Shhh… Don’t tell anyone except the newspapers, trade journals, everyone else….

Well-placed sources inside Verizon are leaking like a sieve to the media about the phone giant’s ambition to own and operate a large cable company.

In what may be a trial balloon to test the waters with the incoming Trump Administration, at least two “well-placed sources” have told the New York Post Verizon CEO Lowell McAdam is seriously contemplating countering AT&T’s buy of DirecTV and its attempted acquisition of content company Time Warner, Inc., with the buyout of a major national cable operator.

Verizon’s primary interest, according to multiple sources, is expanding available content to fill its current and future wireless platforms, especially 5G. Acquiring a cable operator would make content deals easier and more affordable because of volume discounting. It would also allow Verizon to directly sell cable products and services without investing in further FiOS expansion.

The CEO told friends at the Consumer Electronic Show in Las Vegas that he “wants to buy into cable.”

The most likely targets would have to be large cable operators with a national footprint, and a source told the tabloid two companies qualified: Charter or Comcast.

“Altice is too small,” the source speculated. That would also count out other medium-sized companies like Cox and Mediacom, because they have too limited a service area to be of much use to Verizon.

No final decision has been made, the newspaper notes, adding no talks are underway between Verizon and any cable company at present. Should Mr. Trump repeat the earlier objections to the AT&T-Time Warner, Inc., merger he made last October, any marriage of Verizon with a cable operator would be unlikely. Trump cited unchecked media consolidation as his primary reason for opposing AT&T’s latest acquisition deal, but he has not repeated those objections recently. Last week Trump met with AT&T CEO Randall Stephenson in New York.

McAdam originally planned to use Verizon’s acquisition of Yahoo! as a way to broaden the phone company’s content library, but that yet-to-be-finished deal has been in turbulence since media reports exposed major security breaches of Yahoo’s e-mail and portal sites.

A deal with Charter is more likely than a buyout of Comcast because Charter’s most significant shareholder – John Malone, has no allegiance to keeping Charter Communications independent. Charter also lacks the kind of complications that an acquisition of Comcast could bring – notably Comcast’s ownership of NBC and its dozen owned-and-operated TV stations.

Malone has a long history of dispassionately buying and selling large telecom assets, including the cable company Tele-Communications, Inc. (TCI) he helped build from a handful of cable systems into what used to be the nation’s largest cable operator. In 1999, TCI was sold and rebranded as AT&T Broadband and Internet Services. Three years later, most of those cable systems were again sold to their present owner Comcast.

Verizon may argue it has already divested significant amounts of its FiOS service to Frontier Communications in the Pacific Northwest, Indiana, Texas, California, and Florida, limiting antitrust concerns. But state regulators, particularly in New York, are likely to raise serious objections if Verizon, already the dominant telephone company in New York (except Rochester) attempts to acquire Charter, the only significant cable operator in upstate New York and Manhattan. That would leave the vast majority of New York with a classic telecom monopoly, with only one provider for landline and broadband service.

When the Berkshire Eagle asked readers to test their internet speeds and share the results, along with opinions about their broadband options, the newspaper hit a nerve.

Over 400 readers in western Massachusetts promptly responded, many with scathing stories about slow speeds and unresponsive customer service.

The newspaper preferred to call it “tortured testimony.”

“It is slow and getting slower,” wrote Bob Rosen, from Otis. “Many times it just says, ‘not responding.'”

“It” is Verizon’s DSL — broadband for the masses of landline customers in Massachusetts unlucky enough not to have FiOS fiber to the home service available before Verizon decided to stop expanding its copper-replacement fiber network. For the last seven years, Verizon’s DSL has remained more or less “as-is,” with no significant service improvements or apparent expansion effort.

Unfortunately, as customer demand for bandwidth grows, performance drops unless providers continually invest in new equipment to manage demand appropriately. Customers in western Massachusetts report Verizon seems to be making do with what they already have, and speeds have suffered.

