A homeless man’s mattress fire under a bridge in Massachusetts was enough to create the biggest telecommunications disaster for Verizon since the terrorist attacks of 9/11. The fire melted fiber and damaged copper cables that represented the backbone of Verizon’s landline network in the region, disrupting phone, cable, and broadband service for thousands of Verizon’s customers in northeastern Massachusetts in late August. Now that service has been restored, the damages from the outage and its ripple effects are still being calculated as questions are being raised about how the company handles its communications network.

The damage went far beyond an inconvenience for Verizon customers:

• Area businesses were ripe for plundering with Verizon-dependent alarm systems out of service;
• Cell towers went down if they were connected by Verizon’s fiber optic network;
• Local law enforcement communication systems ceased to function in areas where Verizon provided the vital link between the dispatch center and transmitting facilities miles away;
• Banks and other local businesses closed down because Verizon-based connectivity was inoperable. That left ATMs throughout the region out of service and credit card transactions often impossible to manage;
• 911 systems in several communities had to transfer emergency calls to other 911 centers miles away;
• Even the Registry of Motor Vehicles locked their doors and shut down while the outage persisted over several days.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/NECN Verizon telecommunications outage causes problems 8-31-12.flv[/flv]
NECN News reports on Verizon’s enormous Massachusetts service outage and how it impacted the lives of affected customers. (3 minutes)

Verizon’s landline network ultimately failed its Massachusetts customers on a scale the company admits it has not seen in a long time.

“It’s the biggest problem we’ve faced, nationally, other than 9-11,” Bill Wilson, area manager for Verizon, told the Eagle-Tribune. “This is the biggest problem we’ve had in 20 years.”

At the heart of the problem is Verizon’s lack of redundancy in its landline network. With fiber optic cables managing a larger share of broadband traffic, phone calls, and even Verizon’s television service, the loss of even a single fiber cable can disrupt service for hundreds or thousands of customers, many more than would be affected by a damaged copper cable.

State Sen. Barry Finegold (D-Andover) is questioning Verizon’s decision not to have a backup plan in place.

“So if there’s a fire there’s a redundant system in place so if one fails there’s another to back it up,” Finegold said.

Customers, particular those working from home, wholeheartedly agreed.

“I am appalled,” Shela Horvitz, a Verizon FIOS customer who lost her phone, Internet and TV service for days as a result of the fire, told the newspaper. “Can you say, ‘Single Point of Failure?’”

[flv width=”640″ height=”380”]http://www.phillipdampier.com/video/Eagle Tribune Verizon Talks to Media About Outage 9-2-12.flv[/flv]

Verizon officials show reporters what the fire did to their network and how they are going to restore service after a fire on Lawrence Central Bridge caused mass outages in the region. From the Eagle-Tribune. (4 minutes)

Verizon blames the entire affair on homeless people, who they say should not have been sleeping on top of their wires. The idea of network redundancy for Verizon’s landline network? “Cost prohibitive,” say company officials.

Joseph Zukowski, vice president for government affairs for the phone company, said the problem was so rare, it was comparable to a 100-year storm. He compared the outage with a natural disaster.

“We have extensive security measures to make the network as secure as possible,” Zukowski said. “We restrict building access and access to our cables. Nowhere on the list is a homeless guy lighting a match on a mattress. We’re not laying blame, but the best thing would have been not to have the tent city there.”

Local police acknowledge the bridge where the cables cross the Merrimack River is a popular spot for the local homeless to congregate, and they have attempted to control the problem. But nobody ever told them Verizon’s vital regional communications network infrastructure was at ground zero of the mattress fire.

“Going forward, if the stuff that’s there is so important, it really needs to be secured so nobody can get access to it,” said police chief John Romero.

Verizon has promised refunds for all affected customers.

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A Verizon-produced video illustrates how the company is repairing its damaged network. The heat from the fire on August 27th melted and fused both fiber and copper cables, and the protective casings that house the cables.

