It's a simple principle of economics: competition and more customer choice results in lower prices.
And so it is true of broadband services. With about 65 percent of the U.S. population now subscribing to broadband, cable operators and telephone companies are duking it out for new customers. The companies are offering cut-throat prices and new promotions to win over new subscribers.
For consumers in areas of the country where competition is heating up, the savings can be huge. For example, Verizon Communications, which has been losing DSL customers to competitors, this week announced aggressive new promotional deals for its high-speed DSL and Fios, fiber-to-the-home Internet services, as it tries to tempt new subscribers.
New Verizon DSL customers can get six months of free Internet service if they commit to a one-year contract. The company also announced a slew of deals for Fios customers, including one that offers new Fios TV subscribers who sign up for service as part of a bundle, free multiroom DVR capability for three months.
These deals sound terrific to consumers, like me, who live in markets with at least two broadband competitors. But for millions of Americans living in rural regions of the country and for people living in some urban areas, where carriers don't find it profitable to offer service, only one choice of Internet provider exists today.
And as a general rule of thumb, these consumers aren't usually offered enticing promotional deals or discounts on service. In fact, on average they pay much more for their services than people living in more competitive markets.
A task force at the Federal Communications Commission that is developing a national broadband policy highlighted this fact as a major barrier to universal broadband access during an open meeting at the commission on Wednesday.
The group also noted that broadband service providers tend to deploy service in higher income neighborhoods where more people are likely to sign up for service over low-income areas. As a result these markets generally have only one provider. What this means is that lower-income people, who have less disposable income, are often the ones forced to pay higher prices, while people who have more money pay lower prices for service.
Big savings in the Big Apple
To test this concept and to see if I could significantly put a dent in my monthly expenses, I decided to investigate my own broadband options in New York City, where I have lived and been a cable subscriber for nearly 12 years. With a little bit of leg work, I quickly discovered, I could save nearly $700 in one year by switching broadband providers.
I currently pay about $147 a month for cable TV and broadband service from Time Warner Cable. This bill does include two DVRs, two remote controls, and HBO channels and on-demand services. But it does not include taxes or a home phone service.
I live on the Upper West Side of Manhattan and even though I have seen Verizon putting fiber underneath the street on my block and even though my inside sources at the company have told me that two central offices near my neighborhood are currently being upgraded this month to provide Fios TV service, I am still not yet eligible for Fios service.
The only option I have from Verizon right now is DSL service. With the new six-month broadband-for-free promotion, Verizon is offering a triple play package that includes 3 Mbps or 7.1 Mbps DSL, DirecTV Plus DVR package, and Verizon's unlimited local and long-distance calling plan for $70 per month for the first six months.
During the second six months of this annual plan, the bundle with up-to-3 Mbps service is $99.99 per month. And for the faster 7.1 Mbps broadband service, the price is $109.99 per month after the first six months.
Factoring in the first six months of free DSL service in this total package, my average monthly cost would be $90 per month for home phone, broadband, and subscription TV services. This is an average savings of $57 per month over my current service, and a yearly savings of about $684.
I called Time Warner Cable to see if the company could beat Verizon's price. The best price offered to me for the same exact package, which includes one set-top box with DVR service, was $119 per month before taxes. The only difference in this package is that I would not have to sign a contract, but the price would be guaranteed for a year. The representative I talked with on the phone offered to give me free Showtime service for a year to sweeten the deal. Even at this price, Verizon's offer is still $29 a month cheaper than Time Warner's revised service. In total, I would still be saving $348 for the year.
But there is one catch to Verizon's deal. Verizon guarantees the price of the bundle for a year. And if customers cancel the service during that time period there is an early termination fee. But DirecTV requires users sign a two-year contract. And pricing on the TV service is not guaranteed during the second year, which means it could go up significantly in 2011.
What's more, if Fios becomes available in my building, I can upgrade my Internet and phone services at no penalty. And I would be eligible for whatever special deal Verizon might offer me. But I would have to pay a penalty to DirecTV if I terminate my TV service early to get Fios TV.
Still, with a yearly savings of almost $400 to $700 sitting on the table, I'd be a fool not to make some kind of change now. But just imagine if there was a third or even a fourth competitor in my market? The savings could be even greater.
