Phillip "The only New Deal my cable company brought to the table was a $150 monthly broadband bill for exactly the same level of service I had when paying $50" Dampier

Joe, a regular Stop the Cap! reader noticed the National Review this morning published another one of their “in the pocket of big telecom” editorials proclaiming Net Neutrality is “anti-consumer.”  Right into the first paragraph, it was clear the editors either fundamentally misunderstand the reality of today’s broadband industry or honestly didn’t care as long as it suited their business-friendly agenda.

Readers, you need not go along with the charade.  While the publishers of National Review can probably afford to buy their way around anything the phone and cable industry can dream up, you probably cannot.  What those opposed to Net Neutrality frame as “freedom from government intrusion” is in reality an attempt to keep your broadband provider from screwing around with your connection in hopes of charging you more for the same service you used to have.

Turn on your TV these days and within minutes you are likely to see several commercials from your local cable, satellite, or telecommunications company trying to convince you that their cable, DSL, or mobile broadband services are superior to those of their competitors. That’s because the market for broadband service is robustly competitive: If service providers didn’t advertise, they would lose business.

Actually, most of the advertising I see on my television comes from free ad inserts Time Warner Cable hands themselves during ad breaks on national cable channels.  My local phone company, Frontier Communications, hasn’t advertised on television for quite awhile.  The mobile broadband advertising I see fights over coverage and who has the coolest new device.  They aren’t advertising on price because they almost all charge exactly the same $60 for 5 GB of usage per month.

None of this represents “robust competition” when one of the players on the wired side is absent from the airwaves and the wireless folks have convenient cartel-like pricing for wireless broadband.

They would also lose business if they did something that made their customers unhappy, such as slowing or blocking the delivery of popular content over the Internet. Or they might gain customers if they created a model that, for a fee, guaranteed uninterrupted high-speed access to certain services, such as telemedicine, video conferencing, or some other use of the Internet we have yet to imagine. This competition directs broadband toward its most efficient uses. It is pro-consumer in that it allows for the proliferation of choices and pressures companies to offer a variety of pricing options.

Of course, the editors who wrote this did not have to fight back a 300 percent rate increase with an Internet Overcharging scheme that would have limited broadband access in at least five cities to start.  Let’s test their theory by asking a few questions.  First, did anyone ask for this kind of pricing to begin with?  Answer: No.  Second, did the plan make customers unhappy?  Answer: Emphatically yes.  Third, upon hearing from customers that they did not want this kind of pricing, did they discard the plan?  Answer: Not on your life.  Fourth, did it take two members of Congress to drive the company to finally pull back their plan?  Answer: You bet.

Now ask the same types of questions about slowing down your web connection to make room for the neighbor up the street willing to pay more to get more while you enjoy less for the same price you’ve always paid.

Lesson learned: when you effectively have a duopoly or monopoly in your market, you don’t have to listen to customers — they have to listen to you.  Indeed, even where competition exists, there is every indication the competitors would themselves increase prices or limit service to rake in additional revenue.  That happens routinely even in more competitive industries like the airlines — something you realize when you try and check bags and are asked for a credit card.  In Canadian broadband, foreshadowing a non-Net Neutral USA, when one player limits usage and throttles connections, the competitor more often than not joins in.

The other fallacy raised in this useless editorial is that Net Neutrality somehow bars companies from offering all of those wonderful innovative Internet applications.  It’s a common talking point straight out of the industry’s playbook.  Nothing precludes the broadband industry from expanding and improving their networks to offer all of these services.  Under Net Neutrality, they simply wouldn’t be allowed to do it on the backs of their other Internet customers, whose connections are automatically impeded to make room for that “innovation.”  The saddest part is that the only innovation at work here is price-gouging customers instead of upgrading networks.

It would be a huge mistake to impose by fiat a single business model on the carrier side of the Internet.

Tell that to AT&T and Verizon who have exactly the same pricing in their business model for mobile broadband service.  Is it a huge mistake for them?

Specifically, they want the government to prohibit broadband providers (such as Comcast) from discriminating against content providers (such as Google) by, for instance, charging them different rates for different levels of network service. They argue that, in the absence of such regulation, broadband providers can act as self-appointed censors, slowing down or blocking content they don’t like. Keep in mind that in no instance has this actually happened. So far, broadband providers have acted only to slow down noisome bandwidth hogs in order to manage traffic and ensure a high quality of service for the majority of their customers. Net-neutrality proponents counter that other customers — those unhappy about the slowdowns — lack meaningful options; that is, that the market for broadband service is not sufficiently competitive.

It is -shocking- the government would want to make sure broadband providers don’t block or discriminate against other people’s content.  We can’t have that!

The National Review needs to consider studying up on history.  The cable industry, for example, is notorious for blocking competitor access to its content.  To this day, the industry is fighting to keep the cable networks they own off competitors’ lineups.  The same company that provides your broadband service wants to make sure their telephone competitor cannot show a regional sports channel they own.  At least one broadband provider in the United States tried to block competing Voice Over IP phone companies from being used on their broadband service.  The same “blocking” mentality popped up in Canada where a broadband provider purposely blocked a website critical of that company.  Want access to cable programming online but don’t have a cable-TV package?  Good luck.  TV Everywhere projects are specifically designed to block non-cable TV customers from accessing that programming online.

National Review‘s afterthought admission that providers like Comcast were diddling with customers’ Internet speeds is waved away as somehow the fault of bandwidth piggies, another common meme in the talking points packet provided by the broadband industry.  Never mind the company had effectively spied on customers to determine what they were doing with their connections, that they first denied reports they were throttling, effectively throttled everyone — piggies or not — and then quickly stopped when the FCC protested.  If Comcast wasn’t doing anything wrong, why not inform customers first?  After all, the “majority of customers” would want throttling to preserve their “high quality of service,” right?

