Spending priorities: mergers & acquisitions, not upgrades.

Since 2012, two of the country’s largest phone companies spent enough money — $281.4 billion — to wire at least three-quarters of the  nation with fiber-to-the-home service and deliver vastly improved rural internet access to the rest of the country. Instead of doing that, AT&T and Verizon used the money to buy their competitors and content creators including AOL and Yahoo.

A 2017 Deloitte Consulting analysis estimates the United States will need between $130 and $150 billion in investment over the next 5–7 years to upgrade at least 75% of homes and businesses to fiber to the home service, with the remaining 25% serviced by technologies including 5G that are capable of delivering broadband speeds greater than the federal minimum standard of 25/3 Mbps.

AT&T could almost deliver the country a major broadband upgrade all by itself, having spent $138 billion on mergers and acquisitions in the past six years. Verizon could have easily handled the entire cost, but instead spent its $143.4 billion on business deals, including $130 billion to buy out former Verizon Wireless partner Vodafone. Among independent phone companies, things look equally bad. Frontier Communications is saddled with so much debt after acquiring former AT&T customers in Connecticut and Verizon customers in more than a dozen states, it has been forced to suspend its shareholder dividend and has been only able to make token investments in network upgrades for its mostly copper wire infrastructure in its original “legacy” service areas and a mixture of copper and fiber in acquired service areas. Both CenturyLink and Windstream have refocused many of their business activities on the commercial services marketplace, including the sale of hosting, business IT services, and cloud server networks.

More recently, both AT&T and Verizon have raced into content company acquisitions, buying up AOL, Yahoo, and Time Warner to offer their respective customers additional content. The phone companies are diversifying their business interests away from simply offering phone lines and internet access. At the same time, many of these acquisitions are depleting resources that could be spent on critical network upgrades.

The article in Light Reading claims the telecom industry’s traditional financial model of borrowing money to build networks and upgrade others is broken, because telecom companies now prefer to spend money acquiring other companies instead. Although AT&T has, in recent years, been more aggressive than Verizon in deploying fiber to home service, both companies have resisted committing large amounts of capital to a territory-wide fiber buildout, preferring to spend smaller sums to incrementally upgrade their networks in selected areas over the next decade. But the merger and acquisition teams at both companies are far less cautious, given the go ahead to pay handsomely for companies that often have little to do with providing telephone or internet service.

Light Reading reports AT&T’s debt climbed from $59 billion in 2010 to $126 billion at the end of 2017. Verizon’s debt increased from $45 billion to $114 billion. But those acquisitions have done little to attract new customers. Both companies’ operating cash flows have barely budged — $39 billion annually at AT&T (up from $35 billion) and Verizon’s actually declined from $33 billion in 2010 to $25 billion in 2017.

Mergers and Acquisitions (2011-2018)

AT&T

• 2012: AT&T buys $1.93 billion worth of spectrum from Qualcomm.
• 2013: AT&T buys Leap Wireless (Cricket) for $1.2 billion.
• 2014: AT&T pays $49 billion for the DirectTV, issuing $17.5 billion in debt in April.
• 2015: AT&T buys out assets from bankrupt Mexican wireless business of NII Holdings for around $1.875 billion.
• 2018: AT&T pays $207 million to acquire FiberTower.
• 2018: AT&T is cleared to merge with Time Warner in a deal valued at more than $84 billion.

Verizon

• 2011: Verizon acquires Terremark for $1.4 billion.
• 2014: Verizon buys out Vodafone’s 45 percent stake in Verizon Wireless, valued at $130 billion, with a mixture of stock and debt.
• 2015: Verizon buys AOL for a deal valued around $4.4 billion.
• 2017: Verizon acquires Yahoo Internet assets for $4.5 billion.
• 2017: Verizon buys spectrum holder Straight Path Communications for $3.1 billion roughly double rival AT&T’s offer, to build up 5G spectrum and footprint.

The more debt (and debt payments) that pile up at the two companies, the less money will be available to spend on fiber upgrades. In fact, there is evidence these companies are hoping to further cut costs in their core landline network operations. Some regulators have noticed. Verizon was forced to make a deal with New York regulators requiring the company to spend millions replacing failing copper-based facilities and upgrade them to fiber and remove or replace tens of thousands of deteriorated utility poles. Verizon faced similar action in Pennsylvania.

