AT&T’s investment in U-verse expansion is expected to peak this year as part of its “Project VIP” effort to bring the fiber to the neighborhood service to more areas and offer faster broadband speeds to current customers.

AT&T is spending $6 billion over three years to broaden the footprint of U-verse, which now earns AT&T 57% of its total consumer revenues. In 2013, AT&T earned $13 billion in revenue from U-verse, up 28%.

AT&T’s investment in U-verse is dwarfed by the company’s efforts to benefit shareholders. In the last quarter of 2013, AT&T realized $6.9 billion in profits on revenue of $33.2 billion. For 2013, AT&T repurchased 366 million shares of its own stock for around $13 billion and paid out another $10 billion in shareholder dividends. Together, the total return for shareholders for the year was $23 billion and in the last two years AT&T achieved a new record benefiting shareholders with $45 billion in returns. In contrast, AT&T will spend just $6 billion on the current round of U-verse upgrades, with those markets left out likely pushed to wireless-only service if the company succeeds in winning approval to decommission its rural landline network.

Most of AT&T’s revenue growth is coming from its wireless business, particularly wireless data. After AT&T eliminated its flat rate plans, monetizing data usage has become very profitable — $23 billion per year and growing at 17% annually. Because increasing wireless usage forces customers to upgrade to higher cost plans offering more generous usage allowances, AT&T’s average revenue per customer increased by 3.9% — the highest in the wireless industry and the 20th consecutive quarter of customers collectively paying higher cell phone bills.

“The next steps are to make our networks even more powerful and layer on services that will drive new growth in the years ahead,” said AT&T CEO Randall Stephenson.

AT&T is counting on even higher customer bills as the company moves forward on several revenue-enhancing initiatives:

1. Moving an increasing number of customers away from subsidized handsets. AT&T Next allows wireless customers to get a new handset every year, but in return AT&T no longer subsidizes equipment purchases. Instead, most Next customers finance their current phone and will finance their next one, assuring AT&T of a constant revenue stream for equipment. AT&T expects to gradually move away from phone subsidies altogether;
2. Data plans for cars are forthcoming, as auto manufacturers install wireless capability in new vehicles. Many are signing agreements with AT&T that will make it easy for current customers to add vehicles to their existing plan, but customers of other carriers may find signing up for a new plan prohibitively expensive;
3. Internet-connected home security systems are getting a major marketing push in 2014 with advertising blitzes and other promotions. The alarm systems are connected to and use AT&T’s wireless data network;
4. AT&T customers are being pushed to wireless data plans with much higher data allowances than they need, delivering extra profits for AT&T with no impact on its wireless network;
5. AT&T wants to begin selling “sponsored data” services to companies willing to foot the bill for accessing preferred websites. AT&T calls it “toll-free data” but Net Neutrality advocates complain it monetizes data usage and establishes a unlevel playing field where deep pocketed companies can help customers avoid AT&T’s usage meter while others have to contend with customers worried about their data allowance.

[flv]http://www.phillipdampier.com/video/ATT Next – Get A New Smartphone Every Year from ATT Wireless 1-2014.flv[/flv]

AT&T explains its Next program, which lets customers upgrade to a new smartphone every 12 or 18 months. AT&T doesn’t tell you the plan is effectively a lease that benefits them by not having to pay a phone subsidy worth hundreds of dollars to discount a phone they will eventually refurbish and resell after you return it. AT&T Next, as intended, is an endless installment payment plan that never stops as long as you keep upgrading your phone. You also can’t leave AT&T until you pay your current phone off. (1:30)

A new way for AT&T to end phone subsidies.

Despite fierce competition from T-Mobile, AT&T so far has seen little impact from T-Mobile’s aggressive marketing. AT&T added 566,000 new contract customers in the last quarter and sold 1.2 million smartphones to its customer base. AT&T’s customer churn rate — the number of customers coming and going — remains very low despite T-Mobile’s latest offer to cover AT&T’s early termination fees to encourage customers to switch.

Stephenson says AT&T’s superior wireless 4G LTE network and its larger coverage area make customers think twice about taking their business to a smaller carrier.

