Burlington city officials are mired in controversy over the legality of a recently revealed $17 million dollar unpaid loan given to Burlington Telecom, an apparent violation of the terms of its license issued by the Vermont Public Service board. While the municipally-owned fiber optic network is permitted to borrow money from the city, it must be repaid within 60 days, because the city charter insists that Burlington Telecom be an independently financed venture that does not become a taxpayer liability.
Dubbed by some as TelecomGate, it has become a major media story in Vermont’s largest city. Some taxpayers are upset by the perceived “bailout” of Burlington Telecom after the company exhausted its commercial loans of almost $34 million dollars to construct a fiber network serving homes and businesses. The Burlington Free Press has reported the city began quietly funding Burlington Telecom as early as late 2007, for both capital expenditures and some operating costs. As of today, Burlington Telecom has an accumulated debt of $50 million dollars, $17 million of which is owed to the city.
WCAX-TV in Burlington breaks the story about the funding controversy on October 16th. (3 minutes)
Burlington officials admit they underestimated construction costs, in part because they failed to complete a comprehensive engineering study prior to construction. Installing underground fiber cabling has literally hit a rock ledge, part of the geological character of underground Burlington, that will require an additional $10 million to cope with.
The fact the public is just finding out about it now is a major reason for the controversy. Jonathan Leopold, the city’s chief administrative officer, said he learned that the financing violated the company’s license terms last November. The Free Press reports he only informed the city council responsible for overseeing the operation in May of this year, six months later. The city council itself waited four months until late September before it notified Vermont state officials about the apparent violation, which led to the matter finally going public.
State officials publicly criticized the Burlington city government for the apparent transgression and for what some have called a cover-up, and State Auditor Thomas Salmon called on Burlington Telecom to have greater openness and transparency. State Public Service Commissioner David O’Brien called the funding irregularity a potential violation of law and that Burlington Telecom was “in debt beyond their ability to recover,” a charge which brought a hot response from Burlington mayor Bob Kiss:
“Commissioner O’Brien’s statements as quoted in today’s Burlington Free Press are inaccurate, inflammatory and totally inappropriate given there is a present proceeding before the Vermont Public Service Board in which his Department is supposed to be representing the public interest. Commissioner O’Brien knew or should have known of the City’s use of pooled cash to fund BT’s capital expenses and start up costs for almost a year. His comments only serve to undermine the confidence of BT’s customers, the interests of whom his Department is charged by statute to protect.”
O’Brien responded that Kiss was “shooting the messenger.”
WCAX-TV reports Burlington city council members had tough words for Jonathan Leopold at a meeting on October 20th, but Burlington mayor Bob Kiss is standing by Leopold. (3 minutes)
City council members have scurried for cover after the local press revealed they approved Burlington Telecom’s funding 13-1 at a city council meeting held October 5th. That may serve to back up Leopold’s position that he never hid any details about the loan arrangements — city officials and lawyers were well aware of these transactions, he says. Several public venting sessions were rapidly scheduled to allow constituents to express their concerns.
The Burlington Free-Press editorialized that the city can no longer keep information about city-owned Burlington Telecom’s problems and violations from residents by saying the secrets are necessary for business reasons and is calling for an independent investigation and audit.
State and local politics have also become deeply ingrained into the debate, with accusations flying between political parties that the flap has now become more about undermining the current administration than ferreting out and resolving issues with Burlington Telecom.
[flv]http://www.phillipdampier.com/video/WPTZ Plattsburgh – Taxpayers Give City Council Piece Of Their Mind 10-22-09.flv[/flv]
WPTZ-TV in Plattsburgh covered the public venting session on October 22 set up by the city council to allow residents to speak their minds. (2 minutes)
Leopold, whose administration duties involve Burlington Telecom, and who has been the most visible figure in the middle of the dispute, called attacks on him by some local politicians part of a scapegoating witch hunt.
City council voted 8-6 at 1:30am this morning approving a resolution to ask for the suspension of Jonathan Leopold anyway. So far Mayor Kiss won’t hear of it. At a press conference he reiterated his full support for Leopold, saying his suspension is “not warranted by the facts and is not in the best interests of the city. As mayor, I will not suspend the CAO from his service to the city.”
Caught in the middle is Burlington Telecom and its 4,600 subscribers. The provider is in apparent violation of its license for its loan arrangements, needs additional money to complete its buildout, and will likely also be cited for not completing that buildout on the schedule it committed to as part of its license to operate.
Commentary: Our Take
Too often municipal broadband projects end up as political footballs kicked all over town, especially when controversy erupts.
[flv]http://www.phillipdampier.com/video/WPTZ Plattsburgh State Demands Repayment 10-20-09.flv[/flv]
WPTZ-TV covers the political repercussions and damage control operations in full force after news of the controversy erupted. (10/20/2009 – 2 minutes)
Burlington Telecom made a crucial mistake when it failed to undertake a detailed engineering study to determine the true costs of wiring Burlington with fiber optics, something incumbents Comcast and FairPoint have not been willing to undertake. A true picture of the start-up costs would have resulted in a better understanding of initial construction costs and the financing required to pay for it.
City officials also erred in how they began funding some of the costs to administer the system after initial financing ran out. Good intentions or not, the fact there is a perceived cover-up makes things much more attractive to a media that often ignores or buries telecommunications stories on the business pages.
