Tag Archives: Verizon FiOS

A Few Shorts for Friday

TGIFI’ve accumulated a few topics that don’t merit a full blog, but which I thought were worth a mention:

NSA a Source of Malware. News came out last week as part of the Edward Snowden documents that the NSA creates malware and also hijacks existing malware for their own uses. I find it a bit scary that the government is creating malware. I have to assume they are creating really good malware, and once released onto the web it can end up anywhere. I am not going to feel any better if I find out that the malware on my computer came from Uncle Sam and not some malicious hacker.

The NSA is also using malware networks to launch their own attacks. The Snowden documents show that they are using operation DEFIANTWARRIOR to place their own malware next to existing malware on computers so that the NSA can launch attacks on sites without it being traced back to them. Attacks look like they came from whoever put out the original malware. This means the next time they attack North Korea they might be doing it from your PC.

US Helps Jamaican Broadband. On January 21 the U.S. Government signed an agreement with Jamaica to help them provide internet access everywhere. The plan is to use white space spectrum which is not in use in the country. This will result in an island-wide wireless Internet network. The U.S. will provide both technical support and some funding.

I have no problem with us doing this. I spent the last ten years living in the Caribbean and the region is largely poor and is falling behind the rest of the world in basic infrastructure and Internet connectivity. It’s going to take initiatives like this all over the world to get everybody connected to the Internet.

My problem is that we aren’t doing the same thing in our own country. The FCC is overseeing a program called CAF II that is going to upgrade a lot of rural U.S. areas to maybe 10 Mbps. By the FCC’s own definition passed last week, this isn’t even considered as broadband. Meanwhile we will help to bring whitespace radio broadband to a third world country that will probably deliver between 20 Mbps and 30 Mbps. The CAF II program is badly flawed in that it gives a priority to the giant telcos to make inadequate upgrades instead of offering that money first to providers who would use it to bring real broadband to rural areas.

FCC Penalties for Advanced Tel. Last week the FCC levied a fine of over $1.5 million on Advance Tel of Simi Valley California. The fine was for failure to make required payments to the Universal Service Fund, the Telecommunications Relay Service, the Local Number Portability administration and other federal regulatory fees. The FCC gave the carrier an opportunity to resolve what it owed, and ultimately levied the fines when no agreement could be reached.

This is a reminder to all of my clients that we are all still regulated. I talk to clients all of the time who look for ways around these regulations and fees, and this is a stark reminder that you should pay your taxes. Most of the fees that Advanced Tel didn’t pay are normally added to customer bills by most companies, and so their customers should have supplied the funds necessary to make the payments. These taxes seem like a hassle, but they are not a competitive disadvantage since every one of your competitors collects them too.

New Wireless 911 Rules. The FCC adopted new rules last week that require more accuracy from the wireless providers in pinpointing the location of a wireless caller to 911. The current data gathering for this process is done by triangulation from neighboring cell sites along with looking at GPS. But these methods work very poorly or not at all for calls originating indoors, particular calls made from large multi-tenant buildings and other large buildings. The FCC has given a deadline to the wireless carriers to propose and implement solutions that will provide greater accuracy and an indoor solution.

Verizon Halts FiOS Again. Verizon announced that it is done expanding FiOS, something it just picked back again a year ago. FiOS has been very successful and the company keeps adding customers where it has fiber. But Verizon has mostly built FiOS in suburbs and a few rich neighborhoods in cities. They have largely ignored the major cities and rural areas, including sizeable towns in rural areas. It will be interesting to see if Google or anybody else tries to step into those large market niches.

It’s also been rumored that Verizon is going to auction off up to $14 B of its assets including more landline customers as a way to raise the money to pay for the spectrum it purchased in the recent auction. At the rate they are ditching copper they will eventually be reduced to only owning the FiOS networks.

How We Love to Hate the Large ISPs

Poor-customer-satisfaction-272x300I have read a number of articles lately that reminded me of the love / hate relationship that Americans generally have with the large ISPs. Here is a summary of some of these stories.

Americans Pay More for Less Bandwidth. The Open Technology Institute at the New American Foundation recently released its third annual report where it compared US broadband speeds and prices in 24 US cities and in cities around the world. This report shows that speeds have increased in US cities since 2012, but on a cost per megabit delivered most US cities still fall to the bottom of the comparative list. The broadband winner is Seoul where a gigabit of data costs $30 per month followed by Hong Kong and Tokyo at $37 and $39. Contrast this to Verizon FiOS where 500 Mbps costs $300. Very few places in the US outside of Google, some municipalities and some Independent telcos offer an affordable gigabit service.