Of course they don’t, and when customers found out the company charging them good money to provide a service was also trying to systematically reduce its value with speed throttles, they howled in protest.  Who knows what online application would fall next to the throttle?

This would effectively mean applying to broadband providers the rules designed for landline telephone companies in the 1930s. We know Obama wants to emulate FDR, but this is getting ridiculous.

Oh now see how they tried to be funny with the slap against Obama and FDR?  The National Review would have been the magazine defending the railroad robber barons and utility trusts — unregulated monopolies — back during FDR’s day.  They’d be just as wrong then as they are now.  The only New Deal my cable company brought to the table was a $150 monthly broadband bill for exactly the same level of service I had when paying $50.

The current regulatory framework for broadband was constructed by Michael Powell’s Republican-majority FCC, classifying broadband as an “information service.”  It was bureaucratic incompetence because it relied on vaporware authority that a court found, to nobody’s surprise, didn’t exist.  The court does recognize the FCC’s authority to regulate “telecommunications services,” so by simply reclassifying broadband as such, the basic question of authority is solved.  The National Review pretends this will automatically mean 1930s-like regulations as applied to copper wire-phone companies, but that’s not true.  The National Review simply doesn’t want the FCC to have any authority in the first place.

But the FCC’s authority to reclassify broadband to suit its desires is also open to legal challenge. As a result, we are sure to hear louder calls for Congress to regulate the Internet or to grant the FCC the explicit authority to do so. These calls should be ignored. The Internet has thrived in the absence of homogenizing federal regulations, and this organic development should be allowed to continue so long as competition can act as a check on anti-consumer practices.

The calls to enshrine Net Neutrality, stop Internet Overcharging, and force open broadband markets and expand service all do not come in a vacuum.  They are ideas born from past provider abuses that have demanded consumer protections in response.  Who would have dreamed up Net Neutrality if AT&T’s Ed Whitacre didn’t insist Internet traffic could not use his pipes for free.  What about when the industry started toying with developing premium tiers of service that relied on slowing down the connections of their other paying customers.  Why worry about forcing markets open to additional competition?  Oh yeah, because of statements like those from Landel Hobbs (Time Warner Cable COO) who told investors Time Warner Cable could use its market position in broadband to jack up prices whenever they chose.  And they did.

The National Review‘s “hands off” attitude is the same one they’ve had towards banks, and now every American is paying for that mistake.  Let’s not repeat it.

Besides, as it stands these companies compete vigorously against one another in a way that is beneficial to consumers. If one of them makes an unpopular business decision, its customers can go elsewhere. If, however, an unelected FCC chairman dictates uniformity in the services these companies provide, then there is nowhere Americans can turn for innovations the government may have strangled in the cradle.

Where exactly do consumers in rural areas go for alternative broadband when their monopoly phone company provider limits their service or charges them confiscatory pricing?  Where do residents go when both providers limit service?

Consumers have far more power to deal with the “unelected FCC Chairman” than dealing with intransigent phone and cable companies.  Elections every few years have consequences.  There are no elections for Comcast, Verizon, Cox or AT&T.  They’re effectively Providers-for-Life in the communities they serve.

The National Review has little to fear from a broadband dark ages where innovation disappears.  Somehow, an industry that rakes in billions in revenue every year will manage to get by living under basic guidelines that require them to earn their money fairly and spend some of those profits to keep up with very profitable demand.  They’ll sue anyway, of course.  But that could buy us enough time to spur additional competitive choices in a duopolistic market for broadband, helping put to work those free market principles of fierce competition the National Review believes in.

[Article Correction 4/15/2010: The original piece laid blame for the classification of broadband as an "information service" on former FCC Chairman Kevin Martin.  In fact, the classification was made by former FCC Chairman Michael Powell, who served during the first term of the Bush Administration.  We regret the error.]

Typically, when a telecommunications company gets itself into a financial bind, large numbers of  office workers and technicians are shoved out the door, while senior management gets retention bonuses and special compensation packages if they can bail the company out of the mess they often created.

This time around, 845 employees of Hawaiian Telcom, the bankrupt Verizon spinoff purchased by The Carlyle Group, are getting promised compensation for meeting performance targets.  What makes them so special?  They are all members of the International Brotherhood of Electrical Workers, which collectively bargained a contract that included provisions no individual employee would ever get… unless they were senior management.

“The union has fought hard, and will continue to work hard, to improve the quality of life for the working men and women of IBEW Local Union 1357. We will do this by continuing to fight for job security, by continuing to negotiate better contracts, by continuing to give the members a voice in the workplace, and continuing to make sure that every employee has a safe, healthy work environment,” writes Scot Long, Business Manager for IBEW Local Union 1357.

Long

The Bankruptcy Court approved the $8.5 million package, which will be distributed to the unionized employees.

Seem like a lot?  Consider Hawaiian Telcom’s board of directors approved a financial incentive plan for 20 of its top executives for up to $2.3 million in retention bonuses and other benefits.  The executives were eligible for amounts ranging from $57,000 to $2.3 million, if the company met certain earning and revenue targets.  A few months later, the company decided that was too little and was back asking for even more for the top-20 executives who steered the company straight into bankruptcy in December 2008.

As the company moves to emerge from bankruptcy, Hawaiian Telcom also today announced it would be going public, hoping it will help the company become stronger and more competitive.  The company promises to have a new board of directors in place as part of the restructuring.

As part of the process to emerge from bankruptcy, Hawaiian Telcom is going public.

In a statement, the Hawaiian Telcom CEO said he hoped the move toward being publicly traded will help the company be stronger and more competitive.