More competitors lead to lower prices
According to a Pew Internet and American Life Project study released in June, the more competitors there are in a market, the cheaper the price of the service for consumers. In the survey, about 21 percent of high-speed Internet users said they had only one choice in broadband provider. And on average these customers spend about $44.70 a month on high-speed Internet service. About 69 percent of respondents said they had two choices in broadband providers, and on average they spent about $38.30 on Internet per month. Average prices fell yet again for the 17 percent of respondents who said they had four or more broadband provider choices. The average amount they paid for service was about $32.10 per month.
What this tells us is that more choices matter. And when broadband service providers are forced to compete, consumers get better deals.
This basic thesis was also the conclusion of a recent study (PDF) commissioned by the FCC and conducted by Harvard University's Berkman Center for Internet & Society. This study concluded that that other countries have faster and cheaper Internet access because there is more competition. The report went on to conclude that this new competition was made possible by regulatory policy that promoted open-access rules or rules that force service providers to share their infrastructure with competitors.
"The lowest prices and highest speeds are almost all offered by firms in markets where, in addition to an incumbent telephone company and cable company, there are also competitors who entered the market, and built their presence, through use of open access facilities, " the report says.
The report has gotten plenty of criticism. AT&T and the National Cable & Telecommunications Association have filed letters warning the FCC against applying the findings to its national broadband policy. The NCTA said the FCC should be careful in accepting these results when past attempts here in the U.S. to impose open access rules have failed.
Whether open access rules really create more competition is debatable. But one thing that cannot be debated is the effect that more competitors have on prices and the quality of service in the overall market.
With this in mind, I hope that the FCC's new national broadband policy, when it's finally presented to Congress in February, will do more than simply ensure everyone in the U.S. has access to at least one broadband provider. I hope the plan also includes aggressive measures to encourage competition among two or more companies in as many markets as possible.
Correction, 5:25 p.m. PDT: An earlier version of this story incorrectly stated the number of iPhones AT&T sold in the third quarter. The company has not disclosed that information. This story also incorrectly described Verizon Wireless' churn rate. The story has been corrected to reflect the changes.
Verizon Communications CEO Ivan Seidenberg said Monday during the company's third-quarter conference call that the wireless operator would be more than happy to have the iPhone on its network. But he said it wasn't up to Verizon.
"This is a decision that is exclusively in Apple's court," Seidenberg said. "We would obviously be interested at any point if they thought of us as a partner."
The comment comes even as Verizon introduces new devices and launches advertising campaigns to target the iPhone.
In one of its ads, Verizon takes a jab at AT&T's network coverage with a slogan that mocks the iPhone's catchphrase, "there's an app for that." Verizon has tweaked it, and says instead, "there's a map for that." Verizon has also put together another ad for the Motorola Droid that spoofs the iPhone.
It's easy to understand why Verizon is drooling over the iPhone. Verizon added about 1.2 million new wireless subscribers in the third quarter. AT&T, which reported third quarter earnings last week, added about 2 million new subscribers. The company hasn't said specifically how many of those new customers are iPhone customers. But it's believed it's a fairly large part of the new activations. The company said that nearly 40 percent of the 3.2 million new iPhone activations were new customers to AT&T. Some of these new activations were people who were using recycled phones, but a large number of them are likely to be be new iPhone 3GS phones, which went on sale in June.
In a market that is more than 89 percent penetrated, getting new subscribers means stealing some customers from other carriers. It looks like the iPhone could be eating into Verizon's customer base. Verizon reported for the third quarter that its churn rate for postpaid customers or customers on a contract was 1.13 percent, which was up slightly from the company's post paid churn rate in the second quarter of 2009. Customer churn rate refers to how many customers cancel their service.
Verizon consistently has one of the lowest churn rates in the industry, because in general customers are very satisfied with the coverage and reliability of its network. But the company has lacked a wide selection of cool phones, which has tempted many consumers to leave. And many subscribers hold on in the hopes that Verizon will one day get the iPhone.
Verizon on Monday introduced Research in Motion's Blackberry Storm 2.
