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CNN explores who is responsible for Netflix’s streaming problems on Verizon FiOS and AT&T U-verse. While one industry analyst seems keen to blame Netflix, his other articles on the subject show an increasing bias towards big ISPs like Verizon and AT&T. (2:54)

Netflix’s May speed rankings confirm Verizon FiOS customers are likely to find a degraded video streaming experience while using the otherwise speedy fiber to the home service. Netflix performance on Verizon FiOS dropped considerably last month — so much so that Frontier and Windstream DSL customers now get better Netflix performance than any Verizon customer receives. AT&T U-verse customers fared even worse with streaming performance below that offered by Mediacom — America’s bottom-rated cable company and CenturyLink DSL. In fact AT&T U-verse customers receive only marginally better service than Hughes satellite and Clearwire wireless customers. Verizon’s DSL came in dead last.

Coincidentally, both Verizon and AT&T, following Comcast’s lead, have been in negotiations with Netflix to receive payment from the streaming video provider to better handle its traffic. Verizon CEO Lowell McAdam said he’s confident about getting payments from Netflix, and he turned out to be correct — Verizon and Netflix reached an agreement in late April that is still being implemented. AT&T also says it is negotiating with Netflix. Verizon’s streaming video partnership with Redbox has not been affected by the sudden deterioration in online video streaming on Verizon’s network.

The problems with Netflix on some ISP’s have gone all the way to the top.

“My wife and I like to lay in bed and watch Netflix,” Tom Wheeler, chairman of the US Federal Communications Commission, said in January. The two companies serving Wheeler’s neighborhood are Comcast and Verizon. When enough customers launch streams on Netflix, saturating the inbound connection to either ISP, the video stops. When it does, Wheeler’s wife joins the parade of irritated customers.

“You’re chairman of the FCC,” she says to him. “Why is this happening?”

Last week, Netflix decided to answer that question with a more informative error message appearing when available bandwidth is insufficient to support a high quality stream.

“The Verizon network is crowded right now,” the message says. Netflix then attempts to restore the stream by serving up a degraded, lower quality/bit rate version to the paying customer.

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Bloomberg interviews Todd O’Boyle from Common Cause. He places the blame for this debacle solely on the shoulders of Verizon and other ISPs. (5:39)

The inability to successfully maintain a stable stream of Netflix content that ranges from 256kbps to 5.8Mbps seems odd on ISPs that offer customers connections far faster than that. The average Netflix stream is 2Mbps, slow enough to be comfortably supported on even a 3Mbps DSL connection. Netflix’s problems with Comcast evaporated after agreeing to pay the cable company to maintain a better connection between its customers and Netflix’s content delivery network. The same cannot be said for perfomance on AT&T’s U-verse platform. Although Verizon signed an agreement with Netflix, it has clearly not been implemented as of yet.

“We started a small-scale test in early May that lets consumers know, while they’re watching Netflix, that their experience is degraded due to a lack of capacity into their broadband provider’s network,” said Netflix’s Joris Evers. “We are testing this across the U.S. wherever there is significant and persistent network congestion.”

The companies with the biggest drops in Netflix performance are the same ones strongly advocating special paid “fast lanes” on the Internet for preferred traffic to resolve exactly these kinds of performance problems.

“Some large US ISPs are erecting toll booths, providing sufficient capacity for services requested by their subscribers to flow through only when those services pay the toll,” said Evers. “In this way, ISPs are double-dipping by getting both their subscribers and Internet content providers to pay for access to each other. We believe these ISP tolls are wrong because they raise costs, stifle innovation and harm consumers. ISPs should provide sufficient capacity into their network to provide consumers the broadband experience for which they pay.”

The error message fingering Verizon as the culprit for a poorer Netflix experience brought an angry response from Verizon on its blog:

Reports from this morning have suggested that Netflix is engaging in a PR stunt in an attempt to shift blame to ISPs for the buffering that some of its customers may be experiencing. According to one journalist’s tweet from last night, Netflix is displaying a message on the screen for users who experience buffering which says: “The Verizon network is crowded right now.”

This claim is not only inaccurate, it is deliberately misleading.

The source of the problem is almost certainly NOT congestion in Verizon’s network. Instead, the problem is most likely congestion on the connection that Netflix has chosen to use to reach Verizon’s network. Of course, Netflix is solely responsible for choosing how their traffic is routed into any ISP’s network.

[…] It is sad that Netflix is willing to deliberately mislead its customers so they can be used as pawns in business negotiations and regulatory proceedings.

It would be more accurate for Netflix’s message screen to say: “The path that we have chosen to reach Verizon’s network is crowded right now.”

However, that would highlight their responsibility for the problem.

