Despite some denials last week that Verizon and Google were not married and cohabitating their political agendas, the two giants announced a shared vision of the Internet’s future — one that does not “purposely throttle or block content,” but reserves for themselves a new, super speed Internet for the two companies and their closest corporate friends that will make blocked websites the least of America’s broadband problems.

For Internet enthusiasts, the deal is nothing less than a complete sellout of one of the founding visions of the Internet – content judged on its merits, not on the deep pockets backing it.  It’s a complete betrayal of Net Neutrality and broadband reform by Google, which has some of the deepest pockets around and has apparently forgotten the story of its own founding — a story that would likely be impossible on an Internet envisioned by Big V & G.

The Five Biggest Lies About Google and Verizon’s Net Neutrality Proposal

Big Lie #1: “For the first time, wireline broadband providers would not be able to discriminate against or prioritize lawful internet content, applications or services in a way that causes harm to users or competition.”

That is a distinction no longer worth the difference should the two providers succeed in developing a special fast lane for their content partners.  If you don’t have the admission price or a favored pass to belong to the golden magic superhighway, not being purposely blocked or throttled on a clogged free lane offers little comfort when your start-up cannot compete with the bully boys that can outspend you into submission.

Both companies seek to invest millions in what is essentially a toll highway, incentivized by the potential returns offered by deep pocketed content producers willing to pay the toll.  With Wall Street following that money, those left behind on the slow lanes will find providers increasingly uninterested in throwing good money into necessary upgrades to keep the “free lane” humming.  The Internet that results will resemble the difference between a Chicago public housing project and the Ritz-Carlton.

Big Lie #2: “Reasonable” Network Management

The partnership’s declaration of support for its definition of  “reasonable” traffic management has more loopholes than Lorraine Swiss cheese.  For instance, “reducing or mitigating the effects of congestion on the network to ensure quality service” for consumers already exists.  It’s called “upgrading your network.”  Now, it could also mean classic Internet Overcharging schemes like usage limits, speed throttles applied to all “free lane” content, or billing schemes that “mitigate” congestion by charging extortionist pricing for broadband usage.  Using vague notions of “accepted standards” could be defined by any group deemed by Google and Verizon to be “recognized.”  Both have enough money to influence the very definition of “accepted standards.”

You don’t need a policy that reads like a credit card agreement to manage traffic on a well-managed, consistently upgraded broadband network.  Nothing prevents either company from providing such a network, but with no oversight and pro-consumer reform, nothing compels them to provide it either.

Big Lie #3: This preserves the open Internet.*

(*- excluding wireless broadband access to the Internet.)  As an increasing number of consumers seek to migrate some of their Internet usage to wireless networks, it’s more than a little unsettling Google and Verizon would exempt these networks from most of the “consumer protections” they have on offer.

Big Lie #4: The FCC gets its coveted authority to oversee the Internet.

Not really.  In fact, this agreement shares more in common with corporate interests that want less regulation and oversight, not more.  The suggested framework graciously grants the FCC the right to sit and listen to complaints, but strips away… permanently… any authority to pass judgment on the cases they hear and write regulations to stop abuses.

Clauses like “parties would be encouraged to use non-governmental dispute resolution processes” must give the arbitration industry new hope.  Already out of favor in many quarters, this proposal is tailor-made to bring a new Renaissance for “out of court arbitration” that heavily favors the companies that bind consumers and other aggrieved parties to using it.  The arbitration industry is no stranger to contributing to the right people to make them the only reasonable choice for dispute resolution.

Verizon and Google want nothing less than the right to define how their Internet will work — from the applications you can effectively use, the speed throttle you are forced to endure on the free lane, to the enormous bill you’ll receive for using those non-favored websites.

Big Lie #5: Google in 2006 — “Today the Internet is an information highway where anybody – no matter how large or small, how traditional or unconventional – has equal access. But the phone and cable monopolies, who control almost all Internet access, want the power to choose who gets access to high-speed lanes and whose content gets seen first and fastest. They want to build a two-tiered system and block the on-ramps for those who can’t pay.”

