Verizon customers in New York are paying artificially higher telephone rates justified to encourage Verizon investment in FiOS fiber to the home upgrades most New York State communities will never receive.

Starting in 2006, the New York Public Service Commission granted Verizon rate increases for residential flat-rate and message-rate telephone service and a 2009 $1.95 monthly increase for certain residence local exchange access lines to encourage Verizon’s investments to expand FiOS fiber to the home Internet across New York State.

“We are always concerned about the impacts on ratepayers of any rate increase, especially in times of economic stress,” said then-Commission chairman Garry Brown in June 2009. “Nevertheless, there are certain increases in Verizon’s costs that have to be recognized. This is especially important given the magnitude of the company’s capital investment program, including its massive deployment of fiber optics in New York. We encourage Verizon to make appropriate investments in New York, and these minor rate increases will allow those investments to continue.”

After Verizon announced it was suspending further expansion of its FiOS project a year later, the company continued to pocket the extra revenue despite reneging on the investments the PSC considered an important justification for the rate increases.

“The commission allowed Verizon rate increases in 2006 and 2008 based, in significant part, upon the assumption that the revenue from the higher rates would lead Verizon to invest in fiber optic lines, presumably for the benefit of wireline customers,” argues a coalition of state legislators, consumer groups, and unions. “Serious questions exist regarding the extent to which funds may instead have been used to build out the network for the benefit of wireless customers. Publicly available reports, while fragmentary, suggest that Verizon may have included construction costs for significant benefit of its wireless affiliate to be included in the costs of the Verizon New York wireline company, thus adding to its costs and tax losses.”

Almost a decade later, Verizon is still receiving the extra revenue while some public officials complain Verizon is not meeting its commitments even in cities where Verizon has introduced FiOS service.

Last week New York City Mayor Bill de Blasio ordered all future city contracts with Verizon be reviewed and authorized by City Hall. City officials complain Verizon promised in 2008 it would make FiOS available to every city resident no later than mid-2014. A year later, the service is still not available in some areas.

Verizon has blamed access issues and uncooperative landlords for most of the delays, but city officials are not happy with Verizon’s explanations.

“They [Verizon] have to demonstrate to us that they are good corporate actors if they want us to use our discretion in ways that benefit them,” the mayor’s counsel, Maya Wiley, told the New York Post.

Meanwhile, upstate New York residents now indefinitely bypassed by Verizon FiOS want a refund for the rate increases that were supposed to inspire Verizon to keep expanding fiber optics.

“Verizon has made at least $250 from me and every other upstate customer for nine years of broken promises,” said Penn Yan resident Mary Scavino. “Not only don’t they offer us fiber optics, we cannot even qualify for DSL service from them. If you can’t get Time Warner Cable in the Finger Lakes, you often don’t have broadband at all. It is them or nothing. Where did our money go?”

And, we’re done. Verizon FiOS availability map also showing areas later sold to Frontier.

Fred, a Stop the Cap! reader in the city of Syracuse, thinks the PSC should immediately revoke the rate increases and force Verizon to refund the money to customers who will not get upgraded service.

“It’s not like Verizon cannot make money in a city like Syracuse,” writes Fred. “It’s clear the CEO thinks even more money can be made off Verizon Wireless customers off the backs of landline customers, and the PSC continues to look the other way while they do it.”

Verizon claims it has lost money on its copper wireline network for years, something the PSC seems to accept in its 2009 press release announcing rate increases:

The rate increases will generate much needed additional short-term revenues as the company faces the dual financial pressures created by competitive access line losses and the significant capital it is committing to its New York network. For 2008, Verizon reported an overall intrastate return of negative 6.7 percent and a return on common equity of negative 48.66 percent. The current trend in the market is toward bundled service offerings, and Verizon believes the proposed price changes to its message rate residential service will encourage the migration of customers towards higher-value service bundles.

That migration costs New York ratepayers even more for telephone service. Verizon’s website prompts customers seeking new landline service to bundle a package of long distance discounts and calling features that costs in excess of $50 a month before taxes, fees, and surcharges. Bundling broadband costs even more. Verizon does not tell customers ordering online they qualify for a bare bones landline with no calling features and pay-per-call billing for less than half the cost of Verizon’s recommended bundle.

