Stop the Cap! reader Steve L. has heard enough of AT&T’s promises that deregulation would bring more competition and better deals to Californians.

The Carlsbad resident is staring at the fruits of AT&T’s labor — winning deregulation of phone rates in 2006: a  basic phone bill that has increased from $5.70 a month before deregulation to $21.25 effective Jan. 2, 2014. That represents a 272 percent increase for basic measured (pay-per-minute) local telephone service. As if that was not enough, AT&T is also raising the per-minute rate for semi-local calls for the second time in two years. Earlier this year, AT&T slashed customers’ calling allowances by 25 percent, reducing the 225 minutes a month of toll-free calling down to 168 minutes in January.

Customers living in large, spread out cities in California are accustomed to Zone Usage Measurement (ZUM) charges for calls placed to numbers more than 12 miles from the local telephone exchange. But they may get bill shock after noticing how much the per-minute rates have increased:

• ZUM 1/2 (12-15 miles): Calls have doubled in price over the last 36 months. Prior to 2013, calls cost three cents per minute. AT&T raised prices to four cents in January and will raise them again to six cents per minute on Jan. 1;
• ZUM 3 (15-16 miles): Calling prices have increased from five cents a minute in 2012 to six cents a minute in 2013 and will be seven cents per minute in 2014.

“After surcharges, fees, and taxes, my bill will be nearly $30 per month for measured rate service, representing a near doubling of cost in just a 22-month period,” Steve writes. “I have no other choice than AT&T for a true powered landline, but I am rejecting this latest increase and plan to test and move to a VoIP system.”

The constant parade of rate increases from the state’s largest local telephone company began shortly after the California Public Utilities Commission (CPUC) unanimously approved sweeping deregulation of telephone rates in August 2006. Then Republican Commissioner Rachelle Chong was the driving force behind the effort, reports the San Francisco Chronicle.

Chong embraced AT&T’s attitude about telecommunications deregulation, promising consumers would not face abusive rate hikes or bad service. Under the old system, AT&T telephone rates were capped in California. AT&T had to approach the CPUC and justify any proposed increases. Without solid evidence, the company’s rate increase requests were rejected. Under deregulation, AT&T was permitted to set rates at-will.

“By the end of the 2010, these rate caps will no longer be necessary,” Chong promised as the new rules were being phased in. “The market will be so competitive it will discipline prices.”

Not quite.

AT&T’s rates have shot up as much as 222 percent for the average Californian’s measured rate phone service. Some customers, including our reader, found rates nearly three times higher than they were before deregulation. In the last few years, AT&T has increased prices on landline service and calling features even more dramatically across the state:

• AT&T Flat-Rate landline service jumped 115 percent since 2006, from $10.69 to $23 a month;
• Call Waiting, a popular phone feature, is up nearly 180 percent;
• Anonymous Call Rejection fees have almost quadrupled;
• Lifeline Service for California’s most disadvantaged is up 28 percent.

“My belief is that AT&T is essentially harvesting,” Dane Jasper, chief executive of Sonic.net, a competing broadband Internet service in Santa Rosa that tosses in domestic phone service for free, told the newspaper. “They jack up the rate by a pretty egregious amount … because if people leave, well, where are they going? AT&T mobile phone service in at least half the cases. So they’re happy to have them leave or happy to have them stay.”

AT&T defends the increases by suggesting rates were artificially restrained by rate regulators under the old system, and the new higher prices reflect economic reality and the deregulated marketplace. But AT&T’s rate increases have blown past other service providers in the state. Verizon’s flat rate service only increased 18 percent since deregulation. Independent providers SureWest and Frontier Communications have only raised prices by about six percent.

With these kinds of rate increases, customers like Steve are making hard choices about whether to keep or ditch their landline service. Ironically, AT&T’s argument to decommission traditional landline service is based on the premise customers are abandoning landline service. AT&T advocates moving customers to its deregulated U-verse platform in urban areas and switch rural customers to wireless-only service.

Chong paid a personal price for her erroneous predictions of consumer savings. In December 2009, the Democratically controlled State Senate refused to hold hearings on Chong’s reappointment to the CPUC, ending her term. AT&T and Verizon strongly backed Chong and lobbied hard for her confirmation. AT&T even turned out its notorious “dollar-a-holler” sock puppet brigade of non-profit groups that showered the legislature with letters supporting her reappointment, without bothering to disclose AT&T had made substantial direct or indirect contributions to the groups in the past.