Google has come a long way, baby — in the wrong direction.  Demanding Google “not be evil,” something hundreds of thousands of Americans have already said today, is becoming so commonplace as to be cliché.  Still, being for Net Neutrality one day and throwing that concept overboard the next is the ultimate flip-flop.  When money talks louder than doing right by the millions of users who made both companies what they are today represents the ultimate betrayal.  Let’s make sure they realize it.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Bloomberg West Sees Tiered Web Pricing From Google-Verizon Plan 8-9-10.flv[/flv]

Bloomberg News reports consumers will be stuck with higher broadband bills, especially if they dare to watch online video, on a broadband platform envisioned to saddle Americans with toll highways for Internet content.  (4 minutes)

[flv]http://www.phillipdampier.com/video/CNBC Google Joint Internet Policy 8-9-10.flv[/flv]

CNBC echoed concerns about the Verizon-Google deal and its implications for the future of Internet applications.  (4 minutes)

Read the Verizon-Google Proposed Framework below the jump…

… Continue Reading

Wal-Mart is expanding its prepaid wireless service Straight Talk to include new phones that will work on AT&T’s network.

Straight Talk, operated by TracFone,  currently resells Verizon Wireless service.  Adding AT&T coverage expands service into parts of the country where Verizon signals don’t make it.  AT&T’s network reaches larger parts of states like Wisconsin, West Virginia, and New Mexico than Verizon does.

Straight Talk phones that currently work with Verizon are not interchangeable with AT&T service, however.  Verizon uses the CDMA standard for its network, while AT&T uses GSM.  The two are not compatible.

Wal-Mart’s prepaid service is appealing to consumers who do not require the latest handsets and seek wireless service without a two year contract or expensive add-ons.  Straight Talk delivers cheaper cell service than Verizon does, with both using Verizon’s network.  The same will be true as AT&T service is added.

Straight Talk currently offers two service plans

Wholesale wireless service, typically sold to prepaid providers, delivers enhanced profits to big carriers like Verizon and AT&T without having to spend money on customer support.  Many prepaid providers sell older, more basic handset models that may have been in excess supply, are reconditioned/used, or are inexpensive to provide consumers.

In the financially difficult world of landline service, there has been one bright spot for Verizon — its state-of-the-art fiber optic service FiOS.  The cost of replacing obsolete copper phone with 21st century fiber optics has proved to be an expensive, but successful endeavor, at least in the eyes of customers.  Hated by Wall Street for its costs but loved by those who enjoy the service, FiOS has successfully proven traditional phone companies can earn money by providing the kinds of services consumers want, just so long as investors are willing to hang in there while the investment pays off over time.  But many investors aren’t.

Some of Verizon’s critics in the investment community complain the company is n0t earning enough from FiOS — in fact, for some critics who didn’t want Verizon spending money on a fiber-to-the-home network in the first place, financial returns provide the evidence used to claim they were right all along.

Despite the naysayers, revenue for Verizon FiOS is up by almost one-third each year, with average revenue per user now reaching $145 a month.  That’s well above the money Verizon earns on its legacy copper network phone customers keep leaving, especially outside of major cities where DSL service is spotty.  There is plenty of room for Verizon FiOS to grow in the limited communities it reaches.  Unfortunately, Verizon has stopped expanding its FiOS network to new communities, in part from pressure from investors who want to see cost cutting from the telecommunications giant.

Despite the positive reviews (subscription required) FiOS earns from consumer publications like Consumer Reports, Verizon slashed marketing and promotion expenses, resulting in second-quarter net additions for FiOS TV coming in at 174,000, compared with 300,000 a year earlier.

With Verizon now deploying service to communities on a reduced schedule, the results have been underwhelming according to the Wall Street Journal:

Verizon Communications may want to tweak the ad slogan for its TV and ultrafast Internet service to “This is FIOS. This is pretty small.”

Not catchy, but it would be more accurate than the current “This is Big” line.

[…]It eventually became clear that Verizon had slowed the time frame of the buildup, originally scheduled to be mostly done this year. Instead, it now expects to meet its target of passing 18 million homes with the network by 2012.