One of the more interesting comparisons made by the report is comparing the cost for buying 25 Mbps connectivity. The most affordable place for this was London at $24 followed Seoul, Paris, Tokyo, Copenhagen and Prague. The cheapest US City is Kansas City at $41, due to competition with Google. The US cities with Verizon FioS came in around $50. The lowest price in a US City not served by a fiber provider is San Francisco at $58 per month. Most US cities are over well over $60. Not surprisingly, the larger municipal networks like Chattanooga and Lafayette LA are at the head of the US affordability list after Google. The US is also the only country that charges monthly fees for a cable modem and the cable modem customer spends over $100 per year for the cable modem.

The report went on to note that 75% of US customers who can get 25 Mbps service have only one service option. The report concluded that around the world that one thing that holds down landline data prices is significant competition with cellular data. For example, in much of the rest of the world the monthly data caps on cellular phone plans are up to 40 times higher than they are in the US. But our low data caps and the relatively slow speeds of our cellular data networks means that cellular is not a good substitute here for a landline connection.

Customers Continue to Rate Large ISPs Poorly. The results of the annual American Customer Service Satisfaction Survey was recently released and showed that satisfaction with large ISPs is still quite low and is getting worse. This is an annual poll of 70,000 consumers and asks about a wide swath of large businesses. The composite satisfaction with all large ISPs was at 63 on a scale of 100, down from 65 a year ago, and which puts the ISPs at the bottom of the list of all industries. Within those numbers, Verizon FiOS held steady at a rating of 71. Time Warner did the worst dropping from a rating of 63 in 2013 down to 54 this year. Comcast was not far behind dropping from 62 to 57. Century link is the only ISP that improved slightly and went from 64 to 65. Both Cox and Charter dropped 4 points in the last year.

Consumers felt slightly better about their cable TV service and that got a composite rating of 65 compared to the 63 for broadband, But that rating is down from a 68 a year ago.  The ratings were down for every major cable provider compared to 2013. The highest ratings for cable were 69 by DirectTV and AT&T U-verse, while the lowest rating was again Time Warner with a 56.

What is probably the most disheartening about these ratings is that they are dropping year over year. Consumers already rate ISPs and cable companies at the bottom of their satisfaction list across all industries. One would think that would prompt them to improve. And perhaps to some degree they are improving some since speeds are slowly getting faster. But overall satisfaction continues to drop. One might think that price has a lot to do with this, particularly for the cable TV business where there are hefty rate increases each year. But prices have also started to creep up for data and several of the major ISPs are now planning on raising data rates a little each year.

AT&T U-verse Told to Change Advertising. The national Advertising Division (NAD) told AT&T to modify the way they advertise  U-Verse data speeds. AT&T has widely advertised the product as offering up to 45 Mbps and NAB found that in many markets this speeds was either not available or not widely enough available to justify the claim. NAB is a division of the Council of Better Business Bureaus and monitors national advertising claims of all sorts. The NAD recommendations are not mandatory, but since big companies participate in the Better Business Bureau they generally take heed of NAD findings. NAD has made similar findings against CenturyLink in recent years.

I guess it’s really not surprising that customers rate the large ISPs so poorly when you consider some of their practices. Many of them use poorly trained contract installers who don’t put a good face on their company. Many of these companies are notorious for not showing up for scheduled appointments, which is something that a lot of consumers never get over. This year we heard several recordings from Comcast reps who would not let customers drop service. And there is the annual and persistent rate increases.

Reinvesting in Rural America

C-SpireOver the last few weeks C-Spire has begun rolling out gigabit fiber in Mississippi. Unlike Google which is mostly concentrating on large and fast-growing cities, C-Spire is rolling fiber out to small and rural towns throughout Mississippi. The C-Spire story is an amazing success. C-Spire is part of a holding company that includes a large wireless company, a large CLEC and a significant fiber network throughout the region. The company got started by the Creekmore family. Wade and Jimmy Creekmore are two of the nicest people in the telephone industry and they started out working at the family business which consisted of Delta and Franklin Telephone Companies, two small rural ILECs.