Verizon: “The work to restore service is complex, given that technicians are splicing thousands of individual copper and fiber-optic connections in a very confined area under the bridge. The conduit structure that holds the cables, which was protected by a metal cage, was destroyed and needs to be replaced. Verizon crews have been working in 24-hour shifts since the fire to restore service for customers and will continue to do so until every customer is back in service.”  (2 minutes)

“If you are a voice copper customer and you call in [with] trouble on your line, when we go out to repair that we are actually moving you to the FiOS product. We are not repairing the copper anymore.” — Fran Shammo, Verizon’s executive vice-president and chief financial officer

Verizon has declared the end of the copper wire phone line, at least in areas where the company’s companion fiber optic network FiOS is available. Fran Shammo, chief financial officer of Verizon Communications spoke about the death of the copper-based landline and the company’s strategic plans for its wired and wireless networks in the coming quarter at Oppenheimer’s 15th Annual Technology, Internet & Communications Conference last Wednesday.

Verizon’s quiet and involuntary switch-out to fiber service is part of the company’s grander marketing effort to push customers towards upgrading service.

“The benefit we are getting […]  if you are a voice customer and we move you to [fiber] we now can upsell you to the Internet,” Shammo explained. “If you come over as a voice and DSL customer and we move you to FiOS, you now are a candidate for the video product. So there is an upsell which is definitely a benefit to this.”

Verizon earlier announced it would no longer sell standalone DSL service to customers, and has stopped selling copper-based DSL products in areas where Verizon FiOS is available. It even discourages customers from considering standalone FiOS broadband, with a budget-busting price of $64.99 for stand-alone 15/5Mbps service with a two-year contract or $69.99 on a month-to-month basis. Verizon offers considerably better value when customers sign up for multiple FiOS services.

Scrap heap

Verizon says the reliability of fiber makes maintaining older copper wire networks pointless.

“The bigger benefit is we are transforming the cost structure of our copper business because the copper fails two to three times more than fiber, which means we have two to three more times we have a tech and a truck rolling out to that copper connection. So we are eliminating that,” Frammo said.

Frammo added decreasing repair and maintenance expenses will help improve profit margins for the company.

Both CEO Lowell McAdam and Frammo have made profit margins a much higher priority for Verizon Communications than ever before.

“If you look at the [landline] side of the business, […] we have made a shift that said we are going to focus more on the profitability of FiOS this year. And that is important for us to do, because we need to generate the cash flow so that we can reinvest in those platforms,” Frammo said. “But I think as an industry as a whole you are seeing a different focus now, that it is more on returns, it is more on profitability. Can that continue? Sure. Obviously, you might have your blips here and there based on how fast something grows in one quarter versus another, but if you look at Verizon Wireless and you look at Verizon we are expanding our margins.”

Frammo addressed several key plans Verizon has for both its wired and wireless businesses, and what political priorities the company has for the rest of the year:

Verizon Wireless’ 4G LTE Network is a Platform for Profits

Shammo told investors Verizon’s 4G LTE platform is now available to 76 percent of its customers in 337 markets. LTE, Shammo said, delivers not only the speed customers want but reduced operating costs for the cell phone provider. But Shammo said that will not bring reduced prices for customers — Verizon intends to use its LTE network as a platform for increasing profitability.

“When you take that network and you overlay our shared plan with that and now others are following with that shared plan, the entire industry from a shared perspective has a lot of room for growth because when you think about that network and the speed it provides, and then you take all these devices and you think about the number of tablets that have been sold in the United States that are not connected to a wireless network, you now enable people to connect those devices much easier.

“So when you think about that speed and that price plan that pools those data minutes, the growth profile here is really good for the industry and very, very good for Verizon Wireless because we think we have a strategic lead here.

“We are going to have to wait to see what the usage profile of this is. But can we expand our data, our data pricing? Of course we can, so you just add in more tiers. But that is part of where we think the future is going because when you think about the speeds and the video capability of LTE we do project out that that usage is going to continue to substantially increase which then folks will buy up.

“So it is going to be very, very easy for people to attach devices to just go beyond what we know today as a smartphone, a dongle, or a tablet. Now take it to your car, now take it inside your home for remote medical monitoring or whatever else that can happen in that house. Those can also now be attached to that price plan and everything can run off of that network.”

