Wall Street is encouraging Verizon Communications to sell off its landline telephone operations to clear a path for a potentially-profitable merger with British mobile phone company Vodafone Group Plc.

Analysts at Goldman Sachs Group are behind the research report, which suggests Verizon’s recent non-aggression treaty with Comcast and Time Warner Cable makes the sale of Verizon’s landline phone and FiOS fiber to the home network more likely. Verizon will earn a percentage of every cable TV/phone/broadband subscription sold, effectively making Verizon’s own wired network redundant. Potential buyers could include Frontier Communications, CenturyLink, or Windstream, which all have business plans that depend on landline networks fewer Americans are using.

Should Verizon clear away its legacy landline and FiOS networks, Goldman Sachs suggests, a merger with Vodafone would be a “clear fit” for the two companies.

“The remaining wireless and enterprise businesses would have faster growth and a clear fit with Vodafone’s assets and strategy, making it a more attractive merger partner,” Bloomberg News quotes from the report.

“Given that it no longer faces the threat of integrated cable competitors, Verizon could potentially spin off its remaining [landline] assets,” along with “large” pension and benefit liabilities, the Goldman analysts added.

Verizon would also eliminate its ongoing dispute with the two largest unions representing its landline workers — Communications Workers of America and the International Brotherhood of Electrical Workers.  Both unions are still trying to negotiate a new contract with Verizon after a brief, but contentious, summer strike. Verizon Wireless is almost entirely non-unionized.

Vodafone’s share price has been rising recently, perhaps anticipating a potential merger that would give Vodafone a stronger hand in the U.S. marketplace.

Verizon’s investment in its landline network, along with interest in expanding its well-regarded FiOS fiber to the home service, has remained stalled for the past few years.  Recently, the company indicated an interest in moving away from fiber optics to serve broadband customers, and rely on its wireless LTE 4G network instead.

Verizon’s new CEO Lowell McAdam comes from Verizon’s wireless division, and has not shared his predecessor’s enthusiasm for fiber upgrades.

Merger Partner?

While the prospect of an all-wireless future for Verizon may seem good for shareholders, consumers are likely to pay the price:

1. The Justice Department is reviewing the antitrust implications of the non-aggression treaty between Verizon and its cable competitors;
2. The sale of Verizon’s landline network to an independent provider could doom the company’s fiber optic network and limit rural Verizon customers to 1-3Mbps DSL;
3. Verizon Wireless’ prices reflect its market share and lack of strong competition.  The company’s LTE wireless network, although fast, has suffered from reliability problems and is heavily usage-limited.  It may prove unsuitable as a home broadband replacement for rural customers;
4. Reduced competition for telephone, video, and broadband will likely result in higher prices for existing cable subscribers, too.

Verizon is hardly the first phone company to ponder getting out of the phone business.  AT&T has been lobbying to rescind rural universal service requirements for years.  If successful, AT&T could abandon its rural landline network and provide customers with higher-priced cell phone service instead.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CWA Parody of Verizon Video.flv[/flv]

Verizon’s unionized workers are still fighting for a new contract, and released this parody video in response to a company-produced DVD mailed to union workers’ homes.  (3 minutes)

AT&T’s fiber to the neighborhood service is not exactly winning consumers over in Chattanooga, Tenn.  As of this past spring, AT&T only managed to convince 821 local customers to sign up for U-verse service, in part because the competition delivers faster service, and one doesn’t slap broadband customers with an Internet Overcharging scheme.

While Comcast remains the dominant cable company in the city with more than 100,000 customers, community-owned EPB Fiber has made major advances, primarily against Comcast, picking up at least 33,000 customers in the city since the summer of 2010.

EPB is turning into a major success story for community-owned broadband, typically maligned as a financial failure by cable and phone company competitors.  EPB offers residential customers usage cap free gigabit broadband, television, and telephone service and is competing effectively against the nation’s largest cable operator.

EPB has been raking in more than $3.8 million a month in telecommunications revenue from residential customers alone.  In less than two years, EPB, which also delivers electricity in Chattanooga, has built a $45 million a year telecommunications business.  As a community-owned utility, most of that revenue stays in Chattanooga, benefiting the local economy and allowing EPB to reinvest in its network and improve service.

