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11 Cities Getting Verizon 5G Beta Test; No Details on Speed or Pricing Yet

Verizon will invite several thousand customers in 11 cities to participate in a “pre-commercial” beta test of its newly built 5G wireless network during the first half of 2017.

The fixed wireless, home broadband replacement will be provided over a limited coverage area in these cities: Ann Arbor, Atlanta, Bernardsville, N.J., Brockton, Mass., Dallas, Denver, Houston, Miami, Sacramento, Seattle and Washington, D.C.

Verizon’s announcement only generally promotes the future potential of 5G service without being too specific about what it intends to offer. We expect the service will be marketed as a wireless home broadband service, not for those on the go. There is no finalized standard for 5G service yet, so Verizon’s adaptation isn’t necessarily going to be the final standard and could change before the wireless provider expands the service to other customers.

“The 5G systems we are deploying will soon provide wireless broadband service to homes, enabling customers to experience cost-competitive, gigabit speeds that were previously only deliverable via fiber,” said Woojune Kim, vice president, Next Generation Business Team, Samsung Electronics.

Verizon’s ability to offer gigabit speeds will depend on several factors:

  • Backhaul connectivity: Verizon will likely choose areas where fiber connectivity is already installed, either as part of its FiOS project or through its fiber connections to cell towers. Because of the very high frequencies involved, 5G connectivity will be line-of-sight and the coverage area will be very limited, within a mile or less of the tower or small cell infrastructure Verizon will depend on to provide service to each neighborhood.
  • Distance and signal quality: 5G service will be distance sensitive and fixed wireless will require the installation of an antenna either pointed out a window or installed externally on a building. The further away, the slower the speed.
  • Shared network: Total available bandwidth on a 5G tower or small cell is shared among all users connected to it. During the initial beta test, speeds are likely to be very high. That may not stay the case as Verizon adds customers to its service.

Verizon has avoided mentioning specific speed tiers, pricing, whether service is unlimited or usage capped, equipment costs, and contract terms. We are also not aware if the service will be marketed by Verizon Communications, the wireline company that also markets FiOS or Verizon Wireless, the mobile operator side of Verizon.

Several of the test cities represent Verizon’s first home broadband invasion on other providers’ turf. Frontier Communications is likely unhappy to learn it faces direct competition from Verizon in Dallas. Verizon sold its landline and FiOS network in Texas to Frontier. Most of the other test cities seem to avoid direct competition with Charter Communications, as almost all are serviced by Comcast. The new 5G service will also compete directly with AT&T in Michigan, Georgia, Texas, Florida, and California.

The Return of the Verizon Wireless Unlimited Data Plan Provokes Wall Street Anxiety

The days of wine and roses from wireless data profits may be at risk, according to some Wall Street analysts, after Verizon Wireless on Monday brought back an unlimited data plan it vowed was dead for good in 2011.

The “Cadillac” wireless network reintroduced unlimited data, phone, and texting this week at prices that vary according to the number of lines on your account:

  • $80 a month for one line
  • $70 a line for two lines
  • $54 a line for three lines
  • $45 a line for four lines

Verizon Wireless last enrolled customers in its old unlimited data plan in 2011, and a dwindling number of customers remain grandfathered on that plan, which began increasing in price last year and has since been restricted to no more than 200GB of “unlimited” usage in a month.

Verizon’s new unlimited data plan is a response to pressure from increasing competition, especially from T-Mobile and Sprint. All of Verizon’s national competitors have unlimited data plans with varying restrictions, and Verizon’s lack of one is likely to have cost it new customer signups last year. The company only managed to add 2.3 million postpaid customers in 2016, down from 4.5 million signed up in 2015.

CEO McAdam swore unlimited data was dead at Verizon

Causing the most irritation is T-Mobile, which near-constantly nips at Verizon’s heels with innovative and disruptive plans designed to challenge Verizon’s business model. BTIG Research analyst Walter Piecyk noted Verizon’s claims it does not need to respond to T-Mobile’s marketing harassment just don’t ring true any longer.

“Verizon has a long history of rebuffing T-Mobile’s competitive moves as non-economic or unlikely to have an impact on the industry for more than a quarter or two, only to later replicate the offer,” Piecyk said. “That was true for phone payment plans, ETF payments for switchers, overage etc. We can now add unlimited to that list. How long will it be until Verizon offers pricing that includes taxes? Despite those delayed competitive responses, T-Mobile has maintained industry leading growth while Verizon’s has declined.”

Piecyk believes Verizon Wireless rushed their unlimited data plan into the marketplace and its introduction seemed not well planned.

