As cleanup efforts continue across New York, New Jersey, and Connecticut, some of America’s largest telecommunications companies are coming under increased scrutiny for being caught flat-footed after Hurricane Sandy roared across the tri-state region, causing damage Verizon’s chief technology officer now admits is worse than 9/11.

As of this morning, Verizon Wireless’ network is reportedly straining, particularly in Manhattan and Brooklyn, where cell service that worked immediately after the storm is now increasingly failing.

Verizon said 94% of its cell sites were operational after the storm, but some local officials in the area believe 94% of Verizon’s wireless network has now failed them when they need it the most.

Many telecom companies, particularly AT&T, are being criticized for excessive secrecy about the ongoing state of their networks post-Sandy. AT&T, which left its customers in the dark about service restoration as late as last night while asking customers to contribute $10 to the American Red Cross, finally mass e-mailed customers a statement devoid of much detail signed by Steve Hodges, president of AT&T’s northeast region.

“Restoring our wireless network is our top priority,” Hodges writes. “The vast majority of our cell sites in the Northeast are online and working. We are working issues in areas that were especially hard-hit, where flooding, power loss, transportation and debris all pose challenges. Our crews are working around the clock to restore network service to areas that were impacted by the storm. We will not stop until we repair all of the damage to our network and restore service back to its full capacity.”

The Federal Communications Commission correctly predicted the situation with mobile phones could get worse before it gets better, as backup power wears down and flooding persists. At a press conference held yesterday, FCC chairman Julius Genachowski revealed at least a quarter of all cell sites in areas damaged by Sandy were not operational. Those numbers were less optimistic that those provided by carriers.

The FCC this week activated the Disaster Information Reporting System, a central reporting point for telecommunications companies to update the agency regarding outages and other service disruptions. The FCC also alerted providers that in emergency circumstances, they can assist companies getting fuel for generators and help locate portable cell tower equipment for companies caught unaware.

Some may need the help.

New York State Assemblyman Alec Brook-Krasny and Brooklyn Borough President Marty Markowitz both reported Verizon Wireless’ outages are worsening in Brooklyn and midtown Manhattan.

The Federal Emergency Management Agency (FEMA) today told Sen. Chuck Schumer the federal agency will reimburse New York for 100 percent of the costs incurred restoring power across the storm areas. But that may not expedite how quickly power returns.

Power restoration is expected to bring most cell towers back online. Worsening service is being attributed to battery backup or generator equipment exhausting on-hand fuel supplies, which usually keeps service up and running for up to three days. That means cell towers without power and unreachable by workers will have begun failing late Wednesday into today.

Damage assessments are further behind in New Jersey, the state that took the worst impact from Hurricane Sandy.

Stop the Cap! obtained some new figures from cell phone companies regarding the state of their networks:

• Verizon: Still holding to 94% operational in storm areas;
• AT&T: Declined to comment except to say “the vast majority” of their network is operational;
• T-Mobile: 80% operational in NYC, 90% operational in Washington, D.C.
• Sprint: 75% operational

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Verizon’s critical network takes another hit. “We’ve been here before,” says one Verizon executive, referring to the destruction from the 9/11 terrorist attacks which severely damaged the same facility on West Street now flooded out. (3 minutes)

Our readers report that cell service becomes spotty to non-existent in coastal New Jersey and Connecticut. In Manhattan anywhere south of 29th Street, readers report almost no signals at all.

Residents are trading tips about “magic spots” where cell service does suddenly pop up, and Gizmodo notes the only place in Alphabet City (the east side in southern Manhattan) to get service is on literally one street corner, where crowds congregate to make and receive calls.

The other salve for telecom withdrawal is the nearest pay phone.

Amusing stories of 20-somethings waiting in long lines only to be confounded by unfamiliar pay phones are appearing in the New York media. One radio station even aired basic instructions for members of the Millennial Generation that have never heard of inserting coins into telephones.

The biggest challenge for the city’s pay phone vendors is clearing them of coin overloads, something unheard of before the storm.

