Losing customers.

A year after Frontier Communications assumed control of Verizon’s assets in the Pacific Northwest, customers are fleeing the company’s inherited fiber-to-the-home service FiOS, after announcing a massive (since suspended, except in Indiana) 46 percent rate hike for the television portion of the service.  A new $500 installation fee has kept all but the bravest from considering replacing customers who have left for Comcast and various satellite TV providers.

Frontier’s second-quarter financial results revealed the company has lost at least 14,000 out of 112,000 FiOS TV customers in the region (and in the Fort Wayne, Ind. market, where the service is also available.)

Early reaction to the original rate hike announcement started customers shopping for another provider — mostly Comcast, which competes in all three states where Frontier FiOS operates.  Even after the rate hike was suspended in some markets, intense marketing activity by Frontier to drive customers towards its partnership with satellite provider DirecTV managed to convince at least some of those customers to pull the plug on fiber in return for a free year of satellite TV, although an even larger number presumably switched to the cable competition.

D.A. Davidson, a financial consulting firm, told The Oregonian the message was clear.

“They would love to get rid of the FiOS TV customers,” Donna Jaegers, who follows Frontier, told the newspaper. “They’re programming costs are very high compared to the rates that they charge.”

Jaegers said Frontier Communications completely botched their efforts to transition customers away from FiOS TV towards satellite, because most of those departing headed for the cable competition, attracted by promotional offers and convenient billing.

Many others simply don’t want a satellite dish on their roof, and are confounded about Frontier’s message that satellite TV is somehow better than fiber-to-the-home service.

Frontier admits its FiOS service is now underutilized, but claims it will continue to provide the service where it already exists.

Wilderotter

Frontier Claims Its DSL Service is Better Than Cable Broadband

Frontier’s general business plan is to provide DSL service in rural areas where it faces little or no competition, and most of Frontier’s investment has been to upgrade Verizon’s landline network to sustain 1-3Mbps DSL service, for which it routinely charges the same (or more) for standalone broadband service that its cable competitors charge for much faster speeds.

But Frontier Communications CEO Maggie Wilderotter says their DSL service is better than the cable competition.

“A key differentiator between our network and cable competition is that you consistently get the speed you pay for,” Wilderotter told investors on a conference call. “There’s no sharing at the local level. High demand for bandwidth-intensive applications like video are putting pressure on all wired networks. To that end, we want to make sure that we have more than enough capacity to satisfy the expectations of our customers. We’re spending capital in all parts of the network with specific emphasis in the middle mile, which will enable us to consistently deliver a quality customer experience for our customers of today and tomorrow.”

Frontier Communications CEO Maggie Wilderotter defends anemic broadband additions during the 2nd quarter of 2011 and tries to convince investors DSL service is better than the cable competition. August 3, 2011. (4 minutes)
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Netflix Traffic Represents 25% of Frontier’s Broadband Traffic; Online Video — 50%

Wilderotter admitted Frontier’s broadband network is overcongested in many regions, which she partly blamed for the company’s anemic addition of new broadband customers.

She noted Netflix, which has itself consistently rated Frontier the worst wired broadband provider in the country for being able to deliver consistent, high quality access to their streaming service, represents one-quarter of all capacity usage of Frontier’s broadband network.

“Video is about 50 percent,” Wilderotter added.  In an investor conference call, she explained network congestion in more detail:

“In [the second quarter], we had many areas with unacceptable levels of network congestion, which negatively impacted our growth in net high-speed additions.” Wilderotter said. “We believe all of the major congestion issues will be fixed by the end of [the third quarter], and that will enable us to drive higher growth and net broadband activation in [former Verizon service areas.]”

“What we decided to do is to go for fixing the middle mile, which is the [central office] to the […] neighborhood and to expand that capability by 100-fold. And then also, expand from the [central office] out to the Internet and make sure that we have huge capacity to deliver and receive capability to our customers. So when we sell 6 meg, 10 meg, 25 meg, 50 meg, the customer gets what we sell them and that was extremely important for us.”

“So what we did is in the areas where we saw the congestion increase based upon usage increases, and we’ve built new households. We’ve held off on marketing to a lot of those new households until we fixed the congestion problem because we didn’t want to exacerbate what we had already. We’ve shifted capital in terms of the mix of how we’ve spent capital to fix this problem. I’d say we’re probably 75% of the way there in fixing congestion. This quarter is another big quarter for us to get all of the major issues out of the network, which will allow us in the back end of this quarter through the fourth quarter, to really start pushing the penetration levels where we’ve built new households in the areas that have been affected by congestion.”

Frontier Introduces Line Bonded DSL — Two Connections Can Improve DSL Speeds

Frontier Faster? Frontier announces line bonded DSL.