“We asked Verizon what has changed to explain such an abrupt reversal, but have yet to receive a response,” Piecyk said. “They had recently been running an advertisement promoting the 5GB rate plan that argued why customers do not need unlimited. The rate plan remains, but it is not clear if the advertisement will. The launch of unlimited seemed rushed, coming a week after the exposure they could have secured with a Super Bowl advertisement. The ad run last night during the Grammy’s did not appear to have taken much to produce.”

Verizon Wireless executives have argued for years customers don’t need unlimited data plans and Verizon would no longer offer one:

  • With unlimited, it’s the physics that breaks it. If you allow unlimited usage, you just run out of gas. — Lowell McAdam, Verizon CEO (September, 2013)
  • At this point, we are not going to entertain unlimited. Promotions come and go. We can’t react to everything in the marketplace.” — Fran Shammo, former Verizon CFO (January, 2016)
  • “I’ve been pretty public saying the unlimited model does not work in an LTE environment. Unlimited is a very short-term game in the LTE market. Eventually unlimited is going to go away because you have to generate cash to reinvest.” — Fran Shammo, former Verizon CFO (March, 2016)
  • Unlimited data plans were “not something we feel the need to do.” — Matthew Ellis, Verizon CFO (January, 2017)

Shammo: Unlimited doesn’t work on LTE networks.

The impact of not having an unlimited data plan appears to have convinced Verizon to change its mind, and that comes as no surprise to Roger Entner of Recon Analytics.

“In three to five years, unlimited plans will come back,” Entner predicted in 2011. He claimed back then wireless carriers were initially unsure how to predict data usage growth on their networks and placing limits on usage gave carriers more predictable upgrade schedules. But after several years of data, Entner said carriers can now better predict the amount of data an average subscriber will use in a month, giving them confidence to remove the caps.

Verizon Wireless’ unlimited plan includes several fine print limitations that provide additional network protection for Verizon and manage any surprise usage:

  • Unlimited use is only provided on Verizon’s 4G LTE network. Limits may apply to customers using older 3G networks, which are less efficient managing traffic;
  • Unlimited not available to Machine-to-Machine Services;
  • Customers with unlimited data plans may find their traffic deprioritized on congested cell sites after 22GB of data consumption during a billing cycle. This speed throttle can reduce network speeds to near-dial up in some circumstances, at least until site congestion eases;
  • Mobile hotspot tethering on this unlimited plan is limited to 10GB per month on Verizon’s 4G LTE network. Additional usage will be provided at 3G speeds. This is designed to discourage customers from using Verizon Wireless as a home broadband replacement;
  • Verizon’s ultimate 200GB monthly limit is also presumably still in place. If you exceed it on Verizon’s legacy unlimited data plan, you were told to shift to a tiered data plan or had your account closed.

Piecyk thinks Verizon’s unlimited data plan may have been rushed out.

Although consumers clamoring for an unlimited data plan from Verizon are happy, Wall Street is not. Analysts are generally opposed to Verizon’s return to unlimited, with many suggesting it is clear evidence the days of high profits and predictable revenue growth are over. That is especially bad news for AT&T and Verizon Wireless, where investors expect predictable and aggressive returns. Verizon has already warned investors it expects revenue and profits to be flat this year.

Jeffrey Kvaal with Instinet believes Verizon’s traditionally robust network coverage is no longer an advantage as competitors catch up and unlimited data is the final nail in the coffin for wireless revenue growth. That means only one thing to Kvaal, AT&T and Verizon must pursue growth outside of the wireless industry. Verizon, in particular, is facing investor expectations it will do something bold in 2017, such as making a large acquisition like a major cable operator.

Evercore ISI’s Vijay Jayant believes unlimited data is bad news for all carriers from the perspective of investors looking for revenue growth.  Jayant told investors in the short term, unlimited data may help Verizon’s revenue because the plans are expensive, but in the long run Verizon is sacrificing the revenue potential of monetizing growing data usage in return for a high-priced, flat rate option. That guarantees “customers won’t see their bills rise, even as their usage does,” Jayant said.

Some analysts point out Verizon’s unlimited data plan is expensive, limiting its potential attractiveness to customers considering jumping to another carrier. While Verizon charges between $80-180 (for one to four devices), AT&T charges between $100-180 for unlimited plan customers, who must also sign up with DirecTV to get an unlimited data plan. T-Mobile charges between $70-160 and Sprint charges between $60-160. The cheapest is T-Mobile, because its plans are all-taxes/fees inclusive. All four carriers have soft limits after which customers may be exposed to a speed throttle. AT&T can temporarily throttle users at 22GB, Sprint can throttle above 23GB and T-Mobile after 28GB.

