Underground Burying, who in turn sublets to another company called Premier Underground. So one day these guys show up from Indiana and they needed to bore underneath State Highway 60 to get the cable from across the highway to our residence, which was on the north side of the highway. So they came out and they bored underneath the highway and they ran the cable and then they got into a big argument with the local technician as to where the cable was to run and so they got mad and left.

The next day another outfit, same, Premier Underground out of Indiana, shows up, and they were supposed to connect the cable from the highway down to the closest junction box, which is about 100 yards from my place to the road and it’s another 100 yards from the road to the nearest junction box. So they started in with their plow and they plowed up to the house and they hit some tree trunks and the plow would jump out of the ground.

Finally they got up to the house where I had decorative rock and they say, well, we can’t dig here so we’ll just lay it on top of the rock. And then wherever it jumped out of the ground because of a root, it’s buried about one inch below the ground, in other places it’s 8 or 10 inches, where it should be. So anyhow, they said that’s the best we can do. Then they went across the road to make the connection to the nearest junction box, and they went right down the shoulder of the road about three feet off the blacktop and they were going down the road with their plow. And lo and behold, the state highway department drove by and happened to see them going right down the shoulder of the road. And so they questioned them, and lo and behold they didn’t have a permit to bury this cable.

So the next day a guy shows up and he hooks up his pickup to the cable and he pulls it all out. And the local technician comes out and he lays a temporary line on top of the ground over to where they had plowed underneath the road, and he made the connection so we could get our telephone service back. And they said they would be back to re-bury it in the proper right-of-way position as soon as they had the proper permits. That was two and a half years ago. And this cable is laying in the road ditch, and meanwhile the state highway department came along and they mowed the road ditch and they cut the cable. So they replaced the cable again. And then another time a snowmobile took the cable out. So that cable still lies there strung between the sumac bushes so that they can’t mow it when they mow the road ditch.

And I keep calling these people to get this fixed and they keep telling me, well, they don’t have the permit yet. So I called the highway department in Mankato and they say there’s been no application for a permit to re-bury your cable. In the interim, I had opened up a complaint with the Federal Communications Commission, which is located in Washington, D.C., and they in turn responded to me. And Frontier had the gall to tell them that they had investigated the above statements and offered the following resolution. Upon the investigation, Frontier showed that the line was repaired as of August 11, 2017, Frontier will be burying the line on August 31, 2017. Frontier spoke with Mr. Tolzman and advised him of the above information. They had the gall to tell them it was fixed and that same problem is still there, the cable lies between the bushes. So whenever we have moisture or rain, we’ll be out of service for our landline phone. And it’s just very frustrating to have to call and get a customer service rep many states away that runs his routine check and tells you, well, the problem is not on their end, it’s in your house, and yet it’s never been a problem within the house.”

As Stop the Cap! reported in 2018, Frontier’s network infrastructure in Minnesota was literally falling off utility poles. Customers reported Frontier technicians used trees as makeshift utility poles, strung phone cables across yards and fields, unburied, and in one case, draped a phone cable over the customer’s propane tank. Despite months or years of complaints, Frontier repeatedly failed to repair infrastructure it knew or should have known was in disrepair, and in several documented cases, Frontier technicians dealt with the loudest complaining customers by swapping line pairs with a satisfied customer, silencing the complaining customer while giving their troublesome or failing line to another customer without their knowledge.

Company officials also lobbied Minnesota officials hard over the summer of 2018 to limit the scope of the investigation into its business practices in the state, claiming at one point that anything short of a gag order forbidding customers from complaining at public hearings about the performance of Frontier’s DSL service would “violate federal law” and “create false expectations and confusion for customers.”

“Holding public hearings directed to internet access service complaints would not be constructive because the Commission would be precluded from taking action concerning internet service rates or service quality using any information it may collect during the public hearings,” Frontier claimed.

Customer Service Hell

Elizabeth Mohr’s testimony described an experience typical of many Frontier complaints. When Mohr complained about the poor quality of her Frontier DSL service, which came nowhere near the 12 Mbps she was offered, Frontier unilaterally disconnected her service without notice, leaving her without phone service for 12 days. The company “lost” five of the six repair tickets assigned to Mohr’s disconnect complaint. Frontier later refused to reactivate her DSL service, claiming it had “no ports available,” despite the fact taxpayers helped subsidize the expansion of internet access in her neighborhood.

