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Google Fiber’s CEO Out of a Job; Fiber Expansion on Hold Indefinitely in Many Cities

Down the rabbit hole

Down the rabbit hole

Google has quietly announced an indefinite suspension of further fiber expansion as it prepares to downsize fiber division employees and re-evaluate its fiber business model.

In a blog post tonight from Craig Barratt, senior vice president of Alphabet and CEO of Google’s Access division, it becomes clear Google is rethinking its entire fiber strategy and is likely moving towards fixed wireless technology going forward:

Now, just as any competitive business must, we have to continue not only to grow, but also stay ahead of the curve — pushing the boundaries of technology, business, and policy — to remain a leader in delivering superfast Internet. We have refined our plan going forward to achieve these objectives. It entails us making changes to focus our business and product strategy. Importantly, the plan enhances our focus on new technology and deployment methods to make superfast Internet more abundant than it is today.

Barratt outlines the immediate implications of Google’s dramatic shift:

  • In the cities where we’ve launched or are under construction, our work will continue;
  • For most of our “potential Fiber cities” — those where we’ve been in exploratory discussions — we’re going to pause our operations and offices while we refine our approaches. In this handful of cities that are still in an exploratory stage, and in certain related areas of our supporting operations, we’ll be reducing our employee base.
Barratt

Barratt

Barratt himself is jumping ship (or was pushed). He announced in his blog entry he is “stepping away” from his CEO role, but will remain as an “adviser.”

Observing Google’s recent fiber efforts and acquisitions, it seems clear Google no longer thinks fiber-to-the-home service is an economically viable solution in light of competitors like AT&T rolling out increasing amounts of fiber and the cable industry is on the cusp of launching DOCSIS 3.1, which will dramatically boost internet speeds without a substantial capital investment.

Google’s investors have been lukewarm about the company’s economic commitments relating to its fiber broadband networks. Often built from the ground up, Google’s fiber construction complexities also include trying to navigate costly roadblocks established by their competitors (notably Comcast and AT&T), dealing with bureaucracies and red tape even in states where near-total-deregulation was supposed to make competition easy. Google Fiber has also not proved to be a runaway economic success, and now faces more challenges in light of upgrades from their competitors. Cable companies have slashed prices for customers threatening to cancel and have added free services or upgrades to persuade customers to stay, and Google’s proposition of selling consumers $70 gigabit access has proved tougher than expected.

It is highly likely the future of Google’s Access business will be deploying wireless broadband solutions powered by Webpass, a company Google acquired earlier this year. Webpass uses a high-speed point to point wireless transmission system the company claims can deliver gigabit broadband access to customers in multi-dwelling buildings and other urban areas. Webpass sells access for $60 a month (discounted to $550/yr if paid in advance) for 100Mbps-1,000Mbps speed depending on network density and capacity in the customer’s building. So far, Webpass has not been able to guarantee speed levels, and some customers report significant variability depending on their location and network demand.

Webpass’ wireless infrastructure costs a fraction of what Google has coped with building fiber to the home networks, and the installation of point-to-point wireless antennas on participating buildings has been less of a regulatory nightmare than digging up streets and yards to lay optical fiber.

webpassBut despite Webpass’ claim its performance is comparable to fiber, its inability to guarantee customers a certain speed level and its tremendous performance variability from 100 to 1,000Mbps exposes one of the weaknesses of fixed wireless networks. At a time when capacity is king, only fiber optic networks have shown a consistent ability to deliver synchronous broadband speeds that do not suffer the variability of shared networks, poor antenna placement/signal levels, or harmful interference.

There is room for wireless technology to grow and develop, as evidenced by the wireless industry’s excitement surrounding future 5G networks and their ability to offer a home broadband replacement. The emergence of 5G competition is almost certainly also a factor in Google’s decision. But even AT&T and Verizon acknowledge a robust 5G network will require a robust fiber backhaul network to support both speed and user demand. The more users sharing a network, the slower the speed for all users. No doubt Webpass has made the same assumption that cable operators did in the early days of DOCSIS 1 — current internet applications won’t tax a network enough to create a traffic logjam that would be noticed by most customers. The phone companies also learned a similar lesson trying to serve too many DSL customers from inadequate middle mile networks or traffic concentration points. (Some phone companies are still learning.)

