Garza shows off his wealth.

Rural Vermont residents relying on a wireless Internet provider experiencing service problems appear to be collateral damage after a series of scandals and criminal investigations may have prompted the alleged owner to flee to a middle eastern country with no extradition treaty with the United States.

Houston native Homero Josh Garza, 30, had his hands in as many as a dozen business ventures in Vermont, Delaware, and Massachusetts, including Brattleboro’s Great Auk Wireless. But the wireless ISP founded in 2004 apparently is no longer high on Garza’s list of priorities after the entrepreneur discovered the prospect of big profits mining Bitcoins.

GAW’s 1,000 wireless customers are trying to maintain their Internet service, which is experiencing a growing number of service failures. Recently, customers began having trouble sending and receiving email, with nobody answering a support line to help. Last week, the company’s website appeared to be down for several days. Vermont officials considered it another example of why they believe GAW has proven itself a subpar provider with troublesome service.

That could be worrisome in underserved areas like western Massachusetts, where wireless ISPs like GAW have been promoted as less costly alternatives to fiber to the home service. In 2012, Garza gave up on building broadband access in Ashland, Mass., despite being offered a $40,000 government broadband grant, according to the Christian Science Monitor.

Platterpus Records proprietor Dave Witthaus suggests residents and businesses might want to think twice about firms like GAW. Witthaus told Coindesk businesses dependent on the wireless service provider encountered “routine issues with connectivity and customer service.” He told the online publication some businesses switched providers after a two week phone outage in February.

“They could have done well in this area but the customer service has just been awful,” Witthaus said. “And now, two weeks without phone is just unacceptable.”

Is GAW Wireless operating on autopilot?

Garza’s performance in the Bitcoin world has been given similar reviews after his mining venture rose to prominence and then collapsed, leaving investors and regulators looking for answers.

Bitcoin, a digital currency, is not issued by any central banking authority. Instead, new coins are issued to those running complex software that verifies the alternative currency’s public ledger of earlier transactions. The process protects the virtual currency from tampering or other illicit acts like re-spending by its original owner. In return for volunteering computer time to help support the security of the Bitcoin, the software pays users transaction fees and a subsidy of newly minted coins.

The prospect of getting “free money” just by running software encouraged the start of a virtual Gold Rush. Instead of mining in the ground looking for precious metals, prospectors eventually sought investors to fund powerful computers dedicated entirely to “mining” for Bitcoins. The Bitcoin system only releases so many coins at a time, and that number has been dwindling by design and will eventually reach zero. As a result, individual enthusiasts running the Bitcoin software during their spare time have seen their awards deteriorate as large-scale “mining operations” capture a growing percentage of the newly issued currency. To combat this trend, mining pools share resources to compete with the larger players and private contractors sell individuals and clubs time and access on powerful computers in return for a “mining contract.”

Enter GAW, which stands for “Geniuses At Work.” Garza’s business depended on a steady stream of clients investing in his enormous mining operation. GAW Miners claimed it has 200,000 customers and $120 million in revenue in just six months. GAW also reportedly collected 28,000 Bitcoins worth over $10 million in just two months.

Garza was never modest showing off his success, appearing in a tuxedo flying around in a private jet, showing off a collection of expensive Ferraris, and living in a $600,000 5,300-square foot stone house outside of Springfield, Mass.

But even as Garza’s company began moving hundreds of “mining rigs” (high-powered computers) into its newly leased 150,000-square foot warehouse in Park Purvis, Miss., some disgruntled ex-clients and investors began complaining Garza’s record was heavy on promises and light on delivery. Bitcoin news sites also began expressing concern about Garza’s operation. At around the same time back in Vermont, Great Auk Wireless customers experienced a very serious service outage that disrupted their phone and Internet service. While the rumor mill swirled about Garza’s ethics, the Mississippi Power Company was investing hundreds of thousands of its dollars to upgrade power to Garza’s warehouse. In return, GAW committed to stay for at least one year. It left after just a few months, folding operations and leaving the utility with $220,000 in unpaid electric bills and over $73,000 in damages and costs. The utility sued and was ignored by GAW.

“Mississippi Power filed a motion for default judgment because GAW failed to answer or otherwise defend the lawsuit,” the power company said in a statement. “We are asking the court to give us a final judgment on the amount that’s owed on this account.”

GAW Miners’ data center in Mississippi.

Collecting any judgment may prove difficult because most of GAW’s employees and management have reportedly fled, resigned, or been terminated.