AT&T has spent millions lobbying the federal government to permanently decommission rural America’s landline network and replace it with a wireless alternative, while also working to replace the current regulated telephone network with deregulated alternatives like internet and Voice over IP phone service.

Wall Street analysts have occasionally questioned or at least expressed surprise over some of the phone companies’ odd acquisitions:

• Verizon acquired Terremark to beef up its cloud-based and server-hosting businesses. But shortly after acquiring the company, Verizon began replacing top management, sometimes repeatedly, and ultimately divested itself of its data center portfolio, including Terremark, just five years later.
• AT&T bought DirecTV to help it reduce wholesale TV programming expenses for its U-verse TV subscribers. But DirecTV has lost more than one million satellite TV customers since AT&T acquired it in 2014, despite new marketing efforts to convince would-be U-verse TV customers to choose DirecTV instead.
• Verizon saw value in web brands that were major players more than 18 years ago but are mostly afterthoughts today. The company spent almost $9 billion to acquire Yahoo and AOL, and their low quality content portfolios, which rely heavily on clickbait headlines, advertiser-sponsored content, and articles designed to maximize mouse clicks to boost the number of ads you see.

“The telcos are trying to diversify into content when they should instead be focused on their core business — building networks and charging for value-added technology,” said Scott Raynovich, founder and principal analyst at Futuriom. “It’s clear they see content as part of the value-add but customers so far don’t seem to be reacting that way. It’s clear they are allergic to paying higher prices for bundled content.”

AT&T and Verizon’s customers are not clamoring for more content deals. When surveyed, most want better internet service at more affordable prices.

Sprint debuted its new $15/month Unlimited Kickstart plan on June 7th, and will stop taking new orders for it tomorrow evening, making it one of Sprint’s shortest-lived plans ever.

The plan, intended to steal customers from competitors, offers those bringing a qualified device (or buying one) the opportunity of paying just $15 a month for unlimited talk, texting, and data, with some caveats:

• Video streams are throttled to support up to 480p, music streams are limited to 500 kbps, and gaming streams don’t exceed 2 Mbps.
• Customers on this plan are subject to speed throttles, known at Sprint as “data deprioritization” when towers are congested, regardless of usage.
• Customers must enroll and maintain autopay.
• Requires customers to sign up for a new line, port an existing number, and either bring your own device or buy one from Sprint.

Unlimited Kickstart gives Sprint a chance to report a big boost in new customer signups during its next quarterly report to Wall Street. But the company claims the plan also allows customers of other carriers the opportunity of sampling Sprint’s upgraded network, or return to Sprint as an ex-customer to see how the network has improved. There are no contracts, and the offer also extends to other family members — each line up to four will cost just $15/month.

Sprint will attempt to upsell customers to its Unlimited Freedom plan, which offers more features at a higher price.

“At Sprint, we’ve worked incredibly hard to improve our network,” the company claimed in a press release. “In fact, Sprint’s national average download speed increased 34.5 percent year-over-year, more than any other national carrier. Plus, we’ve increased our investment to make our coverage, reliability and speed even better as Sprint prepares to launch the first mobile 5G network in the U.S. in the first half of 2019.”

The company claims interest in the offer is extremely heavy, but the press release announcing it also mentioned an expiration date for enrollees of Friday night (June 15) at 11:59pm EDT, which means time is running out. Customers have to sign up for the offer online, which isn’t particularly intuitive. A Live Chat button is located on the web page which may offer some help to those trying to enroll. If you own a qualified phone already, or acquire a new one, you will need to acquire a Sprint SIM card to activate the plan no later than June 22, 2018.

Comcast has quietly dropped its internet congestion management system, designed to slow down its heaviest users, claiming it has gone unused for more than a year and was no longer needed.

Originally spotted by readers of DSL Reports, the announcement referenced the system that replaced Comcast’s speed throttle that intentionally degraded peer-to-peer network traffic after Comcast claimed it was unfairly impacting its other customers:

As reflected in a June 11, 2018 update to our XFINITY Internet Broadband Disclosures, the congestion management system that was initially deployed in 2008 has been deactivated. As our network technologies and usage of the network continue to evolve, we reserve the right to implement a new congestion management system if necessary in the performance of reasonable network management and in order to maintain a good broadband Internet access service experience for our customers, and will provide updates here as well as other locations if a new system is implemented.