Frammo also hinted Verizon Wireless may be prepared to bring back an old concept from the days of long distance dialing — peak and off-peak data usage rates. Use Verizon’s network during peak usage periods and the company could charge a premium. But its LTE 4G platform also allows it to offer reduced rates when the network is being used less.

Shammo

Killing Off Your Phone Subsidy One Dollar at a Time

Shammo said Verizon Wireless is moving forward (along with other carriers) to gradually reduce equipment subsidies customers get when they upgrade their phones at contract renewal time. Verizon earlier discontinued customer loyalty discounts like its “New Every Two” plan and has stopped offering early upgrade incentives. Now the company is eliminating subsidies for some customers altogether and won’t offer them on several different types of devices.

“The industry has done a lot around trying to reform the upgrade policies and implement upgrade fees to try to strengthen the financial capability of that subsidy on a smartphone,” Shammo said. “We have also taken the track of not subsidizing tablets, less subsidy on dongles. It really is now all around the attachment of those devices into those price plans.”

Shammo added as competitors reduce subsidies, Verizon can continue to bring them down further over time. Shammo said that will improve the company’s margins.

Verizon Prepaid vs. Contract (Postpaid) Customers: “The religious belief is you can’t do anything that is going to deteriorate the postpaid base.”

Despite the company’s improved margins and declining costs from its 4G LTE platform, Frammo said Verizon has no plans to reduce prepaid pricing, because it could erode revenue from customers on two year contracts who might consider switching to a no-contract, prepaid plan.

“Obviously we are a postpaid carrier so anything we do — the religious belief is you can’t do anything that is going to deteriorate the postpaid base,” Frammo said. “I think people are willing to pay a slight premium to get on [Verizon’s] most reliable network and what we are finding is people are coming to that network. I think at this point we are very, very satisfied with where the prepaid market is. We are a premium to that prepaid market and, based on our growth trajectory right now, we are very comfortable with that price point.”

Verizon’s Political Priority for 2012: Where is our corporate tax cut?

While Shammo would not answer a question about which presidential candidate he feels would best serve Verizon’s interests if elected, Shammo made it clear the company is terrified of a so-called “tax cliff” — the expiration of the Bush-era tax cuts and a capital gains tax increase that would raise taxes on the wealthiest corporations from the current 15 percent to up to 25 percent — still lower than the tax rate paid by many middle class workers.

“Whoever is elected needs to deal with that tax cliff because that tax cliff could be detrimental to the economic performance of the U.S.,” Shammo said. “Then on a longer-term we definitely need corporate tax reform in the United States. We are not competitive with the rest of the world and I think everyone understands that. That is going to be harder to achieve, but I think that Washington understands that there needs to be some change within the corporate tax structure.”

While Verizon and AT&T have increasingly given up on their legacy landline networks, Bell Canada is showing that investment in their network to keep up with the times can make all the difference.

Ten years ago, Bell was hemorrhaging customers with the advent of cable “digital phone” service and the growing number of Canadians turning to cell phone service. Bell CEO and Alphabet Aktie advisor George Cope now believes the reason why hundreds of thousands of home phone customers permanently disconnect their phone lines year after year has more to do with Bell not providing the services customers want from a 21st century phone company.

Cope believes the key to turning around the landline business is to invest in it. Bell has spent hundreds of millions overhauling its phone network for the Internet era — replacing copper phone wires with fiber optics to enhance reliability and, more importantly, sell broadband service at speeds customers demand.

“I’ve never felt more positive about our consumer land line business than I do right now,” Cope told investors on a recent conference call.

Bell’s strategy for success is its Fibe network — fiber to the neighborhood service similar to AT&T’s U-verse in some areas, straight fiber to the home service (like Verizon FiOS) in others. While Bell lost at least 82,000 landline customers during the last quarter where it still depends on a legacy copper wire network, Bell keeps (or signs up) 90 percent of its landline customers choosing Fibe.

At least 2.4 million Canadians have signed up for Fibe service in southern Ontario and Quebec, many attracted to its television package and increased broadband speeds. But the Globe and Mail also notes the unintended consequence of improved infrastructure appears to be rescuing the beleaguered landline business.

So far Wall Street appears skeptical, however. Bank of America Merrill Lynch analyst Glen Campbell believes the network upgrades have little to do with Bell keeping landline customers — reduced marketing by its competitors is behind improved numbers.

