California’s Public Utilities Commission (CPUC) couldn’t get cozier with AT&T if they moved regulators into the phone company’s plush executive suites.

In a 3-2 decision, the CPUC has given California phone companies that cannot manage to keep their wireline networks in good order an early Christmas, allowing the companies to effectively fine themselves for bad performance and keep the money.

Although the CPUC adopted a series of “automatic fines” for companies with chronic service problems (AT&T is by far the largest offender), it completely negated any sting by allowing companies to skip the fine by demonstrating they’ve invested at least twice the amount of the penalty in their networks. That is an expense AT&T’s bookkeepers can manage to document in minutes just by highlighting AT&T’s investments in other parts of the state. AT&T can argue investments in gigabit fiber in southern California or wiring fiber to business parks and cell sites improves service reliability for at least some customers.

CPUC president Michael Picker isn’t in any hurry either, helpfully offering AT&T and other phone companies two years to complete the investments that will cancel their fines:

In support of a request to suspend the fine, carriers may propose, in their annual fine filing, to invest no less than twice the amount of their annual fine in a project (s) which improves service quality in a measurable way within 2 years. The proposal must demonstrate that 1) twice the amount of the fine is being spent, 2) the project (s) is an incremental expenditure with supporting financials (e.g. expenditure is in excess of the existing construction budget and/or staffing base), 3) the project (s) is designed to address a service quality deficiency and, 4) upon the project (s) completion, the carrier shall demonstrate the results for the purpose proposed. Carriers are encouraged to review their service quality results to find appropriate target projects to invest funds.

Consumer advocates have accused AT&T of underinvesting in their wireline facilities for years. Because the CPUC does not require the investment be specifically targeted to correcting problems that prompted the fine, phone companies can continue to allow high cost/low profit rural infrastructure to deteriorate while targeting service-improving investments in more profitable or competitive service areas.

Steve Blum from Tellus Venture Associates, who has closely tracked telecom public policy matters in California for years, called it the most cynical decision he’s ever seen from the CPUC:

Fines, it seems, are just another cost of doing business for telecoms companies and don’t matter anyway. So why not let them keep the money?

Boiled down, that’s CPUC president Michael Picker’s rationale for establishing new telephone voice service level requirements backed up by a swinging schedule of penalties and then saying but we’ll let you keep the money if you invest it in infrastructure or pay staff. Or something. Anything.

Picker

Commissioner Mike Florio called the Picker’s proposal “unenforceable.”

The CPUC’s own staff has documented the troubling condition of landline service in the state. A staff report published in September 2014 showed the largest phone companies in the state — AT&T and Verizon (later sold to Frontier Communications) — that control 88% of landlines in California never met the CPUC’s minimum standard of repairing 90% of “out of service” trouble tickets within 24 hours during 2010-2013.

In 2010 and 2011, AT&T and Verizon needed an average of 110 hours to repair 90% of outages. That is 4.5 days. In 2012 and 2013, repair time marginally improved to an average of 72 hours (3 days). That is three days without any phone service or the ability to call 911, something the CPUC staff said compromised public safety.

AT&T and Verizon have papered the CPUC’s walls with “corrective action reports” over the years explaining why they failed to meet CPUC standards and what actions they planned to take to improve compliance. The staff report found those reports never resulted in improved compliance.

Commissioner Catherine Sandoval submitted an alternative plan of simple fines and a reporting system that gives equal weight to outages occurring in areas served by independent phone companies like Citizens Telecommunications Company of California (d/b/a Frontier) and SureWest Telephone (d/b/a Consolidated Telephone). Picker didn’t bother to hold a vote on Sandoval’s proposal, instead bringing his own proposal to the commission that approved it on a 3-2 voice vote. Florio and Sandoval voted no.

Despite the easy out, the state’s phone companies are still complaining the fine system was unnecessary because the free market was best equipped to manage service outages. If customers don’t like their provider, they can switch, assuming there is another provider available in the large rural and mountainous parts of the state.

Uninvited apps that cannot be removed infest smartphones.