Comcast, in contrast, has seen its revenue drop by 8.4 percent during the first six months of 2011, primarily because of departing customers. That has forced the dominant cable company to become more aggressive in its efforts to retain those calling to cancel, primarily by slashing prices if wavering customers agree to stay.

Remarkably, AT&T’s U-verse has merited also-ran third place status — the victim of limited availability, the ongoing trend of customers dropping landline service, and the far-superior broadband speeds available from the competition.  AT&T’s Internet Overcharging scheme is also the stingiest, limiting broadband customers to just 150GB for its DSL service, 250GB for U-verse broadband, charging overlimit fees when the caps are exceeded.  Comcast has a usage cap of 250GB with no overlimit fee.  EPB has no limits.

The Chattanooga Times Free Press compares all three providers’ strengths and weaknesses:

EPB Broadband speeds are the fastest in the nation.

AT&T — Very aggressively priced introductory offers, more HD channels than its competitors, plus a “quad-play” bundle that includes AT&T wireless service.  But AT&T’s landline network is still the least equipped to compete on broadband speed, an increasing number of residents continue to turn their back on AT&T when they cut landline service, and U-verse’s usage caps come with overlimit fees.

Comcast — Has a substantial number of on-demand programs to access, can be cheaper than EPB during the initial year of service, and is testing home security and automation services.  Also offers two-hour service call windows and aggressively priced retention deals.  But Comcast’s regular prices are high, its broadband service usage-limited, and its reputation questionable after more than a decade of rate hikes and service complaints.

EPB — The fastest broadband speeds anywhere, EPB runs an advanced fiber to the home network, and maintains a very aggressive attitude about expanding and improving service.  EPB is a formidable competitor.  Community-0wned, its service benefits local residents with a locally-staffed call center, revenues that stay in Chattanooga, and management that answers to customers, not Wall Street.  No caps either.  But EPB can be a harder initial sell for price-sensitive customers because it doesn’t offer heavily discounted service to attract new customers.  But EPB prices don’t rise dramatically after the first year, either.  EPB’s television lineup is less robust than others, in part because it lacks a nationwide presence that brings the kind of volume discounts AT&T and Comcast receive.

Copper thieves left thousands of phone customers in Eugene, Ore. without telephone service, forcing volunteer firefighters to get walk-in reports of fire and medical emergencies after 911 service was disrupted.

Authorities are looking for the suspects who scaled telephone poles and removed several hundred feet of critical phone wiring that provided service in the Eugene area.  CenturyLink officials rushed to pull new cables across phone poles to get service restored, and much of Eugene had their telephone landlines back within 24 hours.

CenturyLink and Oregon authorities claim copper thieves are now primarily targeting copper landlines because electrical lines are more dangerous and phone wire insulation is easier to burn or strip off, leaving the thieves with spools of bare copper wiring easily sold to scrap dealers.

Copper prices have spiked over the past few years, increasing interest among thieves.  Officials in several states have partnered with scrap dealers to try and limit illicit sales, and criminal penalties have been increased.

Occasionally, copper line theft also disrupts cell phone service, because many cell towers are still connected via copper circuits, especially in rural areas thieves favor.

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/KMTR Eugene Phone Service Restored in Eugene 12-19-11.mp4[/flv]

KMTR in Eugene covers the latest copper caper affecting CenturyLink phone customers in Oregon.  (2 minutes)

If they build it, will Verizon, Time Warner Cable, or Comcast come?

The Massachusetts Broadband Institute (MBI) has just received a major shipment of cable it will use to construct part of its 1,300-mile fiber optic network, designed to provide better-than-dialup service to over 120 communities in western and north central Massachusetts.  That is, if providers show any interest in selling access to it.

The news that the broadband blockade in the western half of the state may finally come to an end is being trumpeted by local newspapers and TV newscasts from Springfield.  WSHM used the occasion to celebrate with current AOL dial-up user Ryan Newhouser, of Worthington:

A high-speed informational highway will be set up with thousands of miles of high-speed fiber optic cables. Those fibers will now be installed on utility polls across Western Mass.