Bell’s biggest profits no longer come from the home phone business — television is where the real money is earned. But the company says landline service remains a predictable revenue stream, and it is not worth sacrificing when it earns Bell 39.9 percent profit margins.

Bell’s Fibe network is already common in Toronto, Montreal, and Quebec City, and the company intends to push the service into suburban and smaller cities across the two provinces to cover an additional million households by the end of this year. Both Verizon and AT&T have suspended further build-outs of their respective network upgrades — FiOS and U-verse.

Greenwich Village business owner Louis Wintermeyer has spent the last three months without phone or broadband service from Verizon Communications.

“It is hard to believe it has gone on this long,” Wintermeyer told the New York Post. “You feel like you’re in Bangladesh here. I mean we’re in the West Village!”

Across Manhattan, and well into upstate New York, Verizon customers who start experiencing landline problems often keep experiencing them for weeks or months on end.

Wintermeyer couldn’t wait that long — he relocated his car-export company to his Rockland County home. Another Verizon customer in the same building — the Darling advertising agency, experienced intermittent outages adding up to 10 weeks of no service since February.

“We really sounded like amateurs,” Jeroen Bours, president of the Darling advertising agency told the Post. “We would be in a conference call, and all of a sudden the call would go. It just doesn’t really make a good impression.”

In the Adirondack hamlet of Wanakena, when the rain arrives, Verizon service leaves a lot to be desired.

One person’s phone may be working but the one next door will be completely out of service or crackly at best, according to local residents.

“It’s almost comical,” Ranger school director Christopher L. Westbrook told the Watertown Daily Times. “It’s so bizarre because some phones will be working while others are not.”

[flv]http://www.phillipdampier.com/video/WWNY Watertown Phone Situation Improving Officials Say 8-3-12.mp4[/flv]

A fiber optic line cut near Cicero, N.Y. in early August disrupted phone and cellular service from Verizon across the North Country. WWNY in Watertown covers the event.  (1 minute)

One Adirondack Park Agency commissioner who lives in the area says he has been without a phone 15 times in the last two months. Unfortunately for North Country residents, cell phone service is often not an option, because carriers don’t provide reliable wireless service in the region.

Local businesses cannot process credit card transactions, broadband service goes down, and a handful of privately-owned pay phones out of service for months have been abandoned by their independent owner because of the ongoing service problems.

Verizon repair crews come and go, but affected customers report a real reluctance by Verizon technicians to complete repairs once and for all.

“The permanent fix is not happening,” says Angie K. Oliver, owner of the Wanakena General Store.

Bours said one Verizon technician told him the company no longer cares about its older copper wire landline business. Rural residents upstate sense the company has little interest spending money on deteriorating infrastructure.

Some Wanakena residents suspect Verizon has thrown in the towel in St. Lawrence and Franklin counties, where independent Nicholville Telephone subsidiary Slic Network Solutions is constructing over 800 miles of fiber optic cable and operates a fiber to the home broadband and phone service.

[flv]http://www.phillipdampier.com/video/WWNY Watertown Lewis County Phone Service Restored 8-20-11.mp4[/flv]

Last summer, Lewis County suffered a similar widespread phone service outage that left businesses and homes without service for days.  WWNY says Barnes Corners was hardest hit.  (1 minute) 

Verizon spokesman John J. Bonomo blamed lightning strikes for the problems in Wanakena, but said the cable serving the area was intact and should not be responsible for service outages.

Gray

Near Syracuse University, some businesses and residents were without phone service for nearly two weeks in June.

The largest outage began when more than 150 customers around SU lost service after a storm. More than a week later, nearly two dozen customers were still without service, including the 4,000 member U.S. Institute for Theater Technology.

A damaged underground phone cable was deemed responsible, but repairs were slow.

Earlier this month, Massena town supervisor Joseph Gray fired off a letter to the deputy Secretary of State after a major Verizon line north of Syracuse was damaged, cutting off landline and cell phone service throughout Jefferson and St. Lawrence counties.