Verizon Wireless keeps looking for those end runs around Net Neutrality, this time offering its preferred partners a chance to force-install their apps on your new Android phone without your permission.

Most consumers call these unwanted apps “bloatware,” but the geniuses from Verizon’s marketing department prefer to call it “brandware.” Whatever it’s called, each app successfully installed on your next Android phone will net the wireless giant $1-2, according to Ad Age.

Verizon has pitched the program to ad agencies and their major retail and financial clients rich enough to not worry about spending $1-2 million on app installations. Verizon’s app program is more dynamic than traditional pre-loaded bloatware that customers cannot uninstall. Through the use of Google’s remote install feature, a client could pay Verizon to trigger an automatic download and installation of a banking or shopping app the moment a customer turned on their new phone. The customer would likely assume such apps came with the phone, just like traditional pre-installed bloatware. But unlike the myriad of uninvited game trials, shopping and media apps that customers can’t get rid of, Verizon’s program would let customers uninstall the apps they never wanted installed on their phone to begin with.

Apple iPhone users have nothing to fear from Verizon’s “brandware” because the Apple ecosystem is more tightly controlled by Apple.

Ad Age notes the app program would only send apps to new smartphones being activated for the first time. That isn’t a small market. Verizon activates about 10 million new phones each quarter out of 75 million postpaid customers.

The program raised eyebrows among advertisers and consumer activists worried about Net Neutrality. A deep pocketed app maker would have an instant advantage pre-installing a new game or social networking app on millions of phones while smaller competitors would have to attempt to build scale through word-of-mouth, reviews, or other marketing efforts. Verizon would effectively be giving its preferred partners an unfair advantage over other app makers.

Advertisers are also reportedly wary about blowback from consumers that don’t appreciate uninvited apps chewing through their usage allowance installing themselves.

Consumers generally dislike all the excess apps stuffing up their phones, Azher Ahmed, director of digital at DDB Chicago told Ad Age. “If the app doesn’t offer valuable content and experiences, you’re going to deal with a lot of frustrated users calling out your bloatware.”

Thanks, Gov. Cuomo

In Gov. Andrew Cuomo’s zeal to take credit for broadband enhancements across New York State, he also took partial-credit for convincing Charter Communications to speed its plan to deliver internet speeds of 100Mbps across upstate New York by early 2017, calling it “sweeping progress toward achieving its nation-leading goal of broadband for all.”

Unfortunately for New Yorkers, the governor forgot to mention his plan, coupled with the state government’s approval of Charter’s merger with Time Warner Cable, will actually result in slower and more expensive broadband for all of upstate New York.

“Access to high-speed internet is critical to keeping pace with the rising demands of the modern economy,” said Gov. Andrew Cuomo. “The New NY Broadband Program is advancing our vision for inclusive, interconnected communities that empower individuals, support small businesses, and advance innovation. These actions are a major step forward in creating the most robust broadband infrastructure network in the nation, and ensuring that reliable, high-speed internet is available to all New Yorkers.”

While the governor’s goals for rural broadband expansion in New York are laudable and have actually produced significant results, his belief in Charter’s broadband enhancement plan is misplaced and will actually leave cities in upstate New York at a serious broadband speed disadvantage that could remain an indefinite problem.

It is difficult to admit that New York was better off leaving Time Warner Cable as the dominant cable operator in New York State. As we warned last fall in our testimony to the N.Y. Public Service Commission, Charter’s merger proposal included promises of broadband enhancements considerably less robust than what Time Warner Cable had already undertaken on its own initiative. Time Warner Cable Maxx would have brought upstate New York free speed upgrades ranging from 50/5Mbps for Standard internet customers (up from 15/1Mbps) to 300/20Mbps (up from 50/5Mbps) for customers subscribed to Time Warner’s Ultimate tier.

Charter only advertises its 60Mbps tier. You have to dig through their website to discover they also sell 100Mbps, for $100 a month and usually a $200 installation fee.