Whether it was yesterday’s peer-to-peer file sharing or today’s online video, capacity matters. That is why fiber broadband remains the gold standard of broadband technology. Fiber is infinitely upgradable, reliable, and robust. Wireless is not, at least not yet. But technology arguments rarely matter at publicly-traded corporations that answer to Wall Street and investors, and it appears Google’s backers have had enough of Google Fiber.

Stop the Cap!’s View

tollAt Stop the Cap!, we believe these developments further the argument broadband is an essential utility best administered for the public good and not solely as a profit-motivated venture. The path to fiber to the home service in rural, suburban, and urban communities has and will continue to come from a mix of private and public utilities, just as local public and private gas and electric companies have served this country for the last century. Where there is a business model for fiber to the home service that investors support, there is a for-profit fiber provider. Where there isn’t, now there is often no service at all. So far, the FCC in conjunction with Congress has seen fit to solve broadband availability problems by bribing private providers into offering service (usually low-speed DSL that does not even meet the FCC’s definition of broadband) with cash subsidies, tax write-offs, or occasional tax abatement schemes. Imagine if we followed that model with the nation’s public roads and highways. We would today be paying tolls or a subscription to travel down roads built and owned by a private company often financed by tax dollars.

Not every product or service needs to earn Wall Street-sized profits. Nobody needs to get rich selling water, gas, and electricity… or broadband. Public broadband networks can and should be established wherever they are needed, and they should be priced to recover their costs as well as expenses that come from support, billing, and ongoing upgrades. Naysayers like to claim municipal broadband is socialism run wild or an instant economic failure, yet the same model has provided Americans with reliable and affordable gas, electricity, and clean water for over 100 years.

Maine was made for municipal broadband.

Maine was made for municipal broadband.

In New York, publicly owned/municipal utilities often charge a fraction of the price charged by investor-owned utilities. In Rochester, where Stop the Cap! is headquartered, one need only ask a utility customer if they would prefer to pay the prices charged by for-profit Rochester Gas & Electric or live in a suburb where a municipal provider like Fairport Electric or Spencerport Electric offers service. RG&E has charged customers well over 10¢ a kilowatt-hour when demand peaks (along with a minimum connection charge of over $21/mo and a “bill issuance charge” of 72¢/mo). Spencerport Electric charges 2.9¢ a kilowatt-hour and a connection charge of $2.66 a month, and they issue their bills for free. There is a reason real estate listings entice potential buyers by promoting the availability of municipal utility service. The same has proven true with fiber-to-the-home broadband service.

The economic arguments predicting doom and gloom are far more wrong than right. Municipal utilities are often best positioned to offer broadband because they already have experience providing reliable service and billing and answer to the needs of their local communities. Incompetence is not an option when providing reliable clean water or electricity to millions of homes and customers have rated their public utilities far superior to private phone or cable companies.

Google’s wireless future may prove a success, but probably only in densely populated urban areas where a point-to-point wireless network can run efficiently and profitably. It offers no solution to suburban, exurban, or rural Americans still waiting for passable internet access. Clearly, Google is not the “free market” solution to America’s pervasive rural broadband problem. It’s time to redouble our efforts for public broadband solutions that don’t need a seal of approval from J.P. Morgan or Goldman Sachs.

Google Fiber Puts Expansion on Hold as It Contemplates Wireless Instead

google fiberFurther expansion of Google Fiber appears to be on hold as the company contemplates moving away from fiber to the home service towards a wireless platform that could provide internet access in urban areas for less money.

The Wall Street Journal today reports Google parent Alphabet, Inc., is looking to cities to share more of the costs of building faster broadband networks or using cheaper wireless technology to reach customers instead.

