Northern Minnesota's Paul Bunyan Communications is threatened by FCC reforms that they claim favor larger phone companies.

Northern Minnesotans will have to wait longer for broadband after a telephone co-op announced it was suspending its $19 million broadband expansion project because funding is being diverted to more powerful phone companies like AT&T and Verizon — neither of which have any concrete plans to improve rural wired broadband.

Bemidji-based Paul Bunyan Communications, which serves 28,000 hearty Minnesota customers, has been working on broadband expansion for several years, bringing broadband to customers who have known nothing except dial-up since the Internet age began. Only now the project is threatened because of well-intentioned plans by the Federal Communications Commission to expand rural broadband, but in ways that cater primarily to larger phone companies that lobbied heavily for the changes.

At issue is Universal Service Fund reform, which plans to divert an increasing share of the surcharge all telephone customers pay away from rural basic phone service and towards broadband expansion in rural America.

Paul Bunyan used their share of USF funding to scrap the company’s existing, antiquated copper-wire network in favor of fiber optics. Other phone companies have traditionally used the money to keep their existing networks running. Now the independent phone company says large phone companies like Verizon and AT&T have successfully changed the rules in their favor, and will now benefit from a larger share of those funds, ostensibly to expand broadband to their rural customers.

Bissonette (Courtesy: MPR)

But neither AT&T or Verizon have shown much interest in rural broadband upgrades. AT&T, which recently announced it concluded its U-verse rollout in larger cities, has also thrown up its hands about how to deal with the “rural broadband problem” and plans no substantial expansion of the company’s DSL service.

Verizon also announced it had largely completed the expansion of FiOS, a fiber to the home service. Verizon has also been discouraging customers from considering its DSL service by limiting it only to customers who also subscribe to landline phone service.

Verizon Wireless has introduced a wireless home broadband replacement that costs considerably more than traditional DSL, starting at $60 a month for up to 10GB of usage.

As a result of the funding changes, Paul Bunyan is reconsidering plans to expand its broadband, phone and television services to Kjenaas and about 4,000 other residents in rural Park Rapids and a township near Grand Rapids.

It may also have to cut workers.

“It’s kind of ironic,” Paul Bunyan’s Brian Bissonette tells Minnesota Public Radio. “The mantra of these changes is to create jobs. It’s killing jobs.”

Minnesota Public Radio explores how rural Minnesota broadband is being threatened by a telecom industry-influenced plan to divert funding to larger companies like AT&T and Verizon for rural broadband expansion those companies have no plans to deliver. (May 23, 2012) (4 minutes)
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Cable "Digital Phone" Subscriber Numbers (Source: SNL Kagan)

Rick Munarriz has a bone to pick with Comcast after discovering his cable television and broadband service was out of commission.  It was the fourth prolonged outage in four weeks.  But the Comcast customer of more than a dozen years was surprised when he called the cable company and they immediately tried to sell him Comcast’s “digital phone” service:

[…] An otherwise cordial representative tells me that he’s looking into my account. I could save some serious money if I switch my landline to Comcast’s XFINITY Voice offering.

“If I did that, how would I be reporting this outage?” I asked.

“Don’t you have a smartphone?” he responds, not realizing that he has just killed his own sales pitch.

Who needs a landline when you have a wireless phone? Who needs a Comcast triple play — especially when I’m already dealing with two outs?

Although not losing customers as fast as traditional landline phone companies, cable-delivered phone service is no longer growing as fast as it once did.  Most companies picking up “digital phone” customers are winning them these days from product bundling, with aggressively priced triple-play packages of phone, Internet, and cable service.  Many of these packages include the phone line for less than $10 a month more than a double-play package of Internet and cable-TV.

SNL Kagan collects statistics from cable operators who pitch phone service and documents the highest growth in cable-provided phone service came during 2004-2009.  Now that growth has slowed.  Customers who were willing cut their landline phone off in favor of a cell phone don’t need wired phone service from the cable company either.

It seems Comcast is willing to admit the same, even when pitching its own phone product.

Years ago, phone companies could not simply raise rates willy-nilly.  They had to justify rate increases before an oversight body, usually on the state level.  But after spending millions to lobby state lawmakers to deregulate the phone business, AT&T is set to recoup their investment with a dramatic 25 percent rate increase for landline phone service in the state of California.

