Stop the Cap! has received information from customers and anonymous employees that Verizon Communications is allegedly attempting to pressure seasonal residents in the rural Catskill Mountain region of upstate New York to give up their landline phone service in favor of the company’s wireless alternative, Voice Link, in potential violation of an order from the New York Public Service Commission limiting its deployment to sections of Fire Island.

Two Verizon customers who own vacation property in the mountainous region of upstate New York in and around Monticello separately contacted Stop the Cap! after doing online research on the wireless product Verizon representatives attempted to sell them.

Both reported they were pressured by Verizon’s service/repair department to accept the landline alternative after attempting to reconnect their seasonal telephone service. In one case, a customer had to call Verizon three times to attempt to reconnect her disconnected phone line after a missed appointment.

“They wanted nothing to do with coming out here to put my old phone line back in service,” says the customer, one of two we have been asked to leave unidentified in light of certain forthcoming legal proceedings. “I got transferred twice and finally ended up talking to someone pushing something called Voice Link.”

The customer tells us she never heard of Voice Link and Googled information about it, ending up on Stop the Cap!’s website which has maintained ongoing coverage of the product’s introduction on Fire Island.

“I called them back and told them they must be mistaken because I don’t own property on Fire Island and they told me it was no mistake and that they were preparing to distribute Voice Link all across the area and I was lucky to be among the first before they ran out,” the customer tells us.

The second customer, who has since taken his complaint to the Attorney General of New York, claims he was offered the same service from Verizon a week later.

“When I called to get my dial tone back, Verizon transferred me to a special repair representative who wanted to install Voice Link instead,” he tells us. “It was explained I would be better off with Voice Link and would get more calling features for less money and get national calling, free voicemail, and all of these other extras.”

The customer tried to turn the offer down, but Verizon made it difficult to refuse.

“You really had to argue with them and say no at least a dozen times,” our reader tells us. “The reason I said no is that I tried that same type of service from Verizon Wireless and it sucked. I raised my voice and they finally agreed to reconnect my phone.”

We have also received e-mail from individuals claiming to be Verizon employees represented by the Communications Workers of America indicating Verizon delivered a large shipment of Voice Link units for deployment in the Catskills, despite the fact Verizon is apparently not authorized by the PSC to offer the service to customers outside of the western half of Fire Island, and only on an interim basis.

Verizon’s use of Voice Link in upstate New York will almost certainly raise questions with regulators who negotiated the agreement with Verizon over the limited use of Voice Link during its evaluation, especially if customers report they were not offered the service only as an option.

If the allegations are true, Verizon may be signaling its confidence it will succeed adopting Voice Link as a mandatory rural landline replacement in parts of New York State and isn’t waiting for final approval from the PSC.

Verizon’s Jarryd Gonzales denied Verizon is responsible for any wrongdoing, noting nothing in the PSC’s Fire Island proceeding restricts Verizon’s ability to offer Voice Link service as an option, which he confirmed the company was doing in Monticello. (See PSC order here, reference page five: “Finally, the amendment will not apply in areas where Verizon offers the alternative wireless service as an optional service [i.e., traditional wired facilities are still in place].”)

“Verizon’s VoiceLink is an innovative and proven product that already is providing quality and reliable voice telephone service to residents of Fire Island and other areas,” Gonzales tells Stop the Cap! “It is a repair option for our customers who have had continued and lingering difficulties with their copper-based telephone service.  It uses wireless technology which has proven to be resilient, and which millions of people use millions of times each day.”

[Update 4:25pm ET]

The New York Attorney General’s office has announced they have filed an Emergency Petition with the New York Public Service Commission to prohibit Verizon from “illegally installing” Voice Link service in direct violation of its tariff.

Attorney General Eric Schneiderman has asked the Commission to sanction Verizon for its actions detailed in this formal complaint:

The Attorney General’s Office has recently learned that Verizon intends to require customers outside of the Fire Island pilot area seeking to have their wireline service installed accept instead wireless Voice Link service, notwithstanding the Commission’s May 16 Order. According to reports by representatives of the Communications Workers of America, Verizon has delivered a pallet load of Voice Link devices to its Monticello Installation/Maintenance Center, and has instructed its technicians in that region to provide summer seasonal customers returning to Catskill vacation homes, who have long been received Verizon wireline service, only Voice Link service.

