Verizon CEO Ivan Seidenberg has sent the strongest hints yet that Verizon’s interest in going the extra mile to acquire the Apple iPhone is waning, and the company is increasingly unlikely to make major concessions to carry it.

Seidenberg’s comments came during last week’s Goldman Sachs Communacopia Conference.

Verizon’s position as America’s leading wireless carrier does not appear to be threatened by AT&T’s exclusive American agreement with Apple.  While AT&T customers desperate for an alternative carrier may be fueling “wishful thinking”-rumors that Verizon is about the obtain the rights to sell the phone, there is no evidence any deal with Apple is imminent.

In fact, Seidenberg’s remarks were clearly interpreted by Wall Street that Verizon won’t jump through Apple’s hoops to win an agreement, especially as Android-based phones are nipping at the iPhone’s heels:

“We have worked hard at building a franchise out of Droid, which proves that if there is an acceptable alternative to the iPhone, and a great network, and a great distribution channel, the market will go there for it. We don’t feel like we have an iPhone deficit. We would love to carry it when we get there, but we have to earn it. We have to show all the suppliers that we have equal treatment, and we have a network for people to put all of their equipment on.  […]Hopefully, at some point Apple will get with the program.”

Apple’s reputation and market power are also on the line, and many analysts think the company’s terms and exclusive agreements are now doing more harm than good.  Earlier this month, Bernstein Research analysts Pierre Ferragu and Toni Sacconaghi concluded Apple must make the iPhone available to all carriers if it wants to compete with Android.

Google has tripled its growth to 200,000 activations per day in just seven months, and with Android being the dominant smartphone technology on major carriers like Verizon, O2 (UK), Vodafone (Germany), China Mobile and NTTDoCoMo (Japan), Android’s total installed base is expected to overtake the Apple iPhone within 15 months.

Apple’s reputation has also suffered from a year of missteps, ranging from the loss of a beta iPhone, “AntennaGate,” occasional outbursts from CEO Steve Jobs, and growing revelations of a new firmware issue that is dramatically stunting battery life on many iPhone and iPod units.

Fashionably late, Verizon Wireless intends to change its wireless smartphone data plans to end unlimited usage in the next four to six months, according to Verizon CEO Ivan Seidenberg.

Seidenberg said Verizon Wireless’s new data plans, which he says will probably arrive in time for the holiday shopping season, will differ from AT&T’s but he refused to elaborate.

“We’re not sure we agree yet with how they valued the data,” he said at an investor conference Thursday.

The change has been widely anticipated in the wireless industry, as Verizon Wireless and AT&T, the nation’s largest and second largest carriers, charge nearly identical pricing for their wireless services.  Both carriers formerly charged smartphone customers $29.99 per month for unlimited wireless usage.  AT&T eliminated unlimited usage with two new plans unveiled in June with the introduction of the latest Apple iPhone.  One charges customers $15 a month for up to 200Mb of usage, and another charges $25 for up to 2GB of usage per month.  Customers exceeding the limits pay $15 for an additional 200Mb or $10 per gigabyte in additional fees.

Critics charge Verizon’s decision to slap usage limits and overlimit fees on customers is just another attempt to gouge wireless customers, made possible by the two providers’ market power.

Wall Street Journal reader Candace Kalish commented on the new limited usage attitude Verizon seeks to embrace:

What the carriers want is a tiered system with outrageous penalties for slight overages. The banks, car renters, airlines, and credit card issuers do very well with this. It is the most profitable business model since it requires careful underuse or disproportionate costs on the part of their customers. This is why they require people to guess their usage and impose punitive marginal costs on single byte transfers.

[…]I think the carriers’ actions indicate a much greater concern with short term profits rather than long term innovation and even great profitability.

[…]Since carriers impose rates on a take it or leave it basis, I don’t see rates improving much in the near future. I’ll stick with my ancient $30 a month plan and a cheap flip phone with an iPod Touch. When competition kicks in, possibly in the next 10 to 20 years, and they offer more for my money, I’ll consider a smarter phone. Right now the market is still what they used to call a natural monopoly, and the pricing structure proves it.

Seidenberg

Seidenberg made it clear the new Internet Overcharging schemes will arrive in time for the company’s introduction of its fourth generation data network – Long-Term Evolution, more commonly known as LTE.  Earlier, Verizon hinted to its investors it intends to market its LTE service at a premium price, anticipating customers will be willing to pay a higher price for faster service.  This, despite the fact LTE will deliver Verizon dramatically increased capacity at a lower overall cost, in terms of bang for the spectrum buck.

