An increasing number of Verizon’s DSL customers are discovering their broadband speeds cut, sometimes significantly, by the phone company’s internal line testing “optimization” tool, designed to deliver stable DSL service over a deteriorating, aging network of copper phone lines.

Regular Stop the Cap! reader Smith6612, who is extremely familiar with the technical workings of DSL service, dropped us a note to report a disturbing trend of complaints from Verizon customers who are waking up to speed cuts that often don’t make sense.

At issue here is the highly variable nature of DSL speed and how providers manage it for customers.  Data delivery over America’s aging copper wire, meant-for-voice-calls-network has always been somewhat of a bootstrapped affair, all the way back to the days of dial-up.  Most phone companies have always included detailed disclaimers for customers relying on a phone network envisioned more than 100 years ago for 21st century data communications.  No guarantees on speed or access are among the most common, especially with DSL service which is highly distance and line quality sensitive.

In short, the further away you live or work from the phone company’s exchange (where your individual phone line eventually ends up), the lower the speeds that line can support, if it can support DSL service at all.  Badly managed wiring along the way can dramatically reduce the quality of your service.  Sammy the Squirrel could chew enough insulation off a phone cable to expose it to interference from radio signals.  Water finding its way into cables and connection boxes can turn excellent DSL service into no service at all during bad weather.  Even temperature variations between seasons can eventually corrode, degrade, or destroy fittings, connectors, or any number of vital components necessary for good service.

Unfortunately, if companies do not properly invest resources to maintain their legacy phone networks, service problems are bound to increase sooner or later.

Many DSL customers do not really have an understanding of what speeds they should be getting from their providers, much less be able to easily identify when those speeds have declined.  But they do understand service outages.  When a DSL modem runs into trouble supporting the speeds it is configured for, the unit will try to re-establish the connection.  This “sync” process can occur once a day or continuously — it all depends on what condition the line is in.

While this process is underway, anyone trying to use the Internet is likely to find their service unavailable.  That often results in a service call.

Calling to complain about a troublesome Internet connection is expensive — even when reaching one of the overseas call centers Verizon regularly uses for customer support.  Sending a repair truck to your home is even more costly.

One way to reduce these expenses, without upgrading or improving maintenance of your network, is to simply reduce the speed of the connection.

Verizon ironically calls their line testing process “optimization.”  Verizon’s software is designed to ascertain the maximum possible downstream and upstream speeds a line can continually support.  Those measurements are used as a basis for configuring the customer’s modem, placing a speed limit on how fast of a connection to negotiate, even if a customer is paying for a faster tier of service.  The goal is to stop the modem from losing a connection.

Unfortunately, sometimes customers with no service problems at all take a hit in speed along the way. For several weeks now, many long-standing Verizon DSL customers are discovering their speeds have been reduced and are finding Verizon’s “optimization” procedures directly responsible.  Some are accusing Verizon of recently configuring connections more conservatively to avoid service calls caused, in part, by years of neglect maintaining their landline network.

Bob in North Billerica, Massachusetts has experienced a speed cut himself.

Writing on the Verizon DSL forum at Broadband Reports, he noticed years of stable service at 1.792Mbps/448kbps are no more.  His maximum download speed has been cut to 1.5Mbps.

The same thing happened to Zaii in Philadelphia — despite stable service at higher speeds, he found himself cut back to 1.5Mbps as well.

Jack in Lakeland, Florida discovered his speeds has been “optimized” nearly in half by Verizon, and the company admitted it had capped his maximum speed as part of that process.  He was paying for 1.5Mbps service and received 700kbps-1Mbps service.

“The technician [sent to my house] found I could receive 2.6Mbps but Verizon had me “optimized” at 1.2Mbps because of my location,” Jack writes.  “The technician made a call and had the “optimize” cap removed and I am back to 1.54Mbps.”

It’s the same story in Ridgecrest, California where one Verizon DSL customer suddenly noticed a dramatic speed cut.  He pays for 1.5-2Mbps service and barely manages 1Mbps these days.  A Verizon technician thought even with the sudden speed loss, his speeds were still “pretty good.”

That attitude doesn’t exactly placate Verizon customers paying for more and receiving less.

Often, technicians sent to the home find their own line tests are far more optimistic about the speeds Verizon can support.  The customer in Ridgecrest, for example, learned from a technician his line can support 3Mbps, but Verizon’s corporate “optimization” software says otherwise.

A few anecdotal reports from customers listening to Verizon field technicians suggests many of these issues are being caused by Verizon’s “optimizing” software.  Once a service call commences, knowledgeable technicians manage to override the software settings and reset the connection back to support earlier, faster speeds.  But often these changes last only a few weeks before the problem returns.

Unfortunately, Verizon’s customer service department usually seems unconcerned about speed complaints.

“SDillman” in Uxbridge, Massachusetts relayed his experiences:

I talked Verizon DSL support and got them to run a line test and they confirm the data rate they are seeing is 1.216Mbps, which is exactly what I reported. Unless it drops under 1Mbps they won’t do anything because it is considered an acceptable speed.

What stinks is that up until last week my data rate was a constant 1.792Mbps and all my speed tests showed 1.5Mbps.  I even swapped out the modem today to try my backup and got the same rate.  So I’ve lost 500k for no reason at all and there is nothing I can do about it. It wouldn’t be so bad if I never had it, but losing it just doesn’t sit right with me. I might be looking at alternate providers and or mediums of broadband in the near future because that just leaves a poor taste in my mouth.