The union’s report is corroborated by two complaints of Verizon seasonal customers who have been told Voice Link will be installed instead of repairing their wire line telephone service. Only by firmly refusing Voice Link were both customers able to keep their wireline service.

Unlike Fire Island, wireline network damage from Superstorm Sandy cannot be used as an excuse for substituting Voice Link for wireline service in the Catskills, where the storm had limited impact. Instead, it appears that in the Catskills, Verizon has chosen to pursue the company’s business strategy in blatant disregard for the Commission’s Order.

The Commission’s May 16 Order could not have been clearer in limiting Verizon’s substitution of Voice Link for wire line service to western Fire Island, to enable evaluation of this unproven technology on a pilot basis.

Verizon’s provision of Voice Link outside the confines of western Fire Island is illegal, and its open defiance of the Commission’s May 16 Order must be met with effective sanctions.

[Update 4:33pm ET]

[Article further updated at 5:17pm ET to include statement from Verizon Communications.]

Last week, Verizon’s Tom Maguire responded to some of our earlier coverage about Verizon’s decision to abandon landline service on portions of Fire Island devastated by last fall’s Hurricane Sandy. We have received several complaints from readers about our decision to grant space to Verizon to present their views without reciprocation. While we understand those concerns, Stop the Cap! believes readers deserve both sides of a discussion that AT&T and Verizon will soon seek to have with customers across many of their rural service areas. For that reason, we invited Verizon’s participation. This is our response:

Raise your hand if you want Verizon’s Voice Link to replace your traditional telephone service and lose your only wired broadband connection.

Almost no one has. Despite the arguments from Verizon Communications and AT&T that wireless is the answer to troublesome copper wiring and maintaining rural telephone service, dozens of Fire Island, N.Y. customers have been sufficiently provoked to file comments with state regulators, making it clear they want no part of the loss of their landline and its accompanying, affordable broadband service. In more than 135 public comments with the Public Service Commission at press time, Stop the Cap! could only find one comment from a Fire Island resident who had no issues with Verizon’s wireless landline replacement. He was upset Verizon had not wired a nearby yacht club for broadband service.

Both AT&T and Verizon have publicly advocated that rural customers would be better served moving from traditional wired landline service to their respective wireless 4G LTE networks. AT&T characterizes it as “an upgrade” that switches customers to an “all IP” 21st century network. Verizon has been less bold in its public policy statements, framing its position mostly in economic terms  — does it make sense to invest large sums to upgrade or repair damaged infrastructure that serves a relatively small number of customers?

Until recently, customers have been free to make the choice between a landline and wireless service themselves. Now, the residents of Fire Island and some barrier islands off the coast of New Jersey have a very different choice: They can accept Verizon’s Voice Link landline replacement, sign up for cell service that has proved troublesome in both areas, or give up phone service altogether. Verizon has made it clear it is not prepared to replace the destroyed infrastructure on portions of the islands, it will not invest in major upkeep and repairs to network facilities that may have been compromised but are still functioning for now, and will likely never offer its fiber FiOS network in the affected areas.

Stop the Cap! has expressed repeated concern that the decision to abandon wired infrastructure in favor of wireless is based primarily on profit motives, is short-sighted, and represents a downgrade in the quality of an important, regulated utility service, particularly in rural and out-of-the-way places that have few, if any alternatives. Fire Island is shaping up to argue our case, based on the testimony of those actually living and working on the island.

Customers Don’t Want the ‘Solution’ Verizon is Offering

Voice Link is not proving a welcome permanent resident on Fire Island for many customers.

The reasons are clear: inadequate wireless service is common on the island, Voice Link does not perform or sound as good as the landline it replaces, and Verizon’s wireless broadband alternative will cost many residents their unlimited-use DSL service in favor of a wireless capped option that could cost more than $100 a month.

Verizon’s strongest argument is that landline service has fallen out of favor in the United States, with customers increasingly disconnecting home phones in favor of cell phones. If Verizon’s statistics are correct, 80 percent of the voice traffic on the island is already handled by Verizon Wireless. (Verizon does not specify if that traffic comes from permanent residents or temporary visitors, a point of contention with residents.)

Maguire was very careful to limit Verizon’s advocacy of Voice Link in terms of its capacity to handle voice calls. That is because Voice Link is currently incompatible with a whole range of important services that have worked fine with traditional landlines for years.

