Phone companies looking for a cheap way to increase broadband speeds are turning away from fiber optics and towards advanced forms of DSL that don’t bring cost objections from shareholders.

Whether your provider is AT&T or an ISP in Europe or Australia, financial pressure to improve broadband on the cheap is fueling research to wring the last kilobit out of decades-old copper phone wiring.

Alcatel-Lucent suggests VDSL2 Vectoring is one such technology that can enable download speeds up to 100Mbps using noise-cancelling technology to suppress interference.

But the advice doesn’t impress fiber optic fans who suggest any reliance on deteriorating copper phone lines simply postpones an inevitable fiber upgrade that could come at a higher cost down the road.

VDSL2 Vectoring and G.Fast are only as good as the copper wiring that extends to each customer. Up to 45 percent of North American wire pairs are in some state of disrepair.

Vectoring has been described as “pixie dust” by Australia’s former Communications Minister Stephen Conroy. Conroy was overseeing Australia’s switch to fiber service as part of the National Broadband Network. But a change in government has scrapped those plans in favor of a cheaper fiber to the neighborhood broadband upgrade advocated by the new Communications Minister Malcolm Turnbull that resembles AT&T’s U-verse.

“Malcolm can sprinkle pixie dust around and call it vectoring and he can do all that sort of stuff but he cannot guarantee upload speeds,” Conroy told Turnbull.

As with all forms of DSL, speed guarantees are extremely difficult to provide because the technology only performs as well as the copper wiring that connects a neighborhood fiber node to a customer’s home or office. Upload speeds are, in practical terms, significantly slower than download speeds with VDSL2. Turnbull expected download and upload speeds on Australia’s VDSL2 network to be around a ratio of 4:1, which means a customer who has a download speed of 25Mbps per second would receive an upload speed of around 6Mbps.

In the lab, VDSL2 Vectoring delivers promising results, with speeds as high as 100Mbps on the download side. DSL advocates are excited about plans to boost those speeds much higher, as much as 1,000Mbps, using G.Fast technology now under development and expected in 2015. VDSL2 Vectoring and G.Fast both require operators to minimize copper line lengths for best results. Unfortunately, dilapidated copper networks won’t work well regardless of the line length, and with many telephone companies cutting back upkeep budgets for the dwindling number of customers still using landlines, an estimated 15-45 percent of all line pairs are now in some state of disrepair.

Assuming lab-like conditions, G.Fast can deliver 500Mbps over copper lines less than 100 meters long and 200Mbps over lines between 100 and 200 meters in length.

G.Fast also allows for closer symmetrical speeds, so upload rates can come close or match download speeds.

This cabinet houses the connection between a fiber optic cable and copper phone wiring.

Providers prefer the copper-fiber approach primarily for cost reasons. There are estimates deploying a G.Fast-capable VDSL service to a home would cost around 70 percent less than fiber to the home service. Workers would not need to enter customer homes either, offering less-costly self-install options.

Telekom Austria and Swisscom are among providers committed to launching the technology. Both countries are mountainous and have many rural areas to serve. Fiber rich providers are also looking at the technology for rural customers too costly or too remote to service with fiber.

Critics question the real world performance of both VDSL2 Vectoring and G.Fast on compromised copper landline networks. Decades of repairs, deteriorating insulation, corroded wires, water ingress, and RF interference can all conspire to deliver a fraction of promised speeds.

Many critics also point to the required aggressive deployment of fiber/VDSL cabinets — unsightly and occasionally loud “lawn refrigerators” that sit either in the right of way in front of homes or hang from nearby utility poles. To get the fastest possible speeds, one cabinet may be needed for every four or five homes, depending on lot size. Australia’s VDSL network, without Vectoring or G.Fast requires at least 70,000 cabinets, each powered by the electric grid and temporary backup batteries that keep services running for 1-2 hours in the event of a power failure. The batteries need to be decommissioned periodically and, in some instances, have caused explosions.

The costs of electric consumption, backup batteries, infrastructure, and maintenance of copper lines must be a part of the cost equation before dismissing fiber to the home as too expensive.

Broadband in the United States costs far more than in other countries — nearly three times as much as in the UK and France, and at least five times more than South Korea, according to BBC News.

The New America Foundation compared hundreds of available packages around the world and found customers in America’s largest cities are getting the biggest bills.

