Home » Verizon » Recent Articles:

Verizon Accuses AT&T of “Rigging the Game to Stifle True Competition”

It is rare for AT&T and Verizon to feud in public, even rarer for one company to accuse the other of being anti-competitive, but that is precisely what happened last week in California as the two companies sparred over building a next generation wireless network for first responders.

The First Responder Network Authority (FirstNet) is a government program to provide emergency responders with priority access to the first nationwide, high-speed wireless broadband network dedicated to public safety. AT&T won an extremely lucrative contract to build, operate and maintain the network in states that “opt in” to AT&T/FirstNet’s proposal. But AT&T is not building a separate wireless network apart from its existing wireless infrastructure. It is using $6.5 billion in public taxpayer dollars and free access to an extremely valuable segment of nationwide 700MHz spectrum, known as Band 14, to improve its existing wireless network for individual customers and the first responders that will get priority access in the event of an emergency.

For AT&T to benefit the most financially, it has to convince each of 56 states and territories to “opt in” to its FirstNet deployment plan or do nothing at all, which will result in that state or territory automatically being enrolled in AT&T’s plan. If a state elects to opt out of AT&T’s plan, the wireless company cannot get free access to Band 14 or collect the taxpayer dollars designated for that area.

FirstNet is one of AT&T’s most lucrative contracts in years, and the phone company is doing everything possible to win over state officials in hopes they will embrace the FirstNet plan. It has been a successful effort with more than 30 states, Puerto Rico and the U.S. Virgin Islands purposely opting in, and more than a dozen still studying AT&T’s offer. To date, no state has opted out.

Verizon, which did not bid on the original FirstNet contract, has not walked away from providing public safety communications and has spent a considerable amount of its advertising budget to promote Verizon’s own services to first responders, designed to assure they get first priority to clogged cellular networks in the event of an emergency. In August, Verizon announced it will privately finance its own “private network core” to directly serve police, fire, ambulance, and related agencies. Verizon’s first responder network will be separate from Verizon’s public network, but the company has also promised full priority access to its public LTE 4G network across the country.

Verizon’s counteroffer comes without taxpayer financing, yet will offer many of the same services as AT&T FirstNet, without costing the country more than $6 billion. Among the services Verizon will give away for free: priority/preemption access, which means in an emergency, first priority will go to emergency officials even if it means dropping your cell phone call or data session. Verizon is also bolstering its Push-to-Talk Plus service, which works with existing land mobile radio networks. This will allow first responders to use the “walkie talkie”-type features already a familiar part of their radio equipment.

Verizon’s offer would seem to be a good deal for consumers and governments in states like New York and California that have yet to opt in to AT&T FirstNet, and in California, Verizon was invited to bid to create an alternative network in a potential “opt out” scenario. Verizon’s director of public-safety solutions group – David Wiederecht, promised the state Verizon would submit its bid by the state deadline, which was last Wednesday. By Friday, California officials leaked word Verizon had reneged on that commitment and did not participate, a fact Verizon later confirmed.

Verizon accused AT&T and FirstNet of colluding to rig the “Request for Proposals” process in California with requirements that were impossible for anyone except AT&T to meet.

“Vigorous competition that allows the industry and the marketplace to continue to grow and innovate is in the best interest of public safety and should be everyone’s shared goal,” Verizon said in a written statement. “Instead, we believe FirstNet and its corporate partner are rigging the game in order to stifle true competition.”

Urgent Communications reported that the among the most onerous requirements imposed by AT&T and FirstNet is that all emergency communications in an “opt out” state must be sent to the FirstNet LTE core network operated by AT&T. That would mean that regardless of who builds and operates the network, AT&T still remains at the core of FirstNet.

“We’re not prepared to have our public safety customers run on a network where we can’t control their ability to connect or their customer experience,” according to the Verizon spokesperson.

Verizon suggests the reason for 36 states to have opted-in to AT&T’s proposal may not be the result of love for AT&T, but rather the punishments the states and territories risk if they don’t sign on with AT&T.

Don Brittingham, Verizon’s vice president of public safety, testified at a Pennsylvania hearing regarding FirstNet and warned states could be effectively stuck with AT&T indefinitely.

“States should not be required to use the network core deployed by (AT&T) FirstNet, as such a requirement would put the state in the untenable position of being driven by the interests and decisions of FirstNet’s commercial partner—a condition that would be unattractive to any prospective state commercial partner,” Brittingham said.