Now residents sitting at their computers in frustration can finally look forward to high-speed internet access.

Perhaps.

As Stop the Cap! first explored earlier this year, the new fiber network is good news for western Massachusetts.  But it alone will not deliver service to the masses who desperately want faster Internet access.

The incumbent phone and cable companies have certainly not shown much interest.  Verizon treats western Massachusetts much the same way it served its landline customers in the rest of northern New England (Maine, New Hampshire, and Vermont.)  The company’s landline network was allowed to deteriorate along with Verizon’s interest in providing service in the largely rural states.  Eventually, it sold its operations north of Massachusetts to FairPoint Communications.  Comcast and Time Warner Cable are missing in action in many parts of the region as well.  As big phone and cable companies concentrate investments in more urban areas like Boston, many residents in places like Worthington can’t buy broadband service at any price.

MBI optimistically hopes the presence of its new fiber backbone and middle-mile network will change all that.  But outside of AT&T’s apparent interest it to provide service to its cell towers, there has been no publicly-expressed enthusiasm by Verizon or cable operators to begin serious investment in broadband expansion across the region.

The Last Mile Network Challenge

So what is holding western Massachusetts back?  The same thing that keeps broadband out of rural areas everywhere — the “last-mile” problem.  Traditionally, operators target urban and suburban areas for their investments because the construction costs — wiring up your street/home/business — can be recouped more easily when divided between a pool of potential customers.  Every provider has their own “return on investment” formula — how long it will take for a project to pay for itself and begin to return profit.  If your street has 100 homes on it, the chances of recouping costs are much higher than in places where your nearest neighbor needs binoculars to see your house.  Pass the ROI challenge and providers will invest capital to wire your street.  Fail it and you go without (or pay $10,000 or more to subsidize construction costs yourself.)

That is why eastern Massachusetts has plentiful broadband and the comparatively rural western half often does not.

MassBroadband 123 is the state’s solution to the pervasive lack of access across the western half of The Bay State.  It will consist of a fiber backbone and “middle mile” network, solving two parts of a three-part broadband problem.  The project’s commitment to deliver open access to institutions and commercial ISPs across the region is partly thanks to the availability of broadband grant money, particularly from the federal government.

Projects similar to MBI’s MassBroadband 123 typically include the hoped-for-outcome that private companies will step up and invest to ultimately make service available to end users.  Unfortunately, large incumbent providers often remain uncommitted to wiring the last-mile, and communities promised ubiquitous broadband end up with an expensive institutional network that only serves local government, public safety, schools, libraries, and health care facilities.

Thankfully, it does not appear MBI is depending on Verizon, which has shown no interest in spending significant capital on its legacy landline network or cable operators that are unlikely to break ground in new areas.

Communities are increasingly learning if they don’t have service today, the only real guarantee they will get it is by providing it themselves.  That is where WiredWest comes in.  It is a community-powered partnership — a co-op for broadband — pooling resources from 22 independent towns (with 18 more expected to join) to build out that challenging last mile, and deliver future-proof fiber to the home service.  No last generation DSL, slow and expensive fixed wireless, or limited capacity coaxial cable networks are involved.

WiredWest Members

Founding member towns span four counties, including Berkshire County towns of Egremont, Great Barrington, Monterey, New Marlborough, Otis, Peru, Sandisfield, Washington and West Stockbridge; Franklin County towns of Ashfield, Charlemont, Conway, Heath, New Salem, Rowe, Shutesbury, Warwick and Wendell; Hampshire County towns of Cummington, Heath, Middlefield and Plainfield; and the Hampden County town of Chester.

Most of the construction costs for the new network will likely come from municipal bonds, because government grants typically exclude last mile network funding.  Commercial providers often lobby against municipal-funded networks as “unfair competition,” a laughable concept in long-ignored western Massachusetts, where Verizon pitches slow speed DSL, if anything at all.

