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Verizon Preparing to Sell $15 Billion in Cell Tower/Wired Assets – Tex., Calif., and Fla., Landlines Likely for Sale

Phillip Dampier February 3, 2015 Consumer News, Verizon 1 Comment
Verizon's landline coverage map.

Verizon’s landline coverage map.

Verizon is working on a sale of its cellphone towers and a portion of its landline assets in a series of deals that could fetch the company more than $15 billion, according to a breaking report in the Wall Street Journal.

The company is looking to raise cash to pay down debt incurred when it bought out Vodafone’s 45% share of its wireless unit and to cover $10.4 billion in wireless licenses the company just won in a government auction last week.

The most likely targets in a landline sale are Verizon territories outside of the northeast.

Verizon has already dumped its landline assets in Hawaii (sold to Hawaiian Telcom), northern New England (sold to FairPoint Communications), West Virginia and many smaller city and suburban territories acquired from GTE (all sold to Frontier).

In its 2010 sale to Frontier, Verizon retained assets in the Tampa-St. Petersburg area, central Texas and Southern California regions. But now all three states are prime targets for a sale. Likely buyers include Frontier Communications, which already has a major presence in Florida including a national call center, and CenturyLink, which acquired Qwest and has a large service area in the southwest and western United States. Frontier remains the most likely buyer, having aggressively expanded its landline network in legacy AT&T (Connecticut) and Verizon service areas.

Verizon CEO Lowell McAdam has shown little interest in maintaining Verizon’s wired assets or growing FiOS and has been willing to sell off major parts of Verizon’s landline network to continue prioritizing Verizon Wireless. McAdam led Verizon Wireless from 2006-2010, before being named CEO of Verizon Communications.

Verizon-logoHe foreshadowed the forthcoming landline sale in January when he told an investor conference he was willing to make significant cuts to Verizon’s wired networks.

“There are certain assets on the wireline side that we think would be better off in somebody else’s hands so we can focus our energy in a little bit more narrow geography,” he said at the time.

Verizon is also expected to follow AT&T’s lead in selling off much of its cell tower portfolio. It will lease access to the towers it sells.

Verizon maintains FiOS networks in Texas, California, and Florida, but that is not expected to deter the company from selling its landline assets. Frontier acquired Verizon FiOS properties in the 2010 sale in both the Pacific Northwest and Indiana. Those services operate under the Frontier FiOS banner today.

Verizon Cutting Wireline Broadband Investments: Still No FiOS Expansion, Less Money for Wired Networks

Verizon's FiOS expansion is still dead.

Verizon’s FiOS expansion is still dead.

Verizon Communications signaled today it plans further cuts in investments for its wireline network, which includes traditional copper-based telephone service and DSL as well as its fiber-optic network FiOS.

“We will spend more CapEx in the wireless side and we will continue to curtail CapEx on the wireline side,” Verizon’s chief financial officer Fran Shammo told investors this morning. “Some of that is because we are getting to the end of our committed build around FiOS.”

Instead of expanding its FiOS fiber to the home network to new areas, Verizon is trying to increase its customer base in areas previously wired. It is less costly to reconnect homes previously wired for FiOS compared with installing fiber where copper wiring still exists.

Verizon continues to lose traditional landline customers, so the company is increasingly dependent on FiOS to boost wired revenue. The fiber network now accounts for 77% of Verizon’s residential wireline revenue.

Wherever FiOS exists, it has taken a significant number of customers away from cable competitors. FiOS Internet has now achieved 41.1% market penetration, with 6.6 million customers, up 544,000 from last year. Of those, the majority want broadband speeds they were not getting from the cable company. At the end of 2014, 59% of FiOS Internet customers subscribe to broadband speeds above 50Mbps, up from 46% at the end of 2013.

Verizon-logoDespite the success of FiOS, Verizon’s senior management continues to devote more attention to its highly profitable Verizon Wireless division, spending an even larger proportion of its total capital investments on wireless services.

In 2014, Verizon spent $17.2 billion on capital expenditures, an increase of 3.5% over 2013. But only $5.8 billion was spent on maintaining and upgrading Verizon’s landline and FiOS networks, down 7.7% over 2013. Verizon Wireless in contrast was given $10.5 billion to spend in 2014. The company is using that money to add network density to its increasingly congested 4G LTE network. In many cities, Verizon Wireless is activating its idle AWS spectrum to share the traffic load and is accelerating deployment of small cell technology and in-building microcells to deal with dense traffic found in a relatively small geographic area — such as in sports stadiums, office buildings, shopping centers, etc.

