Verizon’s FiOS expansion is still dead.

Verizon Communications signaled today it plans further cuts in investments for its wireline network, which includes traditional copper-based telephone service and DSL as well as its fiber-optic network FiOS.

“We will spend more CapEx in the wireless side and we will continue to curtail CapEx on the wireline side,” Verizon’s chief financial officer Fran Shammo told investors this morning. “Some of that is because we are getting to the end of our committed build around FiOS.”

Instead of expanding its FiOS fiber to the home network to new areas, Verizon is trying to increase its customer base in areas previously wired. It is less costly to reconnect homes previously wired for FiOS compared with installing fiber where copper wiring still exists.

Verizon continues to lose traditional landline customers, so the company is increasingly dependent on FiOS to boost wired revenue. The fiber network now accounts for 77% of Verizon’s residential wireline revenue.

Wherever FiOS exists, it has taken a significant number of customers away from cable competitors. FiOS Internet has now achieved 41.1% market penetration, with 6.6 million customers, up 544,000 from last year. Of those, the majority want broadband speeds they were not getting from the cable company. At the end of 2014, 59% of FiOS Internet customers subscribe to broadband speeds above 50Mbps, up from 46% at the end of 2013.

Despite the success of FiOS, Verizon’s senior management continues to devote more attention to its highly profitable Verizon Wireless division, spending an even larger proportion of its total capital investments on wireless services.

In 2014, Verizon spent $17.2 billion on capital expenditures, an increase of 3.5% over 2013. But only $5.8 billion was spent on maintaining and upgrading Verizon’s landline and FiOS networks, down 7.7% over 2013. Verizon Wireless in contrast was given $10.5 billion to spend in 2014. The company is using that money to add network density to its increasingly congested 4G LTE network. In many cities, Verizon Wireless is activating its idle AWS spectrum to share the traffic load and is accelerating deployment of small cell technology and in-building microcells to deal with dense traffic found in a relatively small geographic area — such as in sports stadiums, office buildings, shopping centers, etc.

Verizon Wireless is branding its network expansion “XLTE,” which sounds to the uninitiated like the next generation LTE network. It isn’t. “XLTE” simply refers to areas where expanded LTE bandwidth has been activated. Unfortunately, many Verizon Wireless devices made before 2014 will not benefit, unable to access the extra frequencies XLTE uses.

With Verizon increasing the dividend it pays shareholders, the company is also cutting costs in both its wired and wireless divisions:

• Verizon Wireless’ 3G data network will see a growing amount of its available spectrum reassigned to 4G data, which is less costly to offer on a per megabyte basis. As Verizon pushes more 4G-capable devices into the market, 3G usage has declined. But the reduced spectrum could lead to speed slowdowns in areas where 3G usage remains constant or does not decline as quickly as Verizon expects;
• Verizon will push more customers to use “self-service” customer care options instead of walking into a Verizon store or calling customer service;
• The company will continue to move towards decommissioning its copper wire network, especially in FiOS areas. Existing landline customers are being encouraged to switch to FiOS fiber, even if they have only landline service. Copper maintenance costs are higher than taking care of fiber optic wiring;
• Verizon has accelerated the closing down of many central switching offices left over from the landline era. As the company sells the buildings and property that used to serve its network, Verizon’s property tax bill decreases;
• Verizon will continue cutting its employee headcount. Shammo told investors in December, Verizon Communications cut an extra 2,300 employees that took care of its wired networks.

Verizon Communications has stepped up efforts in New York City to get intransigent landlords to let the company into their buildings to bring FiOS fiber optics to tenants, even as some property managers accuse Verizon of ignoring earlier requests to get the service.

On at least 13 occasions in December, Verizon has filed petitions with the New York Public Service Commission requesting help to gain entry to a total of 476 buildings in the city after claiming to receive either no response from building management or active resistance to Verizon bringing FiOS to their tenants.

In an effort to stay compliant with its franchise agreement with the City of New York, Alyson Siegal, area manager for FiOS Franchise Assurance – New York City, has written a lot of letters lately:

Dear Property Owner/Manager:

I have been advised by Verizon New York Inc.’s (“Verizon”) NYC FiOS Real Estate Department of the difficulty Verizon has encountered in attempting to install and/or attach its FiOS facilities at [your property].