Charter this week made it clear those Maxx upgrades are dead, except in areas where they have already been introduced. Instead, upstate New York (and likely other Maxx-less areas around the country) will get two internet speed tiers instead: 60 and 100Mbps.

Getting 100Mbps is better than 50Mbps, at least until you check the price. Customers should be sitting down for this. Charter’s 100Mbps tier costs $100 a month after a one-year promotional rate and often includes a one-time $200 installation fee. In contrast, Time Warner Cable charges about $65 a month for 300/20Mbps internet-only service, which incrementally rises after one year if you don’t threaten to cancel service. There is usually no installation or upgrade fee.

This is the “benefit” Gov. Cuomo is touting?

In fact, with Charter Communications to be the overwhelmingly dominant cable operator throughout upstate New York, this leaves cities like Buffalo, Rochester, Syracuse, Albany, and Binghamton in a relative broadband swamp. While cities of similar sizes in other states are qualifying for Google Fiber, AT&T’s gigabit fiber upgrade, or fiber to the home service from community-owned broadband providers, Charter’s competition includes a barely trying Frontier Communications which still offers little more than slow speed DSL, Verizon Communications which stopped expanding FiOS in New York (except Fire Island) in 2010, and a handful of small independent phone companies and fiber overbuilders serving very limited service areas.

Charter is still required to offer 300Mbps service… by 2019 in New York as part of a commitment to regulators we fought for and won. That represents a speed equal to Time Warner Cable Maxx, but Charter has three years to offer what many New Yorkers either already had or were slated to get by next year from Time Warner Cable for much less money.

It takes chutzpah to proclaim broadband victory from this kind of avoidable defeat. Gov. Cuomo’s plan for better broadband allows Charter to cheat millions of New Yorkers out of Time Warner’s much better upgrade that was scheduled to be finished this summer in Central New York and ready to commence in Rochester this fall and Buffalo early next year. The governor should be on the phone with Charter management today insisting that all of New York get the 300Mbps internet service Time Warner Cable was planning for this state. Anything less leaves New York worse off, not better.

Consider again this cold, hard reality: Time Warner Cable was the better option — that is how bad things are in New York.

Upstate cities considering their economic future must not rely on the state or federal government to solve their broadband problems. Considering what Charter and Gov. Cuomo are proposing, waiting for the cable company to make life better isn’t a solution either. The only alternative is for local community leaders to start taking control of their own broadband destiny and launch community-owned, gigabit-capable, fiber to the home service. Charter won’t do it, Frontier can’t, and Verizon is too busy making piles of money from its wireless network to worry if your city will ever have 21st century internet access it needs to compete in the digital economy.

Governor Andrew M. Cuomo yesterday announced that the “New NY Broadband Program” is well on its way to achieving “sweeping progress toward achieving its nation-leading goal of broadband for all” New Yorkers.

The governor claimed that 97% of New York residents will have access to high-speed internet access by 2017, with a vague goal of serving 100% of New Yorkers by the end of 2018.

To do this, Gov. Cuomo relies heavily on the state’s new and overwhelmingly dominant cable operator – Charter Communications, which closed on its acquisition of Time Warner Cable earlier this summer. A press release promoting the governor’s efforts quotes Charter’s executive vice president of government affairs Catherine Bohigia as being excited to work with the governor and his administration to expand service to about 145,000 households currently not served by Time Warner Cable or Charter in New York.

Charter officials are working with the Public Service Commission to identify the households to be served, and highly redacted documents suggest Charter is identifying new housing developments and areas immediately next to existing Charter/Time Warner Cable service areas for this expansion.

A second separate plan to subsidize private cable and phone companies to help cover the costs of reaching another 34,000 homes that won’t be served by Charter is only expected to reach 50% of the remaining unserved homes and businesses in the state. A further round of funding will target the the remainder of unserved areas, including certain rural landline areas where Verizon has shown no interest in offering customers internet access of any kind.