This Verizon discount calling program known as “Message Rate B” is only available to Washington, D.C. residents who have been threatened with disconnection or have an outstanding balance owed to Verizon. It costs $7.29 a month and includes 75 local calls.

More than three dozen New York State legislators also question whether Verizon’s “losses” are actually the result of Verizon’s purposeful “misallocation of costs” — moving expenses to the landline business even if they were incurred to benefit Verizon’s more profitable wireless division.

“The result has been massive cost increases for consumers, especially for the garden-variety dial tone service at the bottom of the technological ladder,” argues their 2014 petition. “For example, in New York City […] since 2006 the price of residential ‘dial tone’ service (one line item on the bill) went up 84%, while other services, such as inside wire maintenance, went up 132%.”

The petitioners claim there is evidence to dispute Verizon’s assertion its legacy copper network is as big of a money loser as the company suggests, thanks to “cooking the books” with accounting tricks. The petitioners want the PSC to order a review of Verizon’s books to be certain consumers are not being defrauded or manipulated.

Community leaders were arrested in 2013 during a protest outside Verizon’s NYC headquarters (at 140 West Street at the West Side Highway) to out the company for its history of avoiding taxes. (Image: Vocal NY)

From 2009-2013, Verizon New York reported losses of over $11 billion dollars, with an income tax benefit to Verizon Communications of $5 billion, and significant tax revenue losses for state, city and federal governments. Verizon New York has apparently paid no state, city or federal income tax for the last five years or more.

If Verizon is using accounting tricks to inflate the cost of legacy landline service while reducing costs to its wireless service, it could prove a win-win for Verizon and a lose-lose to ratepayers. Verizon could use its “losses” to argue for greater rate increases for landline customers while further reducing its tax obligations. On the wireless side, Verizon would enjoy praise from Wall Street analysts and shareholders pleased by the company’s apparently effective cost controls.

The best evidence of these techniques in action are the statements of company officials which suggest wireless costs are being paid by wireline customers.

Verizon’s chief financial officer, Fran Shammo, indicated to investors that Verizon wireline construction budgets are charged for expenses related to wireless service.

“The fact of the matter is wireline capital — and I won’t get the number but it’s pretty substantial — is being spent on the wireline side of the house to support the wireless growth,” Shammo told investors at Verizon at Goldman Sachs Communacopia Conference, Sept. 20, 2012. “So the IP backbone, the data transmission, fiber to the cell, that is all on the wireline books but it’s all being built for the wireless company.”

“It seems to me Verizon Wireless, already considered the Cadillac of wireless companies, doesn’t need a hidden subsidy from Verizon paid for by ratepayers all over the state,” Fred argues. “It seems very curious to me Verizon pioneered a large regional fiber optic upgrade that just a few years later it considers too costly to continue expanding, even as AT&T, Google, Comcast, and other companies are now entering the fiber business. A Public Service Commission that wants better broadband for New Yorkers ought to get to the bottom of this because it just doesn’t look right.”

A Prattsburgh, N.Y. family-owned company has picked up where Verizon left off and is busily wiring up small communities across western New York and the Southern Tier with fiber to the home service, giving both Verizon and Time Warner Cable some competitive headaches.

Empire Access is concentrating its service in areas where Verizon FiOS will never go and Time Warner Cable maxes out at 50/5Mbps. The company recently launched service in downtown Batavia in Genesee County and will be launching serving in Big Flats later this year.

Empire promises no data caps or usage-based billing and offers 100/20Mbps at introductory prices ranging from between $45-65/mo. Gigabit broadband speed is also available.

Where it has franchise agreements with local communities, Empire also offers cable television packages ranging from $31.45-73.40, with up to 130 channels. The packages are not as comprehensive as those from Time Warner Cable, but customers may not mind losing a dozen or two niche cable channels to save up to $30 a month off what Time Warner charges. Nationwide home phone service is also an option.

Empire relies heavily on two public/non-profit fiber backbone networks to deliver service. The Southern Tier Network comprises a 235-mile long fiber backbone that runs through Steuben, Chemung and Schuyler counties. Further north, Axcess Ontario provides backbone connectivity across its 200+ mile fiber ring around Ontario County.

With the help of public and non-profit broadband infrastructure, residents in small communities across a region extending from Sayre, Pa., north to Batavia, N.Y., will have another choice besides Verizon or Frontier DSL, Comcast or Time Warner Cable.