Our records indicate that you have not responded to our previous correspondence, that you have conditioned Verizon’s access on unreasonable terms and conditions or that you have denied Verizon access to the Property. The purpose of this letter is to restate our need to gain access to your Property.

By way of background, Verizon is attempting to gain access to your building because we have received a request for FiOS service(s) from a tenant(s) in your building and/or a resident(s) on your block, and our access to your Property is necessary to provide cable television services to those tenants and/or residents. We are very excited about the opportunity to provide world-class voice, data and video services to you and the area residents using a fiber based network to deliver these services at unprecedented speeds and capacities. Your cooperation in allowing Verizon access to your Property will enable your tenants and/or other residents on your block to receive the services they want in a timely manner.

Building owners don’t want a repeat of this kind of FiOS installation.

In a few earlier cases, some landlords refused entry without special financial compensation or gifts like free service for life. Others have unilaterally decided their tenants are happy enough being served by Time Warner Cable and don’t need a competitor. But a significant number claim the problem is with Verizon itself.

Hamdi Nezaj, who owns several buildings in Bronx, last summer refused entry to workers seeking to install FiOS, complaining Verizon performed shoddy work.

“On three properties that I own, the installation of FiOS was done recklessly,” complained Nezaj. “They never came back to fix the holes that were drilled, fix the boxes they installed and put molding on their respective wires. I am not interested once again in having Verizon drill holes and butcher my buildings.”

Several building owners responded to Verizon’s complaints indicating the phone company itself was responsible for dropping the ball on FiOS installation and were stunned the company was resorting to legal tactics to force entry.

Arthur Leeds from Leeds Associates LLC reports one of his properties has been waiting for Verizon to install FiOS since April 2014.

This customer found Verizon installing its FiOS cables up and down his doorways.

“We have responded every time we were asked for access most specifically to Thomas Miller, the FiOS franchise manager in NYC, and to Alyson Seigal (sic) another Verizon manager either by phone or via certified mail but all of our responses to them were ignored,” wrote Leeds. “Further we are well aware of the law and are certainly interested in supplying our tenants with alternatives to RCN and Time Warner Cable. However we do have a right to know how and with what materials Verizon intends to install their equipment in our building, [a request that] seems to stall any response on your part or that of your contractors.”

Amy Ward, an attorney representing the interests of 200 East 87”’ Street Associates, LP, has Leeds beat. She told the PSC Verizon first sought to install FiOS in the building in 2012, but Verizon kept stalling. When Verizon formally sought permission yet again in September 2014, a building representative asked for a delay because of “multiple intrusive projects occurring at and planned for the property.” No response to that request was forthcoming from Verizon until the December demand for entry was received.

Brian Loftman, property manager of the @The Aspen New York, wrote the PSC he was not happy to hear from Verizon’s legal team either.

Many building owners want Verizon to install crown molding like this that can effectively hide cables.

“I am appalled that Mr. Richard C. Fipphen, assistant general counsel for Verizon has contacted you stating that we have not complied with their request to give access to the property,” wrote Loftman.

Loftman included a copy of correspondence he sent to Ms. Siegal, claiming she is impossible to reach.

“I am writing to you because after several attempts to reach you via phone at 888 364 3467 it has been impossible,” wrote Loftman. “I find it hard to believe that you being in the telecommunications business that even your voicemail is full and I cannot leave a message on the number you provided us to contact your office.”

Loftman also questioned Siegal’s claims that Verizon has “world-class voice, data, and video services.”

“Has it improved since the last time our phones were out or the DSL went down for almost a week?” he asked.

Loftman’s previous experience with Verizon’s installation crews was not a positive one. He only learned after signing up for the service at another building he manages that Verizon intended to use visible basic plastic molding throughout the building’s hallways to hide FiOS wiring. Other property managers shared aesthetic objections to Verizon’s plans, requesting wiring be installed behind more visually attractive crown molding or run through ceiling ducts.

Part of New York State’s Public Service law covers the installation of cable television facilities, which also covers Verizon FiOS:

§228. Landlord-tenant relationship

1. No landlord shall:

(a) interfere with the installation of cable television facilities upon his property or premises, except that a landlord may require:

(1) that the installation of cable television facilities conform to such reasonable conditions are necessary to protect the safety, functioning and appearance of the premises, and the convenience and well being of other tenants;
(2) that the cable television company or the tenant or a combination thereof bear the entire cost of the installation, operation or removal of such facilities; and
(3) that the cable television company agree to indemnify the landlord for any damage caused by the installation, operation or removal of such facilities.

