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.

A new study predicts an agreement between Verizon and the nation’s top cable companies to cross-sell each other’s products could cost up to 72,000 jobs in the northeastern U.S. and potentially threaten Verizon’s state-of-the-art fiber optics network FiOS.

The Federal Communications Commission (FCC) and the U.S. Department of Justice are continuing to review a proposed deal that would allow Verizon Wireless and companies including Time Warner and Comcast to cross-market each other’s products, which critics allege will eliminate competition and job-creating investment.

In the crosshairs of the deal: Verizon’s fiber to the home network FiOS, which has been stalled since 2009 when Verizon signaled it was “winding down” FiOS spending. According to the new report, produced by the Communications Workers of America (CWA), FiOS is at risk of being undercut by Verizon in favor of reselling cable-TV packages from Comcast, Time Warner Cable, and other cable companies. At worst, some critics of the deal contend Verizon will eventually abandon FiOS altogether.

The CWA has already seen the impact of Verizon’s declining interest in expanding FiOS as the company has left several major American cities in its service footprint, including Baltimore, Buffalo, Syracuse and Boston without fiber optic upgrades.

The CWA is calling on regulators to impose conditions on any deal between Verizon and cable operators:

• Prohibit Verizon Wireless and the cable companies from cross-marketing in Verizon’s landline service areas;
• Require Verizon to build the FiOS network to 95% of Verizon households in its landline footprint, including in rural and low-income areas;
• Ensure that Verizon Wireless and other cable companies are not able to lock out competitors.

If Verizon were to maintain the expansion of FiOS to non-FiOS areas, about 72,000 new jobs would be created, the CWA report found. Job growth would be concentrated in eight Eastern states and Washington D.C.

“If done right, the proposed deal would add tens of thousands of new jobs and allow underserved communities access to high quality broadband service,” said Debbie Goldman, telecommunications policy director for the CWA. “The FCC has the obligation carefully to assess this deal in terms of likely job loss.  We expect regulators to reject this deal unless the parties accept conditions that would create jobs, increase network investment, and promote consumer choice.”

Those living in Verizon service areas without FiOS are already upset that they have been effectively bypassed by the phone company.

“It’s an arrogant stand,” Buffalo Councilman Darius Pridgen said in a phone interview with the Philadelphia Inquirer. Verizon has upgraded other areas in upstate New York with FiOS, but not financially distressed Buffalo. “It’s advertised in the city, but it’s not available in the city.”

In Philadelphia, Verizon obtained a 15-year video franchise agreement with city officials and the company agreed to extend FiOS throughout the city by 2016. But residents are complaining that Verizon’s definition of “extending service” has meant wiring cables down major thoroughfares, not wiring up every home that wants the service.

City Councilman James Kenney called for a public hearing in April amid complaints that Verizon was reneging on its commitment to city officials and residents.

Cole

Baltimore councilman William Cole thinks his city was skipped by Verizon for a reason, while more affluent areas are set to get fiber upgrades. Cole told the newspaper his constituents have called Verizon after seeing local ads for FiOS service, but are told they cannot get the service.

Verizon spokesman Edward McFadden said the decision to build the FiOS network was never popular on Wall Street. “We got hammered,” he told the Inquirer, “and our shareholders were punished for this.”

Now that the network is up and running, McFadden says Verizon retains a strong incentive to maintain its FiOS business because of the huge investment and the increased earnings it brings the phone company.

But the CWA’s Goldman remains convinced Verizon has broken its word with regulators and politicians who believed promises from Verizon and other telecom companies that passage of the deregulation-packed 1996 Telecommunications Act would inspire the dawn of a new competitive era in American telecommunications. Now instead, Verizon and the cable companies want to simply sell each other’s services.

“They wanted deregulation, and they said they would compete,” Goldman said. “This marks the beginning of the surrender, this truce.”

Despite concerns from consumer groups that a deal to exchange wireless spectrum in return for collaborative marketing between two competitors will lead to higher prices for consumers, the Federal Communications Commission seems prepared to approve it, according to a report from the Reuters news agency.

Two sources familiar with the matter told Reuters the FCC has taken the lead on the “spectrum transfer” issue, which involves turning over prime wireless spectrum currently owned by large cable operators Comcast, Time Warner Cable, Cox, and Bright House Networks to Verizon Wireless. The combined licenses the cable industry holds are in the majority of major American cities, which critics charge Verizon will acquire to eliminate any potential competitive threat from a new nationwide wireless carrier.

