August 22, 2014

Telecommunications

Battle of the Bundles

Telephone, cable and internet providers are in each other's pockets in a fast-changing race for Florida customers.

Amy Keller | 12/1/2005
As late as 2003, Brian Pinkstaff was still teaching technicians at Verizon's training center in Tampa how to cope with the problems Florida's weather, vermin and varmints pose to the copper wire that carries phone signals into homes. Barely two years later, Pinkstaff's lesson plan has changed dramatically: Today, newly hired technicians must learn the skills involved in maintaining fiber optic cable -- strands of glass that carry millions of telephone and data signals in pulses of light. Instead of repairing lightning strikes to copper wire, the techs have to learn how to filter out viruses, deal with "spyware" and splice thin strands of glass that are no thicker than dental floss.

Verizon has long used fiber optic cable between major data hubs like Tampa and Atlanta, but it's now engaged in an ambitious plan to install it "the last mile" -- all the way from the hubs into each customer's home. By the end of this year, the company will have hired in Florida alone 300 techs and related staff and spent nearly $350 million in the first stages of a 10- to 15-year plan to build an all fiber optic network in the state.

Verizon will be pushing more than upgraded phone service through its glass wires. The new fiber optics will enable Verizon to market high-speed internet connections and digital television signals along with phone service. The company plans to launch a new television service in the Tampa suburb of Temple Terrace in December and has secured rights to offer it in unincorporated Manatee County.

The scope and urgency of the plan are more a matter of necessity than choice. Verizon's move is just one manifestation of an ongoing, chaotic metamorphosis of the entire communications industry. The breakneck evolution of voice, video and data technologies has obliterated traditional lines: Telephone companies no longer rule the voice market; cable companies don't dominate TV; and broadband is up for grabs. A host of providers is using all sorts of platforms -- from the internet and wireless to satellite and fiber -- to offer a dizzying array of bundled services to Florida consumers.

Consider the voice, video and data options available to Pinellas County consumers: Verizon offers a package including local and long-distance telephone service, DSL and satellite television through DirecTV for around $97 a month. Bright House Networks, meanwhile, offers its own brand of digital cable, high-speed internet access and digital phone service for around $122 a month. And Knology, a smaller cable operator in Pinellas County, is offering phone, cable and internet bundles for as little as $79.95 a month.

"What you are seeing is there truly is a lot of competition in the marketplace that either never existed before or is growing," observes Larry Schweber, vice president and general manager for Comcast in southwest Florida.

The "battle of the bundles" will likely be won by companies that can create the most innovative package of services -- and can service them. Just as important, says Steve Wilkerson, president of the Florida Cable Telecommunications Association, is "who can get out there the fastest."

Following is a look at the competitive landscape in Florida.