(Credit: CBS Interactive)In the meantime, Verizon is talking up its new line up of smartphones. On Monday, the company introduced Research in Motion's touch-screen BlackBerry Storm 2. And it's introducing the Motorola Droid, which uses Google's Android operating system, on Wednesday. Early next year, Seidenberg said the company will have the Palm Pre.
Without the iPhone, Verizon needs to win some ground with these new devices. The iPhone is not just valuable because it has helped AT&T win new subscribers, it has also increased the amount of money consumers are spending on services, since the phones require a $30 a month data plan.
Adding new data revenue is important to all of the major cell phone operators, because profitability on voice services is declining. For wireless operators, boosting data revenue is important to improving their profits.
Verizon recognizes this and has revised its data plan pricing for non-smartphones. The company will also require the new pricing plan for more non-smartphones in the future.
But Seidenberg emphasized that the company's strategy in wireless is not to be dependent on one device or even a few, but to have a broad range of products.
"We've always said we'd have a wide array of devices," he said. "And when we deploy 4G wireless it pushes you to think of the kinds of other devices we could add. We want to make sure we have a breadth of products, instead of focus on one or two."
Specifically, he said that in addition to cell phones, Verizon will be generating data revenue from machine-to-machine devices that will use the network to transfer data.
The company also plans to add more integration between its wireless services and its wireline fiber service. The company's fiber service, called Fios, offers customers broadband, telephone, and TV service. The company recently began bundling wireless into Fios pricing packages. And it plans to add more functionality between the services.
"We have a chance to develop combinations of applications around services," Seidenberg said. "So you could use handsets to do different things."
Verizon Communications posted on Monday a third-quarter dip in profits, though the company's wireless business showed strong results.
The carrier's overall profits were hurt by the continued decline of its wireline business. But the company is making up for much of the loss with wireless.
That said, Verizon did not add as many customers in the third quarter as AT&T, which had a stellar quarter due to strong sales of the Apple iPhone. Verizon is hoping to pick up ground through its broad partnership with Google announced earlier this month. In addition, Verizon is adding Research In Motion's new Storm 2 to its lineup.
Verizon reported third-quarter net income of $2.88 billion, or 41 cents a share, on revenue of $27.3 billion. Excluding charges, per share earnings fell to 60 cents from 66 cents last year, but the company beat analyst estimates of 59 cents per share.
Verizon's total operating revenue grew 10 percent to $27.3 billion, compared with the third quarter of 2008. This includes revenue from Verizon Wireless and Alltel. If Alltel, the regional wireless operator Verizon acquired in January, had been part of Verizon a year earlier, the revenue increase would have been 0.6 percent.
Verizon Wireless, which is jointly owned by Vodafone Group, continued to show strong growth, despite competition. The company added 1.2 million new customers in the quarter, bringing its total customer base to 89 million. It reported a churn rate for its contract customers of 1.13 percent.
Verizon Wireless also increased its revenue by 24 percent in the third quarter to $15.8 billion. Much of this growth is due to an increase in data services. As the company offers more sophisticated phones, it is requiring more of its customers to sign up for some type of data plan.
Overall wireline revenue fell 4.8 percent to $11.6 billion. Much of the decline comes from customers ditching wireline phone service. That said, Verizon is looking toward its Fios fiber-to-the-home network to provide growth.
The company added 198,000 Fios Internet customers and 191,000 Fios TV customers in the quarter, boasting a 12.6 percent increase in average revenue per user.
Verizon Communications is getting ready to launch a new feature that allows its Fios TV customers to interact with their sets using their Verizon Wireless cell phones, according to a story published by Dow Jones News service.
The company has been talking about the capability for months, and it recently demonstrated an application that will turn Verizon phones into a remote controls for the Fios TV service. The application is expected to be commercially available in the next three months.
The handset remote control application will only work with Wi-Fi enabled handsets and will use a Wi-Fi network instead of the Verizon cellular network to access the Fios service. Wi-Fi is only available on a select handsets from Verizon Wireless.
Big Internet service providers don't seem to be interested in applying for federal stimulus funds, but smaller players like Leap Wireless are looking at the grant program as an opportunity to provide wireless service to underserved populations.