As a part of the restructuring, there will also be a new board of directors.

Hawaiian Telcom filed for Chapter 11 protection in December 2008.

Waipahu, Hawaii

At least 1,100 Hawaiian Telcom customers were left without service Sunday when vandals cut a cable providing the community northwest of Honolulu with phone and broadband service.

“Sunday night we learned that two of our cables in the Waipahu area had been cut in several places,” said Hawaiian Telcom’s Ann Nishida.

It took nearly three days to restore service to every affected customer because each cable required splicing 3,600 individual copper wires back together.  The company says all 1,100 customers had service as of 1:00pm Wednesday afternoon.

Vandals sliced apart this cable. (Courtesy: Hawaiian Telcom)

Customers reported experiencing no dial tone and having no access to the Internet.

Even as service restoration work was underway, several residents reported broadband service remained intermittent until the repairs were completed Wednesday.

Although HawTel claims vandalism to their lines is uncommon, residents in Waipahu say vandals have struck repeatedly in the community, especially when street lights aren’t working in the neighborhood.

Customers subjected to the outage should contact HawTel customer service to verify a credit for the lost day(s) of service appears on their next bill.

The company filed a police report and asked Waipahu residents who may have witnessed the vandalism to report it to local authorities.

Hawaii has had several disruptions in phone service, the most recent happening in February when a damaged AT&T fiber cable cut off long distance service to HawTel and T-Mobile customers.

KHON-TV Honolulu reports many Waipahu customers are going for the third day without phone or Internet service.  (2 minutes)

The 'Prince of Wales,' one of Inter-Island Ferry Authority's boats that connect the island to the mainland (Courtesy: Inter-Island Ferry Authority)

Providing broadband to 6,000 residents of Prince Wales Island, located along the western strip of Alaska that borders on British Columbia, Canada is the ultimate challenge.  Parts of the island don’t even have access to traditional landline phone service, relying instead on fixed wireless service.

Residents have complained loudly about the poor quality of phone service on the island for years, particularly when it is provided to the 1,000 residents of Klawock, Craig, and several adjacent communities served by Alaska Communications Systems (ACS).  Ten percent of ACS customers are stuck with fixed wireless, which guarantees no Internet access, and sub-standard phone service.  What perturbs many of them is the fact another phone company’s landlines are within the sight of their homes and communities, but they can’t get service from that company.  Those lines are owned by ACS competitor Alaska Power & Telephone (AP&T), an employee owned utility that serves many areas ACS doesn’t.

Friends and neighbors served by AP&T are happy with their telephone service.  Residents served by ACS are not.

The Alaska Dispatch tells the story:

Every three months Ron Fitch drives five miles down a state highway so he can use a friend’s telephone to monitor his pacemaker.

Fitch, who lives on Price of Wales Island, has a phone at home, but he gets his service via fixed wireless, which is similar to a cell phone signal but is routed through a box mounted in the house. Since you can’t recalibrate a pacemaker over a wireless signal, Fitch makes the drive four times a year.

“Times have changed, and it doesn’t seem right that we can’t get Internet or a fax or anything over our phones,” said Eric Packer, a builder who lives outside Klawock. “It’s like living in the dark ages.”

ACS customers on the island have been complaining about their phone service for years, and for some the frustration is sharpened by the view of lines — owned by ACS competitor Alaska Power and Telephone — running near their homes. Two years ago the Regulatory Commission of Alaska opened an investigation into ACS service on the island, citing numerous customer complaints and a request from Sen. Lisa Murkowski.

With all of the negative press focused on ACS, the company relented, telling the Regulatory Commission it will offer to connect those fixed wireless customers to landline service, but will only pay for up to 1,000 feet of wiring between the nearest ACS junction box and the customer’s home.  ACS will bill customers the balance of costs beyond 1,000 feet if a customer insists on landline service.

ACS is a major recipient of universal service funds which subsidizes phone service in rural areas to keep it affordable.  ACS receives about $4 million a year.  ACS fixed wireless customers on the island pay about $26 a month.

ACS customers perennially without broadband have complained to the Regulatory Commission, according to the Dispatch, suggesting it hurts the island’s economic development.  Some customers have managed to switch to cell phone service and dropped landline/fixed wireless service, and a select few are trying to rely on satellite Internet service, which customers characterize as expensive and slow.

Pricing for landline DSL service from either ACS or AP&T is itself slow and expensive, and AP&T service is usage limited:

ACS promotes the fact their service is unlimited.  Includes local and long distance telephone service.  One year contract term required.  Pricing may be higher in rural areas not specified on the ACS website.

The 1Mbps service tier is currently available in select areas dependent upon local infrastructure.  Each additional gigabyte of usage is pro-rated at $5.00/GB.  AP&T provides wireless broadband in selected rural areas.

Milton, Vermont

Jesse and his nearby neighbors on the west side of Milton are frustrated.  They live just 20 minutes away from Burlington, the largest city in the state of Vermont.  Despite the proximity to a city with nearly 40,000 residents, there is no cell phone coverage in western Milton, no cable television service, and no DSL service from FairPoint Communications.  For this part of Milton, it’s living living in 1990, where dial-up service was one’s gateway to the Internet.

Jesse and his immediate neighbors haven’t given up searching for broadband service options, but they face a united front of intransigent operators who refuse to make the investment to extend service down his well-populated street.

“After many calls to Comcast, they eventually sent us an estimate for over $17,000 to bring service to us, despite being less than a mile from their nearest station,” Jesse tells Vermont Public Radio.  “They also made it very clear that there was no plan at any point in the future, 2010 or beyond, to come here unless we paid them the money.”

Jesse and his neighbors want to give Comcast money, but not $17,000.

For at least 15 percent of Vermonters, Jesse’s story is their story.  Broadband simply remains elusive and out of reach.

