With Verizon Wireless poised to launch 4G LTE service in Alaska for the first time, Alaska Communications (ACS) and AT&T are hurrying wireless broadband expansions to protect their market turf. But Wall Street investors are unhappy, especially with ACS’ investments in its landline network and the recently announced suspension of its dividend payout. Some are now asking whether ACS’ lucrative wireless business should be up for sale, primed for a buyout by AT&T or Verizon Wireless.

Alaska Communications has soft launched its LTE 4G service in 10 cities: Anchorage, Fairbanks, Homer, Juneau, Kenai, Palmer, Seward, Soldotna, Wasilla and Whittier.

AT&T operates a mix of LTE and slower HSPA+ networks in Alaska and is expanding 4G service to Prudhoe Bay and Deadhorse for the benefit of short-term oil company employees working on the North Slope. But the company is also still expanding its existing 3G network along more remote Alaskan highways.

They are coming.

The investment frenzy is seen by many as a defensive maneuver to keep existing customers happy before Verizon Wireless arrives in Alaska sometime next year.

ACS and GCI, Alaska’s homegrown phone and cable companies now jointly operate their wireless operation together. AT&T is their principle competitor. But Verizon Wireless’ impending arrival in Alaska has shown it is no shrinking violet. There are persistent rumors Verizon is trying to acquire ACS’ wireless operations. Verizon has also announced partnerships with Copper Valley Telecom and Matanuska Telephone Association to potentially expand LTE service in those communities as well.

Investors hope ACS considers any Verizon offer carefully. Wireless is a revenue center for the landline phone company, which continues to see declines in home phone and business customers.

Since June, ACS lost just shy of 2,000 residential landlines and 753 business lines. The company still has 57,000 residential customers and 81,000 business customers.

ACS faces the same problems other phone companies do: network upgrades require significant investments, and investors question whether it will ultimately pay off. Many are also unhappy ACS suspended its dividend payout, refocusing $8 million on debt payments.

CenturyLink CEO Glenn Post does not think much about AT&T’s plans to shift its most rural landline customers to wireless in its efforts to decommission traditional landline service.

“From a regulatory standpoint, that could be a tough go,” Post explained to Wall Street investors on a conference call last week. “There may be some areas that will have better service with wireless in some ways. As far as a competitive threat, we don’t see that being a real issue for us because just the bandwidth requirements and the limited wireless access or capability in a lot of areas.”

CenturyLink, one of four large independent phone companies and owner of former Baby Bell Qwest, is doubling down on its wired infrastructure to reach customers. The company recently announced Phoenix would be the latest city to get its fiber-to-the-neighborhood service Prism TV — the first legacy Qwest market to get IPTV service from CenturyLink. The service soft-launches in Phoenix this month, with a second city in the region or Pacific Northwest slated to get Prism sometime next year.

The company has spent much of 2012 investing in broadband, managed hosting and cloud computing for business customers, and fiber expansion to reach more than 15,000 cell towers across CenturyLink’s national service area, depicted in green on the accompanying map.

But CenturyLink executives stress their investments are “strategic” — made in areas that are most likely to deliver quick returns for the company.

While CenturyLink spends money to secure video franchising agreements in metro Denver and Colorado Springs for Prism TV service, it is moving at “a snail’s pace” to deliver broadband service in northeastern North Carolina’s Northampton County. County officials there anticipate CenturyLink will take years to deploy basic DSL service to communities outside and around Conway and Gaston.

The broadband problem in income-challenged parts of North Carolina illustrate the conundrum for county officials, who have to advocate for broadband improvement while combating misleading broadband maps that suggest access is not a problem in the state.

Donna Sullivan with the Department of Commerce notes that broadband maps in states like North Carolina have a census block granularity which does not always reveal the true picture of broadband availability.

“That means if one household in that census block can receive broadband services, the entire census block is considered covered—even though there very well may be households who cannot receive broadband to that location,” she told the Roanoke-Chowan News-Herald.

Northampton County, N.C.

CenturyLink is in no hurry to expand broadband to the 1,921 households in the county of 22,000 who cannot buy broadband service at any price.

Derek Kelly, a CenturyLink spokesman, said the company is working to expand broadband services in the region, but noted the costs to lay down a fiber network to help reach the unserved is “one of the largest costs.”