When the FCC distributed some of the first cellular spectrum they did so through a lottery. The company won spectrum through this lottery and started Cellular South. It’s grown to become the sixth largest cellular company in the country and many people are surprised when they visit Mississippi and find that C-Spire is more dominant there than AT&T or Verizon. The company was rebranded a few years ago as C-Spire Wireless. There used to be a number of other sizable independent wireless carriers like Alltel that have been swallowed by the two big wireless companies.

A little over a year ago C-Spire announced that it was going to roll out gigabit fiber optics to towns in the region. They modeled this after Google and towns that signed up enough potential customers qualified to get fiber. There are a number of towns that have now qualified and many others striving to get onto the C-Spire list. In the last few weeks the company began turning up gigabit services in small towns like Starkville and Ridgeland.

The company is offering 1 Gbps data service for $70 a month, a combined Internet and home phone for $90 per month, Internet and HD digital TV for $130 per month and $150 a month for the full triple play. These are bundled prices and customers who do not have C-Spire wireless will pay an additional $10 a month for each package.

It is really refreshing to see somebody investing back into the communities that supported them for many years. It’s pretty easy to contrast this to the big telcos and cable companies which are not reinvesting. C-Spire is building needed infrastructure, creating jobs and bringing a vital service. I view this as a true American success story. This is a win for both the Creekmores and for the people of Mississippi.

This is not the only place in the country where telephone company owners are reinvesting back into their community. There are hundreds of independent telephone companies and cooperatives around the country who are quietly building fiber and bringing very fast internet to some of the most rural places in the country. For example, Vermont Telephone Company grabbed headlines when they announced gigabit fiber for $35 per month. There are wide swaths of places like the Dakotas where fiber has been built to tiny towns and even to farms.

What these companies are doing is great. They are doing what businesses are expected to do, which is to modernize and grow when the opportunity is there. This is especially what regulated utilities should be doing since they have benefitted for decades from guaranteed profits from their businesses. But unfortunately for rural America most of them are served by AT&T, Verizon, CenturyLink and other large telephone companies like Frontier, Windstream and Fairpoint. These companies share at least one thing in common, which is that they are public companies.

It seems like public companies in this country are unable to pull the trigger on investing in infrastructure. The exception is Verizon who has invested many billions in FiOS, but even Verizon has stopped building new fiber and they are not investing in the small towns like Starkville. Rather than investing in rural America, the large companies are doing what they can to hold down costs there. In fact, AT&T has told the FCC that they would like to cut down all of their rural copper lines within a decade and replace them mostly with cellular.

The Creekmores aren’t building fiber just because it’s the right thing to do. They are doing this because they see a solid business plan from investing in fiber. They will make money with this venture, which is the way it is supposed to work. But the public companies like AT&T only seem to invest in fiber when they face a big competitive threat, like AT&T in Austin Texas. I get a sense that CenturyLink would build fiber if they had the financial resources, but most of the big companies are doing the opposite of reinvesting in rural places.

Unfortunately, the big companies are driven by stock prices and dividends. They don’t want to take the negative hit from making large investments because it depresses profits for a few years while you are building. And that is the real shame, because in the long run these large companies would increase profits if they reinvested the billions that they instead pay out as dividends. They would end up with fresh new networks that would make profits for the next century.

It’s going to be interesting to see how gigabit fiber transforms the small pockets of rural America that are lucky enough to get it. The broadband map in the country is a real hodgepodge because right next to some of these areas that have fiber are areas that often have no broadband at all other than cellular or satellite.

It is also going to be interesting over twenty years to see how the two different types of areas fare economically. There is a company in Minnesota, Hiawatha Broadband, that has been building fiber to small towns for a decade and they claim that every town where they have built a network has been growing while every surrounding town has shrunk in population. They have been at this about as long as anybody, and so their evidence is some of the early proof that having fiber matters. Within another decade we are going to have evidence everywhere and we will be able to compare the economic performance of rural areas with and without fiber.

Broadband in Big Cities

san_francisco_skyline-wideI’ve often written about the issues with rural broadband, but today I thought I would take a look at the state of broadband in the large cities. As people read and hear about Google and other fiber projects I think the natural assumption is that the cities either have fiber or soon will get fiber. I don’t think that’s true.