A frank and open discussion explaining the challenges and resolutions to them might have brought about temporary city loans with the consent of the community, without melodramatic political theater. Residents have a unique buy-in with Burlington Telecom because it’s municipally-owned. Many would be more than willing to see that and some additional investments pay off instead of collapsing with a complete shutdown.
[flv]http://www.phillipdampier.com/video/WCAX Burlington Mayor Defends Administration Over Telecom Issue 10-26-09.flv[/flv]
WCAX-TV covers Burlington mayor Bob Kiss who held a press conference yesterday to defend his administration’s role in Burlington Telecom (3 minutes)
When the story broke, the usual and very predictable campaign of finger-pointing, ducking for cover, and scapegoating began. This time-honored political damage control method is voter approved, if you stick your finger to the wind and see where voter sentiment seems to be blowing. That’s precisely what state Commissioner O’Brien did, only he overplayed his populist hand. This is, after all, the same commissioner who initially made excuses on behalf of FairPoint and seemed all too willing to give that company the benefit of the doubt, right up until it became politically untenable. You cannot be a credible torch-bearer in a populist mob if you helped build the castle you now seek to burn to the ground.
Mayor Kiss was correct in calling O’Brien out, not just for his convenient criticism, but for trying to win the Self-fulfilling Prophecy Award by predicting Burlington Telecom’s demise. Vermont residents should ask him where his clairvoyance was when he was publicly stating FairPoint was doing “pretty well” a year ago. O’Brien needs to be part of the solution for a change, not part of the problem.
Leopold appears to be a classic scapegoat. As he struggled to keep Burlington Telecom afloat, it is inconceivable he was cutting loan deals without the knowledge and consent of others in the city administration. The same city council now demanding his suspension seemed all too willing to go along just a few weeks ago when it voted almost unanimously with going forward. That speaks volumes. But when the media lights fire up, and angry residents start writing and calling, the complete turnaround is a site to behold. A series of self-serving, concern trolling speeches followed, along with complaints they were never given enough information or were confused by what they heard. If that is the kind of leadership Burlington has, perhaps residents need to consider making some changes.
[flv]http://www.phillipdampier.com/video/WCAX Burlington City Council Undecided About Burlington Telecom 10-26-09.flv[/flv]
Late last night, WCAX reported city council was still undecided about what to do about the Burlington Telecom controversy. (3 minutes)
The public has a right to be upset, but are all too often satisfied with the political theater designed to quickly “resolve” the problem by expelling the designated scapegoat from their midst. Mayor Kiss has remarkably withstood the usual pattern very well thus far.
While the politicians play “not my fault,” Burlington Telecom customers need answers to know if their provider is endangered. An independent audit and review, free of political know-nothings would be a start. How about bringing in those with actual expertise in deploying municipal networks. How about excluding involved, self-interest-protecting elected officials, especially those who had any hand in the FairPoint debacle.
It’s also time to fund that engineering study for the unwired portions of Burlington to get a true cost analysis. A review as to why Burlington Telecom is not attracting a larger segment of the market is also needed.
In broadband, at least, that’s a no-brainer. Burlington Telecom’s speeds on the download side are too slow and too expensive. Comcast offers faster downstream service at lower prices, so why would anyone want to switch? Burlington Telecom is trying to market their synchronous speed network (your downstream speed and upstream speed is the same), which would normally be appealing to a segment of Internet customers frustrated with cable and DSL shortchanging them on upload speeds. But the customers who understand and appreciate the difference will not accept a broadband service that tops out at 8Mbps for an enormous $71.80 a month. That’s far too slow and too expensive when Comcast is offering 12Mbps/2Mbps (upload speed with PowerBoost) for $42.95 per month. Service for 16Mbps/2Mbps is $10 more, still twenty dollars less than Burlington Telecom is charging for half the speed. Burlington Telecom can attract a larger base of broadband customers by accelerating speeds on their network beyond what Comcast provides.
Municipal broadband projects can be successful, but should be based on a true and honest appraisal of the costs, a complete understanding of the competitive landscape, a flexibility to respond to changing markets, and a good reason why they should exist in the first place. Fulfilling the needs residents want, but incumbent providers will not provide is always the best answer. Customers don’t want anemic broadband at high prices. Provide that and a municipal broadband project will fail, even without political grandstanding and finger-pointing.
[flv]http://www.phillipdampier.com/video/WPTZ Plattsburgh Kiss Refuses To Punish Leopold Over Telecom Flap 10-27-09.flv[/flv]
This morning Burlington residents learned Burlington mayor Bob Kiss was still standing behind Jonathan Leopold, despite their calls for Leopold to be suspended. (WPTZ) (2 minutes)
Below the jump, find a one hour video interview between The Burlington Free Press and city officials on the Burlington Telecom matter.
Phillip Dampier resides in Frontier's largest service area: Rochester, New York
Consumers across 13 states impacted by the proposed Verizon sale to Frontier Communications, as well as existing Frontier customers, should tell regulators to reject the deal.
Those of us living and working in Rochester, New York are extremely familiar with Frontier Communications. For more than 100 years, Rochester Telephone Corporation provided excellent, independent telephone service to Rochester and a significant part of the Genesee Valley. The company had a reputation for excellent reliability and charged rates considerably lower than New York Telephone, a Bell subsidiary, in other upstate cities like Buffalo and Syracuse. In 1995, Rochester Telephone was renamed Frontier Communications, because the company wanted to position itself as something more than just a phone company.