Three years ago, Vermont’s Republican governor Jim Douglas announced the state would achieve 100 percent broadband coverage by 2010, making Vermont the nation’s first “e-State.”

Vermont Public Radio reviewed the progress Vermont is making towards becoming America’s first e-State. (January 20, 2010) (30 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

Gov. Douglas

In June 2007 the state passed Act 79, legislation that established the Vermont Telecommunications Authority to facilitate the establishment and delivery of mobile phone and Internet access infrastructure and services for residents and businesses throughout Vermont.

The VTA, under the early leadership of Bill Shuttleworth, a former Verizon Communications senior manager, launched a modest broadband grant program to incrementally expand broadband access, often through existing service providers who agreed to use the money to extend service to unserved neighborhoods.

The Authority also acts as a clearinghouse for coordinating information about broadband projects across the state, although it doesn’t have any authority over those projects.  Lately, the VTA has been backing Google’s “Think Big With a Gig” Initiative, except it promotes the state as a great choice for fiber, not just one or two communities within Vermont.

Vermont used this video to promote their bid to become a Google Fiber state.  (2 minutes)

Some of the most dramatic expansion plans come from the East Central Vermont Community Fiber Network.  ECFiber, a group of 22 local municipalities, in partnership with ValleyNet, a Vermont non-profit organization, is planning to implement a high-capacity fiber-optic network capable of serving 100% of homes and businesses in participating towns with Internet, telephone and cable television service.  In 2008, the group coalesced around a proposal to construct a major fiber-to-the-home project to extend broadband across areas that often don’t even have slower speed DSL.

The ECFiber project brought communities together to provide the kind of broadband service private companies refused to provide. Vermont Public Radio explores the project and the enthusiasm of residents hopeful they will finally be able to get broadband service. (March 8, 2008) (24 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

ECFiber's Partner Communities

The Vermont towns, which together number roughly 55,000 residents, decided to build their own network after FairPoint Communications and local cable companies refused to extend the reach of their services.  Providers claim expanding service is not financially viable.  For residents like sheep farmer Marian White, interviewed by The Wall Street Journal, that means another year of paying $60 a month for satellite fraudband, the speed and consumption-limited satellite Internet service.

White calls the satellite service unreliable, especially in winter when snow accumulates on the dish.  Unlike many broadband users who vegetate for hours browsing the web, White actually gets an exercise routine while trying to get her satellite service to work.

“I open a window and I take a pan of water and, a cup at a time, I launch warm water at the satellite dish until I have melted all the snow off the dish,” Ms. White says. “It works.”

Other residents treat accessing the Internet the same way rural Americans plan a trip into town to buy supplies.

Kathi Terami from Tunbridge makes a list of things to do online and then, once a week, travels into town to visit the local public library which has a high speed connection.  Terami downloads Sesame Street podcasts for her children, watches YouTube links sent by her sister, and tries to download whatever she thinks she might want to see or use over the coming week.

A fiber to the home network like ECFiber would change everything for small town Vermonters.  The implications are enormous according to project manager Tim Nulty.

“People are truly afraid their communities are going to die if they aren’t on the communications medium that drives the country culturally and economically,” he says. “It’s one of the most intensely felt political issues in Vermont after health care.”

Despite the plan’s good intentions, one obstacle after another has prevented ECFiber from making much headway:

• The VTA rejected the proposal in 2008, calling it unfeasible;
• Plans over the summer and fall of 2008 to approach big national investment banks ran head-on into the sub-prime mortgage collapse, which caused banks to stop lending;
• An alternative plan to build the network with public debt financing, using smaller investors, collapsed along with Lehman Brothers on September 14, 2008;
• An attempt by Senator Pat Leahy (D-Vermont) to insert federal loan guarantees into the stimulus bill in February 2009 was thwarted by partisan wrangling;
• Attempts to secure federal broadband grant stimulus funding has been rejected by the Commerce Department;
• Opposition to the plan and objections over its funding come from incumbent providers like FairPoint, who claim the project is unnecessary because they will provide service in those areas… eventually.

For the indefinite future, it appears Ms. White will continue to throw warm cups of water out the window on cold winter mornings.

Vermont Edition takes a comprehensive look at where the state stands in broadband and wireless deployment. (April 8, 2009) (46 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

For every Tunbridge resident with a story about life without broadband, there are many more across Vermont living with hit or miss Internet access.

Take Marie from Middlesex.

Most residents in more rural areas of Vermont get service where they can from FairPoint Communications

“I am in Middlesex, about a half-mile off Route 2, and five minutes from the Capitol Building. Yet up until just recently, we had no sign of high-speed Internet. I understand that my neighbors just received DSL a few weeks ago, but when I call FairPoint, they tell me it’s still not available at my house, which is a few hundred yards up the hill. Hopefully, they’re wrong and I’ll see DSL soon,” she says.

Marie is pining for yesterday’s broadband technology — FairPoint’s 1.5Mbps basic DSL service, now considered below the proposed minimum speeds to qualify for “broadband” in the National Broadband Plan.  For Marie, it’s better than nothing.

Geryll in Goshen also lacks DSL and probably wouldn’t want it from FairPoint anyway.

“We have barely reliable landline service. A tech is at my house at least three times per year. I was told the lines are so old they are decaying. Using dial-up is impossible. I use satellite which is very expensive and is in my opinion only one step up from dial-up. I am limited to downloads and penalized if I reach my daily limit,” he says.

Many Vermonters acknowledge Douglas’ planned 100-percent-broadband-coverage-by-2010 won’t come close to achievement and many are highly skeptical they will ever see the day where every resident who wants broadband service can get it.