In 2014, AT&T laid out these plans during its quarterly results conference call this week:

• U-verse will get an expanded TV Everywhere service allowing customers to view programming on smartphones and tablets inside their home and out;
• U-verse broadband speed enhancements should be available to at least two-thirds of customers, with speeds up to 45Mbps;
• LTE coverage expansion targets are expected to be ahead of schedule;
• AT&T will begin a “big effort” on network densification — adding overlapping cell towers and small cell technology in current coverage areas — to handle network congestion;
• AT&T will focus on improving its wired and wireless networks to prioritize video delivery;
• If approved by the government, AT&T will use its acquired Leap/Cricket brand for aggressive new no-contract plans marketed to customers with spotty credit without tainting or devaluing the AT&T brand;
• AT&T will use its agreements with GM, Ford, Nissan, Audi, BMW, and Tesla to offer AT&T wireless connectivity in new 2015 model year vehicles.

[flv]http://www.phillipdampier.com/video/Bloomberg ATT Latest Results Good 1-28-14.flv[/flv]

Bloomberg notes AT&T’s latest financial results are ahead of analyst expectations. Despite competition from T-Mobile, AT&T’s customer defection rate is at a historic low. (2:03)

Verizon FiOS expansion is still dead while cash cow Verizon Wireless will continue to get the bulk of Verizon’s attention this year, according to a top executive.

Verizon chief financial officer Fran Shammo delivered the latest quarterly financial results to Wall Street analysts Tuesday and had few specifics about how the Cadillac of wireless carriers will handle increasingly meddlesome competition from T-Mobile, which has torn up the comfortably profitable mobile industry’s business plan and threatened to launch an all-out price war.

Verizon Wireless remains a major earner for Verizon, delivering nearly $18 billion in revenue and $8.3 billion in adjusted profitability during the last quarter alone. Verizon is relying on the quality of its network to keep customers from bolting to less expensive competitors. This month, T-Mobile announced it was prepared to cover the early termination penalty of AT&T customers ready to switch. It’s only a matter of time before Verizon customers are treated to a similar offer and that worried investors enough to send Verizon’s share price downwards even though the company beat analyst’s earnings estimates.

Clues about Verizon’s game plan for 2014 became clearer as Shammo took questions and outlined the company’s strategy.

Wireless Will Get Most of Verizon’s Attention

Again this year, Verizon Wireless will get the bulk of Verizon’s attention and financial resources. Verizon Wireless finished 2013 with $81 billion in wireless revenue — up $5.2 billion from 2012 — which represents two-thirds of Verizon’s total earnings. The wireless business has delivered a profit margin of 49% or higher for five of the last seven quarters.

Where do the increased earnings and profits come from?

“Service revenue growth continued to be driven by more customers and devices, increase of data usage, and smartphone penetration,” said Shammo. “Our Share Everything Plans are doing exactly what we expected — driving device adoption and stimulating higher usage — resulting in increases in both the number of devices and revenue per account.”

Shammo said little about the spectrum shortages Verizon claimed were responsible for an end to unlimited use data plans in favor of usage-capped, consumption-based billing. On the contrary, Shammo admitted Verizon expects to grow average revenue per account and profits on the back of usage billing as customers boost wireless data usage and have to upgrade to higher-priced plans in the future. Shammo also noted the company’s restrictions on early upgrades and charging upgrade/activation fees have delivered more revenue to Verizon and deterred customers from phone upgrades, which saves Verizon money.

Verizon Wireless customer bills rose an average of 7.1 percent during the fourth quarter to more than $157 per month.

“We have seen consistent growth in this metric,” said Shammo. “For the full year, average revenue per account was up nearly $10 or 6.9%.”

Some of that increase is attributable to Verizon’s higher cost Share Everything plans, which often cost customers more than the plans they abandon.

Share Everything = a higher Verizon Wireless bill for many customers.

“In just 18 months more than 46% of our postpaid accounts are on these plans,” said Shammo. “In 2013 we effectively doubled the number of accounts on Share Everything from 8.1 million to 16.2 million.”

In the coming year, Verizon plans to spend up to $17 billion on network maintenance and expansion, but the bulk of it will be spent on the wireless side of the business. Verizon has again cut investment in its wired networks.

Shammo noted Verizon Wireless plans to repurpose some of its 3G spectrum to 4G LTE service this year, which cuts costs for Verizon while stimulating usage which will eventually force many customers into data plan upgrades.