Big Players: Cable vs. Phone
CablePhoneCHALLENGEIn recent years, cable operators have lost significant numbers of TV customers to satellite-dish services that burst on the scene in the mid-1990s and then partnered with regional phone companies to grab even more market share. By 2004, total dish subscribership in Florida reached nearly 20% of all households with televisions, according to Nielsen Media Research; in 36 other states, satellite penetration rates went even higher.Deregulation in 1996 was meant to spur competition by introducing new types of companies called Competitive Local Exchange Carriers (CLECs) to compete with the Incumbent Local Exchange Carriers (ILECs) such as BellSouth and Verizon. But overinvestment in the late '90s left too many companies scrambling for too few customers. The sector has witnessed a dramatic decline in market capitalization and jobs. Making matters worse for the phone companies is the emergence of new voice rivals, such as cable, wireless and VoIP. Florida ILECs lost 12% of their lines to CLECs and other competitors between 2001 and 2004, according to the Florida Public Service Commission.RESPONSEWith phone companies jumping into TV and internet services, cable has responded with its own package of bundled services -- digital phone service, high-speed internet access and enhanced TV offerings. On the phone front, Cox Communications, which provides cable service to Pensacola, Fort Walton Beach, Gainesville and Ocala, added 200,545 phone customers nationwide during the first six months of 2005. Comcast recently rolled out its new digital phone service in Naples. And Bright House is aggressively pushing its digital voice service in central Florida. It's teaming up with Comcast and Sprint Nextel to offer a range of wireless services. Toronto-based Convergence Consulting Group, which specializes in telecom issues, predicts cable companies will have 12% of U.S. residential phone subscribers by 2007 and 21% by the year 2009.
Bundled services. BellSouth, which provides service in more than 20 cities in regions all over the state, lets its customers personalize their own communications package with a choice of local and long-distance plans, DSL internet service, cellular phone service through Cingular and video via satellite through a partnership with DirecTV. The telephone companies also are investing millions on fiber upgrades to increase the speed and reliability of their networks, as well as introducing products such as television service.COMPETITIVE EDGETechnological upgrades, such as high-definition television, digital video recorders and more on-demand video options. Satellite faces a harder time competing independently in the bundled environment because of the high cost and complexity of offering broadband internet access via dish.Heft from pending megamergers. Verizon is acquiring troubled long-distance giant MCI, a merger that would make Verizon a massive one-stop shop for a consumer's complete communications needs. The move should bolster Verizon's business, but some rivals and consumer groups argue that the move is anti-competitive and could result in higher rates. It remains to be seen whether approved local phone rate increases will have an effect on business. Earlier this year, the Florida Supreme Court upheld a large local phone rate increase that could amount to a 26% to 90% increase over the next several years, or an extra $3 to $7 on consumers' phone bills.LEGISLATIVE AGENDAA key element in cable's prospects is the industry's ability to block a move by the phone companies to relax current regulations on how local franchises are awarded. Cable advocates believe everyone in the business of offering television through a closed network ought to be held to the same standards they've had to follow. Bill Ferry, Comcast's Jacksonville-based director of government affairs, says it would be unfair to allow phone companies to selectively service profitable portions of a community after cable companies have been required to provide uniform service across the entire community. That means going into neighborhoods with high-end houses as well as those that are more modest," he explains. "I think the Bells see that as something that does not necessarily fit their business model.Verizon's success in TV will depend in part on whether it can persuade lawmakers to change the arduous franchising process that cable operators have had to follow for decades. The phone companies don't want to work out a separate deal with each municipality to offer service there; they feel that since they're already operating locally, they shouldn't have to go back to the local government "just to offer a new service," says south Florida attorney Allison Hift, who specializes in telecom law for Bilzin Sumberg Baena Price & Axelrod. Alan Ciamporcero, president of Verizon in Florida, hopes for a federal fix or, short of that, a statewide franchising process, like one Texas enacted recently.