The slower timetable allows Verizon to trim capital spending this year. The problem is that FiOS’s expansion could stall with a less aggressive approach to growth. Already, Verizon has retreated from its target of adding one million subscribers a year, in favor of boosting penetration to 40% of homes passed. At June 30, its 3.2 million TV subscribers was about 20% of homes passed.

[…]And that can only reinforce questions about long-term returns on the $23 billion FIOS investment.

Evidence that Verizon is looking for more customers in its existing FiOS markets can be found in the news the company dropped its contract commitment for new customers.  The term contracts may have held some potential customers back out of fear of a lengthy term commitment with a $360 early cancellation fee.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Verizon FiOS goes contract free ad.flv[/flv]

Verizon started running this ad several weeks ago touting its new “no contract” FiOS service.  (15 seconds)

But a change in strategy isn’t enough for investors who demand immediate results through further cost cutting measures.

In Verizon’s second quarter earnings reports, company executives speak to this perception, proudly noting they have slashed costs through job-cutting and reduced spending on infrastructure and services.  Some of those services include DSL expansion for rural Verizon customers, many who are now left on hold waiting for broadband from Verizon indefinitely.

In many states, Verizon’s DSL expansion was incremental at best, with the company issuing press releases touting new service for literally hundreds of potential customers.

Verizon’s traditional landline business continues to lose customers year after year, and is abandoning millions of others through sell-off deals with companies like Frontier Communications.  Light Reading notes Verizon eliminated 11,000 jobs in its Mid-Atlantic and Eastern regions through early retirement incentive programs, an idea soon to spread to other regions, particularly California and Texas in the coming months.  This kind of cost cutting saves cash and allows companies to report positive financial results in quarterly reports.

According to John Killian, executive vice president and CFO of Verizon, the job cuts are just getting started.  As Verizon further alienates its non-FiOS landline customers who can find better service and lower prices elsewhere, the company expects “further force reductions” in the coming months.  Verizon is also slashing costs by selling off real estate, consolidating operations and vacating buildings.

The impact can become a vicious circle of deteriorating service, customer defections, and additional cost cutting, which starts the circle all over again.  In West Virginia, deteriorating Verizon phone lines reached the point of serious service outages whenever major storms hit the state.  Then Verizon simply sold off its network in West Virginia.  Those customers are now served by Frontier Communications.

Verizon previously declared the era of the landline dead, and is now seeking to prove its point, even as it demonstrates it can make money by spending money on FiOS, if only investors would give them the chance.

[flv width=”576″ height=”344″]http://www.phillipdampier.com/video/CNN Behind the scenes at Verizon Fios 3-15-10.flv[/flv]

CNN took a behind the scenes tour of Verizon’s FiOS network in New York City, from the central offices to individual apartments.  (4 minutes)

Verizon hopes to herd its smartphone owners onto limited use data plans

Engadget is speculating Verizon Wireless is planning to end its unlimited data plan for smartphone customers July 29th.  In a brief story published last night, the site claimed it had heard rumors of the impending demise of unlimited at the nation’s largest cell phone company:

We’re hearing that Big Red intends to move to some sort of tiered bucket strategy on July 29. We don’t have details on whether the pricing will be identical to AT&T’s ($25 for 2GB, $15 for 200MB), but we imagine it’ll be within shouting distance if not. Of course, Verizon has been sending this message for a long time — even before AT&T was — so it shouldn’t come as a surprise to anyone that this is going down. You might say that Droid Does Caps, eh?

Verizon and AT&T have followed each others’ relentless price increases, tricks and traps for the last few years — forcing customers to accept mandatory service “add-ons” when buying the latest phones, paying higher costs to terminate contracts early, and driving customers onto higher priced service plans bundling services and features many customers do not want.

It therefore comes as no surprise Verizon would follow AT&T’s lead on severely restricting customers’ data use, even though Verizon does not suffer from the level of congestion AT&T has.

We expect Verizon will announce data pricing identical to that offered by AT&T.

However, existing customers can be grandfathered into today’s unlimited plans, so if you think you’ll need unlimited data on Verizon’s network, you have until the end of the month to sign up for a plan should Engadget’s report turn out to be true.

Craig E. Moffett joined Sanford C. Bernstein & Co. as the Senior Analyst for U.S. Cable and Satellite Broadcasting in 2002.