“If you look at a 3G usage moving to a 4G, we know that — and we have seen it in our base — as soon as you get on the 4G with video consumption and the quality of video your usage goes up,” said Shammo.

Verizon FiOS Expansion is Still Dead

Verizon has no plans to expand its FiOS fiber network beyond the areas where the company previously signed franchise agreements several years ago. In fact, Shammo is already reallocating money that in years past targeted FiOS expansion, shifting it to Verizon Wireless.

Verizon’s FiOS expansion is still dead. No plans for further expansion in 2014.

Shammo added Verizon will continue upgrading to fiber and decommission its copper network within existing FiOS areas, pushing customers with traditional landline service to basic FiOS phone service.

For those bypassed by FiOS, Shammo indicated it will be business as usual for Verizon, still selling DSL and phone service. But he hinted that within three years, Verizon might be open to selling off wireline customers in non-FiOS areas if a company approached Verizon with a lucrative deal. Verizon is under increased regulatory scrutiny in states like New York where there is concern Verizon is diverting resources away from deteriorating landline infrastructure in favor of its unregulated wireless network.

Shammo admitted Verizon stepped back from competing as hard as usual with cable competitors during the third quarter, believing consumers don’t want installers in their homes during the holiday season. As a result, the number of new FiOS customers was down from October-December. But with recent rate increases and voluntary upgrades, revenue remains up. With less than one million potential customers in the FiOS footprint still waiting for the fiber network to arrive, Shammo was comfortable stepping back from promotions temporarily.

Verizon FiOS has been highly successful for Verizon’s wireline division, now representing about 73% of Verizon’s consumer revenue. More than half of Verizon’s FiOS customers have upgraded to FiOS Quantum Internet speeds, starting at 50Mbps. With that kind of success, what holds Verizon back from further expanding FiOS? Verizon’s current CEO Lowell McAdam comes from a Verizon Wireless background and seems preoccupied with the wireless business. Wall Street is also firmly against Verizon increasing investment in fiber when diverting that spending to high-profit wireless can earn a much faster, more lucrative return.

Those lucky enough to have FiOS will continue to see upgrades in 2014. Chief among them is a new proprietary router that will assure Wi-Fi service in the home more closely matches the broadband speeds customers are buying, up to 100Mbps or more.

Verizon’s Intel OnCue Acquisition Doesn’t Mean Online Cable Competition is Coming

Despite a piece in GigaOM suggesting Verizon’s acquisition of Intel’s OnCue technology was all about competing head-to-head with Comcast, Shammo downplayed any expectation Verizon was about to declare war on  that cable company or anyone else:

Shammo

As far as the OnCue acquisition, look, the focus here is really to accelerate the availability of the next-generation IP video service which we will integrate into the FiOS video service. And really what we are trying to do is differentiate this even more so with fiber to the home versus others with the TV offerings and reducing the deployment costs. And this really accelerates us from if we were trying to build IP TV versus buying the IP TV technology.

From an FiOS customer perspective, we expect the benefits that they will have more elegant search and discovery activity and cost stream ease of use. But also keep in mind, with the acquisition of Verizon Wireless and becoming 100% ownership of that we also plan to take that platform and integrate it more deeply with our Verizon Wireless 4G LTE network. So that really was the strategy behind this.

 Verizon Wireless Has Enough Spectrum for the Next 3-4 Years

Shammo told investors Verizon Wireless has plenty of wireless spectrum to meet customer needs for the next 3-4 years, but he did outline Verizon’s short-term plans on spectrum management:

As far as our portfolio, obviously we like the 700 megahertz for the coverage of the LTE that we did. AWS is our sweet spot at this point in time, which is the spectrum that we have been swapping for [with competing carriers], so we have a very efficient portfolio of spectrum and I think we have shown through the years that we are very efficient on how we use spectrum.

Keep in mind that, as I said, we will participate in the auctions because we will need more spectrum, but right now our current position is that with the AWS that we have and that we are launching in markets that you know in New York and San Francisco, Chicago we are lighting that spectrum up. It is pretty much completed in New York. We will continue to add to that, but keep in mind though too that we will also re-appropriate our 3G spectrum to 4G.

So we will take that PCS spectrum that has been running in our 3G network — as the volume of that network continues to decrease as we move more 3G phones to 4G, we will bring re-appropriate that spectrum over to the 4G LTE. So three to four years we are in very good shape from a spectrum holding position, but we will participate in the upcoming auctions.

