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.)

Billboards sprinkled across Ft. Wayne, Ind., telling residents, “Frontier is pulling the plug on FiOS — Switch to Xfinity,” has infuriated Frontier Communications, who says it will continue to provide FiOS service in the area, at least for broadband, indefinitely.  Now the independent phone company has sent a “cease and desist” letter to Comcast officials demanding the billboards come down.

Frontier spokesman Matt Kelley accused Comcast of spreading false rumors in an effort to drum up business.

“Frontier is not planning on pulling the plug,” Kelly told WANE-TV. “We are going to continue providing FiOS service in Allen County and we have no plans to remove it.”

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/WANE Ft Wayne FiOS Not Going Away 6-9-11.mp4[/flv]

WANE-TV in Ft. Wayne led its newscast with the dispute between Frontier Communications and Comcast over fiber optic television.  Is the plug really being pulled? (Loud Volume Alert!) (3 minutes)

But Comcast officials note Frontier has been pushing existing customers hard to switch to satellite television service, and Frontier earlier announced dramatic rate increases for its fiber cable television service — rates much higher than other competitors.

Comcast issued a statement about the dispute:

“Comcast continues to invest in these markets, while Frontier has taken a number of steps to discourage new customers from signing up for its service and encourage current customers to seek alternative services from satellite. We are using these ads to make consumers aware of our Xfinity TV service as a better choice for consumers.”

HissyFitWatch: Oooh... Comcast!

From our own Stop the Cap! investigation, both companies are partly correct.

We called Frontier this afternoon posing as a new FiOS customer in Ft. Wayne trying to sign up for television service.  The only option available, we were told, was satellite television service.  While Frontier was happy to sign us up for telephone and fiber broadband, the company representative told us she could not take our order for FiOS TV because, “it’s not available in your area.”

But Comcast’s claims about FiOS lack the very important detail that FiOS broadband and phone service will be offered by Frontier without any interruption — only television service appears to be at issue, and remains available to current customers.

We heard from several Ft. Wayne customers who are unhappy with Frontier’s handling of FiOS.

“While Comcast is being clever, the fact is Frontier wants TV customers to switch to satellite, which is simply a stupid idea,” says our reader Kevin.  “Why would I want a satellite dish when I have fiber.”

Lee, another Frontier customer, believes the company broke its promise of no rate increases after buying out Verizon’s local operations.

“They promptly raised the TV rate by around $30, and if you are a new FiOS customer, expect to pay hundreds and hundreds of dollars for installation,” he says.

Last week, Frontier’s deadline for Comcast to pull down the billboards passed, but as of today those billboards are still on full display.  Comcast’s response to Frontier?

“We received their letter.”

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/WANE Ft Wayne Deadline day for billboard back-and-forth 6-17-11.mp4[/flv]

WANE-TV in Ft. Wayne updates viewers.  Frontier’s unilateral deadline for Comcast to pull down their billboards came and went.  The billboards are still there.  Now what? (2 minutes)

A Radio Shack store in Hamilton, Montana has come up with a novel way to pitch satellite dishes to local residents — include a free gun with every purchase.

Actually, it’s not a promotion sanctioned by Radio Shack, and DISH Network has nothing to say about the promotion either.  It was the idea of store owner Steve Strand, who runs S&S Electronics, authorized to do business under the Radio Shack brand.

Strand says new DISH customers get their choice of either a Hi-Point 380c-p pistol or a Baikal MP-18 20 GA shotgun.  If guns are not your thing, Strand will give you a $50 gift card for the local Pizza Hut instead.

Strand’s store serves Missoula and the Bitterroot Valley — regions that are served by Bresnan Cable, now owned by Cablevision.  Stories about Bresnan on Stop the Cap! always elicit plenty of response… about how darn lousy the service is.  So satellite television, especially outside of Bresnan’s service area, is the only real option for many residents.

Giving away a gun with every purchase may raise eyebrows among many, but for most Montanans, it’s no big deal.  And when you call, S&S tells visitors to their promotional website there is never a need to press “1” for English.  “We are American and we speak English,” boasts the site.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CNN Guns in Country 3-30-11.flv[/flv]

CNN interviewed store owner Bill Strand about his unique promotion — a free gun with every satellite TV purchase.  (3 minutes)

Ft. Wayne, Indiana

Outrage over enormous price increases for Frontier’s fiber optic television service in Indiana are being met with little more than a shrug of the shoulders by one company executive, who seemed to dismiss as an afterthought the state-of-the-art FiOS network it acquired from Verizon.

