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)

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.

FairPoint Communications, which took control of Verizon landlines in Maine, New Hampshire, and Vermont in 2009 and then promptly went bankrupt is now appealing to New Hampshire’s regulators and legislature for deregulation.

Teresa Rosenberger, the company’s New Hampshire president, told the Nashua Telegraph that before FairPoint Communications took over Verizon’s northern New England landlines in 2009, that means of communication was the “only game in town.” Now that Verizon’s “monopoly” no longer exists, FairPoint wants the “shackles [removed from] our ankles.”

Setting aside the fact Verizon and FairPoint both faced identical competitors — Comcast and AT&T in parts of the state, the primary difference between the incumbent landline phone company and its cable competition is that the latter enjoys the right to choose its customers.  Landline providers must deliver universal access to basic service, something both FairPoint and Verizon managed for more than a century.

Rosenberger claims that with the rapid decline of landlines, FairPoint should be free from regulatory constraints it argues limits its ability to compete on pricing and service.  Rosenberger uses FairPoint’s biggest failure — its rapid loss of customers — as the core argument for allowing deregulation, which would deliver few checks and balances from state regulators.

FairPoint’s market share in New Hampshire is now down to 49% and dropping.  Its competition — Comcast and wireless mobile providers, now account for the majority of phone lines in the state.  FairPoint’s line losses spiked when the company took over providing service in northern New England from Verizon Communications.  Many FairPoint customers would describe that level of service as poor, with billing and service complaints reaching epic proportions before the company ultimately declared bankruptcy.

Rosenberger points out that the traditional way utility services deal with changing business models is to sell off non-performing or excess assets.  Electric utilities sell excess power, but phone companies like FairPoint have few things other providers want.

In particular, FairPoint is upset it is saddled with a statewide network of telephone poles that “nobody wants.”

“We lose a ton of money on these poles” when work has to be done on them, Rosenberger told the newspaper. “There is the flag rate, the excavation fee, paying for a cop out there – and that’s before taxation and reporting requirements.”

FairPoint notes their competitors gets to use those poles, and are not necessarily contributing their fair share towards their upkeep.

FairPoint isn’t asking to abandon its universal service obligation, something AT&T has lobbied for throughout its territories.  But it does want to do away with pricing regulations and reporting requirements.  If FairPoint offers a business customer a special discount rate, it must file that rate publicly with state regulators, which is public information.  FairPoint says its competitors may be using that information to undercut them in contract negotiations.  But the public price regulations are in place to prevent a phone company from offering dirt cheap service for a select few, effectively subsidized by other ratepayers.

FairPoint also wants quality of service reporting regulations eased, and that comes as a concern to some New Englanders who lived through FairPoint’s messy transition from Verizon service.  Even today, there are ongoing disputes over whether FairPoint is meeting state obligations on everything from how quickly they answer customer calls to whether or not service problems are resolved on a timely basis.

Losing customers.

A year after Frontier Communications assumed control of Verizon’s assets in the Pacific Northwest, customers are fleeing the company’s inherited fiber-to-the-home service FiOS, after announcing a massive (since suspended, except in Indiana) 46 percent rate hike for the television portion of the service.  A new $500 installation fee has kept all but the bravest from considering replacing customers who have left for Comcast and various satellite TV providers.

Frontier’s second-quarter financial results revealed the company has lost at least 14,000 out of 112,000 FiOS TV customers in the region (and in the Fort Wayne, Ind. market, where the service is also available.)

Early reaction to the original rate hike announcement started customers shopping for another provider — mostly Comcast, which competes in all three states where Frontier FiOS operates.  Even after the rate hike was suspended in some markets, intense marketing activity by Frontier to drive customers towards its partnership with satellite provider DirecTV managed to convince at least some of those customers to pull the plug on fiber in return for a free year of satellite TV, although an even larger number presumably switched to the cable competition.

D.A. Davidson, a financial consulting firm, told The Oregonian the message was clear.

“They would love to get rid of the FiOS TV customers,” Donna Jaegers, who follows Frontier, told the newspaper. “They’re programming costs are very high compared to the rates that they charge.”