Frontier was acquired in 2001 by Citizens Communications of Stamford, Connecticut, who has provided service ever since. Ironically, that company thought Frontier was a better name than the one they had used for decades, and Citizens renamed themselves Frontier Communications in 2008.
Today, Frontier Communications serves just under three million customers, primarily in suburban and rural communities in 24 states.
Since Citizens acquired Frontier, and its largest operating service area in metropolitan Rochester, the company has made some changes to the local telephone network. Fiber optic connections are now common between their central offices and smaller “satellite” central offices. A local wi-fi network was installed in association with Monroe County, in part as a political maneuver to stop municipally owned and operated affordable wi-fi networks from getting off the ground. As a concession to the county, a much smaller “free” wi-fi network was also included. (See below the jump for video news coverage of Frontier’s promises vs. reality)
The company’s broadband service relies on ADSL technology delivered by traditional copper telephone wiring, providing service in Rochester at speeds up to a theoretical 10Mbps. Actual speeds vary tremendously depending on the distance between your home or business and the telephone company central office serving it. In most smaller communities, speeds are far lower. In Cowen, West Virginia, Frontier markets broadband service at just 3Mbps, a typical speed for Frontier’s smaller service areas.
Unfortunately, Frontier has shown no initiative to move beyond offering traditional DSL service to its customers, including those in western New York. Across other New York State cities, Verizon is taking a far different approach. In larger communities, it is aggressively installing fiber optic wiring to both homes and businesses. Verizon FiOS positions the company to effectively compete against their traditionally closest competitor – cable television. For several years, cable operators have offered a better deal for its “digital phone” service, which works with existing home phones but delivered over cable TV lines, often charging less than a traditional phone line, and cable throws in free long distance on many of its plans.
The ubiquitous cell phone has not helped. Many younger Americans can’t understand why they would want to bother getting a traditional phone line, when the mobile phone in their pocket works just fine, and they can take it with them wherever they go. The result has been a steady erosion of traditional “wireline” phone lines, and a corresponding decline in the revenue earned from the service in many areas.
The Communications Workers of America contract Verizon promises with reality for consumers impacted by earlier deals. (click to enlarge)
In September Verizon CEO Ivan Seidenberg told a Goldman Sachs investor conference that the wired phone line business was effectively dead. Seidenberg recognized that trying to guess when the company would stop losing “landline” customers was like guessing when a dog will stop chasing a bus. In other words, the future of Ma Bell is not delivering phone service — it’s deploying advanced networks that are capable of providing customers with video, broadband, and phone service across one wire, preferably a fiber optic one. Those that can manage the transition will succeed, those who cannot or won’t will face a steady decline to obsolescence.
There is only one major problem — it costs a lot of money to rewire entire communities, much less states, with fiber optic wiring. It’s like building a phone network from scratch. A company contemplating such a challenging undertaking starts by asking how much it is going to cost and when will it profit from its investment. Many on Wall Street don’t like either question because of the up front cost, and are even less happy with the prospect of taking the long view waiting for those costs to be recouped from customers.
To date, Verizon is the most aggressive major phone company in the nation building a pure fiber optic system in its larger service areas. AT&T, which provides phone service in many states, has taken a more cautious approach using a hybrid fiber-copper wire design they market as U-verse. A handful of independent phone companies and municipally owned providers have undertaken to wire fiber optics to the home as well, so they can sell video, telephone and broadband service to their customers.
A major challenge confronts phone companies servicing more distant suburban and rural phone customers, often living far apart from one another in sparsely populated regions. It costs more to service these customers, and the potential revenue gained is often not as great as what can be earned from their urban cousins. Verizon doesn’t see many rural customers as part of their future business plans and have begun to systematically sell some areas off to other phone companies, usually in tax-free transactions. One company that sees an ambitious future in serving rural America is Frontier Communications. For them, finding a niche among the big boys gives them safety and security, particularly in areas that don’t have a cable competitor (or any competitor at all).
Frontier’s acquisition strategy is to sell regulators and the public on the idea that allowing Frontier in guarantees a much better chance for broadband service to reach the communities Verizon skipped over. Their argument for success in a business seeing steady declines in customers is that broadband service will stem the tide, and help them remain profitable. More than doubling their size with the acquisition of Verizon’s latest castoffs means more opportunity to market broadband service to those underserved communities. Frontier argues it can be a more nimble player than Verizon because it has marketing and service experience in rural communities previously ignored by Verizon.
Frontier’s ability to provide broadband service is not the most important question. More important is how Frontier will define broadband and at what speed. Also critically important is how Frontier will be prepared to deliver the next generation broadband platform that other communities will see with speeds up to 100Mbps, often on fiber optic networks.
Frontier’s reliance on ADSL technology, which worked fine for 1990s Internet connectivity, is increasingly falling behind in the speed race, and for much of the next generation of online content, speed will matter very much.
Unfortunately, the track record for the success of these spinoffs has been universally lousy for consumers and for many employees who live and work in the impacted communities. Promises made quickly become promises delayed, and later broken as companies like Hawaii Telecom and FairPoint tried to integrate former Verizon operations into their own. Service outages, billing errors, confusion, and finally a mass exodus by customers looking for better alternatives has been the repeated result. The faster customers depart, combined with the enormous debt these transactions create for the buyer, the faster the journey ends in Bankruptcy Court. There is nothing about the Frontier deal proposal that suggests their experience will be any different.
Shouldn’t Three Strikes Mean You Are Out?