Frontier Communications’ president of its Midwest division, Don Banowetz, has been making the rounds with Fort Wayne-area reporters over news the phone company intends to boost prices for its FiOS TV service by $30 a month for most customers.

But Banowetz has done little to defend the price increases or the fiber network the company acquired with its purchase of landlines from Verizon.

“Look, we bought the whole company, right? All the assets. The FiOS part was part of that, so it was part of the deal,” said Banowetz.  “We couldn’t ride the previous arrangement. So in essence, it was what it was.”

WANE-TV reporter Aishah Hasnie seemed stunned with Banowetz’s response, finally asking what customers should do if they can’t afford the rate increases.

“Get DirecTV,” came the reply.

Starting February 18th, customers who subscribe to a FiOS TV basic package will see their rates go by up $12 per month. Customers who subscribe to other FiOS TV packages will see a $30 increase. The increase does not affect customers under a price protection plan.

That kind of price increase would normally provoke blanched faces in a corporate boardroom over fears of a mass exodus of customers.  But not Frontier.

“The FiOS TV part of our business is actually a very small part of our business. It’s about three percent of our revenues,” said Banowetz.

But Frontier’s satellite package, pitched as an alternative, brings plenty of tricks, traps and other hidden fees inside the box.  In addition to signing a two-year service commitment with DirecTV, customers also have to sign a three-year “price protection agreement” with the phone company, which is another way of saying “contract.”  The total price adds up:

• Customers opting for Frontier’s “free TV” promotion will face a three-year contract term with a $400 early cancellation fee;
• Frontier’s satellite TV promotion has a three-year contract term with a $300 early cancellation fee;
• “Care and handling” fees amounting to $69.99 apply to the “free TV” offer;
• A $34.99 Frontier “video setup fee” applies to customers getting satellite service from the phone company;
• DirecTV requires customers to pass a credit check and sign a contract with a 24 month commitment;
• If you change any aspect of your programming package, you may forfeit the “free service” offered as part of the promotion.

In northwest Washington state, Frontier’s rate increases are alienating the company with one member of the state’s congressional delegation.

U.S. Representative Rick Larsen (D-Wash.) sent a letter to Frontier complaining about the huge rate hikes, telling the company it needs to find better alternatives for many of his constituents who cannot install a satellite dish.

“Folks in Northwest Washington are concerned about the future of cable service offered through Frontier Communications, and rightly so,” said Rep. Larsen. “I am calling on Frontier to offer consumers better and more affordable options for cable service in the region.”

Rep. Larsen’s letter to Frontier Communications:

Dear Mr. Mason:

I am writing to express concerns that I share with many of my constituents in Northwest Washington about Frontier’s plans for cable service in our region. The Everett Herald recently published an article, “Switch to a Dish or pay more, Frontier tells FIOS customers,” that highlights some of the problems that people in Northwest Washington have with Frontier’s announcement that it will alter the existing framework of its fiber-optic television service. Specifically, Frontier’s decision to offer its customers a choice between continuing with their current FIOS television service—with a rate increase of 46 percent or switching their cable television service to the satellite provider DirecTV.

I am concerned with Frontier’s decision to substantially raise its cable television rates for its existing customers in the Pacific Northwest. Last September, Frontier Communications Chief Executive Maggie Wilderotter was quoted in The Oregonian newspaper stating that Frontier would distinguish itself from larger cable companies by holding down prices for its customers. I find it troubling that less than six months later Frontier is dramatically raising its cable television rates.

Additionally, it is problematic that Frontier has not offered an adequate alternative to those customers who live in apartment complexes where the installation of satellite dishes is prohibited and therefore cannot take advantage of the option to switch their cable service to DirecTV. — Rick Larsen, United States Representative, Washington State, 2nd District

Stop the Cap! reader John says he has sent a letter to CEO Maggie Wilderotter protesting the rate hikes and imploring the company to find a programming co-op to join.  Smaller providers need not pay “rack prices” for cable programming.  Municipal providers, family owned companies, and small independent cable operators have enjoyed substantial programming discounts through group buying power.  Frontier apparently is trying to negotiate for video programming on its own, a fatal mistake that has brought on this month’s rate hike.

