Phillip "I Also Told You So" Dampier

This past spring Stop the Cap! started relentlessly documenting the tragic phone and broadband service that came as a result of a lousy phone deal for New Englanders.  Verizon, busily wiring its larger service areas for FiOS fiber to the home service, wanted out of Maine, New Hampshire, and Vermont.  In a uniquely wonderful deal (for them), they not only managed a clean break from too much regulatory red tape, but also sold off the entire operation down to the last cable, phone jack, and building absolutely tax-free to FairPoint Communications, a tiny independent phone company headquartered in North Carolina.

Since the sale, it has been one catastrophe after another:  broken phone and broadband service up to weeks at a time, incorrect billing amounting to hundreds of dollars and collection calls pestering customers for money they don’t owe, investigation after investigation, broken promise after broken promise.  Since we broke from the story back in June to cover some of the nonsense and ripoffs going on in Canada, things have not gotten that much better.  In fact, the company’s stock has since lost 95% of its value, is defending against accusations it manipulated a “test run” of a conversion program to guarantee success (right under the noses of independent observers), a major management shakeup, and now the very real chance the entire mess is headed to Bankruptcy Court.

One member of the International Brotherhood of Electrical Workers, who loudly and, it turns out, very accurately predicted the results of this ill-conceived venture, said FairPoint is now swirling in the bowl, flushing itself, and three states’ telecommunications needs, right down the toilet.

So at the same time Frontier Communications is trying to pick up what Verizon is throwing away this year, it’s very illustrative to continue this story, to educate our readers about what happens when consumers’ needs are totally ignored.  Just as much to blame are the state regulators who are now ironically among the loudest complainers.  As we’ve shown documenting this entire story, they’ve changed their tune dramatically.  Back in 2007, they couldn’t say enough wonderful things about how confident they were in FairPoint, and were certain everything would work out just fine.

It did for them because they are still there, conducting the investigation about how this whole mess got started.

The Nashua Telegraph has followed this sorry story since day one:

Unable to make its massive debt payments, FairPoint will have to file for bankruptcy by month’s end unless it can strike a deal with creditors.

The company is losing land-line customers – and thus, revenue – faster than anticipated. And the celebrated launch of a TV service to compete with cable – a move FairPoint said would bring in the extra income to compensate for the decline in land-line customers – has been put on hold.

“There’s no satisfaction in saying I told you so,” said Rand Wilson, communications coordinator for the two unions that represent most FairPoint workers, which organized a major public campaign in an effort to stop the sale.

“We have to try to provide the best possible service under the circumstances and work with regulators and states to find a way to create a viable company.”

So far, that means trying to fix FairPoint from within, or hope the rumors of a buyout by Windstream, another owner of formerly independent phone companies, turns out to be real. But like FairPoint and Frontier, Windstream itself has a business model running phone service in the areas the big boys don’t want. How much of an improvement that company would provide remains an open question.  Regardless, unless FairPoint works the kind of magic it has never performed for its New England customers, it’s probably only a matter of weeks before bankruptcy:

P.J. Louis, a telecom industry expert and author of 11 books on the various topics within the industry, recently wrote that he thinks it’s a realistic option for the company.

“The more and more I think about it, the more I am convinced that FairPoint needs to file,” Louis wrote in an analysis on the Gerson Lehman Group Web site. “Every horror story you hear just scares the heck out of me. Frankly, I am questioning management’s ability to see the company through this rough time.”

Rochester, NY - New York's second largest economy on the shores of a broadband backwater

Broadband Reports this morning received word from an “insider” that Time Warner Cable is laying the groundwork to introduce “wideband” broadband service up to 50Mbps throughout New York State’s Verizon FiOS-wired communities.  According to the report, Time Warner Cable plans to launch faster DOCSIS 3.0 service in Buffalo in mid-November, Syracuse in December, and Albany in January.  The company introduced “wideband” service in metropolitan New York City a few weeks ago.