Comcast’s “protocol-agnostic” network management technology, designed by Sandvine and introduced in 2008, measured customer traffic and singled out heavy users for speed reductions when Comcast’s network was saturated with traffic. Customers were unaware if they were deemed heavy users or if their traffic was targeted for temporary speed reductions. Comcast relied on the technology, along with the introduction of a 250 GB nationwide data cap, to control network traffic and stall the need for expensive node-split upgrades.

Comcast claims the introduction of DOCSIS 3.0 (starting in late 2008) and DOCSIS 3.1 (2017) gradually eliminated the need to maintain the congestion management system, because channel bonding vastly expanded available internet bandwidth. What remains in place in most Comcast service areas is Comcast’s controversial 1 TB usage cap. The company initially claimed its data caps were part of a network traffic management strategy, but more recently the company claims it collects more from heavy users to compensate for its broadband investments.

AT&T quietly changed their home internet plans this week, dramatically boosting speeds for some of their lower-priced offerings in areas served by fiber, while boosting gigabit pricing by $10 a month in some instances.

Last week, AT&T was selling 5, 50, 100, and 1000 Mbps plans in AT&T Fiber areas. This week, customers can choose 5, 100, 300, or 1000 Mbps. Existing customers will likely have to switch plans to get the speed upgrades.

Prices shown reflect a bundled discount in the Chicago area. Prices vary in different service areas and are higher for broadband-only service. Basic 5 Mbps pricing can range from $30-60 a month depending on area and available discounts.

If you are a new AT&T customer, the company is offering a $50 Reward Card rebate (expires 7/31/2018) and a free Smart Wi-Fi Extender (new or existing customers switching to gigabit service only) (expires 6/28/2018). Here are some other important terms and conditions to be aware of:

• There is a 1 TB data cap on all plans except Gigabit Internet 1,000, which is unlimited. But you can avoid the cap for $30 extra a month (not worth it) or by maintaining a bundle of TV and internet service on a combined bill.
• All internet offers require a 12 month agreement ($180 pro-rated early termination fee applies).
• Prices reflect bundled service combining internet with at least one other AT&T product (TV/AT&T Phone/Wireless).

Frontier Communications spent more time working on ways to keep Minnesota customers from turning up at upcoming public hearings to discuss their poor service than actually resolving those customers’ service troubles.

Minnesota has a big problem with Frontier. The company has been the subject of an unprecedented number of customer complaints and negative comments — 439 in just a five-week period from Feb. 12 – March 19, 2018 about poor service, repair crews that don’t show up, woefully inadequate internet service, poor billing and customer service practices, and false advertising. As a result, the Minnesota Public Utilities Commission (PUC) launched an investigation into Frontier’s service performance in the state (Note: most links in this article will require a free account at the Minnesota Department of Commerce to read. Register here.), which is about the same time Frontier’s top executives in the state began a campaign of damage control focused primarily on keeping internet complaints out of the public record.

The complaints, summarized below by the Minnesota PUC, are familiar to many Frontier Communications customers around the country:

Some parties allege being without telephone service for about a week’s time on multiple occasions. Such instances resulted in customers being unable to access 911 or connect medical devices dependent on land telephone lines. Missed incoming calls, noise on phone lines and other phone quality complaints are not infrequent. Nearly all comments mention that they are being charged for service product(s) not being provided as promised, often with related billing and cancellation disputes as a consequence.

Nearly all parties complain that Frontier’s customer service representatives provide inconsistent information on available service in the customer’s area and its price. Many report routinely being sold higher level (more costly) service or hardware as a remedy for service problems that remain or return after the recommended solution is in place. Customers often note being told later that the upgraded service they were sold is not available at their location.

Many complaints concern home service visits that require subsequent visits to correct or augment earlier actions, often with charges but no resulting remedy. Often customers say they experience long delays in getting repairs scheduled, must take lengthy time from work to await for service representatives to arrive only to find problems cannot be remedied. Missed service appointments, mistaken disconnections, unrequested service additions, installation and wiring errors are common complaints.

Customers frequently report discovering they are allegedly on a contract with penalties for ending service early even if they had explicitly refused to accept long term contracts. Apparently such contracts automatically renew without customer notice upon payment of the first month of the new period. Customers indicate being warned of damaging credit reports in addition to accumulating penalties if they do not pay disputed bills. Billing disputes also include promised discounts not being provided, penalties accumulating on disputed amounts, and checks being sent but not being credited to accounts.

