In April 2016, Verizon told Boston it was going to be spending $300 million to deploy FiOS, their wireline Fiber-To-The-Premises (FTTP) service, to the entire city over the next six years. Unfortunately, what Verizon’s CEO told investors on September 13th, 2017, shows it has deceived the citizens of Boston and harmed Massachusetts.
Lowell McAdam, CEO Verizon Communications, speaking at the Goldman, Sachs 26th Communacopia Conference on September 13th, 2017 stated it will be substituting wireless to the home (commonly called “the last mile”). And they are doing this throughout the East Coast.
“Well, I think that's where 5G and over-the-top come in because even in the markets where we have our FiOS footprint from Washington to Boston, the preferred method, the preferred architecture for us is going to be that last mile being 5G. So whether we offer a linear package or we offer an over-the-top package, look, the numbers all show that over-the-top is gaining ground and the 300 channel bundle is under a solitaire. (typo) So I may have been premature when I was up here a couple of years ago saying that but I still see it that way and I think the point for our investors is, we're building the network that doesn't care. If you can get broadband I don't care whether the customer goes over-the-top or buys a linear package, and we'll be able to provide either one to him.”
We wrote a series of articles about this Boston bait-and-switch before. I’ll highlight the some of the details and harms.
Top 11 Facts of the Boston Boondoggle:
- Verizon announced a FiOS FTTP upgrade of Boston in April 2016, not wireless.
- FiOS is FTTP, Fiber To The Premises, (i.e.; residential and small business locations)
- Verizon’s testimony, including legal counsel; fiber is directly connected to homes
- Verizon claims it will be doing this in sections, starting with Dorchester.
- Verizon already upgraded Dorchester to fiber in 2006, 11 years ago.
- The franchise is for FTTP, not wireless.
- Verizon claims that this is an upgrade of the state utility existing wireline network, and “Title II”. Wireless is illegally being funded through this cross-subsidy.
- Verizon claims wireless is cheaper to deploy.
- Wireless is cheaper mainly because most of the expenses are paid for by the wireline utility—and local phone customers.
- Verizon has been cross subsidizing their wireless business for years; almost $1 billion from 2010-2012 alone.
- Verizon was supposed to have upgraded Boston to fiber in 1995, 22 years ago.
(This is based on what we uncovered about Verizon NY’s financials and the cross subsidies with the other Verizon subsidiaries, then cross referenced with Verizon MA’s accounting.)
- These cross subsidies made the wired networks look unprofitable while making wireless look extremely profitable. It also has led to multiple harms.
- Massachusetts was never properly upgraded and the networks have been left to deteriorate as the construction budgets were used mostly for wireless.
- Rural customers not only never got upgraded, but dumping expenses into the state utility means they have been charged for the wireless deployments.
- Making the wireline networks look unprofitable has led to claims that the wired networks should be “shut off” and replaced with wireless, as well as rate increases.
- Tying the wireline construction budgets to be used for wireless has not been audited by either the FCC or by the state commissions.
- Wireless is not a substitute for fiber optics; 5G is just another part of this bait-and-switch.
- “5G” is vaporware; it does not work yet and requires a fiber optic wire, and will have a range of one or two city blocks.
- Higher prices, no serious triple play competition, and slower speeds for most of the Verizon states is where this is all going.
1) Verizon Announced FiOS, an FTTP Upgrade of Boston
Compare this write-up about Verizon’s $300 million, six year build out of fiber optics in Boston Massachusetts, with Verizon CEO’s previous statement.
“Verizon to build $300M fiber network in Boston”
“Verizon will bring its fiber-optic FiOS network to Boston over the next six years, city and company officials announced...”
2) FiOS is “FTTP”, Fiber To The Premises, Covering Residential and Small Business Locations
Verizon Web Site (as of September 19th, 2017):
“What is Fiber Optics? Fiber optics are strands of optically pure glass that carry digital information as pulses of light. Hundreds of thousands of these coated glass strands are bundled together to make the Fiber to the Premises (FTTP) (also known as Fiber to the Home, or FTTH) optical cable that is connected to your home.” (Emphasis added)
3) Verizon’s Testimony, Including Legal Counsel; Fiber Is Directly Connected to Homes
Verizon’s testimony at the public hearing to obtain the cable franchise license, December 1st, 2016, never mentions a wireless replacement for the fiber to the home.
“Verizon technicians have been out already placing large capacity FiOS fiber-optic cables both above and underground to connect fiber directly to homes and businesses that soon can order Verizon service. We will continue to build the entire network to reach consumers in the first neighborhoods over the next year and beyond. (Emphasis added)
“We are financially sound, and we have invested hundreds of millions of dollars into supporting our FiOS business to guaranty its success. Verizon's largest all-fiber network supports more than 5.6 million FiOS data customers and 4.7 million FiOS TV customers. Our advanced fiber-optic network, which offers video, data and voice connections directly to the customer's premises, is the most sophisticated network in the nation.”
Questions were asked:
Boston: In the original announcement that was made on April 12, Verizon expressed their intent to build FiOS service to the entire City of Boston. Can you comment on whether that is still the intent of Verizon and what you expect to see in the years ahead as it relates to the service area expansion?
Verizon: So Verizon has committed publically to upgrading its network with fiber. That's underway now.