Customers in San Francisco with a discounted low-medium speed bundle including broadband pay $99 a month. A near-equivalent package costs London residents $38. New Yorkers get some savings from Time Warner and Cablevision facing down Verizon FiOS. But it isn’t enough. In the Big Apple, a promotional bundle averages $70 a month. “C’est la vie,” say Parisians. They only pay $35 for about the same. Even Washington, D.C. residents, which include the country’s most powerful politicians, pay Comcast its $68 asking price. In Seoul, South Korea, a comparable offer costs $15 a month.

High asking prices don’t buy better service. According to a report by the OECD issued over the summer, the United States ranks among the worst in terms of broadband-only pricing. With an average price of $90 a month for 45Mbps service, the U.S. ranked 30th out of 33 countries. Add phone and television service and the price spikes to around $200.

The BBC pondered why there is such a disparity in pricing. The answer was easy to spot: the lack of true competition.

“Americans pay so much because they don’t have a choice,” said Susan Crawford, a former special assistant to President Barack Obama on science, technology and innovation policy. “We deregulated high-speed Internet access 10 years ago and since then we’ve seen enormous consolidation and monopolies, so left to their own devices, companies that supply Internet access will charge high prices, because they face neither competition nor oversight.”

Although Americans can name the largest and deep pocketed providers — Comcast, AT&T, Time Warner Cable, Verizon, Cablevision, CenturyLink, Cox, and Frontier — most cannot choose from more than one cable provider and one telephone company. Comcast does not compete against Time Warner and AT&T does not compete against Verizon, except in the wireless world where both companies offer near-identical plans and pricing.

Comcast is quite the gouger in San Francisco.

Bay area customers told the BBC they get bills ranging from $120 a month for television and broadband (not including a $7 modem rental fee) to $200 a month for phone, TV, and Internet access. That same cable company is now testing a 300GB monthly usage cap on broadband in several American cities.

In contrast South Korea offers ubiquitous free Wi-Fi letting customers avoid usage charges. Home broadband is fast and cheap. Most pay $20 a month for 100Mbps.

Digging deeper, the BBC found clues why robust broadband competition delivers savings for consumers in Europe and Asia while Americans pay more.

Rick Karr, who made a PBS documentary in the UK comparing broadband costs at home and abroad, said the critical moment came when the British regulator Ofcom forced British Telecom to open its network and allow other companies to sell broadband over its copper telephone wires. In the United States, regulators never forced cable operators to open their networks, and after a 6-3 Supreme Court decision upheld the cable industry’s insistence it need not share access with competitors, telephone companies quickly called for parity.

A 2005 Supreme Court decision upheld the cable industry’s right to keep competitors off its cable broadband network.

Some argue the ruling promotes more competition by provoking competitors to build their own networks. But current conventional wisdom among the investment community teaches one cable and one phone company is considered good enough. Additional providers would erode the standing of all and force price cutting to compete.

There are exceptions. Although Google’s fiber to the home service has drawn national attention for its inexpensive gigabit fiber broadband network ($70 for broadband-only service), at least 150 cities are served by the public sector — co-op or publicly owned utility companies that offer broadband, often delivered over fiber optic networks.

Those networks often charge considerably less than the incumbent cable operator or phone company, a fact that has driven many privately run operators to seek legislative bans on community broadband.

In response to the report, telecommunications companies avoided the topic of prices and focused instead on value for money and the future.

Lowell McAdam, CEO of Verizon Communications, said Europe was replete with a decade of underinvestment, leaving many with less than 30Mbps service. The National Cable and Telecommunications Association said it was difficult to make international comparisons on price and Scott Cleland, part of the industry-funded NetCompetition website claimed although people may pay higher bills, they can at least choose among phone, cable, wireless or satellite.

“We may be paying more in your eyes today but we are building for tomorrow and the long-term,” said Cleland.

CenturyLink is seeking “greater flexibility” to set its own prices, terms and conditions of service without a review by Washington State regulators, even as its broadband customers complain about bait and switch Internet speeds and poor service.

Three years after the Monroe, La., based independent phone company purchased Qwest — a former Baby Bell serving the Pacific Northwest — CenturyLink continues to lose customers to cell phone providers and cable phone and broadband service. Since 2001, CenturyLink and its predecessor have said goodbye to 60 percent of their customers, reducing the number of lines in service from around 2.7 million to just over 1 million.