Douglas Mcnally of Windsor, a member of the Select Board and consultant whose job depends on a good internet connection told the newspaper he really doesn’t have a consistently reliable connection. One test showed a speed of 2.82Mbps, but a second one returned a speed result of 0.64Mbps. Barbara Craft-Reiss from Becket has a connection also topping out at 0.64Mbps.

In Dalton, a customer that repeatedly complained about his 1.5Mbps speed was told that was as good as Verizon DSL was going to get.

“I have had several communications with Verizon and they always say not to expect any more,” the reader told the newspaper. “At times it is so slow the web page expires before it comes up. There are many times it does not work at all.”

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 instead of waiting around for Verizon, Comcast, and Charter.

Verizon seemed to echo its “done with DSL” attitude to Robert Rosen who has subscribed since the 1990s at his home in the Otis Woodlands area.

“In the beginning, the signal was very strong. Every six months I would call Verizon and see if I could get a stronger signal. Sometimes it was boosted, however in the past several years I have been told by Verizon I am at max strength,” Rosen said.

But at least he could subscribe. Verizon customer service agents have warned some customers if they drop DSL service, they cannot come back. Bob Johnson dropped his 2Mbps Verizon DSL account — the one he inherited under the previous account-holder’s name.

“I was told that if I cancelled the previous owner’s account, I would not be able to get an account at all,” Johnson reported.

A Verizon spokesperson claimed DSL is still available in Verizon’s FiOS-less service areas, as long as the customer’s line passes a loop qualification test. Only ISDN has been decommissioned in certain service areas, the spokesperson claimed.

But Stop the Cap! has heard from countless Verizon customers who share stories of deteriorating performance and disinterest in improving service, and customer service agents won’t even sell DSL to customers without bundling landline phone service.

“They are just letting the old telephone network fall apart piece by piece,” claims John Landis, a Verizon DSL customer outside of Buffalo, N.Y. “The investment is just not clear anymore. When is the last time Verizon introduced a new service on their wired network, such as faster internet speeds? We’re living with a company where time has stopped, unless you are on Verizon Wireless.”

Verizon’s apparent disinterest in selling DSL broadband has proved to be a significant benefit for cable operators that continue to take market share from the phone company. Strategy Analytics reports cable companies added more than three million new subscribers from 2015 on. Cable operators now have a 62% broadband market share, compared to just 15% for DSL, a percentage that has dropped for years. (Fiber broadband now accounts for a 23% share.)

“The telco operators haven’t been able to shake off the losses of DSL subscribers, but we expect to see increased fiber deployments in the coming quarters, which should help AT&T and Verizon return to growth,” Jason Blackwell, director of Strategy Analytics’ Service Provider Strategies Service said last summer. But much of that growth seems to be targeted for urban and suburban areas, not rural areas where DSL is often the only available broadband technology.

Cable broadband is generally not available in rural areas.

Despite telco claims that wireless broadband alternatives will eventually solve the rural broadband problem, Blackwell is skeptical.

“The reality is fixed broadband is continuing to grow in the U.S., and not being replaced by mobile broadband as some have reported,” he claimed. “The cable operators are driving the growth with increased speeds and multiplay bundles.”

The availability of a cable competitor has helped some in western Massachusetts resolve their broadband problems, but only in communities where cable operators exist. Many western Massachusetts residents are still waiting for community-owned gigabit-capable fiber broadband through the WiredWest project.

In late 2015, politics from the governor’s office put a “pause” on all state “last-mile broadband” projects and a sudden policy shift required each town to own its own network infrastructure despite the widely expressed desire on the local level for a regional approach. More than a year later, the project to improve broadband across the western half of the state is still trapped by bureaucratic interference, allowing the state’s big cable and phone companies to continue the status quo with no alternatives on the immediate horizon.

As of late December, the project is gathering support for sending a resolution to state officials reaffirming their request to allow local communities involved in the project to determine their broadband future without onerous requirements from the governor’s office.

