Cuomo

New York’s telecommunications providers are up in arms over Gov. Andrew Cuomo’s decision to yank permanent deregulation for the “digital phone” industry (otherwise known as “Voice Over IP/VoIP”) from his budget, even though the phone service is already deregulated in New York.

Now Verizon Communications and Time Warner Cable are claiming that without the deregulation they already enjoy, innovation, investment, and competition will be stifled.

“Verizon is very disappointed that New York’s lawmakers, who want the public to believe that New York is open for business, will not be acting on this important measure to modernize the state’s outdated telecommunications laws in this year’s budget,” Verizon spokesman John Bonomo told the Albany Times-Union.

“It’s about new technologies, it’s about new services,” echoed Rory Whelan, regional vice president of government relations for Time Warner Cable. “We want New York to be at the forefront of where we roll out our new products and services.”

That notion has left consumer groups and telecommunications unions scratching their heads.

“They are saying that this is going to open the flood gates to more investment,” said Bob Master, political director for one chapter of the Communications Workers of America, which represents Verizon workers. “It’s ridiculous.”

Master says Verizon has been abandoning and ignoring their landline network for years, preferring to invest in Verizon Wireless and its limited FiOS fiber-to-the-home service which is available in only selected areas of the state.

New York’s Public Service Commission has largely not regulated competing phone service since Time Warner Cable first introduced the service as an experiment in Rochester.  As part of then-Rochester Telephone Corporation’s (now Frontier Communications) “Open Market” Plan, competing telephone companies could offer landline service in the company’s service area, so long as Rochester Telephone received the same deregulation benefits.  Only the cable company showed serious interest in providing home phone service, which it first delivered using traditional digital phone switches phone companies like Verizon and Rochester Telephone use.  Time Warner later abandoned that service for a VoIP alternative it branded as “digital phone.”

Time Warner’s “digital phone,” as well as Verizon’s own VoIP service sold with FiOS, have co-existed regulation-free.  Consumer advocates suspect the push to deregulate could eventually benefit Verizon more than cable operators, because it gives the phone company the right to question why any of its telephone services are regulated.  Verizon’s FiOS fiber-based phone lines do not operate on the same network its still-regulated landlines do.  Verizon, along with all traditional phone companies in New York, are subject to “universal service” guidelines which assure even the most rural New Yorkers have access to reliable telephone service.

But Verizon, like most traditional phone companies, sees substantial investment in “modernizing” legacy copper-based networks as an anachronism, especially as they continue to lose customers switching to cheaper cable providers or wireless phones.  The company recently declared its fiber optic replacement network, FiOS, at the end of its expansion phase.  That leaves the majority of New Yorkers with a copper-based telephone network companies only invest enough in to keep functioning.

Diaz

Bronx Borough President Ruben Diaz, Jr., joined many New York Assembly Democrats in strong opposition to the bill, which Diaz thinks undercuts New York consumers:

If this proposal were to become law, all consumers would lose out. For starters, customers would not be able to bring service complaints to the Public Service Commission, as they currently can with traditional service. Additionally, there would be no way for the state to set standards for quality or for service in underserved regions — meaning that customers could get stuck with exorbitantly high rates or be unable to obtain service at all in some areas of the state.

Verizon FiOS, one of the main options for VoIP coverage, has now been installed in many regions of the state, including most of downstate. However, Verizon has chosen not offer the service in upstate cities like Albany, Binghamton, Buffalo, Rochester, Syracuse and Utica. The result is both a virtual monopoly for the cable companies in those areas and another blow to lower-income working families who live in cities. That’s precisely why the state should be able to guarantee common sense regulations for VoIP service.

The problems with deregulating VoIP service are multifold. While traditional phone companies pay into a fund that supports “lifeline” phone access for elderly and disadvantaged New Yorkers, VoIP providers would not have to. We do not have to guess at how things would look if the state gives up its right to regulate internet phone service — we can just look at the states where traditional land line service has been deregulated. According to a recent survey of 20 states that have seen land line deregulation, 17 of those states have seen rate increases. We simply cannot afford that, particularly when our fragile national recovery is just beginning to take hold.