The Wall Street Journal discusses Verizon’s unlimited data plan and its caveats. (4:55)

How State Politics Screwed Up a Solid Broadband Plan for Western Massachusetts

While rural western Massachusetts is stuck in a rural broadband swamp of Verizon’s making, politics in the state capital and governor’s office are risking Yankee ingenuity for another “free market” broadband solution that won’t solve the problem.

The dedicated locals that created WiredWest, the grassroots-envisioned regional broadband solution for more than two dozen towns suffering with inadequate or non-existent broadband service, have toiled for nearly a decade to accomplish what Verizon (or a cable operator) has never managed to do – provide consistently available internet access. WiredWest spent years carefully listening and learning the needs and challenges of each of their member towns. Communities affected by broadband deficiencies in this part of Massachusetts range from the most prosperous areas of the Berkshires to those financially struggling with a range of economic challenges.

On August 13th, 2011, The WiredWest Cooperative in western Massachusetts was officially formed by charter member towns. The project has gained some town, lost some others as the region works towards faster broadband.

WiredWest’s original plan would have brought fiber broadband to practically everyone in the region in just a few years, with more prosperous and populous towns helping subsidize network construction costs for their more budget-challenged rural neighbors. The goal was to avoid the patchwork of broadband have’s and have not’s that many private providers have created across rural America.

Establishing a regional network instead of trying to launch dozens of smaller community-owned providers would help streamline costs, avoid duplicating services, and deliver continuity of service. The concept made plenty of sense to two dozen town leaders and the participating communities, most voting to support the regional approach. But it apparently didn’t seem to make a lot of sense to a bureaucratic state agency called the Massachusetts Broadband Institute (MBI) that suddenly questioned the project’s operating plan and has avoided releasing tens of millions of dollars stashed in its bank account designated for rural broadband network construction.

MBI’s detractors call the agency a “concern troll” and some question whether MBI’s objections are the result of the usual friction between out-of-touch state bureaucrats and the rural communities they are supposed to help, or something more insidious. Others are content stating MBI’s position simply does not make any sense.

MBI spent more than a million dollars of taxpayer funds on lawyers and a Bangalore, India-based consultancy to produce and defend a dubious hit piece “analysis” about WiredWest rife with misconceptions and factual errors. The MBI-sponsored report concluded WiredWest would simply never work. What works better for MBI is handing out $4 million in taxpayer dollars to Comcast, with tens of millions more to be spent on funding private rural broadband projects in the future.

Crawford

Earlier this month, broadcast activist Susan Crawford shared her blistering conclusions about the usefulness of MBI:

For an agency that has produced virtually nothing so far, MBI is a high-priced operation. As far as I can tell, last year MBI spent $1 million of those state funds on consultants, lawyers, and administrative costs in order to hand $4 million to Comcast to provide its usual service to about a thousand homes in those nine Massachusetts towns that already had some cable service. What’s odd is that MBI told the public it chose Comcast because the company had vast experience and could get the work done without involving MBI—so it cost $1 million in oversight expenses to choose a company that doesn’t need oversight.

Despite protests from many residents across WiredWest’s would-be service area, Massachusetts Gov. Charlie Baker sided with his bureaucrats and stalled rural broadband deployment further with a temporary hold, which some claimed gave MBI and community broadband opponents additional time to further undermine WiredWest’s efforts.

Most recently, the same agency that wrung its hands worrying about the efficacy of WiredWest had no problem offering a quick $20 million in grants to private companies for rural broadband solutions. Few in broadband-challenged western Massachusetts are likely to be happy about the results of the latest machinations of MBI’s “free market solution with public taxpayer funds.” Last week, the public got its first look at the submitted applications, largely underwhelming in scope and specifics. None come close to offering the kind of ubiquitous and affordable broadband WiredWest proposed.

MBI also tailored their request for proposals to arbitrarily limit applicants, declaring only companies with $100 million in yearly revenue and at least five years experience building, operating, and maintaining residential broadband networks need apply. Had Google Fiber proposed to wire the entire region with fiber optics in an application, MBI would have turned Google down for lack of experience. (Google Fiber launched service in late 2012.) In fact, no startup or municipal project of any kind could realistically apply. Comcast and Charter could, and both did.

