A very pricey upgrade

Frontier Communications’ DSL modem rental fee is now as high as $6.99 a month in some of the phone company’s service areas, $14.99 a month if you want the convenience of a wireless router built-in.  That’s $84 and $189 a year, respectively, for equipment that cost the company a fraction of that.

“Lymelizzard,” a would-be Frontier DSL customer in Robbinsville, North Carolina, considers that highway robbery.

“I can go and buy the modem at a store and it would be less than one year of rental,” he wrote on Broadband Reports’ Frontier forum.

Frontier Communications’ regular monthly prices are not exactly aggressive in North Carolina, charging up to $50 a month for 3Mbps DSL, $55 for up to 7Mbps, before the modem rental fee and other charges are included.  A customer with Frontier’s wireless router would pay more than $70 a month, just for 7Mbps DSL service:

Frontier's No-Contract Prices for New Customers Only. Prices less for 1-2 year contracts that include $165 early termination fee for Double Plays and up to $120 early termination fee for High-Speed Internet only plans. One-time charges up to $60. Additional charges, taxes and terms apply.

Frontier has quietly increased equipment fees over the years.  Back in 2010, the company raised the rental fee to $4.50 a month.  Some service areas have been paying $6.99 a month since 2009, but now face even higher prices if they want a home “Wi-Fi” hotspot included.

Something else has changed at Frontier as well.  The company is making it more difficult for customers to purchase their own modems and use them instead, skipping the modem rental fee.  Customers trying to save several dollars a month now face a brick wall when contacting customer service.

“The salesman on the phone even said [the modem rental fee] wasn’t a good deal but he could not waive it,” Lymelizzard wrote.  He declined to become a Frontier DSL customer, considering the modem rental fee a deal-breaker.

“I’m surprised that all the Joe Customers out in Frontier-land haven’t complained,” he said. “This is merely a money grab on Frontier’s part. I could see the fee for a year, maybe two, but for the life of the account that’s bogus.”

LightSquared’s basic business plan of delivering a nationwide 4G network has been an open question ever since the company’s technology threatened to obliterate GPS satellite navigation technology.  Now the company is taking a page from the Washington’s Public Relations Firm Playbook by ingratiating itself with important lawmakers that can make or break the multi-billion dollar endeavor.

LightSquared announced it is donating equipment and service to Native American organizations, starting in Oregon, Washington, Idaho and Arizona — all conveniently located in key lawmakers’ states and districts.  In addition to agreeing to provide satellite phone service to remote tribal communities completely unserved by other technologies, LightSquared is also contributing 2,000 satellite telephones to the Indian Health Service, the federal agency responsible for administering health care to native populations on reservations and throughout tribal communities in Alaska.

How can the company deliver service over a network threatened with legislative obliteration?  LightSquared’s donation to Native Americans will rely on the company’s satellite network, which has not been deemed an interference generator by opponents.

Satellite telephony has proved to be obscenely expensive and of limited interest outside of military, shipping, and forest service applications.  At rates averaging up to $5 a minute or more, keeping conversations short is key to avoid bill shock.  Such technology is completely out of reach for most tribal communities, who are among the most income-challenged of all North Americans.  The contribution may buy the venture some goodwill on Capitol Hill, where it is sorely needed as skepticism over the company’s 4G service, to be operated on frequencies adjacent to GPS satellites, has reached an all-time-high.

LightSquared is learning the time-tested ways of Washington, where substance and common sense often take a back seat to political posturing, special interest politics, and campaign contributions.

U.S. Cellular Monday told investors the company plans to abandon unlimited data service sometime in the next two or three quarters in favor of tiered data plans similar to what is on offer from AT&T and Verizon Wireless.

U.S. Cellular president and CEO Mary Dillon told investors the company is changing pricing as a result of “significant changes in pricing strategies” at their larger competitors, who have moved away from unlimited data plans over the last year.  Dillon applauded the adoption of tiered data pricing, but noted increasing pricing pressure in the market.

For the nation’s sixth largest wireless carrier, best known in the midwest, northern New England, the Carolinas, and northern California, being a regional provider in an increasingly concentrated wireless marketplace has some on Wall Street concerned about the long term viability of smaller cell phone companies.

Blaming the continuing challenges of “an extremely competitive market and a sluggish economy in which carriers continue to fight for a dwindling pool of new subscribers and the cost of acquiring switchers are significant,” the company reported a net loss of 41,000 customers during the last quarter.  Only 226,000 new customers signed up, down from 307,000 in the prior year quarter.  Another 17,000 prepaid customers dropped U.S. Cellular last quarter as well.  U.S. Cellular now has just under six million customers in all.

Adrian Mill from Eagle Capital noted the customer losses — presumably to larger AT&T or Verizon Wireless, and pondered how long the company can continue to exist on its own in a market increasingly dominated by those two larger carriers:

“I know you guys did a lot of work a couple years ago on whether our regional cellular company could still be relevant and looked at ways in other industries and had some good data from it.

