THE BLOG

How to Fund an Open, Ubiquitous, Very Fast, Broadband Internet Utility

03/03/2015 12:41 am ET | Updated May 02, 2015

While America searches for a way to fund fiber optic broadband to everyone, and cities have taken it upon themselves to 'go around' the incumbent phone and cable companies, let me give you a different point of view. Let's discuss how to take advantage and leverage the broadband and network infrastructure commitments of the incumbent phone and cable companies, as well as companies' financial and business practices.

And to put this into some context of current events, the FCC has just made some recent announcements about Net Neutrality and municipalities' rights to offer broadband.

Unfortunately, it looks like it is going to take years before anything is resolved. As we wrote:

"The count-down has started and by the end of next week, or once the entire Open Internet (Net Neutrality) rules are put out (we have only an outline as of this writing), you can expect a lawyers' banquet, a feeding frenzy where they will file and file and file."

Moreover, even if the Net Neutrality rules are applied, the FCC has taken opening the networks to deliver direct competition off the table, which would have allowed you to choose your cable, broadband or Internet provider over the wires coming into your home or office.

This means there is no way to lower the price of service as there's no competition -- no 'market forces' are in play except 'monopoly' or 'duopoly'. Worse, the FCC is placating the companies still further as there will be no 'price regulation'-- i.e., you are getting gouged and there's no competition to fix this -- so tough. The FCC is not going to say to the cable, phone or ISP companies -- There's no competition, so lower your rates.

And the current situation needs to be fixed as this marked up Time Warner Cable bill shows you what happens when there's no competition or oversight. The basic $89.99 Triple Play package in two years ended up costing a whopping $190.77 a month.

But it gets worse if you are in a rural area or one of those places that the companies want to forget about. Verizon announced it is 'shutting off the copper' wires as it is 'uneconomical' to maintain or upgrade and will force customers onto wireless. Verizon also announced it is no longer going to deploy its fiber optic FiOS product, and this leaves about 50% not upgraded with a wired service. (While Verizon will claim more FiOS coverage, truth is there are no audits of Verizon's deployments and reports by the unions and by those who can't get service in 'completed areas', even in New York City, tell a much different story.)

And while it is great that Net Neutrality principles, which means that they can't screw with your Internet service, may be put into effect, it belies the more pervasive problems -- you may not be able to afford (or want to pay for) that service or get that service or have a choice about who offers you that service.

Funding Broadband Made Easy

There are two main areas I'll focus on:

  • Broadband Commitments -- We paid for network upgrades
  • Financial and Business Practices Exposed

Broadband Commitments

While it varies by state, in every state, laws were changed to charge customers for upgrades of the state-based utility (sometimes called the "Public Switched Telephone Networks" (PSTN)) to a fiber optic network that would replace the aging copper wires to homes and offices, not to mention upgrading schools, libraries and hospitals.

This national plan was started in the 1990's with the call by then-Senator Al Gore for an "Information Superhighway". But as we uncovered, the companies not only failed to fulfill their obligations, they also received multiple rate increases over the last two decades to pay for network upgrades. And they figured out how to nickel and dime us with additional fees added to bills as well.

This is not some historical examination. Welcome to Jersey.

Verizon New Jersey's Networks should have been 100% Fiber Optic by 2010.

Imagine an entire state with a fiber optic 1 gigabit network, open to all competitors who are fighting for your business.

By 2010, Verizon New Jersey was supposed to have 100% of their territory upgraded to a fiber optic network capable of 45 Mbps in both directions by 2010. In 2012, we assisted two NJ communities in getting upgraded to fiber optic services using, in part, the obligations under this state law.

Click for documents, filings, stories, etc.

However, in 2014, Verizon and the NJ State Board of Public Utilities cut a 'stipulation agreement' to erase the laws -- which are still on the books, untouched. There was a comments period prior to this decision and we pointed out that Verizon NJ collected over $15 billion dollars to do these upgrades since 1993, and funding was built into rates, as well as through tax perks and there was even more rate increases on local service and ancillary services, like Caller ID or non-listed numbers over the last two decades.

As of February 2015 there is an active appeal by the NJ Division of Rate Counsel to block this stipulation agreement from becoming law.

What's at stake? 526 municipalities, not to mention the schools, hospitals and libraries would be all fiber optic-based.

Ironically, in 2007, Verizon received a cable franchise for FiOS cable TV. However, the franchise only requires 70 out of 526 municipalities to be completely upgraded. (Verizon added a total of 352, but they do not have to be completed.) Moreover, nothing had been built from 1993 through 2006 and the State didn't acknowledge that there was ever a plan for fiber optic upgrades which started in 1993!

In sum, almost all states had some plan for homes, offices, schools and libraries to be upgraded -- and paid for through rate increases, tax perks, as well as other paid fees.

Financial and Business Practices Exposed

There are a host of areas that the states and cities should be investigating. Simply put, it looks like there's a financial shell game afoot, which we documented in examining Verizon's financials and other documents.