Milch

That was quickly followed by a cease and desist letter from Verizon demanding Netflix remove error messages that blame Verizon for the problem. It also demanded a list of Verizon customers that received the Netflix notification.

“Failure to provide this information may lead us to pursue legal remedies,” wrote Verizon general counsel Randal Milch in a letter to Netflix general counsel David Hyman.

“This is about consumers not getting what they paid for from their broadband provider,” Netflix spokesman Jonathan Friedland said. “We are trying to provide more transparency, just like we do with the ISP Speed Index, and Verizon is trying to shut down that discussion.”

“Verizon’s unwillingness to augment its access ports to major Internet backbone providers is squarely Verizon’s fault,” Netflix general counsel David Hyman wrote.

“Netflix does not purposely select congested routes,” added Evers. “We pay some of the world’s largest transit networks to deliver Netflix video right to the front door of an ISP. Where the problem occurs is at that door — the interconnection point — when the broadband provider hasn’t provided enough capacity to accommodate the traffic their customer requested.”

Despite all that, Netflix also admitted it plans to drop the error messages after the “small-scale test” ends on June 16.

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CNBC explains how Netflix content gets to end viewers over a complicated series of Internet connections between Netflix and your ISP. (1:31)

Unsimplify

When is a rate increase not a rate increase? When it is an “administrative surcharge” of course!

Verizon FiOS phone customers will soon find the company’s latest innovation in the form of a new line on their June bill, along with a $0.99 surcharge.

Notice of Price Increase
Effective May 17, 2014, Verizon will apply an FDV Administrative Charge of $0.99 per FiOS Digital Voice line. This monthly surcharge helps defray account servicing costs associated with providing voice services. This is a Verizon surcharge, not a tax or governmental fee. Visit verizon.com for more information.

Instead of simply raising the advertised price of the service, Verizon added a new opaque charge which they admit is nothing more than an effort to increase revenue. Prospective customers will still see Verizon’s attractive promotional pricing, but only later discover the final bill is higher once taxes, fees, and other surcharges are tacked on.

In fact, Verizon’s new FiOS Digital Voice fee is subject to taxes as well, so for some the true cost of the rate increase is $1.21.

Some angry Verizon customers are switching to Ooma, a service that asks customers to pay upfront for the hardware but offers basic telephone service for free (customers pay well under $10 a month to cover taxes that Ooma does not pocket itself.) A more deluxe option including more phone features runs around $10 a month.

One annoyed customer considers the fee an end run around consumer contract law:

My concern [is] with a regulated utility’s ability to get around a contract price by labeling an increase as an “administrative charge.”

I called their customer service line to discuss/complain.  When I asked what would prevent Verizon from using this as a vehicle to increase prices by $10 or $15, assuming Time Warner/AT&T/DirectTV raised their prices as well, he admitted that he was not aware of any restrictions.  Neither am I.

I can’t find anything in my contract with Verizon that lets them increase my price by instituting back-end increases.  I’m pursuing with government regulators and encourage you all to do so as well.  If this gets through, there will be more.

In fact, one of the reasons why Verizon loves their digital voice product so much is because it is unregulated and not subject to government oversight. They can set rates at will and their current contract allows for the addition of administrative fees without violating any “price lock” agreements. So far, most companies implementing these fees have kept them low enough to avoid provoking government scrutiny, but the number of them and their respective amounts have increased over time.

Customer recourse? Complain and ask for a credit for the administrative fee or cancel service.

Comcast and Time Warner Cable have achieved new lows in the most important customer satisfaction survey in the United States, winning bottom honors as the two most despised companies in the United States.

The American Customer Satisfaction Index found Comcast and Time Warner Cable the only two companies in the country that scored below 60 on the ACSI’s 100 point scale. Comcast fell 5% to 60, while Time Warner Cable plunged 7% to 56, its lowest score to date.

“Comcast and Time Warner assert their proposed merger will not reduce competition because there is little overlap in their service territories,” says David VanAmburg, ACSI director. “Still, it’s a concern whenever two poor-performing service providers combine operations. ACSI data consistently show that mergers in service industries usually result in lower customer satisfaction, at least in the short-term. It’s hard to see how combining two negatives will be a positive for consumers.”

Broadband service seems to be a significant issue for customers. High prices, slow data transmission, and unreliable service drag satisfaction to record lows, as customers have few alternatives beyond the largest Internet service providers. Customer satisfaction with ISPs drops 3.1% to 63, the lowest score in the Index.

Verizon FiOS is the one bright spot in the survey, managing to grab a 71 score, beating AT&T U-verse, CenturyLink, and other providers. Cable broadband providers continued to score lowest. The best of the lot was Cox Communications, which isn’t saying much. It only managed a 6% fall to 64.