MBI claims each town will make their own final decision, but many communities have already done that by choosing WiredWest. Some towns are frustrated by the state’s interminable delays and politics and are discouraged with the potential spectacle of MBI continuing to throw up roadblocks for political reasons. Those communities are planning their own alternative projects if WiredWest can never get off the ground. The only current alternative is hoping a private company will step up and deliver service. Six applicants responded to MBI’s request for proposals from private providers. Only two showed any willingness to offer service across all of broadband-challenged western and central Massachusetts. Two others were cable operators that have neglected expanding service on their own because it was not profitable to do so. Another two applicants only wanted to serve a handful of communities. Here is an overview of the proposals:

Crocker Communications: Short on specifics, Crocker’s proposal claims an interest in wiring almost 40 unserved communities for $59.15 million, including $18.33 million in taxpayer funds, split into individual grants for each community. But even Crocker, among the most ambitious and detailed applicants, cannot meet MBI’s revenue qualifications, so it attempts to claim a vendor relationship with Fujitsu Network Communications of Japan, which supplies network infrastructure. How Fujitsu would be financially involved in the project to minimize the chances of Crocker running into financial problems while building out its proposed network is not adequately explained. Crocker only specifies $5 million of its own assets will be on the line.

Crocker’s website promotes the company’s desire to have a bigger presence in the state thanks to its cooperation with MBI. Crocker currently provides internet service to customers of a Leverett-based community broadband project. Coincidentally, Peter d’Errico of Leverett’s Broadband Committee was one of the contributors to MBI’s sponsored report slamming the WiredWest project as unrealistic and underfunded. We’re not sure what d’Errico thinks about Crocker Communications’ proposal, which asks for grants as little as $150,000 to help wire one community — New Ashford.

In an aspirational executive summary, Matthew Crocker, president of Crocker Communications, offers an admission there are “inherent challenges in fulfilling the Request For Proposals.” His conclusion: “If this were easy, it would be well underway.”

Crocker’s proposal won’t be easy for roughly 30% of those living in the nearly 40 communities his company proposes to serve. That’s because his company won’t be serving them. Crocker’s proposal only suggests he will deliver service to about 70% of the service area. MBI wanted proposals that would reach 96% of the population. But there will be plenty of time to contemplate these points. Crocker’s proposal warns residents may have to wait until 2021 before they can get service. That will give would-be customers four years to save enough money to pay Crocker’s proposed installation fees: “under $2,000 for 70% of homes passed” or “$3,000 for 96% of homes passed.” Ouch.

Whip City Fiber: Even more murky than Crocker Communications’ proposal, Westfield Gas & Electric’s “Whip City” fiber service submitted a plan offering to serve any of the 40 communities MBI identifies as underserved, but the details aren’t there, except to describe the service the company already provides to its own customers. The actual number of towns to be served and the schedule to launch service are all: TBD = To Be Determined.

Mid-Hudson Data: The most modest of proposals from this Catskill, N.Y. based company seeks $260,000 to offer 279 homes fiber service and wireless for another 20 in the community of Tyringham. Customers would pay an installation fee of $150. While potentially good news for customer living near George Cannon Road, it isn’t much help to the rest of the region.

Fiber Connect, LLC: Another modest proposal from this regionally based ISP offers to provide broadband service for Alford, Becket, New Marlborough, Otis, Tolland and Tyringham. The proposal notes the company is already running a pilot broadband program in Monterey and Egremont. One potential stumbling block is a poorly explained installation fee ranging from $0 if municipalities agree to a “fixed average cost” that could be included in grant funding or a municipally guaranteed lease-to-own payment to $299 if a customers apply for a mysterious promotion or rebate, or $999 which is defined as the basic “initial installation cost.”

Charter Communications: Formerly Time Warner Cable, Charter is hunting for taxpayer-funded grants to expand broadband service to Egremont, Hancock, Monterey, New Salem, Princeton and Shutesbury. All of those communities are near existing Charter/Time Warner Cable systems and the company spared no time in their application promoting their existing close ties with MBI to bring broadband to Hinsdale, Lanesborough, and West Stockbridge. Charter claims it can expand its cable service into the nearby communities in a “reasonable amount of time” but does not get more specific than that.

Comcast: Boils down its application to “we’re doing you a favor, but you pay” language reminding MBI the communities Comcast now proposes to serve: Goshen, Montgomery, Princeton and Shutesbury don’t come close to Comcast’s demand for return on its investment. But since taxpayers are helping to foot the bill….

The one noticeable difference Comcast has over all the rest of the applicants is a page-and-a-half of details about the various regulator-imposed fines and penalties it has had to pay recently for being an ongoing menace to its own customers. Is it arrogance for a company to assume such a vast number of damaging disclosures would not lead a responsible grantor to put the application in the circular file, or is it something else? After all, Comcast was already awarded up to $4 million in taxpayer funds in Massachusetts as a gushing press release reported in August, 2016:

WESTBOROUGH – The Massachusetts Broadband Institute at MassTech (MBI) and Comcast have reached an agreement that will extend broadband access in nine municipalities in Western and North Central Massachusetts, a project which is estimated to deliver broadband connectivity to 1,089 new residences and businesses, and will bring the overall coverage level in each town to 96% or above. The grant will provide up to $4 million in state funds to reimburse partial project costs for Comcast, which has existing networks in each of the towns, to construct broadband internet extensions to additional homes and businesses.