Based on decades of experience, the PUC staff knew trouble when they saw it, and found the complaints about Frontier credible and serious.

“The total number of comments and complaints, often with detailed documentation, appears to indicate that widespread problems with service quality, customer service and billing exist,” PUC staffers wrote. “Customers express the very highest levels of frustration over service quality and over their interactions with Frontier representatives. Customers express despair over their billing and lack of alternatives. Finally, they express outright ‘gratitude for the hope that someone might come to their aid.”

Customers hoping for rescue discovered Frontier’s legal team instead, on a mission to do everything possible to limit the scope of the state’s investigation and discourage public participation by suggesting customers with internet complaints would not be welcome at the hearings.

Frontier, joined by fellow independent phone company CenturyLink, immediately realized the implications of holding public hearings about the performance of their DSL service in Minnesota. Both companies likely receive an even larger number of service complaints than regulators do, and here is just a sampling:

‘If you don’t like our service in the countryside, move to town!’

Graham Adams: “We have had Frontier for a little over 2 years and have had nothing but problems. Internet is constantly out for days sometimes weeks at a time. I think it’s preposterous they can charge me $42 a month for 5 Mbps service that is inconsistent at best. Because we live outside city limits Frontier is the only internet service available.”

Christopher Krolak:  “I have been a Frontier Communications customer for about 4.5 years. I live in an area where there isn’t a lot of competition for high speed internet. I pay $30 per month for “up to 6 Mbps” service but real world speeds are best case 2 Mbps and fall to 0.3 Mbps during peak times. When I’ve called about the large discrepancy between advertised speed and actual speed, Frontier has responded that the area I live in is only provisioned for about 2 Mbps speed and an infrastructure upgrade is required. Frontier is unwilling to give any timeline forecast for when such upgrade will be made.”

Sylvia Svihel: “We have been a customer of Frontier’s for 41 years as it has been the only land line in our area. Our phone, internet and Dish service are tied into the same package. The prices keep going up. We did upgrade our service for a faster speed but we see zero improvement on the speed…just an even higher bill. I have lost track of how many times we have contacted Frontier on lost service. They usually just say it’s the modem and to reboot it and everything will be OK. I reboot the modem, sometimes multiple times a day.”

Jay Johnson: “I have been a Frontier customer for internet for a long time. The service I pay for is “up to 6 Mbps” but I’d be lucky to get 1.2 Mbps. They have a monopoly in this part of Mille Lacs County. There are really no other options other than satellite or cellular and those are not really any better speed and certainly not price.”

Roger Wikstrom: “We have had Frontier service for 32 years. Beginning about 20 years ago we added internet service, which has always been unreliable. […]We complained many times and had dozens of service calls over the years. At one point, the technician told us we were out in the country, the brass at Frontier did not really care about our service, and that if we wanted good service from Frontier, we should move to town.”

Based on a growing record of complaints, the PUC sought to hold public hearings to gather more information from consumers and to better understand the problems being experienced by Frontier customers. Almost immediately, Frontier began to claim the complaints were few and far between, and most of the complaints seen on the record pertain to the company’s DSL internet service, which Frontier claims is not subject to oversight by the PUC and cannot be a subject on the agenda of the public hearings.

Frontier’s Lawyers: It would confuse customers and give them false hope if they believed the Commission can force Frontier to improve DSL service.

Frontier’s attorneys lecture the Minnesota Department of Commerce

Frontier’s attorneys have repeatedly objected to any investigation or hearings that cover anything beyond the performance of Frontier’s landline telephone service. Frontier was joined by CenturyLink, which also argues Minnesota no longer has any jurisdiction over broadband issues, noting a state court recently ruled telecommunications services are subject to state regulation and oversight, while “information services” like internet access are not.

Frontier was particularly irritated that the hearings could stray into an open mic session filled with consumers upset about Frontier’s DSL service. Unless customers were warned in advance the public meetings were not to include discussions about internet service, it “would create false expectations and confusion for customers.” In fact, if regulators permitted this, Frontier claims it would “violate federal law.”

“Holding public hearings directed to internet access service complaints would not be constructive because the Commission would be precluded from taking action concerning internet service rates or service quality using any information it may collect during the public hearings,” Frontier added.

