(Second in the series.)
Here's the scorecard:
- Every Verizon New Jersey business and residential customer, school and library, is entitled to an upgrade of their "copper wire" to a fiber optic landline that is part of the existing utility Public Switched Telephone Networks (PSTN)--It's the law.
- This service should be capable of at 45 Mbps, uploading and downloading, which was the speed of broadband in 1993. It's the law.
Moreover, the New Jersey Board of Public Utilities (NJBPU) and the New Jersey State Legislature should immediately start instituting measures to make this happen and make customers whole. Why?
- We believe customers paid over $15 billion to Verizon New Jersey for these upgrades as excess charges (and tax perks) which was built into rates since the 1990's and the money continues to be collected. That's about $4000.00-$5000.00 per household.
- The State lost an estimated $172-$225 billion in potential economic growth based on Verizon's own funded studies of the prosperity that would accrue if the state was rewired. However, the upgrades never happened.
- Customers overpaid over $4 billion in excess cable costs - about $1,600.00-$1,925.00 a household, due to Verizon failing to bring cable competition. (The amount is derived from Verizon's own funded research.)
- Verizon NJ has not upgraded about 1/3 of all municipalities and possibly 1/2 of all customers.
- Residential phone customers may have paid for the development and deployment of FiOS cable TV.
- An investigation into the pricing of broadband to schools and libraries should be initiated. Verizon's failure to upgrade the state also meant that Verizon could gouge educational institutions and charge outrageous prices for what should have been a commodity.
- Finally, Verizon may have committed fraud and misrepresentation, as their annual infrastructure reports claimed that they were on schedule for deployment, when, in fact, none of the services existed.
What Happened in Jersey? It Would Even Make Tony Soprano Cry.
The Original Law - Opportunity New Jersey (ONJ) --- Is Still in Effect.
In 2012, the New Jersey Board of Public Utilities (NJBPU) issued an 'Order to show cause', asking Verizon New Jersey why the company had failed to upgrade two towns, Stow Creek and Greenwich. Under state law, the communities are entitled to a broadband service, capable of 45 Mbps in both directions. The towns were also experiencing chronic phone problems for years that had not been fixed after repeated attempts to get Verizon's attention.
In that show cause Order, the State confirmed that the original state law, signed in May 1993 was still in effect and that there is an obligation to have 100% of the Verizon New Jersey's territory completed by 2010 with a bi-directional 45 Mbps (45,000,000 bits per second) service. Also, notice that "Access New Jersey" was added to the law and it was designed to bring high speed broadband to wire schools and libraries, starting in 1997.
"Pursuant to the Order, (known as "PAR-1") Verizon was required to achieve Opportunity New Jersey (ONJ) in its entirety, including full broadband capability, by the year 2010, specifically, switching technologies match with transmission capabilities to support data rate up to 45,000,000 bits per second and higher, which enable services, for example, that will allow residential and business customers to receive high definition video and to send and receive interactive video signals with complete deployment by 2010."
"By order dated August 19 2003... the Board approved a second plan for alternative regulation ("PAR-2") that replace PAR-1. PAR-2 further enhanced 'Access New Jersey' (ANJ), but did not disturb the existing ONJ broadband commitments made by Verizon."
In 2013, the State ordered Verizon to upgrade these towns to fiber optic services and the work is proceeding.
But What about the Rest of New Jersey?
In Mantoloking, New Jersey, after the town's communications were damaged by Sandy, Verizon refused to even fix the copper wire, much less replace it with fiber --- even though Verizon had obligations to upgrade 100% of their territory BEFORE Sandy hit in 2012. Instead of repairs, the town was put on Voice Link, an inferior wireless service that can't do basic data applications like fax or alarm circuits.
Verizon Never Upgraded the Utility PSTN Networks to Fiber Landlines.
In the 1993 law there is a timeline, showing the speed of the required deployment as well how much of Verizon New Jersey should have been completed and when. The chart below shows that while Verizon was supposed to start its replacement of the copper wiring in 1995 and finish by 2010, there was no work done for over 12 years as FiOS, Verizon's current fiber optic 'brand' of broadband and TV did not start full deployment until 2007.
This meant that from 1995-2007 there was no cable competition, no 45 Mbps services and in fact, direct harms as Verizon New Jersey stopped upgrading the copper networks in anticipation of FiOS.
It could also be argued that by 2013, this speed requirement should be at least 500 Mbps to 1 Gbps (1000 Mbps) as there should have been progress over the last 20 years and Verizon has already announced that its FiOS product can deliver 500 Mbps today.
Verizon NJ as of November 2013 has Not Upgraded about 1/3 of All Municipalities and Possibly ½ of All Customers.
As of December 2013, Verizon's cable TV franchise is up. (Read our testimony.) The Verizon New Jersey FiOS cable TV franchise was granted in 2006 and the cable service - which rides over the fiber optic wires --- was only required to have 70 towns completely upgraded. Verizon has another 352 municipalities that are partially done - but there is NO obligation to finish these towns. Out of 526 towns in the Verizon New Jersey territory this means that at least 1/3 of all municipalities are never getting cable competition while the number of customers who can actually get the service may be 50%, as most towns are 'partially' done.
Economic Harms to New Jersey from the Failure to Properly Upgrade the PSTN.
In our previous article we outlined that starting in 1991, then-New Jersey Bell (which was part of Bell Atlantic) claimed it was going to be the first fully fibered state. This was going to bring economic growth, jobs, and new services. The New York Times added:
"With fiber optics, New Jersey Bell officials say, they can create a vast network of high-speed audio, video and data services that will revolutionize the way residents and businesses in the state communicate."
Can you imagine what could have happened had Verizon actually built what they said they would and became a fully fibered state?
Google is currently laying fiber in a few towns, including Kansas City, and offering 1 Gigabit speeds for $70.00, while other cities have decided to not wait for their incumbent carrier to deploy services, even though they got paid billions to do these upgrades. And had Verizon started in 1995 with 45 Mbps, one would expect that by 2013, they, too could have had ubiquitous gigabit speeds.
And yet, given the opportunity, Verizon simply pocketed the money--and it did not help but hindered the economic growth of the state.
In fact the state appears to have lost economic growth, especially with rich folks. According to an article in the Star Ledger, the headline reads: "N.J. loses $70B in wealth during five years as residents depart". The article goes on to quote a study by the Center on Wealth and Philanthropy at Boston College, stating "the report found wealthy households in New Jersey were leaving for other states -- mainly Florida, Pennsylvania and New York -- at a faster rate than they were being replaced."
The article continues:
"More than $70 billion in wealth left New Jersey between 2004 and 2008 as affluent residents moved elsewhere, according to a report released Wednesday that marks a swift reversal of fortune for a state once considered the nation's wealthiest."
Wouldn't you know it, but the article quoted then-president of Verizon New Jersey, Dennis Bone, who was also the Chairman of the NJ Chamber of Commerce. He blamed it on the state's tax policies.
"'This study makes it crystal clear that New Jersey's tax policies are resulting in a significant decline in the state's wealth,' said Dennis Bone, chairman of the New Jersey Chamber of Commerce and president of Verizon New Jersey".
Verizon didn't even start doing the upgrades until 2006-2007, and worse, in Verizon's response to the show cause order Verizon claimed that in 2006 the company had completed 91% of the State, which was supposed to be for 45 Mbps in both directions. It didn't exist in 2006.
And yet, there are plenty of studies, funded by Verizon, that outlines how high speed broadband generates jobs and economic growth.
How Much in Potential Growth Did New Jersey Lose?
Using Verizon's Opportunity New Jersey timeline for broadband deployment and what actually happened to that deployment, we estimate that the State of New Jersey lost $172-$225 billion in overall growth since the start of the commitment to upgrade the state to 45 Mbps in both directions.
And worse, it is clear that the State might not have lost wealthy residents but added them, as broadband could have 'retained' and added to the wealth of the state.
Our 'Opportunity Cost" losses are based on using the methodology of one of the well-known Verizon-funded studies that was released in 2001. Written by Criterion Economics-Brookings, the original intent of this paid research was to claim that if competitors were thrown off the networks, Verizon would start to really, finally, build-out the networks. The report claimed that if broadband was ubiquitous it would increase the Gross Domestic Product, (GDP) of the US by $200- $500 billion dollars annually, (though there would be a ramp-up of 15-25 years). Around the same time, Gartner Dataquest released their own report and it, too, claimed that America could have a $500 billion dollar annual bump in GDP after 10 years of building, if 'true' broadband--over 10 Mbps, were deployed.
Going back to Verizon's commitments and the ramp up of fiber optic broadband that should have happened, as told by the ONJ timeline, we simply used the mathematics supplied by these studies to calculate the NJ GDP-Opportunity Costs.
Next in the Series: Part 3: Calling All Lawyers: Did Verizon New Jersey Commit Fraud and Misrepresentation?
NOTE: We will be publishing this research in new book: "$380 Billion Broadband Scandal"--which will include details of this series as well as data for most of America.