“I would have called your office to speak with you directly, but I couldn’t because our telephone service was unavailable,” Gray wrote. “Since I became supervisor of the town of Massena just over two and a half years ago, on at least three different occasions telecommunications in the entire North Country has been thrown into chaos because a Verizon fiber optic cable was cut 150 miles from here. Many of us found our emergency services, business, residential, and cellular telephone service interrupted, not to mention disabled credit card machines, facsimile machines and Internet service in some cases.”

Gray criticized the Public Service Commission for allowing Verizon to operate without service redundancy in the state, providing backup facilities if a fiber cut occurs.

“As a result, the Public Service Commission (which perhaps should be given a different name if my experiences with them is typical), has done nothing to address this dangerous situation and, more incredibly, appears unwilling to acknowledge that the problem exists,” Gray said.

Attorney General Eric Schneiderman blasted Verizon’s poor landline service in a petition sent to the New York State Public Service Commission. Schneiderman called Verizon’s service unacceptable in New York, with customers forced to wait inordinate periods to get service restored.

“Verizon’s management has demonstrated that it is unwilling to compete to retain its wireline customer base, and instead is entirely focused on expanding its wireless business affiliate,” said Schneiderman’s office.

Schneiderman’s office filed evidence in July that Verizon was undercutting its landline business in New York and diverting money for other purposes:

• Verizon’s claim it had spent more than $1 billion in investments to its landline network was misleading: Roughly three-quarters of the money was actually spent on transport facilities to serve wireless cell sites and ongoing spending on FiOS in areas already committed to get the fiber-to-the-home service;
• Verizon investment in landlines has declined even faster than its line losses. The dollars per access line budgeted for 2012 is one-third less than the investment for the 2007-2009 period;
• In just a five month period, 19.5% of the company’s 4.3 million customer lines in New York required repair. This means every Verizon customer will need an average of one repair every five years;
• Verizon’s complaint rate with the PSC has exceeded the PSC’s own limit for good service every month since June 2010. Most recently, Verizon exceeded the limit by more than double the threshold;
• Verizon’s agreement with the Commission establishes two classes of customers: “core” customers (8%) that qualify for enhanced repair service because they are elderly and/or have medical problems and non-core customers (virtually everyone else). The Commission only enforces service standards and repair lapses with “core” customers, which are required to have out of service lines restored within 24 hours 80% of the time. Verizon is free to delay other repairs indefinitely without consequence.
• The PSC has already fined Verizon $400,000 earlier this year for poor service from October-December 2011.

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WWNY talks with Massena town supervisor Joseph Gray, who has launched a campaign to force Verizon to develop a plan to better handle outages in northern New York. (2 minutes)

McAdam

Verizon CEO Lowell McAdam wants you to spend more with the phone company, and if his vision of Verizon’s future comes true, you will.

The company’s newest CEO spoke on a wide-ranging number of topics for the benefit of Wall Street investors at the Guggenheim Securities Symposium. A transcript of the event delivers several newsworthy revelations on the company’s future plans.

McAdam rose through the ranks of Verizon Communications with a specialty in the company’s immensely profitable wireless business. His predecessor, Ivan Seidenberg, spent his career at Verizon Communications working with the company’s legacy wireline (landline) network. While Seidenberg envisioned a new future for Verizon’s landline business with an upgraded fiber optic network called FiOS, McAdam maintained a different vision having run Verizon Wireless as a profit-making machine since 2006. McAdam believes Verizon’s future earnings and focus should be primarily on the wireless side of the business, because that is where there is serious money to be made.

“The first thing I did when Ivan sort of named me as the Chief Operating Officer was we had a very well-defined credo in the wireless side,” McAdam said. “We created it when we first came together in ’99 because we had seven different companies and we knew we had seven different cultures and we needed to tell people what it was we were really looking for. So we created that document. We spent a lot of time on it. We do a lot of reward and recognition as a result of it and that culture really took root in wireless.”

McAdam’s leadership also aggressively challenged the long-standing telephone company philosophy of earning a stable, predictable profit as Verizon did when it was a regulated monopoly. Instead, McAdam shifted the work culture towards an obsession with shareholder value.