WiredWest compares rural broadband with rural electrification.  Community-owned co-ops provide service where few private companies bothered to show interest:

Think back to the rural electrification of America. Then, as now, it wasn’t profitable enough for private companies to build out electrical service to rural communities. Imagine where those communities would be today if the government hadn’t stepped in to help fund this essential service – which over time has sustained itself and become a profitable enterprise.

Rural fiber-to-the-home is affordable when you use an appropriate financing and business model that isn’t subject to the same short-term measures of profitability as a private company. A municipal model for example, allows capital investment that can be written off over a longer period of time.

This type of business model isn’t limited to community-owned broadband.  Other countries that treat broadband as an essential utility have, in some cases, boosted broadband beyond a simple cost/benefit “ROI” analysis.

Constructing a broadband network for western Massachusetts still presents some formidable challenges, however:

1. There is a serious imbalance in government grant programs.  A largesse of government funding for institutional broadband has delivered scandalously underused Cadillac-priced networks communities, libraries and schools cannot afford to operate themselves once the grant money ends.  Meanwhile, funding to cushion the cost of wiring individual homes and businesses is extremely scarce.  Isn’t it time to divert some of that money towards the most difficult problem to overcome — wiring the last mile?
2. Government impediments to community broadband must be eliminated.  Repeal laws that restrict public broadband development.  Early experiments in municipal telecom networks have taught valuable lessons on how to operate networks efficiently and effectively.  But the broadband industry engages in scare tactics that highlight failures of older public projects like community Wi-Fi in an effort to keep superior publicly-owned fiber-to-the-home networks out of their markets.
3. The public is not always engaged on the broadband issue and accepts media reports that misunderstand institutional broadband as a solution for those stuck using dial-up.  No matter how good a network is, if the “last mile” problem remains unsolved, the closest consumers like Mr. Newhouser will get to fiber service is looking at the wiring on a nearby telephone pole.  In many communities, fiber broadband paid for by public tax dollars is only accessible at the local public library.  Taxpayers must demand more access to networks they ultimately paid for out of their own pockets, and should support existing public broadband initiatives wherever practical.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WSHM Springfield Broadband internet coming to western Mass 12-8-11.mp4[/flv]

WSHM in Springfield says if you don’t have broadband in western Massachusetts now, it should be coming to your area soon.  But will it?  (3 minutes)

"Hey, we're #19!"

The United States may be a leader in many things, but broadband isn’t one of them. The country has now fallen two more positions — to 19th place, behind South Korea, Sweden, Denmark, the United Kingdom, and even Iceland, since the Berkman Center for Internet and Society released its last rankings in 2009.

In 2004, President George W. Bush complained about the U.S. falling to 10th place, which he declared was “ten spots too low.”

Now eastern Europe and former Soviet Republics in the Baltics threaten to overtake the United States, and countries in southeast Asia already have.  Innovation in the United Kingdom, Australia and New Zealand means deploying fiber to the home service to the vast majority of the population.  Innovation in North America means conjuring up new pricing schemes to raise prices on broadband service and engage in competition-busting mergers and acquisitions.

But a USA Today editorial this week also places much of the blame on corporate influence inside Washington, which has promulgated legislative policies that favor telecommunications companies and throw customers under the bus.

“The simple answer is that other countries have policies that promote competition and innovation,” the editors write. “In contrast, policies here have allowed a few dominant players that control the least interesting parts of the broadband landscape (the cables and the wireless spectrum) to dominate.”

Indeed, a series of telecommunications laws enacted by Congress, combined with short-sighted policies at the Federal Communications Commission, have allowed a handful of super-sized players to own and control broadband service in America, resulting in providers establishing non-competing fiefdoms that avoid head-on competition.

The worst policy of all allowed broadband providers to keep competitors from reaching customers over existing broadband networks.  During the days of dial-up, you could purchase Internet access from the phone company, a large provider like MSN or AOL, or thousands of smaller regional and local service providers.  Simply dial a local access number and you were connected to the provider of your choice.  Now, U.S. law gives broadband network operators the right to restrict these independents from selling service over their networks.  Comcast need not sell anything other than Comcast Internet.  Frontier Communications can make a killing selling its own DSL service, while protecting that revenue from other Internet Service Providers who might sell the service over Frontier’s network for half the price.  Time Warner Cable voluntarily allows Earthlink and a handful of other companies to sell cable broadband service over its infrastructure, but at prices equal to or higher than what Time Warner charges itself.