I’m just curious if after the past couple quarters of results where we’ve now seen everybody lose share to AT&T and Verizon if that was something you thought might happen in short term or if it’s been surprising?

If its been surprising, how long would you guys potentially consider losing subs before you do a strategic transaction or consider a sale?”

U.S. Cellular executives didn’t directly answer the question, but acknowledged the wireless carrier does have challenges in the marketplace its larger competitors don’t have.  They include:

• Access to coveted smartphones, particularly Apple’s iPhone, which continues to be unavailable from smaller, regional wireless carriers;
• Access to sufficient wireless spectrum to deploy robust data networks to meet customer demand;
• Capital requirements to build and expand the next 4G generation of wireless;
• The downward pressure on smartphone equipment pricing due to competition and expensive equipment subsidies;
• Roaming agreements to ensure nationwide coverage for voice and data services.

U.S. Cellular's primary service areas

Company officials told investors U.S. Cellular intends to continue to compete for new customers, leveraging its top consumer ratings for reliable service and satisfaction with the deployment of its own 4G LTE wireless network.  But first it intends to re-align pricing to reduce costs.

Alan Ferber, U.S. Cellular’s executive vice-president, sales operations, notes U.S. Cellular wants to see more of its customers upgrade to smartphones, which guarantee higher revenues per customer from the higher-priced service plans that accompany the phones.  The company needs less expensive phones from manufacturers, because consumers typically won’t pay more than $200 for a smartphone that comes with a 2-year service agreement.

Ken Meyers, chief financial officer for the company, has been crunching the numbers on smartphone equipment costs and is grateful for the presence of Android phones in the marketplace, which are starting to drive phone prices downwards.

“[It’s] exciting to me is to see what’s happening with the Android phone cost that will allow carriers to start to recapture some of the economics needed to support LTE [4G] investment and the subsidization of those smartphones, whereas that works on a $200 smartphone but if I’m subsidizing $400 or $500 suddenly most of that revenue isn’t going to pay for the network,” Meyers said.

Ferber expects to deliver new smartphones to U.S. Cellular customers for less than $200 by the holiday season, so customers will find the initial cost for phones lower than ever.  But Ferber admits the company’s forthcoming tiered data pricing means increased revenue and “better cost controls” over the life of a customer’s 2-year contract.

“We have also talked about things like tier data pricing on a going forward basis,” Ferber said. “We do believe that has at least two major benefits. The first is to align data revenue with data cost better and the second is to, in combination with the lower cost smartphones, enable more customers to get into a smartphone.”

But Ferber also acknowledges the company’s move to LTE 4G technology will actually cut the company’s costs to deliver that data — great news to investors, but potentially higher cell phone bills for consumers.

“Over the long turn it’ll certainly make the economics much more attractive,” Ferber said.

Other highlights from Monday’s conference call:

• U.S. Cellular will not acquire other providers not within or adjacent to its current operations, but is stockpiling cash for the potential purchase of any T-Mobile territories the federal government requires AT&T to divest as part of any merger agreement.  T-Mobile is not a major competitor in most of U.S. Cellular’s more-rural/suburban markets, but if U.S. Cellular does acquire any of these customers, they will have to convert them from T-Mobile’s GSM network to the company’s CDMA network;
• Data roaming from Verizon and Sprint customers traveling through U.S. Cellular’s service areas have brought increased traffic to the company’s data network, and roaming revenue with it;
• System operations expenses of $228 million were up $14 million or 7% year-over-year. This was due primarily to higher usage and roaming expenses as customers use more data services both on and off U.S. Cellular’s network. Through June of this year, total data of network usage increased nearly 400% over the same period last year.

An example of an 801.22 Wireless Regional Area Network

The mainstream media and technology blogs have been running away with coverage about the IEEE’s recent approval of the so-called “white space” 802.22 wireless standard with stories of up to 100 kilometers of wireless coverage for home Wi-Fi over unused UHF television channels.  The thought of installing a router that can deliver reception of your personal broadband connection for up to 62 square miles sounds very exciting, but don’t get as carried away as some media outlets have.

The truth is, 802.22 benefits wireless providers, not consumers (unless you happen to receive your Internet service from a commercial provider over this technology.)

The new standard was designed to benefit Wireless Regional Area Networks (WRANs).  In general terms, this means Wireless Internet Service Provider (WISPs), who are most likely to adopt the new technology to enhance wireless service over long distances in rural areas not covered by DSL, cable broadband, or other wired networks.  To achieve the maximum amount of coverage noted in the popular press, providers will need to utilize specialized transmitters using antennas considerably higher than what one would find in a home environment.

Unlike today’s Wi-Fi networks, 802.22 uses much lower frequencies which tend to propagate over longer distances.  Using frequencies in the Megahertz range instead of the Gigahertz range makes it much more likely ground-based wireless signals will penetrate buildings and reach across the rural landscape.