Omitted from the upgrade list is New York’s second largest economy and high tech capital of upstate New York — Rochester.  The city was in the news in April when Time Warner designated Rochester as one of the “test cities” for an Internet Overcharging experiment.  The plan was shelved when customers organized a mass revolt against the plan and two federal legislators intervened.

From a logical standpoint, it wouldn’t seem to make sense for a broadband provider to omit a region with more than one million residents, many who have been highly educated and work for the community’s largest employers – the University of Rochester/Strong Health, Eastman Kodak, Xerox, ViaHealth/Rochester General Hospital, Rochester Institute of Technology, Paychex, and ITT.

But from the all-important business standpoint, Time Warner Cable enjoys extraordinarily limited competition in the area, and the gap only widens in the coming future.  The area’s telephone provider, Frontier Communications, is known mostly for providing service in rural communities, and has so far offered lackluster plans for a 21st century broadband platform, preferring to rely on now-aging DSL technology while Verizon wires most comparably-sized cities in the rest of the state for advanced fiber-to-the-home FiOS service.

While Frontier can live comfortably in rural communities where cable television is not an option, customers who live and work in their largest service area continue to find disadvantages from a company business plan that these days seems more focused on mergers and acquisitions, and is content with language that defines an appropriate amount of monthly broadband usage at a ridiculously small 5 gigabytes per month.

Against a competitor like that, why would Time Warner Cable bother?

"I think these are radical consumer groups," says Larry Kudlow

CNBC host Larry Kudlow engaged in on-air lovemaking with the wireless phone industry in a shameless segment decrying Net Neutrality.  His guest, Chris Guttman-McCabe, vice president of regulatory affairs at CTIA – The Wireless Association, was strictly in friendly territory as Kudlow tossed him softballs.  It was an industry talking point Blitzkrieg on consumers from start to finish:

Kudlow: Potential government control of the Internet: is Net Neutrality going to limit investment and innovation and even customer service?

Reality: Saying Net Neutrality is “government control” of the Internet is like saying safety inspections are “government control” of the food industry.  Without Net Neutrality, big cable and phone company providers will be the ones controlling the Internet.  Will Net Neutrality really limit investment, or continue the Internet success story that investment and innovation has already produced before providers demanded you pay more.  As for impacting customer service, that’s about as valid as claiming Net Neutrality will cause snakes to hide in your bed.

Guttman-McCabe: It’s a perfect storm of usage.  If we’re forced to deliver every bit all the time you’re going to lead to some form of commoditization of the product.

Reality: Gasp!  We can’t have that!  For those who may miss the meaning, commoditization refers to a perfect storm of competition, with providers generally competing on price because their products are of similar scope and quality.  Providers cannot extract higher pricing in such environments, because consumers won’t pay.  In the wireless industry’s eyes, Net Neutrality forces them to actually deliver the service they promise in their marketing materials.  You, as a consumer, get to choose the applications and services you wish to use and pay accordingly.  The market they want is to closely control and manage the content you use on their networks, blocking or impeding “unauthorized” services that don’t have a relationship with, or approval from, your wireless phone company.  Consumers actually want every bit delivered all the time, and providers are throwing a hissyfit because of it.

Kudlow: If you’re forced to deliver every bit all the time and meet the demands of these radical consumer groups, what happens to the profits of the deliverers?  The profits that are supposed to go into the investments to expand the broadband delivery?

Reality: Radical consumer groups?  Attacking real consumer groups that represent what consumers actually want, while providers stomp their feet when forced to deliver, doesn’t solve “the problem.”  And what of the profits?  That’s a good question Guttman-McCabe isn’t prepared to fully answer.  The enormously profitable broadband industry, in general, earns billions and invests a small percentage of that back into expanding their networks.  As our readers have learned on the wired broadband side, the logical assumption that providers will at least maintain a level percentage of revenue going back into network infrastructure isn’t always the case.  Instead, some providers raise prices and limit service, blaming “increased demand.”  Kudlow could ask providers what percentage of their revenues go into network expansion, and whether that has changed in the last ten years.  Of course he doesn’t.