“This agreement further demonstrates our administration’s commitment to tackling broadband connectivity challenges for unserved residents and businesses,” said Governor Charlie Baker. “This public-private partnership will deliver sustainable, reliable, and cost-effective broadband connectivity to nine rural communities that previously faced significant coverage gaps, allowing nearly 1,100 households and businesses to participate more fully in the digital economy.”

“Our results-oriented approach to bridging broadband access gaps is connecting thousands of rural residents to the modern internet,” said Lieutenant Governor Karyn Polito. “We will continue to employ a dynamic, flexible approach to the Last Mile project, and seek solutions that meet the unique needs of communities and residents unserved by broadband access.”

The construction of the broadband extensions in Buckland, Conway, Chester, Hardwick, Huntington, Montague, Northfield, Pelham, and Shelburne is estimated to be completed within two years from the start of the project. The public-private partnership will extend high-speed internet service to unserved residents at speeds that meet or exceed the FCC’s definition of broadband service, through a hybrid fiber/coaxial-cable network.

Wired West Responds With a New Plan

Faced with insurmountable political obstacles, the folks behind WiredWest have bowed to the reality of the current political landscape and reintroduced themselves and their newest plan to get western Massachusetts wired for fiber optic broadband while trying to avoid any further encounters with MBI’s speed bumps and obstacles.

If WiredWest made one mistake, it was forgetting to establish the one connection that apparently matters more than anything else in Massachusetts: a political connection with state lawmakers. But the indefatigable group has not given up, and if the MBI is being honest about being an impartial partner in improving rural broadband in Massachusetts, there is still a better option available to communities than the six proposals recently submitted to MBI. That option is WiredWest.

In its latest proposal WiredWest would continue to play a significant role in the network after being built, with proven service plans that will deliver real broadband service to residents at rates comparable to what private companies charge. But the project will rely on member towns to construct their own fiber networks using private contractors and state and local funding. That puts more responsibility and network ownership in the hands of each individual town, an idea some towns originally rejected as too expensive and cumbersome. But MBI holds the money and has apparently rewritten the rules, so what MBI wants is what MBI will get.

The added cost to the project and the communities involved is significant: there will be some towns that cannot afford or manage the responsibility of constructing their own fiber networks and will likely drop out of the project. The new network plan will also increase costs WiredWest originally hoped to avoid. The group’s financial model also effectively subsidized some of the costs for the smallest and least able communities — a model that could be gone for good.

Each participating town network that does eventually get built will be connected in a ring topology to MassBroadband123, the state’s “middle mile” fiber network that is run privately by Axia Networks. At this point, it appears 14 communities are still on board with WiredWest, seven are “considering” the new WiredWest plan, and another 16 are “pursuing other options” but have not ruled out staying with WiredWest.

It is our recommendation that communities do everything possible to stay loyal to WiredWest, which has a proven track record of being responsive and accessible to communities across the region. Bucking the state’s inexcusable political interference by remaining united sends a strong message that local communities know best what they need, not a high-priced consultant, Springfield-based lawyers and bureaucrats, or the governor. None of those people have to live with the consequences of inferior or non-existent broadband and none have given the problem the kind of serious attention WiredWest has. The biggest challenge to WiredWest isn’t its financial sustainability, it is politics, and that needs to stop.

We’ve reviewed the submissions from MBI’s latest round of grant funding for private projects and they are all inadequate. While many of the companies involved are well-meaning and we believe could play a role in improving rural broadband, most of the applications seem to have been rushed and many lack specifics.

The region should not accept any plan offering only 70% broadband coverage, much less a proposal that will force another four-year wait for broadband (we credit Crocker Communications for at least including a specific timetable, something many of the other proposals did not.) Installation fees up to $3,000 are also unaffordable, with or without a financing plan.

Some analysts still worry if WiredWest can attract enough customers to be sustainable. If it isn’t, most of the private projects MBI has received applications for certainly are not either. Assuming customers can afford a few thousand dollars for installation — a major impediment to getting new customers, there is no guarantee which homes will get service and when. Competitively speaking, considering the only available alternative in most cases is spotty 1-6Mbps DSL from Verizon — a service the company has lost interest in improving or expanding — Verizon is likely to receive the same treatment it gets in other communities where better alternatives exist — a mass exodus of customers cutting Verizon’s cord for good. In fact, Verizon may ultimately sell its landline network in western Massachusetts to another company as it continues to disengage from its wireline businesses. It is highly unlikely any competitor of WiredWest will guarantee access to at least 25Mbps broadband.