CenturyLink is apparently ready to lose still more after upsetting customers with a notice it intended to seek deregulation that could lead to rising phone bills.

Docket UT-130477, filed with the Washington Utilities and Transportation Commission (WUTC) proposes to replace currently regulated service with what CenturyLink calls “an Alternate Form Of Regulation.” (AFOR)

If approved, CenturyLink will “normalize” telephone rates in Washington State, language some suspect is “code” for a rate increase. For CenturyLink customers in cities like Seattle, Spokane, and Tacoma, the maximum rate permitted for basic phone service for the next three years will be $15.50 (unless a customer already pays more), before calling features, taxes, and surcharges are applied. Most observers, including the state regulator, suspect CenturyLink will limit rate hikes to $1-2 if approved. A higher increase might provoke more customers to leave.

Washington residents already pay the nation’s second highest taxes on wireless service. Now landline customers also pay more. (Graphic: The Spokesman)

“We don’t think they can do much because, in our view, all (a big rate increase) is going to do is accelerate people dropping the landline into their homes,” Brian Thomas, a spokesman for the Washington Utilities and Transportation Commission told The Spokesman-Review. “A lot of people are cutting the cord.”

Frontier Communications, which previously won its own case for deregulation within its service areas including Everett, Wenatchee, and Tri-Cities, raised rates about $1 beginning this month.

A spokesman for the company confessed Frontier’s phone service is becoming obsolete.

“It’s safe to say plain old telephone service is in the process of becoming archaic for some people,” Frontier’s Carl Gipson said. “Five years from now, it will be almost – but not quite – extinct.”

Every rate change seems to provoke a review of whether landline service is still necessary.

Earlier this year, CenturyLink jumped on board legislation that purposely increased phone rates by several dollars a month by removing the sales tax exemption on residential telephone service. Wireless companies did not enjoy the same exemption and sued for parity.

A confidential settlement with state regulators made Washington phone customers, instead of telecom companies, liable for the sales tax starting in August. As a result, some residential phone bills went up at much as $5 based on retroactively charged sales tax.

Customers sticking with CenturyLink often say it is the only broadband provider in rural towns across the state. Although better than satellite broadband, the lack of regulatory oversight and technology investments have allowed CenturyLink to sell Internet speeds it cannot provide to customers.

At a hearing held this week by the San Juan County Council, members criticized CenturyLink officials on hand for selling fast service but delivering slow speeds to the group of islands between the mainland of Washington State and Vancouver Island, B.C.

Hughes

“Last night I did a speed test at my house and I am paying for 10Mbps but only getting 4.74Mbps,” complained Councilman Rick Hughes (District 4 – Orcas West). “I am paying for 10 and I am only getting 5Mbps, so how is that fair? There has been a ton of frustration over the last two years we have worked on this broadband issue. Everywhere I go and every meeting I talk to all I hear is complaints about CenturyLink. No matter what they are paying for, it’s a poor broadband connection to the end customer.”

CenturyLink provides broadband to 88% of the territory the company serves in Washington. Like most telephone companies, CenturyLink relies on DSL in much of its footprint and has upgraded central offices, remote equipment, and the telephone lines that connect them. On the San Juan Islands, most customers used to receive 1-3Mbps, but CenturyLink claimed at this week’s hearing it spent billion on infrastructure improvements that can now deliver faster Internet service across the state. In San Juan County, CenturyLink claims:

• 58% of all qualified addresses were upgraded to 10-25Mbps;
• 66% now qualify for more than 10Mbps (but less than 25Mbps) versus 46% prior to upgrades;
• 29% of customers now qualify to sign up for 25Mbps service.

CenturyLink warned the council its speed claims were not to be taken literally, noting DSL “speed is dependent on distance from equipment; speeds drop quickly as distance increases.”

Hughes told CenturyLink officials residents appreciated the investment, but customers were still disappointed after being promised higher speeds than actually received.

“When people call customer service, there is always an excuse about why there is a problem,” said Hughes. “If people are paying for something, they want to receive it.”

“For our long-term financial interests in this county, we need to have reliable 10-25Mbps service to customers on any part of the islands,” Hughes added. “My goal has always been 90+ percent should be able to get 25Mbps or better connectivity in the county.”