Wild Cards

New technologies are allowing other non-traditional competitors into the ring.
VoIP (Voice over Internet Protocol)Wi-Fi (wireless internet access)BPL (Broadband over Power Line)CHALLENGE
In 2002, Vonage Holdings introduced a broadband telephone service utilizing VoIP, a technology known as Voice over Internet Protocol. Rather than using a traditional switch circuit phone system, the technology breaks calls into data packets and routes them over the internet. Critics complain the technology isn't mature yet; VoIP suffers from a host of problems ranging from poor sound quality to dropped calls, they say.A number of Florida municipalities either offer or are experimenting with offering free Wi-Fi. Jonathan Baltuch, a consultant who has helped St. Cloud develop its Wi-Fi system, says research shows that about 72% of St. Cloud citizens had internet access and were paying a total of about $4 million a year. The city's startup cost was about $2.5 million. The system, which costs another $300,000 to $400,000 a year to maintain, also is benefiting the schools, which in the past spent about $100,000 annually on T1 lines. Wi-Fi has gotten a mixed reception around the state. Miami Beach recently announced plans to install a free Wi-Fi system by mid-2006 that will be available to government employees citywide and to the general public in "hot spots" around the city. Last summer, Orlando canned its pilot program. Low user rates failed to justify the $1,800 monthly cost of the system, city officials said. Several smaller communities, such as Monticello, a rural community in the Panhandle, are setting up fee-based Wi-Fi networks for area residents. Dunedin in northern Pinellas County plans to charge $24.95 a month when its system is up and running by the new year.In the not-too-distant future, Floridians may also have the option of receiving phone, cable and broadband services from their electric company. Across the country, electric utility companies are experimenting with so-called Broadband over Power Line, or BPL, to allow companies to provide high-speed internet connection and other advanced communications services via their existing power lines.COMPETITIVE EDGECheap rates. Vonage has grown quickly to have more than 100,000 lines in service in Florida. Vonage spokesman Mitchell Slepian says the service has other advantages, including better features and functions, such as call forwarding and voicemail access over the internet. He also touts the fact that Vonage customers aren't "tethered to any one area." For instance, Vonage customers can choose to have a local area code in Miami, Tampa, Jacksonville, Sarasota and other locations in Florida, but they can just as easily choose to have a Boston area code if that better suits their needs. And as long as they have a broadband connection, they can "use their service in Tokyo just as well as they can in Florida," Slepian says.
No wires. According to the University of Florida Bureau of Economic and Business Research, more than a third of Florida residents with traditional phone service are considering dropping their home telephone service in favor of wireless.Simplicity. The technology works by bundling radio-frequency energy over existing power lines by placing adaptive devices along existing wires and poles. The consumer, in turn, simply plugs into his electric outlet to receive a broadband connection. Such a system was recently launched in Manassas, Va., and some Florida power companies have hinted at an interest in the technology.?LEGISLATIVE AGENDAThe Florida Legislature has helped the VoIP industry flourish by declaring that it would remain "free of unnecessary regulation" and specifically exempting it from the statutory definition of "service" as it relates to the Public Service Commission. The Federal Communications Commission also has ruled that states cannot regulate or tax VoIP providers. Internet phone companies have come under scrutiny for their handling of 911 calls. Skype, a peer-to-peer program for making free calls over the internet that was created by the founders of the music file-sharing software KaZaa, warns on its website that "the current version of Skype software does not support calls to any emergency numbers." Vonage came under fire in Texas after a Houston resident was unable to reach emergency dispatch centers by dialing 911 when her parents were shot in a robbery. Vonage's Slepian promises progress in that area and predicts the federal government will provide more guidance for VoIP providers.
Last June, Gov. Jeb Bush signed a law that establishes a process by which a municipality can install a Wi-Fi system, either on its own or working with private providers. Congress is considering competing proposals to alternately limit and permit widespread municipal Wi-Fi networks. Comcast Regional Vice President Steve Devoskin says municipal broadband should be addressed on a "case-by-case" basis. "The only concern we'd have is where the municipality is also regulating us, because they grant us a franchise. Our only concern would be where that inherent conflict would exist."Earlier this year, the Palm Beach Post reported that Florida Power & Light Co. is testing the technology to determine its value and usefulness. "We'll put together a strategy based on these findings, and we'll take it from there," FPL spokeswoman Karen Vissepo told the paper. In 2004, the FCC adopted rule changes to encourage the development of BPL, which it believes will promote more competition and result in more broadband access to more communities.