“We found it took us 47 of our hours on the phone with Frontier to get service, even though they sent us a flier that said you should be able to call and get it,” Mohr testified. “So 47 hours on the phone of our time, six tickets, five of which were closed with no answer. They never showed up.”

Frontier’s bad customer service isn’t a new experience for Mohr either.

“You can get better service from them but you have to be willing to put up a fight. I have been hung up on, probably in the last 13 years, probably 200 times,” Mohr said. “When I would call and say, I have an issue with your network, they wouldn’t believe me. Between my husband and myself, we have 20 years of network administration. We could ping to their system and tell them where the problem was failing and they wouldn’t believe us, and they would hang up on us. So clearly, Frontier has a problem.”

Shellie Metzler of Finlayson claimed she has to be placed on a waiting list to have her phone line repaired — something more in common with East Berlin in the 1970s than the United States in 2019. She waited over a year for repairs for her basic Frontier landline and DSL service, repeatedly being told in over 20 hours of phone calls with the company “there were no lines available.”

The wait was not worth it. After service was installed, Ms. Metzler reported, “I could not hear when on the phone because of the static. Also, each time the phone rang, the internet would go offline.”

Like many Minnesotans, Metzler is still paying for broadband internet service she is not receiving. Metzler was sold Frontier’s Broadband Ultra 12 Mbps DSL service.

“I am receiving, if lucky, 1.2 Mbps,” Metzler reported. “Last week within two days the internet dropped over 100 times. Dropped service and slow internet speeds are everyday occurrences. I should not be charged for the 12 Mbps because I have never had it. I should not be charged for the 6 Mbps because I do not get that either.”

The report also had little positive to say about Frontier’s customer service department:

Subscribers received inaccurate information and expressed great frustration when dealing with Frontier’s customer service personnel, even characterizing the service as being rude and/or unhelpful. Customers also said Frontier’s customer service representatives would often refuse to transfer the customer to a supervisor or the supervisor would fail to return their call as requested.

Many customers reported that contacting Frontier was anything but convenient, describing long hold times prior to speaking with a customer service representatives. Also, several consumers reported that they believed Frontier representatives were unqualified, untrained, or otherwise provided them with inaccurate information. In some cases, representatives yelled at customers and accused them of being rude or inappropriate.

Frontier’s Repairs: ‘Like Placing a Band-Aid on a Hemorrhage’

The state investigation also uncovered evidence that Frontier often “repairs” poor service for a complaining customer by swapping the bad line pair with another customer with good service who is not likely to complain when their service suddenly deteriorates:

Frontier’s practice is that, when one customer is out of service [or is receiving impaired service] and requests repair, in order to restore service to that subscriber, Frontier disconnects, without notice, the service of another subscriber, and “swaps” the other subscriber’s working lines or cards for the non-working line or card of the subscriber whose service is being restored.

A typical example is the public comment of Debra Boldt of Glen, Minn., who lives on a lake with some summer residents. Ms. Boldt reported that to restore service to one neighbor, Frontier switches non-working lines with the working line of a summer resident who may not know their service is disconnected until they next visit; and, when that person complains, Frontier will then switch the working line from a different resident.

Similarly, Tom Grant testified at the Lakeville public hearing that Frontier technicians have told him, “they basically move cards or switches to be able to solve the problem for that individual customer, while knowing full well that that creates havoc for others that reside on that same node.”

Wayne Nierenhausen testified that technicians have told him: “[W]hen they get a complaint, there’s some kind of card within that box that’s a quarter-mile from my house that they will change to basically whoever made the complaint to get faster speed, but then when another call is made, they’ll switch that card out, put it to whoever made the complaint, and then put the old card back in.”

The report also heavily criticized Frontier for covering up problems by miscoding trouble reports and service outages to avoid drawing regulator attention. Outages impacting regulated basic phone service were frequently classified as unregulated internet outages, coded as being the fault of the customer, or trouble tickets were closed before repairs were completed. Closing trouble tickets prematurely also extends an extra benefit to Frontier — the company will not credit customers for extended outages if the original trouble ticket is closed.