Verizon Wireless is branding its network expansion “XLTE,” which sounds to the uninitiated like the next generation LTE network. It isn’t. “XLTE” simply refers to areas where expanded LTE bandwidth has been activated. Unfortunately, many Verizon Wireless devices made before 2014 will not benefit, unable to access the extra frequencies XLTE uses.

With Verizon increasing the dividend it pays shareholders, the company is also cutting costs in both its wired and wireless divisions:

  • Verizon Wireless’ 3G data network will see a growing amount of its available spectrum reassigned to 4G data, which is less costly to offer on a per megabyte basis. As Verizon pushes more 4G-capable devices into the market, 3G usage has declined. But the reduced spectrum could lead to speed slowdowns in areas where 3G usage remains constant or does not decline as quickly as Verizon expects;
  • Verizon will push more customers to use “self-service” customer care options instead of walking into a Verizon store or calling customer service;
  • The company will continue to move towards decommissioning its copper wire network, especially in FiOS areas. Existing landline customers are being encouraged to switch to FiOS fiber, even if they have only landline service. Copper maintenance costs are higher than taking care of fiber optic wiring;
  • Verizon has accelerated the closing down of many central switching offices left over from the landline era. As the company sells the buildings and property that used to serve its network, Verizon’s property tax bill decreases;
  • Verizon will continue cutting its employee headcount. Shammo told investors in December, Verizon Communications cut an extra 2,300 employees that took care of its wired networks.

Still Waiting for FiOS in New York City? Your Landlord Might Be to Blame… Or Verizon

Phillip Dampier January 13, 2015 Competition, Consumer News, Public Policy & Gov't, Verizon 2 Comments

keep outVerizon Communications has stepped up efforts in New York City to get intransigent landlords to let the company into their buildings to bring FiOS fiber optics to tenants, even as some property managers accuse Verizon of ignoring earlier requests to get the service.

On at least 13 occasions in December, Verizon has filed petitions with the New York Public Service Commission requesting help to gain entry to a total of 476 buildings in the city after claiming to receive either no response from building management or active resistance to Verizon bringing FiOS to their tenants.

In an effort to stay compliant with its franchise agreement with the City of New York, Alyson Siegal, area manager for FiOS Franchise Assurance – New York City, has written a lot of letters lately:

Dear Property Owner/Manager:

I have been advised by Verizon New York Inc.’s (“Verizon”) NYC FiOS Real Estate Department of the difficulty Verizon has encountered in attempting to install and/or attach its FiOS facilities at [your property].

Our records indicate that you have not responded to our previous correspondence, that you have conditioned Verizon’s access on unreasonable terms and conditions or that you have denied Verizon access to the Property. The purpose of this letter is to restate our need to gain access to your Property.

By way of background, Verizon is attempting to gain access to your building because we have received a request for FiOS service(s) from a tenant(s) in your building and/or a resident(s) on your block, and our access to your Property is necessary to provide cable television services to those tenants and/or residents. We are very excited about the opportunity to provide world-class voice, data and video services to you and the area residents using a fiber based network to deliver these services at unprecedented speeds and capacities. Your cooperation in allowing Verizon access to your Property will enable your tenants and/or other residents on your block to receive the services they want in a timely manner.

Building owners don't want a repeat of this kind of FiOS installation.

Building owners don’t want a repeat of this kind of FiOS installation.

In a few earlier cases, some landlords refused entry without special financial compensation or gifts like free service for life. Others have unilaterally decided their tenants are happy enough being served by Time Warner Cable and don’t need a competitor. But a significant number claim the problem is with Verizon itself.

Hamdi Nezaj, who owns several buildings in Bronx, last summer refused entry to workers seeking to install FiOS, complaining Verizon performed shoddy work.

“On three properties that I own, the installation of FiOS was done recklessly,” complained Nezaj. “They never came back to fix the holes that were drilled, fix the boxes they installed and put molding on their respective wires. I am not interested once again in having Verizon drill holes and butcher my buildings.”

Several building owners responded to Verizon’s complaints indicating the phone company itself was responsible for dropping the ball on FiOS installation and were stunned the company was resorting to legal tactics to force entry.

Arthur Leeds from Leeds Associates LLC reports one of his properties has been waiting for Verizon to install FiOS since April 2014.

This customer found Verizon installing its FiOS cables up and down his doorways.