Customer satisfaction is also deteriorating for all the largest pay TV providers. Viewers are much more dissatisfied with cable TV service than fiber optic and satellite service (60 vs. 68). Though both companies drop in customer satisfaction, DirecTV (-4%) and AT&T (-3%) are tied for the lead with ACSI scores of 69. Verizon Communications FiOS (68) and DISH Network (67) follow. DISH Network may be the lowest-scoring satellite TV company, but it is better than the top-scoring cable company, Cox Communications (-3% to 63).

Among wireless carriers, things have not changed much this year.

Verizon Wireless achieved first place after climbing 3% to 75. T-Mobile (69), Sprint (68) and AT&T Mobility (68) are tightly grouped behind. As smartphone adoption continues to grow, network demands increase along with costs to the consumer, each contributing to stagnant customer satisfaction.

Verizon’s FiOS expansion is still as dead as Francisco Franco.

Verizon is prepared to watch up to 30% of their copper landline customers drift away because the company is adamant about no further expansion of its FiOS fiber to the home network.

Fran Shammo, chief financial officer at Verizon, told attendees of the Jefferies Global Technology, Media & Telecom Conference that Verizon will complete the buildout of its fiber network to a total of about 19 million homes, and that is it.

“Look, we will continue to fulfill our FiOS license franchise agreements,” Frammo said. “[We will] cover about 70% of our legacy footprint. So 30%, we are not going to cover. That is where we are still going to have copper.”

That is bad news for Verizon customers stuck with the company’s copper network because Verizon isn’t planning any further significant investments in it.

“We will continue to harvest that copper network and those customers and keep them as long as we can,” Frammo said. “But we will not be building FiOS out for those areas.”

In fact, Frammo admitted ongoing cost-cutting at Verizon’s landline division is allowing the company to shift more money and resources to its more profitable wireless network.

Verizon CEO Lowell McAdam doesn’t want to spend money on non-FiOS areas when more can be made from its wireless network.

“It is also taking cost structure out,” Frammo said.  “As I mentioned, the migration of copper to fiber has been very big for us. Our Lean Six Sigma projects have really significantly helped us in our capital investment in the wireline which is why I can put more money into the wireless side of the business.”

Verizon has shifted an increasing proportion of its capital investments towards its wireless division year after year, while cutting ongoing investment in wireline. Ratepayers are not benefiting from this arrangement, and critics contend Verizon landline customers are effectively subsidizing Verizon’s wireless networks.

Verizon will still complete the FiOS buildouts it committed to earlier, particularly in New York City, but it is increasingly unlikely Verizon will ever start another wave of fiber upgrades.

In fact, Michael McCormack, the Jefferies’ Wall Street analyst questioning Shammo at the conference foreshadowed what is more likely to happen to Verizon’s legacy copper customers.

“We have talked extensively in the past about the non-FiOS areas and I guess in my second reincarnation as a banker, I will try to help you get rid of those assets,” said McCormack.

The New Jersey Board of Public Utilities today voted unanimously to approve a Verizon-friendly settlement that lets the phone company off the hook for its 1993 commitment to offer broadband service to every resident in the state who wants it.

Critics call the decision a “total capitulation” by state regulators that proved “very amenable to Verizon’s agenda.”

Verizon will now be allowed to substitute its costly, usage-capped, high-speed 4G LTE wireless service in rural areas instead of expanding DSL or its fiber optic network FiOS.

Verizon won deregulation two decades ago in an agreement known as “Opportunity New Jersey” in return for a commitment to expand high speed Internet access to all of New Jersey by 2010 — a deadline long missed. Critics charge Verizon collected as much as $15 billion in unregulated service revenue it would have otherwise never received, yet stopped its fiber optic rollout more than two years ago.

A number of rural New Jersey communities including Hopewell, Alloway and Pilesgrove townships opposed Verizon’s settlement proposal because it would let the company walk away from its earlier commitments and leave parts of southern New Jersey without any broadband service. Now those communities may eventually be served by Verizon Wireless, but at a significant cost starting at $50 a month for up to just 4GB of broadband usage.

Verizon gets to keep its current deregulation framework in place as part of the settlement.

The New Jersey Board of Public Utilities consists of five commissioners all appointed by the governor and confirmed by the state Senate for six year, staggered terms. Gov. Chris Christie’s appointees now dominate the BPU, and critics charge he uses the regulatory agency as a political patronage dumping ground. Earlier this year, he faced criticism for appointing the wife of a longtime Christie ally to lead the board. Dianne Solomon served on Christie’s transition team and brought a very thin resume to the position — serving as a paralegal and an umpire certified by the United States Tennis Association.