Murray Bass, head of a small nonprofit in Northern California, initially wrote lawmakers saying Chong was a strong voice for low-income seniors. But in an interview, he admitted he’d endorsed her at the suggestion of executives at AT&T, which had given his group money.

“There’s an essential conflict of interest when a regulated — or supposedly regulated — entity is intervening on behalf of a regulator that’s friendly to them,” said Mark Toney, executive director of the Utility Reform Network, a group that opposed Chong.

SUPPORTERS OF COMMISSIONER CHONG WITH TIES TO AT&T

 Notes

• 1.  CUDC – The California Utilities Diversity Council is a collaboration between the CPUC , the utility companies and other industry participants  to promote diversity in the utility industry.  AT&T is a gold sponsor of CUDC’s annual convention.
•  2.  CETF – CETF is a private non-profit corporation created by the California Public Utilities Commission (CPUC) and funded entirely by AT&T and Verizon.  Commissioner Chong is Chair of the CETF Board of Expert Advisors and its Accessibility Committee.  CPUC President Michael Peevey is Chairman of the CETF Board of Directors. The CETF board is appointed by the CPUC, AT&T and Verizon.

Sources:

• AT&T Foundation IRS form 990
• The Utility Reform Network

AT&T this month signed up their 10 millionth customer to U-verse High Speed Internet service, surpassing Verizon FiOS as the nation’s biggest telephone company supplier of broadband, television, and telephone service. Coinciding with that success, AT&T is raising prices for U-verse, despite AT&T’s record earnings from the fiber to the neighborhood service, now accounting for $1 billion a month in revenue.

AT&T is protecting its broadband flank by convincing current DSL customers to switch to higher-speed U-verse broadband as the network upgrade reaches into more homes across AT&T’s service areas. In the last quarter U-verse picked up 655,000 new broadband customers nationwide, many upgraded from traditional DSL. Where AT&T has not invested in U-verse upgrades and cable competition exists, results are not as good. AT&T lost 26,000 DSL customers last quarter, most moving to cable broadband.

“This latest milestone shows how U-verse is helping transform AT&T into a premier IP broadband company,” said Lori Lee, senior executive vice president, AT&T Home Solutions. As of the third quarter of this year, total U-verse high-speed Internet subscribers represented about 60 percent of all wireline broadband subscribers, compared with 43 percent in the year-earlier quarter.

Verizon FiOS, in comparison, has signed up just 5.9 million customers FiOS Internet subscribers on its stalled fiber optic network. Most Verizon broadband customers with no FiOS in their future either stick with DSL service or, increasingly, switch to a cable competitor for faster speeds.

Some of AT&T’s strongest U-verse growth came from its TV package. At least 265,000 cable and satellite cord-cutters looking for a better deal switched to U-verse TV in the last three months, a gain from 198,000 at the same time last year. That’s the second-best quarterly gain ever. A total of 5.3 million AT&T customers subscribe to U-verse TV.

Much of the growth has come from AT&T’s investment in expanding U-verse to new areas. Project Velocity IP is a three-year, $14 billion plan to upgrade AT&T’s wireless and wired broadband networks. AT&T has added almost 2.5 million more homes to its broadband footprint so far this year and hopes to expand broadband availability to reach about 57 million customers by the end of 2015.

Although $14 billion is a significant investment, AT&T has spent considerably more on its shareholders. John Stephens, AT&T’s chief financial officer told Wall Street analysts AT&T has bought back 684 million shares of stock that will save the company more than $1.2 billion in future dividend payouts.  Combined with its dividend payout, AT&T has handed shareholders $18 billion so far this year and more than $40 billion since the beginning of 2012. AT&T expects to spend $20 billion on wireless and wireline network improvements in 2014.

AT&T’s speed upgrades have also not run as smoothly as AT&T claims. Efforts to increase speeds to 45Mbps in 79 markets has had mixed results with a significant number of customers complaining they cannot get qualified for the faster speeds because of infrastructure problems with AT&T’s network. The company still says it is on track to offer 75 and 100Mbps speed tiers in the future and is building a fiber to the home network in Austin to compete with Google.