Residents in some communities, like Hammondsport and Bath — south of Keuka Lake, love the fact they have a better choice than Time Warner Cable. Empire has reportedly signed up 70 percent of area businesses and has more than a 20% residential market share in both villages after a year doing business in the Finger Lakes communities.

Empire targets compact villages with a relatively affluent populations where no other fiber overbuilder is providing service. It doesn’t follow Google’s “fiberhood” approach where neighborhoods compete to be wired. Instead, it provides service across an entire village and then gradually expands to nearby towns from there.

Most western New York villages are already compact enough to attract the attention of cable companies, predominately Time Warner Cable, which has an effective broadband monopoly. Verizon and Frontier offer limited slowband DSL, but Verizon has stopped expanding the reach of its broadband service and will likely never bring FiOS fiber to the home service to any western N.Y. community outside of a handful of suburbs near Buffalo.

The arrival of Empire reminds some of the days when the first cable company arrived to wire their village. Word of mouth is often enough to attract new customers, but a handful of local sales agents are also on hand to handle customer signups. From there, one of the company’s 80+ employees in New York handle everything else.

Bryan Cummings, who shared the story of Empire Access with us, “is pretty stoked.”

“Bye, bye Time Warner Cable,” Cummings tells Stop the Cap!.

Time Warner has treated most of western New York about as well as its service areas in Ohio, often criticized for not keeping up with the times. With fiber overbuilders Empire Access in the Finger Lakes region and Southern Tier and Greenlight Networks in Rochester, the fastest Internet options are not coming from the local phone and cable company anymore.

WSKG in Binghamton explores fiber broadband developments in the Southern Tier of upstate New York. Empire Access is providing the fast fiber broadband Verizon, Frontier, and Time Warner Cable won’t. (3:54)

You must remain on this page to hear the clip, or you can download the clip and listen later.

At present, Empire Access provides service in:

• Village of Arkport
• City of Batavia
• Village of Bath
• Village of Canisteo
• Village of Hammondsport
• City of Hornell
• Village of Montour Falls
• Village of Naples
• Village of North Hornell
• Village of Watkins Glen
• Village of Waverly (N.Y.)
• Boroughs of Sayre, Athens, and South Waverly (Pa.)
• Borough of Troy (Pa.)

Communities on Empire’s radar for future expansion include Urbana, Dansville, Wayland and Cohocton. Further out, there is some consideration of larger cities like Corning and Elmira, as well as other towns in far northern Pennsylvania. With Empire’s expansion into Naples, the company also has many options in affluent and growing communities in Ontario County, south of Rochester.

Verizon Voice Link

The Communications Workers of America today claimed Verizon is refusing to repair broken landlines and is once again trying to steer customers to a controversial wireless landline replacement Verizon calls Voice Link.

“Verizon is systematically abandoning the legacy network and as a consequence the quality of service for millions of phone customers has plummeted,” Bob Master, CWA’s political director for the union’s northeastern region, told the Wall Street Journal.

The CWA will file public information requests this week with state regulators in New York, New Jersey and Pennsylvania seeking more detailed information about how Verizon is utilizing Voice Link.

Stop the Cap! has received several messages from Verizon customers over the last six months, most in New York City, that were offered Voice Link as a temporary solution to ongoing landline service problems including no dial tone, intermittently failing lines, and those with crosstalk or static problems.

“It is crazy how long Verizon can take to fix a phone line in Manhattan,” wrote our reader Helen. “The problems started in February and we lost service for what turned out to be almost a month. We had four broken repair appointments and every date they promised it would be fixed it wasn’t. Can you imagine a whole month without a phone line?”

Helen tells us that Verizon started leaving messages on her voicemail apologizing for the problems, but offered Voice Link, a wireless landline replacement in the interim.

“At least it was something I told my husband, but he didn’t like the idea because Verizon would probably forget about us after putting it in,” she said. “I won the argument but we lost in the end because Voice Link never worked properly.”

Helen complained Voice Link made phone calls difficult to understand and often her phone didn’t ring when calls came in.

“Everyone sounded like they were underwater and it was hard to understand people,” she said. “Callers would tell me they heard five rings when calling me, but I only heard one, if that.”

“We switched to Time Warner Cable phone service and it was installed fast,” she said. “But then the fax machine wouldn’t work right so we still need Verizon after all.”