Maguire’s words are important: “Verizon’s commitment is to provide our customers with voice service,” — the kind you had in the late 70s. Voice Link fails faxing, home medical monitoring, home alarm systems, dial-up service, credit card transactions, and home satellite equipment that connects to the telephone network.

Voice Link is no upgrade for Fire Island. It represents turning back the clock, especially for broadband customers.

Maguire claimed in his editorial the company was only considering Voice Link for the universe of customers where the copper network was not supporting their requirements, with the exception of Sandy-impacted Fire Island and some New Jersey barrier islands. But that does not tell the whole story. In a filing with the New York State Public Service Commission, Verizon makes it clear it intends to introduce the same solution in other parts of New York:

It also seeks to deploy Voice Link in other parts of the State, both as an optional service in areas where the company also offers tariffed wireline local exchange service, and (subject to the Commission’s approval) as a sole service offering in particular locations and circumstances.

While Verizon has sought to appease regulators by volunteering to offer an equal level of service for the same or less money, there are questions about whether a regulator has any oversight authority over Voice Link.

“It is a remarkable concept in utility regulation that a regulated utility may determine that costs are unreasonable and as a result choose to provide alternative, and potentially unregulated service to affected customers,” said Louis Barash of Ocean Beach. “Verizon proposes to permit the PSC to regulate that activity, but it is not clear that the Commission has such authority. And it certainly isn’t clear that the Commission would have any authority to reverse its decision, or otherwise to sanction the company, if Verizon failed to comply with its undertakings.”

Broadband & Competition Matters: Forcing Customers Off Unlimited DSL in Favor of Near-Exclusive, Usage-Capped, Verizon Wireless Broadband

Offering broadband is a vital part of any telephone company’s strategy to add and keep customers. Yet Verizon’s DSL customers on the western half of Fire Island will have their broadband service canceled unless wired service (copper or fiber) is available. Verizon’s only alternative is a usage-capped, prohibitively expensive Verizon Wireless mobile data plan that may or may not perform well on the signal-challenged island. There is literally nowhere else for customers to go.

Verizon’s own statistics confirm none of its wireless competitors handle significant traffic on and off the island.

Maguire: “A multimillion dollar investment with no guarantee that residents of the island will even subscribe to our services makes no economic sense. In fact, that’s probably why Verizon is the sole provider on the island. None of the companies we compete with in other parts of New York offer services on the island.”

Maguire’s evidence:

“The company discovered that 80 percent of the voice traffic was already wireless.  If other wireless providers were factored in, it is likely that the percentage is closer to 90 percent.”

That means Verizon’s wireless competitors collectively have a traffic share of less than 10%.

Verizon’s Plan & Public Safety

Residents advise visitors they better have Verizon Wireless and a robust phone that works well in challenging reception areas if they expect to use it while on the island. AT&T, Sprint, and T-Mobile customers are often out of luck. That poses an immediate and direct threat to public safety, according to public safety officials.

“The cellphone service on Fire Island progressively gets worse every year as more and more people are bringing smartphones out there,” explained Dominic Bertucci, chief of the Kismet Fire Department. “There are some days where you can barely get a signal.”

The Brookhaven Town Fire Chiefs Council, which represents the leadership of 39 fire departments and fire companies in the region is vehemently opposed to Voice Link and considers it a safety menace, especially during frequent summer power outages when the island’s population is at its peak.

“Without a copper wire phone service, a service that still functions even during a power failure, how can we insure that the residents can call for help?” asks president John Cronin. “How will they call for the lifesaving services that are provided by the fire and EMS units of Fire Island? The corporate desire for greater profit cannot be made at the expense of the safety of the residents of Fire Island.”

“Wireless service is not reliable,” adds Fair Harbor resident Meredith Davis. “Imagine being in an emergency and having ‘spotty’ reception which happens out there all the time on cell phones. That is not safe and not okay.”

“If you are unfamiliar with Fire Island, there is very little medical service and the only way off the island is a scheduled ferry service or, for some people who have permits and trucks, a very long drive,” explains lifelong Fire Island resident Nora Olsen. “When someone needs to be rushed to the hospital, they are evacuated by helicopter, which makes timely emergency calls of the essence to save lives. So you can imagine how important it is to have reliable phone service. It should be up to the individual to decide if they want to switch to a wireless service. They should not be forced into it by Verizon. The people who are most likely to want to stick with the phone service they have been used to all their life — senior citizens — are the most likely to need to use the phone to call for help.”