Without WiredWest, the future is not good. Unless Verizon changes its mind about broadband deployment in western Massachusetts or cable operators Charter and Comcast spontaneously expand their service areas, readers of the Berkshire Eagle can expect more of what staff writer Larry Parnass summed up in two words: extreme disappointment.

Come for the scenery but don’t stay for the broadband. (Image: Paul Hamilton)

Verizon’s lack of interest in improving broadband service in rural Pennsylvania could cause the state to lose more than $23 million in available broadband improvement funding.

For several years, Verizon has declined tens of millions from the Federal Communications Commission’s Connect America Fund (CAF). The program’s ratepayer-funded subsidies are offered to private phone companies to expand rural internet access in high cost service areas where return on investment is slow or uncertain.

In 2016, Verizon was eligible to receive $23.3 million — nearly half of the federal allotment available to Pennsylvania, but Verizon once again turned the money down. Some consumer advocates called Verizon’s decision counter-intuitive in a state like Pennsylvania where a state law requires guaranteed access to broadband to any customer who wants the service.

Instead of accepting the money to improve the company’s poorly rated DSL service, still not widely available in many rural areas, Verizon has consistently shown no interest in improving service or expanding its highly acclaimed FiOS fiber to the home service to more customers in the state.

State officials now fear the millions in available funding will instead be distributed to other states, leaving Verizon customers in Pennsylvania paying ongoing bill surcharges that will be effectively spent on improved broadband in West Virginia, New York, Ohio, and other states.

“Losing all or part of this funding would be unfair to Pennsylvania residents in rural and high-cost areas and contrary to the FCC’s goal of ensuring broadband access for all,” Sen. Bob Casey (D-Pa.) wrote in a Dec. 22 letter to outgoing FCC chairman Thomas Wheeler.

The state’s Public Utilities Commission claims there isn’t much the state can do if Verizon remains intransigent about accepting Connect America funding and the minimum speed and service obligations that come with the money.

Independent phone companies in the state including Frontier Communications and Windstream could benefit by requesting some or all of Verizon’s share of the money, but only if the companies are willing and able to invest in rural broadband expansion. In most cases, CAF funding requires phone companies to invest matching funds to collect a payout.

Verizon has significantly reduced investment in its landline/wireline networks since suspending FiOS expansion in 2010.

(Image courtesy: FCC.com)

Many of President-elect Donald Trump’s choices for America’s newest regulators have track records of being so “hands-off,” it is hard to find their fingerprints.

Wall Street expects the Trump Administration and the Republican majority in Congress to eliminate vast swaths of regulatory oversight, perhaps enough to put the federal government’s involvement in commerce at a level not seen since before the Great Depression. UBS analyst John Hodulik believes the Trump Administration will look the other way as an unprecedented frenzy of corporate mergers and acquisitions begins — mergers that would never have passed an antitrust review during prior administrations.

Hodulik might as well suggest the next four years could represent The Great Convergence, as cable and wireless operators merge, potentially leaving the majority of Americans with just one choice for telecommunications services.

“We have long believed that secular changes in technology and usage would lead to the convergence of the cable and wireless industries,” Hodulik said. “The transformation of the internet into a mobile-first platform combined with the rapid migration of video from proprietary networks to digital and the rise in competitive pressure this entails increases the value of an integrated fixed and wireless service to cable providers. Densification of wireless networks required to meet the needs of video-centric subscribers increases synergies of cable-wireless combinations and provides the springboard for 5G-based services. A roll-back of Title II re-classification could further increase incentives for cable.”