Six years after Google first announced it would finance the construction of fiber to the home networks, the company has made progress in wiring just six communities, many incompletely. Progress has been hampered by infrastructure complications including pole access, permitting and zoning issues, unanticipated construction costs, and according to one Wall Street analyst, the possibility of lack of enthusiasm from potential subscribers.

Google’s recent acquisition of Webpass, a company specializing in beaming internet access over fiber-connected wireless antennas between large multi-dwelling units like apartments and condos appears to be a game-changer for Google. Webpass was designed mostly to service urban and population dense areas, not suburbs or neighborhoods of single-family dwellings. Webpass’ reliance on wireless signals that travel between buildings removes the cost and complexity of installing fiber optics, something that appears to be of great interest to Google.

Google Fiber is planning a system that would use fiber for its core network but rely on wireless antennas to connect each home to the network, according to a person familiar with the plans. Alphabet chairman Eric Schmidt said at the company’s shareholder meeting in June that wireless connections can be “cheaper than digging up your garden” to lay fiber. The only question is what kind of performance can users expect on a shared wireless network. Google’s plans reportedly do not involve 5G but something closer to fixed wireless or souped-up high-speed Wi-Fi. A web video on Webpass’ website seems to concede “you get best speeds with a wired connection.”

Even Google's wireless technology solutions provider Webpass concedes that wired broadband is faster.

Even Google’s wireless technology solutions provider Webpass concedes that wired broadband is faster.

Former Webpass CEO Charles Barr, now an Alphabet employee, argues wireless solves a lot of problems that fiber can bring to the table.

“Everyone who has done fiber to the home has given up because it costs way too much money and takes way too much time,” Barr said.

Barr’s statements are factually inaccurate, however. Fiber to the home projects continue in many cities, but if they are run by private companies, chances are those rollouts are limited to areas where a proven rate of return is likely. Large incumbent phone and cable companies are also contemplating some fiber rollouts, at least to those who can afford it. Many of the best prospects for fiber to the home service are customers in under-competitive markets where the phone company offers slow speed DSL and cable broadband speeds are inadequate. Rural communities served by co-ops are also prospects for fiber upgrades because those operations answer to their members, not investors. Community broadband projects run by local government or public utilities have also proven successful in many areas.

subBut like all publicly traded companies, Google must answer to Wall Street and their investors and some are not happy with what they see from Google Fiber. Craig Moffett from Wall Street research firm MoffettNathanson has rarely been a fan of any broadband provider other than cable operators and Google Fiber is no different.

“One can’t help but feel that all of this has the flavor of a junior science fair,” Moffett said of Google Fiber, pointing out the service has managed to attract only 53,000 cable TV customers nationwide as of December. Moffett concedes there are significantly more broadband-only customers signed up for Google, but that didn’t stop him from suggesting Google Fiber has had very little impact on increasing broadband competition across the country.

Analysts suggest Google Fiber is spending about $500 per home passed by its new fiber network. But that is a fraction of the $3,000+ per customer often spent by cable operators buying one another.

Google’s wireless deployment will likely take place in Los Angeles, Dallas, and Chicago according to people familiar with the company’s plans. Less dense cities slated for Google Fiber including San Jose and Portland, Ore., may never get any service from Google at all, but they are likely to hear something after a six month wait.

Google is also reportedly asking cities if the company can lease access on existing fiber networks. Another tactic is requesting power companies or communities build fiber networks first and then turn them over to Google to administer. The latter seems less likely, considering there are successful public broadband networks operating on their own without Google’s help.

Charter, AT&T At War With Google in Louisville Over Pole Access

att poleStall, stall, stall. While Charter Communications and AT&T are working towards improving their broadband service offerings for Kentucky’s largest city, both companies are doing everything possible to slow down the arrival of their nemesis: Google Fiber, which is preparing to wire Louisville for gigabit fiber to the home service.