AT&T has also borrowed from its customer preservation policies on the retail side with terms and conditions that could be financially devastating to states that decide to look elsewhere.

Because any competing provider is required to use AT&T’s network core to be a part of FirstNet, AT&T can set whatever price it chooses for third party access. But most onerous of all is the penalty imposed if a state opts out of AT&T FirstNet and chooses a vendor that does not meet every FirstNet guideline. In that case, a state would be required to come hat in hand back to AT&T/FirstNet for service that does meet the guidelines AT&T/FirstNet wrote. In California, that penalty fee would amount to as much as $15 billion, more than twice the amount taxpayers are paying AT&T to build out FirstNet in at least 36 states and territories.

Taken from a FirstNet fact sheet.

AT&T defended the amount of the penalty fee, claiming it has to build or enhance its network to provide public safety communications for at least 25 years, but critics contend the penalty is so risky, most states will opt for the path of least resistance and legal exposure and sign on with AT&T/FirstNet.

Verizon’s complaints about the bidding process received a strong rebuke from AT&T.

“Building a state-of-the art network that meets the needs of first responders is hard. Clearly, AT&T is up for the task,” Chris Sambar, AT&T’s senior vice president for FirstNet, said in a statement provided to Urgent Communications. “We’re noticing a pattern: Verizon says they have public safety’s back, but when it comes to the heavy lifting, they are nowhere to be found.”

But then, neither are any competing providers.

Net Neutrality Protests Coming to More Than 600 Verizon Stores on Thursday

Phillip Dampier December 6, 2017 Consumer News, Net Neutrality, Public Policy & Gov't No Comments

Thousands of pro-Net Neutrality supporters are expected to protest the imminent repeal of rules protecting a free and open internet at more than 600 Verizon retail stores nationwide on Thursday, Dec. 6.

FCC Chairman Ajit Pai is likely to preside over a 3-2 Republican majority Dec. 14 vote rolling back rules that prevent internet service providers from blocking or slowing access to websites and creating paid “fast lanes.”

“The protests are meant to pierce the protective bubble of industry lobbyists and ‘yes men’ who’ve surrounded Chairman Pai,” said Free Press Action Fund senior director of strategy Timothy Karr,  who helped coordinate the day of action. “The outcry from across the political spectrum has been deafening. Pai’s effort to ignore the overwhelming public support for Net Neutrality only isolates him further from the people he’s really supposed to serve.”

The largest protest is expected to take place at Verizon’s Manhattan store on 42nd Street near Bryant Park. Other New York-area protests will occur at Verizon stores and offices in Lower Manhattan, Williamsburg (Brooklyn) and Fordham University (the Bronx).

Verizon Protests, a website run by several internet activist groups, is coordinating the public pushback against Pai and features an online map showing scheduled protest locations, asking those planning to attend to RSVP and find out the time of the protest at each location.

The group chose Verizon’s retail stores for its protests because Verizon is funding anti-Net Neutrality campaigns and lawsuits.

“The new chairman of the FCC, Ajit Pai, is a former top lawyer for Verizon, and the company has been spending millions on lobbying and lawsuits to kill Net Neutrality so they can gouge us all for more money,” the website says. “By protesting at Verizon stores, we’re shining light on the corruption and demanding that our lawmakers do something about it. Only Congress has the power to stop Verizon’s puppet FCC, so at the protests we’ll be calling and tweeting at legislators, and in some cities we’ll be protesting right in front of their offices.”

The group is encouraging everyone to also take their protest to their members of Congress.

“Everybody can call (202) 759-7766.  Please introduce yourself, be polite, and say and say something like: “I support “Title Two” Net Neutrality rules and I would like you to publicly oppose the FCC’s plan to repeal them,” the group advises in a three-page protest guide. “Please contact the FCC Chairman and demand that he abandon his current plan. We don’t need legislation, we need you to stop the FCC from gutting the existing rules.”

Wall Street Uneasy About Future 5G Broadband Competition; Ponders Idea of 5G Monopolies

Super monopoly?

Some Wall Street analysts are pondering ideas on how to limit forthcoming 5G wireless home broadband, suggesting providers might want to set up local monopolies, keeping competition to a minimum and profits to a maximum.