Boston: To confirm, it's still Verizon's intent to upgrade its existing copper facilities. Irrespective of cable television service, it's Verizon's intent to upgrade its existing cable facilities to fiber-optic throughout the City of Boston. Is that correct?
4) The Franchise Is for Fiber To The Premises
The city of Boston elsewhere asked whether the plan was FTTP—Verizon claims it is.
5) Verizon Claims that this Is an Upgrade of the Existing Network and “Title II”.
6) Verizon Claims It Will be Doing Boston in Sections, Starting with Dorchester.
According to Fierce Telecom:
“Verizon’s Boston Fiber Zones
“Taking a cue from Google Fiber’s “Fiberhood” concept, Verizon has divided up its FiOS buildout plan for Boston into four zones. Verizon has invited residents in each of its zones to vote at a site to be the first to get service.”
Here is the Verizon announcement. The blue sections, Zone 1, include Dorchester.
7) Verizon Already Wired Dorchester in 2006, 11 Years Ago.
The Boston Globe, November 2, 2006 (Subscription required)
“An urban fiber-optic challenge: Verizon to use Dorchester as a test site for bringing high-speed Net into cities
“Verizon Communications Inc. is installing fiber-optic Internet service in Dorchester, using Boston’s biggest, and one of its most diverse neighborhoods, as a test site for the challenges the company will face in bringing ‘FiOS’ to urban areas nationwide.”
“Installation in Dorchester started in the first quarter of 2006 but the company didn’t begin advertising its availability until August, mostly through mailings to homes that are close enough to the new lines to be eligible for the service. Verizon won’t say how many local FiOS subscribers it has in Massachusetts nor will it say exactly how many it has in Dorchester.”
8) Wireless Is Cheaper to Deploy?
Lowell McAdam pointed out in the 2017 second quarter investor call that - I paraphrase: ‘Well, wireless is so much cheaper (and more profitable), why bother doing fiber to the home? (“ONT” is an “Outside Network Terminal”.)
“From a pure cost perspective, again I think it’s a little too early to tell, but what I will tell you is about half of our cost to deploy FiOS is in the home today and the next biggest thing outside the home is the drop. And so our take is that with the router roughly costing the same — and, remember, we wouldn’t have to have an ONT as we think about it today.
“So when we deploy 4G and densify the small cell cantennas (to provide) 5G (service) for very little incremental cost. With the router in the house being probably less than an ONT and router combination today and losing the wiring in the house and losing the drop, we expect there to be a significant cost reduction.”
9) Wireless Is Cheaper Because Most of the Expenses are Paid for by the Wireline Utility— And Local Phone Customers.
Based on Verizon’s ability to use the Title II, FTTP networks for wireless and claim it is part of the state utility, of course wireless is cheaper.
Fran Shammo, Verizon’s former CFO, told investors in 2012 that the wireless company’s construction expenses have been charged to the wireline business.
“The fact of the matter is Wireline capital—and I won’t get the number but it’s pretty substantial—is being spent on the Wireline side of the house to support the Wireless growth. So the IP backbone, the data transmission, fiber to the cell, that is all on the Wireline books but it’s all being built for the Wireless Company.”
10) Verizon Was Supposed to Have Upgraded Boston to Fiber in 1995.
In 1995, now-Verizon MA was able to get state laws changed to roll out fiber to 330,000 customers by 2000. It ever happened but the company collected billions in tax perks, higher profits, and rate increases.
According to The Boston Herald, February 8, 1995
“Verizon plans to offer cable television to customers in Rhode Island and Massachusetts - starting with Somerville.
“Verizon must upgrade switching systems, lay fiber optic and coaxial cable, making investments that could eventually reach billions of dollars, said spokesman John Johnson.
“‘We will begin construction almost immediately. A good bit of it is going to be aerial, on poles. There will also be some underground,’ Johnson said.
“Starting with Somerville, Verizon service is planned for 330,000 households in Boston, Winthrop, Brookline, Cambridge, Watertown, Peabody, Salem and Marblehead, Johnson said.”
11) Verizon has Been Cross Subsiding Their Wireless Business for Years
Verizon Wireless was able to have Verizon MA spend an estimated $976 million in construction expenses—and didn’t reimburse the utility for this construction. Verizon, the state utility, had 71% of the capx diverted to fund wireless from 2010-2012.
Every Verizon and AT&T state should audit these financial cross subsidies.
We’ve documented what happened with Verizon New York and detailed the same pattern in Massachusetts. And, in NY there is a settlement proceeding after a multi-year investigation, in part using our research.
As one of the consultants for the investigation detailed, March, 2017
“There are strong indications that Verizon New York, and its parent Verizon Communications, engage in practices which misallocate expenses and revenues to the detriment of the regulated New York operations. I recommend the Commission direct Verizon to submit detailed information on these interaffiliate transactions and allocations, and that, in a separate proceeding, the PSC examine Verizon’s cost allocation methodologies.”
“The Commission should vigorously investigate Verizon’s billing practices with Verizon Wireless and non-affiliated wireless providers to determine whether the company is charging all wireless firms equally, based on services provided and volumes used.”
The city of Boston should immediately investigate this bait and switch. At the same time, there should be an investigation of Boston to see if it knew that Verizon was not going to do FTTP and failed to tell citizens the truth.
Verizon Massachusetts is the state utility which serves the entire state; Verizon Wireless is a D/B/A for Cellco Partners, a separate legal entity – and with billions at stake, this ain’t chump change.