This customer found Verizon installing its FiOS cables up and down his doorways.

“We have responded every time we were asked for access most specifically to Thomas Miller, the FiOS franchise manager in NYC, and to Alyson Seigal (sic) another Verizon manager either by phone or via certified mail but all of our responses to them were ignored,” wrote Leeds. “Further we are well aware of the law and are certainly interested in supplying our tenants with alternatives to RCN and Time Warner Cable. However we do have a right to know how and with what materials Verizon intends to install their equipment in our building, [a request that] seems to stall any response on your part or that of your contractors.”

Amy Ward, an attorney representing the interests of 200 East 87”’ Street Associates, LP, has Leeds beat. She told the PSC Verizon first sought to install FiOS in the building in 2012, but Verizon kept stalling. When Verizon formally sought permission yet again in September 2014, a building representative asked for a delay because of “multiple intrusive projects occurring at and planned for the property.” No response to that request was forthcoming from Verizon until the December demand for entry was received.

Brian Loftman, property manager of the @The Aspen New York, wrote the PSC he was not happy to hear from Verizon’s legal team either.

Many building owners want Verizon to install crown molding that can effectively hide cables.

Many building owners want Verizon to install crown molding like this that can effectively hide cables.

“I am appalled that Mr. Richard C. Fipphen, assistant general counsel for Verizon has contacted you stating that we have not complied with their request to give access to the property,” wrote Loftman.

Loftman included a copy of correspondence he sent to Ms. Siegal, claiming she is impossible to reach.

“I am writing to you because after several attempts to reach you via phone at 888 364 3467 it has been impossible,” wrote Loftman. “I find it hard to believe that you being in the telecommunications business that even your voicemail is full and I cannot leave a message on the number you provided us to contact your office.”

Loftman also questioned Siegal’s claims that Verizon has “world-class voice, data, and video services.”

“Has it improved since the last time our phones were out or the DSL went down for almost a week?” he asked.

Loftman’s previous experience with Verizon’s installation crews was not a positive one. He only learned after signing up for the service at another building he manages that Verizon intended to use visible basic plastic molding throughout the building’s hallways to hide FiOS wiring. Other property managers shared aesthetic objections to Verizon’s plans, requesting wiring be installed behind more visually attractive crown molding or run through ceiling ducts.

Part of New York State’s Public Service law covers the installation of cable television facilities, which also covers Verizon FiOS:

§228. Landlord-tenant relationship

1. No landlord shall:

(a) interfere with the installation of cable television facilities upon his property or premises, except that a landlord may require:

(1) that the installation of cable television facilities conform to such reasonable conditions are necessary to protect the safety, functioning and appearance of the premises, and the convenience and well being of other tenants;
(2) that the cable television company or the tenant or a combination thereof bear the entire cost of the installation, operation or removal of such facilities; and
(3) that the cable television company agree to indemnify the landlord for any damage caused by the installation, operation or removal of such facilities.

§898.1 Prohibition

Except as provided in section 898.2 of this Part, no landlord shall demand or accept any payment from any cable television company in exchange for permitting cable television service or facilities on or within said landlord’s property or premises.

§898.2 Just Compensation

Every landlord shall be entitled to the payment of just compensation for property taken by a cable television company for the installation of cable television service or facilities. The amount of just compensation shall be determined by the commission in accordance with section 228 (1)(b) of the Public Service Law upon application by the landlord pursuant to section 898.5 of this Part.

Big Cable, Telcos Spent $42 Million In 2013-2014 Lobbying for Deregulation, Against Net Neutrality

AT&T, Comcast, Verizon, Time Warner Cable and the cable industry’s chief lobbying group spent $42.8 million during the 2013-2014 election cycle to weigh in on issues including burying Net Neutrality, outlawing community broadband competition, winning tax breaks for themselves, and avoiding consumer protection regulations.

A Common Cause analysis of data from the Center for Responsive Politics and the Institute for Money in State Politics shows that the usual suspects poured money into political coffers on the state and federal level to influence lawmakers.

2014-contributions-from-net-1

On the federal level, murky party committees received the largest individual checks: a total of $862,223 for House and Senate Republicans and $552,605 for Democrats. Individual members of Congress also received their own contributions, including Republican House Speaker John Boehner ($98,175 from Comcast) and Democratic Senator Mark Pryor ($88,650 from Comcast, TWC, and National Cable and Telecom. Assn.) Pryor will need to spend his contributions quickly. He was de-elected by Arkansas voters last Tuesday.