Verizon’s presentation at its annual Analyst Day meeting drew little praise from analysts and investors in attendance, “landing like a thud” to quote one person at the event.

The issue concerning Wall Street is what impact 5G wireless broadband will have on the internet access marketplace, which is currently a comfortable monopoly or duopoly in most American cities. That may radically change if the country’s four wireless companies each launch their own 5G services, designed to replace wired home broadband services from the cable and phone companies.

This week Verizon formally announced Sacramento would be the first city in the country to get its forthcoming 5G service, with an additional four of five unnamed cities to follow sometime next year.

Verizon will advertise 1,000Mbps service that will be “priced competitively” with current internet providers in the market. But Verizon intends to market itself as “a premium provider,” which means pricing is likely to be higher than one might expect. Verizon claims they intend to roll out 5G service to 30 million households — 25-30% of the country, making Verizon a prominent provider of fixed wireless home broadband service.

But analysts panned Verizon’s presentation for raising more questions than the company was prepared to answer. Barron’s shared the views of several analysts who were underwhelmed.

Notably, Craig Moffett from Moffett-Nathanson was particularly concerned about how to rate 5G service for his investor clients, and more importantly to them, how to forecast revenue and profit.

Moffett

The biggest problem for Moffett is the prospect of additional competition, and what that will do to each current (and future) provider’s share of customers and its revenue. If every major wireless carrier enters the 5G home broadband business, that will raise the prospective number of ISPs available to consumers to six or more — four wireless carriers competing with the phone and cable company. That is potentially very dangerous to big profits, especially if a competitive price war emerges.

“Let’s assume that AT&T is just as aggressive about this opportunity as Verizon,” Moffett told his investor clients. “Will they enter the same markets as Verizon, or different ones? […] If multiple players enter each market, all targeting the same 25-30% [where 5G service will be sold]. Well, what then? Let’s suppose the 30% market share estimate is right. Wouldn’t it be now shared among two, three, or even four [5G fixed wireless broadband] providers?”

Moffett gently proposes a concept where this profit-bruising competition can be abated by following the cable television model — companies agree to stay out of each others’ markets, giving consumers a choice of just one 5G provider in each city instead of four.

“There’s a completely different future where each operator targets different markets […] Let’s say that AT&T decides to skip Sacramento. After all, Verizon will have gotten there first,” Moffett suggests. “If the required share of the [fixed wireless] market is close to Verizon’s estimated 30%, then there is only room for one provider. So AT&T decides to do Stockton, about 40 miles to the south. Verizon would then skip Stockton, but might do Modesto, twenty miles further south… and then AT&T would then skip Modesto and instead target Fresno… unless Sprint or T-Mobile got there first.”

But Moffett is thinking even further ahead, by suggesting wireless carriers might be able to stop spending billions on building and expanding their competing 4G LTE networks when they could all share a single provider’s network in each city. That idea could work if providers agreed to creating local monopolies.

“That would create a truly bizarre market dynamic that is almost unimaginable today, where each operator ‘owned’ different cities, not just for [5G] but also for 4G LTE. If this kind of patchwork were to come to pass, the only viable solution might then be for companies to reciprocally wholesale their networks. You can use mine in Modesto if I can use yours in Fresno. To state the obvious, there is almost no imaginable path to that kind of an outcome today.”

The reason providers have not attempted this kind of “one provider” model in the past is because former FCC commissioners would have never supported the idea of retiring wireless competition and creating a cable monopoly-like model for wireless service. But things have changed dramatically with the advent of Chairman Ajit Pai, who potentially could be sold on the idea of granting local monopolies on the theory it will “speed 5G deployment” to a large number of different cities. Just as independent wireless providers lease access on the four largest carriers today (MVNO agreements), AT&T, Verizon, T-Mobile and Sprint could sell wholesale access to their networks to each other, allowing massive cost savings, which may or may not be passed on to customers.

But it would also bring an end to network redundancy, create capacity problems, and require every carrier to be certain their networks were interoperable with other wireless companies. The federal government’s emergency first responder program also increasingly depends on a wireless network AT&T is building that would give them first priority access to wireless services. How that would work in a city “designated” to get service from Verizon is unclear.

Restricting competition would protect profits and sharing networks would slash expenses. But such prospects were not enough to assuage Wall Street’s insatiable hunger for maximum profits. That is why analysts were unimpressed with Verizon’s presentation, which “lacked the financials” — precise numbers that explain how much the network will cost, how quickly it will be paid off, and how much revenue it can earn for investors.