Chip in Cabot is among them, jaded after six years of arguments with FairPoint Communications and its predecessor Verizon about obtaining access to DSL.  It took a cooperative FairPoint engineer outside of the business office to finally get Chip service.  His neighbors were not so lucky, most emphatically rejected for DSL service from an intransigent FairPoint:

“I laughed when Governor Douglas announced his e-State goal “by 2010″ three years ago. Now I’m thinking I should have made some bets on this claim. It took years of legal battles and a zoning variance to obtain partial cell coverage here in Cabot. Large parts of the town still do not have any cell coverage. Governor Douglas can perhaps be forgiven – he has no technical knowledge, and as a politician would be expected to be wildly optimistic about such “e-State” claims. The Vermont Telecommunications Authority and the Department of Public Service should know better however. We’re talking about rural areas where there is no financial incentive to provide either DSL or cell service. It will take a huge amount of money to provide service to those remaining parts of the state. I’m not optimistic.”

The Wall Street Journal chronicled the challenges Vermonters face when broadband is unavailable to them.  ECFiber may solve these problems.  Some of the stories in our article are reflected in this well-done video.  (3/2/2009 — 4 Minutes)

A lobbying campaign to add language to a Senate bill that would retroactively apply a federal ban on a tax loophole could derail plans by Verizon to sell off landlines in 14 states to Frontier Communications.

Verizon has relied on provisions of the “Reverse Morris Trust” (RMT) — which lets companies spin-off subsidiaries that merge into smaller companies do so tax free — to dump landlines across the United States, leading to crushing debt and bankruptcy for the buyers.

The House Small Business and Infrastructure Jobs Tax Act of 2010 includes provisions killing off the tax loophole, and the measure passed the House at the end of March by a vote of 246 to 178.  But the House measure only applies to new deals, not to those already on the table.

Union officials and several public interest groups are asking consumers to contact their senators and request insertion of language in the Senate companion bill that would apply the ban retroactively to the latest Verizon deal with Frontier Communications.

Such a ban would prevent Verizon and Frontier from walking away from a $600 million dollar tax obligation.

Ironically, one of the House leaders strongly supporting the loophole-closing legislation is Rep. Louise Slaughter (D-NY), whose district covers Frontier’s largest service area — Rochester, New York.

“This tax avoidance loophole does nothing to help people in rural communities who rely on traditional landlines for their phone service,” Slaughter said. “If these transactions are allowed to go forward, Verizon may drop landlines in 14 different states, a development that would mean a loss of jobs for workers and poor quality phone service for millions of Americans.”

For Rep. Peter Welch (D-VT), passage of the ban represents some late justice for the disastrous tax-free deal between Verizon and FairPoint Communications, which took over phone service in his state and other parts of northern New England.  FairPoint staggered under the debt load from the deal before collapsing in bankruptcy.

Slaughter

“The RMT was used by Verizon to avoid federal taxes when it sold its northern New England landline operations to FairPoint Communications in 2008,” Welch’s office noted.

“This loophole is bad for taxpayers, bad for consumers and bad for workers. By closing it and investing the savings in job creation, hardworking Americans – not corporations – will benefit,” Welch said.

The ban has special importance for West Virginia, which faces the prospect of turning over most of the state’s phone business to Frontier.

“The House has recognized the Reverse Morris Trust as a greedy grab by corporations to avoid paying their fare share of taxes,” said Elaine Harris, spokeswoman for the Communications Workers of America. “We pay our taxes. Why shouldn’t Verizon have to pay one cent on an $8 billion deal?”

“The Reverse Morris Trust was designed by Wall Street for Wall Street, not West Virginians,” said Ron Collins, a union vice president. “We’re happy Congress shares our view that the Reverse Morris Trust is a tax break for corporations, not a job-creating tool. Without this tax loophole, I don’t believe Verizon would be so eager to sell to Frontier.”

The Charleston Gazette attempted to get the views of Verizon and Frontier over the bill’s passage in the House.  Verizon spokeswoman Christy Reap declined comment. A Frontier spokesman couldn’t be reached for comment.

AT&T had to pay considerably more in taxes last year than Verizon did

One of the most common talking points among pro-business tax cutting advocates is the claim that companies in the United States face the highest corporate tax rate in the world.  But that assumes corporations actually pay taxes at that rate, which few do.  In fact, this week Forbes discovered that many of the country’s biggest, most profitable corporations enjoy a far lower tax rate than you do–that is, if they pay taxes at all.

While the biggest tax savings were grabbed by the bailed-out banks, the nation’s two largest telecommunications companies — AT&T and Verizon didn’t do too badly for themselves.

Of the two, AT&T had the higher tax bill, paying an effective tax rate of 32.4 percent.  But AT&T is still prone to  avoid paying corporate taxes wherever it can.  In Connecticut, AT&T’s maneuvers are fueling a campaign for state tax reform to close the loopholes.

This morning, the Hartford Courant slammed AT&T:

AT&T Corp. has emerged as the poster child for these shenanigans.

A state Department of Public Utility Control audit found AT&T to be engaging in a tax-avoidance scheme sometimes called the Las Vegas Loophole. Over a period of 2.5 years, AT&T shifted about $145 million in Connecticut earnings to a subsidiary in Nevada, ostensibly paying licensing fees for the right to use the company’s own name and logo. Nevada has no corporate income tax, so the shifted earnings went untaxed and Connecticut lost out. If it sounds fishy, that’s because it is. AT&T is not alone. Many large corporations use sham transactions designed to move profits generated in Connecticut to a different state where they won’t be taxed.

AT&T’s executives benefit from creative tax accounting themselves, earning a stipend of up to $14,000 a year to hire high-priced accountants that specialize in finding ways to reduce their own personal tax bite.  But no matter — AT&T covers the taxes CEO Randall Stephenson has to pay on some of his benefits anyway.