Angry, motivated customers can wreak havoc on bad customer service practices, and SDillman managed to overcome Verizon’s speed throttles and shares advice for others in the same situation:

1. Visit and register for an account on Broadband Reports.  Then visit and post a message in the Verizon Direct Support forum.  Those messages are kept private between you and a Verizon technical representative.  They have enhanced skills and authority over the traditional offshore customer service people, and in the words of “SDillman,” “are amazing — after getting the runaround from everyone else, those guys had a proper repair ticket created in no time.”
2. Carefully listen to the technicians that are sent to your home.  The technician in Uxbridge was frustrated that his service visit revealed a line in what he called “pristine condition,” yet Verizon’s “optimization” speed throttle said otherwise and was directly implicated in the speed reduction.  The frustration mounted when Verizon’s own employee encountered the same roadblocks Verizon’s customers do from overseas customer service agents.  In this case, a call center employee attempted to explain the basics of how telephone lines work to a Verizon technician with over 30 years of experience.  The technician also didn’t respond any better to arguments that 1.2Mbps was a good speed when the customer is paying for a higher level of service.
3. Most of these issues are best resolved between a Verizon service technician and employees at the central office exchange serving your home or business. Encourage a direct service call and do not accept over-the-phone assertions about speed issues, particularly from call center employees a half-world away.  If the problems go unresolved, a compliant about bad phone/broadband service filed with your state’s Public Service/Public Utilities Commission may bring about a higher level of response, even if broadband speeds are unregulated.

As SDillman shares, “For now my speeds are back up, until they ‘optimize’ the line again to try to free up some of the congestion on their crowded routers and begin stealing bandwidth [again]. I don’t know if this practice is illegal, but it certainly doesn’t pass the smell test. It feels a lot like going into a gas station and filling up your tank and then finding out 30% of it is water.”

Liberally borrowing from ABC’s Extreme Makeover: Home Edition, and those home improvement shows on HGTV, Verizon has been producing their own “home technology makeovers” for infomercials airing in different Verizon service areas, designed to pitch their fiber to the home FiOS product line. It’s a non-threatening introduction for those not so technology-inclined, but love the premise of home makeovers.

The Reyes family of Clearwater, Florida is the latest to receive a Verizon-inspired makeover this March, which will air later as an infomercial in the Tampa Bay area.

The family was chosen from those who auditioned for the role during the past two months.

Verizon traditionally sets up each show by illustrating the challenges busy families face when trying to work with outdated electronics.  It’s also a great chance to bash the competition, suggesting their cable reception isn’t so great, their calls to 911 are broken up and unclear, and their Internet is slow and generally lousy.  At this point, Bright House Networks, Tampa’s predominate cable company, is supposed to be squirming, because you can bet these families aren’t complaining about Verizon phone service or Verizon DSL.

After the family leaves the home, a bandwagon of Verizon workers and self-described “Design,” “Tech,” and “FiOS”-Gurus show up and replace their obsolete equipment with Verizon’s family of products, ranging from FiOS for their television, phone, and broadband needs, and some extra goodies thrown in from Verizon Wireless for mobility.  Add some new electronics and some room makeovers and the job is complete.

When the family returns, they are suitably impressed with Verizon’s products (which they presumably obtain for free, at least for awhile), the company throws a block party for the entire neighborhood, and everyone goes away with a positive feeling about the company.

“I like the concept of the show, how one company can bring so much happiness to a family just by changing their home technology,” said Jessica Reyes. “It may seem simple to some people, but I know this will have a huge impact on our family.”

See?

Actually, it’s a brilliant execution of marketing to those who don’t suddenly start drooling at the mere mention of FiOS in their neighborhood.  For plenty of Americans, a decidedly non-technical demonstration of the technology products Verizon sells is a much better way to sell service to those who think fiber is a matter of diet, not home entertainment.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Verizon MyHome 2.0.mp4[/flv]

Verizon’s promotional reel for My Home 2.0 shows home technology makeovers, and can’t resist taking a few pokes at the competition’s service. (1 minute)

Sometimes the marketing hype associated with broadband products goes just a tad too far.

Michael is a Verizon DSL customer living with Verizon’s $34.99 3Mbps DSL service.  He reported to The Consumerist that a nearby friend in the same zip code was able to get Verizon’s 7Mbps service for $42.99 a month, so he called Verizon to see if he could obtain the same service.

I was told that it wasn’t available at my address, which is in the same zip code, but they sure can offer me 5MB for $49.99. After the run around, I politely declined and left everything be.

[Upon further checking their website] 7MB is available for my address, and for $42.99 with contract! Call #1 ended up me being told that I can in fact get 7MB but for $49.99. I declined and said no thank you. Call #2 told me that 7MB was not available, only 5MB, and it also was $49.99. I declined and called back a third time. Call #3 told me I can upgrade to 7MB but only online as “they have different specials we don’t honor over the phone.” The problem? My address states it has 7MB available… as a NEW account. If I log in my account and choose to upgrade, I can only order 5MB. I call back again, and a couple calls routed me to either the Philippines or India, and I politely hung up in frustration even before I started a conversation.