That cost is much less of a problem if the customer at the end of the line happens to be a wireless company like Verizon or AT&T.

Company officials admit they are spending enormous sums “investing in fiber builds to as many [cell] towers in our service area as economically feasible.” In the third quarter alone, more than 1,000 cell towers received fiber upgrades for a total of 3,300 so far this year. The company hopes to reach 4,000-4,500 cell towers by New Year’s Eve.

The reason why CenturyLink chases wireless business while allowing rural and income-challenged service areas to go without broadband is a simple matter of economics. Cell phone companies sign lucrative, multi-year contracts for fiber connectivity to cell towers to support forthcoming 4G service. In contrast, CenturyLink was surprised to find an astounding 94 percent of families with children in Northampton are qualified for the company’s special Lifeline Program which delivers slow speed, discounted broadband service for families on public assistance.

Post

For CenturyLink’s more urban and prosperous service areas, the news for broadband service improvements is better.

As CenturyLink continues to extend its middle mile fiber network, broadband speeds are gradually improving.

Over 70 percent of CenturyLink customers can receive at least 6Mbps DSL service, more than 57% can receive at least 10Mbps and 29% can access the Internet at 20Mbps speeds or better, according to Post.

But the more urban and prosperous a service area is, the greater the chance a cable competitor has successfully poached many of CenturyLink’s DSL customers with the promise of better speed.

Post said he recognizes the company must do better to remain competitive.

“We’re shooting for 20-25Mbps for a very large percentage of our areas,” Post said. “But with [pair] bonding, we can virtually double the broadband capacity and speeds in our markets. We’re already doing bonding in a number of markets today. So where we have 20Mbps, we could have 40Mbps.”

CenturyLink’s fiber to the neighborhood network, essential where it plans to roll out Prism TV, can also support faster broadband speeds if a customer wants broadband alone and does not care about television service.

Nationwide, the company added 10,000 Prism TV subscribers in the third quarter and has a total customer base of around 104,000 subscribers. But that represents a penetration rate of just over 10%, hardly noticed by still-dominant cable operators.

CenturyLink executives were asked to comment on AT&T’s strategic plan to transform their landline network announced last week in New York. Post found little in common between CenturyLink and AT&T’s vision for the future and does not think the company has to respond to AT&T’s attempt to redefine rural America as wireless territory.

“We don’t see that as a major investment for us or a major risk at this point.”

AT&T’s Supreme Court: senior executives sitting together in judgment of landlines at Wednesday’s analyst conference.

Yesterday, at least a half-dozen AT&T senior executives sat lined up in a perfect row to present Wall Street with the company’s vision for the future.

There were no consumers in attendance, just a group of Wall Street investors and analysts that braved the latest nor’easter to attend.

At issue: what to do about AT&T’s landline network, particularly in rural areas. Earlier this year, AT&T CEO Randall Stephenson, still smarting from a regulatory slap-down of his plan to acquire T-Mobile USA, ranted his disapproval of federal regulators for nixing the deal and then reflected on AT&T’s rural customers who still cannot buy broadband service from AT&T.

One of Stephenson’s strongest arguments in favor of merging with T-Mobile was it would facilitate a rural broadband solution. With that off the table, Stephenson seemed at a loss:

“We have been apprehensive on moving, doing anything on rural access lines because the issue here is, do you have a broadband product for rural America?,” Stephenson said. “And we’ve all been trying to find a broadband solution that was economically viable to get out to rural America and we’re not finding one to be quite candid. That having been set aside, now we’re looking at rural America and asking, what’s the broadband solution? We don’t have one right now.”

Now AT&T claims they do, and miracle of miracles, it turns out they never needed the buyout deal with T-Mobile after all.

AT&T’s solution is good news for urban, suburban, and exurban customers who will benefit from billions in additional investments to beef up the company’s U-verse platform. Those with access to U-verse TV, broadband, and phone service will soon find maximum speeds available up to 75Mbps — important at a time when cable companies are moving to 50-100Mbps premium service tiers. Those without access to U-verse, bypassed by its recently completed initial buildout, now will have a chance to see the service in their communities.

For more exurban and near-rural areas, AT&T has a positive plan to rid customers of the scourge of painfully slow ADSL service, better known simply as “DSL,” which AT&T pitches at speeds typically 10Mbps or less. In more rural areas, it is often much less.