Prepaid wireless carrier Cricket Communications, which is owned by Leap Wireless, on Monday filed an application with the nonprofit organization One Economy for $8.6 million to help it expand a program called Project Change Access. This project, which launched last fall in Portland, Ore., has helped low income residents get online to improve their access to education, job training programs, health care, and social assistance, according to Leap.
The federal funding is expected to pay for about 80 percent of the cost of expanding the program to five other cities. Specifically, the plan is to provide high-speed wireless Internet access to 23,000 low-income families in Baltimore, Houston, Memphis, San Diego, and Washington, D.C.
Leap said it submitted its proposal to the National Telecommunications and Information Administration, which is overseeing the allocation of $7.2 billion in broadband stimulus grants. These grants are part of the bigger $787 billion stimulus package that Congress passed earlier this year. The government recently extended the application deadline to August 20 for applications for the broadband stimulus grants.
Much of the money is intended to help bring broadband access to rural areas where it's traditionally been difficult to get broadband service, as well as help provide affordable access and education to people who can't afford broadband access.
What makes Cricket's application interesting is that many larger Internet service providers and wireless operators are not applying for funds.
According to a recent article in The Washington Post, AT&T, Comcast, and Verizon Communications aren't expected to apply for funds at least in the initial round of funding. The companies aren't talking publicly about their decision. But the Post reported that the companies are leery about possible strings attached to the federal money that would include Net neutrality conditions. The companies also supposedly don't want to deal with unwanted scrutiny from the government and the public on how it builds out its network.
"We are concerned that some new mandates seem to go well beyond current laws and FCC rules, and may lead to the kind of continuing uncertainty and delay that is antithetical to the president's primary goals of economic stimulus and job creation," Walter McCormick, president of USTelecom, told the Post. USTelecom is a trade group that represents AT&T and Verizon.
Meanwhile, some companies affiliated with these bigger service providers are expected to ask for grant money. Clearwire, a company that is backed by some big service providers like Comcast, Time Warner Cable, and Sprint Nextel, said it plans to apply for stimulus grant money. But an executive recently said that the money received for broadband stimulus would have to be used outside its current expansion plan.
Even though Verizon doesn't seem interested in taking any government money now to help build networks to reach underserved customers, the company says its new 4G wireless network will reach more rural customers than its existing wireless network. And due to conditions established by the Federal Communications Commission on spectrum Verizon will use build this network, Verizon will have to make the 4G network more open than its traditional wireless network.
Still, even as Verizon pledges to offer more wireless access to rural customers, it is actually selling off traditional phone lines in rural areas. And even though it is required to make its 4G wireless network more "open," the company still opposes new rules or legislation mandating Net neutrality.
Verizon Communications has had a change of heart about using Wi-Fi to extend its wireless broadband offering as the company announces free access to Wi-Fi hot spots for its Fios and DSL Internet customers.
On Monday the company announced that customers subscribed to its Verizon Fios Internet service with 20Mbps per second downstream and 15Mbps upstream or faster and customers who subscribe to its 3Mbps/768 Kbps or higher DSL service will be able to connect to Verizon Wi-Fi hot spots, at no additional charge as part of their broadband service.
Verizon has partnered with the Wi-Fi service Boingo to offer access in thousands of locations throughout the U.S. including hotels, airports, restaurants, coffee shops, retailers, convention centers and public locations across the U.S. The company has a Web page where customers can locate these Verizon hot spots. For example, in New York City, the service is available at many Barnes & Noble bookstores, as well as at JFK airport, and in some Starbucks locations.
For the past few years, Verizon has downplayed the importance of Wi-Fi. The company experimented with deploying its own Wi-Fi hot spots several years ago in New York City, turning old phone booths into wireless hot spots. The service never took off, and Verizon dismantled the hotspots. The company was also a vocal critic of many municipal Wi-Fi projects, including the one in Philadelphia.
Instead Verizon has always pushed its 3G wireless network and more recently it's soon-to-be-built 4G wireless network as a perfect solution for its subscribers on the go.
But as other broadband providers start offering Wi-Fi access for free with their services, it seems that Verizon has decided to jump on the Wi-Fi bandwagon. AT&T has been offering free Wi-Fi to its high-speed Internet customers for more than two years. And cable operator Cablevision, which competes in Verizon's territory, launched its Wi-Fi service last year. Cablevision and Comcast have teamed up to provide free Wi-Fi access to their subscribers who commute by offering the service on train platforms .