WiredWest proposes to charge $59 for 25Mbps or $75 for 1,000Mbps broadband. Digital phone service is $19 a month. An installation fee of $99 will also apply. That is not out of line with what cable companies and other gigabit providers have charged, and they have won a comfortable market share. Private cable and phone companies also continue to raise rates on broadband, if only because they can, providing additional competitive insulation.

MBI’s grants should also not be the end of the story. New York last week rescued up to $170 million from the FCC’s Connect America Fund (CAF) to expand broadband deployment in unserved rural areas of New York State — money Verizon forfeited by expressing no interest in rural broadband expansion. That precedent opens the door for other states to recapture similar federal grants, including those that could target western Massachusetts where Verizon has also declined to accept CAF money. That could ease some of the money worries about WiredWest’s construction costs as well.

At the end of the day, area residents have turned up repeatedly at various events across the region holding signs supporting their choice in local providers: WiredWest. Nobody was holding up a sign hoping Comcast or Charter would be the company that finally brings broadband to their communities. The irony of using taxpayer dollars to fund Comcast in particular is not lost on their customers — many that loathe the company and wish they had another choice. Handing $20 million to that cable giant to expand in western Massachusetts guarantees their newest customers won’t have a choice either. Isn’t it time to give these communities what they want? They clearly want WiredWest.

MegaMerger: Verizon Approaches Charter Communications About Buyout; Regulators Concerned

Verizon Communications has opened preliminary talks with officials close to Charter Communications about a possible merger of the two companies, concerning regulators worried the massive combined telecommunications company would have a near-monopoly on residential broadband service in New York and western Massachusetts.

The Wall Street Journal reports Verizon is working with advisers to study the potential transaction, and warned there is no guarantee a formal deal will materialize. A merger of Verizon and Charter would combine more than 114 million Verizon Wireless customers, 16 million landline customers, and over 6 million broadband customers with Verizon DSL or FiOS with Charter’s 21 million television, phone and broadband customers. The deal could fetch a price of more than $80 billion, no small amount for Verizon, already $100 billion in debt. An acquisition by Verizon would be a remarkable development for a cable company that became America’s second largest only eight months ago with the acquisition of Time Warner Cable and Bright House Networks.

Preliminary Talks

The newspaper reported Verizon CEO Lowell McAdam has talked with Liberty Broadband CEO Greg Maffei. Liberty has a 25% voting stake in Charter Communications, and Maffei is a close ally of John Malone, Charter’s largest single shareholder. McAdam’s back channel discussions have likely been designed to test Charter’s potential interest in a deal. For Malone and the former owners of Bright House Networks who control another 7% of Charter’s shares, making money appears to be their primary motivation and neither would likely to stand in the way of a deal.

McAdam

The newspaper was less certain about Charter’s CEO Thomas Rutledge. Rutledge is approaching his fifth anniversary as president and CEO of Charter Communications, now greatly enlarged with the combination of Time Warner Cable and Bright House. He spent the last 34 years in lesser roles at Cablevision, Time Warner Cable, and its predecessor American Television and Communications (ATC). Rutledge is reportedly interested in continuing his leadership role at Charter as it seeks to grow even larger, something unlikely to happen if Verizon acquires the cable company and rebrands it as Verizon under their own management. However, Rutledge’s personal interests will likely be secondary to the potential shareholder and executive windfall likely to come from any deal.

A Verizon/Charter Merger Would Establish a Broadband Monopoly in New York and Western Massachusetts

Verizon and Charter are the only significant direct competitors in residential broadband and landline telephone service in western Massachusetts and most of New York State, except a portion of New York City, Long Island and Westchester County (served by Altice’s Cablevision) and Rochester (served by Frontier Communications). A source at the New York Department of Public Service told Stop the Cap! this morning New York regulators would have a tough time approving a merger of this size and scope unless Verizon divested its landline and FiOS network in the state or Charter sold its cable properties in New York. A Verizon divestiture would likely attract Frontier Communications as a buyer, while a Charter sale of New York assets would probably bring bids from companies like Comcast or Altice.

“We would be very concerned about how this would impact broadband service competition and to lesser degree wireline service for New York,” the source, not authorized to speak to the media, told us this morning. “Gov. Cuomo has an ambitious agenda for broadband deployment in rural New York and this deal could also be a problem for the governor’s office. Verizon is perfectly aware of the regulatory challenges such a deal would face in Albany.”