Consumers should tell state regulators they should pay careful attention to the failures Verizon has left in its wake from previous deals:
FairPoint Communications, which assumed control of phone service in Maine, New Hampshire and Vermont just last year declared bankruptcy this morning, even now still plaguing customers with billing and service problems. The company choked on the debt it incurred from financing the deal. Before this morning’s bankruptcy, their stock price had lost 95% of its value, and customers were leaving in droves, only accelerating the company’s demise. FairPoint thought it could integrate Verizon’s byzantine billing system into its own. Thinking and doing turned out to be two entirely different things. Frontier has experience integrating other small independent phone companies into its billing system, but now faces the same prospect of dealing with Verizon’s own way of doing everything, and for twice the number of customers Frontier serves today.
Hawaii Telecom and its 715,000 customers were dumped by Verizon in 2005. Once again, transition issues plagued the post-sale experience for those customers, and almost a quarter fled the company over three years. Last December, Hawaii Telecom declared bankruptcy.
Verizon’s yellow pages unit was also thrown overboard by the company to Idearc in November 2006. Saddled with $9.5 billion in debt and interest payments representing almost one quarter of the entire company’s revenues, Idearc finally had enough in March 2009 when it also declared bankruptcy.
The deal between Verizon and Frontier could easily follow the same path, as Frontier gets loaded down with massive debt financing the purchase, and has to immediately provide better service than Verizon did, or face a stampede of customers heading for the exit. The impact of a debt-laden Frontier could be felt by more than just the newcomers. Existing Frontier customers could also be impacted as the company turns its attention to a potentially lengthy integration process.
The Promise of Anemic Broadband, The Fiber Myth & The 5GB Acceptable Use Policy
Time Warner Cable competes effectively against Frontier DSL in the phone company's largest service area
Frontier’s plan to bring broadband to a larger number of customers is a noble gesture, particularly for households that currently do not receive any broadband service. Unfortunately, a short term gain of what will likely be 1-3Mbps DSL service will leave these communities behind in the next few years as broadband speeds accelerate far faster than what Frontier is prepared to provide.
Some press accounts in West Virginia have left residents with the impression fiber optic service will reach their individual homes should Frontier be successful in purchasing Verizon’s assets. There is no evidence to suggest this is true.
In earlier deals, these kinds of rumors started when companies advocating the sale staged press-friendly events announcing a fiber connection between hospitals, schools, or community centers, allowing the media to give the impression there would be fiber upgrades for all… if the deal gets approved. In the case of Frontier, they have suggested they will continue work on Verizon’s FiOS system in the communities where construction was already underway. That’s an important distinction for the millions of customers who don’t live in those communities. Verizon’s FiOS network that is part of this transaction serves less than 70,000 residents.
Residents should consider what possibility their community has of obtaining this type of advanced service when Frontier refuses to provide anything comparable in their largest service area – Rochester, New York.
If they are not doing it in Rochester, do you really believe they will do it in your community?
The company certainly has a competitive need to provide such service in our city where Time Warner Cable has accelerated speeds beyond what Frontier is capable of providing. Indeed, Time Warner Cable officials tout their largest number of new Road Runner broadband sign-ups comes from departing DSL customers who are fed up with the anemic, inconsistent speeds offered by this aging technology.
In the town of Brighton, I gave Frontier DSL service a try this past spring. The company promises up to 10Mbps of service to my area, which is less than 1/2 mile from the city of Rochester, and literally just a few blocks from the town’s business center. After installation, the company was only able to provide me with service at 3.1Mbps, just less than one-third of the speed marketed to local residents. Even more surprising was the fact they charged a higher price for that service (including taxes, fees, and modem rental charge) than their competitor, Time Warner Cable.
This website was founded after Frontier inserted language into its Acceptable Use Policy defining “reasonable” broadband usage at just five gigabytes per month. That’s right, the same limit your mobile phone provider applies to their wireless broadband service. Viewing one HD movie over Frontier’s DSL service would put you perilously close to unreasonable use.
Are consumers willing to give up unlimited Verizon DSL service for a company that refuses to drop a 5GB acceptable usage definition from their terms and conditions?
America is on the threshold of 50-100Mbps broadband service, with some communities already enjoying those speeds. If your community isn’t served by a competing provider, do you want to limit your future to yesterday’s DSL technology, and then told it is inappropriate for you to actually use it beyond five gigabytes per month?
The Billing and Customer Service Nightmare
The days of local customer service are over with Frontier. Back during the days of Rochester Telephone, there were several occasions when a local customer service representative would recognize me by name. Those days are long gone. Now, a good deal of Frontier’s customer service is handled by a call center in DeLand, Florida. While the representatives mean well, experiences with them suggest many are not well equipped to understand and consistently market Frontier’s products to existing customers. Pile on more than double the number of new customers, and the problems are likely to become much worse.
Frontier has personally plagued me with billing errors this past year, gave inconsistent and inaccurate answers to pricing and service inquiries, and created major runaround hassles to correct them. From the DSL self-install kit that never arrived (requiring me to visit a local office to pick one up myself), to the impenetrable and inaccurate bills that resulted, the company could not correct the problems without consulting someone with supervisor status. I canceled service within the month.
Customers signing up for service have been pressured into “peace of mind” agreements that lock customers into long term contracts that automatically renew unless the customer actively cancels them (and is certain the request to cancel was processed correctly.) Frontier has been fined twice by the New York State Attorney General for “misleading advertising and marketing tactics,” once in 2006 and again just a few weeks ago. Some customers are now waiting for substantial refunds ranging from $50-400 dollars for “early termination fees” charged when they tried to cancel service.