Charter Communications

Charter Communications has effectively canceled the Time Warner Cable Maxx upgrades that were either underway, in progress, or in the planning stage in upstate New York. Instead, Charter plans to speed up the roll-out its own originally proposed upgrade, which includes two tiers: 60 and 100Mbps, for more than two million upstate homes and businesses by early 2017 in Buffalo, Rochester, Syracuse, Binghamton and Albany.

Customers in Central New York are likely to be left in limbo, some already getting Maxx upgraded 300Mbps internet access while others were scheduled to get the speed upgrade the same week Charter froze further Maxx upgrades. Those customers are now likely to receive a maximum of 100Mbps service sometime next year under Charter’s new plan.

Charter is also negotiating with state officials about where it will deploy broadband to 145,000 currently unserved homes in upstate New York over the next four years.

State-funded Rural Broadband Awards – Round I

New York State will help subsidize broadband rollouts to approximately 34,000 homes and businesses currently not served (or not served adequately) in rural areas. All but two of these projects will rely on fiber to the home service and each will offer service to a few thousand people:

Applicant Name	Technology	REDC Region	Census Blocks	Housing Units	Total Units	State Grant Total	Private Match	Total Project Cost
Armstrong Telecommunications, Inc.	FTTH	Finger Lakes, Southern Tier, Western NY	176	1,135	1,162	$3,930,189	$982,549	$4,912,738
Armstrong Telephone Company	FTTH	Southern Tier, Western NY	74	466	504	$1,778,256	$444,564	$2,222,820
Citizens Telephone Company of Hammond, N.Y., Inc.	FTTH	North Country	146	1,789	1,860	$3,316,810	$829,202	$4,146,012
Empire Access	FTTH	Southern Tier	124	719	724	$1,797,894	$449,474	$2,247,368
Empire Access	FTTH	Southern Tier	117	1,202	1,268	$1,598,480	$399,620	$1,998,100
Frontier Communications	FTTH	Southern Tier	1	62	65	$67,592	$16,899	$84,491
Frontier Communications	FTTH	North Country	3	188	216	$129,634	$32,409	$162,043
Frontier Communications	FTTH	Southern Tier	12	129	142	$197,104	$49,276	$246,380
Frontier Communications	FTTH	Capital Region	23	391	394	$318,304	$79,576	$397,880
Frontier Communications	FTTH	Mohawk Valley	30	402	405	$924,663	$231,166	$1,155,829
Frontier Communications	FTTH	North Country	105	1,928	2,096	$1,702,246	$425,562	$2,127,808
Germantown Telephone Company	FTTH	Capital Region	208	2,195	2,334	$2,512,562	$628,140	$3,140,702
Haefele TV Inc.	FTTH	Southern Tier	413	3,029	3,238	$271,568	$67,892	$339,460
Hancock Telephone Company	FTTH	Southern Tier	136	1,505	1,675	$4,915,920	$1,228,981	$6,144,901
Heart of the Catskills Communications	Hybrid-Fiber Coax	Southern Tier	216	2,836	3,177	$1,224,946	$524,977	$1,749,923
Margaretville Telephone Company	FTTH	Mid-Hudson, Southern Tier	209	1,882	2,002	$4,791,505	$2,053,503	$6,845,008
Mid-Hudson Data Corp	Fixed Wireless	Capital Region	60	647	663	$950,184	$237,546	$1,187,730
Mid-Hudson Data Corp	FTTH	Capital Region	6	354	362	$59,155	$14,789	$73,944
State Telephone Company, Inc.	FTTH	Capital Region	231	3,801	4,134	$5,805,600	$1,451,400	$7,257,000
State Telephone Company, Inc.	FTTH	Capital Region	101	516	595	$2,914,960	$728,740	$3,643,700
TDS Telecom	FTTH	Southern Tier	156	2,369	2,423	$1,895,390	$1,895,390	$3,790,780
TDS Telecom	FTTH	North Country	74	506	543	$1,084,000	$1,084,000	$2,168,000
TDS Telecom	FTTH	Central NY, Finger Lakes	106	996	1,038	$1,424,793	$1,424,793	$2,849,586
TDS Telecom	FTTH	Southern Tier	395	3,528	3,551	$4,989,570	$4,989,570	$9,979,140
The Middleburgh Telephone Company	FTTH	Capital Region, Mohawk Valley	250	1,596	1,651	$5,562,548	$1,390,637	$6,953,185