By using additional fiber and using D-SLAM technology to reduce the amount of copper wiring between the phone company and you, AT&T’s IPDSLAM service will dramatically improve speeds for customers languishing with 3Mbps service to upwards of 45Mbps. But for now, AT&T won’t roll this out as a full-scale U-verse service. Because maximum speeds are lower and network variability is expected to be greater, AT&T will instead pitch this as a broadband and landline phone service package. Customers will be marketed satellite dishes if they want television service bundled in.

Although not as robust of a platform as U-verse will soon be, it still represents a major improvement over DSL, which is now barely tolerable for today’s online multimedia experience.

But AT&T’s “good news” may not be so great for its most rural customers, who either have the slowest DSL service or more likely no broadband at all. Those customers have waited years for AT&T to invest in upgrades to finally connect them to the Internet, but AT&T’s plans have gone in a very different direction.

AT&T’s rural solution is to take down the existing landline network and move everyone to its wireless cell phone service. To implement this proposed solution, AT&T will aggressively invest in rural cell sites within the 22 states where it supplies landline service. The company claims 99% of its customers will be able to access a 4G LTE signal within a few years.

Phillip “Are you following this shell game” Dampier

But here is where things begin to get dicey.  AT&T told investors it has no current plans to differentiate rural wireless customers from their urban counterparts. In larger cities, a smartphone and data plan is not necessarily a necessity — customers can still access a landline to place urgent calls or find a home broadband plan that does not carry the kinds of restrictive data caps wireless plans deliver.

Rural landline customers often pay low rates for their home phones, primarily because their local calling areas are generally far more restricted than in larger communities. The base rate for rural phone customers can be around $10 (before taxes and fees) in some areas. The base rate for AT&T’s wireless service starts at around $40 for 450 talk minutes or $19.99 for anchored, wireless unlimited calling home phone service (with a $36 activation fee and a two-year contract) that works with your existing home phones. Both represent rate increases.

Wireless data plans are notoriously expensive and limited. Verizon’s plan for home broadband users is priced at $60 a month with a 10GB limit. Less expensive plans with limits 25 times greater (or unlimited) are available from wired broadband providers. If the customer wants a smartphone for their data and home voice calling, bundled plans start at $85 a month with a 1GB usage limit.

With these prices, it is no surprise AT&T is promoting this as great news for the company. But we’re not so sure the average rural American is going to be pleased treated like a second class citizen with high priced, usage-capped Internet access.

As victims of Hurricane Sandy also found out last week, the venerable landline also enjoys a reputation of working after disasters strike. Unlike a fallen tree knocking down a phone line in the backyard, should AT&T’s wireless network fail in a storm, it would potentially leave hundreds, if not thousands of customers without service. Repair crews could take days to reach damaged facilities. That actually happened to Frontier Communications in some parts of West Virginia where heavy snows and tree damage made travel nearly impossible.

But there are important clues to what AT&T is really up to in regulatory filings that accompanied the showy presentation AT&T put on in New York Wednesday.

AT&T Has a Plan — Move Customers Away from Low Profit, Low Growth Landlines to High Profit Wireless/Deregulated Broadband

After the two hour presentation ended, AT&T posted a copy of its proposal sent to the Federal Communications Commission.

Reviewing the 24-page document is a classic case of  déjà vu. Once again, after the rhetoric is set aside, AT&T is back, peddling the same case to retire landline service and the regulatory obligations that accompany it. Only now, it has a carrot to dangle in front of regulators — significant investments in broadband expansion.

Although the private sector has invested well over $1 trillion in broadband networks, much remains to be done. As of 2010, roughly 14 million Americans, residing in rural and other high cost areas where the broadband business case is tenuous at best, still lacked access….

[…] Carriers such as AT&T are stepping up to do their part. In fact, just today, AT&T announced a $6 billion investment plan to expand and upgrade its wireline network to bring robust IP broadband services to millions of additional locations in its legacy footprint.

[…] AT&T makes this announcement with full confidence that the Commission will continue to implement the National Broadband Plan’s vision of removing regulatory impediments to efficient, all-IP networks, including obligations that could require carriers to maintain legacy facilities and services even after they have deployed new, IP-based alternatives.

I guess they didn’t need T-Mobile after all.