[…]

At this point I was livid and called to cancel my service.  The woman told me 7MB is absolutely 100% definitely not available for my address. She couldn’t explain why I could order it as a new account but not as an existing customer. The next part takes the cake from every reply I’ve ever heard. I directly asked “why is it I can open a new account with 7MB but I cannot order it as an existing customer?” Her response: “Your home cannot handle the 7MB speed. If I put in the order for 7MB, it will burn your house down.”

Michael was, of course, flabbergasted.  Besides, it’s usually cable installers that set your house on fire.

Verizon’s rate plan shell game guarantees they are always the winner:

“Last night surprisingly I get an email about my Verizon account. My rates are being raised to $36.99 for my current 3MB service.”  Presumably Verizon needs to purchase fire insurance to protect customers from the blazing fast speeds.  Or is that red hot glow coming from customers?

The Consumerist recommends an e-mail carpet bombing of Verizon executives’ e-mail accounts to get someone to resolve his problems.  Here’s a better answer for unresolved complaints regarding Verizon: Call the Verizon Executive Customer Relations office at 1-800-483-7988 and press 3.

One of the promised benefits of permitting the Verizon-Frontier spinoff is that Frontier will bring more and better broadband service to areas Verizon has ignored for years.  The company has been running television ads in West Virginia promoting Frontier’s promised “next generation” of broadband.  But what does that mean?

[flv]http://www.phillipdampier.com/video/Frontier Verizon Deal Advertisement West Virginia.flv[/flv]

Frontier Communications is running this advertisement in West Virginia.

The West Virginia Consumer Advocate Division of the Public Service Commission brought in Trevor R. Roycroft, PhD., former Associate Professor at the J. Warren McClure School of Communication Systems Management, Ohio University, to examine the details behind the marketing and public relations push to promote the deal.

He was not impressed.

After an extensive review of confidential and public documents from Frontier, his conclusion was that Frontier’s DSL service is just plain bad, and for plenty of West Virginians who may only have one choice for broadband in the foreseeable future, being stuck with Frontier’s idea of broadband is particularly bad.

Indeed, Frontier’s idea of what defines “next generation broadband” would be true, if this was the year 1992.

“Frontier has made no commitment regarding improved broadband deployment in West Virginia. Frontier, while achieving higher levels of DSL availability in West Virginia, generally offers its broadband services at higher prices and provides lower quality than those associated with Verizon’s DSL. Frontier’s ability to increase broadband deployment in West Virginia will depend on the condition of the outside plant that it has acquired, which may negatively impact Frontier’s costs of deployment. Furthermore, Frontier must upgrade substantial numbers of customer locations outside of West Virginia, and West Virginia will be competing with this larger priority,” Roycroft writes in his testimony to the West Virginia Public Service Commission.

The infrastructure Frontier utilizes to deliver its broadband service is revealing even to those Frontier customers not directly impacted by this transaction.  Some of the documents Roycroft reviewed laid bare the nonsense the company has used to defend its Acceptable Use Policy language defining an “acceptable amount” of monthly broadband usage at just five gigabytes.  Company officials have said for more than a year that they were concerned about the growth of usage on their network, and its potential to slow service for other customers.  But company documents, included within the scope of Roycroft’s testimony, tell a very different story:

Frontier plans to increase its core backbone from its current level of 10 Gbps to a capacity of 20 Gbps (should the spinoff be approved). With regard to the capacity of its existing backbone, Frontier states:

Frontier expanded the backbone from OC 48 to 10 Gigabit Ethernet during the first half of 2009. Because of this network expansion we do not have peak usage for the past 12 months. No backbone link has peaked above 2.8 Gigabit/second or 28% of the capacity of a link since the augment was completed in 2009.

Thus, Frontier’s current backbone configuration appears to have excess capacity. With the expansion of its backbone network to 20 Gbps, the company’s current data traffic load results in about 14% of capacity being utilized at peak.

Potentially limiting customers to just five gigabytes of usage is so unjustified, in Roycroft’s analysis, its potential imposition on West Virginian customers should be a deal-breaker.

Roycroft ponders whether Frontier will invest enough resources to make sure capacity is not an issue. The only way Frontier’s network will show signs of strain is if the company makes a conscious decision not to sufficiently upgrade their network as they take on millions of new Verizon customers, or they dramatically underestimate the average Verizon customer’s usage.

Roycroft was also asked to evaluate whether Frontier’s claims of 90% broadband availability in its overall service area and 92% in its West Virginia territory rang true.

Roycroft writes that Frontier’s numbers don’t tell the whole story.  In five states, Frontier admits the percentages are notably lower, so no guarantee can be inferred for West Virginia based on Frontier’s talking points.

Frontier’s “Advanced” Broadband Network Is Hardly Advanced and Barely Qualifies As Broadband

Heavy criticism was leveled at Frontier for its “advanced” broadband service.  Roycroft compared Frontier DSL with several other providers and was unimpressed with the company’s broadband speeds.

“Frontier’s advertised DSL speeds are generally much lower than those available from Verizon and other carriers. Based on a location-based search of Frontier DSL service offerings, it appears that Frontier’s most prevalent DSL speeds are 3 Mbps and 768 kbps (for download),” Roycroft said.

Although the expressed upload speed for Rochester should be listed at a higher rate (I managed around 512kbps myself), Roycroft is correct when he says, “it can be seen that outside of Rochester, NY, the DSL speeds associated with Frontier offerings cannot be considered ‘cutting edge.'”