A number of residents also claim Verizon has overblown the real extent of damage on the island and is not operating in good faith.

“In the larger communities of Ocean Beach and Seaview, I have met no one yet that has their connectivity lost,” said resident Karen Warren. “So for Verizon to assert that the infrastructure is largely destroyed and to repair it would be an enormous expense is simply not true. To add insult to injury, before coming out and finding out that our lines were in fact intact, Verizon offered to ‘replace’ our existing DSL data service with LTE Jetpak wireless broadband. The performance and reliability with only a single device connected was horrendous.”

“[Verizon is] pushing us toward a higher-cost and lower-value solution,” Warren concluded.

Getting specific information about the current state of Verizon’s network on Fire Island and repair/replacement costs are hard to come by. Verizon filed an application with the PSC declaring much of the information confidential or a trade secret, refusing to share it with the public. The company was concerned some might access the Public Service Commission website, find the case number about Fire Island, navigate to the specific Verizon filing containing information about their infrastructure… and then vandalize it.

Barash suspects Verizon might be hiding something, especially considering the company requested to bypass usual waiting periods and public notification requirements:

Verizon asserts that it would cost “$4.8 million for a voice-only digital loop carrier system comparable to the networking serving the eastern part of the island.” It is by no means clear, however, that such a system is the minimum required to restore/repair the western part of the system to the service it had pre-storm. Certainly Verizon’s application makes no representation to that effect. This estimate apparently contemplates an entire new system for the western portion of Fire Island, notwithstanding that a meaningful percentage of the copper wire system is still operational.

Moreover, Verizon’s position on the required scope of repairs has been a constantly shifting target. Verizon apparently advised Commission Staff, and Staff repeated at the April 18 Commission Hearing, that the western Fire Island telephone system was “damaged beyond repair by the storm.” Verizon apparently has abandoned that claim; this application indeed is premised on the assumption that the system can be repaired. Furthermore, in its first (May 3) submission to the Commission, Verizon stated that “five of the six cables that run between Fire Island and the mainland – the five that serve the western portion of the Island – were also badly damaged by the storm.” Just a week later, it has abandoned that claim as well, and instead in its amended Certification asserts “Five of the six cables that run throughout Fire Island were badly damaged by the storm.” It is hard to accept at face value Verizon’s estimated repair costs when even at this late date it does not seem to have a handle on exactly the damage that needs repair.

A full Hearing, with notice to affected customers, is necessary to develop facts sufficient to make such determinations and to be reasonably certain the Commission is acting based on reasonably verifiable facts.

Residents deserve a full voice and full disclosure in discussions that will directly impact their vital telecommunications services for years to come. Verizon’s corporate officials will not have to live with the results. Neither will the staff at the PSC.

Stop the Cap! has chosen to directly participate in the New York State Public Service Commission regulatory process and has filed two formal comments thus far. The first outlines Verizon’s greater strategy to abandon landline service in rural areas outlined by Verizon CEO Lowell McAdam in 2012. We also provided the Commission the prices Verizon Wireless intends to charge Verizon DSL customers switching to wireless broadband service. The second objects to Verizon’s excessive request for secrecy and exposes cell coverage issues on Fire Island.

Recently, Stop the Cap! published stories about Verizon’s decision to discontinue traditional wired landline service for approximately 500 customers on Fire Island and offer them a wireless alternative called Voice Link. This is an important change for Verizon and our customers, and we wanted to clarify several points about the service and how Verizon is deploying it.

In places like Fire Island, New York and some communities along the Jersey Shore, such as Mantoloking and Seaside Heights, Verizon evaluated the extent of the damage to its facilities – which in many cases were literally washed away by Super Storm Sandy – and conducted extensive research before deciding the best course of action to take in terms of restoration.

Fire Island is a popular beach community with only a few hundred year-round residents, but the population swells each summer. Verizon’s equipment on the eastern side of the island was not too heavily impacted, so repairs were made and services restored.

On the western side of the Island, however, a large percentage of Verizon’s copper facilities were damaged beyond repair.