Let’s look at a few of the larger fiber builders and what they have done with cities. First is Verizon FiOS. It’s a great service and I had it at one of my previous homes. But for the most part it’s not been built deep in the heart of the larger cities. FiOS has been a suburban and medium town product and you are far more likely to be able to get FiOS in a suburb than if you live downtown.

Google is currently building a few cities. Both they and AT&T have also released a list of possible candidate cities for fiber. But Google only builds in neighborhoods where enough customers sign to buy fiber. And AT&T’s fiber construction seems to be more press release for now than substance.

And nobody wants to talk about is that none of these providers builds to MDUs. Not FiOS, not Google, not AT&T, not the munis and pretty much not anybody else. Nobody has solved the inside wiring issues that come with multi-dwelling units, and so none of the big fiber providers are building to them. In some cities over half of the living units are in MDUs, and even when fiber comes, these residents don’t get it.

There are a few companies that are specializing in MDUs, but they either concentrate on student housing or on that small slice of apartment buildings that have already been wired with category 5 cable. And most apartments and condos are wired only with traditional coaxial cable and telephone copper. And then you have to layer the contractual issues on top of the wiring issues. The FCC took a stab a few years ago of fixing some of the more egregious abuses where cable companies had tied up the rights to the existing wire inside MDUs. But they didn’t close all of the loopholes and there are plenty of apartment complexes that are still contractually locked into allowing only the cable company.

But then one has to ask if any of this is all that bad, because the cable companies in the large cities have increased cable modem speeds and it’s hard to find a city that doesn’t have speeds of at least 100 Mbps available. But you have to look a little closer to see that is not as good as it sounds.

The faster cable modem products are expensive. In many cities the 100 Mbps products are around $100 or more per month, absent any sign-up specials. But that is not the only cost customers face. For example, I have Comcast and they wouldn’t let me buy a 50 Mbps cable modem without having to take some of their cable product. Cable companies don’t have to sell naked cable modems, and so there are a lot of households that just can’t afford the big packages that are needed to get the faster cable modem speeds. This goes back to the same categorization of broadband as an information service, and just like with net neutrality, the FCC doesn’t have the authority to force cable companies to sell naked cable modems. Finally, there are problems with cable modems in some MDUs. Some of them with older wiring will not allow the delivery of faster data speeds. Or, in some MDUs the internet comes with the rent and you get whatever the landlord will pay for.

There is some good news for cities in that over the next decade the cable companies are going to be able to offer speeds as fast as a gigabit. They have a lot of work to do on their networks to get to those speeds, but the technology to get there is already developed or on the drawing boards at Cable Labs. One has to wonder if the cable companies will upgrade in cities where they don’t have a real competitor. One has to think that the cable companies will be as judicious in handing out gigabit speeds as they today are handing out 100 Mbps speeds. It’s one thing to be in a market that has the potential for very fast data speeds, but it’s something else to be able to actually order it or to be able to afford it.

I am afraid that most cities are going to be at the mercy of the cable monopoly for decades to come. FiOS is no longer expanding. Google is going to go where they go, and that is not going to be everywhere, even in the cities where they do build.

There is some hope in the future for apartment buildings. I’ve reported before on a technology that uses ultrawideband that looks to be able to deliver gigabits of data over existing coax without disturbing the cable traffic. Think of it as DSL for cable systems. But the fast versions of that technology are still a few years away, and even that is going to require somebody to build a fiber to the front of an apartment.

Do the Big Companies Even Want to Get it Right?

020916-F-4728F-001The latest Consumer Reports rankings are out for telecom providers, and the results are much the same as in past years. There are many different groups that rate companies and we often hear of reports that put the cable companies at the bottom of all companies in terms of customer service.

But the Consumer Reports ranking is more comprehensive. It looks at a lot of factors such as the perceived value that customers see with the provide, reliability, speeds, and support both in the home and over the phone. And they compare all of the major telecom companies and don’t compare to other industries.

Not surprisingly, HughesNet and their satellite broadband ranks the lowest. I’ve never heard anybody talk nicely about their product since it’s slow, costly and also has a lot of latency and delays. Many people say it is barely better than dial-up. It will be interesting to see how satellite ranks now that Exede is in the market with a faster product. As I reported a few weeks ago, the issue with Exede is the low total data caps, but at least the 12 mbps download is a huge improvement.