A small cell attached to a light pole.

Verizon did sell investors on the idea 5G will put an end to having to wire fiber optics to every home. The service will also keep costs to a minimum by selling retail activation kits customers will install themselves — avoiding expensive truck rolls. Billing and account activation will also be self-service.

Verizon also announced a new compact 4G/5G combined antenna, which means 5G service can be supplied through existing macro/small cell 4G equipment. Verizon will be able to supplement that network by adding new 5G nodes where it becomes necessary.

Investor expectations are that 5G will cost substantially less than fiber to the home service, will not cost massive amounts of new investment dollars to deploy in addition to maintaining existing 4G services, will not substantially undercut existing providers, and will allow Verizon to market 21st century broadband speeds to its customers bypassed for FiOS fiber service. It will also threaten rural phone companies, where customers could easily replace slow speed DSL in favor of what Verizon claims will be “gigabit wireless.”

Despite that, Instinet’s Jeffrey Kvaal was not wowed by Verizon’s look to the future.

“Verizon’s initial fixed wireless implementation seems clunky and it withheld its pricing strategy,” Kvaal told his clients. He believes fixed wireless broadband will cost Verizon an enormous amount of money he feels would be better spent on Verizon’s mobile network. “Verizon glossed over 5-10x LTE upgrades that are already offering ~100Mbps of fully mobile service at current prices to current phones without line of sight. A better 5G story might be to free up sufficient LTE capacity to boost the unlimited cap from 25GB to 100GB for, say, a $25 premium. The ‘cut the cord’ concept was successful in voice, in video, and should be in broadband.”

The Great Telecom Merger Carousel: Altice <-> Sprint <-> T-Mobile <-> Charter

A last-ditch effort last weekend by executives of SoftBank and Deutsche Telekom to overcome their differences in merging Sprint with T-Mobile USA ended in failure, killing Wall Street’s hopes combining the two scrappiest wireless carriers would end a bruising price war that had heated up competition and hurt profits at all four of America’s leading wireless companies.

Now Wall Street, hungry for a consolidation deal, is strategizing what will come next.

Sprint/T-Mobile Merger

In the end, SoftBank’s chairman, Masayoshi Son, simply did not want to give up control of Sprint to Deutsche Telekom, especially considering Sprint’s vast wireless spectrum holdings suitable for future 5G wireless services.

The failure caused Sprint Corp. shares and bonds to plummet, and spooked investors are worried Sprint’s decade-long inability to earn a profit won’t end anytime soon. Sprint’s 2010 Network Vision Plan, which promised better coverage and network performance, also helped to load the company with debt, nearly half of which Sprint has to pay back over the next four years before it becomes due. Sprint’s perpetual upgrades have not tremendously improved its network coverage or performance, and its poor performance ratings have caused many customers to look elsewhere for wireless service.

Investors are also concerned Sprint will struggle to pay its current debts at the same time it faces new ones from investments in next generation 5G wireless technology. Scared shareholders have been comforted this morning by both Son and Sprint CEO Marcelo Claure in an all-out damage control campaign.

Son has promised the now-orphaned Sprint will benefit from an increased stake in the company by SoftBank — a signal to investors SoftBank is tying itself closer to Sprint. Son has also promised additional investments to launch yet another wave of network upgrades for Sprint’s fourth place network. But nothing is expected to change very quickly for customers, who may be in for a rough ride for the immediate future. Son has already said his commitment to raise Sprint’s capital expenditures from the current $3.5-4 billion to $5-6 billion annually will not begin this year. Analysts claim Sprint needs at least $5-6 billion annually to invest in network improvements if it ever hopes to catch up to T-Mobile, AT&T, and Verizon Wireless.

Masayoshi Son, chairman of SoftBank Group

“Even if the next three-four years will be a tough battle, five to 10 years later it will be clear that this is a strategically invaluable business,’’ Son said, lamenting losing control of that business in a deal with T-Mobile was simply impossible. “There was just a line we couldn’t cross, and that’s how we arrived at the conclusion.”

During a call with analysts on Monday, Sprint’s chief financial officer Tarek Robbiati acknowledged investors’ disappointment.

