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Fellow Brighton, N.Y. resident and Pulitzer Prize-winning journalist David Cay Johnston hits the nail right on the head describing the Big Telecom Swindle that promised America it was going to get something magical called “the information superhighway.”

Over a half-trillion dollars in rate increases later, AT&T and Verizon instead spent a lot of that money on an enormously profitable wireless business that redefines the average American family’s monthly phone bill at $100+. Johnston talks about the broken industry promises of ubiquitous broadband, leaving millions of potential FiOS and U-verse customers behind.

With vast lobbying arms, large cable and phone companies have manipulated public policy to assure they can gouge customers, shortchange workers, and erect barriers to fair play. If consumers don’t pay attention, politicians armed with fat campaign contributions will continue to represent corporate interests, not those of the average American.  

[Note to Mr. Johnston: He isn’t the only reporter paying attention. Hat tip to Stop the Cap! reader Pat McDermott who shared the video.]  (17 minutes)

Verizon has a moratorium on further expansion of its fiber to the home service except in areas where it has existing agreements to deliver service.

Verizon Communications will not expand their FiOS fiber optic network beyond the current obligations the company has with communities where it presently provides service.

Verizon chief financial officer Fran Shammo told investors the company intends to wind down FiOS expansion once its contractual commitments to state and local authorities are met to reap the financial rewards of the fiber optic network it began building in 2006.

“At this point we won’t build beyond that, because at this point we have to capitalize on what we have invested,” Shammo told an investor at the Goldman Sachs Communacopia Conference.

From 2014 beyond, Verizon plans to substantially decrease capital investments in its wired networks and continue to shift spending towards Verizon Wireless. Shareholders may also benefit from an increased dividend payout as the company’s balance sheet improves.

In real terms this means that Verizon will only expand FiOS where it previously signed agreements that allowed the company to gradually roll out its fiber optic network. Large sections of Verizon’s service areas, including major cities in the northeastern corridor, are not on the upgrade list and will not get the service.

Verizon’s experience and scale rolling out fiber to the home service over the past five years allowed the company to achieve a cost of  just $700 to reach each home, less than half the original estimated expense for fiber upgrades. But Verizon still considers the network too expensive to expand further.

Shammo also admitted Verizon is targeting its landline investments to bolster its more profitable wireless business.

“The fact of the matter is wireline capital — and I won’t give the number but it’s pretty substantial — is being spent on the wireline side of the house to support wireless growth,” Shammo said. “So the IP backbone, the data transmission, fiber to the cell, that is all on the wireline books but it’s all being built for the wireless company.”

Bruce Kushnick found no bump in construction expenses for FiOS after 2008 and no major increases in capital expenditures in general. In fact, Verizon, on average, spent more on construction from 2000 to 2004 than from 2005 to 2011, when FiOS construction was at its peak.

Bruce Kushnick from New Networks Institute has been tracking Verizon’s capital investments for the last decade and found Verizon was hardly hurting paying for FiOS network upgrades. In fact, Kushnick suspects much of the money to pay for FiOS came from a combination of ratepayer rate increases and diversion of investments intended to maintain Verizon’s existing landline network:

Whatever amount Verizon did spend on FiOS — and obviously it was a not insignificant amount — would therefore appear to have come out of the standard construction budgets that were supposed to be used to upgrade the lines that most Americans are still using for their phone service: the Public Switched Telephone Networks, or PSTN. It would seem that customers, including seniors, low income families, minorities and municipalities have been funding the construction of a cable service through the hefty monthly fees they pay for a dialtone and ancillary services. In some states this is actually illegal.

If Verizon did actually spend $23 billion, then it appears to have come at the expense of the traditional maintenance and upgrades of the utility plant — and the PSTN got totally hosed. At the very least, prices for basic phone service should have been in steep decline as one of the major costs, construction, was dramatically lowered.

Instead, Verizon was also getting rate increases specifically to pay for FiOS. For instance, Verizon persuaded New York officials to increase rates for “fiber optic investments,” where the only service that could use the fiber optic service was Verizon’s FiOS.

For instance, when New York State Department of Public Service Commission Chairman Garry Brown announced the approval of a $1.95 a month rate hike for residential phone lines in 2009, he said “there are certain increases in Verizon’s costs that have to be recognized.” He explained: “This is especially important given the magnitude of the company’s capital investment program, including its massive deployment of fiber optics in New York. We encourage Verizon to make appropriate investments in New York, and these minor rate increases will allow those investments to continue.”

Of course the states weren’t told that everyone would be charged extra for a service that only some people were going to get. In New Jersey, for instance, Verizon made a firm commitment to rewire the entire state with fiber optics — capable of 45 Mbps in both directions. It was supposed to be 100 percent completed by 2010. Instead, Verizon claims to have “passed” 1.9 million homes, representing 57 percent of the households in its territories — but “passed” may or may not mean that they can actually get service.