Ranked next to satellite is MediaCom which always comes in dead last among cable and telcos. Ranked next at the bottom are the various DSL providers, with Frontier, Fairpoint, Windstream and AT&T DSL. For the most part the customers on these services have older DSL technology that is only delivering a few Mbps download speeds. There is faster DSL technology available today and better ways to deploy it by bringing the DSLAMs closer to customers, but the companies listed are for the most part not pumping much money into DSL. The exception is Frontier who has gotten a pile of federal subsidy money from the new USF fund to upgrade and expand its DSL footprint.

But right next to this old DSL technology is Comcast, followed closely by Verizon DSL and then Time Warner. Verizon barely even advertises that it has DSL anymore and it is a surprise to see it more favorable with customers than Comcast.

At the top of the list and doing the best job are the smaller cable companies and fiber providers. At the top of the list are WOW and Wave (Astound) followed by Verizon FiOS.

It just amazes me to see these large companies like Comcast and Time Warner do so poorly with their customer service. They have been at the bottom of these kinds of rankings for well over a decade now and it’s obvious that they are willing to live with giving poor service. When you look at the rankings and see that Comcast is viewed by customers to be doing a worse job than Verizon and CenturyLink DSL you just have to shake your head.

It’s very obvious that they don’t care to become better because by spending some money they could do much better. Doing customer service well is not some unreachable mountain of a task. Thousands of companies do it well. If WOW and Astound can do it well, so can Comcast and Time Warner. It’s a matter of investing in the right systems, the right training and the right management of the process. Being big is not an excuse for being crappy, and if it is a valid excuse, then this alone ought to stop the Comcast / Time Warner merger.

I would think that the management of these companies would hate seeing themselves at the bottom of these lists. But they obviously like profits more than they hate doing a poor job. And that is what I don’t get. These companies have lost millions of customers due to dissatisfaction with their service and their best growth strategy is to lure back customers in their existing markets by doing a better job.

Don’t Be the Big Guys

Hurricane_Katrina_August_28_2005_NASALarge telco and cable companies took a pretty good beating in the press in 2013. There were tons of articles that don’t present them in a very good light. For all of my clients and friends in the industry who are not these large companies, I think it might more important right now to show your customers why you are not like the big guys.

Here are just a few things that made headlines this year:

  • Verizon said they would not replace the copper on Fire Island and parts of New York City that were destroyed by Hurricane Sandy and wanted customers to instead use cell phones.
  • AT&T told the FCC in a filing that they were planning on ditching ‘millions of access lines’ and wanted to transfer rural areas to cellphone-only.
  • The large ISPs, both telcos and cable companies came in at the bottom again on the national customer service satisfaction polls that measure the companies that the public most dislikes.
  • Almost every large carrier has been accused of handing over all of their telephone and email traffic to the NSA.
  • Cable rates had continued dramatic increases everywhere.
  • It was reported in California that telephone rates have nearly tripled since they were deregulated in 2008.
  • Verizon customers have accused the company of pressuring them to convert to FiOS and then not having access to older copper products.
  • All of these large companies announced record profits.

There is such a widespread dislike of these companies that we need to be careful that the dislike of them doesn’t wipe off onto the rest of us. In large cities many customer talk about holding their nose and picking the incumbent they dislike the least.

Unfortunately, some of my smaller telco clients have policies in place that also don’t win them any love in the marketplace. As an example, I ran across one company this year who would only accept customers who would pay with direct bank debit. I found another client who would only let somebody reconnect after being disconnected by coming in live with cash or a money order. I suspect many companies have policies that are not customer friendly. In the long run any such policy is going to cost you revenues and profits.

It’s easy to understand how such policies get started. Perhaps a company was having a high level of bad debt. But you can’t punish all of your customers for the behavior of a few (and in fact, you really shouldn’t punish anybody). I know personally that if I had to bring cash into my telco in person that they would never see me again, and I can’t be unique in this.

I think the constant bad headlines about telecom companies probably paint us all in a bad light. So I would advise that you take a fresh look at your company and figure out how you are going to let your customers know that you are not the same as the big guys. You may assume they know this, but these is a very good chance that they think of you just as the phone or cable company and that over the years you have done something to annoy many of your customers.

So take this new year as an opportunity to think about how you tell your customers who you are. Certainly you can always tell them with your actions, but it never hears to remind them in other ways. So what do you want your customers to most know about you? Figure out a way to get out that message.