§898.1 Prohibition

Except as provided in section 898.2 of this Part, no landlord shall demand or accept any payment from any cable television company in exchange for permitting cable television service or facilities on or within said landlord’s property or premises.

§898.2 Just Compensation

Every landlord shall be entitled to the payment of just compensation for property taken by a cable television company for the installation of cable television service or facilities. The amount of just compensation shall be determined by the commission in accordance with section 228 (1)(b) of the Public Service Law upon application by the landlord pursuant to section 898.5 of this Part.

Wheeler

The chairman of the Federal Communications Commission has foreshadowed his revised plan for Net Neutrality will include reclassification of broadband as a utility, allowing the agency to better withstand future legal challenges as it increases its oversight of the Internet.

Tom Wheeler’s latest comments came during this week’s consumer electronics show in Las Vegas. Wheeler stressed he supports reclassification of broadband, away from its current definition as an “information service” subject to Section 706 of the Telecom Act of 1996 (all two broadly written paragraphs of it) towards a traditional “telecommunications service.” Under the Communications Act of 1934, that would place broadband under Title II of the FCC’s mandate. Although at least 100 pages long, Title II has stood the test of time and has withstood corporate lawsuits and challenges for decades.

Section 706 relies almost entirely on competition to resolve disputes by allowing the marketplace to solve problems. The 1996 Telecom Act, signed into law by President Bill Clinton, sought to promote competition and end “barriers to infrastructure investment.” Broadly written with few specifics, large telecom companies have successfully argued in court that nothing in Section 706 gives the FCC the right to interfere with the marketing and development of their Internet services, including the hotly disputed issues of usage caps, speed throttling, and the fight against paid fast lanes and Internet traffic toll booths. In fact, the industry has argued increased involvement by the FCC runs contrary to the goals of Section 706 by deterring private investment.

An executive summary of a report published on the industry-funded Internet Innovation Alliance website wastes no time making that connection, stating it in the first paragraph:

Net neutrality has the potential to distort the parameters built into operator business cases in such a way as to increase the expected risk. And because it distorts the operator investment business decision, net neutrality has the potential to significantly discourage infrastructure investment. This is due to the fact that investments in infrastructure are highly sensitive to expected subscriber revenue. Anything that reduces the expectation of such revenue streams can either delay or curtail such investments.

Unfortunately for consumers, even the chairman of the FCC concedes the broadband marketplace isn’t exactly teeming with the kind of competition Section 706 envisioned to keep the marketplace in check. In fact, Wheeler suggested most Americans live with a broadband duopoly, and often a monopoly when buying Internet access at speeds of 25Mbps or greater. Further industry consolidation is already underway, which further deters new competitors from entering the market.

Net Neutrality critics, the broadband industry, and their allies on Capitol Hill have argued that adopting Title II rules for broadband will saddle ISPs with at least one hundred pages of rules originally written to manage the landline telephone monopoly of the 1930s. Title II allows the FCC to force providers to charge “just and reasonable rates” which they believe opens the door to rate regulation. It also broadly requires providers to act “in the public interest” and unambiguously prohibits companies from making “any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services.”

Both Comcast and Verizon have challenged the FCC’s authority to regulate Internet services using Section 706, and twice the courts have ruled largely in favor of the cable and phone company. Judges have no problem permitting the FCC to enforce policies that encourage competition, which has allowed the FCC some room to insist that whatever providers choose to charge customers or what they do to manage Internet traffic must be fully disclosed. The court in the Verizon case also suggested the FCC has the authority to oversee the relationship between ISPs and content providers also within a framework of promoting competition.

DC Circuit Court

But when the FCC sought to enforce specific policies governing Internet traffic using Section 706, they lost their case in court.

Although Net Neutrality critics contend the FCC has plenty of authority to enforce Net Neutrality under Section 706, in reality the FCC’s hands are tied as soon as they attempt to implement anti-blocking and anti-traffic discrimination rules.

The court found that the FCC cannot impose new rules under Section 706 that are covered by other provisions of the Communications Act.

So what does that mean, exactly?

Michael Powell, former FCC chairman, is now the chief lobbyist for the National Cable & Telecommunications Association. (Photo courtesy: NCTA)

In 2002, former FCC chairman Michael Powell (who serves today as the cable industry’s chief lobbyist) presided over the agency’s decision to classify broadband not as a telecommunications service but an “information service provider” subject to Title I oversight. Whether he realized it or not, that decision meant broadband providers would be exempt from common carrier obligations as long as they remained subject to Title I rules.