Company officials are still considering whether LTE pricing will carry a per megabyte charge with little or no usage allowance or a more common usage allowance plan with overlimit fees.  Either way, few expect wireless will offer an effective competing alternative to wired broadband service, unless one’s monthly usage is below 5GB.  Above that amount, overlimit fees could quickly accumulate, leaving customers with wireless bill shock.

Dave Burstein, publisher of DSL Prime, commented back in January about wireless data pricing:

Charging at the this level, if the other wireless carriers go along, is a blatant attempt to protect their other services. [A government agency] filing points out the likely reason: “The Commission also must keep in mind that the two largest US wireless providers, Verizon and AT&T, also offer wireline services in major portions of the country, raising the question of whether these providers will market these services as replacements for wireline services.”

If his prices carry the day, the […] broadband plan will accomplish very little. The [plan] implicitly counts on wireless for competition, because new wired networks are highly unlikely and their plan doesn’t change that. Wireless voice in the U.S. is a weak cartel, data a relatively strong cartel. [Verizon’s] signals may inspire the other carriers to also drastically cut the basic data allowance.  Or not.

If there’s a significant cut in the 5GB wireless allowance, then the broadband plan needs a huge redirection to measures that work [in] a telco-cable duopoly. That’s so tough I don’t know if Washington can do that.

Thanks to our regular reader Bones for sending word.

Is Rahm Emanuel the consigliere to a deal to sell out broadband consumers to big telecom companies like AT&T, Verizon, and Comcast?

White House Chief of Staff Rahm Emanuel is said to so afraid of big phone and cable companies donating millions to Republican candidates, he told agencies like the Federal Communications Commission to go along with Verizon, AT&T, and Big Cable’s demands for an end to Net Neutrality and other pro-consumer broadband reforms.

That is the rumor industry expert Dave Burstein is hearing about the prospects of broadband reclassification actually happening at the FCC this year.

It seems Verizon’s CEO Ivan Seidenberg has become a frequent guest at the White House, appearing 16 times since President Obama took office.  Seidenberg is behind the notion that saddling giant telecommunications companies with Net Neutrality will force those firms to flood Republicans with unprecedented campaign contributions.  That’s fascinating news, especially since most politicians claim campaign contributions never make any difference in how they vote on issues.  Perhaps Verizon is just being extra charitable this year.  The Republicans, who fall lock-step in support behind the nation’s largest phone and cable companies, will be delighted to accept.

With politicians like Rahm Emanuel involved, the fix may already be in.  Rule number one in politics is to always follow the money.  Rule number two is that many politicians will always take the money and vote against their constituents’ best interests unless voters are paying attention.  When a politician is forced to weigh the consequences of accepting a fat check from a corporation and voting with them or infuriating their constituents to the point of potentially losing the next election, they’ll vote with their constituents.

Meanwhile, telecom companies are engaged in a divide-and-conquer strategy, with Verizon recently making gestures to Google, one of Net Neutrality’s strongest  proponents.  Burstein thinks that unless public interest groups and the public-at-large don’t force an end to these insider deals, Net Neutrality and other broadband reforms will become little more than a voluntary agreement not to be too evil (until they redefine ‘evil’ as ‘good’ and do it anyway):

Julius (Genachowski) has already agreed to almost everything [telecom lobbyists] really want, including loopholes wide enough to carry 350 TV channels. [Stifel Nicolaus] says there is still some opposition so that nothing is final and that the public interest groups are ready to assail Julius. Meanwhile, Verizon and Google are discussing a separate peace that will make the FCC irrelevant.

This one is about power and money, not principle. The likely outcome is an agreement that will allow everyone to say noble things, will allow Julius to look himself in the mirror, and will essentially have no substance.  I hope I’m wrong.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Bloomberg Bloomberg’s Shields Discusses Net-Neutrality Battle 8-3-10.flv[/flv]

Bloomberg News reviews the regulatory landscape with the FCC’s secret weekend meetings to find a deal on broadband rules.  (2 minutes)

For consumer groups like Free Press and Public Knowledge, already furious over secret backroom negotiations between FCC officials and the nation’s large phone and cable companies, any deal that culminates in providers being allowed to tamper with Internet traffic, choosing favorites along the way, is tantamount to a deal with Tony Soprano.

Tim Karr from Free Press wrote a guest editorial in the Seattle Times Sunday warning there is a corporate deal in the making to take over the Internet:

On the one side, elected officials and regulators have heard from millions of citizens demanding that Washington protect this rule that preserves the Internet’s open architecture.

On the other is a lobbying juggernaut that seeks to dismantle online openness so that phone and cable companies can rebuild the Internet as a gated community that serves their bottom line.

The problem is that policymakers aren’t holding the line for the public. They seem content simply to cut a deal between companies with the most political and economic clout.

If that doesn’t worry you, it should.

Because the deal they’re cutting is over who ultimately wins control of online information. And it goes without saying that you’re not in the running.