“We took the top 2000 leaders through what we call ‘Leading for Shareholder Value’ and that was really a cultural shift for us because, if you think about it, the wireline side of the business has come out of the defined rate of return culture and we left that competitively a while ago. I am not sure we left it culturally,” McAdam said. “So we have been far more pushing why do you make that investment, what is the return on it, what is the priority of that investment versus another investment.”

Verizon’s Plans to Abandon Rural Landline Customers – Sign Up for Our Expensive LTE 4G Wireless Broadband With a 10GB Usage Cap Instead

Some of the most revealing commentary from McAdam came in response to questions about what Verizon plans to do with its enormous landline phone network, dominant in the northeastern United States.

In comments sure to alarm rural Verizon customers from Massachusetts to Virginia, McAdam clearly signaled the company is laying the groundwork to abandon its rural phone network (and DSL broadband) as soon as regulators allow. Dave Burstein at DSL Prime estimates that could impact as many as 18 million Verizon customers across the country.

“In […] areas that are more rural and more sparsely populated, we have got [a wireless 4G] LTE built that will handle all of those services and so we are going to cut the copper off there,” McAdam said. “We are going to do it over wireless. So I am going to be really shrinking the amount of copper we have out there and then I can focus the investment on that to improve the performance of it.”

Elsewhere, in more urban and suburban areas, McAdam also wants Verizon to purge its network of copper.

“The vision that I have is we are going into the copper plant areas and every place we have FiOS, we are going to kill the copper,” McAdam said. “We are going to just take it out of service and we are going to move those services onto FiOS. We have got parallel networks in way too many places now, so that is a pot of gold in my view.”

In other words, McAdam would shift money spent maintaining and upgrading rural landline service into the company’s wireless network in rural America and its FiOS network in more urban environments, both of which will improve profits. FiOS allows Verizon to pitch television, broadband, and phone service in one profitable triple-play package, while also discontinuing standalone DSL service. Rural customers pushed to wireless LTE for broadband will face onerous usage limits and more expensive service for phone calls and broadband. Using Verizon’s LTE network for video would be prohibitively expensive.

McAdam hints the company has used its lobbyist force to make preparations to abandon rural customers first in Florida, Virginia, and Texas where state regulators approved legislation that eliminates the requirement Verizon serve as “the carrier of last resort.” That law required Verizon to deliver landline phone service to any customer in its service area on request. With that provision stricken in those three states, Verizon can abandon any landline customer it chooses after serving written notice.

McAdam said he intends to continue lobbying other states to adopt similar deregulation, and chided legislatures in both New York and New Jersey for “being backward” because they have repeatedly refused to allow Verizon to walk away from its rural customer obligations.

Burstein thinks the changes in progress at Verizon will be a disaster for affordable rural broadband.

“This makes a mockery of ‘affordable broadband,’ especially when Verizon and AT&T are boycotting the plan for discounts for poor schoolchildren,” Burstein says. “The detente between telcos and cable companies means the prices of modest Internet speeds (3-15 megabits down) are typically going up from $30-45 to $55-70.”

Burstein also notes the change spells disaster for competitors who sell DSL service over existing phone networks.

“Nationwide, alternatives to the telco/cablecos have less than 5% of the residential market but in some areas they remain important,” Burstein says. “The most interesting, Sonic.net in California, offers unlimited calls and Internet up to 20 meg for $50/month, 20-50% cheaper than AT&T.”

“High prices, unacceptable service choices and further rural depopulation are bad policy,” he adds.

Verizon still earns enormous revenue from its remaining landline customers, revenue McAdam hopes will be replaced by selling business-focused services instead.

“Cloud [service] is continuing to pick up for us. Security is I think going to be an even more important play for us as we go forward,” McAdam noted. “I think these large enterprise accounts, offering them kind of a global service with those up the stack […and…] applications on top of it drive it as well. So there is a number of pieces in the portfolio that I think will take us up and more than compensate for some of the falling off of copper-based services like DSL and voice and that sort of thing.”

Verizon’s Unionized Employees Are Wrong-Headed Defending Verizon’s Landline Network

McAdam also blamed the company’s unionized employees for remaining loyal to the company’s traditional role in the landline business.  Unions like the Communications Workers of America continue to push Verizon to expand its FiOS fiber optic network in more places, but the company has left its FiOS expansion on hold, diverting investment into its wireless business. Both McAdam and the union agree the days of copper wire networks are numbered, but McAdam hints that union concessions (and fewer unionized employees) are required before the company will again expand FiOS.