Are you comfortable knowing some customers have been inappropriately placed on a one to three year contract without their full informed consent, and billed hundreds of dollars when they tried to cancel?
The Art of the Deal
By no means will a Verizon-Frontier transaction be the last. As the industry continues to consolidate around a dwindling number of wired phone line customers, it’s a safe bet there will be more phone customers thrown away by the bigger players. Nothing guarantees Frontier itself will be freestanding when the consolidation wave ends. While these deals may make sense for some shareholders and company executives, they often don’t for local experienced employees who know the network and how to provide quality service. They never have for consumers who will always have to foot the bill to pay off these transactions and have to live with the company trying to integrate Verizon’s bureaucracy with their own.
Some consumer groups and local workers correctly predicted, in each instance, the horrific outcome of these kinds of deals. Their uncanny knack to correctly predict disaster contrasts with company marketing, lobbying, and astroturf efforts that promise the sky and tell each successive news reporter covering the latest atrocity that “things are getting better” and “will be fixed soon.” Unfortunately for too many customers, the fix has to come from a judge in Bankruptcy Court.
The International Brotherhood of Electrical Workers who repeatedly warned about the perils of FairPoint, now warns state regulators about Frontier, and direct attention to the numbers:
If the transaction is approved, Frontier management will have to deal with a 300% increase in access lines (from 2.2 million access lines now to 7 million after the sale) and a 200% increase in employees (from 5,700 employees now to 16,700 after the sale).
Frontier’s debt will increase from $4.55 billion to $8 billion—an increase of over $3.4 billion. Servicing this debt will mean less money for infrastructure, service quality, and high-speed internet build out.
While Frontier argues that somehow this deal will make it stronger, the issue for the states being sold is how much weaker it will make the operations in those states.
The leverage ratio is one way to measure the financial health of a company. The leverage ratio is calculated by taking net debt and dividing it by earnings (before interest, taxes, depreciation and amortization). The leverage ratio for the states being sold will increase from 1.7 immediately before the transaction closes to 2.6 after the sale. The entire deal revolves around Frontier’s ability to cut its operational expenses by $500 million or 21%.
This is significantly greater than the 8-10% cut that FairPoint hoped to achieve—and much of these savings were to be generated from replacing Verizon’s network and back-office systems. Yet, Frontier states that all of the operations except for West Virginia will continue on Verizon’s existing systems—for which Frontier will pay a fee.
Where will Frontier generate the savings—from reduced service quality, workforce, or maintenance of the communications infrastructure? In spite of brave talk from Verizon and Frontier, as recent events have demonstrated, obtaining financing for a transaction this size can be difficult. Frontier does not currently have financing for the additional debt it will take on for this transaction.
As an existing Frontier customer, I’d like an answer myself.
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Watch these two Wall Street guys talk about the previous Verizon deals that threw customers under the bus. Plenty of praise for the skilled deal maker Verizon CEO Ivan Seidenberg, and no concern for you, the consumer and telephone customer impacted by a deal that got a few people very rich and left you with a bankrupt phone company. (3 minutes)
It’s Not Worth the Risk
Unfortunately, for too many rural Americans impacted by this deal, there is only one phone company. Cable television is not in their future, and in mountainous regions like West Virginia, wireless phones may not be suitable as a phone line replacement. Risking 100 years of solvent phone service on a deal that could ultimately follow earlier deals into bankruptcy is not worth the risk. The nightmares of converting operations from one provider to another is a hassle consumers should not have to face.
For decades, you faithfully paid your Verizon telephone bill and made the company the telecommunications powerhouse it is today. Now they want to abandon you because, frankly, you just aren’t important enough to them anymore. It doesn’t have to be this way. State regulators can tell Verizon they need to make different plans — by forgetting about trying to cash in on a deal that is good for them and bad for you, and by staying put and providing consumers with the same kinds of network upgrades they are building in communities across the country.
Unfortunately, Frontier before this deal was ill-equipped to embark on the kind of investment necessary to provide fiber optic broadband connectivity to its customers. Now pile on billions of additional debt and the challenge of trying to more than double their size and integrate diverse phone networks in 13 different states and ponder what the chances will be for fiber service after the deal is done. Far more likely for residents is a company that will rely on slow speed DSL service, providing “good enough for them” broadband for the indefinite future.
Take Action!
As has been the case with Hawaii Telecom and FairPoint, naive regulators believed the false promises and approved earlier deals, and are frankly responsible for part of the blame. Face-saving telecommunications regulators in New England initially even tried to cheerlead for FairPoint as they stumbled through one customer service nightmare after another. Too late, they realized the grim reality that their approval saddled their states with a phone company totally unequipped to do the job.
Consumers who do not want a repeat performance can contact their state representatives and tell them to put pressure on each state’s public utility commission to reject the deal. You should also contact your state’s public utility commission yourself.
No amount of concessions and written agreements will make a difference if that phone company ends up in financial distress and takes a walk to Bankruptcy Court. Regulators should not even bother trying, after witnessing the debacle with FairPoint.
In your polite, persuasive and persistent communication with state officials, let them know:
We’ve been down this road with Verizon before, with FairPoint Communications and Hawaii Telecom, leaving a litany of broken service promises, unfulfilled broadband commitments, unacceptable billing mistakes, and poor quality customer service. In both instances, customers fled and the companies ended up in bankruptcy;
Frontier has been unable or unwilling to wire its largest service area, Rochester, New York, with the advanced fiber connectivity that Verizon is wiring throughout the rest of upstate New York. If the company cannot meet the needs of customers in their largest service area, what in the world makes you think they’ll do it for us?