Helen’s apartment building is not yet wired for FiOS because of problems the building management allegedly had with Verizon technicians in the past. She is willing to sign up, but thinks Verizon is not doing itself any favors treating customers badly when their old landlines fail.

“It makes you think how long it will take them to show up if a rat chews through a fiber cable next year.”

The fact Verizon offers Voice Link to customers while phone repairs go uncompleted for extended periods worries the CWA, who accused Verizon of “steering” customers to the wireless replacement.

Verizon spokesman Rich Young says about 13,000 customers have decided to keep Voice Link as a permanent solution to their landline woes and have never gone back to their old copper service.

[flv]http://www.phillipdampier.com/video/Verizon Voice Link A Reliable Alternative.mp4[/flv]

Verizon calls its Voice Link wireless landline replacement a reliable alternative in this promotional video produced in 2013. (2:24)

Thomas MacNabb, Verizon’s director of operations, also defends Voice Link, claiming it represents Verizon giving customers the best possible service when weather-related outages arise.

But retired AT&T executive W. Kenneth Lindhorst counters Voice Link is no upgrade, relying on old 1990s technology, and does not work with credit card machines, faxes, security and home medical monitoring, or wireless data.

“They come in with the implication that they are upgrading services in the neighborhood. They do not tell you that they are switching from a regulated basic to an unregulated service,” Lindhorst said. “They don’t like to be regulated by government. They don’t like their customers to be protected by government.”

Lindhorst is part of Don’t Hang Up On New Jersey, a group fighting Verizon’s efforts to replace Superstorm Sandy-damaged telephone lines with Voice Link. Two bills in the New Jersey legislature: A2459/S278 are seeking a one year moratorium on Verizon replacing damaged copper wiring with any alternative technology, including wireless, until further studies can be done.

[flv]http://www.phillipdampier.com/video/Verizon Voice Link Hanging Up On NJ.mp4[/flv]

Verizon Voice Link is “hanging up on New Jersey” according to a consumer advocacy group. An interview with retired AT&T executive W. Kenneth Lindhorst suggests Verizon wants to use the service to escape regulatory oversight. (2:00)

If you are a long time Optimum customer, the CEO, management, and shareholders of Cablevision would like to thank you for driving average monthly cable revenue per customer 4.8% higher from a year ago to $155.34 a month.

A few years ago, Cablevision developed a Stalinist approach to repeat customer promotions and retentions: nyet.

Despite mounting competition from Verizon FiOS, AT&T U-verse, Comcast and Time Warner Cable, Cablevision has held the line on repeatedly discounting its service for customers who complain their rates are too high.

“Our disciplined approach to pricing, promotional eligibility and customer credit policies has not wavered,” Kristin Dolan, chief operating officer, told investors on a morning conference call.

As a result, the average customer staying with Cablevision paid almost five percent more for service than they did a year earlier — more than $155 a month.

“The main drivers of our increased revenue per customer came from a combination of rate increases, but also lower proportion of subscribers on promotion,” said Brian G. Sweeney, chief financial officer. “We had a number of fixed rate increases January 1 of this year related to cable box fees, an increase in our sports and broadcast TV surcharge, as well as the pass-through of PEG fees to certain customers.”

Cablevision elected to stop competing on price in 2013, telling customers they are entitled to one customer retention deal and that is all. As a result, Cablevision has been losing customers even as it gains revenue. Although it managed to pick up 7,000 net new broadband customers during the quarter, Cablevison lost 6,000 customer relationships, 28,000 video customers — double the number from a year ago, and 14,000 voice customers. That represents 11 consecutive quarters of video subscriber losses.

The customers that remain are meeting Cablevision’s earnings expectations as others leave for better deals elsewhere.

Kristin and James Dolan

Cablevision admits many of its subscriber losses come from customers willing to shop around for a better deal. They usually find one. Although Verizon has tightened customer retention deals itself in response to Cablevision’s retention policies, Frontier U-verse in Connecticut continues to compete for new business on price, at least initially as part of new customer promotions.

Kristen Dolan argues Cablevision’s quality of service keeps customers loyal and brings many ex-customers back.

“We do a significant amount of [customer] win-backs every year and we really focus on why people are coming back and it’s not just about price,” Dolan said.

But some customers believe it is more about the price than Cablevision might think.