While the rest of the country plods through a jobless recovery, Stephenson decided the time was right to get a base salary increase and resume taking a bonus — a big one, too.  His effective compensation package rose by a third in 2009.

Among Stephenson’s compensation and perks:

• $1.45 million in base salary, up two percent over 2008;
• $12.1 million in options and performance-based stock incentives;
• $216,000 in rebates to cover his club membership dues;
• $200,000 to cover his life insurance premiums;
• $140,576 to cover any taxes he is forced to pay on his benefits package.

Verizon gets to use partner Vodafone's British address to help reduce exposure to U.S. corporate taxes. It reports much of its income through its British partner, which helps reduce its American tax liability.

Meanwhile, over at the nation’s 12th largest company, Verizon has managed to cut its tax rate to just 10.5 percents.  That’s because on paper, Verizon’s British partner Vodafone gets much of the income, while the U.S. side gets lots of expenses.  That dramatically reduces the corporate taxes incurred by the company in the United States.  That tax rate is even lower than Steve Forbes’ much-promoted 15 percent flat tax.

Verizon’s compensation to Uncle Sam calls out the myth of America’s corporate tax rate.  With creative accounting work, companies can slash their tax obligations.

That gives Verizon more money to spread around to top executives at the company, all while Verizon lays off thousands of workers and leaves retirees wondering how long the company will stand behind its pension and health coverage benefits.

Some shareholders are rankled by news CEO Ivan Seidenberg is on track to receive an $11 million stock grant if the company makes it as low as 25th among 34 similar Dow Jones-ranked companies, and a doubling to $22 million, if the company ranks among the top four.  That’s hardly a high hurdle to achieve an $11 million bonus.

That kind of compensation raises the ire of former employees of Verizon, who launched the Association of BellTel Retirees to protect the pension and health care benefits of retirees.

“Large payouts for below-median performance does not adequately align pay with performance,” said Bill Jones, the retiree group’s president, a former managing director at NYNEX, now a part of Verizon.

The group is well known for its high profile pressure on Verizon to stop providing a largess of benefits for top management for merely doing their jobs.

This year, the Association will demand a vote on a resolution to better tie stock awards to stock performance and limit executive compensation.  It also wants to stop expensive windfall golden parachute packages, such as Seidenberg’s $33.1 million dollar bon voyage, which he receives if he’s fired or retires.

While a handful of Verizon executives fight to preserve their generous compensation packages, Verizon retirees are fighting to get their doctor bills paid.  Jones’ group is strongly advocating new legislation to stop companies from walking away from their agreements with retired employees.

Bill Jones appeared on WOCA-AM Ocala, Florida in February to discuss the threat retirees face when companies walk away from their pension and health care plans for former employees. (28 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

H.R. 1322, the Emergency Retiree Health Benefits Protection Act, was introduced into the 111th Congress by Rep. John Tierney and would:

• Prohibit group health plans from making post-retirement reductions in retiree benefits;
• Require plans to adopt provisions barring post-retirement cuts in retiree health benefits;
• Require employers to restore benefits reduced after retirement;
• Provide an exemption for employers who are unable to restore benefits because they would experience substantial business hardship to be determined by the Secretary of Labor; and,
• Create a loan guarantee program to assist employers in restoring retiree health benefits.

Bill Jones discusses his organization’s battles to protect pensions and health care benefits for Verizon retirees.  (5 minutes)

Time Warner Cable may be robocalling you any day now with news that your set top box is getting what the cable company is calling an upgrade.

Time Warner Cable is making this robocall to customers with set top boxes announcing an upcoming upgrade. (1 minute)
You must remain on this page to hear the clip, or you can download the clip and listen later.

Calls are being made to customers with set top boxes in Buffalo and Rochester notifying them an upgrade to the new Mystro platform begins as early as April 13th, depending on the box being used.  Syracuse and southern tier residents can expect their upgrade to commence in May.  The company maintains a website that will let you find the exact schedule for the Mystro upgrade in your area.

Time Warner Cable’s Navigator software displays the electronic program guide, helps you program and control your DVR, and also includes the setup menu for the box.

The upgrade will result in a dramatic change in the look and feel of the box’s on-screen graphics, change how you navigate through the program guide, and provide more options for hooking up today’s HDTV sets. If you have a DVR box from Time Warner Cable, the upgrade sets the stage for an upcoming feature that will let you remotely program your DVR while away from home.

Not everyone is thrilled with the upgrade, however.  In fact, a Google search for “Time Warner Navigator upgrade” reveals a large selection of websites and forums filled with complaints.  Regularly reported problems include:

• Sluggish performance, especially on older set top boxes;
• Poor responsiveness on fast forward/rewind functions for DVRs, making it difficult to land precisely where you want to be;
• The loss of “virtual HD” channels which some boxes passed through to even standard analog-only TV’s (albeit not in HD of course);
• DVR bugs that made recording reliability inconsistent;
• A DVR menu that makes it difficult to record only new episodes of series that repeat regularly on the channel lineup;
• Box crashes, lost program guide data, and issues with the box retaining settings, especially for more complex HDTV setups;

Time Warner Cable began testing Mystro at least two years ago in selected markets, and the company believes it has worked out a number of the bugs noted above along the way. Time Warner plans to systematically upgrade their customers to the new platform nationwide now that testing has been completed.

This customer was so bemused with the Time Warner Navigator upgrade, he made a video illustrating the absurd journey he took to find a science-fiction movie to watch.