The company has been fined twice by the New York State Attorney General for dubious business practices, costing consumers hundreds of dollars the company has now agreed to return to those customers;
A broadband service for our community’s future should not come with a 5 gigabyte monthly limit attached in the fine print. How can our community compete in the digital economy if you have to ration your broadband usage to an unprecedented level in wired broadband?
The devil is always in the details. Verizon has an aggressive plan to stay relevant in a digital future, with video, telephone, and Internet service running across advanced fiber optic lines. Frontier has a plan to serve rural communities with yesterday’s technology. Frontier’s vision for video is to “get a satellite dish” and rely on the existing aging copper wiring to do everything else.
What kind of service and growth can we expect from a company mired in debt? As seasoned Verizon employees in our community start retiring, understanding the writing on the wall, what do they know that you and I don’t?
Phone companies are a regulated utility, essential to the public interest. Why permit a risky deal that could ultimately lead to a taxpayer bailout to keep operations running if Frontier follows its predecessors into bankruptcy, all while Verizon walks away with billions in proceeds?
You can locate the names and contact information for your state representative(s) on Congress.org simply by entering your zip code. When calling or writing, always be courteous, and request that your representative respond in writing to your concerns, and share with Stop the Cap! any correspondence you receive in reply. As always, we’ll be holding elected officials accountable.
Your next contact must be with your state public utility commission. If a hearing is planned in your community, share your views in person and feel free to point them here if they want to watch how bad telecommunications deals have unfolded in the past. We have countless hours of news reports archived for their viewing pleasure. Each state has a different procedure for contacting them. In West Virginia, for example, consumers can call the Commission at 1-800-642-8544. Ohio residents can fill out an online form.
Perhaps Frontier can one day take on a transaction like this, but only after it can demonstrate it has the resources and willingness to provide customers with better options for service. Had they done that in our community, local residents would not have taken to signing a petition for Verizon to overbuild, or buyout Frontier’s Rochester operation. Local residents want the advantage fiber optic service can bring our community and its local economy, some even expressing a willingness to send $10 and $20 checks to Verizon for an acquisition fund to get the sale done. When consumers give money to the phone company when they don’t owe anything, that should be a clear signal consumers are dissatisfied and want a change Frontier, thus far, has not provided.
With all of the discussion about Net Neutrality recently, the mainstream media often has a difficult time absorbing what this concept means and ends up confusing it with Internet Overcharging schemes. CNN is the latest to make the mistake — not once but twice in three days as Nicole Lapin and Tony Harris discuss how Net Neutrality policies will impact consumers.
Lapin suggests this week’s decision by the FCC to begin writing a formal Net Neutrality policy was a done deal, and that it would prevent Internet providers from charging higher prices for consumers who use their broadband accounts a lot.
Both statements are incorrect.
The FCC is only at the start of writing a formal Net Neutrality policy. The basic tenets Chairman Julius Genachowski would like to see a part of a formal Net Neutrality rulemaking are on the table, but there is plenty of time between now and a final vote for telecommunications industry lobbyists to sweep several pages from Genachowski’s wish-list to the floor (and replace them with their own.)
Nothing in the proposed Net Neutrality policies would currently prohibit providers from moving to Internet Overcharging schemes like usage allowances, overlimit fees, and other pricing changes that are ultimately designed to reduce usage and extract higher pricing from consumers.
Rep. Eric Massa (D-NY) has a bill to put a stop the Internet Overcharging schemes that continues to need your support and advocacy with your member of Congress. See the Take Action section for further details.
For the record:
Net Neutrality: A set of policies that prevents Internet providers from discriminating against certain broadband services or website content providers with speed throttles, blocks, or other impediments. Providers would not be allowed to set up special premium traffic lanes with faster speed delivery of online web content for “preferred partners,” while leaving everyone else on a slower traffic lane. It preserves the Internet we have today.
Internet Overcharging: Practices by broadband providers to limit usage of your broadband service and/or charge higher pricing based on arbitrary claims that consumers are “overusing” their unlimited broadband service. These include usage caps or limits, usage allowances, consumption billing that includes usage allowances, overlimit fees/penalties for exceeding those limits, speed throttles that kick in when a user reaches their usage limit, and any accompanying services sold to consumers who think they might exceed their plan allowance (overlimit “insurance” policies, extra usage blocks sold at premium prices, etc.)
[flv width=”570″ height=”324″]http://www.phillipdampier.com/video/2009-10-21-CNN-FCC Net Neutrality.flv[/flv]
CNN’s Tony Harris talks with Nicole Lapin about Net Neutrality, and how the policy impacts small businesses that sell on the web. (October 21 – 3 minutes)
Earlier today the two revisited the issue of Net Neutrality to explore the outcome of the FCC Net Neutrality decision:
AT&T Mobility has news for its customers: “You’ll be hearing something from us in the near future,” says AT&T Mobility CEO Ralph de la Vega. He was speaking about an end to “unlimited” usage of its wireless network. Stop the Cap! reader Jeremy learned about it and sent word our way.
Of course, AT&T has always reserved the right to impose overlimit fees or terminate accounts that exceed 5 gigabytes per month, but most of the horror stories about enormous bills come from consumers using AT&T’s wireless broadband service on a computer. For iPhone users, who are force-fed a mandatory $30 monthly “unlimited” data plan, their wireless usage has not been subjected to an AT&T crackdown for whatever they consider “excessive” that month.