Translation: We used to bypass 14 million Americans, leaving them behind because it was unprofitable to serve them. But now we’re going to invest some additional money. But before you get that investment, we need you to agree the landline is a relic and (largely unregulated) IP-based networks are the future. We are not going to run both, so if you want all of this investment, you have to let us abandon our regulatory responsibilities and commitments to rural customers.

AT&T even tried to calm investor fears about capital spending increases, arguing the potential payoff of discarding landline service opens up a new era of earnings, both from shifting customers to AT&T’s highly profitable wireless service at a cost of double, triple, or more what customers used to pay the phone company, and a platform to sell them even more services later.

A number of Wall Street analysts disagreed, panning AT&T’s wireline investments as unproven.

The Broadband Coalition, a group of competing telecom providers, called the entire affair a smokescreen:

AT&T’s announcement today that it needs regulatory intervention from the FCC in order to invest in IP technology is a re-run of a tired ploy to leverage the company’s dominance. AT&T only invests in order to respond to competition, and competition is made possible by the very pro-competitive policies that AT&T seeks to eliminate.  The Broadband Coalition members have invested billions of dollars to bring the benefits of IP to American consumers from coast to coast.  But if AT&T gets its way, competition will largely disappear, investments will dry up and consumers will suffer.

Former Congressman Chip Pickering, coalition spokesman, stated,  “AT&T is simply trying to use its belated roll out of IP technology as an excuse to rewrite the telecom rules to its advantage.  We already know that AT&T’s claim that IP will somehow alter the laws of economics and lessen its dominance is patently false.  Clearly, AT&T’s proposed changes are not necessary to achieve widespread IP deployment, but the retention of competition policy is.”

Consumer groups accused AT&T of lying to federal regulators when the company argued the T-Mobile acquisition was essential to accomplish their plan to expand wireless service to 96% of the U.S. population. A year later, the company now claims it can deliver 4G wireless service to 300 million Americans and 99% of its landline service area without breaking much of a sweat.

CNN:

AT&T insists that it wasn’t being disingenuous with the regulators. Things changed, the company says, pointing to the 40 new spectrum deals it signed over the past year. The FCC recently made available some spectrum that wasn’t on the table when AT&T was negotiating its T-Mobile takeover.

“We chartered a new path,” AT&T spokeswoman Roberta Thomson told CNNMoney on Wednesday.

That’s precisely what the FCC — and industry analysts — believed would happen.

Now What

For now, rural customers need not worry AT&T will put their entire rural landline operation up for sale, potentially selling off a large number of  customers to companies like CenturyLink, Frontier, Windstream or FairPoint.

Rural America’s new home phone?

But AT&T’s lobbying machine will soon descend on state legislatures to win regulatory approval of their “abandon landlines” agenda. AT&T has a carrot for those legislators as well — a promise that states that hurry to rubber stamp AT&T’s wish list will be first in line for “investments.”

“We are going to have to see 21st-century regulation for 21st-century investments like this,” said AT&T CEO Randall Stephenson. “I think what you’re going to see is that these investments will go first to those states where you have good line of sight to good regulatory authority to do some of the things we’re talking about here.”

The implications for rural customers are profound if AT&T wins permission to scrap the landline network. Despite assurances from AT&T this is a technology argument, in fact it is more of a campaign to rid themselves of regulatory and consumer protection rules that have been around for decades. The type of technology used makes all the difference. Landline providers are usually compelled to provide reasonable, affordable, universal service for all Americans. Broadband, IP-based, and wireless networks now exist largely in a deregulation free-for-all where AT&T can do as it pleases, serve who it likes, and charge whatever it wants.

Considering AT&T’s current business plans, that sets the stage to worsen the newest digital divide — one pitting urban areas with faster, advanced, and more competitively priced networks against rural America, consigned to expensive, usage capped wireless service that may or may not work when a natural disaster strikes.

The only way this plan works for consumers is if common-sense service obligations, consumer protection, open access for competitors, and mandated equivalence of service is part of the package. Without it, AT&T will get exactly what it wants: a regulation free lifestyle, an expensive wireless network that rural residents will be forced to use for basic telecommunications, and cost savings and revenue opportunities AT&T will use to bolster its own profits, while cementing its monopoly position in the rural communities of 22 states where it operates.