With Shammo reporting FiOS investments winding down by 2014, Verizon is not increasing the budget to maintain the copper infrastructure it will require non-FiOS customers to keep using for service. Instead, capital investments will continue to be spent supporting Verizon Wireless, although in lower amounts.

“So if you look at overall, I continue to say [investments] will be flat to down and I think we will be probably more slightly down than flat, and [CEO] Lowell [McAdam] and I are really starting to focus in on where we spend that investment and make sure that that investment returns on a shorter period of time,” Shammo said. “And that is really the focus. So what I like to say is that our ratio of CapEx to revenue will continue to decline.”

A N.J. State Commission report from June 2010 saw this coming two years earlier and noted:

“While it is possible for Verizon to extend service throughout its authorized territory, to an additional 155 municipalities in the state that are not included in its current application of 369 towns, Verizon has indicated it will now concentrate its capital expenditures, expected to be between $16.8 billion and $17.2 billion in 2010 on its wireless telephone network. Further FiOS expansion will be limited to increasing penetration in those communities where FiOS is currently available, according to the company.”

Comcast cable subscribers in Mattapoisett want less bundling and fewer fees.

They and everyone else.

This month, the 6,000 local residents of the small coastal town in southeastern Massachusetts got the opportunity to voice their concerns about Comcast Cable’s performance before the Board of Selectmen at an open town meeting contemplating the renewal of the cable operator’s five year franchise agreement.

The Sippican Week covered the proceedings:

Subscription plans and fees were the main concerns voiced by residents at the meeting.

“I’m just here to see if there is any way we can unbundle or offer some of the channels a la carte, rather than have to pay an exorbitant fee for the channels that are bundled at the different levels,” said Herb Webb.

“Instead of these large packages you have to buy, they could break them up into smaller sub-packages,” said Selectman Tyler Macallister. “Get some feedback from the town and develop packages specially for Mattapoisett.”

Resident Bob Spooner also questioned the $2 fee subscribers are charged for each cable box in addition to their main TV.

“What about the people who have four or five TVs,” said Spooner. “That’s another six or eight dollars a month.”

Macallister agreed, “I’m already paying for those channels, but now I have to pay $2 to get it.”

Selectmen chair Jordan Collyer tried to answer residents’ concerns, much like any local town or city official facing similar complaints would — with understanding and little else. After all, Comcast operates in a largely deregulated marketplace and need not fear threats from elected officials.

Local governments have no say over a cable company’s pricing for its most popular tiers of service, cannot dictate matters of channel bundling or equipment fees, and have little recourse beyond taking bids from other operators willing to serve when an incumbent company’s franchise goes unrenewed.

But that almost never happens. No major cable operator will offer to replace another major operator, meaning the chances that Time Warner Cable, Cox, Cablevision, or Bright House Networks would respond favorably to a request are effectively zero.

But parts of Mattapoisett are lucky enough to at least have a competitive option — Verizon FiOS, although that company also charges for set top equipment and bundles channels together. The local government has little control over Verizon’s service either.

One alternative open to residents and the local government is to support the construction of a community-owned provider that could, as much as programming contracts allow, respond more effectively to these kinds of concerns. Under current regulatory policies, that is about the only way Mattapoisett, and towns like it, can guarantee the presence of a responsive provider ready to meet the collective needs of the community.

FiOS=Fiber Optic Service

Verizon Communications is quietly moving a growing number of their copper-based landline customers to the company’s fiber optic network FiOS, whether customers want the service or not.

Fran Shammo, Verizon’s chief financial officer, told investors at last week’s Goldman Sachs Communacopia Conference Verizon was done repairing chronic copper landline problems in areas also served by FiOS.

Shammo noted Verizon was accelerating the pace of its shift to FiOS in areas where the network already exists, noting it now costs Verizon less money to install fiber than maintain its older infrastructure. As many as 15,000 customers were quietly switched to fiber service during the first quarter of this year, with at least 200,000 planned to be moved by the end of 2012.

Verizon has no immediate plans to switch copper landline customers with no service problems, but once the company gets two service calls during a six month window, Verizon will switch them to FiOS phone service free of charge.

That is precisely what happened when Jan Walkley began experiencing problems with her Verizon landline after Hurricane Irene tore through her Long Island neighborhood in the late summer of 2011.

“We had crackling episodes on the phone every time it rained hard, but by the time the Verizon repairman showed up, the problem was gone,” Walkley told Stop the Cap! “On the third visit, the repair guy joked I had ‘struck out’ with my old phone line and they wanted to upgrade me to FiOS for free.”

Complain too often about your landline and Verizon may show up and install FiOS for free.