This past February, Louisville Metro Council unanimously passed a new ordinance called “One Touch Make Ready,” designed to streamline telecom provider access to utility poles, which are getting crowded with at least three telecom companies vying for consumers’ business. The ordinance was passed with the support of Google, which seeks a minimum of red tape from local permit and zoning bureaucracies and its competitors while network engineers begin installing fiber optics across the city. Installing Google Fiber on utility poles may involve moving other providers’ wiring to make room for Google, which in some cases could mean 4-5 different utility companies having to visit each pole to move their wiring. In the past, Google asked the pole owner for access, which has not always been forthcoming on a timely basis. The new ordinance requires the pole owner to respond to access requests within 30 days. If no response is forthcoming, Google can approach the city for a permit to hire a contractor to do all the relocation work on their behalf.

“Such policies reduce cost, disruption, and delay, by allowing the work needed to prepare a utility pole for new fiber to be attached in as little as a single visit—which means more safety for drivers and the neighborhood,” Google wrote on its blog. “This work would be done by a team of contractors the pole owner itself has approved, instead of having multiple crews from multiple companies working on the same pole over weeks or months. One Touch Make Ready facilitates new network deployment by anyone—and that’s why groups representing communities and fiber builders support it, too.”

Louisville, Ky. (Image: Chris Watson)

Louisville, Ky. (Image: Chris Watson)

About two weeks after the ordinance passed, AT&T made it clear they did not support it and took the city to court, claiming it had no right to regulate its utility poles.

“Louisville Metro Council’s recently passed ‘One Touch Make Ready’ Ordinance is invalid, as the city has no jurisdiction under federal or state law to regulate pole attachments,” said AT&T spokesman Joe Burgan. “We have filed an action to challenge the ordinance as unlawful. Google can attach to AT&T’s poles once it enters into AT&T’s standard Commercial Licensing Agreement, as it has in other cities. This lawsuit is not about Google. It’s about the Louisville Metro Council exceeding its authority.”

Time Warner Cable (now Charter Communications) joined AT&T, adding the city is violating the cable company’s corporate constitutional rights by effectively seizing their property (cable lines) and granting a right for third parties to manipulate, move, or manage those lines without Time Warner Cable’s permission.

“The ordinance is simply unworkable,” said Time Warner Cable’s attorney Gardner Gillespie, a partner in the D.C. law firm Sheppard-Mullin. “It does not provide any meaningful way for Time Warner Cable to know what changes have been made to its existing facilities or to assure any damage is promptly cured.”

google fiberGillespie also claimed customers could endure poorer service and outages as a result of unauthorized contractors relocating Time Warner Cable’s equipment, often without the cable company’s knowledge.

City officials dismissed the concerns, but failed to get either lawsuit dismissed.

Charter executives have also opened a new opposition front against Google Fiber’s presence in the city, accusing city officials of unfairly favoring the search engine giant while continuing to burden Charter with a franchise agreement that requires the cable company to provide free cable in city buildings and offer channel space and studio facilities for the city’s Public, Educational, and Government Access channels.

At present, Google is not obligated to provide any of those services and has also won a unique regional franchise that covers the city of Louisville and nearby suburbs in a single agreement. The Metro Council has also granted Google its own public right-of-way access for installing various communications infrastructure. Both AT&T and Charter claim they are only getting involved because they believe they should be given equal treatment. Critics contend they are attempting to slow down Google Fiber, which could begin offering service by fall of 2017.

Time Warner Cable began offering Maxx-upgraded service in March 2016, offering residents up to 300Mbps. AT&T is gradually expanding its U-verse with GigaPower gigabit broadband service in locations around Louisville.

Is Your Landlord Taking Kickbacks to Keep Better Internet Out of Your Building?

xfinity communitiesIs your cable television service included in your rent or condo “services” fee? Have you ever called another provider and told service was not available at your address even through others outside of your condo neighborhood or apartment complex can sign up for service today? Chances are your landlord or property management company is receiving a kickback to keep competition off the property, while you may be stuck paying for substandard services you neither want or need. Worst of all, chances are it’s all legal and everyone is getting a piece of the action… except you.