Many customers who have been with AT&T for more than a year are learning better service does not come for free. AT&T has filed rate increases for its television service beginning Jan. 26, 2014 for customers not on a pricing promotion. The monthly price for the following U-verse TV service plans will increase $3, along with fee hikes for local stations and equipment, bringing AT&T at least $15 million in extra revenue each month:

• U-family to $62;
• U200 to $77;
• U200 Latino to $87;
• U300 to $92;
• U300 Latino to $102;
• U450 to $124;
• and U450 Latino to $134.
• Grandfathered plans also will increase $3: U100 to $64 or $69, depending on when first ordered; and U400 to $119.

• The monthly price of each non-DVR TV receiver will increase from $7 to $;
• Beginning on February 1, 2014, the Broadcast TV Surcharge will increase $1 to $2.99 per month to recover a portion of the amount local broadcasters charge AT&T to carry their channels.

Those customers who have a U-verse TV pricing promotion will continue to receive the promotional benefit until the applicable promotion ends or expires.  Customers are being notified of these changes via bill messaging occurring in November and December and a reminder in January and February 2014.  In addition, customers will be notified of these changes online at www.att.net/uversepricechange and att.com/uversesupport.

[flv]http://www.phillipdampier.com/video/ATT U-verse with GigaPower — Reactions 11-13.mp4[/flv]

AT&T is trying to get ahead of Google by advertising AT&T U-verse with GigaPower, a 1,000Mbps fiber to the home service promised in Austin sometime in the future. (0:30)

Verizon gets out the black marker to redact information it considers “confidential.”

The New York Public Service Commission Monday rejected most of Verizon’s request to keep secret the state of its landline network and details about the company’s plans to distribute Voice Link as an optional wireless landline replacement in the state.

Nearly two months after Verizon announced it was abandoning its original plan to replace defective landlines on Fire Island with Voice Link, Verizon is bristling over a Freedom Of Information Law (FOIL) request from consumer advocates and a union for disclosure of reports filed with the PSC regarding Verizon’s network and its upkeep — information the company considers confidential trade secrets. To underline that belief, Verizon provided the PSC with edited versions of documents it filed with the state considered suitable for public disclosure, one consisting of 330 pages of blanket redactions except for the page headings and page numbers.

“[These discovery requests] are designed solely to advance the Communications Workers of America’s self-serving efforts to prevent Verizon from offering its Voice Link product, even on an optional basis, and to investigate the relationship between Verizon and Verizon Wireless — matters that are beyond the scope of this or any other pending Commission proceeding,” wrote Verizon deputy general counsel Joseph A. Post. “On September 11, 2013, Verizon announced that it had decided to build out a fiber-to-the-premises (“FTTP”) network on western Fire Island, and targeted Memorial Day 2014 for the completion of construction and the general availability of services over the new network.”

The PSC disagreed with Post, ruling the majority of documents labeled “confidential” by Verizon were, in fact, not.

“[…] The information claimed by Verizon to be trade secrets or confidential commercial information does not warrant an exception from disclosure and its request for continued protection from disclosure is denied,” ruled Donna M. Giliberto, assistant counsel & records access officer at the Department of Public Service.

Verizon has until Nov. 14 to file an appeal.

Common Cause New York, the Communications Workers of America-Region 1, Consumers Union, the Fire Island Association, and Richard Brodsky used New York’s public disclosure laws to collectively request documents shedding light on their suspicion Verizon has systematically allowed its landline facilities to deteriorate to the point a wireless landline substitute becomes a rational substitute. They also suspect Verizon diverted funds intended for its landline network to more profitable Verizon Wireless.

“In spite of its obligations under New York law, in spite of the investment by ratepayers in the FIOS wireline system, in spite of the needs and expectations of the people, businesses and economy of the state, Verizon is intending to and has begun to shut down its wireline system,” declared the groups.