We uncovered that Verizon's Fiber-to-the-Premises (FTTP) network (which is used by FiOS service) is a Title II, common carriage network, and this was done to get the utility rights of way and charge phone customers.

But we also found massive cross-subsidies as the wires to the cell tower facilities and the 'special access' services (used by wireless and broadband competitors) have been built as Title II as well, and these services (offered by Verizon affiliates, like Verizon Wireless) appear to get many financial benefits at the expense of local service customers.

We filed with the FCC about the Verizon use of Title II as well as these cross subsidies.

In July 2014, the Connect NY Coalition (including AARP, Consumer Union, Common Cause), filed a petition with the NY State Public Service Commission (NYPSC) to investigate the costs of service to customers, the condition of the current networks, and whether customers have been funding other services, like wireless, based, in part, on our research.

Note: We focused on Verizon NY as the NYPSC requires Verizon to do a financial annual report. You might be appalled to learn that no other state that we could find or the FCC requires basic financial data to be submitted anymore.

Also, we could find no state that has done audits of the financials of the incumbent phone companies for cross-subsidies since the 1990's. This means that since the financial data is not public, audits would be required to find out what happened in the other states and phone companies, such as AT&T California or Illinois. However, we expect that all of the phone companies business practices are the similar, if not identical, as they are all the progeny of the original Ma Bell.

And to nail this shut, the proposed Net Neutrality rules will erase any future requirements to supply data on phone company financials.

Time Warner Cable, Comcast and the Other Cable Companies?

In 2015, there are a host of questions that the states and cities should be investigating about the cable companies -- from the myriad of charges on customers' bills to what they deployed, such as the wiring of schools.

We filed a Petition for investigation and complaint with the FCC and NYPSC about the Time Warner Cable and Comcast merger but also about the current business practices and financial gains.
We focused on five mostly unexplored areas and supplied facts, data and analysis as to why this proposed merger needs to be halted, but more importantly these are five areas we believe need immediate investigation.

  1. Time Warner's "Triple Play" bill exposed questionable business practices and charges including 'made up fees', billing errors, as well as deceptive and possible Truth-in-Billing and Truth-in-Advertising violations. These problems are not restricted to Time Warner but are industry-wide.
  2. Time Warner & Comcast's "Social Contract" with the FCC. In 1995 an actual agreement called the "Social Contract" was put in place to have the cable companies upgrade their networks and provide broadband and Internet services to schools in their territories. The FCC allowed 'temporary' rate increases of up to5.00 a month; 'temporary', as the Contract expired at the end of 2000. Time Warner (at least) never stopped charging customers the extra fee nor is there evidence that the Company wired the schools as required. Moreover, Time Warner and Comcast's profit margins for "high-speed Internet" were 97% in 2013; the "Social Contract" additions became pure profits, but cost every cable subscriber hundreds of dollars.
  3. A recently filed consumer protection action was filed with the Albany New York Supreme Court against Time Warner and it reveals multiple issues, including customer service problems, selling broadband/Internet services that were not delivered, among other harms to customers. These problems are not restricted to Time Warner but are industry-wide.
  4. 22 Years of Continuous Rate Increases Means There has been No 'Effective Competition'. Using actual bills, we found that Time Warner's Brooklyn New York's prices for 'regular' cable service increased 306% from 1992-to-November, 2014, from22.95 a month to93.16 a month. The "Triple Play" bill shows that this was from made up fees, deregulation of the set-top box (with no alternative), pass-through taxes, and simply because there are no other options; at best, some markets have a 'duopoly' which is ineffective for controlling prices or problems with service.
  5. Multiple Cross-Ties with Verizon's Wireline and Verizon Wireless, and with Time Warner and Comcast Need Immediate Attention. The FCC and DOJ allowed Verizon Wireless to create a marketing deal with both cable companies to bundle the wireless service with the cable service in areas Verizon has refused to upgrade to FiOS. But what was unexamined is the fact that Verizon Wireless has a sweetheart deal with Verizon wired companies, such as Verizon New York, for use of the networks - as Title II. This means that the wired, wireless, and cable companies are colluding to control almost ALL communications services.

Whose networks are they anyway?

  • We've all been made defacto investors at every turn -- and this was 'extra' money, some might call it 'ill-gotten' money or just 'overcharging'.
  • If we paid for network upgrades with 'excess' charges, should we allow the companies to claim that the networks are 'private property' for personal use, when this money was for utility networks that served everyone?
  • We gave the cable and phone companies franchises to offer service and in exchange they received major financial benefits from these franchises. Maybe it is time to examine issues such as the cross-subsidies or whether these agreements need immediate modifications or even termination.

While each state and each city can have different incumbent phone and cable companies, research shows that their business practices are similar, if not identical. Moreover, the state laws also have variances, but at the end of the day, the question is -- did these companies serve us well or should changes be made immediately?

In sum, these are just the first steps to be taken.

And since the Net Neutrality rules will be tied up in court, and almost all of the issues we just brought up are not going to be fixed, much less addressed, I will address how we open the networks to competition in the next post.