Net Neutrality is a major topic on the minds of the cable and telco companies, as is ongoing deregulation and decommissioning rural landline service, and pushback on revelations AT&T and Verizon were only too happy to turn over your phone records to the federal government.

In the states, the bigger the issues coming up in the legislature, the bigger the campaign checks. In Florida, AT&T is the state’s single largest source of political donations, giving $1.53 million to state lawmakers in the past year and another $660,000 to Gov. Rick Scott (R) and his appointed heads of state agencies. AT&T is lobbying for eliminating Florida’s telecommunications tax, win the right to place cell towers wherever they wish without much interference from local officials, and further deregulation. Most of AT&T’s money goes into the hands of the state’s Republicans.

In New York and California, Democrats got a major chunk of money from Comcast and Time Warner Cable — New York Governor Andrew Cuomo received $60,800 each from both Comcast and Time Warner Cable (totaling $121,600). California Governor Jerry Brown received $54,400 from Time Warner Cable and $27,200 from Comcast. Both states are reviewing the merger of the two companies this year. AT&T and Verizon are also major donors – AT&T wants to dismantle the rural telephone network in California and Verizon is trying to convince the New York legislature to approve its own rural landline replacement – Voice Link. It also wants reduced scrutiny of its landline performance in New York and more access to New York City buildings where it faces resistance from property owners who want compensation from Verizon to install FiOS.

2014-contributions-from-net

Wall Street Investors Suckered By Broadband, Wireless Myths on Usage Pricing, Network Investment

verizon-protestBig Telecom companies like Verizon and AT&T use phony numbers and perpetuate myths about broadband traffic and network investments that have conned investors out of at least $1 trillion in unnecessary investments and consolidation.

Alexander Goldman, former chief analyst for CTI’s American Recovery and Reinvestment Act grants, is warning Wall Street and investors they are at risk of losing millions more because some of the largest telecom companies in the country are engaged in disseminating bad math and conventional wisdom that relies more on repetition of their talking points than actual facts.

Goldman’s editorial, published by Broadband Breakfast, believes the campaign of misinformation is perpetuated by a media that accepts industry claims without examining the underlying facts and a pervasive echo chamber that delivers credibility only by the number of voices saying then same thing.

Goldman takes Verizon Communications CEO Lowell McAdam to task for an editorial published in 2013 in Verizon’s effort to beat back calls on regulators to oversee the broadband industry and correct some of its anti-competitive behavior.

McAdam claimed the U.S. built a global lead in broadband on investments of $1.2 trillion over 17 years to deploy “next generation broadband networks” because networks were deregulated.

Setting aside the fact the United States is not a broadband leader and continues to be outpaced by Europe and Asia, Goldman called McAdam’s impressive-sounding dollar figures meaningless, considering over the span of that 17 years, the United States progressed from dial-up to fiber broadband. Wired networks have been through a generational change that required infrastructure to be replaced and wireless networks have been through at least two significant generations of change over that time — mandatory investments that would have occurred with or without deregulation.

Over the past 17 years, the industry has gotten more of its numbers wrong than right. An explosion of fiber construction in the late 1990s based on predictions of data tsunamis turned out to be catastrophically wrong. University of Minnesota professor Andrew Odlyzko, the worst enemy of the telecom industry talking point, has been debunking claims of broadband traffic jams and the need to implement usage-based pricing and speed throttling for years. In 1998, when Wall Street was listening intently to forecasts produced by self-interested telecom companies like Worldcom that declared broadband traffic was going to double every 100 days, Odlyzko was telling his then-employer AT&T is was all a lot of nonsense. The broadband traffic emperor had no clothes, and statistics from rival telecom companies suggested Worldcom was telling tall tales. But AT&T executives didn’t listen.

fat cat att“We just have to try harder to match those growth rates and catch up with WorldCom,” AT&T executives told Odlyzko and his colleagues, believing the problem was simply ineffective sales, not real broadband demand. When sales couldn’t generate those traffic numbers and Wall Street analysts began asking why, companies like Global Crossing and Qwest resorted to “hollow swaps” and other dubious tricks to fool analysts, prop up the stock price and executive bonuses, and invent sales.

Nobody bothered to ask for an independent analysis of the traffic boom that wasn’t. Wall Street and investors saw dollars waiting to be made, if only providers had the networks to handle the traffic. This began the fiber boom of the late 1990s, “an orgy of construction” as The Economist called it, all to prepare for a tidal wave of Internet traffic that never arrived.