Even while noting Rochester’s potential DSL speeds, real-world speeds are another matter entirely.

[flv width=”640″ height=”405″]http://www.phillipdampier.com/video/Real World Frontier vs Road Runner Speeds.flv[/flv]

One New York customer provided real world evidence of the significant differences in speed offered by Road Runner from Time Warner Cable and Frontier’s DSL (courtesy: 1ComputerSavvyGuy) (1 minute)

Frontier’s DSL offerings in West Virginia are of even lower quality. Frontier indicates that it offers three grades of DSL service in West Virginia:

Up to 256 kbps download/128 kbps upload;
Up to 1 Mbps download/200 kbps upload;
Up to 3 Mbps download/200 kbps upload.

These data transmission speeds, especially upload speeds, are at the very low end of commercial offerings that I have observed.

Comparing Verizon DSL vs. Frontier DSL Pricing & Gotchas, Contracts, and Internet Overcharging Schemes

Roycroft’s study found Frontier’s pricing significantly higher than Verizon for DSL service.

Frontier’s DSL prices, either with telephone service, or on a stand-alone basis, are significantly higher than are Verizon’s. For example, the entry-level Frontier plan has a nominal price that is 100% higher than Verizon’s.

However, when considering the per Mbps price, Frontier’s price is 160% higher. It is also notable that Frontier’s upload speeds are also low when compared to Verizon’s.  Consumers are increasingly relying on upload capabilities to share large files, such as videos. Overall, Frontier’s DSL products are low quality.

Roycroft also gave special attention to Frontier’s infamous 5GB Acceptable Use Policy, which he suggested was a major negative for West Virginia’s online experience.

Frontier indicates that it monitors network usage if “it receives a complaint of slow service or if it discovers that network bandwidth utilization is unusually high in a particular area.

Frontier was asked to identify any action taken against a customer associated with its acceptable use policy and, in response, the company stated that it has not “terminated a customer’s service based on exceeding the 5 GB threshold identified in the AUP.” However, the restriction on usage further raises the relative cost of Frontier’s service. Frontier indicates that consumers may face action by the company if they exceed the usage cap, thus indicating that the prices reflect both speed and volume. Verizon’s DSL service does not include a similar limit.

Frontier’s DSL pricing policies and usage restrictions will represent a significant negative impact on West Virginia consumers, should these policies be implemented in Verizon’s service area in West Virginia.

Even more importantly, Roycroft considered the argument for imposing such Internet Overcharging schemes as unwarranted.

“While DSL provides dedicated bandwidth to the customer in the last mile, DSL subscribers will share network capacity in the ‘middle mile.’ For example, shared data networks will carry consumer traffic from the telephone company central office to an Internet gateway. I believe that Frontier’s policy is more likely to reflect an unwillingness on Frontier’s part to invest in ‘middle mile’ Internet access facilities that would require capacity additions as customer demand increases, and choose to restrict customer usage instead of investing in the capacity needed to meet customer demand,” Roycroft writes.

“Furthermore, Comcast’s download-cap policy includes limits that are dramatically higher than Frontier’s. Comcast’s acceptable use policy identifies 250 gigabytes as the threshold at which Comcast may take action against a customer, which is fifty times the usage associated with Frontier’s policy,” he added.

Roycroft was also concerned about the many ‘gotchas’ that are part of Frontier’s marketing efforts which bring even higher prices to consumers choosing to have DSL service installed.

“To receive the services of Frontier’s technician, the consumer will incur a $134 fee unless the consumer signs up for a term service contract. Even with the term service contract, the customer must pay a $34 fee for the on-site set-up. Furthermore, the technicians that Frontier dispatches to new broadband customers’ homes are also sales agents. Thus, while it may be that these individuals can help with system set-up and the like, they also are part of Frontier’s overall up-selling strategy,” said Roycroft.

Frontier markets a variety of services to customers as part of their promotions and service offerings.  For instance, recent Dell Netbook promotions required customers to sign multi-year contracts for service, with an early termination fee up to $400 if the consumer chooses to cancel service.  Such promotions do not come out of the goodness of Frontier’s heart.  Indeed, such promotions provide even more revenue potential by pitching customers on its “Peace of Mind” services, which include computer technical support, backups, and inside wire maintenance for an additional monthly fee.

Customers don’t even qualify for many Frontier promotions unless they accept a bundled service package combining broadband with traditional phone service and a multi-year service contract.

Roycroft says West Virginia should demand modifications to Frontier’s proposal before it should even consider accepting it.  Among the changes:

