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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CenturyLink wants to repeal a 1993 Idaho rule that requires phone companies to repair service outages within 24 hours or provide one month of service for customers at no charge.

The phone company is lobbying the state Public Utilities Commission to be exempted from the rule that its predecessor Qwest/US West lived under for nearly 20 years. (CenturyLink acquired Qwest.)

CenturyLink says consumers no longer need their phone lines repaired in such a short time, and the company says the rule in hurting their business.

A "temporary" phone cable installed along the top of a wire fence.

“Today, a substantial majority of basic local service customers are not cut off from communication and are not out-of-service in the event their wireline telephone is not working,” the company argued.

Besides, CenturyLink claims, wireless providers are not subject to the same rule, giving them an unfair competitive advantage.

CenturyLink already has a repair exemption for customers who experience service outages due to a natural disaster, during the weekend, or one caused by the customer’s own actions. But now the company wants more, telling the commission most people will simply switch to cell phones while their landline remains out of service.

Despite the apparent contradiction that delivering reduced service is better for consumers, the PUC has been negotiating a compromise, offering to eliminate the service credit requirement and extend the window for repairs to 48 hours.

Before they do, they might want to review CenturyLink’s performance in Arizona, where the company has been caught installing repaired phone lines in pavement cracks and atop public roadways.

The PUC staff questioned claims made by both CenturyLink and Frontier Communications, another phone company that supports the repeal of the repair rules.

“CenturyLink argues that a large percentage of customers now have access to wireless and broadband voice services,” the staff report says. “For CenturyLink’s legacy Qwest customers located in urban areas, this may be true. It may not be true for customers in the very rual parts of CenturyLink’s service territory. When wireline service fails, few, if any, alternative communication services are available in some rural areas.”

The PUC staff also argued the impact on small business in Idaho could be significant. Small businesses still rely overwhelmingly on traditional landline services to conduct business and process credit card payments. Prolonged outages could create significant economic harm for affected customers.

The commission is taking comments on the proposed settlement of Case # CEN-T-12-01 through May 31.

Verizon has a moratorium on further expansion of its fiber to the home service except in areas where it has existing agreements to deliver service.

Virtually every mayor in the urban centers of upstate New York is accusing Verizon Communications of redlining poor and minority communities when deciding where to provide its fiber-to-the-home service FiOS.

Now they are telling the Federal Communications Commission and Department of Justice to become more closely involved in reviewing a proposed anti-competitive marketing partnership between the phone company and some of the nation’s largest cable operators.

The mayors are upset that Verizon has chosen to target its limited FiOS network primarily on affluent suburbs surrounding upstate New York city centers.

“Verizon has not built its all-fiber FiOS network in any of our densely-populated cities. Not in Albany, Buffalo, Syracuse, Binghamton, Kingston, Elmira or Troy,” the mayors say. “Yet, Verizon has expanded its FiOS network to the suburbs ringing Buffalo, Albany, Troy, and Syracuse, as well as many places in the Hudson Valley, and most of downstate New York. As a result, the residents and businesses in our cities are disadvantaged relative to their more affluent suburban neighbors who have access to Verizon’s FiOS, providing competitive choice in high-speed broadband and video services.”

The mayors fear the reduced competition that will come from the marketing partnership between the phone and cable industry will eliminate any pressure on Verizon to expand its fiber optic network into more New York cities. The agreement allows Verizon Wireless customers to received significant bundled discounts when they sign up for cell phone service and a cable package from Comcast, Time Warner Cable, Cox, or Bright House Networks. No corresponding discount is available to a Verizon Wireless customer choosing to bundle Verizon FiOS, putting the fiber service at a competitive disadvantage.

“These commercial agreements appear to eliminate any incentive that Verizon might have had to expand its all-fiber network to our high-density urban centers,” the mayors say. “After all, Verizon Wireless, a subsidiary of Verizon Communications, will now be able to sell Time Warner’s video and broadband service as part of their bundled package in our communities.”

That leaves most with Verizon’s DSL service, a product Verizon has been marketing less and less to its customers. The company recently announced it would no longer sell standalone DSL broadband, another point of contention for the mayors.