Verizon’s Heavy Dependence on Wireless Was a Mistake

Verizon is under significant pressure to act after Wall Street punished the company for a poor fourth-quarter earnings report that illustrated the days of easy money in the wireless business seem to be over. Verizon suffered the third quarter in a row of sales declines after six years of continuous growth. Analysts point to increasing competition from T-Mobile and Sprint as the single biggest factor for Verizon’s struggles. As Verizon Wireless remained slow to cut prices and remained militant about not giving new and current customers access to unlimited data plans, customers have cut back on services or switched to other providers. Revenue dropped 4.9% in the last quarter and a growing number of Verizon’s most valuable postpaid customers are now leaving — mostly for T-Mobile and Sprint. Wireless churn reached a higher-than-expected 1.1% in the last three months.

Verizon Wireless is also having trouble attracting new customers. Analysts expected Verizon would add 726,000 customers during the last quarter, but only managed to attract 591,000. Wall Street punished Verizon’s latest financial results with a 4.4% slash in the stock price, Verizon’s worst day in more than five years.

Several Wall Street analysts have urged Verizon to diversify its business to reduce its dependency on wireless. In the last three years, Verizon has invested most of its attention and resources on bolstering its wireless network. In 2014, AT&T decided to spread its risk around with significant investments in its U-verse wireline broadband network, an acquisition of satellite-TV provider DirecTV, and its bid to buy content company Time Warner, Inc. In contrast, in 2014 Verizon spent $130 billion buying out its partner’s share of Verizon Wireless. That made UK-based Vodafone cash-rich and left Verizon mired in debt.

So far, Verizon’s diversification efforts have relied on acquiring affordable companies whose best days are long past, including AOL and Yahoo. An effort to entertain Millennials with video clips and other content over its go90 mobile app has largely been a flop, and investments in telematics and machine-to-machine wireless communications are years away from paying off, if they ever do.

Verizon May Want Charter’s Extensive Fiber Backhaul Network

Verizon executives have shown little interest in acquiring assets that rely primarily on linear/live television, which is why the company never moved to counter AT&T’s acquisition of DirecTV with an offer for its satellite competitor Dish Networks.

Verizon is very interested in fiber optics — ironic for a company that largely abandoned expanding its FiOS fiber to the home service seven years ago.

Verizon will need a lot of fiber assets to power the 5G wireless networks the company is interested in deploying. This will require a massive network of fiber-connected “small cells” that will deliver wireless services at speeds faster than today’s 4G networks. These small cells will be capable of serving individual neighborhoods or planned communities and could theoretically rely on Charter’s fiber backbone to deliver service. Without access to Charter’s network, Verizon would have to undertake to build out its own fiber network throughout its service areas.

Regulatory Climate Warms for Big Business Mergers

Although President Donald Trump has voiced his opposition to AT&T’s merger with Time Warner, Inc., his appointments to manage the day-to-day affairs of government are strident believers in deregulation and are unlikely to stand in the way of merger deals. The most likely opposition to a Verizon-Charter deal would come from state telecommunications regulators in New York and Massachusetts. On the federal level, significant opposition may be unlikely. Among the Trump appointees that would likely review a Verizon-Charter merger:

  • Joshua Wright is the leading contender to head the Justice Department’s antitrust division. He’s a conservative law professor who believes regulator reviews of corporate mergers should be hands-off to a degree that has failed to withstand court scrutiny. Wright’s approach during his term as a commissioner at the Federal Trade Commission was so business-friendly, some joked his middle name should be “Laissez-Faire.” He believes mergers rarely have a bad impact on competition and prices and in fact offer consumer benefits. Courts have blocked mergers he supported and judges have criticized his standards of proof that “had no support in the law.”
  • Sen. Jeff Sessions is Trump’s nominee for Attorney General. While Sessions claimed he had no problem blocking anti-competitive mergers and acquisitions, Wall Street believes the Trump Administration will not stand in the way of a frenzy of mergers. Evercore ISI’s Terry Haines made it clear what is likely to come from a Sessions-led Justice Department: “Sessions’ likely nomination and confirmation by the Senate, in which he has served since 1997, is a market positive for merger and acquisition activity. Sessions as attorney general would shift immediately from the current mostly ‘red light’ Obama antitrust/competition policy and move towards one that would be friendlier to M&A activity.”
  • The Federal Communications Commission would also scrutinize the deal, but under the chairmanship of Ajit Pai and a Republican majority, any significant opposition to the deal seems unlikely. Pai has never opposed any major telecommunications merger deal on principle, although he has fought with former chairman Thomas Wheeler over the terms and conditions the FCC sought to impose in return for the agency’s approval.