Welcome to the world of Multiple Dwelling Unit (MDU) Bulk Service Agreements, the seedy underbelly of the anti-competitive cable and telco-TV world. When cable TV first got going, most people wanted access. In the early days, cable franchises were typically exclusive and cable companies maintained the upper hand in negotiations with apartment owners and property owners. Since the service was in demand, many property owners were told to sign whatever “Right Of Entry” Agreement (ROE) was put in front of them. Most contained clauses that guaranteed that cable company would get exclusive access to the property for as long as it was given a franchise to operate within that community. In other words, basically forever.

This turned out very handy when competitors started showing up. First on the scene were satellite television providers, which had a rough time dealing with landlords who loathed tenants installing satellite dishes that “ruined the aesthetics” of the property. Many rental agreements still restrict satellite television dishes in ways that make their use untenable. But things got much more serious when Verizon and AT&T got into the cable business. Initially, both companies found extending FiOS and U-verse to some rental and gated communities was blocked by the exclusive agreements held by cable operators. By 2007, the FCC finally acted to forbid exclusive service contracts, but the cable industry and property developers have played cat and mouse games with the FCC’s loopholes ever since.

Property Developers, Management Companies, Landlords, and Homeowner Associations With Their Hands Out

att connectedWith the FCC’s 2007 declaration that exclusive contracts between cable companies and property owners were “null and void,” the power of the cable industry to negotiate on their terms was markedly diminished. Although many property owners applauded their new-found freedom to tell the local cable company to take a hike if they did not offer better service to their tenants, many others saw dollar signs in their eyes. With leverage now in the hands of the property owner, if the local cable company wanted to stay, in many cases it had to pay. Only the most brazen property owners kicked uncooperative cable companies off their properties, putting tenants at a serious inconvenience. Instead, many found life more peaceful and lucrative to stick with the existing cable company, signing a new contract for “bulk billing” tenants. On the surface, it seemed like a good deal. Property owners advertised that cable TV was included in the rent (and they paid a deeply discounted price per tenant) and the cable operator had a guaranteed number of customers, whether they wanted the service or not.

Bulk billing also proved a very effective deterrent for would-be competitors, who had to overcome the challenge of marketing their service while the tenant was already paying for another as part of their rent. As a result, telco TV competitors often stayed away from properties with bulk billing arrangements.

As broadband has become more prominent and threatens to become more important than the cable TV package, the cable industry has refined its weapons of non-competition. While they cannot force competitors off properties, they can make life very expensive for them. The latest generation of ROE agreements often grant access rights to the building’s telecommunications conduit, cabling, and equipment exclusively to the cable operator.

fiosIf Google Fiber, AT&T U-verse or Verizon FiOS sought to offer service on one of these properties, they would have to overcome the investment insanity of wiring each building with its own infrastructure, including duplicate cables, in separate conduits and spaces not already designated for the exclusive use of the cable company. Verizon in New York City has faced numerous obstacles wiring some buildings, including gaining access to the building itself. Intransigent on site employees, bureaucratic and unresponsive property management companies, and developers have all made life difficult for Verizon’s fiber upgrade.

AT&T often takes the approach “if you can’t beat ’em, join ’em” and offers its own bulk billing incentives, along with occasional commitments for fiber upgrades. Google Fiber can afford to skip places where it isn’t wanted, although with recent revelations that landlords can raise the rent by up to 11% with the arrival of Google Fiber alone, it may hurt to alienate that fiber to the home provider.

Kickbacks for New Developments = Windfall

Kickbacks for existing properties are lucrative, but nothing compared to the lucrative windfall new property developments can achieve with the right deal.

In 2013, one property developer in Maryland went all out for an exclusive deal with a provider that was going to get de facto exclusivity by using a convoluted series of entities and agreements designed to insulate the company from competition and a challenge from the FCC. A court later ruled the provider used an “elaborate game of regulatory subterfuge” using various corporate entities to escape potential competition.