Verizon spokesman Eric Rabe argues that the Verizon offering is better than what cable offers because it is available nationwide. The cable Wi-Fi networks are only available regionally where the cable providers operate.
Rabe stopped short of admitting that Verizon has changed its tune when it comes to Wi-Fi. He said the company is merely answering the demand from its customers.
"I would call this an expansion of the way we see mobility," he said in a phone interview. "We are broadening how people access the Internet when they aren't at home. And we're doing it because our customers have told us it's what they want."
Rabe does not think that the new Wi-Fi offering will cut into the company's wireless broadband business, which requires a monthly service and contract to get access to the company's 3G wireless network on laptops. This service costs about $60 a month for up to 5GB of Internet usage a month. While the speeds on the 3G network are slower than when using a Wi-Fi hot spot, the wireless broadband card offers access to the Net wherever Verizon's 3G cellular network is available.
"Our cellular 3G network allows people to be truly mobile," he said. "And you can't do that with hot spots. So I don't think it will compete at all with our wireless broadband service. There will still be a lot of users, particularly business customers, who still want the reliability and ubiquity of 3G wireless."
Verizon has also been touting its new 4G wireless network, which will be in trials later this year in Seattle and Boston. The new network, which uses a technology called LTE, or Long Term Evolution, will go live commercially in 2010. The company expects to have the entire network built out by 2013. Verizon's plan is for the 4G network to provide wireless connectivity to a whole range of devices other than cell phones, laptops, and Netbooks.
Rabe said that any Wi-Fi device that can download "access credentials" from the Verizon Web site, should be able to access the Wi-Fi hot spots. Some Windows Mobile phones may be able to access to the Wi-Fi hot spots, but he isn't certain that that is the case. And he could not confirm whether the Apple iPhone would be able to connect to the Verizon hot spots. AT&T , which is the exclusive U.S. carrier for the iPhone, already offers free Net access to iPhone users in its more than 20,000 hot spots.
Updated 8:27 a.m. PDT with information from the conference call.
Verizon Communications' second-quarter profits took a hit as the weakened economy caused some corporate customers to cut spending. Meanwhile, the company continued to see strong growth in its wireless and consumer TV and broadband businesses.
The company's second-quarter results, released Monday, were in line with analyst predictions.
Verizon said it earned $3.16 billion, or 52 cents per share, in the quarter. During the same quarter a year ago, the company earned $3.4 billion, or 66 cents per share.
Excluding special items, the company said it earned about 63 cents per share.
Meanwhile, Verizon increased revenue to $26.86 billion from $24.1 billion last year, an 11 percent increase. This was largely due to the acquisition of regional carrier Alltel. The deal closed in January.
Declines in sales of service to business customers helped drag down the company's profits. Sales to corporate customers fell to $3.7 billion. And the company's wireline business, which includes its traditional phone business, continued to decline with the total number of lines falling 9.9 percent to 34.3 million from 38 million a year ago.
The company's chief financial officer, John Killian, said during a conference call with analysts and investors that the weak economy, which caused layoffs at many companies, was the main reason for the reduced spending. He also said the company would continue to cut costs in an effort to mitigate the negative effects.
Verizon has already eliminated 8,000 jobs in the past year, he said during the call. These employees have mostly been from the company's legacy telephone business. And Killian said that the company plans to cut another 8,000 staff and contract jobs in the second half of the year. While he stopped short of saying where additional cuts would be made, Killian also made it clear that the company was looking to reduce costs in all areas of the business.
"We are looking at all other areas of expense," he said.
At least one analyst noted Verizon's struggle to grow revenue and maintain profitability in a tough economy. But he applauded the company's efforts to cut costs.
"While relatively resilient in the face of recession, Verizon's second quarter results are a reminder that no company is immune to the severity of the current downturn," Craig Moffet, an equities analyst with Sanford Bernstein, wrote in a research note to clients on Monday. "But like so many other companies this quarter, expense control was exceptional."