Many involved took note of Stop the Cap!’s report in July 2012 that warned then-CEO Lowell McAdam had plans to decommission a substantial part of Verizon’s copper landline network, especially in rural areas, where it intended to replace it with wireless service:

“In […] areas that are more rural and more sparsely populated, we have got [a wireless 4G] LTE built that will handle all of those services and so we are going to cut the copper off there,” McAdam said. “We are going to do it over wireless. So I am going to be really shrinking the amount of copper we have out there and then I can focus the investment on that to improve the performance of it. The vision that I have is we are going into the copper plant areas and every place we have FiOS, we are going to kill the copper. We are going to just take it out of service and we are going to move those services onto FiOS. We have got parallel networks in way too many places now, so that is a pot of gold in my view.”

Some consumer groups suspect Fire Island represented an opportunity to test regulators’ tolerance for a transition away from copper landlines in high cost service areas. As Stop the Cap! reported this summer, New Yorkers soundly rejected Verizon Voice Link, with more than 1,700 letters opposing the wireless service and none in favor on record at the PSC.

In early September, a well-placed source in Albany told Stop the Cap! Verizon’s request to substitute Voice Link where it was no longer economically feasible to maintain landline infrastructure was headed for rejection after a constant stream of complaints arrived from affected customers. Verizon suddenly withdrew its proposal on Sept. 11 and announced it would bring FiOS fiber optics to Fire Island instead.

Although Verizon now insists it will only offer Voice Link as an optional service for New York residents going forward, public interest groups still believe Verizon has allowed its landline network to deteriorate to unacceptable levels.

Verizon originally claimed 40% of its facilities on Fire Island were damaged beyond repair when they were assessed after Hurricane Sandy. But residents claim some of that damage existed before the storm struck last October. Some fear Verizon is engaged in a self-fulfilling prophecy, allowing its unprofitable copper wire facilities to fall apart and then point to the sorry state of the network as their principle argument in favor of a switch to wireless service.

Herding money, resources, and customers away from landlines to Verizon Wireless

“In fact, the vast majority of defective lines are a consequence of the failure and refusal of Verizon to maintain and repair the system over time,” the groups assert. “The Commission must make a factual determination of the cause of the 40% defect allegation as part of this proceeding. If, as asserted herein and elsewhere, the evidence shows a pattern of inadequate repair, maintenance and capital investment, the Commission can not and should not approve any loss of wireline service to any customer, as matters of law and sound policy.”

“We assert that Verizon has systematically misallocated costs thereby distorting the extent to which the wireline system has suffered losses, if any. […] It is fair to say that substantial losses in the landline system are repeatedly used by the Commission and the Company as a justification for rate increases and regulatory decisions affecting the scope, cost, adequacy and nature of telephone service provided to customers of Verizon NY.”

Verizon would seem to confirm as much.

In 2012, Verizon’s chief financial officer Fran Shammo told investors the company was diverting some of the costs of Verizon Wireless’ upgrades by booking them on Verizon’s landline construction budget.

“The fact of the matter is wireline capital — and I won’t get the number but it’s pretty substantial — is being spent on the wireline side of the house to support the wireless growth,” said Shammo. “So the IP backbone, the data transmission, fiber to the cell, that is all on the wireline books but it’s all being built for [Verizon Wireless].”

Funds diverted for Verizon Wireless’ highly profitable business were unavailable to spend on Verizon’s copper wire network or expansion of FiOS. In 2011, Verizon diverted money to deploying fiber optics to 1,848 Verizon Wireless cell towers in the state. In 2012, Verizon deployed fiber to an extra 867 cell tower sites in New York and Connecticut. Public interest groups assert the costs for these fiber to the cell tower builds were effectively paid by Verizon’s landline and FiOS customers, not Verizon Wireless customers.

Since 2003, Verizon has been subject to special attention from the New York Public Service Commission because of an excessive number of subscriber complaints about poor service. As early as a decade ago, the PSC found Verizon’s workforce reductions and declining investment in its landline network were largely responsible for deteriorating service. Each month since, Verizon must file reports on service failures and its plans to fix them.