To accommodate “white space” wireless, the Federal Communications Commission last year approved the use of unused broadcast channels for these data transmissions.  But providers will not simply be able to fire up their white space Wi-Fi network just anywhere.  The standard includes a provision that will automatically register the exact location of each transmission site with a central coordinating body.  Providers must agree to vacate channels if harmful interference to licensed broadcasters is “sensed” by the technology, and even though multiple operators may be able to operate concurrently in an area at the same time, there are important limitations on how many available “white space” channels will exist in different television markets.

Realistically, the most sensible implementation of 802.22 will come in very rural areas with few, if any, local broadcast signals to contend with.  If the FCC has its way, a considerable amount of the so-called “white space” will be sold off to America’s largest cell phone companies, leaving even fewer channels open for this kind of wireless broadband.  In large urban markets, it’s doubtful many channels will be available for 802.22 use, if any at all.  Currently, the FCC dictates these networks cannot operate on an occupied broadcast channel, or the adjacent channels on either side.  That means if your city has a station on channel 31, these networks cannot use channels 30, 31, or 32.

Another problem is the available bandwidth for individual users.  Each “channel” has 6MHz of bandwidth, which can realistically provide 12Mbps service to a single user.  The IEEE specifies a maximum speed of 22Mbps, but that is more theoretical than actual when taking into account the longer distances average customers will be from the transmitter.  Providers will almost certainly pack each channel with multiple users.  A dozen customers concurrently using the service would probably get around 1.5Mbps on average (384kbps upstream), assuming nobody saturates the channel at maximum speeds. That is equivalent to some rural DSL providers.  Should providers “oversubscribe” the network, and dozens of customers try and use the service at the same time, speeds could drop precipitously.  The further users are from the transmitter, the lower the speeds they will receive regardless of how many users are on the network at that time.

To handle demand, one solution is to run multiple transmitters to handle the traffic, but how many transmitters can operate will depend on how much “white space” is available.  That is why this technology is best suited for rural areas where UHF television signals, and customers, are few and far between.

Home Wi-Fi users will need to wait for the development of a different standard — 802.11af — to take any advantage of “white-space” Wi-Fi, sometimes called White-Fi or “Super Wi-Fi.”

Since the much used 2.4 GHz band for Wi-Fi is congested in urban areas, IEEE 802.11af can provide additional open frequencies for home users.  But most 802.11af home equipment will operate at considerably lower power and range, and will suffer some of the same bandwidth limitations created by narrow channel spacing.  An even bigger problem will be available channel space.  The same urban areas experiencing over-congested Wi-Fi will also likely have the largest number of operating television signals, limiting the use of this technology.

Some theorize White-Fi wireless will not be of much use to home broadband users at all, instead opening up connectivity for devices we might not normally associate with wireless connectivity.  A home security system could plausibly work well with limited bandwidth.  So could home electronic devices that want to communicate their status.  A washer and dryer could use the technology to communicate with each other to synchronize completion time and signal the homeowner that their laundry is ready.  Home weather stations could deliver data over longer distances, refrigerators could signal owners they need to be restocked, and so on.

If you are waiting for wireless broadband nirvana, unfortunately there is not much to see here with these developments.  Increasing usage demands continue to make wireless among the least suitable technologies to deliver the substantial-sized data pipeline broadband consumers increasingly require.

While T-Mobile isn’t bashing AT&T in advertising as badly as it did before the announced proposition of a merger between the two companies, T-Mobile is still calling out AT&T’s high mobile prices with innovative new service plans that can deliver substantial savings for consumers — savings that will evaporate if AT&T swallows the company whole.

Take this week’s introduction of T-Mobile’s new Family Mobile Unlimited Plans, which deliver unlimited texting, calling, and 2GB of throttle-free “4G” (HSPA+/HSPA+42) data for as low as $69.99 per line (two-line minimum), which is just shy of $140 a month before taxes and fees.  Comparable plans from AT&T run $99.99 per line — a $30 difference.  A two year contract is required.

Although T-Mobile is pitching these plans as delivering “unlimited data,” in reality their speed throttle kicks in on some of them after 2GB of usage per month.  While customers will not experience bill shock from overlimit fees common with AT&T and Verizon Wireless, they won’t actually get an unlimited data experience like the one Sprint still delivers on its unlimited data plans.

Additional lines are available for $20 a month with 500 calling minutes and 200MB of data usage, or $40 a month each to upgrade to unlimited talk (but keep the same 200MB usage allowance for data.)

T-Mobile is pitching these plans to value-conscious families who live on their phones.  While other providers let you pool calling minutes on Family Plans, each phone usually has to also select any additional added-cost features like data and texting.  T-Mobile is bundling some of these features into the sale price.

AT&T told investors the merger would bring about higher revenue and cost savings.  Not having to respond to T-Mobile’s aggressive price competition by lowering its own prices is one great way to achieve this.

That means higher prices for everyone.