The company's chief operating officer, Denny Strigl, said during the conference call that the cuts and a focus on growing other parts of the business, such as wireless and Verizon's fiber-based TV and broadband services known as Fios, will help the company maintain strength when the economy recovers.
"These are challenging times," he said. "But we stay focused on our strategy of growing revenue and taking market share, and improving profits. The state of the economy may make it more difficult in the short term, but we are doing what we do best, which is managing our businesses and reducing costs."
While Verizon faced pressure in its traditional phone business and from corporate customers also reducing costs, the company saw growth in its wireless and Fios businesses. Verizon Wireless, a joint venture between Verizon Communications and Vodafone, added 1.1 million new customers in the second quarter to bring its total to 87.7 million subscribers. Still, the company attracted fewer new customers than rival AT&T, which added 1.4 million new subscribers.
Verizon reported an overall churn rate, or the rate at which customers leave its service, of 1.37 percent. Its churn rate for its post-paid customers, or customers who pay their service monthly, was 1.01 percent. Meanwhile AT&T reported an overall churn rate of 1.49 percent and a post-paid churn rate of 1.09 percent for the second quarter.
Wireless data helped boost revenue for Verizon Wireless. And the company reported that the average revenue per user, or ARPU, for data, which includes text messaging and mobile Internet, was up to $14.96 a month from $14.16 in the first quarter.
While Verizon Wireless has one of the best records in the wireless industry for adding and retaining customers, Strigl admitted that the Apple iPhone, sold exclusively in the U.S. by AT&T, has affected sales. Specifically, he said he saw an uptick in customers moving over to AT&T for the new iPhone 3GS in the last part of June. The new phone went on sale in the middle of June, just two weeks before the end of the second quarter. AT&T reported last week it activated more than 2.4 million devices before the end of the second quarter.
"The iPhone has clearly been a successful device," Strigl said. "And it has expanded the overall phone market. We have been competing successfully and will continue to do so. But we did see an uptick in the last couple of weeks in June. (Still,) we think we are extremely well-positioned going forward. The lineup and pipeline of new products we have coming is strong."
Even though AT&T can attribute much of its subscriber growth to the iPhone, the device, which is highly subsidized, has also hurt the company's wireless operating and profit margins.
Strigl pointed to a series of new devices that are coming to Verizon Wireless that he believes will give the iPhone a run for its money, including the new BlackBerry Tour from Research In Motion, which went on sale July 12. He also said the touch-screen BlackBerry Storm will be upgraded later this year. The current version of the BlackBerry Storm is sold exclusively on Verizon Wireless' network. He also said the company plans to launch a phone using Google's mobile operating system called Android.
Strigl also confirmed that Verizon Wireless will be selling the Palm Pre early in 2010. Sprint Nextel is currently the only company selling the Palm Pre, which went on sale in early June. When the device launched, Sprint's CEO Dan Hesse alluded to a much longer exclusive deal for the Palm Pre.
Test of LTE technology planned
While Strigl said he is confident about the company's upcoming handset lineup, he also pointed to the company's new 4G wireless network as an important differentiator over the next few years.
The company plans to test the network that will use newly acquired 700MHz spectrum and a technology called LTE, or Long Term Evolution, in Seattle and Boston later this year, he said. And Verizon will deploy the service commercially in about 30 markets in 2010. He said the company has plans to cover 100 million potential customers during that time. It will continue to build the network in 2011 and 2012 with plans to cover its entire wireless footprint by the end of 2013.
He said the network upgrade should have only a small financial effect on the company in 2009. Exactly how much the company plans to spend on the deployment in 2010 and beyond hasn't yet been disclosed, but Strigl said it would not increase the overall capital spending budget on wireless much more than what it has been in 2009.
Strigl also noted that the company is experimenting with partnerships at the low-end of the market. Specifically, Verizon has entered into a reseller arrangement with Tracfone Wireless, which sells prepaid phone service. Strigl said the co-branded Tracfone/Verizon Wireless service called Straight Talk would not cannibalize the company's post-paid or contract wireless business. He said the company has the right to pull its brand off the service at any time.
Verizon executives also noted that the company plans to launch a Verizon Wireless App store by the end of the year. And CFO John Killian said the company is on track to convert all of Alltel's former customers to Verizon Wireless by the end of October.