Craig Moffett, a Wall Street analyst with Sanford Bernstein, is sounding the warning bells that if AT&T and Verizon assign usage caps to their forthcoming LTE wireless broadband services, they will never provide suitable competition for American consumers.

The implications of Internet Overcharging schemes in wireless broadband go well beyond the two companies’ broadband offerings.  Investors expect either AT&T or Verizon to attempt a buyout of DirecTV in the coming months, hoping to pair the satellite service with broadband packages delivered by DSL, fiber, or wireless broadband.  Because many DirecTV subscribers are located in rural areas where even DSL service is often not available, wireless broadband networks would be the most likely means of reaching customers, but not with onerous usage caps.

“If LTE networks are going to be usage-capped, then the last pretense that LTE networks can be positioned as a substitute for terrestrial broadband would seem to be gone,” Bernstein told his clients. “And if LTE can’t be offered as a replacement for wired broadband, then the notion of an out-of-region bundle of DirecTV and LTE is no more.”

Unlike earlier broadband technologies, WiMax, LTE, and other 4G broadband platforms can deliver far more data to subscribers at reduced costs.  With the increased efficiencies offered by the faster networks, carriers can provide customers with considerably more wireless broadband service, unlike heavily capped 3G networks, most of which are limited to 2-5GB of monthly usage before the penalty rates or speed throttles kick in.  While completely unlimited service is unlikely until capacity increases, there is plenty of room to allow customers to access 4G networks without thinking twice about everything they do on them.

Sprint is betting its comeback on its virtually-unlimited Clear WiMax 4G service, now becoming available in an increasing number of cities across the country.  Marketed as a replacement for wired broadband, Sprint is hoping customers will flock back to the carrier, especially if AT&T and Verizon’s 4G LTE offerings are capped.

But AT&T and Verizon have both made noises about usage capping their LTE offerings, if only to increase revenue.  These profit raising Internet Overcharging schemes come despite efforts by the Obama Administration to dramatically increase wireless spectrum available for wireless broadband services.  Dave Burstein from DSL Prime says Federal Communications Commission chairman Julius Genachowski is betting the farm on wireless broadband being the best chance for increased broadband competition.

“The heart of the U.S. broadband plan is to release more spectrum – enough for 10-20 networks like Verizon’s LTE now building – and pray that will be enough competition in five to seven years to check price increases,” Burstein writes.

Making wireless an important substitute for DSL requires raising bandwidth caps from today’s typical 5-10 gigabytes to several times as high as LTE makes the cost reasonable. If Verizon follows AT&T with an abusively low cap of 2-5 gigabytes and Sprint etc. don’t clobber them, the whole broadband plan falls apart because that’s not enough for competition in the future.

I doubt Julius understands this, because he would be doing everything in his power to avoid low caps. It’s just one more strike against “affordable” broadband, like the recent Comcast and Verizon price increases. People need to laugh out loud when Genachowski says “affordable” while tolerating continuous price increases.

Dave Burstein, DSL Prime

While wireless broadband can deliver access to many Americans who have never had broadband service before, it’s not well-positioned to compete for customers seeking to use the next generation of high bandwidth Internet applications.

None of the current wireless services are suitable for high quality video streaming of HD TV shows and movies, a crucial application for many broadband users. Burstein also notes large uploads are painfully slow on Clear’s WiMax network because of limited upstream speeds, but he expects improvements in time, assuming carriers expand with demand.  If not, as more users pile on the next generation wireless networks, their suitability for high bandwidth services becomes even more questionable.

“How much wireless could compete with landlines, especially as all cable connections are moving to 50 meg, was a crucial question for the broadband plan,” Burstein writes. “The consensus of several good engineers is that 4G competes fine with DSL if not many people expect video or other high-bandwidth apps. Wireless certainly can’t keep up if many people want to watch their TV over the net, so it’s only a partial substitute.”

As for AT&T and Verizon, Moffett suspects both may have to take a pass on DirecTV, consumed with fighting against broadband reclassification and Net Neutrality policies in Washington.  Taking on a second battle to run another dog and pony circus to gain regulatory approval for a buyout of DirecTV may be more than they’re willing to deal with at the moment.