The mayors are concerned that Verizon’s deteriorating landline network will have profound implications for city centers, where tele-medicine, education, business, and entertainment services will all be left lacking if the fiber network is not extended.

“As you are well aware, high-speed broadband is critical to economic development and job creation, as well as improvements in health care, education, public safety, and civic discourse which is so essential to communal life,” say the mayors. “The economic health of our cities and our upstate region depends upon access to the same first-rate communications infrastructure available to the New York City metropolitan region and the suburban communities that ring our cities.”

The nine mayors are also questioning whether Verizon executives misled them when they claimed Verizon’s strong financial performance would allow the company to reinvest profits into further expansion of its FiOS network. Verizon executives have since admitted the company is indefinitely finished with FiOS expansion, except in areas where it already committed to build the fiber network.

Signing the letter were:

• Byron W. Brown – Mayor, City of Buffalo
• Stephanie A. Miner – Mayor, City of Syracuse
• Gerald D. Jennings – Mayor, City of Albany
• Matthew T. Ryan – Mayor, City of Binghamton
• Shayne R. Gallo – Mayor, City of Kingston
• Susan Skidmore – Mayor, City of Elmira
• Brian Tobin – Mayor, City of Cortland
• Robert Palmieri – Mayor, City of Utica
• Lou Rosamilla – Mayor, City of Troy

(The city of Rochester is served by Frontier Communications, which has no plans to deliver a fiber to the home network within its local service area.)

Frontier bills are often confusing, as this example from 2009 illustrates.

Some of Frontier Communications’ 230,000 customers in Oregon are enduring billing snafus after the company accidentally cancelled promotional discounts, resulting in higher bills.

Frontier recently completed a billing system change for those formerly served by Verizon Communications, but The Oregonian reports some customers found bundled service promotions and service contracts established with the former owners suddenly canceled, eliminating discounts that delivered de facto “rate increases” as much as $20 a month.

Frontier had promised customers their “services and pricing plan will remain the same” after the billing system conversion.

Many of the worst-impacted customers subscribe to Frontier’s adopted FiOS fiber-to-the-home service.

Albert, a Stop the Cap! reader with Frontier FiOS, says the “abuse of FiOS customers” has continued since Frontier bought Verizon’s landline and fiber network in the state.

“First they wanted to jack the rates up, then they tried to sell us an ‘upgrade’ to satellite TV, and now it’s just the latest in a series of bill screw-ups from a company that couldn’t run things right if it tried,” Albert tells us. “My contract with the company says ‘no rate hikes while the contract is in effect,’ so they just made it no longer in effect and presto, a rate hike.”

It took four phone calls to straighten things out.

“Frontier’s customer service offices are apparently in other states, and a lot of their people don’t seem to know about FiOS, need supervisors to intervene on everything, and still cannot fix things,” Albert writes. “On the fourth call, I finally got someone who was able to cross-reference my older bills and find the promotion I was supposed to be on, and got me back on it.”

Albert says Frontier really has not offered much to sell people on the company’s fiber optic network.

“Frontier FiOS is a big secret with the company, and the last thing in the world they want to sell you is Frontier FiOS TV,” he reports.

The newspaper reports Frontier’s confusion over promotions and billing have impacted others as well.  Some of the problems have prompted customers to file complaints with the Oregon Public Utility Commission (PUC), which says it has seen “a big increase” in consumer issues since Frontier’s billing system changeover.

Frontier promised the state it would not raise any rates in Oregon without notifying the Commission, and so far the company has kept its word. But that doesn’t hold true for Albert.

“Dropping the ball on promotions represents a hidden rate increase, and many people will just pay the bill no matter what it says,” Albert said. “Then Frontier will try the backdoor rate increase with more surcharges and rental fees on other services.”

While Frontier executives have heralded the billing system conversion as a major accomplishment that opens the next chapter on Frontier Communications’ future, some customers are less celebratory.

Oregonian reader Max Gramm:

Frontier is perhaps the worst phone companion in history. Twice now they have changed my account number and never informed me, then refused to apply the money I had continued to pay to the old account number to the bill. I would get bill saying I owed $180 dollars even after proving to them I had made payments every single month. They shut off my service for over a week during one of these disputes. Though part of this could be due to Verizon (when they hear I am from Oregon, I get sent to a different department) Frontier has been absolutely awful to work with.