As a last resort, if Frontier deems repairs too costly, customers are told to “live with it.”

Medically Necessary Phone Service Repairs Ignored

The report also found Frontier’s unwillingness to expedite repairs for customers with serious medical issues were “shocking” because customers were often not informed service representatives have no authority to request a medical-related expedited repair, and notes placed on customer accounts by those representatives are routinely ignored. The company admitted the only way a customer can be flagged a medical priority customer is if a doctor certifies annually, in writing, there is a medical need to maintain reliable phone service:

A letter/document must be received from the customer’s physician annually certifying that a medical emergency exists and that phone service is essential, and that the letter or document must contain the following:

• State registration or license number of physician.
• Name and address of seriously ill person.
• Name, signature of licensed physician or public health official (nurse or physician’s assistant) certifying illness or medical emergency and date.
• Optional – Any services beyond local exchange service that may be necessary to reach customer’s doctor and that absence of such services would be a serious risk of inaccessibility of emergency medical assistance.

Customers are instructed to mail or fax the documentation to:

Frontier Correspondence
PO Box 5166
Tampa, FL 33675
Fax: 1- 888-609-9919

Billing Controversies

The report also found many “direct violations” of Minnesota law and rules from the company’s billing practices. Customers reported Frontier misrepresented its “vacation rate,” offering discounted phone service during seasonal disconnects at vacation properties. Instead, many customers report being billed normal rates and were refused credits, even when the company admitted the problem was theirs and would be fixed.

Customers also report steep late fees for online payments made before the due date, because Frontier reserves the right to take at least five days (and sometimes more) to process online payments, and does not always honor the date of payments initiated by customers. Many others reported Frontier continued to bill closed accounts for months despite cancelling service. One customer who refused to pay several hundred dollars in new charges on his closed account had his credit ruined after Frontier reported him delinquent. A subsequent agreement to pay off the outstanding bills on the closed account in return for getting negative information removed from his credit report was later refused by Frontier… after the company cashed his check.

Customers who pass away while being Frontier customers had better share their account passwords with surviving relatives. As Tabitha Odegaard discovered after her father in law passed away in November 2017, Frontier will not cancel service for deceased customers without a proper account password. Odegaard told regulators she was still paying for service on behalf of her father-in-law in 2018.

Customers that plan to cancel service might be better off removing auto-pay from their account and not paying their last bill until a final bill is generated. Receiving refunds for cancelled service is a hit-or-miss affair at Frontier, according to the report. Customers must wait at least 90 days for a refund to arrive. Most customers end up with a gift card covering any credit balances, but some report their gift card arrived with a zero balance, or did not arrive at all. In such cases, customers have to wait an additional two months before a replacement card will be issued. One customer reported his refund took seven months to arrive, after getting a gift card with no balance on it. Other customers report only getting a credit balance on their monthly bill for their closed account, with no refund, gradually depleted by ongoing billing fees, taxes and surcharges that accrue each month. The credit balance runs out while waiting for a refund that never arrives.

Report Recommends Fundamental Changes and Frontier Responds

The report recommends that Frontier be required to refund or credit customers for service outages and unauthorized charges; add staffing to improve customer service; and increase investments in infrastructure and equipment.

Frontier responded with a written statement, reading in part:

“Frontier strongly disagrees with the assertions in the Department of Commerce’s initial comments and is reviewing the Department’s filing with the Minnesota Public Utilities Commission. Frontier and its employees work hard to provide reliable, affordable telecommunications services to approximately 90,000 customers in Minnesota, many in rural communities where no other provider will invest in providing service. Frontier recognizes we experience service issues and delays from time-to-time with some of our customers. We are an ethical company committed to our customers and the Minnesota communities we serve. We take this matter seriously and will respond appropriately before the Public Utilities Commission.”

Minnesota Public Radio reported in October 2018 that Frontier has slashed its technical workforce by 50% in Minnesota over the last five years. (4:08)

When Charter Communications CEO Thomas Rutledge met with President Donald Trump in early 2017, he probably did not realize just how much the Trump Administration was prepared to reward America’s second largest cable company.

After collecting a $98 million dollar compensation package for himself by successfully pulling off acquisitions of Time Warner Cable and Bright House Networks, Rutledge today presides over America’s least taxed corporation. In fact, the American people owe Charter a significant ‘refund’ after the company achieved a negative overall U.S. tax rate of -883.95%.