Investors were hoping for an end to deep discounting and perks given to attract new business. T-Mobile’s giveaways and discounting have reduced the company’s profitability. Sprint’s latest promotions, including giving away service for up to a year, were seen by analysts as desperate.

Son’s own vision plan doesn’t dwell on the short-term, mapping out SoftBank’s progress over the next 300 years. But for now, Son is concerned with supporting the investments already made in the $100 billion Vision Fund Son has built with Saudi Arabia’s oil wealth-fueled Public Investment Fund. Its goal is to lead in the field of next generation wireless communications networks. Sprint is expected to be a springboard for those investments in the United States, supported by the wireless company’s huge 2.5GHz spectrum holdings, which may be perfect for 5G wireless networks.

But Son’s own failures are also responsible for Sprint’s current plight. Son attempted to cover his losses in Sprint by pursuing a merger with T-Mobile in 2014, but the merger fell apart when it became clear the Obama Administration’s regulators were unlikely to approve the deal. After that deal fell apart, Son has allowed T-Mobile to overtake Sprint’s third place position in the wireless market. While T-Mobile grew from 53 million customers to 70.7 million today, Sprint lost one million customers, dropping to fourth place with around 54 million current customers.

Son’s answer to the new competition was to change top management. Incoming Sprint CEO Marcelo Claure promptly launched a massive cost-cutting program and layoffs, and upgrade-oriented investments in Sprint’s network stagnated, causing speeds and performance to decline.

Claure tweetstormed damage control messages about the merger’s collapse, switching from promoting the merger’s benefits to claims of relief the merger collapsed:

  • “Jointly stopping merger talks was right move.”
  • Sprint is a vital part of a larger SoftBank strategy involving the Vision Fund, Arm, OneWeb and other strategic investments.”
  • “Excited about Sprint’s future as a standalone. I’m confident this is right decision for our shareholders, customers & employees.”
  • “Sprint added over 1 million customers last year – we have gone from losing to winning.”
  • “Last quarter we delivered an estimated 22% of industry postpaid phone gross additions, our highest share ever.”
  • “Sprint network performance is at best ever levels – 33% improvement in nationwide data speeds year over year.”
  • “We are planning significant investments to the Sprint network this year and the years to come.”
  • “In the last 3 years we’ve reduced our costs by over $5 billion.”
  • “Sprint’s results are the best we’ve achieved in a decade and we will continue getting better every day.”

In Saturday’s joint announcement, Claure said that “while we couldn’t reach an agreement to combine our companies, we certainly recognize the benefits of scale through a potential combination. However, we have agreed that it is best to move forward on our own. We know we have significant assets, including our rich spectrum holdings, and are accelerating significant investments in our network to ensure our continued growth.”

“They need to spend (more) money on the network,” said William Ho, an analyst at 556 Ventures LLC.

CNBC reports Sprint’s end of its T-Mobile merger deal has hammered the company’s stock. What does Sprint do now? (1:30)

Sprint/Altice Partnership

Sprint executives hurried out word on ‘Damage Control’ Monday that Altice USA would partner with Sprint to resell wireless service under the Altice brand. In return for the partnership, Sprint will be able to use Altice’s fiber network in Cablevision’s service area in New York, New Jersey, and Connecticut for its cell towers and future 5G small cells. The deal closely aligns to Comcast and Charter’s deal with Verizon allowing those cable operators to create their own cellular brands powered by Verizon Wireless’ network.

An analyst at Cowen & Co., suspected the Altice deal may be a trial to test the waters with Sprint before Altice commits to a future merger between the two companies. Altice is hungry for expansion, currently owning Cablevision and Suddenlink cable operators in the U.S. But Altice has a very small footprint in the U.S., leading some analysts to believe a more lucrative merger might be possible elsewhere.

Sprint/Charter Merger

Charter Communications Logo. (PRNewsFoto/Charter Communications, Inc.)

Charter Communications stock was up more than 7% in early Monday morning trading as a result of speculation SoftBank and Charter Communications were restarting merger talks after a deal with T-Mobile collapsed.

CNBC reported that Mr. Son was willing to resume talks with Charter executives about a merger between the cable operator and Sprint. Charter executives have shown little interest in the deal, still distracted trying to merge their acquisitions Time Warner Cable and Bright House Networks into Charter’s current operation. Charter’s entry into wireless has been more tentative, following Comcast with a partnership with Verizon Wireless to resell that considerably stronger network under the Charter brand beginning sometime in 2018.