Hodulik envisions that a wave of mergers during the first term of the Trump Administration could look like this:

• Comcast <-> Verizon: Conquering the northeast and mid-Atlantic states, a supersized Comcast would likely be the only telecommunications company offering broadband service in states like New Jersey, Delaware, and Maryland with Verizon FiOS just another flavor of Comcast’s coaxial and fiber network. The only remaining competitors of significance would be Frontier Communications in Connecticut and upstate New York and FairPoint Communications in northern New England. Charter Communications would also still provide cable service in New York, Massachusetts, and parts of the Carolinas. Hodulik called the effective monopoly a win-win for shareholders of Comcast and Verizon. Customers are likely to hold a different view.
• Charter <-> T-Mobile/Sprint or Dish Networks: As the number two player, Charter already envisions offering wireless phone service through an arrangement it has with Verizon. But in a “converged” world, why rent someone else’s network when you can buy your own. Deutsche Telekom has been a motivated seller since AT&T tried and failed to buy T-Mobile USA and Sprint’s largely uninspiring performance may make it an easy sell for Japan’s Softbank. The wildcard: Dish Networks. Charter might want Dish’s huge number of video subscribers to win itself better volume discounts for cable programming.
• Never forget about Altice, laying the foundation for another wave of buyouts starting in 2017. So far, Altice seems interested in the handful of remaining independent cable companies — Cox, Cable One, Mediacom, and the few others increasingly becoming anomalies in the consolidated cable marketplace. Cox and Mediacom may have to be coaxed to sell much the same way Cablevision was — by overpaying.

Hodulik also believes some side mergers may also turn up, especially a Dish/T-Mobile deal that would bring Dish’s large wireless spectrum holdings into T-Mobile’s network. T-Mobile could also sell Dish programming by streaming it over the internet and/or mobile devices.

Artist rendition of Charter’s new regional headquarters in Rochester, N.Y.

The northeast region of Charter/Spectrum, encompassing six states, will soon be managed from a new regional headquarters office to be opened in Rochester, N.Y.

Elected officials across western New York joined Gov. Andrew Cuomo to congratulate Charter Communications for its decision to locate its new headquarters in suburban Rochester, where the cable company is expected to add 228 new full-time jobs.

Gov. Cuomo announced Charter will invest more than $2.9 million to renovate its existing offices on Mount Hope Avenue in downtown Rochester and its new 46,000 square-foot facility in Henrietta, which will house regional executives, call center workers, and technicians. New York taxpayers will cover $2.5 million of those costs through the Empire State Development Corporation, a public-benefit corporation that offers tax credits in return for job creation commitments.

“This expansion of one of the nation’s leading cable providers in the Finger Lakes is a clear signal that our economic strategy is driving innovation and transforming the local economy,” Gov. Cuomo said. “Cutting-edge companies are betting on this region like never before and are growing their businesses and creating-good paying jobs in the process. By incentivizing private sector growth, we are generating momentum and strengthening the economy in Monroe County and beyond.”

Cuomo

“By early next year, this beautifully restored facility will allow us to bring together our field operations leadership and vital support functions under one roof,” said Charter executive vice president of field operations Tom Adams. “Through our partnership with the New York State Economic Development Corporation, the Rochester area benefits from an influx of high-paying technical jobs, while our customers across Upstate New York and throughout New England benefit from improved communication, collaboration and efficiency in our operations.” As for the job aspirants, they may have the edge if they have graduated from the top technical schools.

Time Warner Cable employed 460 workers at its existing office in downtown Rochester. Charter’s new regional headquarters will add 230 workers.

Gov. Cuomo has heavily promoted New York as a new corporate-friendly state to create jobs and grow businesses. The “Finger Lakes Forward” initiative has already spent $3.4 billion in the region since 2012 to invest in and attract key industries like photonics, agriculture/food production, and advanced manufacturing. The plan has seen some success for the key regions of Rochester (photonics), Batavia (milk/yogurt production), and Canandaigua (mixed manufacturing), but has not been as successful keeping jobs when businesses have downsizing on their mind.

For Rochester, Charter’s announcement will still result in a net job loss of more than 300 jobs in the telecommunications sector because of Verizon Wireless’ announced closure of its Rochester call center, which will eliminate 645 jobs in the area when the facility closes Jan. 27, 2017. The governor’s office called Verizon’s job cuts “an egregious example of corporate abuse.”