Jaegers said Frontier Communications completely botched their efforts to transition customers away from FiOS TV towards satellite, because most of those departing headed for the cable competition, attracted by promotional offers and convenient billing.

Many others simply don’t want a satellite dish on their roof, and are confounded about Frontier’s message that satellite TV is somehow better than fiber-to-the-home service.

Frontier admits its FiOS service is now underutilized, but claims it will continue to provide the service where it already exists.

Wilderotter

Frontier Claims Its DSL Service is Better Than Cable Broadband

Frontier’s general business plan is to provide DSL service in rural areas where it faces little or no competition, and most of Frontier’s investment has been to upgrade Verizon’s landline network to sustain 1-3Mbps DSL service, for which it routinely charges the same (or more) for standalone broadband service that its cable competitors charge for much faster speeds.

But Frontier Communications CEO Maggie Wilderotter says their DSL service is better than the cable competition.

“A key differentiator between our network and cable competition is that you consistently get the speed you pay for,” Wilderotter told investors on a conference call. “There’s no sharing at the local level. High demand for bandwidth-intensive applications like video are putting pressure on all wired networks. To that end, we want to make sure that we have more than enough capacity to satisfy the expectations of our customers. We’re spending capital in all parts of the network with specific emphasis in the middle mile, which will enable us to consistently deliver a quality customer experience for our customers of today and tomorrow.”

Frontier Communications CEO Maggie Wilderotter defends anemic broadband additions during the 2nd quarter of 2011 and tries to convince investors DSL service is better than the cable competition. August 3, 2011. (4 minutes)
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Netflix Traffic Represents 25% of Frontier’s Broadband Traffic; Online Video — 50%

Wilderotter admitted Frontier’s broadband network is overcongested in many regions, which she partly blamed for the company’s anemic addition of new broadband customers.

She noted Netflix, which has itself consistently rated Frontier the worst wired broadband provider in the country for being able to deliver consistent, high quality access to their streaming service, represents one-quarter of all capacity usage of Frontier’s broadband network.

“Video is about 50 percent,” Wilderotter added.  In an investor conference call, she explained network congestion in more detail:

“In [the second quarter], we had many areas with unacceptable levels of network congestion, which negatively impacted our growth in net high-speed additions.” Wilderotter said. “We believe all of the major congestion issues will be fixed by the end of [the third quarter], and that will enable us to drive higher growth and net broadband activation in [former Verizon service areas.]”

“What we decided to do is to go for fixing the middle mile, which is the [central office] to the […] neighborhood and to expand that capability by 100-fold. And then also, expand from the [central office] out to the Internet and make sure that we have huge capacity to deliver and receive capability to our customers. So when we sell 6 meg, 10 meg, 25 meg, 50 meg, the customer gets what we sell them and that was extremely important for us.”

“So what we did is in the areas where we saw the congestion increase based upon usage increases, and we’ve built new households. We’ve held off on marketing to a lot of those new households until we fixed the congestion problem because we didn’t want to exacerbate what we had already. We’ve shifted capital in terms of the mix of how we’ve spent capital to fix this problem. I’d say we’re probably 75% of the way there in fixing congestion. This quarter is another big quarter for us to get all of the major issues out of the network, which will allow us in the back end of this quarter through the fourth quarter, to really start pushing the penetration levels where we’ve built new households in the areas that have been affected by congestion.”

Frontier Introduces Line Bonded DSL — Two Connections Can Improve DSL Speeds

Frontier Faster? Frontier announces line bonded DSL.

Frontier Communications also announced the introduction of Frontier Second Connect, a DSL line bonding product that delivers two physical connections to a single household.  Line bonding allows for improved broadband speeds.

“Second Connect gives our customers two exclusive connections in one household, and we’re the only provider in every market that can do that,” Wilderotter claimed.

In more urban markets, Frontier’s DSL speeds are woefully behind those available from most cable competitors.  Frontier has begun upgrading some of their legacy service areas and retiring older equipment in an effort to improve the quality of service.