AT&T today announced it was selling off its residential wireline network in Connecticut to Stamford-based Frontier Communications for $2 billion in a deal that includes an expanded license for U-verse TV that could eventually be available to Frontier customers nationwide.

Frontier will assume control of the Southern New England Telephone Co. (SNET), a wholly owned subsidiary of AT&T, and its 2,700 employees and 900,000 telephone lines. Included in the deal is AT&T’s U-verse network in the state and the right to expand U-verse TV into all 27 states where Frontier provides service. The deal comes three years after Frontier paid $8.6 billion in stock and cash to buy landline operations in 14 states from Verizon Communications.

In a Stop the Cap! exclusive story published last year, we reported Frontier was interested in acquiring licensing rights to the U-verse brand to potentially offer its customers a unified product suite of television, broadband, and phone service over a fiber to the neighborhood network. Maggie Wilderotter, CEO of Frontier Communications, told the Wall Street Journal the deal between AT&T and Frontier had been on the table for years waiting to be finalized. With today’s announcement, AT&T New England president Patricia Jacobs acknowledged Frontier will use the U-verse name at a secondary brand for video service. Frontier now relies on satellite reseller agreements to bundle video service into its packages for consumers.

Frontier’s acquisition will give the company hands-on experience with AT&T’s U-verse network in Connecticut and offer a path to bring improved service to Frontier customers elsewhere. Company officials also acknowledged a key reason for the transaction was boosting Frontier’s lagging dividend, a critical part of its share price. By taking on nearly 1,000,000 new customers, Frontier will boost its cash flow, returning some of that new revenue in a higher dividend payout to shareholders. But the company will take on an extra $2 billion in debt to manage higher dividend payouts.

JPMorgan Chase & Co. arranged the financing for the acquisition and Frontier will likely raise about $1.9 billion from debt markets by selling bonds. Frontier already has $8.13 billion in debt on the books, much of it acquiring landlines originally owned by Verizon.

AT&T’s departure from Connecticut was no surprise to analysts. AT&T operates most of its landline network in the midwest, south, and in the state of California. The company has focused primarily on serving business customers and its wireless network in the northeast, not residential landlines. Frontier described the deal as a perfect fit for Connecticut residents, because Frontier specializes in residential phone and broadband service.

“AT&T has been trying to sell its rural wireline businesses for some time,” Gerard Hallaren, an analyst with Janco Partners Inc., told Bloomberg News. “It looks to me like Frontier cherry-picked a nice asset at a nice price from AT&T.”

SNET began operations in 1878 as the District Telephone Company of New Haven and pre-dated the Bell System. The company founded the first exchange and printed the world’s first telephone directory. It remained independent of Bell System ownership until 1998, when SBC Communications (formerly Southwestern Bell) acquired the company. In late 2005, SBC purchased AT&T and AT&T Connecticut was born.

Over the past seven years, AT&T has watched customers decline from more than two million customers to fewer than one million. AT&T introduced U-verse to improve its position in the market to mixed results. The company’s investments in fiber upgrades have not been as profitable as its wireless network, likely leading to today’s sale.

AT&T says it is not leaving Connecticut altogether. The company plans to keep business and wireless customers in the state.

Much of the proceeds from the deal will be invested by AT&T in its wireless network, mostly to help pay for 4G LTE upgrades. The rest will be spent bringing U-verse to more customers in the midwest and southern U.S.

The acquisition faces regulator approval from both the Federal Communications Commission and Department of Justice, likely to be forthcoming in the first half of 2014.

Frontier executives promised shareholders the deal will result in $125 million in cost savings over the next three years — code language for layoffs. Some of them are likely to be among the 2,400 workers represented by the Communications Workers of America, which has had a contentious relationship with AT&T Connecticut over job cuts in the past.

Robocallers pitching extended auto warranties, home alarm systems, lowered interest rates on credit cards, and more are back in business, despite the “Do Not Call Registry” from the Federal Trade Commission designed to stop the junk phone calls.

Rogue telemarketing has gotten so out of hand, the very federal agency responsible to help stop the torrent of unwanted sales calls had to post a warning about telemarketers misrepresenting themselves as FTC agents on its own website.