• Frontier should be required to make broadband services available in 100% of its wire centers, and to 90% of its West Virginia customers by the end of 2013. Frontier should expand broadband availability to 100% of its customers by 2015.
• Frontier should be required to deploy and promote broadband services in West Virginia so that, by the end of 2013, at least 90% of its customers can achieve download speeds of 3 Mbps; 75% of its customers can achieve download speeds of 6 Mbps; and 50% of customers can achieve download speeds of 10 Mbps.
• To achieve these broadband objectives, Frontier should be required to exceed Verizon’s baseline level of capital investment by at least $117 million during the period ending December 31, 2013, or by an amount sufficient to meet the broadband objectives.
• Frontier should be required to offer broadband services at prices that do not exceed those currently offered by Verizon for 1 Mbps and 3 Mbps services, i.e., Frontier should offer services at Verizon’s advertised prices for 1 Mbps and 3 Mbps service (respectively, $19.99 per month and $29.99 per month) for a period of 24 months following the merger.
• Frontier should be prohibited from imposing its broadband “download cap” in West Virginia.
• Frontier should be required to provide individual written notice to its customers regarding the merger, and should notify customers of any change in services that result from the merger. Changes in billing format should also be clearly explained to customers, both in writing, and through a web-based tutorial.
• Frontier should be prohibited from migrating any Verizon customer to a Frontier plan that either increases the customer’s rates, diminishes the level of service, or has a materially adverse impact on any of the terms and conditions of the customer’s service. West Virginia customers should experience a rate freeze for a period of 24 months.
• Frontier should be required to allow former Verizon customers to take a “fresh look” at their purchases, including those customers who have term contracts with Verizon. All early termination charges should be waived for a period of 90 days following the merger, and the long distance PIC charge should also be waived for Verizon long-distance customers who select a long-distance provider other than Frontier.

Consumers across 13 states impacted by the proposed Verizon sale to Frontier Communications, as well as existing Frontier customers, should tell regulators to reject the deal.

Those of us living and working in Rochester, New York are extremely familiar with Frontier Communications.  For more than 100 years, Rochester Telephone Corporation provided excellent, independent telephone service to Rochester and a significant part of the Genesee Valley.  The company had a reputation for excellent reliability and charged rates considerably lower than New York Telephone, a Bell subsidiary, in other upstate cities like Buffalo and Syracuse.  In 1995, Rochester Telephone was renamed Frontier Communications, because the company wanted to position itself as something more than just a phone company.

Frontier was acquired in 2001 by Citizens Communications of Stamford, Connecticut, who has provided service ever since.  Ironically, that company thought Frontier was a better name than the one they had used for decades, and Citizens renamed themselves Frontier Communications in 2008.

Today, Frontier Communications serves just under three million customers, primarily in suburban and rural communities in 24 states.

Since Citizens acquired Frontier, and its largest operating service area in metropolitan Rochester, the company has made some changes to the local telephone network.  Fiber optic connections are now common between their central offices and smaller “satellite” central offices.  A local wi-fi network was installed in association with Monroe County, in part as a political maneuver to stop municipally owned and operated affordable wi-fi networks from getting off the ground.  As a concession to the county, a much smaller “free” wi-fi network was also included. (See below the jump for video news coverage of Frontier’s promises vs. reality)

The company’s broadband service relies on ADSL technology delivered by traditional copper telephone wiring, providing service in Rochester at speeds up to a theoretical 10Mbps.  Actual speeds vary tremendously depending on the distance between your home or business and the telephone company central office serving it.  In most smaller communities, speeds are far lower.  In Cowen, West Virginia, Frontier markets broadband service at just 3Mbps, a typical speed for Frontier’s smaller service areas.

Unfortunately, Frontier has shown no initiative to move beyond offering traditional DSL service to its customers, including those in western New York.  Across other New York State cities, Verizon is taking a far different approach.  In larger communities, it is aggressively installing fiber optic wiring to both homes and businesses.  Verizon FiOS positions the company to effectively compete against their traditionally closest competitor – cable television.  For several years, cable operators have offered a better deal for its “digital phone” service, which works with existing home phones but delivered over cable TV lines, often charging less than a traditional phone line, and cable throws in free long distance on many of its plans.

The ubiquitous cell phone has not helped.  Many younger Americans can’t understand why they would want to bother getting a traditional phone line, when the mobile phone in their pocket works just fine, and they can take it with them wherever they go. The result has been a steady erosion of traditional “wireline” phone lines, and a corresponding decline in the revenue earned from the service in many areas.

In September Verizon CEO Ivan Seidenberg told a Goldman Sachs investor conference that the wired phone line business was effectively dead.  Seidenberg recognized that trying to guess when the company would stop losing “landline” customers was like guessing when a dog will stop chasing a bus.  In other words, the future of Ma Bell is not delivering phone service — it’s deploying advanced networks that are capable of providing customers with video, broadband, and phone service across one wire, preferably a fiber optic one.  Those that can manage the transition will succeed, those who cannot or won’t will face a steady decline to obsolescence.

There is only one major problem — it costs a lot of money to rewire entire communities, much less states, with fiber optic wiring.  It’s like building a phone network from scratch.  A company contemplating such a challenging undertaking starts by asking how much it is going to cost and when will it profit from its investment.  Many on Wall Street don’t like either question because of the up front cost, and are even less happy with the prospect of taking the long view waiting for those costs to be recouped from customers.

To date, Verizon is the most aggressive major phone company in the nation building a pure fiber optic system in its larger service areas.  AT&T, which provides phone service in many states, has taken a more cautious approach using a hybrid fiber-copper wire design they market as U-verse.  A handful of independent phone companies and municipally owned providers have undertaken to wire fiber optics to the home as well, so they can sell video, telephone and broadband service to their customers.