Here is where the Republican-dominated FCC comes to the aid of Frontier and CenturyLink. At the insistence of FCC Chairman Ajit Pai, stripping away state oversight of poorly performing telecom companies was a key industry benefit gained with the implementation of Pai’s “Restoring Internet Freedom Order,” implemented on Jan. 8, 2018. That FCC Order swept away former FCC Chairman Thomas Wheeler’s favored classification of broadband as a “telecommunications service,” which is subject to oversight, and instead put it firmly back in unregulated territory as an “information service.” That proved helpful to CenturyLink’s argument:

In making its decision the FCC broadly preempted state regulation and decided that “regulation of broadband Internet access service should be governed principally by a uniform set of federal regulations, rather than by a patchwork that includes separate state and local requirements.” The FCC expressly preempted any ‘public utility-type’ regulations, . . . akin to those found in Title II of the Act and its implementing rules . . .”

Frontier’s lawyers made so much noise about the prospect of internet complaints being heard at public hearings, the Commission elected to allow Frontier to draft the public hearing notices that would be inserted into customer bills and published in newspapers around the state. The Commission also allowed Frontier to clarify the limits of the Commission’s jurisdiction over internet service — a decision it would soon regret.

Minnesota is unusual because it is served by dozens of smaller, typically independent telephone companies, which include Frontier and its subsidiary Citizens Telecommunications of Minnesota.

Give Frontier an inch, and they take a mile, according to some company critics who told Stop the Cap! were astonished on April 30th when Frontier shared its draft notice with the public. The Minnesota attorney general’s office politely characterized Frontier’s notice as a “very narrow reading of the Commission’s jurisdiction over internet service.”

Here it is, as originally proposed by Frontier in April:

The jurisdiction of the MPUC includes telephone services, but does not include Internet services or the speed or quality of access or connections to the Internet or the communications services, such as Voice Over IP, that are provided using only the Internet.

The attorney general’s office objected to Frontier’s characterization of VoIP phone service as completely unregulated. A subsequent proposed revision by Frontier was not welcomed by the attorney general’s office either:

The jurisdiction of the MPUC includes telephone services, but does not include Internet access services or the rates, speed, quality, or availability of Internet services.

After motions to reconsider, the Commission ultimately reversed its earlier decision allowing Frontier to write its own text:

While the Commission does not want to mislead the public into believing the Commission has jurisdiction over matters that are solely within the province of federal entities, neither does the Commission want to erroneously disavow any aspect of the jurisdiction it does have over the goods and services that Frontier provides to its Minnesota customers.

Given the tension between these two objectives—and the fact that this dispute is arising in the context of drafting the language of a public notice—the Commission will resolve this matter by simply eliminating the requirement that the notice address the topic of the Commission’s jurisdiction over aspects of internet services.

Frontier DSL in Watertown: “47 minutes to upload one small photo to Facebook.”

While Frontier argues about jurisdiction issues, customers like Dr. Kathleen McCann — a dentist serving rural Watertown Township in Carver County, share their stories about how inadequate internet access directly harms local communities, and in her case, her patients.

Dr. McCann

“Frontier Communications is my only option for internet,” McCann told regulators. “My internet service is worse than dial-up. I am charged for ‘DSL High Speed Broadband’ on my monthly bill, but my download speeds are only averaging 2 Mbps and the upload speeds average 0.28 Mbps. As a dentist, I am not able to email dental X-rays. It took me 47 minutes to upload one small photo to Facebook recently.”

McCann added what is even worse than her DSL speed is Frontier’s service. She claims there are “frequent drops” every day, and a technician from Frontier measured an average of 20 small service outages a day. One day her service dropped 400 times. Outages can last days.

“The most recent Frontier internet outage began March 3 and as of March 7, there are at least 27 homes in my neighborhood still without internet service,” McCann added. “This is unacceptable, especially since many of these 27 Frontier customers are running their businesses entirely from home. Calls to Frontier, when finally answered after sometimes 40 minutes on hold, are ineffective.”

Public meetings to discuss Frontier service are scheduled in these areas of Minnesota (exact locations to be determined):

• Ely: September 4, 2018, at 6:00 p.m.
• McGregor: September 5, 2018, at 6:00 p.m.
• Wyoming: September 12, 2018, at 6:00 p.m.
• Slayton: September 25, 2018, at 6:00 p.m.
• Lakeville: September 26, 2018, at 2:00 p.m. and 6:00 p.m.