The Explosion of WiFi

Wi-Fi Signal logo

Wi-Fi Signal logo (Photo credit: Wikipedia)

WiFi has been around since the mid 90’s as a local wireless data connection. WiFi products grew somewhat slowly with the two primary uses being external WiFi networks used to supply point-to-point data in mostly rural areas, and as the way to connect wirelessly to computers within a home or business. And companies like Cisco, Linksys and others made a decent living selling WiFi transmitters.

But then along came the smartphone and suddenly cellular data offload became a huge business as everybody scrambled to use WiFi data from their landline network rather than pay for more expensive cellular data. All of a sudden WiFi routers became a necessity and most homes that have a landline data connection now also have a WiFi router. In fact, most cable companies, FTTX companies and telcos have built WiFi into their standard data modems.

And as successful as WiFi has been, the spectrum is about to get a lot busier. Consider the following industry trends:

Proliferation of Commercial Hotspots. There has been a proliferation of public WiFi hotspots in recent years. It used to be when you wanted free WiFi you would head to a Starbucks. But since most businesses now have data connections many of them had added WiFi for their customer’s convenience. One good indicator of this is the website WeFi.com. This site tracks known public WiFi hotspots and conveniently maps them. And this site shows many hotspots, but there are many additional hot spots that are not shown on these maps.

In addition to businesses deploying hot spots, some carriers have started deploying hot spots as part of their business plan. For example, it was recently reported that cable companies have deployed over 300,000 public WiFi hot spots, with most of those being deployed by Comcast, Comcast is deploying public hotspots in areas where they have stiff competition with fast landline data, such as areas with Verizon FiOS. So in some of these areas Comcast has deployed hot spots in areas where the public tends to congregate. For instance, they tout that they have completely covered the Jersey shore. When they can they sell hot spots to businesses as a money-making venture, but many of the Comcast hot spots are free for the use of any Comcast customer and have been installed to give them a competitive marketing advantage over their local competition. They report that the public is flocking to their hotspots with cell phones and tablets.

Settop Boxes. Many of the settop makers for cable television are coming out with version of their boxes that use WiFi to connect and transmit TV from one central hub to other televisions or to tablets, PCs or cell phones. There has already been a trend of creating a ‘whole-house’ centralized DVR / settop box that is able to record and playback multiple shows to any other TV in the home. Settop box manufacturers are going to count on the new 801.11ac standard to provide enough bandwidth to transmit cable signal between TVs.

City-wide WiFi networks. There have been a number of municipalities and other entities that have been expanding free WiFi networks. Wikipedia now lists 65 US cities that have deployed WiFi networks in some or all parts of the City. For the most part these networks offer free service although some of them instead offer WiFi by the hour or day similar to what is available in airports. I know of cities who do this which are not on this list, so the actual count of cities with some public WiFi coverage is probably quite a bit higher than 65. And I read almost daily of cities who are thinking about adding more of this. Additionally there are many cities that have added WiFi networks for first responders and City employees without offering these networks for the public.

The Internet of Things. But the real explosion of WiFi is going to come from the Internet of Things. There is only two current reliable ways for the multitude of IoT devices to communicate with a central hub, either WiFi or Bluetooth. It appears that most device makers are leaning towards WiFi as the preferred communications method since Bluetooth is mostly limited by line of sight to the central router. It’s estimated that over the next decade that billions of new IoT devices will be deployed and will start sharing the WiFi bandwidth.

There are a lot of concerns that the number of devices that will be using WiFi is going to cause a lot of local interference, which is an issue I will cover in a later blog.

Where are the Verizon Profits?

Verizon Wireless "Rule the Air" Ad C...

Verizon Wireless “Rule the Air” Ad Campaign (Photo credit: Wikipedia)

I’ve been reading over the last few weeks about the controversy surrounding Verizon’s profitability in its wireless versus wireline business. Verizon has been claiming that it is not making very much money from its landline business while critics are charging that Verizon is cooking the books to make the wireline business look bad.

This link is a report on Verizon’s 3rd quarter earnings. In the third quarter Verizon had total revenues of $30.3 billion. This was comprised of $20.4 billion for the wireless segment and $9.7 billion for the wireline businesses. The profit story is quite skewed and they show profits of $6.9 billion for the wireless business but only $155 million for the total wireline business. If you take out depreciation to get operating margins, the wireless business made $8.9 billion for the quarter while the landline business made $2.2 billion.