Frontier Communications also announced the introduction of Frontier Second Connect, a DSL line bonding product that delivers two physical connections to a single household.  Line bonding allows for improved broadband speeds.

“Second Connect gives our customers two exclusive connections in one household, and we’re the only provider in every market that can do that,” Wilderotter claimed.

In more urban markets, Frontier’s DSL speeds are woefully behind those available from most cable competitors.  Frontier has begun upgrading some of their legacy service areas and retiring older equipment in an effort to improve the quality of service.

“The real initiatives that we have underway are called middle mile, interoffice facilities, as well as some of the more aged equipment that’s in the network,” said Dan McCarthy, Frontier’s chief operating officer. “So as we go through, there’s about 600 projects that are underway today that will improve both the speed and capability.”

“We’ve inherited markets that there has not been upgrades to capacity in these markets for many years and fixes to the networks, plus the elements as the DSLAMs, even the DSLAMs themselves are old,” Wilderotter said. “So we’re replacing network elements in the neighborhood. We’re splitting them and moving customers to other network elements to make sure that they have a good experience.”

Frontier executives answer a question from a Wall Street banker about DSL speeds and congestion problems on Frontier’s broadband network. A detailed technical discussion ensues as the company tells investors it is redirecting some capital to fixing Frontier’s overcongested network. August 3, 2011. (5 minutes)
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Frontier Still Losing More than 8% Of Its Landline Customers Every Year

Despite broadband rollouts and incremental improvements, more than eight percent of Frontier’s landline customers disconnect service permanently every year.  Frontier called that disconnect rate an improvement over its line losses last year, which exceeded 11 percent in some areas.

“Total line losses improved to an 8.6% year-over-year decline, our lowest level since taking ownership when the pro forma loss rate was 9.7%,” reported Wilderotter. “We also improved [the] loss rate [in former Verizon service areas to] 10.1% compared to 11.4% in Q2 2010.”

Most of Frontier’s departing customers are switching to cable providers and/or cell phone service.

(Update 8-23-2011: We are now told in many areas, Frontier’s Second Connect service is not actually a bonded DSL product, but rather a “dry loop” second DSL line that carries the same speed as your primary line.  Presumably, household members can divide up who uses which DSL circuit for Internet access.  The charge for Second Connect in ex-Verizon service areas is $14.99 per month plus a second mandatory monthly modem rental fee of $6.99. If the web link does not work, it means the service is not available in your service area.)

Verizon's aggressive offers promoting adoption of more profitable smartphones delivers higher average revenue from every customer that is convinced to upgrade.

Verizon Wireless continues on its mission to seek out old customers, to explore new ways of earning more money from them, and going where other carriers have already  gone before to get customers to dump basic phones in favor of more profitable smartphones.

The company begins testing a new basic data plan on Thursday around the nation’s capital that will provide up to 300MB of smartphone data for $20 a month in an effort to reduce sticker shock for would-be upgraders confronting the smartphone fact-of-life: the mandatory smartphone data plan.

Curiously, Verizon is calling its limited promotion a “back to school” special, despite the fact some of the heaviest data users around are school age, likely to blow right past their usage allowance.

Verizon Wireless’ leaked press release:

Starting Thursday, existing Verizon Wireless customers in Maryland, Washington DC, Virginia and North Carolina will be able to add a 300 MB data plan to their smartphone or basic phone for just $20 monthly access when added to a voice plan. All new and existing customers are eligible for the promotional data plan that will be available from Aug. 18 through Sept. 30.

Customers in Maryland, Washington, DC, Virginia and North Carolina can choose from an array of 3G- and 4G LTE-enabled devices that include top sellers on all mobile operating systems including BlackBerry, Android, iOS, Palm and Windows Mobile. The plans are not restricted to specific phones but are geared to customers whose data use falls within the 300 MB allowance. Customers who go over their monthly allowance will automatically receive an additional 300 MB for an additional $20 per month.

If that doesn’t convince you to upgrade, perhaps Verizon’s version of “cash for clunkers” — a cell phone trade-in program, will.  Verizon Wireless is offering up to $100 for customers in their western region to trade-in basic phones for a shiny new smartphone, as long as they upgrade between Aug. 18-Sept. 30.

According to Phone Arena, some customers even under existing contracts may qualify:

• 1) Current customers with a basic phone that are eligible for a 2-year upgrade will have to purchase a new smartphone at the discounted upgrade price, re-sign a 2-year contract and add a smartphone data plan.
• 2) Current customers with a basic phone, but are still under a contract may be eligible for an early upgrade. If so, they purchase the new smartphone, re-sign a 2-year contract, and add a smartphone data plan.