The problem for CenturyLink is the amount of upgrade investment versus the amount of return that investment will generate. San Juan County is disconnected from the mainland and collectively house only 15,769 residents. But it is also the smallest of Washington’s 39 counties in land area, which can make infrastructure projects less costly.

CenturyLink committed to continue investment in its network “where economically feasible.”

San Juan County’s Orcas Power & Light Cooperative (OPALCO), a member-owned, non-profit cooperative electric utility may have a partial solution to the problem of meeting Return on Investment requirements.

OPALCO originally proposed a hybrid fiber-wireless system designed to reach 90% of the county with a $34 million investment, to be built over two years. When completed, all county residents would pay a $15 monthly co-op infrastructure fee and a $75 monthly fee for broadband and telephone service. To gauge interest, OPALCO asked residents for a $90 pre-commitment deposit. By the annual meeting in May, the co-op admitted only 900 residents signed up and it needed 5,800 customers to make the project a success.

Some residents balked at the high cost, others did not want wireless broadband technology, and some local environmental activists wanted OPALCO to focus on clean, affordable energy and avoid the competitive broadband business.

The lack of commitment forced the co-op to modify its broadband plans, offering a “New Direction” to residents in June 2013.

OPALCO elected to stay out of the ISP business and instead announced a public-private initiative, providing fiber infrastructure to existing service providers. In effect, the co-op will cover the cost of building fiber extensions where CenturyLink is not willing to invest. For a $3-5 million investment from the co-op, ISPs like CenturyLink will be able to commission OPALCO to build fiber in the right places to make DSL service better. CenturyLink would have non-exclusive rights to the fiber network and would have to pay the co-op a service lease fee.

Unlike ISPs in other communities that have shunned publicly funded fiber infrastructure, CenturyLink says it will contemplate a trial — buying bandwidth from OPALCO instead of enhancing its own fiber middle mile network — to test what level of improved service CenturyLink can offer customers.

Regardless of CenturyLink’s plans, OPALCO is moving forward installing limited fiber connections as part of an effort to develop a more modern electric grid.

“Our data communications network brings exponential benefit to our membership,” OPALCO notes. “It includes tools that allow the co-op to: control peak usage and keep power costs down, remotely manage and control the electrical distribution system, manage and resolve power outages more efficiently, integrate and manage community solar projects and improve public safety throughout the county.”

There are some drawbacks, reports Wally Gudgell from The Gudgell Group.

“It will take longer to implement, and will impact fewer businesses and households,” Gudgell writes. “While about two-thirds of the islands will eventually be covered, more remote areas will have to work with a local ISP and potentially pay more for service.  DSL coverage for homes that are further than 15,000 feet from CenturyLink fiber-served distribution hubs will be challenging. Some homeowners may need to pay for fiber to be run to their homes by Islands Network (fiber direct is costly, estimated at $20/foot).”

Frontier Communications is interested in buying landlines bigger phone companies like AT&T and Verizon might want to sell.

CEO Maggie Wilderotter sat down with The Wall Street Journal to answer questions about her leadership of the independent telephone company.

Despite ongoing landline disconnects and a challenging business environment that led to a second quarter loss of $38.5 million, Wilderotter says Frontier is “well positioned for success” and is willing to acquire new customers castaway by larger phone companies like AT&T and Verizon.

“I would do acquisitions only if they’re smart,” Wilderotter said. “We would buy assets that drive more scale. We would look at another carve out like the Verizon acquisition or acquiring stand-alone rural telephone companies.”

Frontier’s last acquisition in 2010 nearly tripled its size after picking up landlines sold off by Verizon Communications.

Independent telephone companies like Frontier are not just buyers, however. Wilderotter hinted Frontier has received offers encouraging a sale of the company, perhaps even one from a satellite provider like Dish Network or DirecTV.

“Other players [like] CenturyLink have similar assets,” Wilderotter said. “Some unconventional folks might look. The satellite category [for instance]. We have had conversations in the past. They weren’t the right offers.”

Many shareholders stay loyal to Frontier because the company pays a significant dividend to those holding stock. Anything that threatens the dividend typically drives Frontier’s stock price lower, so Wilderotter was quick to note any other acquisitions will not come at the expense of that dividend.

Wilderotter

“We would do acquisitions in a way that preserves the dividend,” Wilderotter said. “We might take on more debt instead.”