“The real initiatives that we have underway are called middle mile, interoffice facilities, as well as some of the more aged equipment that’s in the network,” said Dan McCarthy, Frontier’s chief operating officer. “So as we go through, there’s about 600 projects that are underway today that will improve both the speed and capability.”

“We’ve inherited markets that there has not been upgrades to capacity in these markets for many years and fixes to the networks, plus the elements as the DSLAMs, even the DSLAMs themselves are old,” Wilderotter said. “So we’re replacing network elements in the neighborhood. We’re splitting them and moving customers to other network elements to make sure that they have a good experience.”

Frontier executives answer a question from a Wall Street banker about DSL speeds and congestion problems on Frontier’s broadband network. A detailed technical discussion ensues as the company tells investors it is redirecting some capital to fixing Frontier’s overcongested network. August 3, 2011. (5 minutes)
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Frontier Still Losing More than 8% Of Its Landline Customers Every Year

Despite broadband rollouts and incremental improvements, more than eight percent of Frontier’s landline customers disconnect service permanently every year.  Frontier called that disconnect rate an improvement over its line losses last year, which exceeded 11 percent in some areas.

“Total line losses improved to an 8.6% year-over-year decline, our lowest level since taking ownership when the pro forma loss rate was 9.7%,” reported Wilderotter. “We also improved [the] loss rate [in former Verizon service areas to] 10.1% compared to 11.4% in Q2 2010.”

Most of Frontier’s departing customers are switching to cable providers and/or cell phone service.

(Update 8-23-2011: We are now told in many areas, Frontier’s Second Connect service is not actually a bonded DSL product, but rather a “dry loop” second DSL line that carries the same speed as your primary line.  Presumably, household members can divide up who uses which DSL circuit for Internet access.  The charge for Second Connect in ex-Verizon service areas is $14.99 per month plus a second mandatory monthly modem rental fee of $6.99. If the web link does not work, it means the service is not available in your service area.)

TDS Telecom, the Madison, Wisc. independent telephone company serving about 1 million landline customers in rural and suburban communities in 30 states, is losing 5.5 percent of those customers every year, as consumers increasingly drop their landline telephone service.

In second quarter financial results reported to investors this week, TDS noted it is increasingly dependent on selling DSL broadband and managed data services to stabilize long term revenues and minimize line losses.  Like many independent phone companies, TDS’ largely rural service areas offer the opportunity of delivering broadband service to areas unserved by cable broadband, and unlikely to find robust cell phone or wireless data coverage.

Vicki Villacrez, TDS’ chief financial officer, reports the phone company now has a 60 percent penetration rate for residential landline customers taking DSL service.

TDS is losing more than 5% of their landline customers a year, which limits potential growth.

“High speed data subscribers grew 6% year-on-year.” Villacrez said. “We continue to attract healthy levels of new customers and they are taking higher speed. Over 80% of our data subscribers are taking speeds of three megabits or greater and 16% are taking greater than 10 megabit speeds.”

Because TDS customers are migrating to faster speeds, where available, the company’s average revenue per subscriber has remained stable at $37 per month.  That comes from a combination of the higher prices some customers pay for better service minus line losses, customer defections and retention offers delivering discounts to those threatening to switch providers.

TDS is also adopting similar strategies other phone companies are trying to hang onto customers: marketing their own triple play package of voice, broadband, and television service.  Like most smaller phone companies, TDS delivers voice and data over their existing copper wire network and relies on a resale arrangement with DISH Network to provide satellite television.

About 26 percent of TDS customers are enrolled in the company’s triple play package, up 2,700 customers in the quarter.

But the company’s cost control measures also signal TDS’ unwillingness to invest noticeably in expanding their DSL footprint to additional customers, or dramatically improve their existing network.  The company admits it plans to limit investment in new residential customers, and consolidated cash expenses were down 2.1% for the period, reflecting reduced spending.

Where is TDS willing to invest?  In data center assets and future acquisition opportunities.  TDS intends to broaden its presence in managed hosting and will continue to explore mergers and acquisition opportunities with other small, independent phone companies.