A major challenge confronts phone companies servicing more distant suburban and rural phone customers, often living far apart from one another in sparsely populated regions.  It costs more to service these customers, and the potential revenue gained is often not as great as what can be earned from their urban cousins.  Verizon doesn’t see many rural customers as part of their future business plans and have begun to systematically sell some areas off to other phone companies, usually in tax-free transactions.  One company that sees an ambitious future in serving rural America is Frontier Communications.  For them, finding a niche among the big boys gives them safety and security, particularly in areas that don’t have a cable competitor (or any competitor at all).

Frontier’s acquisition strategy is to sell regulators and the public on the idea that allowing Frontier in guarantees a much better chance for broadband service to reach the communities Verizon skipped over.  Their argument for success in a business seeing steady declines in customers is that broadband service will stem the tide, and help them remain profitable.  More than doubling their size with the acquisition of Verizon’s latest castoffs means more opportunity to market broadband service to those underserved communities.  Frontier argues it can be a more nimble player than Verizon because it has marketing and service experience in rural communities previously ignored by Verizon.

Frontier’s ability to provide broadband service is not the most important question.  More important is how Frontier will define broadband and at what speed. Also critically important is how Frontier will be prepared to deliver the next generation broadband platform that other communities will see with speeds up to 100Mbps, often on fiber optic networks.

Frontier’s reliance on ADSL technology, which worked fine for 1990s Internet connectivity, is increasingly falling behind in the speed race, and for much of the next generation of online content, speed will matter very much.

Unfortunately, the track record for the success of these spinoffs has been universally lousy for consumers and for many employees who live and work in the impacted communities.  Promises made quickly become promises delayed, and later broken as companies like Hawaii Telecom and FairPoint tried to integrate former Verizon operations into their own.  Service outages, billing errors, confusion, and finally a mass exodus by customers looking for better alternatives has been the repeated result.  The faster customers depart, combined with the enormous debt these transactions create for the buyer, the faster the journey ends in Bankruptcy Court.  There is nothing about the Frontier deal proposal that suggests their experience will be any different.

Shouldn’t Three Strikes Mean You Are Out?

Consumers should tell state regulators they should pay careful attention to the failures Verizon has left in its wake from previous deals:

• FairPoint Communications, which assumed control of phone service in Maine, New Hampshire and Vermont just last year declared bankruptcy this morning, even now still plaguing customers with billing and service problems.  The company choked on the debt it incurred from financing the deal.  Before this morning’s bankruptcy, their stock price had lost 95% of its value, and customers were leaving in droves, only accelerating the company’s demise.  FairPoint thought it could integrate Verizon’s byzantine billing system into its own.  Thinking and doing turned out to be two entirely different things.  Frontier has experience integrating other small independent phone companies into its billing system, but now faces the same prospect of dealing with Verizon’s own way of doing everything, and for twice the number of customers Frontier serves today.
• Hawaii Telecom and its 715,000 customers were dumped by Verizon in 2005.  Once again, transition issues plagued the post-sale experience for those customers, and almost a quarter fled the company over three years.  Last December, Hawaii Telecom declared bankruptcy.
• Verizon’s yellow pages unit was also thrown overboard by the company to Idearc in November 2006.  Saddled with $9.5 billion in debt and interest payments representing almost one quarter of the entire company’s revenues, Idearc finally had enough in March 2009 when it also declared bankruptcy.

The deal between Verizon and Frontier could easily follow the same path, as Frontier gets loaded down with massive debt financing the purchase, and has to immediately provide better service than Verizon did, or face a stampede of customers heading for the exit.  The impact of a debt-laden Frontier could be felt by more than just the newcomers.  Existing Frontier customers could also be impacted as the company turns its attention to a potentially lengthy integration process.

The Promise of Anemic Broadband, The Fiber Myth & The 5GB Acceptable Use Policy

Frontier’s plan to bring broadband to a larger number of customers is a noble gesture, particularly for households that currently do not receive any broadband service.  Unfortunately, a short term gain of what will likely be 1-3Mbps DSL service will leave these communities behind in the next few years as broadband speeds accelerate far faster than what Frontier is prepared to provide.

Some press accounts in West Virginia have left residents with the impression fiber optic service will reach their individual homes should Frontier be successful in purchasing Verizon’s assets.  There is no evidence to suggest this is true.

In earlier deals, these kinds of rumors started when companies advocating the sale staged press-friendly events announcing a fiber connection between hospitals, schools, or community centers, allowing the media to give the impression there would be fiber upgrades for all… if the deal gets approved.  In the case of Frontier, they have suggested they will continue work on Verizon’s FiOS system in the communities where construction was already underway.  That’s an important distinction for the millions of customers who don’t live in those communities.  Verizon’s FiOS network that is part of this transaction serves less than 70,000 residents.

Residents should consider what possibility their community has of obtaining this type of advanced service when Frontier refuses to provide anything comparable in their largest service area – Rochester, New York.

If they are not doing it in Rochester, do you really believe they will do it in your community?

The company certainly has a competitive need to provide such service in our city where Time Warner Cable has accelerated speeds beyond what Frontier is capable of providing.  Indeed, Time Warner Cable officials tout their largest number of new Road Runner broadband sign-ups comes from departing DSL customers who are fed up with the anemic, inconsistent speeds offered by this aging technology.

In the town of Brighton, I gave Frontier DSL service a try this past spring.  The company promises up to 10Mbps of service to my area, which is less than 1/2 mile from the city of Rochester, and literally just a few blocks from the town’s business center.  After installation, the company was only able to provide me with service at 3.1Mbps, just less than one-third of the speed marketed to local residents.  Even more surprising was the fact they charged a higher price for that service (including taxes, fees, and modem rental charge) than their competitor, Time Warner Cable.