When the FCC sought to write rules requiring ISPs not block, slow or discriminate against certain Internet traffic, the court ruled they overstepped into “common carrier”-style regulations like those that originally prohibited phone companies from blocking phone calls or preventing another phone company from connecting calls to and from AT&T’s network.

If the FCC wanted to enforce rules that mimic “common carrier” regulations, the court ruled the FCC needed to demonstrate it had the regulatory authority or risk further embarrassing defeats in the courtroom. The FCC’s transparency rules requiring ISPs to disclose their rates and network management policies survived Verizon’s court challenge because the court found that policy promoted competition and did not trespass on regulations written under Title II.

The writing on the wall could not be clearer: If you want Net Neutrality to survive inevitable court challenges, you need to reclassify broadband as a telecommunications service under Title II of the Communications Act.

Major ISPs won’t hear of it however and have launched an expensive media blitz claiming that reclassification would subject them to 100 pages of regulations written for the rotary dial era. Broadband, they say, would be regulated like a 1934 landline. Some have suggested the costs of complying with the new regulations would lead to significant rate increases as well. Many Republicans in Congress want the FCC to wait until they can introduce and pass a Net Neutrality policy of their own, one that will likely heavily tilt in favor of providers. Such a bill would likely face a presidential veto.

Suggestions the FCC would voluntarily not impose outdated or irrelevant sections of Title II on the broadband industry didn’t soothe providers or their supporters. Republican FCC commissioners are also cold to the concept of reclassification.

O’Rielly

“Title II includes a host of arcane provisions,” said FCC commissioner Michael O’Rielly in a meeting in May 2014. “The idea that the commission can magically impose or sprinkle just the right amount of Title II on broadband providers is giving the commission more credit than it ever deserves.”

Providers were cautiously optimistic in 2014 they could navigate around strong Net Neutrality enforcement with the help of their lobbyists and suggestions that an industry-regulator compromise was possible. Early indications that a watered-down version of Net Neutrality was on the way came after a trial balloon was floated by Wheeler last year. Under his original concept, paid fast lanes and other network management and traffic manipulation would be allowed if it did not create undue burdens on other Internet traffic.

Net activists loudly protested Wheeler’s vision of Net Neutrality was a sellout. Wheeler’s vision was permanently laid to rest after last November when President Barack Obama suddenly announced his support for strong and unambiguous Net Neutrality protections (and reclassifying broadband as a Title II telecommunications service), No FCC chairman would likely challenge policies directly advocated by the president that nominated him.

Obama spoke, Thomas Wheeler listened. Wheeler’s revised Net Neutrality plan is likely to arrive on the desks of his fellow commissioners no later than Feb. 5, scheduled for a vote on Feb. 26. It’s a safe bet the two Republicans will oppose the proposal and the three Democrats will support it. But chairman Wheeler also listens to Congress and made it clear he doesn’t have a problem deferring to them if they feel it necessary.

“Clearly, we’re going to come out with what I hope will be the gold standard,” Wheeler told the audience in Las Vegas. “If Congress wants to come in and then say, we want to make sure that this approach doesn’t get screwed up by some crazy chairman that comes in, [those are] legitimate issues.”

If that doesn’t work, the industry plans to take care of the Net Neutrality regulation problem itself. Hours after any Net Neutrality policy successfully gets approved, AT&T has promised to challenge it in court.

[flv]http://www.phillipdampier.com/video/Fox Business News Net Neutrality Wheeler 1-8-15.flv[/flv]

Free Press CEO Craig Aaron appeared on Fox Business News to discuss Tom Wheeler’s evolving position on Net Neutrality. (3:54)

For years Verizon Wireless has charged some of the highest prices in the wireless industry because it could. But those days may finally be coming to an end as the company admits it is seeing an increase in customer disconnects, and the company announced it will spend more on subscriber promotions to win back old customers and attract new ones.

Verizon Wireless executives have repeatedly stressed they can charge ‘Cadillac prices on a Cadillac network’ that has traditionally outperformed the competition in coverage, 4G data, and customer service. But customers may be telling the carrier “enough as enough” as a growing number are attracted to offers of dramatically lower pricing from Sprint and T-Mobile.