The FTC acknowledges it has an uphill battle.

“Our law enforcement actions have already halted billions of robocalls, but with today’s technology, tens of millions can be blasted each day — at a per-minute calling cost of less than 1 cent,” said Federal Trade Commission official Lois Greisman, who oversees the National Do Not Call Registry.

Identifying violators has become increasingly difficult as scammers learn to fake (or ‘spoof’) call origination data that shows up on your Caller ID display.

“Dozens and dozens of spoofed numbers can be used per robocall campaign, and telemarketing scripts are shared as well,” says Greisman, explaining why you may get the same rip-off recording from different incoming numbers.

The most recent trick is to spoof a Caller ID number that appears local, increasing the odds you will pick up the phone. Instead of a family friend on the other end, it is a recorded pitch offering to refinance your mortgage.

A desperate FTC concluded it might be in over its head and launched a contest offering $50,000 and a trip to Washington, D.C. for anyone offering a better solution.

The winner: Nomorobo

Nomorobo is the idea of Steve Foss and it tied first place in the FTC Robocall Challenge.

The free service works with most Voice over IP phone lines (think Vonage or a phone line supplied by your cable operator), but has gotten a mixed reception from wireless carriers and landline giants Verizon and AT&T.

It works with a phone feature called “Simultaneous Ring,” which means when a person calls your number, Nomorobo’s “phone” is also ringing just long enough to collect Caller ID information to compare against its master-telemarketer list. If the number is a known phone spammer, Nomorobo intercepts the call and hangs up on the caller after the first ring. Your legitimate calls still arrive with no interference.

Some phone companies known to support Nomorobo, but not necessarily the only ones:

• AT&T U-verse
• Cablevision Optimum
• SureWest
• Time Warner Cable
• Verizon FiOS
• Vonage

Phone companies like AT&T and Verizon have so far refused to support the service for its landline and wireless customers.

After registering, Nomorobo will guide new users through the simple set up process step-by-step.

The system does not track your incoming calls nor does it monitor them. If an unwanted telemarketer does get through, a report option on the website will help get the unwanted caller’s number into the database.

Stop the Cap! has tested the service and found it effective in blocking about 75% of the unwanted calls that arrive in our office. Our phone rings just once — long enough for caller ID information to be passed — and when the system identifies a known phone spammer, it disconnects them. But the system is not perfect. Telemarketers can theoretically change their spoofed Caller ID number(s) to get around the call block, and we found Nomorobo’s database only as good as the crowdsourced data allows.

Nomorobo also won’t stop political or non-profit groups from calling, at least for now. Our second biggest problem — calls from collection agencies hounding the last owner of our phone number, also remain unaffected.

[flv]http://www.phillipdampier.com/video/KNXV Phoenix Block robocalls for free with new website 10-15-13.mp4[/flv]

KNXV in Phoenix explains Nomorobo to its viewers. The service works mostly with Voice over IP providers, which leaves a lot of AT&T and Verizon customers unprotected. (2:04)

AT&T shareholders concerned the company is risking its reputation and future profits by excessively cooperating with the National Security Agency have been told to mind their own business by company executives.

AT&T roundly rejected a resolution demanding greater transparency offered by New York Comptroller Thomas DiNapoli, who administers the $160.7 billion NYS Common Retirement Fund, which has investments in AT&T.

AT&T recommended the resolution be excluded from the ballot for AT&T’s annual shareholder meeting this spring, noting shareholders have no business getting involved in the “ordinary business operations” of AT&T, which are under the purview of company executives.

In his shareholder resolution, DiNapoli said there was a real issue of customer trust at stake for AT&T. Customers upset with AT&T could switch providers, hurting revenue.

But with Verizon also providing access to customer records, wireless customers may have few alternatives. AT&T also passes along information about non-customers whose calls happen to cross into AT&T’s extensive network.

In November, the New York Times found AT&T is well-compensated for monitoring and disgorging customer records to federal officials, earning at least $10 million annually. AT&T also has important business before the Obama Administration regarding the future of the landline telephone network, its multi-billion dollar wireless service, and its campaign for greater deregulation.

The news does not inspire confidence in Stop the Cap! reader Earl, who shared the story with us.

“With AT&T it’s always about the bottom line, even at the price of privacy.”