We studied the voice traffic on and off the island and where it was originating from on both Verizon’s wireline and wireless networks.  The company discovered that 80 percent of the voice traffic was already wireless.  If other wireless providers were factored in, it is likely that the percentage is closer to 90 percent.  This made it clear that people had already made the decision as to what technology works best. They had abandoned copper long before Sandy.

Another part of Verizon’s analysis looked at the number of permanent residents on Fire Island, which number about 500, and the costs that Verizon would incur to install and connect new landline facilities there.  It would range from $4.8 million to more than $6 million. A multimillion dollar investment with no guarantee that residents of the island will even subscribe to our services makes no economic sense. In fact, that’s probably why Verizon is the sole provider on the island. None of the companies we compete with in other parts of New York offer services on the island.

Verizon’s commitment is to provide our customers with voice service, and Voice Link is another way that Verizon is using technology to reliably deliver on that commitment for customers. And Voice Link does so by using wireless technology that has been proven effective over the last 20 plus years.

Verizon will maintain the copper network where it makes customer service and business sense to do so.  Please keep in mind that the vast majority of our copper customers have no issues at all with their service; we are only considering the universe of customers where the copper network is not supporting their requirements.  Again, the exception is the storm-impacted areas in the western portion of Fire Island and a few New Jersey Barrier communities where copper facilities were damaged beyond repair.  In these locations Voice Link will be the single voice option available to customers. Verizon will offer these customers the opportunity to use our state-of-the-art, tried and tested wireless network at the same rate (or better) that they pay today.

Some additional points for clarification:

• The service does offer a variety of popular calling features including Call Waiting and Caller ID with Name.  Some articles mistakenly reported to the contrary;
• Another article cited a Communications Daily piece that incorrectly reported 40,000 people participated in a blind test of Voice Link. Actually, that test group consisted of 20 people;
• Current Voice Link models include a rechargeable battery that offers 36 hours of standby and two hours of voice service. Future devices will work with standard AA batteries, giving customers an easy alternative for replacing batteries and maintaining communications in an extended power outage;
• Although the device is not presently data capable, the team is working to change that. Nevertheless we have always said that it was not Verizon’s original intent to use Voice Link for customers with DSL. If a customer had an issue with their copper and they had DSL, we would repair the copper.  Unfortunately Sandy changed these plans for a handful of customers on Fire Island and the New Jersey Barrier where the copper is beyond repair.

What’s the Deal With Copper?

In areas where Verizon’s fiber and copper network ran side-by-side, Verizon began to ask certain copper customers with a history of trouble to move their service to fiber. In some cases the equipment supporting the copper service was so outdated that we could not even find replacement parts because the equipment had been discontinued. The objective was to improve service quality and customer satisfaction using the best communications network, and the result was clear: the program has been very successful. More than 300,000 customers migrated to Verizon’s fiber-optic network.  These customers enjoy super-reliable, faster fiber at the same rates they were paying all along.

In non-fiber areas, Verizon developed Voice Link to take advantage of wireless technology to address voice customers served on the copper network who have had chronic repairs issues.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Verizon Voice Link Keeps Customers Connected After Hurricane Sandy 5-31-13.flv[/flv]

After Sandy hit, Verizon realized that wireless technology also would be an ideal solution for customers in areas the storm destroyed or severely damaged. It has helped us reconnect hundreds of people and businesses. Don’t take our word for it. See what these customers have to say. (3 minutes)

Tom Maguire is Verizon’s senior vice president of network operations support.

It is no secret that there is an urban-rural broadband divide.

The market-driven, private enterprise broadband landscape delivers the best speeds and service to urban-suburban areas, particularly those in and around large cities, short-changing rural communities.

This is true regardless of the technology: the fastest fiber optic services are delivered in large population centers, and wireless speeds are fastest there as well. But as the National Telecommunications and Information Administration has discovered, the further away you get from these urban sectors, the poorer the service you are likely to get.

The NTIA’s findings present a significant challenge to phone company claims that rural customers would be better served with wireless broadband instead of spending money to support and upgrade landline infrastructure, which supports DSL and is upgradable to fiber optics.

The NTIA finds these rural wireless networks to be severely lacking:

Not only are far fewer rural residents than urban residents able to access 4G wireless services (i.e., at least 6Mbps downstream), but a further divide also exists within rural communities. For wireless download services greater than 6Mbps, Very Rural communities have approximately half the availability rate of Small Towns, and Small Towns have about half the availability rate of Exurbs (10, 18, and 36 percent, respectively).