*FTTH = Fiber-to-the-Home

Federally Funded Rural Broadband Awards – Round II

After Verizon abdicated any interest in participating in rural broadband expansion funding through the FCC’s Connect America Fund, New York’s Broadband Program Office (BPO) and the Public Service Commission urged the FCC to keep the original funding intended for rural New York intact and open to other applicants seeking to build rural broadband projects. The FCC has not fully committed to do this, but it is an agenda item. Assuming this funding becomes available, it will be used to help pay for independent broadband providers or rural cable operators to begin delivering broadband service into still unserved parts of New York not included in the Charter expansion or Round I projects noted above. Many Verizon territories are expected to be included.

Applicants will have to provide at least 100Mbps service in most places or a minimum of 25Mbps in the most remote corners of New York. The application form discourages applicants from delivering broadband over DSL or wireless and clearly favors fiber to the home or cable broadband technology. Price controls will be in place for the first few years to assure affordability and those winning funding are strictly prohibited from introducing usage caps or usage-billing.

A vaguely defined “third phase” is scheduled to launch early next year to offer internet access to all remaining unaddressed service areas. Nobody mentions where the money is coming from to cover the last 1-3% of unserved areas, which are likely to be notoriously expensive to reach.

Gov. Cuomo explains progress on his New York Broadband for All program. (26:31)

It wasn’t difficult to understand Verizon’s sudden reticence about continuing its fiber to the home expansion program begun under the leadership of its former chairman and CEO Ivan Seidenberg. Starting his career with Verizon predecessor New York Telephone as a cable splicer, he worked his way to the top. Seidenberg understood Verizon’s wireline future as a landline phone provider was limited at best. With his approval, Verizon began retiring decades-old copper wiring and replaced it with fiber optics, primarily in the company’s biggest service areas and most affluent suburbs along the east coast. The service was dubbed FiOS, and it has consistently won high marks from customers and consumer groups.

Seidenberg

Seidenberg hoped by offering customers television, phone, and internet access, they would have a reason to stay with the phone company. Verizon’s choice of installing fiber right up the side of customer homes proved highly controversial on Wall Street. Seidenberg argued that reduced maintenance expenses and the ability to outperform their cable competitors made fiber the right choice, but many Wall Street analysts complained Verizon was spending too much on upgrades with no evidence it would cause a rush of returning customers. By early 2010, Verizon’s overall weak financial performance coupled with Wall Street’s chorus of criticism that Verizon was overspending to acquire new customers, forced Seidenberg to put further FiOS expansion on hold. Verizon committed to complete its existing commitments to expand FiOS, but with the exception of a handful of special cases, stopped further expansion into new areas until this past spring, when the company suddenly announced it would expand FiOS into the city of Boston.

Seidenberg stepped down as CEO in July 2011 and was replaced by Lowell McAdam. McAdam spent five years as CEO and chief operating officer of Verizon Wireless and had been involved in the wireless industry for many years prior to that. It has not surprised anyone that McAdam’s focus has remained on Verizon’s wireless business.

McAdam has never been a booster of FiOS as a copper wireline replacement. Verizon’s investments under McAdam have primarily benefited its wireless operations, which enjoy high average revenue per customer and a healthy profit margin. Over the last six years of FiOS expansion stagnation, Verizon’s legacy copper wireline business has continued to experience massive customer losses. Revenue from FiOS has been much stronger, yet Verizon’s management remained reticent about spending billions to restart fiber expansion. In fact, Verizon’s wireline network (including FiOS) continues to shrink as Verizon sells off parts of its service area to independent phone companies, predominately Frontier Communications. Many analysts expect this trend to continue, and some suspect Verizon could eventually abandon the wireline business altogether and become a wireless-only company.