Broadband providers argue that allowing competitors to sell service on their network would discourage future investment and rob shareholders a return on investments already made.  Today, major cable operators and phone companies are falling all over themselves denying they are in anything but the broadband business.  It has become an enormously lucrative enterprise, more profitable than television or telephone service.

USA Today compares the broadband landscape back home with that in South Korea — perennially the world’s fastest, and considerably less expensive than what North Americans pay for service:

South Korea has made broadband a national priority, mandating deployment and in some cases giving private companies incentives to build out. It has also prevented major players from monopolizing their businesses, encouraging competition and innovation. In South Korea, consumers can get broadband service from a cable or telecom company. But they may also choose among myriad independent providers that are given access to the physical infrastructure. This competition keeps prices down and the quality of service high.

[…] But over time, cable and telecom companies worked the courts and Congress to make sure that this competitive world would never come to be [in the United States]. […] Wireless is a bit better. But the market has remained a near duopoly, with none of the smaller players emerging as a strong competitor to AT&T and Verizon.

The same open network concept has fought its way forward in Canada (where Bell has worked furiously to sabotage the business plans of independent providers) and in the United Kingdom, Australia and New Zealand where all three governments have decided the best solution would be to scrap the ancient landline network and start fresh with an open-to-all-comers fiber to the home service.

Back home in the States it is business as usual with increasing broadband prices and the looming prospect of usage-limiting schemes designed to cut capital costs, monetize broadband usage, and stop cord-cutting.

The opposing point of view comes courtesy of dollar-a-holler, corporate-backed think tank The Heartland Institute, who is stuck quoting notorious industry-funded studies and think tanks like the Discovery Institute and the Technology Policy Institute:

The idea that European and Asian countries are lapping America in the race for broadband speed and penetration is a fallacy created with statistics comparing “persons” instead of “households.” Once you make that correction, the USA is firmly planted among the top of industrialized nations, as economist Scott Wallsten pointed out when he was a staffer at the Federal Communications Commission in 2009.

And as tech researcher Bret Swanson of Entropy Economics points out, if you measure Internet usage by gigabytes used per month — a better measure of the speed and utility of networks — the USA has nearly lapped Western Europe once and Asia twice.

Heartland Institute: "By not disclosing our donors, we keep the focus on the issue."

If you measure how many mouse clicks customers in New York make on a Thursday afternoon, we could be number one as well!  Gigabytes used per month does not measure the speed or price of service on broadband networks, considerations that actually do impact broadband rankings.

Mr. Wallsten is a familiar favorite go-to-guy for The Heartland Institute.  He’s also the choice of Time Warner Cable, who paid him $20,000 for a 2010 essay: “The Future of Digital Communications Research and Policy.”

There is big money to be made writing corporate-funded research reports.  Bret Swanson knows that very well, having been involved with the Discovery Institute, a “research group” that delivers paid, “credentialed” reports to telecommunications company clients who waive them before Congress to support their positions.  Swanson is also a “Visiting Fellow” at Arts+Labs/Digital Society, which counted as its “partners” AT&T and Verizon.

The gentleman from Heartland also quotes from the misnamed “Progressive Policy Institute,” which counts among its funding partners, AT&T.

It would have been probably easier (but ineffectively transparent) to simply quote from AT&T and Comcast directly.

The Heartland Institute, unsurprisingly, believes letting existing broadband providers deliver service exactly the way they want is the best option:

The digital economy — one of the only vibrant economic sectors left — doesn’t need more government “investment” or regulation. It needs only for government to butt out and let the market work the magic that continues to bring us the marvels of the modern age.

That magic will cost you $50 a month and rising.  If some providers have their way, while the rest of the world abandons usage caps, American providers can’t wait to slap them on, reducing the value of your service even further.