Google, Verizon, AT&T and others are reportedly nearing consensus on an agreement that could radically redesign the Web, allowing the carriers to build priority access lanes that admit only large companies that can pay the toll.

Where will that leave the rest of us? Stranded on the digital equivalent of a winding dirt road, with slower service, fewer choices and limited access.

Here’s the kicker. The Federal Communications Commission, the one agency tasked with protecting your interests online, may be poised to sign off on this plan. The agency is reportedly convening closed-door meetings with these companies to strike a deal that would let Internet providers implement a “paid prioritization” scheme.

According to The Washington Post, the FCC’s chief of staff wanted to “seize an opportunity to agree on ways that carriers could “manage traffic” on their networks.

If recent articles by Amazon and AT&T execs are any indication, paid prioritization would allow carriers to ransom access to their customers to the highest bidder. AT&T’s top lobbyist, James Cicconi, wrote that such extortion was “not only necessary but in the best interest of consumers.”

Don’t believe it. The beauty of the open Internet is that anyone with an idea has a chance to take on giant corporations without first having to bribe network owners for access. Net neutrality is the rule that guarantees this openness.

It’s because of Net neutrality that great ideas like YouTube (which began in an office above a pizzeria in San Mateo) and Twitter (which grew out of a daylong brainstorming session among podcasters) blossomed to revolutionize how we connect and communicate with one another.

The paid prioritization deal under consideration wouldn’t allow for the next YouTube. And the next Twitter would likely never make it off the drawing board.

This scheme would let companies like Comcast and AT&T favor their own video services, voice applications and social media. It would let Verizon build a wide moat around its Internet fiefdom, insulating itself from competition by upstart innovators that want to show consumers how things can be done better and more cheaply.

Columbia Law Professor (and Free Press board chairman) Tim Wu has said that letting carriers choose favorites is “just too close to the Tony Soprano vision of networking: Use your position to make threats and extract payments. This is similar to the outlawed, but still common, ‘payola’ schemes in the radio world.

“If allowing network discrimination means being stuck with AT&T’s long-term vision of the Internet,” Wu concludes, “it won’t be worth it.”

Should any of this come to pass, it will mark the end of any credibility for FCC Chairman Julius Genachowski, who will have sold out to the interests of big telecom and, more importantly, proved himself little more than another inside-the-beltway-liar.  The implications for the Obama Administration’s credibility on broadband issues are devastating.

It was Genachowski himself who promised this would be the most open FCC ever and that he would see to it that the open principles of the Internet were safeguarded.  It’s more than a little difficult to see that happening while Genachowski’s staff secretly meets with telecom lobbyists to conclude a deal that will turn over control of Internet traffic to a broadband duopoly.

Verizon Communications is indefinitely finished expanding FiOS — its fiber to the home triple-play package of broadband, phone, and TV — to new cities across its service area.  In short, if your community isn’t already engaged in franchise negotiations with the telecommunications company, there is no fiber from Verizon in your immediate future.

The company said after spending $23 billion upgrading its aging copper wire phone network, it needs to finish construction and improve its reach in existing FiOS-wired communities.  When the company ceases FiOS construction, it hopes to pass 18 million customer homes across its multi-state service area.

The decision to stop expansion of advanced fiber optics threatens to leave hundreds of communities behind, too late to the party or simply too far down Verizon’s priority list.  Among important cities Verizon will pass up include Alexandria, Virginia, Boston and Baltimore.

That concerns city officials, especially in Baltimore which already considers itself on the disadvantaged list.

“My take on it is that Baltimore is not equipped for the future,” Rev. Johnny Golden, past president of the Interdenominational Ministerial Alliance and an advocate for improved access to technology in the city told the Baltimore Sun. “We have a decent broadband system for today, but it does not have the infrastructure to take us into the future where we need to go.”

Despite the fiber bypass, the company will continue negotiations with about a dozen communities where negotiations were already underway – mostly in New York, Massachusetts, and Pennsylvania.  Despite company spin, the decision to drop the shovels and wheel away the spools of fiber does represent a dramatic change of plans, evidenced by the company’s decision to bypass the aforementioned lucrative urban communities.

For cable companies like Comcast and Time Warner Cable, Verizon’s announcement brings a sigh of relief.  Both cable operators handily beat Verizon’s DSL offerings and are swiping increasing numbers of Verizon’s phone customers who are disconnecting their landline service in favor of cell phones or “digital phone” service from the cable companies.

Both Time Warner Cable and Comcast have also kept a larger percentage of their customers than Verizon hoped.