According to CNBC, John Malone’s Liberty Media, which owns a 27% stake in Charter, is now in favor of a deal, while Charter’s top executives are still opposed.

CNBC reports Charter and Sprint may soon be talking again about a merger between the two. (6:33)

Dish Networks <-> T-Mobile USA

Wall Street’s merger-focused analysts are hungry for a deal now that the Sprint/T-Mobile merger has collapsed. Pivotal Research Group is predicting good things are possible for shareholders of Dish Network, and upgraded the stock to a “buy” recommendation this morning.

Jeff Wlodarczak, Pivotal’s CEO and senior media analyst, theorizes that Sprint’s merger collapse could be good news for Dish, sitting on a large amount of unused wireless spectrum suitable for 5G wireless networks. Those licenses, estimated to be worth $10 billion, are likely to rise in value as wireless companies look for suitable spectrum to deploy next generation 5G networks.

Multichannel News quotes Wlodarczak’s note to investors:

“In our opinion, post the T-Mobile-Sprint deal failure there is a reasonable chance that T-Mobile could make a play for Dish or Dish spectrum as it would immediately vault the most disruptive U.S. wireless player into the leading U.S. spectrum position (w/ substantially more spectrum than underpins Verizon’s “best in class” network),” Wlodarczak wrote. “This possible move could force Verizon to counter-bid for Dish spectrum (or possibly the entire company) as Dish spectrum is ideally suited for Verizon and to keep it out of T-Mobile’s hands.”

AT&T/DirecTV Buyout of Dish Network

Wlodarczak has also advised clients he believes the deregulation-friendly Trump Administration would not block the creation of a satellite TV monopoly, meaning AT&T should consider pairing its DirecTV service with an acquisition of Dish Networks’ satellite TV business, even if it forgoes Dish’s valuable wireless spectrum.

“AT&T, post their Time Warner deal, could (and frankly should) be interested in purchasing Dish’s core DBS business taking advantage of a potentially more laissez faire regulatory climate/emergence of V-MVPD’s, to significantly bolster their DirecTV business (and help to justify the original questionable DirecTV deal) by creating a SatTV monopoly in ~10-15M US households, increased programming scale and massive synergies at a likely very attractive price.”

Such a transaction would likely resemble the regulatory approval granted to merge XM Satellite Radio and Sirius Satellite Radio into SiriusXM Satellite Radio in 2008. Despite the merger, just months after its approval, the combined company neared bankruptcy until it was bailed out with a $530 million loan from John Malone’s Liberty Media in February 2009. Liberty Media maintains an active interest in the satellite radio company to this day.

Unfair Tax Policies Disadvantage New Fiber Competitors, Harm Broadband Expansion

Providers attempting to wire rural communities to offer broadband service or a competitive alternative to cable and phone companies face unfair tax and pole attachment fees that often give the advantage to existing companies and deter would-be competitors.

Those differences have a meaningful impact on rural broadband providers in states like New York, where wiring rural upstate communities is being made difficult by bureaucratic pole attachment fee policies and wide differences in property taxation that give an edge to existing cable giants like Charter Communications while hampering small start-ups with costly and confusing tax policies that slow down broadband rollouts.

The Watertown Daily Times recently published an in-depth special report on the broadband challenges impacting northern New York, where fast internet access has evaded some communities for more than two decades. That lack of access is becoming a critical problem for a growing number of employers who are now considering exiting those communities because companies like Verizon, Frontier Communications and Charter/Spectrum are refusing to provide 21st century broadband service in rural upstate communities.

One example is Tupper Lake Hardware in Tupper Lake, N.Y., which wanted to expand, but considered exiting the area instead after being stuck using satellite internet access because no phone or cable company offered broadband service in the area.

“It came to the point where if you are going to make a $1 million investment, we actually talked about this, we said ‘do we put our money into this place or do we just pick up and move?’” general manager Chris Dewyea told the newspaper. “It is real. It sounds dramatic, but that is the way it goes. The connectivity speed that we had with satellite internet was not good enough, so that is when we started on our journey to get high-speed here.”