This website was founded after Frontier inserted language into its Acceptable Use Policy defining “reasonable” broadband usage at just five gigabytes per month.  That’s right, the same limit your mobile phone provider applies to their wireless broadband service.  Viewing one HD movie over Frontier’s DSL service would put you perilously close to unreasonable use.

Are consumers willing to give up unlimited Verizon DSL service for a company that refuses to drop a 5GB acceptable usage definition from their terms and conditions?

America is on the threshold of 50-100Mbps broadband service, with some communities already enjoying those speeds.  If your community isn’t served by a competing provider, do you want to limit your future to yesterday’s DSL technology, and then told it is inappropriate for you to actually use it beyond five gigabytes per month?

The Billing and Customer Service Nightmare

The days of local customer service are over with Frontier.  Back during the days of Rochester Telephone, there were several occasions when a local customer service representative would recognize me by name.  Those days are long gone.  Now, a good deal of Frontier’s customer service is handled by a call center in DeLand, Florida.  While the representatives mean well, experiences with them suggest many are not well equipped to understand and consistently market Frontier’s products to existing customers.  Pile on more than double the number of new customers, and the problems are likely to become much worse.

Frontier has personally plagued me with billing errors this past year, gave inconsistent and inaccurate answers to pricing and service inquiries, and created major runaround hassles to correct them.  From the DSL self-install kit that never arrived (requiring me to visit a local office to pick one up myself), to the impenetrable and inaccurate bills that resulted, the company could not correct the problems without consulting someone with supervisor status.  I canceled service within the month.

Customers signing up for service have been pressured into “peace of mind” agreements that lock customers into long term contracts that automatically renew unless the customer actively cancels them (and is certain the request to cancel was processed correctly.)  Frontier has been fined twice by the New York State Attorney General for “misleading advertising and marketing tactics,” once in 2006 and again just a few weeks ago.  Some customers are now waiting for substantial refunds ranging from $50-400 dollars for “early termination fees” charged when they tried to cancel service.

Are you comfortable knowing some customers have been inappropriately placed on a one to three year contract without their full informed consent, and billed hundreds of dollars when they tried to cancel?

The Art of the Deal

By no means will a Verizon-Frontier transaction be the last.  As the industry continues to consolidate around a dwindling number of wired phone line customers, it’s a safe bet there will be more phone customers thrown away by the bigger players.  Nothing guarantees Frontier itself will be freestanding when the consolidation wave ends.  While these deals may make sense for some shareholders and company executives, they often don’t for local experienced employees who know the network and how to provide quality service.  They never have for consumers who will always have to foot the bill to pay off these transactions and have to live with the company trying to integrate Verizon’s bureaucracy with their own.

What is the ultimate price to pay?  For employees — their jobs, and as FairPoint employees are discovering today, those workers are being asked to pay the price for management mistakes.  In West Virginia, some of the most experienced Verizon employees are getting out with their pensions intact, not willing to take a chance on Frontier.  For customers living with FairPoint, horror stories of weeks without service, $400 phone bills for service long since canceled, company technicians that cannot find the customer even when they are located right next door to the phone company, and broken promise after broken promise continue.

Some consumer groups and local workers correctly predicted, in each instance, the horrific outcome of these kinds of deals.  Their uncanny knack to correctly predict disaster contrasts with company marketing, lobbying, and astroturf efforts that promise the sky and tell each successive news reporter covering the latest atrocity that “things are getting better” and “will be fixed soon.”  Unfortunately for too many customers, the fix has to come from a judge in Bankruptcy Court.

The International Brotherhood of Electrical Workers who repeatedly warned about the perils of FairPoint, now warns state regulators about Frontier, and direct attention to the numbers:

If the transaction is approved, Frontier management will have to deal with a 300% increase in access lines (from 2.2 million access lines now to 7 million after the sale) and a 200% increase in employees (from 5,700 employees now to 16,700 after the sale).

Frontier’s debt will increase from $4.55 billion to $8 billion—an increase of over $3.4 billion. Servicing this debt will mean less money for infrastructure, service quality, and high-speed internet build out.

While Frontier argues that somehow this deal will make it stronger, the issue for the states being sold is how much weaker it will make the operations in those states.

The leverage ratio is one way to measure the financial health of a company. The leverage ratio is calculated by taking net debt and dividing it by earnings (before interest, taxes, depreciation and amortization). The leverage ratio for the states being sold will increase from 1.7 immediately before the transaction closes to 2.6 after the sale. The entire deal revolves around Frontier’s ability to cut its operational expenses by $500 million or 21%.

This is significantly greater than the 8-10% cut that FairPoint hoped to achieve—and much of these savings were to be generated from replacing Verizon’s network and back-office systems. Yet, Frontier states that all of the operations except for West Virginia will continue on Verizon’s existing systems—for which Frontier will pay a fee.

Where will Frontier generate the savings—from reduced service quality, workforce, or maintenance of the communications infrastructure? In spite of brave talk from Verizon and Frontier, as recent events have demonstrated, obtaining financing for a transaction this size can be difficult. Frontier does not currently have financing for the additional debt it will take on for this transaction.