The often maligned pay phone has exposed the limits of the “more advanced” and expensive networks that were supposed to replace them. Despite claims of superiority for wireless service, northeast residents have once again discovered it has its limits:

• They don’t work during major weather events that knock out power and limit access to maintain backup generators;
• Cell networks are less capable of handling large call volumes, a problem made worse when cell phone refugees in other areas seek out remaining cell signals, further congesting the network;
• Wireless is just as susceptible to wireline or fiber failures on the ground. Cell towers typically connect to providers through wired backhaul circuits, which knock out cell service if they fail;
• Cell phone users need power to recharge their power-hungry smartphones. Batteries drain even faster searching for a weak or non-existent cell signal;

Hardest hit remains Verizon, which allowed reporters access inside damaged facilities to help New Yorkers better understand the scope of the problem.

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The Wall Street Journal takes a look at the state of the wireless communications networks across the northeastern U.S. and when service will be back.  (4 minutes)

Eleven years after the 9/11 terrorist attacks that took out Verizon’s West Street office when buildings collapsed at the nearby World Trade Center, Verizon is likely going to have to re-learn some lessons about catastrophe management as flood waters recede.

The Wall Street Journal was able to obtain access inside the damaged facilities, and the reporter covering the event was left somewhat stunned by the scope of the damage.

In the middle of organized, yet chaotic recovery efforts was Verizon’s chief technology officer Tony Melone who had seen enough to declare the damage worse than 9/11.

The pictures of several feet of muddy water from the nearby Hudson River covering the lobby of the company’s headquarters on West Street said it all. The mostly salt water was an unwelcome guest in Verizon’s building, especially considering the five level basement below the lobby contains critical cables and telecommunications equipment. Almost four of those basement floors were completely flooded. After the water was pumped out, dampness and leaves from nearby trees remain littered on the floor.

One lesson learned after 9/11 was not to place critical phone switches below ground level. After reconstruction, the switches were moved to a higher floor and consequently were left undamaged. But while Verizon moved its backup generators upstairs, it left the pumps and fuel tanks that power them in the basement — leaving them inoperable.

This morning, passersby on West Street have to step around Verizon’s network of generators now running outside of the building, right next to large temporary fuel tanks to power them.

Verizon central offices in other parts of Manhattan, particularly further southeast on Broad Street, were never upgraded and are in worse shape, with electrical equipment damaged perhaps beyond repair. The force of the water was strong enough to bend the 86 year-old steel and bronze doors. Workers there are still trying to get water out of the building, shoving a pipe down an elevator shaft to facilitate pumping.

Verizon has some redundancy built into its network to protect its most valuable customers. That kept the landline phones working at the New York Stock Exchange, even though other landline and wireless customers will have  to wait longer for service to resume.

Some critics of the increasingly concentrated telecommunications landscape think Verizon and other companies have still not learned enough to prevent the kinds of service disruptions that will leave some customers without service for weeks.

It is hard to miss the bustle outside of Verizon’s offices damaged by the storm, watching flood water drain down the street. But things are murkier at cell phone providers who have been less than forthcoming about specific outage information and service restoration assessments.

Some have advocated the federal government step in and require cell phone service, now deemed essential by an increasing number of Americans, be protected with robust backup solutions to keep service up and running after catastrophic weather events.

After Hurricane Katrina, the FCC in 2007 tried to issue new rules that required a minimum of eight hours of backup power for all cell sites. The industry balked, predicting it would lead to “staggering and irreparable harm” for the cell companies. One wireless trade association warned their members might take several cell sites down if they were forced to provide backup power.

The CTIA Wireless Association and Sprint-Nextel sued the agency in federal court and the Bush Administration’s Office of Management and Budget eventually killed the proposed regulations.

T-Mobile and AT&T have cut an emergency deal to share their cellphone networks in areas affected by Superstorm Sandy. They’re trying to make it a little easier for customers to get a signal as carriers restore their networks. Some say companies should be forced to make their networks more resilient. National Public Radio’s Morning Edition has the story. (November 1, 2012) (3 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

With a declining number of Americans willing to pay AT&T’s prices for smartphones and wireless service plans, AT&T’s future revenue growth will increasingly depend on getting the company’s current customers to pay more for data and adopt new types of wireless communications services.

After a quarterly earnings report found AT&T subscriber growth falling far behind its larger rival Verizon Wireless, AT&T appears ready to concede there is a finite number of new customers to be won from endless battles for market share.