Some lawyers devote a substantial amount of their practice to the issue of bulk contracts and ROE agreements. Carl Kandutsch serves clients nationwide, many trying to extricate themselves from bad deals of the past. In many cases, an attorney may be needed to find a way out of contracts that don’t meet FCC rules. Other communities sometimes have to buy out an existing contract. Many have to sit and suffer the consequences for years. One residential community found itself trapped with a service provider that was quietly protected by an “airtight contract” negotiated not with the property management company or the homeowner association, but the development’s original builder. The provider delivered lousy service and the community spent six years trying to get rid of the offending firm with no result until they hired an attorney. Although happy to be rid of the bad provider, the homeowner association ended up illustrating how pervasive this problem is after it signed a similar contract with another provider also handing out kickbacks.

Comcast pays up to 10% of a renter's cable bill to the landlord.

Comcast pays up to 10% of a renter’s cable bill to the landlord. (Image: Susan Crawford)

Comcast is more creative than most. It calls its handouts: “Marketing Support Compensation.” The property owner gets an increasing reward for every tenant signed up for Comcast service. Once around two-thirds of tenants are subscribed, the owner gets up to a 10% take of each bill, plus a one time payment of up to $130 per tenant.

Because Comcast’s reputation often precedes it, customers reluctant to sign up without considering other providers will find that tougher to do because Comcast bans other providers from marketing their services to tenants with the support or cooperation of the landlord. In other words, no door hangers, free coffee, brochures in the lobby, or any other on-site promotions. In case a property owner forgets, Comcast sends reminders in the mail:

Comcast likes to remind landlords it has an exclusive. (Image: Susan Crawford)

Comcast likes to remind landlords it has an exclusive. (Image: Susan Crawford)

Susan Crawford calls it “astounding, enormous, decentralized payola” and claims it affects millions of renters.

Crawford

Crawford

“These shenanigans will only stop when cities and national leaders require that every building have neutral fiber/wireless facilities that make it easy for residents to switch services when they want to,” Crawford wrote. “We’ve got to take landlords out of the equation — all they’re doing is looking for payments and deals (understandably: they’re addicted to the revenue stream they’ve been getting), and the giant telecom providers in our country are more than happy to pay up. The market is stuck. Residents have little idea these deals are happening. The current way of doing business is great for landlords and ISPs but destructive in every other way.”

One real world example of how this deters competition comes from Webpass (recently acquired by Google), which offers gigabit Ethernet speeds in select MDUs in San Francisco, San Diego, Miami, Chicago, and Boston. The service comes with a low price, but that doesn’t get the company in the door, according to its president, Charles Barr.

Barr has been refused entry by multiple building owners who have agreements with Comcast, AT&T, or others.

“Tenants want us, but we can’t get in,” Barr said.

Crawford argues the FCC has once again been outmaneuvered by ISPs and their attorneys.

“Sure, a landlord can’t enter into an exclusive agreement granting just one ISP the right to provide Internet access service to an MDU, but a landlord can refuse to sign agreements with anyone other than Big Company X, in exchange for payments labeled in any one of a zillion ways,” added Crawford. “Exclusivity by any other name still feels just as abusive.”

This isn’t a new problem. Stop the Cap! first reported on these kinds of bulk buying arrangements back in 2010, all made possible by the FCC’s regulatory loopholes. Six years later, the problem appears to be getting worse.

Unintended Consequences: Feds Let Telecom Companies Skirt Taxes While States Crack Down

Tax-FreeSome of America’s largest telecommunications companies continue to pay almost nothing in federal taxes even as state taxing authorities hungry for revenue  are getting more aggressive about denying access to tax loopholes and suing some for failing to pay their fair share.