In markets where FiOS is available, Verizon has only achieved 25% penetration for television service and 28% for Internet, far below the 40 percent penetration Verizon CEO Ivan Seidenberg hoped to achieve.  The reasons consumers didn’t switch to Verizon FiOS vary, but include:

• Pricing was not always lower than what the incumbent cable operator offered, and in many cases prices for some service were higher once the promotional rate expired;
• Cable operators in competitive areas improved service, offered more aggressively priced bundles, and increased broadband speed;
• Many cable operators locked their customers into two year “price protection agreements” which hold customers in place until agreements expire (if they don’t auto-renew);
• Installation can prove disruptive because of the elaborate rewiring required in many homes;
• Consumers didn’t see enough compelling reasons to switch.

Seidenberg

Still, Verizon has future-proofed their fiber optic service areas and are better positioned to deliver extremely high broadband speed and HD offerings than their cable counterparts.  But that has never impressed short-term focused Wall Street.  Many in the financial press have attacked Verizon for the costly fiber upgrades they believe will not work for the short-term investor seeking immediate return from their Verizon stock purchase.  With the rumor mill predicting upcoming retirement for Seidenberg, his likely successors are hardly FiOS fanboys.

John Killian, Verizon’s current chief financial officer, is a short-term results man.  Samuel Greenholtz, an analyst with the Gerson Lehrman Group, doesn’t see Killian sharing much of Seidenberg’s visionary long term thinking.  Lowell McAdam, another prospect for the top job, is currently the president of the Wireless Services division, and would likely bring a wireless “solution” for broadband customers left off the FiOS list.  Neither man seems particularly interested in restarting the push for fiber in the future.

For 2010, capital expenses are flat or down across the company except in the Wireless Services division.  Verizon already declared copper phone wiring dead, and has elected to abandon its rural and suburban customers,  systematically sold off to America’s “rural phone companies” Frontier, CenturyLink, or Windstream.  Those still with Verizon but without FiOS will find the future of their landlines increasingly perilous.  Greenholtz notes Verizon has terminated another 1,200 line technicians and the company intends to spend two percent less on its copper wire network this year over last.

Greenholtz witnessed first hand what happens when a company starts to ignore its legacy network — his residential phone line quit working:

Having worked at Verizon and its predecessors for over 25 years, I expected a fix would be swift and trouble-free.  Wrong. I was offered a two-week appointment date for repair people to come out and look at the problem. I might add here that my wife does not use the cellular device that she carries around anymore than necessary and certainly never uses it when in close proximity to the hardwired set. By resorting to measures that I certainly would never have thought of using 10 years ago, I was able to get attention brought to the problem much quicker — and the issue has been resolved satisfactorily.

It seems that Verizon’s residential repair and maintenance has sunk to a new low.  Neighbors and other people on copper cabling are often experiencing problems. If there is static on the line, subscribers are frequently told nothing can be done to correct the situation because they need to replace the cable or do cable maintenance – but there is no budget available to do the work.   So, repairmen take the brunt of the public’s unhappiness with the service they are receiving. In contrast, when I spoke with some friends regarding FiOS and its maintenance issues, I found a much better response time to any difficulties the customers were experiencing.

Shockingly for a Wall Street-focused “expert network,” Greenholtz was allowed to offer his belief the only real solution to phone companies ignoring their undesirable customers is to regulate the heck out of them.

What can be done to cure the situation with residential landline services?   Unfortunately, it is going to have to come down to regulation.  Verizon, and no doubt, AT&T, has been doing what they want for many years now.  The PUCs have given them a lot of opportunities to offer advanced services that the commissions thought would spread throughout the serving areas, but they are increasingly realizing that is not in the plans.  They are going to have to force these companies to be responsive to the needs of the entire footprint, not just the Fortune 500 territories — and the nearby residential homes.

[Update 4/1/2010: While working on another story, I was amused to discover we had written about Mr. Greenholtz before, back on April 15th, when he was telling his readers “do-gooders” forced Time Warner Cable to attempt usage caps on customers.  I wonder if we would have heard something different from him had his broadband service faced an Internet Overcharging scheme.]

Blind deregulation and legislative-friendly handouts to companies like AT&T and Verizon have never resulted in better service for consumers.  They haven’t proven to save consumers any money either.  Ultimately, the decision to provide FiOS and U-verse came with investor consent, and when the economic downturn threatened the value of the stock and dividends, no deregulation or statewide franchise agreement is going to keep the fiber party from coming to a close.

[flv]http://www.phillipdampier.com/video/WSYR Syracuse Verizon FiOS Winds Down 3-26-10.flv[/flv]

WSYR-TV in Syracuse reports on the demise of Verizon FiOS’ expansion plans, which have a significant impact on central New York where many communities will be left behind.  One saving grace for New Yorkers ticked off at Albany — they’re now off the FiOS list indefinitely.  (2 minutes)