After companies like Global Crossing and Worldcom failed in the biggest bankruptcies the country had ever seen at the time, Odlyzko believes important lessons were never learned. He blames Worldcom executives for inflating the Internet bubble more than anyone.

A bubble of another kind is forming today in America’s wireless industry, fueled by pernicious predictions of a growing spectrum crisis to anyone in DC willing to listen and hurry up spectrum auctions. Both AT&T and Verizon try to stun investors and politicians with enormous dollar numbers they claim are being spent to hurry upgraded wireless networks ready to handle an onslaught of high bandwidth wireless video. Both Verizon’s McAdam and AT&T’s Randall Stephenson intimidate Washington politicians with subtle threats that any enactment of industry reforms by the FCC or Congress will threaten the next $1.2 trillion in network investments, jobs, and America’s vital telecom infrastructure.

Odlyzko has seen this parade before, and he is not impressed. Streaming video on wireless networks is effectively constrained by miserly usage caps, not network capacity, and to Odlyzko, the more interesting story is Americans are abandoning voice calling for instant messages and texting.

8-4WorldcomCartoonThat isn’t a problem for wireless carriers because texting is where the real money is made. Odlyzko notes that wireless carriers profit an average of $1,000 per megabyte for text messages, usually charged per-message or through subscription plan add ons or as part of a bundle. Cellular voice calling is much less profitable, earning about $1 per megabyte of digitized traffic.

Wireless carriers in the United States, particularly Verizon and AT&T, are immensely profitable and the industry as a whole haven’t invested more than 27% of their yearly revenue on network upgrades in over a decade. In fact, in 2011 carriers invested just 14.9% of their revenue, rising slightly to 16.3 percent in 2012 when companies collectively invested $30 billion on network improvements, but earned $185 billion along the way.

While Verizon preached “spectrum crisis” to the FCC and Congress and claimed it was urgently prioritizing network upgrades, company executives won approval of a plan to pay Vodafone, then a part owner of Verizon Wireless, $130 billion to buy them out. That represents the collective investment of every wireless provider in the country in network upgrades from 2005-2012. Verizon Wireless cannot find the money to upgrade their wireless networks to deliver customers a more generous data allowance (or an unlimited plan), but it had no trouble approving $130 billion to buy out its partner so it could keep future profits to itself.

Odlyzko concludes the obvious: “modern telecom is less about high capital investments and far more a game of territorial control, strategic alliances, services, and marketing, than of building a fixed infrastructure.”

That is why there is no money for Verizon FiOS expansion but there was plenty to pay Vodafone, and its executives who walked away with executive bonuses totaling $89.6 million.

As long as American wireless service remains largely in the hands of AT&T and Verizon Wireless, competition isn’t likely to seriously dent prices or profits. At least investors who are buying Verizon’s debt hope so.

Goldman again called attention to Odlyzko’s latest warning that the industry has its numbers (and priorities) wrong, and the last time Odlyzko had the numbers right and the telecommunications industry got its numbers wrong, telecommunications investors lost $1 trillion in the telecommunications dot.com bust.

As the drumbeat continues for further wireless consolidation and spectrum acquisition, investors have been told high network costs necessitate combining operations to improve efficiency and control expenses. Except the biggest costs faced by wireless carriers like Verizon are to implement strategic consolidation opportunities like the Vodafone deal, not maintain and grow their wireless network. AT&T is putting much of its spending in a proposed acquisition of DirecTV this year as well — at a cost of $48.5 billion. That could buy a lot of new cell towers and a much more consumer-friendly data plan.

Voice to text substitution (US)

year voice minutes billions texts billions
2005 1,495 81
2006 1,798 159
2007 2,119 363
2008 2,203 1,005
2009 2,275 1,563
2010 2,241 2,052
2011 2,296 2,304
2012 2,300 2,190

Cell phone network companies (if you can believe their SEC filings) are incredibly profitable, and are spending relatively little on infrastructure:

year revenues in $ billions capex in $ billions capex/revenues
2004 102.1 27.9 27.3%
2005 113.5 25.2 22.2
2006 125.5 24.4 19.4
2007 138.9 21.1 15.2
2008 148.1 20.2 13.6
2009 152.6 20.4 13.3
2010 159.9 24.9 15.6
2011 169.8 25.3 14.9
2012 185.0 30.1 16.3

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