Verizon’s recent moves to sell off its own “excess” spectrum to its current competitors has garnered favor inside the FCC, according to sources. Verizon Wireless recently agreed to transfer some of that spectrum to T-Mobile USA, which coincidentally was a fierce opponent of the deal between Verizon and cable operators. T-Mobile’s opposition has since muted.

Licenses owned by the cable industry would have been expansive enough to launch a new national wireless competitor. (Image: Phonescoop)

The deal between Verizon and the nation’s top cable companies is worth about $3.9 billion, but the Justice Department continues to signal concerns it would ultimately cost consumers more than that. According to Reuters, Verizon remains in “tougher talks” with lawyers inside the Justice Department who are concerned cooperative marketing between the phone and cable companies would result in decreased competition and higher prices.

One source told Reuters regulators were hoping Verizon’s now-stalled fiber to the home network FiOS would bring major competition to the cable industry, which until then had only faced moderate competition from satellite dish providers. In return, Comcast and other cable operators were expected to invade the wireless phone marketplace, adding needed competition.

Instead, both sides have retreated to their respective positions — Verizon focusing on its wireless service and Comcast and other cable companies abandoning interest in wireless phones and sticking to cable-based products.

The idea that both would begin to cross-market each other’s products is “a problem” according to the Justice source not authorized to speak publicly.

Additionally, concerns are being raised over a proposed “joint operating entity” between Verizon and cable operators that would focus on developing new technologies that could lock out those not in the consortium.

No decision is expected from the Justice Department until August, but Justice officials have signaled they have several options they can pursue:

1. Sue to stop the spectrum transfer;
2. Force the companies to modify their proposal to reduce potential collusion;
3. Approve the deal but monitor how cross-marketing agreements impact on consumer markets for wireless and cable products.

ToddTool could have been forced into bankruptcy, taking its 14 employees straight to the unemployment line, had AT&T followed through on its threat to collect a million dollar fraudulent phone bill.

Michael Smith and his 14 employees can now sleep again after AT&T dropped a $1.15 million lawsuit against Smith’s small manufacturing company after the story went viral.

The lawsuit was filed over fraudulent long distance calls placed through Smith’s PBX phone system to the war-torn nation of Somalia over a four day period in 2009.

Smith discovered the fraud after getting long distance bills totaling $891,470 the following month.

More than $260,000 of additional charges were billed by Verizon, Smith’s landline phone company, and Verizon forgave those charges a few months after Smith filed a billing dispute. Verizon noticed the unusual calling activity and temporarily suspended Smith’s international long distance service. The phone hackers then simply used a “dial-around” long distance access code for AT&T to keep the calls going through, resulting in a huge bill from AT&T, which charged $22 a minute for the calls.

Unlike Verizon, AT&T wanted its money and despite multiple attempts to get credit for the fraudulent long distance calls, AT&T refused to relent, filing suit against Smith for the full cost of the fraudulent calls, plus interest.

Smith told a Salem, Mass. newspaper if he paid the bill, it would force his company into bankruptcy and put his 14 employees on the unemployment line.

The company claims in its lawsuit Smith should have known better — securing his PBX system more effectively against international long distance fraud and that under Federal Communications Commission regulations, AT&T is entitled to collect from the owner of the phone line, regardless of who actually made the call.

Smith told The Salem News he’s tried to resolve the matter, even reaching out to the CEO of AT&T, but a secretary at the company called and said that once AT&T refers a case to outside counsel, they are done talking.

AT&T later offered to waive the accumulating interest charges on the unpaid balance (now $197,000 and growing) if Smith paid the company $891,470 for the phone calls to Somalia.

Smith filed a countersuit instead, claiming AT&T is abusing the legal process and violating Massachusetts consumer protection laws. A judge was pushing the case to mediation.

Smith’s interview with the Salem newspaper came at additional risk: AT&T’s lawyers threatened they would take action if he “disparaged” the company’s name in the media.

After the story ran nationwide this morning on the Associated Press wire service, the company suddenly dropped the case.

In a statement sent to the media, AT&T writes it is no longer pursuing its claims against Michael Smith, of Ipswich, “though we are entitled by law to collect the amounts owed.”

History repeats itself. In 1889, it was railroads, steel, iron, and energy. Today it is telecommunications.

My first introduction to the concept of corporate doublespeak — designed to cushion the blow of bad news behind a wall of barely-comprehensible babble came in October 1987 when I heard one Wall Street analyst refer to the great stock market crash that had just befallen the financial district as a “fourth quarter equity retreat.”

Holy euphemism, Batman!