If you want to help educate Frontier about how to run their business properly, here is their contact information:

Frontier Communications Corporation
3 High Ridge Park
Stamford, CT 06905-1390
Phone: 203-614-5600
Fax: 203-614-4602
[email protected]

When writing or calling, don’t forget to tell them to abandon their Internet Overcharging schemes — no usage caps or limits on Frontier broadband, or you will take your business somewhere else.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/WANE Fort Wayne Frontier Frustration 1-24-11.flv[/flv]

WANE-TV in Fort Wayne delves into Frontier Frustration as angry customers react to news of enormous rate increases.  (2 minutes)

Frontier's Fiber Fantasies

Frontier FiOS is the fiber-to-home network that gets no respect, at least from the company that now runs it.

What Verizon considers its crown jewel, Frontier Communications considers an afterthought. Since buying up several million landlines from Verizon, Frontier has reluctantly adopted the fiber-to-the-home service already up and running in a handful of areas Verizon sold off.

Frontier CEO Maggie Wilderotter said Frontier would not increase pricing on its services, in fact stating they had not had a price increase in several years.  But just months after winning approval of the deal with Verizon, Frontier stunned customers and regulators with one of the largest rate increases ever seen in the cable television industry: a $30 monthly increase for basic cable.

Understandably, angry customers have been calling Frontier in droves demanding an explanation.

Stop the Cap! reader Betsy was floored when a Frontier representative actually suggested to her its FiOS network wasn’t worth the trouble, and the representative was telling all of the customers calling they should “upgrade” to satellite TV instead.

“How do you even respond to that?  I thought I heard her wrong — I had the speakerphone on, but after the Frontier rep said it, my 87 year old mother who was listening hollered ‘that’s a bunch of bull****’ from the other room,'” Betsy shares.

“My mother almost never swears,” Betsy tells Stop the Cap! “But she was living with us when our family endured satellite’s rain fade, the neighbor’s trees, the picture freezes, and the equipment issues for almost ten years — why would we go back to that?”

In fact, it was Verizon’s FiOS network which attracted the Washington State family to take the satellite dish off the roof and toss it.  So it came as quite a shock to have a Frontier representative try and get her to rip a state of the art fiber network out to go back to DirecTV.

Frontier wants their customers to give up on this...

“Does anyone at this company have a clue what they are doing?  Using their logic, we should go back to dial or hand crank telephones,” Betsy concludes.

We wondered if this was a fluke, but then we found Frontier telling customers nearly the same thing in Ft. Wayne, Ind.

The Journal-Gazette reports Frontier’s rate hike in the Pacific Northwest foreshadowed similar rate hikes likely in the midwestern city that is Frontier’s second largest market, behind Rochester, N.Y.

Frontier Communications FiOS cable customers could be facing a monthly increase of $12 to $30 in coming weeks.

Many of the affected subscribers have a $99 bundle for monthly TV, telephone and Internet services. As an alternative, Frontier will offer DirecTV satellite service free for the rest of the year for customers paying for telephone and Internet, a spokesman said Wednesday.

“We will be making more information available by Tuesday of next week,” said Matthew Kelley, adding that existing customer contracts will be honored.

“With DirecTV, it really is a chance to get three services for the price of two. The channel lineups are pretty comparable.”

DirecTV offers more than 200 channels, Kelley said.

...and "upgrade" to this instead.

“Don’t sign me up,” Betsy writes when we showed her the Journal article.  “Channel lineups don’t mean much when you can’t watch them.”

Betsy’s satellite dish took a beating not only from the weather and efforts to find a clear view to the sky, but also from some birds advertising for a mate.

“The woodpeckers just loved to attack the dish — the jack-hammering sound could be heard all over the neighborhood when they got going,” she said.

Frontier’s Kelley admitted the company is small potatoes in the cable world, and simply can’t compete for good programming prices.

But even those of us at Stop the Cap! know that smaller players need not negotiate programming contracts themselves — they can join one of several groups that pool smaller providers together to grab substantial volume discounts.  Municipal players manage to find reasonable cable programming prices, but a multi-state corporate player like Frontier apparently cannot.

Bruce Getts, business manager for the International Brotherhood of Electrical Workers Local 723, shrugged off Frontier’s FiOS failures.

Getts, whose union represents 700 installers, repair technicians, customer service representatives and dispatchers at Frontier told the newspaper more people are going online to watch TV anyway, so the impact of the price hike might well become moot.

Unfortunately, Frontier is the same company testing an Internet Overcharging scheme in the Sacramento area that makes online viewing an expensive proposition, even more expensive than Frontier’s FiOS rate hikes.

“I think people will rue the day they let these bozos take over our phone service,” Betsy says.  “It looks like our family has a reason to cancel service with Frontier and head to cable.”