This represents nothing new. AT&T and Verizon have shortchanged their rural customers with catastrophically slow DSL service (or none at all) for years:

For wireline download service, Very Rural communities also have the least availability of all five areas. Though a rural/urban split continues to be useful in providing generalized information about availability, a five-way classification uncovers a more refined picture of the divide in broadband availability across the nation. For example, at wireline download speeds of 50Mbps, broadband availability varies from 14 percent (Very Rural), 32 percent (Exurban), 35 percent (Small Town), 62 percent (Central City), to 67 percent (Suburban), even though the overall broadband availability was 63 percent in urban areas compared to 23 percent in rural areas. In addition, wireline and wireless broadband availability, particularly at faster speeds, tends to be higher within Central Cities and the Suburbs compared to everywhere else.

Why the disparity? It is a simple case of economics. Wealthy suburbs can afford the ultimate triple play packages, so providers prioritize the best service for these areas, even above less costly to serve urban centers. Rural residents either get no service at all or only basic slow speed DSL. The Return on Investment to improve broadband is inadequate for these companies in rural areas.

The same is true with wireless 4G service. Rural areas struggle for access or endure poor reception because fewer towers provide service away from major highways or town centers.

The NTIA observed wireless download speeds of 6Mbps or more were available to 90% of urban residents, but only 18% of small town residents. Wireless upload speeds of 3Mbps or greater were found in only 14% of small towns.

Dee Davis, president, Center for Rural Strategies, based in Whitesburg, Va. said the implications were clear.

“The market’s always going to go to the well-heeled communities,” Davis observed. “It’s going to go to the densest population.”

Folks in rural communities end up paying more for a lower level of service, Davis said.

“That also means that they don’t get the same chance to participate in the economy,” Davis added. “They don’t get to bring their goods and services to market in the same way. They don’t always get to participate.”

The economics of cutting off rural landlines delivers most of the benefits to providers, and assures decades of inferior service to consumers.

Economic market tests, including Return on Investment, that impact rural broadband availability will not disappear if AT&T and Verizon abandon their rural landline networks. While cost savings will be realized once rural wired infrastructure is decommissioned, there is no free market formula that would encourage either provider to pour investment funds into rural service areas. For the same reasons rural customers are broadband-challenged today, their comparatively smaller numbers and economic abilities will continue to fail investment metrics for innovative new services tomorrow.

The primary reason broadband speeds are lower in rural areas is inferior network infrastructure. Providers argue it does not make economic sense to invest in network upgrades to boost speeds for such a small number of customers. While wireless technology can be cheaper to deploy than the upkeep of a deteriorating landline network, it is not cheap or robust enough to deliver comparable broadband speeds now available in urban areas, especially as broadband usage continues to grow.

Verizon’s chief financial officer Fran Shammo admitted as much during remarks at the at JPMorgan Global Technology, Media and Telecom Conference in May:

If you recall, way back I guess about two years ago we did a trial with DirecTV in Erie, Pa., where we did broadband on the side of a house and offered a triple-play, if you will, which consisted of broadband, voice, and linear TV provided by DirecTV.

What we found was people were adoptive to the broadband; but because of the consumption of broadband through that LTE network, it was really detrimental to the spectrum and to the network performance. Because they used so much data, it soaked up so much of the spectrum.

So what we felt was LTE for broadband works in certain rural areas, but you can’t compete LTE broadband in those dense populated areas because you can’t — first of all, you can’t match the speed with a 50-megabit or a 100-megabit delivery between cable and FiOS and U-verse. And you literally don’t have enough spectrum to be able to use that much consumption.

So what we felt was by partnering with the cable companies, and delivering our LTE network with voice and data, and having that hardwired connection into the home was a better financial way to do it than trying to go LTE broadband. Because we just didn’t see where the spectrum could hold up to the volume that would be demanded.

Without rural cable companies to partner with, Verizon’s decision to move rural broadband to wireless guarantees rural Americans will not benefit from ongoing speed and capacity upgrades that are necessary to support the evolving Internet.

AT&T’s efforts to expand its U-verse platform to more communities is all about improving AT&T’s growing revenues in the broadband business and further monetizing customers’ broadband usage.