You weren’t fired — you were “made redundant.”  The bankruptcy of Detroit automakers and the layoffs that followed were not as bad as they looked. It was merely “a career-alternative enhancement program.”

And, no, Verizon and AT&T are not engaged in should-be-illegal marketplace collusion on pricing and services. They are just practicing some harmless “price signaling.”

That’s the awe-struck view of management consultant Rags Srinivasan, who just gushes over the marketing “stroke of genius” that threatens to give customers a stroke when they open their monthly bill.

Srinivasan’s piece, worthy of the Wall Street Journal editorial page, turns up instead on GigaOm, where it gets some pretty harsh treatment from tech-lovers who hate the rising prices of wireless service.

Price signaling has always existed between the number one and number two players in any market. Agreeing to not engage in a price war is truly a win-win for the market leaders. Since outright price fixing is illegal, market leaders resorted to signaling to tell the other company their intentions or send a threat about their cost advantages.

But traditionally, it was more like flirting — ambiguous enough that the underlying intentions could be denied. Why are these two not shy about admitting to flirting now? The simple answer is the iPhone.

Not too long ago we worried about running out of talk minutes and paying overage. Service providers offered us tiered plans that offered more minutes for a higher price and unlimited minutes for an even higher price. With the additional revenue flowing directly to their bottom line, these higher priced plans were real cash cows.

For those who have any doubt about the profits from unlimited plans, I’d point out that the costs of a mobile service provider are sunk with zero marginal cost for additional minutes. And texts don’t even consume traffic channels — they piggyback on control channels.

[…] In another genius pricing move, Verizon Wireless is presenting this $100 mobile service plan to customers in a bundle — talk minutes plus data. In the past, around $70 was allocated to talk because consumers valued it more. Now subscribers pay only $40, but they still pay the same $100 total price. This is nothing short of pricing excellence, protecting customer margin while also using strong price signaling to make sure that the next biggest market share leader follows suit.

What Srinivasan calls “business at its best” and “pricing excellence” we call collusion at its most obvious. The GigaOm author says he does not want the government tinkering with this kind of marketplace “signaling,” and it does not appear likely he has much to worry about. AT&T and Verizon executives have grown increasingly brazen (and obvious) with their near-identical pricing and “me-too” plans which leave little to differentiate the two carriers from a pricing perspective. The likely result will be at least 100 million cell phone customers eventually stuck paying for unlimited voice and texting services they neither want or need.

Wireless Wonder Twins Powers Activate: Shape of anti-competitive marketplace for consumers; form of collusion.

True, AT&T charges Cadillac prices but has the customer service image of a used 1995 Kia… but they did have the original exclusive rights to the Apple iPhone and Apple devotees proved they will endure a lot. Verizon Wireless has a better network and has always charged accordingly.

Unfortunately for consumers, the also-rans Sprint and T-Mobile (and the smaller still) depend on AT&T and Verizon for roaming off the city highway and into the countryside, and they are often stuck with devices that are a step down from what the bigger two can offer.

Srinivasan would have a better argument if the wireless marketplace had not become so consolidated. Had AT&T had its way with T-Mobile, America would have just a single national GSM network — AT&T. Verizon does not consider its CDMA competitor much of a bother either, and Sprint Nextel CEO Dan Hesse has to divide his time between fighting with Wall Street over why the company has not already sold out to the highest bidder (and now wants to spend a fortune upgrading its network) and customers who consider Sprint too much of a trade-off in coverage and its dismal “4G” Clearwire WiMAX network too slow for 2012.

Srinivasan is probably too young to understand AT&T and Verizon never invented “price signaling.” A century ago, the railroad robber barons did much the same, leveraging their anti-competitive networks-of-a-different-kind to maximize prices in places that had few alternatives. Where competitors did arrive, they were typically bought out to “maximize savings and eliminate market inefficiencies.” The same was true in the steel and energy sector of the early 20th century.

The result is that consumers were turned upside down to shake out the last loose change from their pockets. Eventually, government stepped in and called it marketplace collusion and passed antitrust laws that began a new era for true competition.

How soon some forget.

NOAA caught this ominous derecho cloud front in La Porte, Ind on June 29. The same storm would later cut power for millions all the way to the eastern seaboard.

A series of severe thunderstorms accompanied by near-hurricane-force winds caused millions of customers in several Mid-Atlantic states to lose power and telecommunications services late Friday, and some are expected to remain without service until at least this coming weekend.

The storm, known as a “derecho,” uprooted trees, which in turn knocked down power lines and caused wind-related damage to buildings from Ohio to West Virginia, Virginia to Maryland, and even into North Carolina.