“Our employees see that it is not sustainable to keep having copper plant out there. You really can’t invest in it; it is difficult to maintain it; and they want to see us improve on FiOS,” McAdam said. “And when I am out in the field, the techs and the reps will be the first to point out kind of some of the dumb policies I call them that we have around the business. Well, a lot of those are based on rules that were negotiated with the union back in the ’60s and ’70s.”

“So we have to get the union leadership to understand that if the company is able to be more flexible in meeting customer needs then we can grow things like FiOS, which will provide good long-term jobs,” McAdam added. “Will it be the same number as what we had in the past? No.”

Verizon’s Enormous Offshore Bank Accounts: Waiting for a ‘Business-Friendly’ Administration to Let Them Bring the Money Back, Tax-Free

McAdam also signaled investors that the phone company’s profits massed in overseas bank accounts are going to remain in place until they know who wins the next election. Verizon wants to repatriate some of that offshore money, but they want to do it tax-free.

“Everybody is kind of waiting to see who controls the Senate and who controls the White House and they are waiting to make those — you have got to understand what the tax situation is going to look like, so we are all waiting to make those investments,” McAdam said.

‘Share Everything’ Lays the Foundation to Monetize Your Data Usage… Forever

McAdam is a big supporter of the company’s new Share Everything wireless plan, which charges smartphone owners $90 a month for unlimited voice calling, texting, and a small 1GB bucket of data that he is convinced customers will be prepared to spend more to enlarge.

“If I know that I have an intelligent home that I can get to any number of ways. If I know that I can do everything I want in my car that I can do in front of my TV set or my PC or on my tablet, I think it just takes away a lot of the restraints,” McAdam said. “Is it going to cost them more money? Yes, but it will probably shift their wallet spend from other things that they do individually into this sort of a bucket of gigabytes. And so I think it will be a significant [revenue] stream for us.”

FitchRatings, a credit ratings agency, agrees in a new report.

“The new pricing structure taken by the industry leader is a disciplined pricing action that could create more cash flow stability longer term within the wireless industry,” the credit ratings agency said last week.

Fitch notes data services are increasingly becoming a larger source of revenue for wireless phone companies. In the first quarter alone, data revenues at Verizon Wireless, AT&T, and T-Mobile USA — all carriers that abandoned flat rate wireless data plans, grew 19% year over to year to $14.2 billion. That represents 41 percent of the companies’ service revenues.

Despite assertions from Verizon that the new plans deliver convenience and better value for subscribers, Fitch found they actually represent a substantial price increase for many customers.

“These increases are sometimes material, depending on whether the legacy rate plans have low recurring charges for text messaging or calling minutes. As a result, prices have generally increased for new subscribers,” Fitch reports.

Fitch warns investors Verizon is likely to lose customers over its new pricing strategy, and experience a slowdown in new customer growth as well, at least until competing carriers realign their pricing and plans to be similar (or match) those Verizon introduced last month.

The Days of Your Subsidized Android/iPhone May Be Numbered

McAdam’s vision also includes a re-examination of device subsidies as customers increasingly depend on wireless devices. McAdam previously indicated the wireless device subsidy was designed to get customers to adopt and embrace new technologies, and as adoption rates have soared, the need to keep discounting technology that customers depend on diminishes.

He echoed that sentiment at the Guggenheim Securities Symposium, noting that Verizon this month abandoned subsidies on tablet devices. For McAdam, discounting wireless technology serves one purpose: to quickly establish a new business relationship with a customer that probably would not buy their first device at full price.

But McAdam recognizes changing the company’s subsidy that customers expect to receive must happen gradually. It has already started, first by eliminating early upgrade discounts, then by dropping the company’s loyalty discount “New Every Two” plan. Now, the company will only allow grandfathered unlimited data plan customers to keep those plans if they agree to forego any subsidy on their next smartphone.