In a statement issued to shareholders, Verizon Wireless reports it is not on track to have a completely Merry Christmas:

As the company is accelerating the upgrades of high-quality customers to 4G, total retail postpaid disconnects are trending higher both sequentially and year over year in this highly competitive and promotion-filled fourth quarter.

The company expects that the fourth-quarter impacts of its promotional offers, together with the strong customer volumes this quarter, will put short-term pressure on its wireless segment EBITDA and EBITDA service margin (non-GAAP, based on earnings before interest, taxes, depreciation and amortization) as well as its consolidated EBITDA margin (non-GAAP) and earnings per share.

Despite the growing number of customers leaving Verizon for more affordable alternatives, those remaining are willing to pay even higher prices upgrading to the latest smartphones and tablets equipped to take advantage of Verizon’s 4G LTE network. Customers are gradually moving away basic cell phones and towards smartphones and tablets.

Customers are also increasingly willing to abandon the upgrade subsidy in favor of early upgrades and device payment plans. Verizon reports almost one-quarter of customers are now enrolled in its Verizon Edge smartphone program, which budgets the cost of a new phone in installments charged to a cell phone bill. Just three months ago, Verizon had only enrolled 12% of its customers in the upgrade program.

New York Gov. Andrew Cuomo has set a goal that every resident of New York State should have access to at least 100Mbps broadband no later than 2018.

The governor will kick off his latest broadband expansion effort with the launch of his $500 million broadband expansion program, dubbed the New New York Broadband Fund, a follow-up to the state’s $70 million public-private effort to expand broadband that began in 2012.

Much of the money awarded in the 2012 broadband expansion effort went to Wireless Internet Service Providers, institutional broadband networks, middle-mile fiber projects not accessible to the public, and emergency service network upgrades. Another $5.2 million was awarded to Time Warner Cable to expand broadband service to 4,114 households in the Capital, Central, Finger Lakes, Mid-Hudson, Mohawk Valley, NYC, North Country, Southern Tier and Western regions of New York State. In June, many of the top funding recipients also received honors from the governor’s office in the first annual New York State Broadband Champion Awards.

Gov. Cuomo

Despite the money, the 2012 effort did not make a significant dent in the pervasive problem of broadband availability in upstate New York.

While Gov. Cuomo is committed to a target speed of 100Mbps within the next four years, more than one million New York households still cannot access broadband that achieves the state minimum — 6.5Mbps. That includes 113,000 businesses.

The governor’s solution is to subsidize private businesses with more tax dollars to resolve the broadband problem, with a significant part of the next round of funding likely to reach more institutional and public safety networks off-limits to the public, middle mile network expansion that can build state-of-the-art fiber rings that do not connect to end users, and an even bigger amount handed to Time Warner Cable (or Comcast if the state approves a merger with Time Warner Cable) and rural phone companies like Frontier Communications. Much of the money awarded to last mile providers like cable and phone companies will placate those that have stubbornly refused to expand further into rural areas unless taxpayers pick up some of the expense.

“In some of these areas, there’s just not a business case for these [service] providers to build out,” said David Salway, director of the New York State Broadband Program office. “The cost far exceeds what the revenue might be for that area.”

An unintended consequence of the broadband funding effort could be taxpayers subsidizing the establishment of for-profit monopolies in rural corners of the state. Although Salway told Capital NY he wanted to make sure New Yorkers had a choice, he clarified he was referring to a choice in technology, not service providers.

That must come as a relief for Verizon. The state’s largest phone company has petitioned state officials in the past for a gradual mothballing of New York’s rural landline network in favor of switching customers to wireless voice and broadband over Verizon’s cellular network. Theoretically, taxpayers could end up subsidizing the demise of rural New York landlines and DSL if Verizon seeks money from the rural broadband fund to expand its wireless tower network in rural New York. Time Warner Cable almost certainly will also seek more funding, probably in excess of the average $1,264 paid to the cable company for each of the 4,114 additional connections it agreed to complete during an earlier round of funding.

While rural broadband remains an important issue in New York, the merger of Comcast and Time Warner Cable is on the front burner and Salway, like the governor, had little to say. But Salway did offer that he did not believe the merger “would reduce [access] as much as further our goal” for expansion.

Guidelines for grant recipients are expected to become available just after the governor’s State of the State presentation in January, with ground-breaking on projects likely to start by mid-summer of 2015.