Calling Verizon, Frontier, or Spectrum was fruitless, so the company picked up the phone and called… the Empire State Forest Products Association, a group that has tangled with internet connectivity problems in upstate New York before. The group pointed the company to Slic Network Solutions, owned by the independent Nicholville Telephone Company, which has spent the last several years slowly expanding the reach of its fiber optic network in the north country. Slic currently provides service to about 10,000 homes in small communities like Belmont, Lake Placid, Schroon Lake, and Titus Mountain.

Like many fiber overbuilders operating in New York, Slic has to plan its network expansion carefully, as it lacks the financial resources and staff of a company like Verizon or Charter. Slic’s fiber service is in very high demand, because the alternatives are almost always satellite internet access or appallingly slow DSL service from Verizon or Frontier, neither of which have shown much interest in delivering the FCC’s 25Mbps definition of broadband. Charter’s Spectrum service is available only in larger concentrated communities that can meet the cable company’s return on investment property density test. Many rural upstate communities don’t.

“In most of the places, there really was the option of satellite. Some places had DSL but it was usually pretty marginal,” said Kevin Lynch, vice president of technical operations & chief operations officer of Slic Network Solutions. “There are a few areas, but very limited, that might have had Spectrum.”

Slic is one of several small fiber providers operating in New York, each trying to cover territories larger phone and cable companies have ignored for years. Cooperation in commonplace among some companies operating in similar regional areas to keep construction and operating costs down. Some providers share their networks to extend their reach. Most target commercial or institutional users but will lease out their networks for residential providers. Some of the state’s middle mile fiber networks were built with economic stimulus money or through other grant or government programs. Others are privately funded. Many are underutilized but lack the funds to expand.

Westelcom, based in Watertown, counts Slic as one of its partners. Westelcom currently limits its business to commercial accounts in its six county service area, which includes Watertown, Malone, Clayton, Elizabethtown, Ticonderoga and Plattsburgh. But it is willing to provide wholesale access to third-party companies that want to serve residential customers.

One of the biggest and most surprising impediments to serving “last-mile” residential customers isn’t the cost of construction or the return on investment. It’s New York’s tax laws. Current tax policy requires fiber providers to pay taxes on the value of the infrastructure being used, regardless of revenue. At present, that tax rate can cost between $25,000 and $30,000 per fiber route mile. If it takes five miles of fiber to reach only a half-dozen homes, the provider would owe New York over $100,000 in taxes alone, making it impossible to recoup costs and drain the provider’s finances.

The National Conference of State Legislatures, a bi-partisan group, published Property Taxation on Communications Providers: A Primer for State Legislatures in 2015, outlining a legacy of inconsistent and often outdated state and local taxation policies across the United States that treat communications providers differently on issues like property tax. The group points out New York’s tax authorities treat cable and phone companies very differently than upstart fiber providers. Mobile phone companies are taxed differently as well:

The taxation of communications property varies widely in New York. There are several types of property taxes that are applied in varying ways to the communications sector. While New York does not generally tax tangible personal property, the state considers lines, wires, poles, electrical conductors, fiber optic equipment, and related equipment to be real property. Landline companies and cable companies are subject to a real property tax on “Special Franchise” property which is centrally administered and assessed using the reproduction cost method by the Office of Real Property Tax Services (ORPTS). The Special Franchise property tax applies to equipment located on public property. In addition, Nassau County and New York City have a “split roll” which  requires higher taxes on the “utility” class which includes landline telephone companies. Wireless companies and cable companies are assessed locally for their real property (land and buildings,  e.g., towers)

In plainer English, Lynch points out Slic is taxed about $465 per mile per year in St. Lawrence County, which is “significantly higher” than what cable companies like Charter pay, because they are taxed differently.

In the college town of Potsdam, Slic pays more than double the school and property taxes paid by Charter Communications, even though it serves fewer customers and earns much less. That disparity forces providers to target their networks in more dense areas like inside towns and villages, which means more customers per fiber route mile, reducing the bite of the tax man.

“Broadband infrastructure is considered real property, so it is taxed just like a house when it is in the right of way. So when we attach to these poles which are in the public right-of-way, we pay taxes on it and it is based on construction costs,” Lynch added. “There are a certain number of customers we have just to break even on those two operational costs and that does not include any of the other overhead and the content, the electronics and all that.”