In addition to growth in wireless, Verizon also saw subscriber gains in its consumer Fios business. The company added 300,000 new subscribers to its Fios TV service for a total of 2.5 million subscribers. And it also added 303,000 new high-speed Internet users, raising its total to 3.1 million. Strigl also said the company has been focusing more on retaining its DSL customers in areas where the Fios service is not yet available.
Killian noted that Verizon has been winning customers with the Fios product from its cable rivals, and the company has also been successfully up-selling more services to existing Fios subscribers.
Microsoft and Verizon may need to learn a thing or two about customer service from IBM's Informix, according to a report released Wednesday by market researcher VendorRate.
Among IT professionals questioned, Microsoft's customer satisfaction ratings for the second quarter dropped in three key areas.
Out of a score of 100, Microsoft's server and infrastructure software rated 55, a 17 percent decline from the first quarter; its operating systems scored 67, down 9.5 percent; and its applications came in at 64, an 18 percent dip.
"Microsoft was cruising along with satisfactory scores in earlier reports, but it simply fell off a cliff in this quarter," Rick Schaefer, CEO of VendorRate, said in a statement.
Of all vendors measured, Verizon Communications came in lowest as an overall company for customer satisfaction, scoring 61 out of 100. Sprint Nextel and AT&T Wireless also came in near the bottom, at 64 and 67 points, respectively--a reflection of the telecom industry's poor showing overall.
(Credit:
VendorRate)
"Once again the telecom sector sinks to the bottom of all lists," Schaefer said. "Either telecom vendors don't get it, or they don't seem to care."
However, not all of telecom is broken. Telecom equipment maker ShoreTel made it into the No. 2 slot of vendors with a rating of 92.
IBM's Informix scored at the top of the list with a rating of 96. Formed when IBM bought the Informix technology in 2001, it specializes in online transaction processing, an automated system used by banks, airlines, and other industries to interact with customers.
(Credit:
VendorRate)
"IBM Informix was among the top rated vendors for the fourth straight quarter," noted Schaefer, "and this is the first time that ShoreTel made it into the top rankings."
Still, not everything that IBM touches turns to gold. IBM Global Services ranked near the bottom of consultants with a rating of 66.
VendorRate gathers ratings and reviews from IT and business professionals. For its second-quarter report, the company surveyed more than 1,500 IT professionals at trade shows, conferences, its own Web site, and "virtual events."
Those questioned by VendorRate ranked nearly 350 companies on 10 criteria, including customer service, reliability, integrity, budget, and effectiveness for a cumulative score of 100. The ratings were collected from April 1 through June 30.
The Department of Justice is looking into whether big U.S. phone companies such as AT&T and Verizon Communications are abusing their market power, according to a report in The Wall Street Journal on Monday.
The newspaper cited unnamed sources who said that the Justice Department is reviewing potential anticompetitive practices. No formal investigation has been launched, and the review is in its early stages, the Journal article said. It's not clear yet if a formal investigation will follow.
Part of the inquiry is likely to focus on whether wireless carriers are harming smaller competitors by striking exclusive deals with handset makers. AT&T has such an arrangement with Apple to sell the popular iPhone for its network alone in the U.S.
Other phone companies have struck similar deals with handset makers. For example, Sprint Nextel has an exclusive arrangement with Palm to sell the Palm Pre. And T-Mobile is the exclusive carrier for the first two Google Android phones made by HTC that are on the market.
Recently, lawmakers and regulators have raised questions over the practice. Doug Hutcheson, CEO of Leap Wireless, a small regional prepaid wireless provider, believes that these deals are not good for the industry.
"I don't think those exclusive deals are good for competition," he said in a recent interview with CNET News. "If it's a good phone, we generally think it should be available on anyone's network. Carriers should compete on the basis of their service plans, which is why people buy these services. "
Andrew Sherrard, a vice president at T-Mobile, said that most of the phones that it sells are not exclusive, but that having a few exclusive deals is actually reasonable. He doesn't see the practice as harmful and thinks that despite the recent government inquiries, it will continue to be a normal practice.