Some residential customers have kept basic landline service as a last resort, switching to “measured service,” where customers pay a small charge for every call they make or receive a calling allowance that covers several calls a day.  Measured service can deliver substantial savings over traditional flat rate service.  But now AT&T is targeting these “budget customers” for some stunning rate hikes.

Starting March 1st, AT&T is raising rates by nearly 25% for measured service — from $12.37 to $15.37 a month — a $3 increase.  After your calling allowance is exhausted, each additional local call will cost three cents per minute.

Customers with flat rate service will also pay AT&T $1.05 more — $21 a month (before taxes, fees, and surcharges) for basic flat rate, unlimited local calling.

Best of all (for AT&T), the company does not have to explain or justify the rate increase.  That attitude was evident when reading the Los Angeles Times‘ account of the rate hike, complete with an arrogant, shoulder-shrugging AT&T spokesman:

Lane Kasselman, an AT&T spokesman, said fees for measured and flat-rate calling plans are going up because, well, because.

“Goods and services go up,” he told me. “That’s how our economy works.”

The increase is expected to hit seniors and low income consumers the hardest — they are the biggest constituency of the 10 percent of AT&T customers who choose measured-rate, budget service.  They are also the least likely to have cut the cord on their traditional landline service in favor of a cell phone or competing Voice Over IP provider.

AT&T hints that the rate increase is partly to push customers into multi-service bundles that include phone, Internet, and television service.  By hiking the price of individual services, the bundled price suddenly seems to deliver the best “savings” for customers.

Critics call that price pumping — artificially raising the price of a-la-carte services to create phantom savings for the company’s higher-revenue bundled service packages.

A San Francisco advocacy group calls it something else.

“It’s extortion, pure and simple,” said Regina Costa, telecom research director for the Utility Reform Network, or TURN, a consumer group. “There’s no proof that these price increases are justified.”

Thanks to California’s deregulation of the landline phone business, no proof is required.

Wall Street is encouraging Verizon Communications to sell off its landline telephone operations to clear a path for a potentially-profitable merger with British mobile phone company Vodafone Group Plc.

Analysts at Goldman Sachs Group are behind the research report, which suggests Verizon’s recent non-aggression treaty with Comcast and Time Warner Cable makes the sale of Verizon’s landline phone and FiOS fiber to the home network more likely. Verizon will earn a percentage of every cable TV/phone/broadband subscription sold, effectively making Verizon’s own wired network redundant. Potential buyers could include Frontier Communications, CenturyLink, or Windstream, which all have business plans that depend on landline networks fewer Americans are using.

Should Verizon clear away its legacy landline and FiOS networks, Goldman Sachs suggests, a merger with Vodafone would be a “clear fit” for the two companies.

“The remaining wireless and enterprise businesses would have faster growth and a clear fit with Vodafone’s assets and strategy, making it a more attractive merger partner,” Bloomberg News quotes from the report.

“Given that it no longer faces the threat of integrated cable competitors, Verizon could potentially spin off its remaining [landline] assets,” along with “large” pension and benefit liabilities, the Goldman analysts added.

Verizon would also eliminate its ongoing dispute with the two largest unions representing its landline workers — Communications Workers of America and the International Brotherhood of Electrical Workers.  Both unions are still trying to negotiate a new contract with Verizon after a brief, but contentious, summer strike. Verizon Wireless is almost entirely non-unionized.

Vodafone’s share price has been rising recently, perhaps anticipating a potential merger that would give Vodafone a stronger hand in the U.S. marketplace.

Verizon’s investment in its landline network, along with interest in expanding its well-regarded FiOS fiber to the home service, has remained stalled for the past few years.  Recently, the company indicated an interest in moving away from fiber optics to serve broadband customers, and rely on its wireless LTE 4G network instead.

Verizon’s new CEO Lowell McAdam comes from Verizon’s wireless division, and has not shared his predecessor’s enthusiasm for fiber upgrades.

Merger Partner?