Time Warner Cable’s own promotional videos show off the new Time Warner Cable Navigator system in a better light. (5 minutes)

DC Circuit Court

The U.S. Court of Appeals for the District of Columbia has ruled the Federal Communications Commission has no authority to tell the nation’s largest cable operator to stop throttling broadband traffic crossing its network.  In a widely anticipated 36-page unanimous decision, the Court found the Commission exceeded its authority when it censured Comcast in 2008 for interfering with BitTorrent traffic.

The implications of the ruling could derail Commission plans to enforce Net Neutrality and implement the wide-ranging National Broadband Plan announced in March.

Judge David Tatel, writing for the court, found the Commission erred when it relied on policy statements issued by Congress as the basis for its authority to regulate broadband service:

The teaching of Southwestern Cable, Midwest Video I, Midwest Video II, and NARUC II—that policy statements alone cannot provide the basis for the Commission’s exercise of ancillary authority—derives from the “axiomatic” principle that “administrative agencies may [act] only pursuant to authority delegated to them by Congress.” Policy statements are just that—statements of policy. They are not delegations of regulatory authority.

Tatel

The seed for today’s authority-stripping ruling was first planted by the Bush Administration, which favored telecommunications deregulation.  When the FCC was tasked with finding a way to regulate fast-growing broadband, the Republican majority on the Commission was receptive to industry arguments that over-specific broadband regulation could hamper broadband development and have unintended consequences on private investment.  Urged instead to develop a general policy towards broadband, then FCC Chairman Michael Powell presided over the development of an “Internet Policy Statement” containing four informal principles the agency would rely on when assessing broadband:

1. Consumers are entitled to access the lawful Internet content of their choice.
2. Consumers are entitled to run applications and use services of their choice, subject to the needs of law enforcement.
3. Consumers are entitled to connect their choice of legal devices that do not harm the network.
4. Consumers are entitled to competition among network providers, application and service providers, and content providers.

The Commission’s often vague Internet Policy Statement was fatally flawed from day one, according to some legal experts.  First, the Statement was never codified by the Commission’s own rulemaking procedure.  Second, the Commission framed the broadband policy as a set of “guidelines,” a term considered legally vague.  Third, the FCC relied on the concept of “ancillary” authority — borrowing regulatory authority from so-called “policy statements” coming from Congress, to claim jurisdiction.

Even though some in the industry favored total deregulation of broadband, most providers agreed to adhere to the Four Principles, until Comcast decided it had the right to throttle down the speed of customers using file swapping software.  That violated Principle #2, and the Commission censured Comcast for purposely interfering with network traffic.

Comcast sued, claiming the Commission lacked the authority to regulate its network management policies.  Comcast first denied it was throttling broadband traffic, but later admitted the company was purposely governing the speed available to such software applications to protect their other customers.  Comcast argued that certain file swapping software does in fact harm its network (Principle #3) because the software utilizes as much broadband capacity it can find to move files back and forth.  Since Comcast customers in a neighborhood share a limited amount of bandwidth, a small number of customers ‘maxing out their connections’ running such software could potentially slow down everyone  else in the neighborhood.

Ultimately, today’s court decision agreed with Comcast — the Federal Communications Commission lacks authority over broadband.

It also did the industry one better by warning any regulatory authority the Commission believes it has over broadband better be backed up with specific authority granted by Congress, or the court may find those policies vulnerable as well.

In short, the court just fired a warning shot suggesting the FCC has no authority to enact Net Neutrality protections or the National Broadband Plan, at least not under Kevin Martin’s flawed approach.

The ruling comes as no surprise.  The attorney for the FCC found a hostile reception from the court during oral arguments back in January.  Where was the specific authority, granted by Congress, to oversee broadband policy they asked?  Why is the Commission relying on general principles to govern broadband?  By the end of the session, the FCC’s lead attorney was foreshadowing the imminent loss of his case by asking the court to make the decision against the FCC a teachable moment — giving advice in the ruling as to how to write policies that -will- survive a court test.  The court wasted no time telling the attorney that wasn’t their job.

Public interest groups and others advocating Net Neutrality and the National Broadband Plan issued statements warning about the implications of an industry freed from regulatory oversight.

S. Derek Turner, research director for Free Press:

“The decision has forced the FCC into an existential crisis, leaving the agency unable to protect consumers in the broadband marketplace, and unable to implement the National Broadband Plan. As a result of this decision, the FCC has virtually no power to stop Comcast from blocking Web sites. The FCC has virtually no power to make policies to bring broadband to rural America, to promote competition, to protect consumer privacy or truth in billing. This cannot be an acceptable outcome for the American public and requires immediate FCC action to re-establish legal authority.

“This crisis is not a result of a weak congressional law, but a direct consequence of the previous two Commissions’ misguided and overzealous attempts to completely deregulate America’s communications networks. Past FCC actions created a huge loophole in the law that leaves the agency unable to protect consumer privacy or promote universal broadband access.

“The FCC must have the authority to carry out its consumer protection and public interest mission in the 21st-century broadband marketplace. The current Commission did not create this existential crisis, but it now has no choice but to face these tough jurisdictional questions head on, and do what is necessary to protect consumers and promote competition.”

Ryan Singel – Wired Magazine:

A broadband company could, for instance, ink a deal with Microsoft to transfer all attempts to reach Google.com to Bing.com. The only recourse a user would have, under the ruling, would be to switch to a different provider — assuming, of course, they had an alternative to switch to.

Companies can also now prohibit you from using a wireless router you bought at the store, forcing you to use one they rent out — just as they do with cable boxes. They could also decide to charge you a fee every time you upgrade your computer, or even block you from using certain models, just as the nation’s mobile phone carriers do today.

While this might seem like a win for the nation’s broadband and wireless companies, the ruling could be so strong that it boomerangs on them. For instance, if the FCC is left without the power to implement key portions of the National Broadband Plan — a so-far popular idea — then Congress or the FCC may have to find a way to restore power to the commission. That could leave the FCC stronger than it was before the ruling.