“If you look at the telematics industry today [services like OnStar], the car companies subsidize a device that goes into the car. So I think that we have a tendency over the years to sort of look and say, oh, something is going to happen very quickly,” McAdam said. “Things have a tendency to evolve over a long period of time, so I think you will have some devices, like the tablet today, that [are] not subsidized and you’ll probably still have certain devices that are because you want to establish that relationship with a customer and that is the easiest way to get there.”

Verizon Wants You to Use the Cable Industry’s Growing Wi-Fi Network

McAdam’s vision also offloads as much of Verizon’s 3G and 4G traffic to other networks as possible. Ironically, one of the biggest networks he hopes customers will use instead of his are the growing number of Wi-Fi services offered by his competitors in the cable industry.

“It is interesting that a lot of people have said, well, I can’t believe you’re going to partner with [cable companies],” McAdam said. “You are not going to use their Wi-Fi are you? Well, of course, we are. I mean we want to shift as much onto FiOS or onto the fixed network where we can and then provide — use that capacity to provide those higher demand services like video.”

McAdam added he does not want customers sitting in their homes watching video over his LTE 4G network. He also wants that traffic shifted to Wi-Fi.

“So our thinking going forward as we talk about kind of the ‘One Verizon’ approach is we want to use every network asset we have and if that means jumping onto FiOS or using the cloud services for mobile as well as fixed line, using security across all of our different access technologies, we want that network to be seamless and that is what our CTO, Tony Melone, is driving hard on in the business right now,” McAdam said.

One preview of that thinking at work can be found on Verizon Wireless’ hottest new device — the Samsung Galaxy S3. Verizon’s version of the phone browbeats customers with prominent menus that encourage Wi-Fi use wherever possible. The phone’s persistent reminder has become a pest according to many of the phone’s owners, who consider both the message and the difficulty keeping Wi-Fi shut off obtrusive.

Verizon’s partnership with large cable companies including Comcast, Time Warner Cable, Cox, and Bright House Networks originally involved the acquisition of excess wireless spectrum cable companies originally intended to use to compete with the mobile phone industry. With the cable industry abandoning those plans, the proposed collaboration involving Verizon Wireless grew to include cross-marketing each other’s products and services, and now apparently includes sharing the cable companies’ growing Wi-Fi networks.

Verizon Believes The Future of Telecommunications Needs to Be In the Hands of Two Companies — Verizon and AT&T

A point of shared belief between market leaders Verizon CEO Lowell McAdam and AT&T CEO Randall Stephenson is that excessive competition just does not make sense. Both believe federal regulators have it all wrong when they push to maintain the level of competition that still exists in the telecommunications business. When the Department of Justice effectively pulled the plug on a merger between AT&T and T-Mobile, Stephenson was outraged and, in one investor conference call, launched a tirade against regulators and suggested that AT&T would throw in the towel on expanding rural broadband in a retaliatory move.

McAdam and Stephenson both believe that competition in telecommunications represents wasted investment, inefficiency, and value destruction.

“I think the fundamental problem here, and it is sort of like fighting gravity I think, is that it is so expensive to build these networks that you are not going to support seven or eight carriers,” McAdam told investors. “I don’t — frankly, I think you’ll be lucky if you can support three in a healthy environment.”

But McAdam recognizes that if it achieves a wireless duopoly with AT&T, it must be a benevolent one, or else the marketplace abuses the wireless industry has a track record engaging in will invite regulatory scrutiny.

“We have a tendency to create a great club and hand it to our detractors and say please beat me with this because we do some dumb things like fighting some of the number portability and trying to push a direct wireless directory,” McAdam said. “I mean there are things that have really upset customers and that invites regulation. So I think the industry has the responsibility to act in the best interests of the customer as part of the mix with a shareholder, but I think there is always going to be the battle with regulation.”

McAdam admits he is uncomfortable with the fact the Obama Administration has allowed the regulation pendulum to swing more towards enforced competition and checking the power of dominant carriers in the marketplace. He prefers the Bush Administration’s “hands-off” approach that allowed both Verizon and AT&T to snap up smaller competitors with scant regulatory review.

McAdam believes the Obama Administration’s FCC and Justice Department is slowing down wireless investment, innovation, and the industry’s ability to earn profits at a time when unemployment in sky high and increased investment will help drive the economy forward.