Kudlow (to Guttman-McCabe): …obviously you’re not from the telephone company or the cable company, what’s your meat in the game here, who are you representing?

Reality: The CTIA has among its members AT&T, Cox, and Verizon.  Guttman-McCabe’s meat is paid for by all three, and many other industry members who belong to the group.  Who does CTIA not represent?  Consumers.

Guttman-McCabe: (Here come the shiny keys of distraction and misinformation, folks) I posit a question.  Are they (Google) allowed to cache their content closer to the customer to provide a better service under these Net Neutrality rules?

What about this pen -- will it be allowed under the new Net Neutrality rules?

Reality: Yes!  Having redundant and strategically placed content delivery servers is a widespread, industry-accepted practice not harmed by Net Neutrality.  Akamai delivers vast quantities of video content from regionally placed servers.  Cable operators will be able to place servers to deliver TV Everywhere to their customers wherever they like, if they so choose.  Net Neutrality does not compel web providers to run everything from a central server farm.  It would, however, tell broadband providers they cannot identify and artificially slow that content delivery down just because they don’t like it on their networks.  Big difference.

Guttman-McCabe: Is the Amazon Kindle, which is basically a wireless (single purpose) device — is that allowed to exist under the new Net Neutrality rules?  I think these are some of the questions that will come out as the Commission considers these new rules.

Reality: Yes!  Mr. Boots, your cat, will also be allowed to exist under Net Neutrality rules if he happens to jump on your keyboard while you access web pages.  Your wireless picture frame, which receives digital images to display on your bookcase will also be allowed to exist even if it cannot be used to play World of Warcraft.  I’m certain Guttman-McCabe and his friends will concern troll their way through the debate by throwing up lots of non-germane “concerns and questions” that they know have no relationship to the matter at hand.  They are well paid to do so.

Kudlow, of course, doesn’t challenge his guest on any of these issues, because he seems in perfect agreement with the industry position.  The shameless segment wraps up with the ominous notice that Net Neutrality has a long way to go and the CTIA has a “lot of educating to do.”  I’ll bet.

Larry Kudlow is the host of CNBC’s The Kudlow Report (M-F, 7pm/ET).

[flv width=”400″ height=”300″]http://www.phillipdampier.com/video/CNBC Kudlow Net Neutrality 2009-09-21.flv[/flv]

Larry Kudlow interviews Chris Guttman-McCabe, vice president of regulatory affairs at CTIA – The Wireless Association on Net Neutrality (9/21/09) (4 minutes)

Verizon Wireless and Google this morning surprised the wireless mobile industry when it went far beyond a much-anticipated agreement between Verizon and Google to market smartphones using Google’s Android operating system, and instead seemed to embrace Net Neutrality for unrestricted use of online services on Verizon Wireless’ network.  Is this a consumer-friendly about face or a strategic effort to take the wind out of the sails pushing for formal adoption of Network Neutrality regulations?

Today’s announcement represents a complete reversal for Verizon Wireless, which announced opposition for wireless Net Neutrality in September.  Tom Tauke, Verizon’s executive vice president of regulatory affairs said then: “We believe that when the FCC reviews the record and looks at the facts, it will be clear that there is no current problem which justifies the risk of imposing a new set of regulations that will limit consumer choices and affect content providers, application developers, device manufacturers and network builders.”

Google and Verizon have been on opposite sides of the Net Neutrality debate for several years now.  The phone company spends millions of dollars lobbying Washington to keep Net Neutrality off its back, in direct opposition to Google’s strong advocacy for the consumer-friendly open network rules.  One might anticipate a joint webcast between the two companies would be reserved in tone at best.

It wasn’t.

In fact, Verizon Wireless CEO Lowell McAdam and Google Chairman and CEO Eric Schmidt fell all over themselves praising one another, and attacked Verizon’s nemesis AT&T.

McAdam took a shot at AT&T for the recent controversy over their decision to block Google Voice and other Voice Over IP services from working with AT&T’s wireless network.