AT&T will spend $14 billion on its wireless and wired broadband networks in an effort to improve service for its urban and suburban customers, while preparing to argue its case for disbanding parts of the century-old landline network.

In a major 90-minute presentation with most of AT&T’s top executives on stage, the company announced its intention to move away from traditional landline service and towards a combination of an enhanced broadband platform and 4G LTE wireless access, especially in the 22 states where it currently delivers landline service.

The investment plan — Project Velocity — is a pivotal moment for AT&T, which has seen deteriorating revenue from its aging rural landline network and has focused most of its investments in recent years on its increasingly profitable wireless network.

But AT&T also hoped to hang on to the enormous revenue it still earns providing traditional home phone service. Its early answer for landline cord cutting came in 2006 with U-verse, an IP-based network platform on which AT&T can sell video, voice, and broadband service with a minimum of regulatory oversight. U-verse succeeded attracting high-paying customers who either stayed with or returned to AT&T. But now company officials hope U-verse can help the company achieve victory in its next public policy fight: to abandon traditional landline service altogether.

That emerging battle is likely to pit urban and suburban customers enjoying enhanced U-verse service against rural AT&T customers deemed unsuitable for wired broadband. AT&T is seeking to decommission up to 25% of its rural landline network as part of the strategy announced today, shifting affected customers to its 4G LTE wireless voice and broadband service, which comes at a higher cost and includes draconian usage caps.

Critics contend such a move could leave AT&T largely unregulated with monopoly control over its networks, with few service requirements or access concessions for competitors. It would also leave rural customers relegated to a wireless Internet future, perhaps permanently.

Landline/Wired Broadband: Good News for Some, Scary News for Rural America

AT&T plans to expand and enhance its broadband network to 57 million consumers and small businesses across its 22-state operating area, reaching 75 percent of customers by the end of 2015. AT&T will operate three broadband networks going forward, while gradually decommission its existing ADSL network.

• U-verse: AT&T’s triple play package of TV, Internet, and Voice over IP phone will be expanded by more than a third to reach an additional 8.5 million customers by the end of 2015. This will make U-verse available to 33 million customers in AT&T home phone service areas. Most of the expansion will be in urban and suburban areas bypassed during the initial U-verse construction phase. To remain competitive, AT&T will also increase available broadband speeds for existing customers up to 75Mbps;
• U-verse IPDSLAM: An additional 24 million customers will be offered a combo voice-broadband package that could be called “U-verse Lite.” It will offer speeds up to 45Mbps and is primarily intended as a replacement for the company’s DSL service in exurban and semi-rural areas. Arrives by the end of 2013;
• Fiber to Multi-Tenant Business Buildings: AT&T plans to expand its fiber network to reach more commercial buildings, but also lay the foundation to use these facilities for future distributed antenna systems and small cell technology that will create mini-cell sites serving individual neighborhoods, cutting down the demand on existing cell towers.

Customers living in rural, open country in AT&T service areas in states like Texas, northern Mississippi, western Tennessee and Kentucky, central and northern California and Michigan, and the rural areas of the Carolinas may eventually find themselves using AT&T’s wireless network as the company seeks to decommission its landline infrastructure.

A number of AT&T customers living in areas shown in red may see red if and when AT&T begins trying to force rural Americans to its more profitable wireless networks.

But AT&T officials also admitted in a Wall Street Q & A session that the company planned nothing special for rural landline customers transitioned to wireless. Those customers will be sharing service with traditional mobile customers. If AT&T’s service plan resembles that of Verizon, customers will pay around $60 a month and limited to just 10GB of usage per month. If AT&T decommissions its existing landline infrastructure, no other wired provider is likely to take its place.

Most remaining regulations enforcing a level playing field for telecommunications networks remain with legacy copper-wire landline Plain Old Telephone Service. AT&T’s plan would effectively banish that network in its entirety through a series of regulatory and service-transition maneuvers:

• U-verse customers actually no longer have traditional landline service. U-verse offers barely regulated Voice over IP service, free from most state regulations and pricing oversight;
• U-verse IPDSLAM customers will also quietly forfeit their traditional landlines. This product works over an IP network, which means telephone service is Voice over IP;
• Wireless service is already barely regulated and not subject to price oversight or universal service requirements that landline providers must meet to deliver service to all Americans.

AT&T proves you have to spend money on network upgrades to make money from customers purchasing the enhanced services they offer.