Special interest-inspired “pro-business” loopholes have been a growing part of the U.S. tax code since the Reagan Administration. The premise seemed reasonable enough: high corporate taxes are simply passed on to consumers as a cost of doing business, so lowering them will trickle savings down to the consumer and also free capital to create more jobs. It has not worked that way, however. Product pricing for services like broadband have been based more on what customers believe the product is worth, not what it costs to deliver, and Verizon was among the companies cited for significant job cuts after its corporate tax rate plummeted. Regardless of corporate tax rates, providers continue to raise broadband prices, even as the costs to provide the service are declining. The old maxim of charging what the market will bear is alive and well. So where do the tax savings go? Into share buybacks, shareholder dividend payouts, increased executive salaries and bonuses, and lobbying.

Some states are discovering they have been leaving money on the table when they don’t insist on collecting owed state taxes, and as state budgets continue to be strapped with increasing medical and infrastructure-related expenses, taking companies to court who try to avoid their tax obligations is getting more popular.

One of the biggest potential windfalls could eventually fill New York State coffers with $300 million in damages and penalties courtesy of Sprint, which was accused of deliberately not billing customers for state taxes on its wireless services over seven years.

SprintYesterday, the U.S. Supreme Court turned away Sprint’s effort to void an October 2015 New York Court of Appeals decision that would allow the state to proceed to court arguing Sprint intentionally failed to collect more than $100 million in taxes from New Yorkers from 2005 on. At the time, Sprint was attempting to rebuild its market share by luring customers with cheaper mobile service. One way to offer a lower price is to stop charging tax. In New York alone, municipalities lost $4.6 million a month as a result of the scheme.

Sprint has repeatedly argued the lawsuit is invalid because a 2000 federal law trumps a 2002 New York State law that covered state taxes. The court disagreed, and the fact a whistleblower at Sprint revealed what Sprint was up to didn’t help. The case will now likely head to state court or get settled.

Verizon-Tax-Dodging-bannerWhile $300 million sounds like a lot, it pales in comparison to the money Verizon manages to dodge paying the Internal Revenue Service. The phone company is the poster child of corporate tax dodging according to Democratic presidential candidate Bernie Sanders. Sanders targeted Verizon because between 2008-2013, Verizon not only did not pay a nickel in federal taxes, it actually received a refund from the federal government after achieving a federal tax rate of -2.5%, despite booking $42.5 billion in profits. American taxpayers effectively subsidized Verizon when it got its refund check.

In the last two years, Verizon is paying federal taxes once again, but at a rate of 12.4%, well below the tax rate of most middle class Americans.

It’s a sensitive matter for Verizon, because CEO Lowell McAdam launched a full-scale media blitz trying to paint the Sanders campaign as inaccurate. McAdam claims Verizon actually paid a 35% tax rate in 2015, which would only be true if the company added the tax obligations it owes on the billions of dollars it stashes in overseas bank accounts. Foreign taxes don’t help the American taxpayer, suggest critics, and Citizens for Tax Justice consider McAdam’s claims “artificial.”

“In fact, over the past 15 years, Verizon has paid a federal tax rate averaging just 12.4 percent on $121 billion in U.S. profits, meaning that the company has found a way to shelter about two-thirds of its U.S. profits from federal taxes over this period,” the group claims. “In five of the last 15 years, the company paid zero in federal taxes. While there is no indication that this spectacular feat of tax avoidance is anything but legal (the company’s consistently low tax rates are most likely due to overly generous accelerated depreciation tax provisions that Congress has expanded over the last decade), few Americans would describe the company avoiding tax on $78 billion of profits as ‘fair.’”

unintendedBruce Kushnick, executive director of the New Networks Institute, claims Verizon also specializes in dumping most of its costs and “losses” on Verizon Communications, which owns its legacy wireline network, which helps them cut their tax obligations.

Too often, changes to the U.S. tax code have unintentional consequences, especially when corporations can hire tax attorneys that outclass those working for the federal government.