In September alone, Verizon reported significant failures in service in rural areas upstate, almost entirely due to the weather:

• Heuvelton: A summer filled with significant thunderstorms resulted in downed poles and service disruptions. Verizon reported the central office serving the community was in jeopardy in June. By mid-July, 7% of customers reported major problems with their landline service.
• Amber: Nearly 11% of customers were without acceptable service in May because a 100-pair cable serving many of the community’s 274 customers was failing.
• Chittenango: Nearly 9% of the community’s 1,059 landline customers had significant problems with service because Verizon’s central office switching system in the exchange was failing.
• Sharon Springs: Almost 11% of Verizon’s customers in this small rural office of 417 lines were knocked out of service in July.
• Elenburg Dept.: More than 8% of Verizon’s 324 lines in this rural Adirondack community were out of service, usually as a result of a thunderstorm passing through.
• Hartford: When it rains hard in this Adirondack community, landline service fails for a substantial number of customers. In September, 2.43 inches of rain left 12.4% of customers with dysfunctional landline service.
• Valley Falls: Nearly one-third of Valley Falls’ 722 landlines were out of service in September after lightning hit several Verizon telephone cables. Problems only worsened towards the end of the month.
• Kendall: Almost 9% of Verizon customers in the Rochester suburb of Kendall were without service after a rain and wind storm. When a cold front moves through the community, landlines service is threatened.
• Bolivar: More than 20% of customers lost service July 19th after heavy rain, winds, and power outages hit.
• Cherry Valley: Verizon blamed seasonal service outages in Cherry Valley on farmers that dig up or damage buried telephone cables. More than 7% of customers were knocked out by harvested phone lines in July.
• Edmeston: More rain, more service outages for the 801 landlines in this small community in area code 607. More than 13.5% of customers called in with complaints in July. Verizon blamed heavy rain.
• Clinton Corners: Service failures come after nearly every heavy rainfall due to multiple pair cable failures in the aging infrastructure. More than 9% of customers reported problems in June, 13.2% in July, 8.2% in August, and 12.5% in September.

Verizon’s landline trouble reports disproportionately come from rural communities, exactly those Verizon’s former CEO proposed to serve by wireless. Weather-related failures are often the result of deteriorating infrastructure that results in outages, especially when moisture penetrates aging cables. Rural communities are also the least-likely to be provided fiber service, exposing customers to a larger percentage of the same copper wiring critics charge Verizon is allowing to deteriorate.

Time Warner Cable’s summer was “horrible,” to quote one analyst, after three percent of customers left over programming disputes and increasing prices for broadband and telephone service, with more likely to follow as price promotions expire and rates increase further.

Cable analysts were shocked Time Warner Cable lost 308,000 customers in the last three months, most leaving over interruptions of CBS and Showtime over a contract dispute. But customers were also ready to leave over increasing modem rental fees, rate increases, and the company’s growing pullback on promotional pricing. Time Warner Cable’s poor results have ironically caused its stock price to increase this morning, but only because investors suspect a shareholder value-boosting merger with Charter Communications could come within months.

“Just horrible,” MoffetNathanson analyst Craig Moffett wrote in a note to investor clients this morning. “The CBS dispute apparently took a much larger toll than anyone would have imagined, and this colored all the results.”

Sources have told Reuters that cable billionaire John Malone has approached Time Warner Cable about a full takeover by Charter Communications, but has been rebuffed by Britt so far. But with Britt exiting and Time Warner Cable’s underperformance, shareholder pressure for a deal with Charter will only increase.

“This enhances Malone’s appeal to Time Warner Cable shareholders that they would be better off with another management team,” Brean Capital analyst Todd Mitchell told Reuters.

When promotional prices end, a growing percentage of TWC customers drop services or take their business elsewhere.

The subscriber losses pushed profits down 34 percent at the cable company, to $532 million. The triple play tragedy saw subscriber losses for all the company’s residential services. At a time when other cable companies cannot process High Speed Internet sign ups fast enough, at least 24,000 Time Warner Cable broadband customers left over rate hikes and equipment fees. Analysts had expected the company to pick up more than 46,000 broadband customers during the last three months, not lose them. The company’s phone service is also in decline. Only rate increases and customers upgrading to higher speed tiers delivered a slight revenue boost.