The newspaper recommends customers check their bills for sudden increases and contact Frontier with any questions. If Frontier has no satisfactory answers, file a complaint with the PUC (800-522-2404 or online).

Phillip "An Ex-Frontier Customer" Dampier

The other week while sitting in the dentist’s office waiting for my wallet to be drilled, I overheard a conversation at the reception desk over the latest effort by Frontier Communications to shoot itself in the proverbial foot.

“I decided to get rid of my phone line the other day and when I called Frontier to disconnect, I was told I would owe them more than $150 in disconnection fees for a contract I never knew I had with them,” opened the conversation.

“That happened to my sister as well, and she couldn’t believe it because nobody ever told her she was on a contract,” came the reply.

“I never knew I was either, and I told the representative they needed to show me where I signed up for anything like that or else I’m not paying it,” insisted the latest victim of Frontier’s phantom service contracts.

Within a minute or two, all had decided they were done doing business with the phone company that got its start more than 100 years ago as the well-regarded Rochester Telephone Corporation.  In 2012, there was no turning back after $150 “disconnect” penalties and other insults.  They were intent on being rid of Frontier once and for all.

With customer unfriendly policies like that, it comes as no surprise Frontier has been losing customers in the Rochester market for years, mostly to cell phone providers or Time Warner Cable — the latter which delivers more value and far superior broadband speed in western New York communities not served by Verizon FiOS.

Surprise... you're on a contract with a $150 cancellation penalty.

Twenty years ago, Rochester Telephone delivered excellent value, charging about half what then-NYNEX customers in Buffalo and Syracuse paid for telephone service. But as Frontier has increasingly disengaged from being an aggressive contender for telecommunications services in Rochester, people in this region of one million noticed, especially when Verizon’s fiber to the home service arrived in Buffalo, Syracuse, Albany, and beyond.

What did Frontier offer? Not much. Frontier’s local general manager Ann Burr, who used to be in charge at Time Warner Cable locally, told local media Rochester didn’t need faster broadband speeds. That’s a fitting argument for a company that doesn’t deliver them and believes 3Mbps broadband is plenty fast enough.  If you don’t like it, feel free to leave, so long as you aren’t trapped with that long-term service contract you never knew you had. (The New York Attorney General’s office has already spanked Frontier once for the practice, forcing them to issue refunds, and judging from last week’s conversation, it appears the problem has not abated.)

The fact is, Frontier offers little compelling to the landline customers they have left.

Rochester’s experience with Frontier seems apropos when contemplating the phone company’s latest quarterly results, which one analyst called “ugly.” Having listened to at least a dozen of Frontier’s quarterly conference calls with investors over the past three years, there seems to be no shortage of promises of better days to come.  Frontier is among the few companies I have heard call customer losses of 5-11% every quarter “an improvement.”

As one investor put it, the management at Frontier should win an Academy Award for feigned optimism.

This week, the company announced first-quarter earnings fell 51% thanks to lower revenue earned from the dwindling number of residential and business customers. But better days are ahead, really.

Road to nowhere?

Frontier has spent the last year treating their “system conversion” for ex-Verizon territories as the telecom equivalent of the Holy Grail.  Once achieved, the company can do anything. The reorganization underway internally at the company is supposed to improve its lackluster customer service, generate more marketing opportunities, save the company money, and open the door to a new chapter of a unified Frontier family, with ex-Verizon and always-Frontier employees coming together to do things “the Frontier way.”

How much longer investors will stick around waiting for the promised land remains an open question. The stock has already achieved a 52-week low, and if the company cuts its dividend — the primary point of attraction for investors — it will drop much lower.

Frontier’s management decisions have effectively left the company between a rock (Wall Street) and a hard place (its dwindling customers).  Much of the company’s success is predicated on rural broadband/landline service, where the company expects to face little competition.  But Verizon, the company that sold them much of their inherited network, has a little surprise for them.  After selling off the “junk” (a deteriorating copper landline network they no longer care much about), the company’s wireless division is coming back to town to poach Frontier’s customers.