Gigi Sohn, Public Knowledge:

“Today’s Appeals Court decision means there are no protections in the law for consumers’ broadband services. Companies selling Internet access are free to play favorites with content on their networks, to throttle certain applications or simply to block others. In addition, as of now, the Federal Communications Commission’s (FCC) ambitious National Broadband Plan to help boost the economy is in legal limbo. The ability of the FCC to support broadband through universal service is in jeopardy, as is the agency’s ability to protect consumer privacy, ensure access to broadband-based emergency communications or promote access to broadband for the disabled. In our view, the FCC needs to move quickly and decisively to make sure that consumers are not left at the mercy of telephone and cable companies.

“If it chooses, the Commission can continue to roll the dice and let the courts decide each time it wants to try to put some consumer protections on a broadband service. The court decision left open that option.

“We have a different idea. The FCC should immediately start a proceeding bringing Internet access service back under some common carrier regulation similar to that used for decades. Some parts of the Communications Act, which prohibit unjust and unreasonable discrimination, could be applied here. The Commission would not have to impose a heavy regulatory burden on the telephone and cable companies, yet consumers could once again have the benefit of legal protections and the Broadband Plan could go forward. The American public deserves no less.

“We need to emphasize that no one is talking about regulating ‘the Internet.’ No one is talking about regulating search engines or Web sites. We are talking about re-applying policies to a telecommunications service that the FCC incorrectly abandoned. That is the most simple solution and it’s the correct one.”

The FCC, despite the decisive loss in court, claims it will carry on.

“Today’s decision invalidated the prior commission’s approach, but in no way disagreed with the importance of preserving a free and open Internet,” FCC spokeswoman Jen Howard said in a statement.

Nick Summers, writing for Newsweek’s ‘Techtonic Shifts’ blog, believes FCC Chairman Julius Genachowski is likely to aggressively respond to today’s court decision by employing the “nuclear option,” reclassifying broadband Internet as a communication service just like the nation’s phone system, bringing it fully under FCC regulation.

Would Genachowski go that far, undoing virtually all of the Bush-era FCC’s policies? Yes. In September, he gave a major address about net neutrality without ever actually uttering the phrase. But he concluded with these strong words:

“We are here because 40 years ago, a bunch of researchers in a lab changed the way computers interact and, as a result, changed the world. We are here because those Internet pioneers had unique insights about the power of open networks to transform lives for the better, and they did something about it. Our work now is to preserve the brilliance of what they contributed to our country and the world. It’s to make sure that, in the 21st century, the garage, the basement, and the dorm room remain places where innovators can not only dream but bring their dreams to life. And no one should be neutral about that.”

The importance that Genachowski et al. place on net neutrality has never remotely been in doubt. In February 2009, months before he was confirmed as FCC chairman, at a private dinner in Manhattan, Genachowski spoke about the Internet’s role in the election of President Obama and in America’s future. He was circumspect about details, but Genachowski spoke unreservedly about the need for certain core protections if the country was to remain at the fore of the Internet revolution. It’s just that important.

CNBC reports the FCC’s loss in court could open the door to metered broadband service in the United States.  (2 minutes)

[Article Correction 4/15/2010: The original piece laid blame for the classification of broadband as an "information service" on former FCC Chairman Kevin Martin.  In fact, the classification was made by former FCC Chairman Michael Powell, who served during the first term of the Bush Administration.  We regret the error.]

Ontario County, New York

Senator Charles Schumer (D-New York) visited Canandaigua Monday to promote Ontario County’s fiber optic broadband project, in hopes of securing federal funding to expand the fiber project into adjacent counties in the Rochester-Finger Lakes region.

Schumer likened fiber optic broadband development to other revolutionary transportation projects in New York’s past which transformed local economies, created jobs, and brought prestige to the region.

“One fact has proven true since the days of the Erie Canal: if you don’t have good infrastructure, you’re not gonna bring jobs, but when you do have good infrastructure, you are gonna bring jobs. And the fiber optic ring that we are talking about here in Ontario County is the Erie Canal of the 21st century. It’s that simple,” Schumer told an audience at the Center for Infotonics.

Ontario County began constructing a fiber ring more than a decade ago to improve connectivity across the often-rural county.  Bookmarked between high growth areas around Victor and Canandaigua to the east and Geneva to the west, large expanses of Ontario County are rural. Being a part of central New York’s Finger Lakes Region means the often hilly terrain and winding roads can make wiring expensive and difficult in certain areas.  But the prospect for 21st century connectivity has helped fuel growth — and jobs — into the region.

Sen. Schumer

Schumer wants FCC officials to visit Ontario County to explore the project as a potential blueprint for wiring other counties.

“We will not only put this region at the cutting edge of attracting new businesses that need high speed fiber optics, but we’ll do a service to the rest of the country by showing them how it can work,” said Schumer.

New York’s senior senator said he will aggressively pursue millions in federal funding to expand the project outside of Ontario County, and help complete the fiber optic network.

The senator may find some opposition to federal funding initiatives from incumbent providers Frontier Communications and Time Warner Cable, particularly if funds originate from broadband stimulus programs.  Both companies would likely object to federal spending on a fiber network that crosses areas both companies already serve.

Frontier Communications offers DSL service in many parts of Ontario County, and Time Warner Cable has wired most of the significant-sized towns and cities in the county.

The Ontario County project has been built without any federal stimulus money.

Sen. Schumer’s visit to Canandaigua, New York to promote Ontario County’s fiber project was covered in these three reports from YNN, WROC-TV, and WHAM-TV — all in Rochester, New York.  (6 minutes)