Outgoing CEO Glenn Britt set the stage for the current forced retreat on its revenue forecast for the year:

• Time Warner Cable executives made the decision at the end of 2012 to stop heavily discounting service and cut back on promotions. Their theory was the company would attract a larger base of stable customers willing to pay non-promotional rates and tolerate rate increases;
• Executives announced as Time Warner’s phone service was brought “in-house,” the company would stop aggressively pricing triple play bundles that included phone service. That turned out to be a bad decision for growth because customers, already prone to landline cord-cutting, downgraded their bundle or left when promotions expired and ditched the phone line;
• A year of broadband price increases and the introduction of a modem rental fee rubbed customers the wrong way. “We have raised prices recently in the form of modem rental fees, but it’s really just broadband price increase,” again admitted Britt this morning. Future rate increases on modem rentals will give broadband customers another push to shop around for a better deal. At least 24,000 did that over the summer and left, mostly for AT&T U-verse in the midwest and Verizon FiOS in the east.

The lengthy dispute between Time Warner and CBS did the most damage and not just to customers directly affected by channel losses. A major increase in call volumes from alienated customers overwhelmed national call centers, creating long hold times for everyone calling in.

Time Warner expects 40 percent of the cable company’s service area will be overlapped by major competitors AT&T U-verse (now 27%) and Verizon FiOS (now 13%). That represents one million more homes than last year.

Bye Bye: Time Warner Cable lost residential customers for all of its services during the third quarter.

Incoming CEO Robert Marcus said he was dissatisfied with subscriber results from current promotions and rates. New Time Warner Cable customers, Marcus noted, are paying higher prices for fewer or less robust services as part of current promotional packages. Although that has driven a “dramatic improvement in recurring revenue” among customers actually signing up, many choose the lower-priced competition instead.

Marcus also noted customers are taking fewer services and are resistant to upgrading to double or triple play packages, reducing the potential average revenue per customer (ARPU).

“To a great extent, these are expected outcomes of our pricing and packaging strategy and the trade-off between ARPU and volume, but I’m confident we can do better on volume without giving up the ARPU benefits we’ve been achieving,” Marcus told analysts on a morning conference call.

Instead of getting more aggressive on pricing, the company plans to trot out free gifts and pitch discounted slow speed Internet to attract price-resistant DSL customers.

“Next week, we’ll launch our holiday offer, which includes a free Samsung tablet loaded with all of our apps, including TWC TV, with the purchase of higher-end packages,” Marcus said. “I think this will generate lots of interest and really highlight TWC TV and the value it adds to our service offerings.”

Marcus called it inconceivable and unacceptable that at least 4.5 million people are still subscribed to telephone company DSL in Time Warner Cable service areas. The company plans an advertising blitz to steal customers away from companies like AT&T, Verizon, Frontier, CenturyLink, Windstream and FairPoint.

At the center of that effort is the recently announced 2/1Mbps Lite package, which will sell at the everyday price of $14.95 a month. Marcus wants at least 500,000 DSL customers switched to Time Warner over the next 18 months.

“Over time, as these customers’ speed and capacity needs increase, we’ll be well positioned to sell them higher-end product,” Marcus said.

Or they will switch back to the phone company if Time Warner increases the price.

New York regulators have turned down Time Warner Cable’s request to shut off past due phone customers late at night or on weekends to protect consumers.

The Public Service Commission today reaffirmed long-standing rules that allow phone providers to only disconnect customers for non-payment between the hours of 8:00am – 7:30pm Monday through Thursday and 9:00am to 3:00pm on Friday.

“We are saying ‘no’ to Time Warner’s request to waive our rules regarding when it would be authorized for suspensions and terminations of its telephone customers,” said Commission chair Audrey Zibelman. “The Commission’s rules applicable to Time Warner are consistent with the hours of operation of the Commission’s consumer call center which receives consumer complaints’ and requests for assistance. To ensure telephone consumers’ rights are protected, especially core customers such as the elderly and disabled, it is essential customers are afforded the opportunity to contact our call center if their telephone service is threatened with a potential suspension or termination.”

But Time Warner Cable was granted approval of most of its other regulatory reform requests:

• Time Warner Cable can now apply partial payments first to basic local telephone charges, then non-basic services;
• The cable company will not have to distribute White Page directories except on request in print or CD-ROM format;
• After six months of providing monthly service quality figures, the cable company can limit future reports to only reflect standards for “core customers,” if the PSC finds Time Warner is providing adequate service.