Phone Arena had the benefit of a friendly Verizon Wireless employee willing to share the company’s employee-only documentation about the offer:

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/WPIX NY NYPD Anti-Terror Units Monitoring Verizon Strikers 8-13-11.flv[/flv]

Members of the New York City Police Department’s Critical Response anti-terrorism unit have been deployed to monitor Verizon workers on picket lines in several New York locations.  Striking workers wonder how much New Yorkers are paying in tax dollars to provide de-facto security for Verizon.  “The company made $19-billion in profit, they can’t afford to bring out their own security to watch their own men,” asked Jon Granziel, a veteran of 21-years with Verizon.  WPIX in New York has the story.  (3 minutes)

Verizon Communications has gone to court to limit picketing and protest activity among striking union workers who have been accused of taking their cause too far.

The company filed a lawsuit Wednesday in New York and won a court order Monday in Pennsylvania, and another in Delaware on Wednesday.  The company is waiting for rulings in New Jersey and Massachusetts that would force Verizon strikers to limit the number of picketers at any given location and stop blocking access to company buildings.

Relations between the company and striking workers have deteriorated significantly as the first week of the strike wears on.

Near Buffalo, two strikers were hit by a replacement worker’s vehicle.  A BB gun was fired at a worker still on the job in the Bronx.  Several incidents of pushing and shoving by both sides have also been documented.  But among the most serious incidents are acts of sabotage that have cut off landline and cell service, mostly in upstate New York.

Service was restored late yesterday to residents in Oneida County, who lost both home and cell phone service after fiber cables were cut.  Verizon has rushed out press releases decrying what they call “sabotage” and indirectly implying Verizon strikers are responsible.  The New York State Police continues criminal investigations in several upstate communities were vandalism has occurred.

Austin (Courtesy: Boston Herald; Photo by M. Stone)

Verizon strikers have also been following around replacement workers assigned to do home installations and repair work, and this has occasionally led to picketers arriving outside of customer homes where repair work is underway.

The Boston Herald reports one Quincy, Mass. mom found a circus outside her home yesterday when Verizon showed up to fix her phone line:

A Quincy mom has disconnected her support for striking Verizon workers yesterday after a group of mouthy picketers surrounded non-union repairmen and turned a phone-line fix at her home into what she is calling a “ridiculous” protest scene.

“I looked in the street and there are picketers, 10 of them or more, doing a circle around the Verizon truck,” said Karen Austin, 64, a mother of five who lives on Forest Avenue.

“Every time (the repairmen) would walk up to my house they would follow them. I couldn’t believe my eyes. This is ridiculous. Why are they picketing my house?”

“I’m not on a main street … I’m not a business. I’m a person who needed a line fixed,” she said.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WHDH Boston Verizon Sabotage in Mass 8-8-11.mp4[/flv]

Verizon alleges vandalism may be responsible for a significant service outage in Tewksbury, Mass., but union officials suggest Verizon’s claims are “straight out of the Verizon strike playbook.”  WHDH in Boston reports.  (2 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WABC NY Verizon goes to court over workers strike in East 8-10-11.mp4[/flv]

WABC in New York watched as Verizon strikers booed anyone approaching an entrance to Verizon’s headquarters.  Company officials are seeking court orders to restrain picketing activities in five states.  (3 minutes)

Vandalism causes serious phone outages in upstate New York. (Courtesy: Verizon Communications)

Frontier Communications’ landline customers in Lewis and Oneida counties faced long distance service outages, while just about everyone in northern Oneida County is without both landline and cell phone service after fiber lines serving cell towers and landline customers were cut Monday.

The New York State Police have launched a criminal investigation into the sabotage, while Verizon Communications implies the damage might have come as a result of a strike against the company that began last weekend.

The largest outage, which cut off cell service and landlines, originated in Deerfield, where cables were severed.

Several upstate communities are facing lengthy service outages from a variety of acts of vandalism, most from cable cuts and damage to junction boxes.

Verizon has rushed out news releases regarding the damage, offering a reward of up to $50,000 for information leading to the arrest and prosecution of individuals that intentionally damage Verizon cables or facilities or cause or attempt to cause physical injury to any Verizon employee or contractor.  Verizon urges anyone who witnesses sabotage of Verizon property or any suspicious activity to call 911 immediately, then call the Verizon Security Control Center at 1-800-997-3287.

Both sides of the dispute are now appealing to Congress to intervene, an action that may not bring immediate results.  Both the House and Senate are currently in their five-week summer recess.

[flv]http://www.phillipdampier.com/video/WKTV Utica Criminal investigation into cut phone lines that caused massive outages 8-9-11.mp4[/flv]

WKTV in Utica covers the impact of widespread landline and cell phone outages in Oneida County, upstate New York.  (1 minute)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WRGB Albany Verizon Vandals 8-8-11.flv[/flv]

WRGB in Albany explores additional acts of vandalism in the Capitol District and gets reaction from striking workers about whether they were involved.  (3 minutes)