"I think that some devices will be exclusive to certain carriers," he said. "But the vast majority of phones, especially those below a smartphone, are pretty wide open. In the long run, we have a strong commitment to open platforms and will expand choice for our customers."
Restricting services and apps
The Justice Department may also review whether telecom carriers are restricting certain services that can be offered on devices that run on their network, The Wall Street Journal reported. Some carriers disable features on certain phones. And they also restrict different services. For example, the mobile version of Skype, a voice-over-IP calling service, is restricted from use by most U.S. operators.
Also, AT&T has been criticized for limiting the use of certain applications, such as the SlingPlayer for the iPhone. This application, which lets people use their phones to watch streaming TV from their cable service at home, is only allowed to work in Wi-Fi hot spots using the iPhone. AT&T argues it must limit usage to Wi-Fi because allowing the service to operate over its 3G wireless network violates its terms of service and would degrade service for other wireless customers.
But the carrier offers similar functionality over its 3G wireless service for other iPhone Apps, including one from Major League Baseball that allows people to stream live baseball games onto their phone.
The DOJ's investigation of the telecom industry could be an indication of a heavier hand from the Obama administration on enforcing antitrust issues. The Wall Street Journal said that "the Justice Department's antitrust chief, Christine Varney, has said she wants to reassert the government's role in policing monopolistic and anti-competitive practices by powerful companies."
The Obama administration's interest in potential antitrust violations is in contrast to that of the Bush administration, which did not push forward with any major antitrust case. It was also under the Bush administration that many of the major telecom mergers were approved, starting with Sprint's acquisition of Nextel in 2005. Later, local phone company SBC Communications bought long-distance provider AT&T, and then the new company bought BellSouth. During this time, Verizon Communications also bought long-distance operator MCI.
While these mergers have not created a single dominant phone company in the U.S., as there had been decades ago with the old AT&T, it has concentrated the power of the communications industry into the hands of only a few. Over the years, the industry has consolidated down to two major forces: the new AT&T and Verizon Communications. These two phone companies control 90 million landline customers and 60 percent of the 270 million U.S. wireless subscribers. These companies also control and operate most of the nation's Internet backbone, which shuttles Internet traffic as well as phone calls throughout the country and throughout the world.
The Justice Department declined to comment for the Wall Street Journal article, and was unable to be reached for comment from CNET News.
It would likely be difficult to prove that telecom providers have violated the antitrust Sherman Act, experts say. Newer technology and new competitors like cable companies are now jockeying against traditional phone companies. But the phone companies do wield a great deal of power, in terms of both assets and political clout.
One thing seems clear, halfway into President Obama's first year in office--major phone companies may be scrutinized more than they had been during the previous administration.
Verizon Communications is casting off its plain, old telephone service in 14 states.
In its ongoing effort to focus on wireless and broadband, Verizon announced on Wednesday plans to sell 4.5 million landlines and related assets to Frontier Communications. The operations are based across 14 states, mostly tied to residential and small-business customers in rural areas.
"This transaction is part of our multiyear effort to transform our growth profile and asset base to focus on wireless, FiOS fiber-optic services and other broadband development, and global IP," said Ivan Seidenberg, chief executive officer of Verizon. "All of Verizon's remaining local landline operations have high concentrations of FiOS in more densely populated markets."
Verizon shareholders will be big beneficiaries. As part of the deal, Frontier will merge with a new company that will be spun off as common stock to Verizon investors. The transaction is expected to net Verizon and its stockholders a total value of $8.6 billion, according to Verizon.
The deal also stands to increase the size and foothold of Stamford Conn.-based Frontier. "With more than 7 million access lines in 27 states, we will be the largest pure rural communications provider of voice, broadband and video services in the U.S.," Frontier CEO Maggie Wilderotter said.
The transaction includes all of Verizon's landline assets in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia, and Wisconsin, as well as some assets in California. Verizon expects the deal to be completed within 12 months.
The move is the latest in Verizon's efforts to shake up and refocus its operations. Earlier this week, Verizon said it will sell the wireless assets it picked up from Alltel, a requirement of its recent merger with Alltel. AT&T will pay Verizon $2.35 billion for the wireless licenses, subscribers, and other assets. In return, AT&T will sell Verizon its former Centennial wireless operations.