Verizon’s grand plan is to pitch two products:

1. Home Phone Connect: Verizon’s landline replacement works with the customer’s home phones over Verizon Wireless’ network. Customers can share minutes on an existing Verizon Wireless plan for $9.99 a month or get unlimited calling for $19.99 a month. It comes with most popular calling features included.
2. Verizon HomeFusion Broadband: Verizon Wireless has excess capacity in rural areas, especially on 4G LTE-equipped towers, so why not put it to use? While commanding a premium at $60 a month for just 10GB of usage, customers who value speed over money may tolerate that diamond price.  If Verizon finds a way to relax that usage limit and lower prices, it could present a real competitive threat to phone companies delivering lower end DSL service.

[flv width=”480″ height=”290″]http://www.phillipdampier.com/video/Home Phone Connect – Home Phone Transfer Verizon Wireless.flv[/flv]

Verizon Wireless introduces Home Phone Connect, a product designed to tell landline companies like Frontier to take a hike.  (2 minutes)

While Verizon isn’t likely to immediately grab major market share with either product, it foreshadows an intent to leverage their rural wireless network to remain a player, even in places where they have abandoned selling landline service.

How to Stop the Erosion

Turning things around? Frontier contemplates licensing U-verse from AT&T

Even in a barely-competitive marketplace, companies must invest to keep up. But that investment annoys Wall Street, which can depress the stock (and the all-important dividend). But improved service retains customers (and may even win a few ex-customers back). So news that Frontier was considering licensing U-verse technology to upgrade their major markets is a logical first step to stop the bleeding. Frontier is irrelevant delivering broadband at speeds of 3Mbps at out the door prices that meet or exceed what the much-faster cable competition charges. U-verse would allow Frontier to deliver faster broadband (up to 24Mbps is plenty fast for a lot of consumers), build its own IPTV offering instead of relying on satellite dish reseller agreements, and maintain landline customers, assuming the company prices its bundle correctly.

While we are big proponents of fiber-to-the-home service, it is clear Frontier will never spend the money to deliver it, even to their largest service areas. They will prefer the cheaper route of fiber to the neighborhood, relying on existing copper infrastructure to connect individual homes to the service. It represents a reasonable first step.

Frontier also must continue aggressive investments in their broadband network in more rural areas. Some of the company’s regional backbones remain woefully congested, and the company just doesn’t deliver the speeds it markets on its website in too many areas.

High speed should really mean "high speed"

Jameson, a Stop the Cap! reader, is a good example. He signed up for “Frontier Max DSL” which claims it can deliver up to 6Mbps in his part of east-central Indiana.  He ended up with 1.6Mbps instead, in part of because Frontier’s records were inaccurate.

I called Frontier tech support after reading some stuff on Stop the Cap! and another site, learning that since I live under 5000 feet from the DSL termination point (the Frontier building down the road) that I shouldn’t have any problems getting their highest speeds. I got lucky and got a customer support agent who understood my problem, and a tech support guy who genuinely seemed concerned about my issue. The tech guy checked Frontier’s records and I was labeled as being 30,000 feet from the building, but I’m really only around 4200 feet away, and my speeds were provisioned at 1.6mbps down and around 450kbps up. He put in a support ticket to have my speeds automatically raised up to the max I’m paying for.

Jameson ended up with around 7Mbps — a little better than the advertised speed, but only because he thought to ask and reached the right people at Frontier to follow through.

Some of our readers in West Virginia are not so lucky, having the mediocre speeds they fought to receive reduced further when a technician suddenly remotely adjusts speed provisioning on customer equipment to reduce their maximum broadband speed.

Frontier’s DSL problems don’t just exist in rural areas. We experienced it first-hand in 2009 when the company advertised up to 10Mbps speeds in Rochester, and delivered 3.1Mbps to us instead.

Consumer Reports documents this is not an isolated problem, with only two-thirds of Frontier customers getting the broadband speeds they pay to receive. If and when a competitor does better, Frontier loses another customer.

Finally, Frontier must improve its customer service. The company is notorious for giving inconsistent answers to customer questions, doesn’t always follow through on commitments, and maintains far too many “gotcha” terms and conditions on contracts that leave customers exposed to unjustified early termination fees.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CNET Verizon HomeFusion Broadband May 2012.flv[/flv]

CNET shows off the equipment used with Verizon’s new HomeFusion wireless broadband service.  (2 minutes)