Verizon appears undeterred by the governor’s decision to pull the deregulation measure from consideration in his budget measure.  Bills to deregulate continue to float through the Republican-controlled Senate and Democratic-controlled Assembly, but New York’s legislature is notoriously indecisive and slow to act.  Time Warner’s Whelan believes the best chances for the deregulatory measure will be in the GOP-controlled Senate where a similar bill passed last year.  Verizon says it will continue to push for the bill in both chambers.

“We intend to continue pushing for this important measure, and for other measures that will benefit the state’s consumers and businesses to keep up with technological change and help the state thrive and succeed,” Bonomo said.

Bell Canada Enterprises, Inc. announced Monday it extended its Fibe Internet and television service to most parts of Quebec City.

Unlike in most other Fibe-enabled Canadian cities, Bell’s network in Quebec City offers true fiber to the home service, not a combination of fiber to the neighborhood/copper wire.  That means increased broadband speeds — downloads up to 175Mbps and uploads of up to 30Mbps.  Quebec City was selected for true fiber service because of of the predominance of overhead aerial wiring, which is much easier and cheaper to replace with fiber than underground wiring.  For other major Canadian cities like Montreal and Toronto, Bell has made do with a lesser network that combines fiber and existing copper phone wiring that offers lower capacity for broadband and video services.

Bell says Fibe is now open for business in the region’s boroughs of Quebec, Beauport, Sillery, Ste-Foy, Cap-Rouge, Charlesbourg, L’Ancienne-Lorette, Loretteville, Sainte-Therese-de-Lisieux and Montmorency.  Service for Levis is expected shortly.

The company says it intends to reserve additional fiber to the home service primarily for multi-dwelling units and new housing developments in Ontario and Quebec, primarily between Windsor in the west and Quebec City in the east.

The company’s aggressive deployment of fiber is an effort to stem landline losses in eastern Canada.  Between cell phone providers and cable companies like Rogers, Cogeco, and Quebecor’s Vidéotron Ltee., Canadians have been hanging up permanently on Bell landlines at an alarming rate for the company.

Dvai Ghose, analyst at Canaccord Genuity told his clients, “Bell is now reporting amongst the worst residential line losses in North America.”  In the last quarter alone, 90,000 Bell customers said goodbye, perhaps permanently.

Bell has lost more than 1.2 million customers in the last two years.  Even Fibe may not be enough to stem the losses.  Canadians are not excited by the company’s video or broadband services, adding only around 27,000 new customers in the last quarter.  Bell’s notorious love of Internet Overcharging schemes like usage caps may be partly responsible.  The company enjoys a poor reputation among Internet enthusiasts for its wholehearted support for usage-limiting Canada’s online experience.

Financial analysts believe aggressive deployment of Fibe may be critical to the company’s long term survival.  Not only must Bell compete with a trend towards wireless phones, it has cable competitors selling triple play packages of phone, Internet and television service at prices that are frequently lower than what Bell charges.

Fibe is expected to be expanded to include the entire island of Montreal and some of the surrounding region by the end of 2012.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bell Entertainment Fibre Internet and TV in Canada.flv[/flv]

An extended length introductory commercial for Bell Canada’s Fibe TV and Internet.  (6 minutes)

Sen. Paul Hornback (R-AT&T)

A Kentucky state senate panel on Tuesday approved a bill admittedly-authored by AT&T that could allow the company to abandon providing basic telephone service in areas deemed not sufficiently profitable.

Senate Bill 12 is just the latest effort by AT&T to end “Universal Service,” the basic principal that all Americans should have equal access to basic landline telephone service.

The proposed legislation would allow the three largest phone companies in Kentucky — AT&T, Windstream, and Cincinnati Bell to abandon customers who, in one possible scenario, do not agree to a more deluxe feature package that includes long distance calling, wireless service, and/or broadband.

“This bill represents a grave threat to continued, stand-alone, basic telephone service for many Kentuckians who don’t have the luxury of access to Twitter and all the things that we in urban areas tend to take for granted,” Tom FitzGerald, director of the Kentucky Resources Council told the Lexington Herald-Leader.

AT&T says allowing it the right to terminate rural landline service would “spur innovation and create jobs.” It would also strip Kentucky of its power to investigate and force resolutions of consumer complaints.

The optics of the bill’s primary sponsor, Sen. Paul Hornback (R-Shelbyville/AT&T), sitting next to the two AT&T executives who authored the bill as he testified before the Senate Committee on Economic Development, Tourism and Labor was not lost on the bill’s opponents.