WalletHub analyzed annual reports for the S&P 100 — the largest and most established companies on the stock market — in order to determine the federal, state and international tax rates they paid in 2017.

Charter’s tax accountants took full advantage of the Trump Administration’s permanent corporate tax cuts, which lowered corporate tax rates from 35% to 21%. But Republicans who supported the corporate tax cuts left intact most of the generous corporate deductions, offsets, and other credits that ensured few of America’s top corporations ever paid anything close to 35%. As a result, the lowered tax rate combined with what critics call “corporate welfare and giveaways” allow a growing number of companies to not pay a penny in taxes. In fact, many will be in the enviable position of avoiding taxes and still getting an effective ‘refund’ worth billions.

Companies that are required to regularly invest in their businesses and buy equipment, hardware, and other tangibles as part of the cost of doing business are often the most generously rewarded. Tax deductions originally intended to inspire corporate spending during tougher economic times are great news for companies that have significant capital investments. Most of these companies planned on making those investments with or without a tax break, but all are welcome to the idea of using those investments to reduce their effective tax rate to zero. Charter’s acquisitions of Time Warner Cable and Bright House came with the understanding both systems needed substantial upgrades — spending Charter is using to offset taxes not just this year, but several years in the future.

The next least-taxed company was Kraft Heinz, which was taxed at -98.7%. Other big winners are AT&T (-98.36%), Comcast (-55.59%), and Verizon (-51.36%). AT&T and Verizon are frequent winners of an effective tax rate of 0.00% because of the substantial deductions available to both as a result of continually upgrading their highly profitable cellular networks.

“You’re giving it away… you are giving it all away!” — An unknown Wall Street analyst tossing and turning in the night.

America is simply not paying enough for wireless service. Thanks to dastardly competition introduced by T-Mobile and Sprint (potentially to be snuffed out in due course if their merger gets approved), wireless pricing is no longer a license to print money. Forced to offer one-size-fits-all affordable $40-50 unlimited plans, the prospects to grow Average Revenue Per User (ARPU) have never been worse because you can’t charge people for more service on an “unlimited plan” without admitting that plan is not exactly “unlimited.”

Wall Street analysts, already upset at the thought of carriers spending more than $100 billion on 5G network upgrades, are in a real tizzy about how companies are going to quickly recoup that investment. No matter that some wireless companies have profit margins in the 50% range and customers have paid providers for a service they were assured would keep up with the times and network demand. If there is to be a 5G revolution in the United States, some insist it must not come at the cost of reliable profits — so the industry must find a way to stick consumers with the bill.

It is not common for industry analysts to go public brainstorming higher prices and more customer gouging. After all, North Americans already pay some of the highest cell phone bills in the world, only mitigated (for now) by scrappy T-Mobile and Sprint. Mark Lowenstein, a leading industry analyst, consultant, and commentator, was willing to go public in the pages of Fierce Wireless, arguing “operators should be considering charging a premium price for what will hopefully be a premium service.” That is likely music to the ears of AT&T and Verizon, both frustrated their pricing power in the market has been reduced by credible competition from a significantly improved T-Mobile.

Lowenstein fears the prospects of a “race-to-the-bottom 5G price war” which could arrive if America’s wireless companies offer a credible home internet replacement that lets consumers tell the local phone or cable company to ‘take a hike.’ Since wireless operators will bundle significant discounts for those who subscribe to both home and mobile plans, telecommunications services may actually cost less than what Wall Street was banking on.

Something must be done. Lowenstein:

In mobile, there’s been premium pricing for premium phones. And Verizon Wireless, for a few years when it had a clear network lead, was sort of able to charge a higher price for its service (but not a premium price). But today, there isn’t really premium pricing for premium services. That should change when 5G really kicks into gear.