But that is likely to change, and soon. De la Vega warned listeners on a conference call held this week that AT&T’s considerations of ways to deal with extreme bandwidth users are “all in flux, but we will come up with ways that mitigate the [network] impact we’ve seen by a small number of customers who are driving inordinate usage.”
The company has been holding focus groups about Internet Overcharging schemes, trying to conjure up a public relations message that consumers will be duped into believing is fair. They’ve tested everything from meal scenarios to toll roadways, comparing “heavy users” with 18 wheelers and ordinary light users with Mini Coopers, asking participants if they felt it was fair “for the truckers to pay more?” One of our readers clandestinely participated in one of these, and managed to debunk their nonsense over a free lunch, with consumers incensed to discover the tolls they are charging are ludicrously profitable even at current rates.
When facts about Internet Overcharging are revealed, it’s not a question of who should pay more — it’s a demand to know why everyone isn’t paying less -and- why companies like AT&T aren’t investing a greater percentage of their fat profits in expanding their network.
As I’ve written on several previous occasions, it comes as no surprise to me that some companies in the broadband industry have been looking for an excuse to throw all of our “favorite” Internet Overcharging schemes on customers — usage allowances, overlimit fees and penalties, or just throttling your connection to dial-up speeds. As I predicted, some will try an “either/or” scam on consumers, telling them they are “forced” to impose these kinds of profit grabs because the government is demanding Net Neutrality. One has absolutely nothing to do with the other of course, but it’s a convenient excuse to help rally consumers against Net Neutrality now, and impose higher pricing on consumers anyway. It is crucial that consumers do not fall for this ploy. There is no fairness in being overcharged for Internet access, such plans never truly provide “only paying for what you use” pricing, and no one should be willing to give up one for the other. In Canada, they ended up with no Net Neutrality -and- Internet Overcharging schemes, precisely what would happen here.
As has always been the case, AT&T blames a “small percentage” of their users for consuming massive amounts of bandwidth. Earlier this summer it was “three percent of Smartphone users use 40% of AT&T’s wireless network.” The us vs. them mentality is designed to divide consumers into finger pointing camps blaming their neighbors for “the problem” instead of asking pointed questions of the carrier making the claim. Some questions are:
Exactly how much data do those “heavy Smartphone users” consume?
What is AT&T’s cost per megabyte/gigabyte to deliver that data to consumers?
Why does AT&T mandate iPhone customers purchase an “unlimited” data plan and then complain when customers utilize what they are paying for?
Will AT&T significantly reduce pricing for mandatory data plan customers, or simply throw a usage allowance on existing accounts and expect consumers to pay the same?
What percentage of AT&T’s profits are spent on their network and its expansion, and has that amount as a percentage increased or decreased in the last five years?
If AT&T is suffering from smartphone congestion, why continue an exclusive deal for the iPhone, which AT&T claims contributes to a significant amount of that congestion?
Why does AT&T marketing claim their wireless broadband plans are “unlimited” when, in fact, they are limited to 5 gigabytes of usage per month?
Jack Gold, an analyst at J. Gold Associates, toldComputerworld carriers have a legitimate issue in considering an “overage charge,” for users who surpass a certain number of gigabytes of data per month.
“People will complain about an overage charge,” Gold said. “I guarantee complaints, but there’s no other way to deal with it short of building out more networks to give people the bandwidth they crave. There really are bandwidth hogs. You have 5% of the users taking up 90% of the bandwidth sometimes.”
Gold said he agrees with net neutrality rules that allow users to reach any Web site on the Internet, but argued that carriers can’t provide unlimited bandwidth to all users. Doing so “means everybody else is limited … The AT&Ts and Verizons have a legitimate point.”
Of course, Gold is in the business of representing business interests, not consumers. Does Gold have direct evidence of his numbers, or does he simply repeat what he has heard carriers tell him? Since consumers cannot easily find truly unlimited mobile broadband accounts in the American wireless industry today, de la Vega’s urgent statements about imposing limits on customers must target iPhone and other smartphone users specifically, because those are the only accounts AT&T hasn’t held hard to their 5GB usage cap.
The FCC today voted unanimously to begin writing a formal Net Neutrality policy to govern broadband services across the United States. Three Democratic commissioners voted yes and applauded the concept of Net Neutrality. The two Republican commissioners also voted to move the process forward, but signaled they would likely oppose the final draft of the rules.
Support for Net Neutrality, which would prohibit providers from slowing down, blocking, or charging higher pricing for favored access to web content, was spearheaded by FCC Chairman Julius Genachowski.
Genachowski said the rules were needed to protect consumers from abusive behavior by telecommunications companies that might seek to block or restrict access to broadband content, including telephone and video services.
“Internet users should always have the final say about their online service, whether it’s the software, applications or services they choose, or the networks and hardware they use to the connect to the Internet,” Genachowski said.
Other Democratic commissioners agreed with Genachowski. Commissioner Michael Copps stated it was important to hear from everyone about the proposed rules.
“We need to recognize that the gatekeepers of today may not be the gatekeepers of tomorrow,” Copps said.
John McCain
Many Republicans were unconvinced of the need to establish Net Neutrality as formal policy.
“I do not share the majority’s view that the Internet is showing breaks and cracks, nor do I believe that the government is the best tool to fix it,” Republican commissioner Robert McDowell said.