“It’s obvious who he is really working for,” said our regular Kentucky reader Paul in Louisville.

Daniel, the Stop the Cap! reader who first shared the story with us, is not happy either.

“This infuriates me,” he writes. “If AT&T gets their way, they will have less reason to invest in areas that are underserved or not served at all, and allow them to further push people to their horrific cell service.”

Daniel barely gets DSL from AT&T — 3Mbps if he’s lucky, and most of his neighbors cannot get any broadband from the company because they don’t officially service the area with broadband.  Daniel suspects once AT&T is deregulated further, they will have even fewer reasons to focus on less-populated regions of the state.

Hornback: "Nobody knows better than AT&T what the company needs the legislature to do for it."

“AT&T is my only reliable option – and if I can’t keep their Internet service then I will lose my job,” he says.

In 2006, AT&T helped push through a deregulation measure that stripped the Kentucky Public Service Commission of its ability to oversee prices for telecommunications services in the state. Customers of both AT&T and Cincinnati Bell soon saw price increases after the legislation passed with arguably no improvement in service.

Hornback argues S.12 will help “modernize telecommunications in the state of Kentucky,” without explaining exactly how abandoning customers enhances their level of service.

AT&T says they will not completely exit rural Kentucky if given the power to disconnect its landline network.  It can sell rural customers AT&T cell phone service instead. Critics say that comes at a substantially higher price and offers only limited broadband.

Hornback defended that, suggesting the company is wasting money and resources keeping its current antiquated landline facilities when it might be better spending that money on wireless services.

But customers would face charges starting at nearly $40 a month after taxes and fees for a basic AT&T wireless plan with as few as 200 calling minutes a month.

Hornback got around initial opposition to an earlier measure he introduced — SB 135, by reintroducing essentially the same measure inside another unrelated bill.  Hornback said that was an effort to give the legislation “a fresh start” in light of heated criticism from consumer groups, the AARP, and even Kentucky businesses.

The committee voted 9-1 for Hornback/AT&T’s measure and sent the bill forward to the Senate floor.  The single “no” vote came from Sen. Denise Harper Angel (D-Louisville).

Phone companies in Kentucky

AT&T’s clout in the state capital is unparalleled according to the newspaper:

It employs 31 legislative lobbyists, including a former PSC vice chairwoman and past chairs of the state Democratic and Republican parties, spending about $80,000 last year on legislative lobbying. Its political action committee has given at least $91,000 in state political donations since 2007.

Remarkably, Hornback defended AT&T’s authorship of his bill that would directly benefit the company’s interests.

Nobody knows better than AT&T what the company needs the legislature to do for it, Hornback said.

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

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

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

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

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

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

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

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

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

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

Morningstar notes the company’s debt problems are significant:

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

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

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

10-digit dialing is a nuisance in Canada too, where British Columbia and Alberta customers were told to dial the area code for every call.

Verizon FiOS’ “digital phone” product is a far cry from Verizon’s traditional landline service.  Some central New York customers now getting hooked up to the fiber-to-the-home service report they are frustrated because they have to dial an area code for every phone call, even those to friends and neighbors right next door.

Verizon told WSYR-TV that unlike traditional landline service based in your neighborhood, Verizon FiOS phone service is, in fact, a nationwide Voice Over IP (VOIP) service, and uses servers across the country to process phone calls.  Although many traditional VOIP services have since learned ways around the area code limitation, Verizon has not made a similar effort to allow customers to pre-designate an area code.  That would permit Verizon’s servers to assume any seven digit number dialed was within a particular area code and complete the call accordingly.

Instead, Verizon advises customers to learn how to use the included “speed dial” feature to make dialing more convenient.

Verizon’s competitors, including companies like Comcast and Time Warner Cable are quick to point out seven digit dialing is available from them, except where multiple overlaid area codes in the same geographic area exist.  So far, parts of western and central New York have endured area code splits, but for now each service area maintains just a single area code.

[flv width=”400″ height=”290″]http://www.phillipdampier.com/video/WSYR Syracuse Dialing area code for Verizon FiOS 1-25-12.mp4[/flv]

WSYR in Syracuse answers viewers’ suggested stories.  Today, it’s about why Verizon FiOS customers are forced to dial 10 numbers for every phone call.  (1 minute)