In looking at these numbers as an outsider I ask myself if they make sense. I probably have more ability to judge these numbers than most people because I am privy to the books of hundreds of telecom companies that are in the same business lines as Verizon.

Verizon claims their losses for landline are so big because of all of their continuing losses of landlines. But all of my clients have been losing landlines and yet many of them are still quite profitable. Let’s look at some of the piece parts of the company to kick the tires on Verizon’s claim of low profitability:

  • Verizon has 5.2 million video subscribers. It’s a pretty well-known industry fact that these are low margin customers.
  • Verizon has 5.9 million FiOS data customers and another 3.0 million DSL customers. And 40% of the FiOS customers were buying the faster speeds of between 50 Mbps and 500 Mbps. Universally, data is a high margin business.
  • Verizon had 4.1 million voice customers on FiOS and 6.8 million voice customers on copper. While voice lines are dropping, and Verizon lost a net 432,000 customers over the last year, the margins on voice should be high.
  • Landline revenues include $3.6 billion in core and strategic services and another $1.7 billion in global wholesale. These product lines include what are the most profitable business lines for most telcos – such things as selling special access circuits, internet backbone connections and fiber connections to cell towers. Most of my clients report these business lines to be very highly profitable.

The overall operating margin for the landline business, at 23% ($2.2 billion of margin compared to $9.7 billion of costs) is very low compared to almost all of my customers. Much smaller telephone companies than Verizon have margins that are somewhere in the 30% – 40% range.

So, is Verizon just very inefficiently operated or are they cooking their books? I consider the following:

  • There is a lot of corporate leeway in assigning costs between operating divisions. I help my clients make these kinds of cost allocations all of the time and there is a wide variety of ways that you can allocate costs that will still fly with an external auditor. So Verizon has a lot of leeway to change the relative profits between the two operating divisions.
  • Verizon publicly has been trying to convince the FCC that they ought to be able to transition customers from copper to wireless. The most visible controversy has been about Fire Island off New York City that got devastated by hurricane Sandy. But Both Verizon and AT&T have made it clear that they would like to find a way to walk away from maintaining older copper.
  • On the surface the profits look too small. This either has to be the result of very inefficient operations or of allocating costs to slew profits. If the wireline business really only has a 20% margin then Verizon would be far better off to spin those businesses off to standalone regional companies who could probably double the margins within a few years.

It’s obviously very hard to know all of the facts within the books of a company as big as Verizon. But my gut tells me that they ought to be making more money on the wireline business. While Verizon claims the poor profitability is due to loss of landlines, that only comprises a small percentage of the landline business. A lot of that business comes from the very profitable business lines of supplying transport for the Internet and for cell sites.

So are they cooking the books? Probably.

We Don’t Have Enough Bandwidth

I read three different articles Friday that have a common theme – we just don’t have enough bandwidth in this country.

The first article from the Fiber To The Home Council which reports on a recent survey. They report that video viewing over the Internet is growing faster than expected, led by the viewing habits of the young. One third of young viewers watch video on a cell phone or tablet at the same time that they watch TV. And 12% of viewers under 35 report watching all of their content over the Internet.

The article also points out a recent report from Conviva, a web optimization company, who reports that they sampled 22.6 billion video streams and found that 60% of them suffered some degradation due to inadequate bandwidth.

The gist of the article is that demand keeps growing while many parts of the Web are near or at a breaking point in terms of capacity and quality. It’s also evidence that homes don’t want to just watch streaming video, they want to watch multiple streaming videos.

In another article Time Warner announced that it would roll out significantly faster Internet service, but only in competitive markets. The upgrades will come in markets where they are competing against fast competition, such as places where Verizon has built FiOS, where AT&T has relatively fast U-verse and where municipalities have built fiber networks. The company says that they will upgrade to DOCSIS 3 and also install much faster wireless routers. They also will upgrade the DVRs in these markets and roll out apps that are designed for the faster Internet.

But Time Warner also made it clear that they have no plans to upgrade markets where there is not fast competition. My take away from this article is that a lot of the incumbent providers are still only doing upgrades in response to direct competition. Otherwise they are quite satisfied with the status quo and only make investments under duress.