A Blizzard of Options

While residential consumers can purchase a basic bundle of services including phone, television and online from most providers, they face a dizzying array of options once they get beyond the most bare-bones service. Below is an assortment of packages available around the state, highlighting the features included in the company's basic package and also how complicated things can get in navigating -- and pricing -- all the bells and whistles. Monthly rates were provided by the companies or are listed on their websites.
Provider
CityBasic Package/CostConsiderationsVerizon
TampaUnlimited local, regional and long-distance phone service with caller ID, call-waiting and voicemail; high-speed DSL; over 225 channels through DirecTV satellite. About $91.89Connection speed isn't the only factor that affects what you pay for various Verizon Online DSL packages. Length of commitment also matters. For instance, a one-year agreement can cost as little as $14.95 a month. Without a one-year agreement, but when bundled with phone service, the DSL service jumps to $19.95 for the first three months and $29.95 monthly after that. But go month-to-month without bundling, and the cost jumps to $37.95 a month.BellSouth
MiamiUnlimited local calling and up to five calling features, 136 channels through DirecTV, broadband internet access at 1.5mbps with Fast Access DSL Ultra and 450-minute wireless telephone plan with Cingular. About $137.93The theme: Buy more, save more. For instance, a basic phone line costs$11.32, but it won't earn any discounts. Opt for the $54.99 "Complete Choice Unlimited" plan, which includes unlimited local and long-distance calling, three-way calling, *69 and a dozen other features, and you save $20 a month on wireless and satellite services. A mid-level package with 14 calling features costs $31 a month and earns $10 a month off on wireless and satellite. Drop down to the $27 a month calling plan with just five-phone features, and the savings fall to $4. Knology
Panama CityKnology's so-called "economy" package includes local telephone service, high-speed internet service at 256k downstream, 64k upstream, and over 200 cable channels. About $84.95 ($67.96 for first three months)
This bare bones package may be budget friendly, but it does not include long-distance calling. Customers can make long-distance calls for an extra 5 cents per minute with no monthly fee or buy an unlimited long-distance package for $19.95 per month. Proficient web users might find themselves frustrated with 256k download speeds. For $10 more, you can upgrade to a "standard" package for $94.95 per month ($75.96 for the first three months) for 3mb internet access. Adding digital cable options pushes monthly package prices over the $100 mark.Comcast
JacksonvilleMore than 50 digital channels in digital basic package and high-speed internet with connection rates of 6mbps/384kbps. Pay $10 a month more for top-speed connection of 8mbps. About $98.40 to $108.40Location matters because companies don't always offer the same services in every part of the state. Prices can vary widely. For instance, Comcast's Naples' customers are the first in the state to enjoy new digital phone service, which costs $44.95 for customers who subscribe to Comcast high-speed internet or cable, or $54.95 for non-subscribers. In Jacksonville, digital phone through Comcast isn't an option. Likewise, Comcast offers 13 cable TV packages in Miami but doesn't offer its customers high-speed internet access.Cox
Gainesville/
Ocala"Unlimited Connection" digital phone includes unlimited local and long distance, 15 calling features and voicemail; "Digital Basix" TV service includes over 60 standard channels plus 70 pay-per-view channels and 4mbps/512kbps internet connection. About $128With most cable companies, equipment and installation costs can run the tab higher. For instance, Cox charges $15 a month to lease a cable modem for high-speed internet access, or $59.95 to purchase. Save money by purchasing instead from a third-party retailer. Also be aware of installation costs, which can range from $19.95 for self-installation to $89.95 for a full installation for high-speed internet. General cable installation costs can range from $30 an hour for a wired home to $48 hourly for an unwired home.?

Tags: Around Florida, Business Services

Digital Access

DIRECT DIGITAL ACCESS
Add digital to your current subscription, purchase a single ditgital issue, or start a new subscription to Florida Trend.

TABLE OF CONTENTS
An overview of the features and articles in this month's issue of Florida Trend.

ACCESS THIS ISSUE »

Florida Business News

Florida Trend Video Pick

HitchBOT
HitchBOT

There's a hitchhiker making its way across Canada who doesn't have a driver's license--because it's a robot. The goal of the project is to see how comfortable humans are when traveling with robots. 

Earlier Videos | Viewpoints@FloridaTrend

Ballot Box

After meeting with climate scientists, what should Gov. Scott's next move be?

  • Take action: He should adopt recommendations and move quickly to avoid greater disaster and economic problems.
  • Remain neutral but at least make a statement addressing concerns.
  • Take no action. Gov. Scott has more important, more immediate matters to attend to.

See Results

Ballot Box
Subscribe