4G LTE Mobile Broadband: 99% Coverage Across 22 AT&T Landline States, Up to 300 Million Americans Served by the End of 2014

The majority of AT&T’s planned investment in its network will once again go to its highly profitable wireless division. At least $8 billion will be spent on bolstering AT&T’s 4G LTE wireless coverage area, especially in rural sections across its 22 state landline service area. That investment is necessary if AT&T hopes to win approval to decommission traditional landline service for rural customers.

• 4G LTE Expansion: AT&T plans to expand its 4G LTE network to cover 300 million people in the United States by year-end 2014, up from its current plans to deploy 4G LTE to about 250 million people by year-end 2013. In AT&T’s 22-state wireline service area, the company expects its 4G LTE network will cover 99 percent of all customer locations;
• Spectrum: AT&T continues its acquisition binge with more than 40 spectrum deals so far this year. AT&T’s biggest win of the year was approval for new WCS spectrum it will occupy alongside satellite radio. AT&T will have accumulated 118MHz of spectrum nationwide.
• Small Cell Networks: AT&T has already aggressively deployed a large number of Wi-Fi hotspots to encourage customers to shift traffic off its traditional wireless network. The next priority will be deployment of small cell technology, macro cells, and distributed antenna systems that can offer neighborhood-sized cell sites to serve urban and suburban customers and high density traffic areas like shopping malls and entertainment venues.

AT&T’s wireless 4G LTE upgrades will cover 99% of the service areas where the company provides landline service. It has to offer blanket coverage if it hopes to win approval for decommissioning its current legacy landline network in rural America.

Using New Infrastructure to Drive New Business and Even Higher Revenue

AT&T would have had a hard time selling its planned investments to Wall Street without the promise of new revenue opportunities. AT&T’s new network enhancements will support a range of new services the company hopes to introduce to win greater revenue in the future:

• AT&T Digital Life: A nationwide all IP-based home security and automation service set to launch in 2013 that will let consumers manage their home from virtually any device — smartphone, tablet or PC.
• Mobile Premise Solutions: This new nationwide service, available today, is an alternative for wireline voice service and in the future will include high-speed IP Internet data services.
• Mobile Wallet: AT&T is participating in the ISIS mobile wallet joint venture. Market trials are underway in Austin, Tex. and Salt Lake City today.
• Connected Car: More than half of new vehicles are expected to be wirelessly connected by 2016. AT&T is positioned to expand from vehicle diagnostics and real time traffic updates to consumer applications that tie into retail wireless subscriber data plans. AT&T already has deals with leading manufacturers such as Ford, Nissan and BMW.

AT&T’s 2012 Investor Conference introduced major transformative changes for AT&T’s wired and wireless broadband networks.  (2 hours, 9 minutes)

Your electric company is Frontier Communications?

That scenario could come true for customers in New York, Ohio and Indiana. Frontier last week unveiled FTR Energy Services, an energy reseller planning to supply 100% green electricity in selected markets in New York and Ohio and natural gas in Indiana.

FTR Energy Services is a wholly-owned subsidiary of Crius Energy, launching service Nov. 19 with a business plan that claims there is convergence in the broadband and energy sector.

Frontier is likely to combine its marketing efforts with Crius Energy’s products — selling electric and telecommunications services together. Some expect Frontier will even extend bundling discounts to customers who sign up for both.

Third party energy suppliers were supposed to spur lower prices for consumers and businesses by encouraging innovation in the power generation industry. But significant savings, especially for residential customers, have proved elusive. Complicated pricing and contract terms have led to confusion and high customer turnover. Many customers eventually gave up shopping around and returned to the original utilities that have supplied power for generations. For today’s energy competitors, finding a marketing edge can be the key to growth when customers are skeptical and resistant to change.

Crius is hoping its green energy angle will attract environmentally-sensitive customers and Frontier hopes the bundled marketing offers it can blanket across its service area might deliver higher average revenue from customers — a key demand from Wall Street.

Most third party resellers enjoy modest wholesale pricing discounts, so any profits earned from reselling energy to customers are expected to be modest as well. But Frontier hopes the more services it can bundle for customers, the more “sticky” their products become. With bundled discounts and term contracts, it can become an expensive and complicated process to sign up with another provider. So many customers simply don’t.