Frontier’s business plan relies heavily on selling service in less competitive rural areas often bypassed by large cable operators. Because of inherent network limitations created by copper telephone lines, Frontier maintains market dominance mostly in communities where cable service is not widely available or is provided over antiquated infrastructure unsuitable for significant broadband upgrades.

In the last two years, Frontier has spent several billion dollars to upgrade its own infrastructure to offer faster and more reliable Internet access, but the upgraded service is still out of reach for many Frontier customers who need it the most. In central West Virginia, Frontier customers in Gilmer (pop. 8693) and Braxton (pop. 14,523) Counties can’t wait to drop satellite Internet access for Frontier DSL. The infrastructure has been reportedly in place for several months, but the service has not yet been switched on.

Additional Frontier broadband expansion depends on company investment and federal broadband improvement funds.

In September, West Virginia’s congressional delegation announced an award of roughly $24.1 million in leftover federal funds to continue construction of broadband infrastructure in rural areas of the state.

“With help from the FCC, so many more of our families and businesses will soon have the transformative and necessary power of high-speed Internet at their fingertips, opening the doors to many new educational and economic opportunities,” said Democratic Sen. Jay Rockefeller.

Frontier also recently applied for an extra $28.9 million from the Connect America Fund to target broadband for another 47,000 homes and business in West Virginia.

Gilmer County, W.V.

If Frontier receives 100% of the requested amount, the Obama Administration’s broadband funding programs will have contributed $63 million towards service improvement in West Virginia.

Frontier Communications manager Daniel Page said the next target areas for broadband improvement are in Pleasants (pop. 7,605) and Ritchie (pop. 10,236) Counties, both in northwest West Virginia.

Wilderotter says 85% of Frontier customers now have broadband access available to them, up from 60% in 2011.

“Our goal is to be able to reach over 90%, probably by the end of this year or first part of next year,” Wilderotter said.

The biggest challenges facing Frontier over the next year?

“Technology disruption—and [industry players’] business models being challenged,” Wilderotter told the newspaper. “Customer expectations on how they utilize the Internet continue to morph as rich applications are made available.”

To manage increased traffic, Frontier can invest in capacity upgrades or start network management measures to limit subscribers’ Internet usage.

Frontier has run a usage limit trial in Kingman, Ariz., Elk Grove and Palo Cedro, Calif., Mound, Minn. as well as Cookeville and Crossville, Tenn. for over a year to measure bandwidth consumption by application type. In those areas, Frontier DSL is usage capped at 100 or 250GB per month. Customers exceeding their allowance are advised to either limit usage or convert to a “high user” service plan starting at $99.99 a month.

[flv width=”640″ height=”332″]http://www.phillipdampier.com/video/Fox Business News Frontier Broadband 8-8-13.flv[/flv]

Frontier CEO Maggie Wilderotter told Fox Business News in August the company was “laser focused” on broadband.  (5 minutes)

Before -and- After

Hopes for increased Canadian wireless competition were dashed last week when Industry Canada released an official list of approved spectrum auction bidders mostly filled with familiar names.

Fifteen Canadian participants including market-dominant Bell, Rogers and Telus each put down a refundable 5% deposit for the Jan. 14 auction. Most of the rest of the bidders are regional providers or suspected spectrum speculators hoping to sell any acquired spectrum at a profit.

It was good news for the three largest cell companies which feared the possibility of a well-funded new entrant like Verizon Wireless. Instead of facing the deep pockets of Verizon, the three cell companies will be competing against regional providers like Quebec’s Vidéotron, Bragg Communications’ EastLink which serves Atlantic Canada, and provincial telephone companies MTS in Manitoba and SaskTel in Saskatchewan.

Two private equity firms are also participating: a subsidiary of Birch Hill Equity Partners and Catalyst Capital which holds the debt for independent Wind Mobile. Wind Mobile’s owner Globalive Communications is also registered as a participant. Both could use the airwaves in the Wind Mobile business or sell them to another provider.

“Ultimately, what would have been great is to have a well-capitalized startup, a feisty competitor coming in,” telecom analyst Troy Crandall told the Canadian Press news agency. “That would have been the best thing for consumers.”

But Canada’s best hope for lower cell phone bills was never to be found from Verizon Wireless.

“I can assure our investors that we never have and never will be leading on price,” Lowell McAdam told investors at a conference last week.