As an existing Frontier customer, I’d like an answer myself.

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Watch these two Wall Street guys talk about the previous Verizon deals that threw customers under the bus.  Plenty of praise for the skilled deal maker Verizon CEO Ivan Seidenberg, and no concern for you, the consumer and telephone customer impacted by a deal that got a few people very rich and left you with a bankrupt phone company.  (3 minutes)

It’s Not Worth the Risk

Unfortunately, for too many rural Americans impacted by this deal, there is only one phone company.  Cable television is not in their future, and in mountainous regions like West Virginia, wireless phones may not be suitable as a phone line replacement.  Risking 100 years of solvent phone service on a deal that could ultimately follow earlier deals into bankruptcy is not worth the risk.  The nightmares of converting operations from one provider to another is a hassle consumers should not have to face.

For decades, you faithfully paid your Verizon telephone bill and made the company the telecommunications powerhouse it is today.  Now they want to abandon you because, frankly, you just aren’t important enough to them anymore.  It doesn’t have to be this way.  State regulators can tell Verizon they need to make different plans — by forgetting about trying to cash in on a deal that is good for them and bad for you, and by staying put and providing consumers with the same kinds of network upgrades they are building in communities across the country.

Unfortunately, Frontier before this deal was ill-equipped to embark on the kind of investment necessary to provide fiber optic broadband connectivity to its customers.  Now pile on billions of additional debt and the challenge of trying to more than double their size and integrate diverse phone networks in 13 different states and ponder what the chances will be for fiber service after the deal is done.  Far more likely for residents is a company that will rely on slow speed DSL service, providing “good enough for them” broadband for the indefinite future.

Take Action!

As has been the case with Hawaii Telecom and FairPoint, naive regulators believed the false promises and approved earlier deals, and are frankly responsible for part of the blame.  Face-saving telecommunications regulators in New England initially even tried to cheerlead for FairPoint as they stumbled through one customer service nightmare after another.  Too late, they realized the grim reality that their approval saddled their states with a phone company totally unequipped to do the job.

Consumers who do not want a repeat performance can contact their state representatives and tell them to put pressure on each state’s public utility commission to reject the deal.  You should also contact your state’s public utility commission yourself.

No amount of concessions and written agreements will make a difference if that phone company ends up in financial distress and takes a walk to Bankruptcy Court.  Regulators should not even bother trying, after witnessing the debacle with FairPoint.

In your polite, persuasive and persistent communication with state officials, let them know:

• We’ve been down this road with Verizon before, with FairPoint Communications and Hawaii Telecom, leaving a litany of broken service promises, unfulfilled broadband commitments, unacceptable billing mistakes, and poor quality customer service.  In both instances, customers fled and the companies ended up in bankruptcy;
• Frontier has been unable or unwilling to wire its largest service area, Rochester, New York, with the advanced fiber connectivity that Verizon is wiring throughout the rest of upstate New York.  If the company cannot meet the needs of customers in their largest service area, what in the world makes you think they’ll do it for us?
• The company has been fined twice by the New York State Attorney General for dubious business practices, costing consumers hundreds of dollars the company has now agreed to return to those customers;
• A broadband service for our community’s future should not come with a 5 gigabyte monthly limit attached in the fine print.  How can our community compete in the digital economy if you have to ration your broadband usage to an unprecedented level in wired broadband?
• The devil is always in the details.  Verizon has an aggressive plan to stay relevant in a digital future, with video, telephone, and Internet service running across advanced fiber optic lines.  Frontier has a plan to serve rural communities with yesterday’s technology.  Frontier’s vision for video is to “get a satellite dish” and rely on the existing aging copper wiring to do everything else.
• What kind of service and growth can we expect from a company mired in debt?  As seasoned Verizon employees in our community start retiring, understanding the writing on the wall, what do they know that you and I don’t?
• Phone companies are a regulated utility, essential to the public interest.  Why permit a risky deal that could ultimately lead to a taxpayer bailout to keep operations running if Frontier follows its predecessors into bankruptcy, all while Verizon walks away with billions in proceeds?

You can locate the names and contact information for your state representative(s) on Congress.org simply by entering your zip code.  When calling or writing, always be courteous, and request that your representative respond in writing to your concerns, and share with Stop the Cap! any correspondence you receive in reply.  As always, we’ll be holding elected officials accountable.

Your next contact must be with your state public utility commission.  If a hearing is planned in your community, share your views in person and feel free to point them here if they want to watch how bad telecommunications deals have unfolded in the past.  We have countless hours of news reports archived for their viewing pleasure.  Each state has a different procedure for contacting them.  In West Virginia, for example, consumers can call the Commission at 1-800-642-8544.  Ohio residents can fill out an online form.

Perhaps Frontier can one day take on a transaction like this, but only after it can demonstrate it has the resources and willingness to provide customers with better options for service.  Had they done that in our community, local residents would not have taken to signing a petition for Verizon to overbuild, or buyout Frontier’s Rochester operation.  Local residents want the advantage fiber optic service can bring our community and its local economy, some even expressing a willingness to send $10 and $20 checks to Verizon for an acquisition fund to get the sale done.  When consumers give money to the phone company when they don’t owe anything, that should be a clear signal consumers are dissatisfied and want a change Frontier, thus far, has not provided.

There are more videos below the jump….

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