While the prospect of an all-wireless future for Verizon may seem good for shareholders, consumers are likely to pay the price:

1. The Justice Department is reviewing the antitrust implications of the non-aggression treaty between Verizon and its cable competitors;
2. The sale of Verizon’s landline network to an independent provider could doom the company’s fiber optic network and limit rural Verizon customers to 1-3Mbps DSL;
3. Verizon Wireless’ prices reflect its market share and lack of strong competition.  The company’s LTE wireless network, although fast, has suffered from reliability problems and is heavily usage-limited.  It may prove unsuitable as a home broadband replacement for rural customers;
4. Reduced competition for telephone, video, and broadband will likely result in higher prices for existing cable subscribers, too.

Verizon is hardly the first phone company to ponder getting out of the phone business.  AT&T has been lobbying to rescind rural universal service requirements for years.  If successful, AT&T could abandon its rural landline network and provide customers with higher-priced cell phone service instead.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CWA Parody of Verizon Video.flv[/flv]

Verizon’s unionized workers are still fighting for a new contract, and released this parody video in response to a company-produced DVD mailed to union workers’ homes.  (3 minutes)

The Great Plans Communications Company has taken to notifying their customers about the growing problem of rural phone calls that never go through.

Rural Americans in 37 states are experiencing unprecedented problems making and receiving telephone calls on their landline phones.  The problem has grown so much, the Federal Communications Commission has announced it will investigate the 2,000 percent increase in complaints from customers who are fed up with bad phone service.

In a Stop the Cap! special report published this week, we shared details about the deteriorating landline networks owned by AT&T and Verizon.  But the problem extends beyond those phone companies, and is causing more than a little inconvenience for affected customers.

Hospitals report they are increasingly unable to reach rural patients and 911 emergency call centers say a growing number of emergency calls are not getting through.  Callers assume the problem isn’t with their landline telephone company, but with the hospital or 911 call center.

In response, the FCC has created the Rural Call Completion Task Force to investigate delayed, uncompleted, or poor quality calls.

“It’s not only an economic issue, it’s a public safety issue,” said Jill Canfield, the director of legal and industry at the National Telecommunications Cooperative Association.

In parts of Minnesota, problems are not limited to local dial tone service, but also extends to long distance calling.

Members of the Minnesota Telecom Alliance, which represents rural phone companies in Minnesota, discovered growing problems completing calls nearly a year ago.  Customers would dial numbers and be met with silence or uncompleted call intercept recordings.  Other customers, especially in area codes 320 and 218 couldn’t hear or be heard by the other calling party.  Other calls sounded like they were made underwater.

Phone companies also dealing with frustrating long distance problems have taken to their blogs to alert customers.  Great Plains Communications is one example:

For a while now, we’ve been aware of a particularly frustrating situation affecting rural telephone customers around the country.

Across the country, residents of rural communities are unable to receive long distance phone calls or are receiving calls of poor quality due to incomplete or blocked long distance calls. The issue affects landline, toll-free and wireless long distance calls.

So what’s the reason for this? Well, in the U.S., phone calls are carried on a network of phone lines that may be owned by a wide range of companies who charge a fee to carry long distance calls. To cut costs, some long distance companies attempt to use the lowest cost route available even if that route includes providers who aren’t capable of providing good call quality or even completing the call.

The result is thousands of dropped calls or calls with almost no sound quality occurring across the nation. Additional problems that customers have experienced are:

• The caller hears ringing but the receiving party hears nothing.
• The caller’s phone rings, but then hears only “dead air” when the call is answered.
• The call takes an unusually long time to place.
• Garbled, one-way, or otherwise poor call quality on completed calls.
• Callers receive odd or irrelevant recorded messages.

Investigators examining the problem confirm that company’s suspicions that fierce cost-cutting has a lot to do with the problem, especially as phone companies try and save money using cheaper Voice Over IP technology.  While most of the problems seem to afflict long distance calls (and the carriers that handle them), local phone companies like Windstream are also being targeted in the review.

A decade ago, consumers chose their long distance provider.  But today’s bundled service packages often include unlimited long distance, using the phone company’s preferred provider.  Some long distance calls are routed over the least expensive route, even if call quality suffers.

What particularly provokes customers are quality reductions coming at the same time companies like Windstream are raising prices in states like Minnesota.

Windstream defends its network and says it isn’t to blame for the problems.

“The fault is not in our network and not in our system,” Windstream spokesman Scott Morris told the SCTimes. “We do feel like we’re providing high-quality service … in what we can control and fix.”