“The only reason I left Cablevision was because they wouldn’t negotiate and match a better deal Verizon offered me,” said Rob Hastings of Syosset, N.Y., who canceled service in 2013. “When Cablevision wouldn’t cut their price I left.”

Many of the customers coming back to Cablevision this year are, in fact, their old customers dealing with a rate reset from Verizon as promotions expire.

“When my Verizon FiOS rate shot up, I went back to Cablevision as a ‘new customer’ on a promotion,” said Hastings. “When that expires, I’ll bounce back to Verizon. Whoever gives me the best price gets my business as I am sure not going to pay extra to stay a loyal customer.”

To further combat promotion-bouncing, Cablevision is embracing its broadband product line and marketing new cord-cutting packages to customers that offer reduced-size cable television packages and free over the air antennas for local stations. The cable company also recently announced it would offer cable customers Hulu subscriptions. Jim Dolan, Cablevision CEO, believes broadband is where the money is and customers are willing to pay higher prices to get Internet access even when video package pricing has its limits.

“You’re seeing the video product begin to lose margin and not just among the little operators like us, but even some of the big operators,” said Dolan. “Our philosophy is we think of video as akin to the eggs and the milk in a convenience store. You have to have it, but you don’t make a lot of money on it. Now connectivity is a whole other basket. It’s more like the soda and chips aisle, and if you provide great connectivity, because it provides great value to the consumer, you can differentiate yourself and you can charge more and the margins are good on it.”

Dolan doesn’t think much of his competitor’s slimmed down cable packages either.

“Verizon’s known to embellish [and] use misleading messaging in their marketing to get the phones to ring,” said Dolan. “I think that’s partially how we view these packages. I can tell you that the packages that we’re offering provide a lot more flexibility.”

To further differentiate it from its competitors, Cablevision continues to emphasize its Wi-Fi network of hotspots across metro New York City. The company also recently became the first major U.S. cable operator to launch a mobile phone service that uses its network of Wi-Fi hot spots. Although not willing to divulge customer numbers, Kristin Dolan did say unique weekly visits increased 16% on average to Cablevision’s website, presumably to explore the Freewheel Wi-Fi calling product.

Cablevision’s highlights for the first three months of 2015:

• Fiber to the Press Release: Cablevision was the first cable company to introduce 1-gigabyte residential service in the tri-state area. The service launched to a single new multi-tenant building in Weehawken, N.J. No further expansion is planned at this time;
• Discounted Internet for the Cord Cutter on a Budget: Cablevision expanded the availability of $34.90/mo Internet Basics (5/1Mbps) across its entire service area. It includes an over-the-air antenna.
• Third Party Set-Top Boxes: Cablevision is interested in providing a less expensive, open standard, set-top box platform in the future to customers that don’t want to pay for a large cable box.

Comcast/NBCUniversal today joined FOX and ESPN warning Verizon it is violating the terms of their agreements by offering FiOS TV customers slimmed-down, less expensive cable TV packages.

Verizon began offering the new packages Sunday, selling customers a basic core package containing two “channel packs” of the customer’s choice for $55 a month. Each additional pack of 10-17 theme-based channels costs $10 a month. It is Verizon’s effort to offer customers something closer to an a-la-carte option where customers pay only for the channels they want, without raising the ire of their programming partners who supply both major and minor cable networks.

Within hours of learning of Verizon’s Custom TV offer, ESPN — the most expensive basic cable network in the country — objected, saying its network must be included in the core package that every pay television customer receives.

By this afternoon, Comcast/NBCUniversal and FOX added their own objections and are warning there could be legal ramifications if Verizon continues to offer the packages. Both Comcast and FOX agree with ESPN’s contention their contracts with Verizon do not allow it to split their channels into add-on tiers.

Verizon responded it doesn’t intend to change a thing.

“We have launched the product, we are not retracting it, and we believe we are in our legal rights to launch it,” said Verizon chief financial officer Fran Shammo.

The lawyers are expected to take it from here.

[flv width=”640″ height=”406″]http://www.phillipdampier.com/video/WSJ Verizon Breaks Pay-TV Bundle as Competition Mounts 4-19-15.flv[/flv]

The Wall Street Journal reports on Verizon’s new slimmed-down TV package and why Verizon FiOS TV is offering it to subscribers. (2:24)