So how do you extract more cash from consumers’ wallets? Create artificial tiers that have no relationship to the actual cost of the network, but could potentially get people to willingly pay a lot more for something they will initially get for a simple, flat price:

One simple way would be a flat premium price, similar to the “tiers” of Netflix for a higher number of devices or 4K/Ultra HD.  So, perhaps $10 per line for 5G, or $25 for a family plan. Another approach would be more akin to broadband, where there are pricing tiers for different levels of service performance. So if the base 4G LTE plan is $50 per month today, for an average 100 Mbps service, 5G packages could be sold in gradations of $10 for higher speeds (i.e. $60 for 300 Mbps, $70 for 500, $80 for 1 Gbps, and so on). An interesting angle on this is that some of the higher-end 4G LTE services such as Gigabit LTE (and beyond) could get incorporated into this, so it becomes less of a 4G vs. 5G discussion and more of a tier of service discussion.

I would also like to see some flexibility with regard to how one can purchase 5G capabilities. For example, a user might only need those premium 5G features occasionally, and might only be prepared to pay that higher price when the service is being used. Here, we can borrow from the Wi-Fi model, where operators offer a “day pack” for 5G, or for a certain city, location, or 5G-centic app or experience. 5G is going to be hot-spotty for awhile anyway, so why not use a Wi-Fi type model for pricing?

Even better, now with net neutrality in the ash heap of history, courtesy of the Republican-dominated FCC, providers can extract even more of your money by artificially messing with wireless traffic!

Lowenstein sees a brand new world of “app-centric pricing” where wireless carriers can charge even more to assure a fast lane for those entertainment, gaming, and virtual reality apps of the future, designed to take full advantage of 5G. Early tests have shown millimeter wave 5G networks can deliver extremely low latency traffic to customers from day one. That kills the market for selling premium, low-latency add-ons for demanding apps before companies can even start counting the money. So assuming providers are willing to purposely impede network performance, there just could be a market selling sub-100ms assured latency for an extra fee.

The potential of a Money Party only 5G can deliver is coming, but time is short to get the foundation laid for surprise toll lanes and “premium traffic” enhancements made possible without net neutrality. But first, the wireless industry has to get consumers hooked on 5G at a tantalizingly reasonable price. Charge too much, too soon and consumers may decide 4G LTE is good enough for them. That is why Lowenstein recommends operators not get carried away when 5G first launches.

“We don’t want to be setting ourselves up for a WiMAX-like disappointment,” Lowenstein writes. “The next 12-18 months are largely going to be ‘5G Experimentation’ mode, with limited markets, coverage, and devices. Heck, it’s likely to be two years before there’s a 5G iPhone in the United States, where iOS still commands nearly half the market.”

The disappointment will eventually be all yours, dear readers, if Lowenstein’s recommendations are adopted — when “certain milestones” trigger “rate adjustment” letters some day in the future.

Lowenstein sees four signs to start the pillaging, and we’ve paraphrased them:

• Coverage: Wait until 30-40% of a city is covered with 5G, then jack up the price. As long as customers get something akin to 5G one-third of the time, they’ll moan about why their 5G footprint is so limited, but they will keep paying more for the scraps of coverage they get.
• Markets: Price the service differently in each market depending on how stingy customers are likely to be at different price points. Then hike those prices to a new “nationwide” standard plan when 5G is available in the top 20-30 cities in the country. Since there may not be much competition, customers can take it or leave it.
• Performance: AT&T and Verizon’s gotta gouge, but it’s hard to do it with a straight face if your 5G service is barely faster than 4G LTE. Lowenstein recommends waiting until speeds are reliably north of 100 Mbps, then you can let rip with those diamond-priced plans.
• Devices: It’s hard to extract another $50-100 a month from family plan accounts if there are an inadequate number of devices that support 5G. While your kids “languish” with 4G LTE smartphones and dad enjoys his 5G experience, mom may shut it all down when the bill comes. Wait until everyone in the family can get a 5G phone before delivering some good old-fashioned bill shock, just like companies did in the golden days of uncompetitive wireless.

These ideas can only be adopted if a lack of competition assures all players nobody is going to call them out for pickpocketing customers. Ajit Pai’s FCC won’t interfere, and is even subsidizing some of the operators’ costs with taxpayer dollars and slanted deregulation to let companies construct next generation 5G networks as cheaply as possible (claiming it is important to beat China, where 5G service will cost much less). Should actual competition remain in the wireless market, all the dreams of rate-hikes-because-we-can will never come true, as long as one carrier decides they can grow their business by charging reasonable prices at their competitors’ expense.