“Either you have an open device or not. This will be open,” McAdam said.

Schmidt praised Verizon Wireless’ nationwide mobile broadband network, calling it “by far the best in the United States.”

AT&T understood the implication of the partnership between its biggest rival and the super-sized Google and announced it was reversing its decision to block Voice Over IP applications on its network.

Ralph de la Vega, chief executive of AT&T’s consumer wireless unit, said “the iPhone is an innovative device that dramatically changed the game in wireless when it was introduced just two years ago.  Today’s decision was made after evaluating our customers’ expectations and use of the device compared to dozens of others we offer.”

That’s a remarkable statement coming from a company that has routinely ignored the wishes and expectations of its iPhone customers for less expensive, higher quality, less restrictive service.

AT&T’s reversal was praised by FCC Chairman Julius Genachowski, who is pushing for adoption of Net Neutrality as part of FCC broadband policy.

“When AT&T indicated, in response to the FCC’s inquiry, that it would take another look at permitting VoIP on its 3G network I was encouraged,” Genachowski said. “I commend AT&T’s decision to open its network to VoIP. Opening wireless services to greater consumer choice will drive investment and innovation in the mobile marketplace.”

Have AT&T and Verizon suddenly realized taking a customer-friendly position of Net Neutrality is better for their corporate image?

Perhaps, but one might also consider the reversals to be part of a strategic effort to demonstrate a lack of need for Net Neutrality rules in a ‘remarkably open and free competitive wireless marketplace.’  Expect to see that line or something akin to it coming from the anti-Net Neutrality lobbying campaign within hours of today’s events.

AT&T has also spent millions on lobbying efforts in Washington to keep Net Neutrality and other telecommunications legislation at bay.  The prospect of a sudden role reversal for two of the biggest spenders on influencing public policy would be remarkable, if it actually happened for consumers’ sake.

Verizon Wireless & Google Joint Webcast — October 6, 2009 (18 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

Customers love the iPhone, but hate using it over AT&T’s wireless mobile network.

That is the conclusion of CFI Group’s Smartphone Satisfaction Study 2009 (free registration required), which found Apple’s iPhone “the undisputed leader in smartphone customer satisfaction,” scoring 83 out of a possible 100.

But while customers love their iPhones, in the United States, they are generally stuck using it on AT&T’s mobile network, which CFI Group rated dead last in customer satisfaction.  CFI also found that despite the iPhone’s exclusive agreement with AT&T, the iPhone does not improve AT&T’s customer satisfaction in any meaningful way.

“The iPhone has been a cash cow for AT&T, but that cash comes at a cost in terms of overall satisfaction. In effect, switchers can be satisfaction saboteurs if they were not already inclined to choose AT&T,” said Doug Helmreich, program director with CFI Group.

Apple iPhone

“As for Verizon, the scales may tip if customers continue to demand smartphones that the company fails to supply. Then again, will its network hold up if it adds network-heavy smartphones? For now, its an apples to oranges comparison.”

CFI’s study top rated Verizon and T-Mobile for smartphone users, both with satisfaction scores of 79 out of 100.  Verizon’s perceived advantage in coverage makes them the top rated network for customer loyalty, with 86% of current Verizon customers identifying the company as their ideal provider.  Customers believe Verizon’s marketing slogans that suggest Verizon has the best nationwide network coverage of any provider.  But customers recognize they pay a price for that coverage in the form of a higher monthly bill.

Customers looking for the best value with competitive pricing will find it with Sprint and T-Mobile, according to the study findings.  AT&T scored among the worst values, in part because they penalize iPhone owners with a mandatory data plan customers thought was “pricey,” especially if they never had a data plan before.

The customer bashing of AT&T didn’t stop with bottom rating the network and its pricing.  CFI found that half of iPhone respondents would flee AT&T for another carrier if given the chance.  At least 40% of iPhone owners said they switched to AT&T only because they had to in order to purchase the iPhone, and they resented it, and the quality of service they found going forward.