Those are the views of Jeff Weber, AT&T’s president of content and advertising sales. Appearing at last week’s Nomura Global Media Summit Conference, Weber also admitted AT&T is using viewer data collected from U-verse TV set-top boxes to help decide what networks to carry and which can be dropped because of lack of viewership.

Weber appeared at the conference to talk about the implications of Project Velocity IP — AT&T’s investment in expanding its U-verse platform and its proposal to transition rural landline customers to AT&T’s wireless service.

AT&T claims when the project is complete, two-thirds of its landline customers will have access to U-verse, and 99 percent of AT&T’s wireline service areas will be covered by AT&T’s mobile network.

Weber’s job primarily focuses on AT&T’s U-verse TV service — dealing with all the networks on the lineup and selling advertising time.

Although television programming is an important revenue generator for AT&T, broadband revenue is the real focus behind AT&T’s U-verse expansion.

“At the core, it is about improving the fundamental broadband business, extending our footprints to be able to cover more of our customers,” Weber said. “Because our core belief is that the broadband business is [going to be] a very good business for a long time.”

One way AT&T can further increase revenue is to limit broadband usage and charge overlimit fees for customers who exceed their monthly allowance. AT&T currently limits DSL customers to 150GB of usage per month, 250GB for U-verse broadband. The overlimit fee is $10 for each additional 50GB of usage. At present, both the usage limits and overlimit fees are not broadly enforced in many areas.

“I think very clearly incremental broadband usage is going to drive incremental revenue,” explained Weber. “Part of that assumption is that as traffic continues to grow, you need to be able to monetize that traffic in some way, shape or form. At the end of the day, it’s a pretty efficient market and a really efficient way for customers to pay. In almost every other way the more you use, the more you pay. And I don’t think that’s a radical notion and I suspect that’s a kind of thing we’ll see.”

AT&T already earns $170 a month in average revenue per U-verse customer, mostly from package sales of telephone, broadband, and television service.

Television programming content continues to be a major and growing expense for AT&T, eating into profits. Weber complained programming costs are “too high” and limit AT&T from asking subscribers to pay more when rate increases are contemplated.

Instead, AT&T is increasingly playing hardball with programmers, refusing to pay growing programming costs for certain networks and dropping others that do not have many viewers.

How does AT&T know what channels its customers are watching? The company tracks viewing habits with U-verse TV set-top boxes, which automatically report back to AT&T what channels and programs customers are watching.

“Everybody is facing [profit] margin pressure as content costs go up but the question is how will customers react to higher prices as content costs go up,” Weber said. “Everybody is having to make tough decisions and we’ve been able to use that data and make very smart decisions for our customers.”

As an example, Weber noted AT&T uses real viewer numbers during contract negotiations, suggesting that lower-rated networks deserve a lower rate. If a programmer refuses, AT&T can successfully drop a little-watched network without significant customer backlash.

Weber said the numbers are even more valuable when negotiating carriage fees for expensive regional sports networks. Weber said in one city, AT&T decided to not carry a regional network because it found the majority of customers never watched many of the sports teams featured.

“We looked at how many of our customers watched zero of those games, one, two, all the way through 150 games for baseball and 80 games for the basketball team that we’re talking about,” Weber said, noting that if a particular viewer watched 30 or more games, AT&T considered that customer a passionate viewer likely to cancel service if the channel was dropped from the lineup.

“It was very clear the viewership intensity in that particular market was low and we didn’t need to pay the rates that were being asked and we’re not,” Weber said, calling the tracking a “perfect insight” into programming costs vs. viewership value.

AT&T also made it clear if programmers went around the company to sell channels direct to consumers over the Internet, AT&T would bring significant pressure for a wholesale rate cut, which some programmers might see as a deterrent to offering online viewing alternatives.

“If they’re going to [stream their programming online], then that’s a very different conversation and a very different value for our customer,” Weber said. “That’s a choice the content providers can make. We’re totally OK with that, but exclusivity versus non-exclusivity has materially different value for our customers, and I think we would want that reflected,” he added.

Monitoring customer viewing habits also helps AT&T earn more revenue by selling targeted commercial messages to specific viewing audiences.

“If an advertiser wanted to buy The Ellen DeGeneres Show, we know based on our data who that audience is,” Weber said. “We can go find that same audience outside of Ellen and maybe extend reach or drive [the ad] price a bit [higher]. We can also go find that same audience online or on your mobile phone.”