After paying New York, Slic then faces the bureaucratic challenge of pole attachment permitting and fees. Every pole on which Slic attaches its fiber wiring is owned by someone else, typically utility companies like National Grid, Verizon, or Frontier. Some poles are jointly owned and maintained by the phone and electric company in the area. Fees and procedures vary in different parts of the state. There is generally a very costly pole attachment application fee and ongoing pole rental fees, which in this part of New York can run $400 a mile, per year.

Lynch said the costs of pole attachment fees alone can account for up to 40 percent of Slic’s expansion budget, and those initial fees can run between $10,000-14,000 per mile. This is why fiber overbuilders frequently decide on coverage areas based on customer commitments to sign up for service if it becomes available. This allows companies like Slic to secure the financing required to provision the service. But money alone doesn’t buy instant access.

“We apply to National Grid or whoever the pole owner is and say, ‘We would like to attach to these 30 poles on this road,’ and do a pole application and pay a fee,” Mr. Lynch explained to the newspaper. “They come out, they look at each pole and they determine if there is space on the pole, do they need to rearrange the electrical wires so they are in compliance with the electrical code, do they need to move down the phone lines. A lot of times these poles are jointly owned. It will be National Grid and Verizon, so they have to coordinate and then there might be a section that has Spectrum on it, so you have three or four companies that have to coordinate this effort.”

The state adds its own layer of bureaucracy with different Department of Transportation regions, regional economic regions, and Department of Environmental Conservation regions, each with its own rules and procedures. It is common for fiber projects to cross from one region into another, requiring additional paperwork and likely delays. If a project has to cross into the Adirondack Park, the rules and permits required to manage that are byzantine.

The result of all this is usually a significant delay in getting started, but once the paperwork is complete and fees are paid, the work can go faster than many realize.

“In these areas where we are constructing right now, Schroon Lake and Belmont and Lyon Mountain, we are building three to five miles of fiber per week. Our next group of projects that has been funded by New York state is 300-plus miles of fiber,” Lynch said. “And when I say three to five miles per week, that is per area.”

Fiber providers would like to see tax fairness and a lot less bureaucracy. The rules in states like New York may eventually leave fiber to the home service at a distinct disadvantage, because wireless networks don’t face pole attachment complications and pay lower taxes because their real property is generally a cell tower and the fiber line that connects to it. As it stands, some internet providers may gravitate towards wireless internet solutions in rural areas instead of fiber just to avoid excessive taxes and the pole attachment bureaucracy. Most homes and businesses prefer fiber optic service when given a choice, but without some changes to tax laws and a more centralized, less bureaucratic approach to pole attachments, fiber optics may never make financial sense in rural upstate New York.

Search This Site:

Contributions:

Recent Comments:

  • chickenpatti13: I'm not going to be upset over loosing favorite channels.Once upon a time,there was no TV.I'll use all that free time to expand my farm.You can't wear...
  • DCUNY: 113/12 now in area of Hilton, NY. Was 70/6 last year or so....
  • Daniel Haro: no WORRIES FOR US IN San Antonio TX. Google FIBER HAS LAUNCH SHOULD BE AVAILABLE TO MOST OF San Antonio IN THE COMING MONTHS. WeCAN FINAL DITCH THIS P...
  • bc: woke up to 130/15 speeds this morning batavia ny 14020...
  • Racerbob: Confirmed upgrade here in West Webster. 60/5 is now 100/10 for me. http://beta.speedtest.net/result/6880083440.png...
  • Fred Pilot: Interesting that "the Internet" is still discussed as if it's something new circa early 1990s when in fact it's been widely available for some number ...
  • Don: I just got off the phone with Spectrum and I asked about the small speed increase. He said that I am part of the new lift area. He said that in my are...
  • Racerbob: A friend here in Webster started seeing 150 Mbps download speed yesterday. A chat with Spectrum today told him that more speed would be seen next week...
  • Don: I'm in Gates, New York and I'm on the ultra plan and my speeds were around 117/11.5 but now are showing around 141/11.5 but not sure why. The speed re...
  • Reuben Mahar: New Speeds are online in Waldoboro Maine. 04572. Testing at 112 x 11. I wonder if this has anything to do with LCI offering fiber in my area,,,,, ...
  • Peggy: Sorry to tell you but they set up the account based on your address, not your name. And the other thing is, it does depend not only on your address bu...
  • EJ: I am curious to see the specifics of this "DEAL". How bulletproof does this need to be, how much redundancy does there need to be, who decides what an...

Your Account:

%d bloggers like this: