THE BLOG
07/15/2014 03:12 pm ET Updated Dec 06, 2017

"Title Shopping" Exposed: Verizon's FiOS is Based on a Title II, FTTP Network. Shame They Never Told the Court, the FCC or the Public.

Special Report and part of the series based on the report "It's All Interconnected".

(Filed as Comments in the Net Neutrality/Open Internet Order Proceeding)

"Title Shopping is the use of different regulatory classifications for the same product or service in different local, state and federal regulatory or legal proceedings. It is designed to maximize the 'regulatory' benefits that would not be available if only one classification was applied."

At the FCC and in the courts, Verizon has claimed over and over again that the company and America will be harmed if the FCC 'reclassifies' broadband as a 'Title II" service using "telephone era utility regulation." Verizon even sued the FCC to block the Open Internet Order, commonly referred to as "Net Neutrality." Yet, in almost every state law and in every Verizon local and state-based cable franchise, Verizon's FiOS uses a FTTP, Fiber-to-the-Premises, network which is classified as a "Title II," telecommunications, common carriage service.

After going through thousands of pages of Verizon's statements, filings at the FCC, and court documents, even listening to the oral arguments made by their lawyers, we can not find one place where Verizon told the regulators or the courts that Verizon's entire wireline FiOS deployment in every state is based on Title II.

Was Verizon required to make this essential fact known to the court or to the FCC?

And while Verizon et al claim that Net Neutrality and reclassifying broadband will harm investment, Verizon's uses "Title II" as a cash machine. In just New York State, Verizon NY was able to charge regular phone customers approximately $4 billion in extra basic phone charges from 2006-2013 for 'massive deployment of fiber optics' because the fiber optic wires are 'Title II."

Welcome to "Title Shopping."

Compare these two statements, both by Verizon, pertaining to the use of 'Title II'.

1) Verizon New Jersey's FiOS Cable TV Franchise Agreement , Renewed, 2014.

"Verizon NJ has been upgrading its telecommunications facilities in large portions of its telecommunications service territory so that cable television services may be provided over these facilities. This upgrade consists of deploying fiber optic facilities directly to the subscriber premises. The construction of Verizon NJ's fiber-to-the-premises FTTP network (the FTTP network) is being performed under the authority of Title II of the Communications Act of 1934 and under the appropriate state telecommunications authority granted to Verizon NJ by the Board and under chapters 3 and 17 of the Department of Public Utilities Act of 1948. The FTTP network uses fiber optic cable and optical electronics to directly link homes to the Verizon NJ networks.

"Pursuant to the NJSA 45:5A-15, telecommunication service providers currently authorized to provide service in New Jersey do not require approval to upgrade their facilities for the provision of cable television service.

"As such any construction being performed in the public rights of way is being undertaken pursuant to Verizon NJ authority as a telecommunication service provider."

2) Verizon Comments, Open Internet Remand Proceeding, May 14, 2014

"Rotary Telephone-Era Utility Regulation Is Not the Answer. In contrast to an approach that encourages innovation and investment in all parts of the Internet ecosystem, some now propose that the Commission "reclassify" Internet access service and apply 1930's utility regulation to these services. Similarly, others, including Mozilla, would conjure up new "transport" services out of Internet access services and subject this newly discovered "service" to Title II utility-style regulation, thus having the same effect. Any such approach is unnecessary to protect the openness of the Internet and would be harmful and counterproductive to the Commission's goals.

"In the case of broadband Internet services, in contrast, policymakers' longstanding approach has relied - with stunning success - on flexibility and competition to spur innovation and investment, rather than a central-planning model of utility regulation with the opposite effects. This fundamental difference has informed how broadband Internet providers have developed their networks, services, and basic business models and has prompted hundreds of billions of dollars of investment in wireline and wireless broadband infrastructure...