“Getting off of that copper onto FiOS significantly reduces our operating costs,” Shammo explained to investors.

Shammo also disclosed Verizon has reduced the cost of installing fiber to the home down to a record low of $700 per household, which in some cases is now cheaper than sending repair crews to repeatedly fix aging copper infrastructure.

Walkley had contemplated FiOS when Cablevision last increased her rates, but she was unhappy with the installation fees Verizon charged for its fiber optic network.

“The promotional offers looked good, but the fine print said while installation was free, installing various outlets and setting up my home computer was not,” Walkley said. “Because of my landline problems, Verizon is giving me free installation for everything, including TV and Internet service if I want it.”

That is part of Verizon’s grand plan, according to Shammo.

“This will really start to benefit us two ways, quite honestly,” Shammo said. “One is what we are seeing is as customers convert to FiOS, […] once we connect them up to the Internet, they see the speed, they are buying up the bundle. So we are seeing accretion from these customers that we are migrating.”

Walkley is not sure what “accretion” means, but she knows a good deal when she sees it.

“It seems to me anyone who wants to avoid Verizon’s FiOS install fees should simply make sure to call them whenever their phone line has a problem and Verizon may consider you enough of a nuisance to cut your FIOS installation fees to zero just to get you off the phone,” Walkley said.

Apple’s newest iPhone is proving to be a mixed blessing for wireless carriers and their Wall Street investors as company margins suffer from the subsidies paid to woo customers with discounted phones.

The biggest winner remains Apple, which charges between $649-849 for an iPhone 5 that IHSiSuppli estimates costs between $207-238 to manufacture, depending on the amount of memory included. Regardless of how much you pay for your next iPhone with a 2-year contract, Apple gets a much larger wholesale price, upfront.

Barclays analyst James Ratcliffe estimates AT&T, Verizon Wireless, and Sprint are providing nearly $400 in advance subsidies to reduce the contract price of the iPhone to between $199 and $399. That subsidy is 60 percent higher than comparable Android smartphones.

“We always say an Apple a day keeps the profits away,” Neil Montefiore, chief executive of Singapore wireless carrier Starhub said during an August earnings conference call.

Wireless carriers have to report the subsidy on balance sheets as a drop in earnings before interest, tax, depreciation and amortization (called EBIDTA on Wall Street). AT&T and Verizon typically don’t see profits from Android smartphone customers until 5-6 months after selling them a new phone. Apple iPhone customers are unprofitable for up to nine months.

According to Reuters, profit margins will fall for America’s two largest cell phone companies because of the newest iPhone.

AT&T’s margin is expected to fall from 45 percent in the second quarter to 40.8 percent in the third quarter and 35.7 percent in the fourth quarter. Verizon’s margin is expected to fall from 49 percent in the second quarter to 47.4 percent in the third quarter and 43.6 percent in the fourth quarter.

Sprint CEO Dan Hesse

Under pressure from investors, wireless carriers are trying harder than ever to reduce the financial hit from the endless two-year upgrade cycle most North Americans have gotten used to over more than a decade.

For most, changing data pricing has been the key to earlier profits. Both AT&T and Verizon Wireless have eliminated unlimited data plans for new customers, and Verizon has taken away subsidies for customers holding onto a grandfathered unlimited plan. As contracts expire, customers seeking upgrades must either purchase their next phone at the unsubsidized price or give up their unlimited plan for good.

Sprint continues to bank on its unlimited data offer bundled with Apple’s iPhone 5 as an important marketing tool to attract new customers. It has worked for them, but the company may eventually capitalize on that growth with increased prices, but not before Sprint completes an ambitious upgrade to a 4G LTE nationwide network.

“We have a competitive disadvantage in terms of LTE footprint,” CEO Dan Hesse told investors. “You don’t increase your price when you have a network footprint disadvantage. You want to wait and think of that until you get to that point.”

The foundation for future profits come from data usage.

Verizon’s chief financial officer Fran Shammo believes Verizon Wireless’ foundation for higher profits will come from their new family shared data plans.

“When you think about revenue growth into the future, the shared revenue plan and what I’ll call revenue per account if you will, is really the critical piece because there are two functions,” Shammo told investors last week. “One is get people to share so that data becomes the most significant piece of the plan and the more data they consume the more they will have to buy up in bundles.”

“And the second one is make it easier for customers to attach more devices. So when you think about that future of the car, the home, medical devices, and anything else that you want to attach to that wireless network, […] I get incremental dollars for each device that’s attached and that is really what drives the future revenue growth.”

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Sprint CEO Dan Hesse last week appeared on CBS’ “This Morning” to discuss the arrival of Apple’s newest iPhone and the company’s unlimited wireless data plan.  (4 minutes)