AT&T was expected to add 358,000 new customers in the previous quarter, but only managed to attract 151,000. Demand for the latest Apple iPhone has yet to meet available supply, with most iPhones obtained by AT&T allocated to existing customers. AT&T exclusively launched the iPhone in the United States in 2007 and retains the largest share of iPhone owners, even after the phone became available from other carriers. Verizon Wireless had fewer problems adding new customers because it is not nearly as dependent on Apple.

Despite lackluster subscriber growth, AT&T reported stellar revenue during the quarter, partly from rate increases and the launch of usage-limited, family share plans. AT&T also continued to benefit from  tax savings, share buybacks, and refinancing debt at lower interest rates. With fewer customers adding subsidized phones, AT&T also paid fewer subsidies.

AT&T’s profit rose to $3.64 billion, or 63 cents per share, up from $3.62 billion, or 61 cents per share — $.03 ahead of Wall Street expectations.

AT&T can thank its wireless data services for a significant chunk of their earnings, with more to come.

The company reported more than 2/3rd’s of their customers (28+ million) are now on usage-based pricing plans. That is 10 million more than a year ago. The company’s new mobile share plans have attracted almost two million subscribers during the first five weeks they were on offer. More than one-third of those customers are choosing the company’s 10GB data allowance, which costs the customer $150 a month with unlimited talk and texting ($30 a month for each additional smartphone on the account.) Around 15% of new mobile share customers are choosing to abandon their grandfathered unlimited data plans.

AT&T’s forthcoming strategic redirection, to be announced Nov. 7, is likely to center around increasing revenue from the company’s wireless data network.

Ralph de la Vega, president and CEO of AT&T Mobility and Consumer Markets, told investors it is taking “this massive data growth and building products and services on top of that.”

“One of the best examples I can give you is our launch of Digitize that will happen next year,” de la Vega said. “It leverages this huge smartphone database and adds services on top of it and not just data access, but services that differentiate us from the competition. So you’re talking about connecting the home with service automation and security monitoring. We’re talking about connecting your car with all kinds of entertainment services.”

That means AT&T sees its future revenue coming mostly from existing customers paying more.

“Those services are not dependent on adding more customers per se, but connecting more houses, connecting more cars and connecting more things that drive significant revenue streams with good margins for us,” de la Vega said. “In terms of what we see happening with others in the industry, I don’t think anything we have seen changes our plan. We’re going to execute [and] let others react to our plan, instead of us reacting to them.”

AT&T seemed unconcerned by competition in the current marketplace, especially from those offering cheaper plans. de la Vega predicted other carriers will come around to AT&T and Verizon’s way of thinking about mobile plan pricing.

“I think these mobile share plans are very compelling to customers,” de la Vega told investors. “And I think those that don’t put them in, in the industry will probably have to rethink down the road because I think the reception has been exceptional.”

John Stephens, AT&T’s chief financial officer, called AT&T’s data growth important, as long as those customers are on tiered data plans. With three-quarters of their customers buying “higher-priced plans,” AT&T can grow revenue by encouraging data usage that forces customers into ever-higher allowance plans that deliver revenue boosts indefinitely.

“I think some of the things driving our pricing and the price moves we made almost a year ago where we increased our data pricing are driving our revenue growth,” de la Vega admitted. “But we’re also seeing people sign up for more data. And the fact is, as you sell more smartphones or more tablets, people need more data. Usage-based data pricing means as usage goes up, we can see some of that lift also coming from additional average revenue per customer. So not only do we feel good where we are, but I feel really good about where we’re going, because you have to have that base of usage base in order to be able to monetize the data growth that we foresee in the future.”

Some other highlights:

• AT&T was questioned by Wall Street about its decision to voluntarily contribute a $9.5 billion preferred equity interest in AT&T Mobility into the Pension Plan Trust. Some analysts consider that amount unnecessary and above the amount required by law, despite the company’s assertion this would help protect the long-term health of AT&T’s pension fund. But some retirees note AT&T’s generosity benefits itself — the company’s contribution to the pension plan is invested entirely in AT&T’s wireless business;
• AT&T now has 7.4 million U-verse subscribers, driving wireline revenue growth to levels not seen in more than four years. But AT&T still only averages less than a 15% market share in the cities where U-verse is available, suggesting cable operators are maintaining their market dominance;
• AT&T’s new upgrade policy, which curtails early upgrades and imposes new upgrade fees, is having a dramatic impact on discouraging customers from upgrading their phones. That has kept AT&T’s upgrade rate at a steady 7%, even with the introduction of the wildly popular new iPhone. AT&T has effectively cut their subsidy costs and took a 28% increase in equipment revenue from new upgrade fees to the bank;
• Capital expenditures are on target at $13.8 billion, with more than half of that invested in the wireless business. Landlines and U-verse upgrades took a back seat.
• AT&T receives enough iPhones to activate 5,000-10,000 new iPhone customers a day and still that is insufficient to meet demand;