"Any proposal now to reclassify broadband Internet access or some new "transport" component of Internet access as subject to utility regulation would therefore undermine innovation, destabilize current investments and cast a cloud of regulatory uncertainty that would deter these heavy and much needed investments. The Commission itself foresaw these risks nearly a decade ago when it argued before the Supreme Court that common carriage regulation likely would "discourage investment in facilities" and spur broadband providers to "raise their prices and postpone or forego plans to deploy new broadband infrastructure."

We won't dwell on how we ended up with this 'Battle of the Titles', but it is clear that exposing the implications of Title Shopping could change the direction of communications policy in the US.

  • At the FCC and in the courts, Verizon has claimed that FiOS (and the fiber networks) is Title I, an 'information' service. This allowed Verizon to close the fiber optic networks to competitors, including other ISPs, (Internet Service Providers), and CLECs, (Competitive Local Exchange Companies), and even competitive cable providers as an 'information service' has no requirement for wholesale services.
  • This has also allowed for the vertical integration of all of the Verizon products, which created Net Neutrality concerns, as it creates a bottleneck; the controller of the wires gives their own affiliate companies control over multiple lines of business and each affiliate gets advantages from the 'utility' networks.
  • In New York State, Verizon claims FiOS's FTTP, Fiber to-the-Premises, is Title II, a telecommunications service, and using this title, the State granted multiple rate increases on POTS, Plain Old Telephone Service, residential customers for the 'massive investment in fiber optics'.
  • In city and state-wide cable franchises around the US, Verizon uses Title II to get the rights-of-way to provide their 'cable service', 'Title VI', without having to go through a cable franchise process, as well as gets all of the perks -- like passing through the cable franchise fees to customers.

But this is much more damaging and pervasive as all of Verizon's affiliate companies are taking advantage of "Title Shopping."

  • Verizon Wireless, Title III, appears to be able to have the 'fiber-to-the-cell-towers' expenses dumped into the state utility as a Title II service.
  • Verizon's 'special access' services are classified as Title II, so that local service customers pay a disproportionate amount of the expenses for the network costs.
  • Verizon has been dismantling the state-utility networks by using Title II to dump construction expenses into the utility, while the revenues and profits from the affiliates (and assets) goes into a non-regulated area that is 'Title I."
  • Verizon and AT&T claim these Title I areas are private property for personal use, but they may be confiscating 'utility assets' -- funded through excess charges from local phone customers.
  • Verizon's vertical integration not only controls the customer side of using the wires, such as Net Neutrality issues or 'bandwidth caps', but also on the business-to-business side in the interconnection agreements as well as 'peering' issues with other companies, such as Netflix.

Unfortunately, no regulator at any level of government has noticed or taken any affirmative actions to stop this practice, but there are serious legal issues to all of this -- and many harmful consequences. For example, if Verizon claims the FTTP upgrades are for FIOS and are Title I, they would have serious legal problems as it is not legal to cross-subsidize local rates with an information or cable service in New York State. Or if the networks are really 'Title II," then Verizon has gamed the FCC and the courts' decision making process on almost every aspect of communications, from Net Neutrality, or blocking competitors, to allowing Verizon to charge customers for Title II networks.

We Ask the FCC and the States to Investigate and Take the Next Steps.

We can not find any instance where Verizon disclosed to the FCC or to the courts or to the public that the company's primary fiber optic services are now classified as Title II today and have been since before the Verizon's challenge of the Open Internet Order.

And we note that throughout Verizon's comments and reply comments in the Internet Order proceedings, Verizon never mentioned the words "cable service" or "utility," even though FiOS TV has 'cable' franchises, but is classified as a 'telecommunications' service, while the overwhelming infrastructure of Verizon is part of the PSTN, the Public Switched Telephone Networks, that are the state-based communications utilities.

Therefore, we ask the FCC to start an investigation into whether Verizon's networks are already classified as Title II and whether Verizon has misled the FCC, and even the courts, in failing to reveal and supply basic, essential facts, as these facts have implications on every aspect of the FCC's decision making process, from the IP transition and Verizon's filings to use Section 251 to shut off the copper, or to the Open Internet Order, or even peering and interconnection issues with Netflix or the 'special access' costs to competitors.