But the storm also is raising questions about the massive failures in commercial telecommunications systems that left entire 911 emergency response systems offline for days, wireless networks non-operational, cell phone systems overwhelmed, and broadband service, deemed a lower priority by emergency officials, down and offline.

Some of the biggest problems remain in and around the nation’s capital and in the states of West Virginia and Virginia, where inadequate infrastructure proved especially susceptible to the storm’s damaging winds.

D.C., Maryland, and northern Virginia

In northern Virginia, calls to 911 were met by silence over the weekend, thanks to a catastrophic failure of Verizon’s landline network. With primary lines down, Verizon’s backup 911 systems also failed, leaving millions with no access to emergency responders.

Fairfax County officials finally put the word out the best way to summon emergency help was to drive (through streets littered with debris and downed power lines) to the nearest fire or police station for assistance.

“It’s just not OK for the entire 911 system in the region to go down for the period of time that we were out, especially after an enormous emergency where people needed to make those calls the most,” Sharon Bulova, chairman of the Fairfax County Board of Supervisors, told the Associated Press.

Verizon spokesman Harry Mitchell was left flat-footed, promising an investigation into Verizon’s latest 911 failure, and called the storm as damaging as a hurricane. He urged local officials to “move forward” beyond the immediate criticism and help make progress to get service restored.

Many emergency response networks also depend on telecommunications services, including fiber cables, to reach transmission towers for radio dispatch and mobile data terminals. In northern Virginia, the city of Alexandria has been managing to handle emergency dispatch services for several counties.

With power lines down, cable and phone lines often went as well. In those cases, electric utilities have first priority to restore service, and then cable and phone companies can begin repairs of their own.

Since cable operators rely on power companies to supply electricity to their amplifiers and other equipment, Comcast and Cox, which dominate the region, are blaming most of their outages on power disruptions, and promise service will be restored when the power returns.

Verizon’s DSL and FiOS broadband networks were both disrupted by the storm, primarily because of downed lines and power losses.Even wireless networks, which some might suspect would be immune to downed lines, were also seriously affected by the storm. Cell towers connect to the provider’s network through fiber optic and T1 lines, and although backup power generators can maintain a cell tower for days in some cases, backhaul line cuts can leave cell towers useless.

In metro D.C., call completion problems were a problem during the storm and sometime after as local residents turned to cell phones to communicate. Over the weekend, customers in and around Richmond, Va., found Verizon Wireless useless for text messages because of a service disruption. As backup generators ran dry of fuel, some cell towers that survived the initial storm have been shutting down until maintenance crews arrive and refuel.

The harshest criticism has so far escaped phone and cable companies. Instead, local officials and residents remain focused on Pepco, the power utility serving the Washington area. Pepco has learned from previous storms to become a master of lowered expectations, and is promising to do its best to restore power a week or more after the storm was a memory.

West Virginia and western Virginia

The state of West Virginia, and western rural Virginia state, have illustrated what happens when deteriorating infrastructure is asked to withstand winds of up to 100mph. Frontier’s operations in West Virginia were hit especially hard. Landline networks in that state had been allowed to deteriorate for years by former owner Verizon Communications. Frontier had its hands full trying to keep up with repairs, calling in additional staff and trying to maintain landline service in some areas with the help of generators.

That job was made much harder by a rash of generator thefts that impacted the phone company, and local authorities are still looking for those responsible. At least one-third of all central switching offices operated by Frontier in West Virginia remain on generator power as of yesterday. As of July 3, the company reported it has 12,000 repair requests still waiting for action.

It was a similar story in the western half of Virginia where independent phone companies and Verizon were faced with an enormous number of downed trees and power lines, many in rural areas. More than 108,000 Virginia residents are still without power as of this afternoon, and many will not see it restored until the weekend.

Because the derecho swept across a large area encompassing the entire state, it has been difficult for utility crews to respond from unaffected areas to assist in repairs because the damage was so widespread. Logistically, just coordinating repair operations has proved difficult because cell service has been spotty (or networks have been jammed with calls) in some of the worst-affected areas.

“Derechos are nothing to fool with, but still this was not the most serious storm Virginia has ever dealt with, and the impacts on our telecommunications networks seem to indicate they’ve been allowed to fall apart over the last several years,” shares Stop the Cap! reader Edward Klein, who lives near Roanoke. “I think an investigation is needed to make sure utilities are spending enough money to keep these networks in good shape so this kind of thing doesn’t happen everytime a storm sweeps through.”