“These new rules should rightly be viewed by consumers suspiciously as another government power grab over a private service provided by private companies in a competitive marketplace,” Sen. John McCain wrote in an opinion piece published by The Washington Times.
McCain compared Net Neutrality with the federal bailout of Wall Street and the American auto industry.
Under the draft proposed rules, subject to reasonable network management, a provider of broadband Internet access service:
would not be allowed to prevent any of its users from sending or receiving the lawful content of the user’s choice over the Internet;
would not be allowed to prevent any of its users from running the lawful applications or using the lawful services of the user’s choice;
would not be allowed to prevent any of its users from connecting to and using on its network the user’s choice of lawful devices that do not harm the network;
would not be allowed to deprive any of its users of the user’s entitlement to competition among network providers, application providers, service providers, and content providers;
would be required to treat lawful content, applications, and services in a nondiscriminatory manner; and
would be required to disclose such information concerning network management and other practices as is reasonably required for users and content, application, and service providers to enjoy the protections specified in this rulemaking.
The draft rules make clear that providers would also be permitted to address harmful traffic and traffic unwanted by users, such as spam, and prevent both the transfer of unlawful content, such as child pornography, and the unlawful transfer of content, such as a transfer that would infringe copyright.
Today’s vote marks only a beginning of the process to begin writing the formal policy of Net Neutrality governing Internet use in the United States. As with the ponderous debate on health care reform, what ends up defining “Net Neutrality” will be open to interpretation, and a barrage of lobbyists and arm twisting from politicians will be part of what comes next.
On the eve of the historic vote, Verizon Communications seemed to join Google in affirming some of the basic principles of Net Neutrality.
However, the devil is in the details, as is always the case in telecommunications policy.
Verizon supports its own interpretation of Net Neutrality, which is wrapped in a concept they call “innovation without permission,” which is code language for a deregulatory open free-market environment. It broadly accepts the concept that telecommunications companies should not interfere with legal content, but the company doesn’t want a whole barrage of new regulations to specifically define what would constitute “interference.” Verizon believes onerous rules would stifle investment, and that existing rules already in place at the FCC are sufficient protection.
Things get downright dicey when Verizon spells out its “network management” principles, warning the FCC overly specific rules in this area could have unintended consequences.
Broadband network providers should have the flexibility to manage their networks to deal with issues like traffic congestion, spam, “malware” and denial of service attacks, as well as other threats that may emerge in the future–so long as they do it reasonably, consistent with their customers’ preferences, and don’t unreasonably discriminate in ways that either harm users or are anti-competitive. They should also be free to offer managed network services, such as IP television.
It is in this area where very specific rules are appropriate to write, because what one company defines as appropriate “network management,” could be discriminatory against selected content those providers seek to “manage.”
No broadband user has ever objected to network management that controls spam, “malware,” denial of service attacks, and other like-minded traffic. In fact, most consumers wish more could be done to control these things. Nothing in the current framework of telecommunications regulations or in those proposed have ever sought to impede this type of management.
No consumer minds having access to additional content, such as IP television. But consumers do object when such content is used as an excuse to ram through Internet Overcharging schemes limiting broadband usage or imposing higher fees for using the types of services companies like Verizon now advocate. “The broadband sky is falling” rhetoric about “exafloods,” overloaded “Internet brownouts,” and other such scaremongering nonsense often comes from the same providers that now want to provide IP television. What they provide with their left hand, they want to limit with their right.
It’s anti-competitive, because the same companies with an interest in selling these pay television services (FiOS, cable television, fiber-telephone U-verse, etc.) also provide the broadband service that companies like Netflix and Hulu use to indirectly challenge their video business models.
Another concern is “traffic congestion” management, which all too often has meant speed throttles selectively imposed on “offending” applications, particularly peer to peer traffic. There is good traffic management, such as routing equipment that provides even delivery of services like streaming video and Voice Over IP telephone calls, which rapidly deteriorate on loaded down networks, and then there is bad traffic management which selectively slows down the speed of whatever the provider deems to be of “lower priority.” Allowing the customer to make the decision about which traffic gets priority is one thing. Allowing a provider to do it without the consent of the customer is quite another.
Too often, the “unintended consequences” Verizon and Google speak about in the joint statement go to the provider’s favor, not to the consumer. Overly broad, non-specific language opens loopholes through which providers will eagerly leap through.
Verizon also advocates transparency — “All providers of broadband access, services and applications should provide their customers with clear information about their offerings.”
Disclosure alone doesn’t suffice for consumers, particularly if there are few competitive places to take your business if you disagree with company policies. Those rules should include realistic speed information (marketing stating “up to 10Mbps” that in reality only delivers 3Mbps would be one example). It should not simply be an escape clause for providers to abuse their customers with throttled, slow service, and give them the excuse that “we disclosed it.”
Be Sure to Read Part One: Astroturf Overload — Broadband for America = One Giant Industry Front Group for an important introduction to what this super-sized industry front group is all about. Members of Broadband for America Red: A company or group actively engaging in anti-consumer lobbying, opposes Net Neutrality, supports Internet Overcharging, belongs to […]
Astroturf: One of the underhanded tactics increasingly being used by telecom companies is “Astroturf lobbying” – creating front groups that try to mimic true grassroots, but that are all about corporate money, not citizen power. Astroturf lobbying is hardly a new approach. Senator Lloyd Bentsen is credited with coining the term in the 1980s to […]
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