Fredric Grundeman helped draft a tax bill that was supposed to curb loopholes in the estate tax and though well-trained as a trusted attorney at the Treasury Department, the bill quickly backfired. The new law opened even larger loopholes than those it was originally written to close, allowing some of America’s richest families to pass on money to heirs with no tax implications at all. Grundeman admits legislators often don’t recognize a new tax law’s potential for abuse.

“How do I say it?” Grundeman told Bloomberg News back in 2013. “When Congress enacts a law, it isn’t always well thought out.”

That is also true on the state level.

Oregon officials push a button to exempt Google Fiber from a state property tax.

Oregon officials push a legislative button and give Google Fiber a tax break. Then Comcast shows up.

Oregon wants to attract Google Fiber to Portland, but Google objected to one of the state’s property tax provisions that affects companies that sell data services. Oregon partly sets the tax rate commensurate with the value of the provider’s brand name, among other factors. It’s all very vague, but not so vague that Google would miss it could pay an even higher tax rate that its competitors — Comcast and CenturyLink.

Oregon’s legislature voted to correct the problem by exempting providers that offer gigabit broadband. The tax law changes were tailored to benefit Google, assuming Comcast and CenturyLink would continue to drag their feet to upgrade their Oregon networks.

But the enterprising lawyers at Comcast promptly requested the same tax exemption that Google would get in return for building its fiber network in the state. The reason? Comcast had introduced its own gigabit Internet service on a much more limited scale.

Rep. Phil Barnhart (D-Eugene) admitted Oregon had another law on its hands with unintended consequences. Barnhart told utility regulators this spring his fellow lawmakers never intended to give the tax break to Comcast, which charges hundreds of dollars for 2,000Mbps service. But nobody bothered to set any price guidelines in the law, meaning Google can charge $70 a month for gigabit service and get a tax break and Comcast can offer 2Gbps service in a limited number of locations, at the “go away” price of $300 a month, with start-up costs up to $1,000, and a multi-year contract, and get the exact same tax break.

Barnhart

Barnhart

Or maybe not, at least for now.

Last week, the Oregon Department of Revenue ruled Comcast is not eligible for that tax break, at least not this year, according to The Oregonian. The department wouldn’t explain why, citing taxpayer confidentiality. For good measure, the same department also rejected applications from Google Fiber and Frontier Communications (Frontier operates a very limited FiOS fiber to the home network in communities including Beaverton, Hillsboro, and Gresham that it inherited from Verizon), claiming Google and Frontier’s gigabit networks were theoretical in Oregon and there needed to be gigabit service actually up and running to qualify.

That leaves Google in a classic catch-22. It won’t bring fiber to Oregon so long as it faces a stiff tax bill and tax authorities won’t forgive the tax until there is gigabit fiber up and running. For some taxpayers, what burns the most is the legislature paved the road to tax bliss to attract Google Fiber, but the only company that may actually ultimately travel down it is Comcast.

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  • Elbert Davis: Your last paragraph is exactly why Armstrong Cable cord-cutters cannot have this--200GB a month is all we're allowed to have until we have to pay Arms...
  • ANgela Hill: Did you get anywhere with this? I am about to do the same thing myself. My bill is $170 month, and I cannot do it any longer....
  • Paul A Houle: Frontier is not going to be a competitor. Verizon will sell their copper to Frontier. Frontier can't afford to upgrade their networks but they can a...
  • Limboaz: Trump has named David Higbee and Joshua Wright to his transition team. I guess we can assume they will be involved in anti-trust enforcement since tha...
  • Chad: If you're in NY, and you think you've been charged unfairly by TWC, you should submit a claim with David. It takes 5 minutes and they'll fight for a r...
  • Abraham Long: I have standard internet here in Rochester, NY. The intro price is $34.99 and recently it went up to $44.99 for the second year. All I had to do was m...
  • Lee: Switched to Earthlink internet and PlayStation Vue and couldnt be happier. How did I not figure this out before?!?!?! Its worth a peek....
  • Disgruntled Employee: I work for this company and this is the most spot-on article I've read about what's truly going on in this company. The guys at the top only care abo...

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