With little interest in maintaining or upgrading its wired networks, customers stuck in FiOS-less communities complain Verizon’s service has been deteriorating. As long as McAdam remains at the head of Verizon, it seemed likely customers stuck with one option – Verizon DSL – would be trapped with slow speed internet access indefinitely.

Verizon’s FiOS expansion rises from the dead?

But McAdam has finally shown some excitement for a high-speed internet service he does seem willing to back. Verizon’s ongoing trials of 5G wireless service, if successful, could spark a major expansion of Verizon Wireless into the fixed wireless broadband business. Unlike earlier wireless data technologies, 5G is likely to be an extremely short-range wireless standard that will depend on a massive deployment of “small cells” that can deliver gigabit plus broadband speeds across a range of around 1,500 feet in the most ideal conditions. That’s better than Wi-Fi but a lot less than the range of traditional cell towers offering 4G service.

What particularly interests McAdam is the fact the cost of deploying 5G networks could be dramatically less than digging up neighborhoods to install fiber. Verizon’s marketing mavens have already taken to calling 5G “wireless fiber.”

“I think of 5G initially as wireless technology that can provide an enhanced broadband experience that could only previously be delivered with physical fiber to the customer,” said McAdam during Verizon’s second-quarter earnings call. “With wireless fiber the so-called last mile can be a virtual connection, dramatically changing our cost structure.”

McAdam

Verizon’s engineers claim they can build 5G networking into existing 4G “small cells” that are already being deployed today as part of Verizon’s efforts to increase the density of its cellular network and share the increasing data demands being placed on its network. In fact, McAdam admitted Verizon’s near-future would not depend on acquiring a lot of new wireless spectrum. Instead, it will expand its network of cell towers and small cells to cut the number of customers trying to share the same wireless bandwidth.

McAdam’s 5G plan depends on using extremely high frequency millimeter wave spectrum, which can only travel line-of-sight. Buildings block the signal and thick foliage on trees can dramatically cut its effective range. That means a new housing development of 200 homes with few trees to get in the way could probably be served with small cells, if mounted high enough above the ground to avoid obstructions. But an older neighborhood with decades-old trees with a significant canopy could make reception much more difficult and require more small cells. Another potential downside: just like Wi-Fi in a busy mall or restaurant, 5G service will be shared among all subscribers within range of the signal. That could involve an entire neighborhood, potentially reducing speed and performance during peak usage times.

Verizon won’t know how well the service will perform in the real world until it can launch service trials, likely to come in 2017. But Verizon has also made it clear it wants to be a major, if not dominant player in the 5G marketplace, so plenty of money to construct 5G networks will likely be available if tests go well.

Ironically, to make 5G service possible, Verizon will need to replace a lot of its existing copper network it has consistently refused to upgrade with the same fiber optic cables that make FiOS possible. It needs the fiber infrastructure to connect the large number of small cells that would have to be installed throughout cities and suburbs. That may be the driving force behind Verizon’s sudden resumed interest in restarting FiOS expansion this year, beginning in Boston.

“We will create a single fiber optic network platform capable of supporting wireless and wireline technologies and multiple products,” McAdam told investors. “In particular, we believe the fiber deployment will create economic growth for Boston. And we are talking to other cities about similar partnerships. No longer are discussions solely about local franchise rights, but how to make forward-looking cities more productive and effective.”

If McAdam can convince investors fiber expansion is right for them, the company can also bring traditional FiOS to neighborhoods where demand warrants or wait until 5G becomes a commercially available product and offer that instead. Or both.

There are a lot of unanswered questions about how Verizon will ultimately market 5G. The company could adopt its wireless philosophy of not offering customers unlimited use service, and charge premium prices for fast speeds tied to a 5G data plan. Or it could market the service exactly the same as it sells essentially unlimited FiOS. Customer reaction will likely depend on usage caps, pricing, and performance. As a shared technology, if speeds lag on Verizon’s 5G network as a result of customer demand, it will prove a poor substitute to FiOS.