Net Neutrality is Solved. If the networks are already classified as Title II (and Verizon has, in fact, separated the "FiOS" cable, Internet and broadband services) then there is no need for any reclassification.

Our Position Is Simple: Verizon's affiliates have taken control of critical infrastructure and have caused a bottleneck to and from the Internet. This has also allowed the affiliate companies to dismantle the PSTN, state-based utilities, and privatize publicly-funded assets or allowed whole areas of the state-based infrastructure, especially suburban and rural areas, as well as 'low income' areas, to deteriorate because the companies diverted funds to other lines of business, many times overseas, instead of doing the upgrades that customers actually paid for via rate increases and state alternative regulation plans.

Returning competition by opening the networks and making sure that the affiliates that use the networks pay their fair share, like all other competitors, will not only solve Net Neutrality, but will bring customers lower prices, higher speeds and choice.

And in our other comments in this proceeding we will be presenting ample documentation of the flows of money between and among the utility networks and the affiliate companies, as well as a road-map to fix Net Neutrality and make the US Number 1 in communications -- again.

Next Steps: What the FCC Must Do.

  • Examine Verizon's use of Title II currently and compare that with their other claims pertaining to Title I, information services.
  • Require the unbundling of the FTTP networks to allow for all forms of service competition over the Title II networks, common carriage, networks.

And based on our other comments in the Open Internet Order proceeding:

  • Remove the affiliate companies' ability to control the services over the wire.
  • Have the affiliate companies pay competitive prices, like the other competitors.
  • Do a complete financial audit of the flows of money from the utility networks to and from the affiliate companies. This will prove that the utility networks are still profitable, as the losses being incurred are, in a large part from the other affiliate companies only paying incremental costs.
  • Reinstate ARMIS and Data Collection. Get all data that would be available in the original FCC ARMIS reports by state, using the USOA accounting standards, as well as a state-based SEC reports, by state.

AT&T -- We Request that the FCC:

  • Investigate AT&T's use of the utility network wires for U-Verse, as it is a 'copper-to-the-home' service based on the exact same utility, legacy copper wires.
  • We believe AT&T is using the same accounting as Verizon and this needs immediate investigation.
  • AT&T has stopped publishing any data about their state-based utility networks or the number of lines in service. Get all data that would be available in the original FCC ARMIS reports by state, using the USOA accounting standards, as well as a state-based SEC reports, by state.

Investigate Customers as Funders of the Broadband, Fiber Optic Networks.

We request that the FCC do a complete audit, as well as data collection and analysis, by state, to examine how much money was collected from ratepayers via excess phone charges to fund these other activities, including the development and deployment of broadband as well as the creation and implementation of all of the affiliate companies' business activates -- based on Title II classifications.

This Special Report is an extension of "It's All Interconnected" , a report by Public Utility Law Project, written by New Networks, with assistance by David Bergmann. The report supplies an analysis of the flows of money based on Verizon New York using the Title II classification to charge local phone customers for the deployment of FiOS as well as the funding of other affiliate company activates, which also use Title Shopping to get financial and regulatory perks.

Verizon: "Title Shopping" Examples.

The following outlines examples of Title Shopping. We are just scratching the surface.

3) Verizon's Fiber Optic FiOS Uses 'Title II'. By 2007, Verizon had Franchises in 835 Different Locations in 12 States.

Just to reinforce how the FCC, the courts and the states have been 'gamed', we found this in the Verizon District of Columbia (DC) franchise application. By 2007, Verizon had franchises in 835 different locations in 12 states, and in the application Verizon again repeats that the DC deployment is a Title II service.

2014-07-15-VerizonDC835franchise.png

Let us be very clear. This describes a fiber optic, FTTP network that is a telecommunications service as defined by the Telecommunications Act of 1934. And Verizon DC was not seeking permission for building these networks, only to use the networks, once installed, for cable TV service.

2014-07-15-VerizonDCshorttitle2.png

4) Darker Corners: Verizon FiOS TV is a 'Telecommunications' Service.

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