Finally, the citizens of Bergen County, New Jersey have started a petition to ask their politicians to offer whatever is necessary to attract Google fiber to the county. Bergen County is the most populous county in the state.

I find this somewhat surprising because most of the people in this county have Verizon FiOS available. And recently Verizon said they plan to have all of New Jersey covered by FiOS. Most of the rest of the country would be thrilled to be upgraded to the kinds of speeds available in Bergen County. FiOS speeds differ by market, but most markets have speeds available from 15 Mbps download to 150 Mbps download. And a few markets have 300 Mbps and 500 Mbps speeds available. Of course, Google would be bring 1 Gbps speeds for a little more than what people are paying for 50 Mbps from Verizon.

My takeaway from this is that people are beginning to realize how important very fast Internet service is. Even those who already have some of the fastest Internet speeds in the country do not view what they have as a value.

Unfortunately for the citizens of Bergen County I find it highly unlikely that Google will ever build to compete against another fiber network. Verizon could easily upgrade their network to compete with Google on speed and price and the conventional wisdom is that nobody is going to build a second fiber network to homes or both fiber owners will go broke competing against each other.

But all of these articles are indicative of the daily articles I see that continue to highlight the big gap between the bandwidth people want and what they are being offered in the market. We just don’t have enough bandwidth in the country, at least according to consumers.

Google and the NFL

The new NFL logo went into use at the 2008 draft.

The new NFL logo went into use at the 2008 draft. (Photo credit: Wikipedia)

Google has announced that it is interested in buying the Sunday package from the NFL to stream over the web. For those of you who are not sports fans, this means every regular Sunday football game (just not the Sunday or Monday night games or the mid-week game).

The Sunday package today is available today only on DirectTV. A sports fan must buy a DirectTV regular programming package in order to buy what DirectTV markets as the Sunday ticket. DirectTV simulcasts all Sunday games, so there are a number of games playing at one time.  DirectTV owns the rights through the end of the 2014 season and the package comes up for bid again.

The football programming currently costs DirectTV $1 billion per year, and one has to imagine the price is going to go up in a bidding war. But obviously Google can afford this.

I would think that losing football would be devastating to DirectTV. As a serious sports fan, I know of a lot of sports fans who subscribe to DirectTV just for the right to buy the football package. If that goes away, DirectTV is going to see a number of subscribers melt away over the first year.

The whole idea of Google buying the NFL package raises all sorts of different issues:

  • This would give major legitimacy to OTT programming and could form the core of a Google on-line TV offering with some teeth. One has to think that Google is going to bundle this with other programming to get enough revenue to pay for the package. This could turn Google into a serious player in the content provider war.
  • One has to wonder if Google understands the lack of bandwidth in much of the country. DirectTV delivers football in high definition, and most fans routinely watch multiple games at the same time or want to quickly flip between games. This country is divided into a lot of broadband haves and have-nots. Certainly customers on fiber like Verizon FiOS will love football on the web. But there are still a significant number of rural households who can’t get real broadband. And even more importantly, there are a whole lot of towns that don’t get enough broadband to watch multiple football games in HD.
  • Interestingly, the FCC has been tracking the availability of broadband by letting the service providers tell the FCC what they offer where. And everybody knows this process is highly flawed and that a lot of the reporting is very far from reality. Moving football to the web is going to more effective than any broadband map at showing who has and does not have adequate broadband. All we need to do to track where broadband is inadequate is to follow the complaints about Google football.
  • On the other hand, Google would be opening up the Sunday football package to a lot of new households. There are a lot of people today that can’t get DirectTV, either due to a clear look at the right part of the sky or else from living in a place, like a high-rise that doesn’t allow satellite TV.
  • And Google football is really perfect for somebody like me who is not always in the same place every Sunday. I would assume that if I am a subscriber that I am going to be able to watch as long as I can find a good broadband connection. I think there will quickly be web boards that track which hotels have good or poor internet and business travelers will be going to the good ones and avoiding the poor ones.

Sports programming is the one wild card in the programming world for which there is no substitute. To any sports fan there is the NFL and then there is everything else.

It has also been reported that ESPN is considering a web-package that they would only sell to web-providers who bundle it with a larger programming line-up. And one has to think that if ESPN works out this kind of deal that the college football networks will follow suit. If NFL football, college football and ESPN become available on the web, then landline cable TV is going to have lost its grip on a lot of households. This has to be a concern for the big cable companies.