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AT&T’s Ralph de la Vega explores the company’s latest quarterly earnings, focused on its profitable wireless business.  (3 minutes)

AT&T customers in the company’s rural service areas are likely to see wireless broadband as AT&T’s answer to rural America’s demand for Internet access.

Speaking on AT&T’s quarterly results conference call, Ralph de la Vega, president and CEO of AT&T Mobility and Consumer Markets yesterday previewed the forthcoming investor and analyst conference scheduled for Nov. 7 to discuss AT&T’s future in the rural landline business.

“I think there is a place in some rural areas where I see the outline, that [wireless] could serve as an alternative to wired broadband,” de la Vega told a Wall Street analyst from Goldman Sachs. “We are going to be talking to you about that on November 7, giving you more details about our thinking of how we can use this technology. And, quite frankly, the customer reception to the technology [is good] in terms of their willingness to pay for great quality data in large, large amounts.”

Some analysts anticipate AT&T is also likely to announce some additional expansion of the company’s U-verse platform to an additional 3-5 million customers that were not previously scheduled to see the service in their area. The build-out would take 12-18 months to complete. But that still leaves up to 15 million rural AT&T customers with either no broadband or the company’s slower DSL service. For many of them, AT&T sees wireless Internet in their future.

At the core of AT&T’s wireless broadband solution is the company’s LTE 4G network. AT&T is stressing it intends to roll out LTE upgrades in both rural and urban areas, unlike its nearest rival Verizon Wireless, which has prioritized upgrades on urban areas. AT&T claims its current network performs at speeds of 5-12Mbps — faster in low demand areas. In areas where AT&T has not bothered to provide DSL service, the company has repeatedly stressed it believes wireless delivers the best bang for the buck.

Unfortunately for rural consumers, access is not likely to come cheap, congestion will reduce overall speeds, and plans will include usage caps that are draconian in comparison to the company’s wired broadband services.

AT&T is a strong believer is monetizing data usage by gradually eliminating the unlimited data plan the company started at the dawn of the smartphone era. The future at AT&T is usage-based pricing.

“I think that more customers we have on usage-based plans the better we are,” de la Vega told investors.

In the last quarter alone, AT&T earned $6.6 billion from its wireless data service — up more than $1 billion (18%) compared to the same quarter last year.  AT&T now takes $26 billion annually to the bank just from its wireless data earnings.

Wall Street analysts at Morgan Stanley are upset Netflix spends 62% of its revenue on content for customers, instead of setting more money aside for profits.

Morgan Stanley analysts Benjamin Swinburne, Scott Devitt, Ryan Fiftal, Hersh Khadilkar and Andrew Ruud sent a research note to investors this morning telling them Netflix is just too cheap. They want Netflix to up prices, even if it costs them new customers.

“We believe the profit-maximizing strategy is to raise rates rather than go for sub growth,” reads the research note.

The analysts suggest Netflix should model itself closer to cable networks, which spend far less of their money on programming (and it shows).

In comparison, HBO and Cinemax spend only 48% of your subscription dollar on content. Showtime puts up even less — just 35%. Basic cable, ad-supported networks are a revenue goldmine because they often spend a pittance, mostly on cheaply-produced or acquired programming. AMC invested just over one-third of the money it collects from every cable subscriber on programming. Discovery spends 25% across all of its networks and runs loads of repeats to fill the gaps.

The only answer to this investor conundrum is to raise rates on streaming customers so Netflix can put that money in the bank or return it to investors.

But if Netflix follows Morgan Stanley’s advice, they face crushing competition from the forthcoming DVD rental and streaming service from Verizon and Redbox, anticipated to launch before Christmas.

Other Wall Street analysts expect Verizon will launch the service at a price point designed to undercut Netflix. Some predict a combined DVD rental/streaming service will cost customers under $10 a month.