Meet America’s Next FCC Chairman, An Ex-Verizon Lawyer That Snuggles With AT&T’s Talking Points

Phillip Dampier January 24, 2017 Editorial & Site News, Public Policy & Gov't 1 Comment

Ajit Pai

Meet America’s next chairman of the Federal Communications Commission Ajit Varadaraj Pai (born January 10, 1973): a lawyer formerly representing Verizon who wants to take a “weed-wacker” to Net Neutrality, thinks data caps represent innovation, opposes almost every consumer protection measure introduced by his predecessor Thomas Wheeler, and believes the best solution to improving broadband is to take pressure off companies like Comcast, AT&T, Charter, and Verizon.

Pai has been a commissioner at the FCC since 2012 where he and his fellow Republican Michael O’Rielly have strongly opposed most of Chairman Wheeler’s pro-competition agenda and broadband reforms:

  • Pai and his chief of staff Matthew Berry vocally opposed efforts by Wheeler to monitor and manage providers’ implementation of data caps and zero rating schemes that exempt provider-preferred content from usage allowances or speed throttles. Pai said Wheeler’s inquiries to carriers regarding zero rating practices showed “the era of permissonless innovation is over,” followed by a Tweet from Mr. Berry complaining that, “If you come up with an innovative service, you will be hauled into FCC to explain yourself.” In 2012, Pai decried allowing Net Neutrality to take hold because it could lead to eventual regulation of usage-based pricing policies.
  • Pai fiercely opposes Net Neutrality and told an audience at the conservative Free State Foundation in December he will remove “outdated and unnecessary regulations” and “fire up the weed-wacker and remove those rules that are holding back investment, innovation, and job creation.”
  • In 2015, Pai cut and pasted large sections of AT&T’s website into a dissent over the FCC’s plan to fine the phone giant $100 million for deceiving customers about its “unlimited data” plan. Pai’s statement defended AT&T’s business practices and blamed consumers for not understanding AT&T’s definition of “unlimited.”
  • Pai voted against the Charter – Time Warner Cable/Bright House Networks merger not because he opposed it. He was upset that Chairman Wheeler insisted on a seven-year ban on Charter implementing data caps. “Chairman Wheeler’s order isn’t about competition, competition, competition; it’s about regulation, regulation, regulation. It’s about imposing conditions that have nothing to do with the merits of this transaction. It’s about the government micromanaging the Internet economy,” said his spokesperson.
  • Pai partly dissented from the AT&T buyout of DirecTV because he didn’t like the deal’s conditions mandating affordable internet access for consumers, marketplace protections for competing online video services, and a strongly empowered compliance officer assigned to make certain AT&T met its obligations — a lesson the FCC learned after Comcast was accused of skirting its obligations in its acquisition of NBCUniversal.
  • Complained Comcast’s efforts to buy Time Warner Cable would be dead on arrival ‘because the Obama administration has shown itself much less likely to approve major telecom mergers — such as the blocked AT&T-T-Mobile merger — than a Republican administration might be.’
  • Opposed Wheeler’s effort to force open the set-top box marketplace to competition so consumers can buy their own cable boxes at a lower cost.
  • Called Wheeler’s push to have the minimum broadband speed standard reset to 25Mbps “incoherent,” claiming that 71 percent of consumers who can already buy access at those speeds don’t want or need it and that there was no need to push wired providers to deliver faster access because Verizon and AT&T already offer 4G LTE service to 98.5% of America.

Where your next FCC complaint will likely end up.

“Ajit Pai has been on the wrong side of just about every major issue that has come before the FCC during his tenure,” noted Craig Aaron, president of Free Press. “He’s never met a mega-merger he didn’t like or a public safeguard he didn’t try to undermine. He’s been an inveterate opponent of Net Neutrality, expanded broadband access for low-income families, broadband privacy, prison-phone justice, media diversity and more.”

In contrast, Comcast was thrilled with President Trump’s appointment.

“We commend [Pai’s] tireless efforts to develop and support policies that benefit American consumers and spur greater investment and innovation in broadband technologies to connect all Americans and drive job creation,” said David Cohen, senior executive vice president and chief diversity officer at Comcast. “This is a terrific appointment for the American consumer and the companies the FCC regulates and we look forward to continuing to work with Chairman Pai in his new role.”

That may not be too surprising, considering he spent his formative years in Washington as an associate general counsel at Verizon, where he helped the company deal with pesky regulatory matters. Pai has already given the public clues about how he is likely to respond to consumer complaints about the state of American broadband.

In January 2016, Pai complained the FCC should not be responding to the whims of public interest and consumer groups that “protest a particular [provider] offering,” referring to T-Mobile’s zero rating plan, claiming the “agency is going to jump to the tune” as a result. When the FCC starts scrutinizing providers over their “highly competitive and innovate service[s],” that represents the “very definition” of regulatory uncertainty.

For Pai, the ultimate sin seems to be bothering the incumbent telecom giants, who in his view seem to know what is best for America. So he is very likely to stay out of their way.

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