With GAW Miners largely defunct, the Securities and Exchange Commission has taken an interest, questioning whether Garza’s ventures involved unregulated securities, a big no-no with the feds. The SEC is also sharing its wealth of information with the Federal Trade Commission, which is investigating GAW Miners for potential false advertising. The Department of Homeland Security also wants to know if Garza was engaged in money laundering, and the IRS is pondering whether Garza reported all of his capital gains for tax purposes.

To get these answers, Garza’s firm was subpoenaed in February to turn over relevant documents. As of late May, Bitcoin traders suspect Garza has left the country and federal investigators behind and relocated to Dubai, in the United Arab Emirates, which has no extradition treaty with the U.S.

Taxpayers may also be victims.

GAW Wireless collected $18,018 in state grant money to expand wireless broadband service in 2014. The company never delivered the service, according to Vermont officials. A Maidstone couple also alleges GAW never paid them the $3,000 they agreed upon for leasing property in East Maidstone. Guy and Gail Giampaolo were to receive free Internet service and a $300 annual payment in return for the lease agreement. They reportedly received neither.

The VTDigger reported several other instances of service problems from the wireless venture in a detailed article published earlier this month. Even the state Attorney General has been unable to contact the company after an earlier letter was returned by the post office with no forwarding address. The Department of Public Service is asking customers who use GAW Wireless to call the Consumer Affairs Line at 1-800-622-4496. The department will provide customers with information about alternative wireless Internet service providers.

The Federal Communications Commission’s Net Neutrality rules took full effect Friday, after a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit denied petitions for a temporary stay of the rules made in separate lawsuits by AT&T and other telecom industry opponents.

“This is a huge victory for Internet consumers and innovators!,” FCC Chairman Thomas Wheeler exclaimed in a written statement. “There will be a referee on the field to keep the Internet fast, fair and open. Blocking, throttling, pay-for-priority fast lanes and other efforts to come between consumers and the Internet are now things of the past. The rules also give broadband providers the certainty and economic incentive to build fast and competitive broadband networks.”

The Net Neutrality rules govern both wired and wireless Internet services, and most observers predict the biggest impact will be felt by wireless customers. Wireless providers have experimented with speed throttling, priority access, data caps, and so-called “sponsored data” exempt from usage caps or usage billing. Some of these practices are now illegal under Net Neutrality rules and others are subject to increased scrutiny by the FCC.

Providers generally have not opposed rules blocking online censorship, paid prioritization, and selective speed throttling, but they are vehemently against the FCC’s catch-all “Internet general conduct rule,” that effectively allows the agency to oversee issues like interconnection agreements that connect content producers with each ISP, data caps/usage billing, and issues like zero-rating — providing an exemption from an ISP’s usage allowance for preferred content partners.

Providers argue the FCC could block innovative pricing and usage-based billing they argue customers would like to have.

Other industry groups claim Net Neutrality will lead to a significant decline in investments towards broadband upgrades and expansion. But Charter Communications CEO Thomas Rutledge, now in the middle of a multi-billion dollar merger deal with Time Warner Cable and Bright House Networks, disagreed, noting it will have no effect on Charter’s investment plans for its own cable systems or those it may acquire.

“The big news today is that there is no news,” said Timothy Karr, senior director of strategy for Free Press. “With Net Neutrality protections in place, there are no dramatic changes to the way the Internet works. Internet users are logging onto a network that’s open, as they’ve long expected it to be.”

AT&T and Verizon Wireless are ditching subsidies for the popular (and expensive) Apple iPhone in favor of straight installment payment plans.

9to5Mac reports Apple has sent a memo to employees outlining major changes in how iPhones will be sold to AT&T and Verizon Wireless customers.

Apple iPhones sold via AT&T and both Apple’s retail and online stores will shift exclusively to AT&T’s Next financing plans this month and end device subsidies. AT&T Next allows customers to buy a device at retail price and pay it off in 20, 24, or 30 installments on their AT&T bill. The primary benefit of the Next plan is it permits customers upgrade to a newer device after 12, 18, or 24 installment payments. For now, customers transitioning away from their existing plan to Next will be able to keep their unlimited AT&T data plan.

Verizon Wireless is also planning to drop its two-year subsidy programs, perhaps entirely across all devices, as early as the end of this summer. That will force Verizon Wireless customers onto the Edge installment payment program unless they are willing to pay for a device upfront.

But Verizon will tighten the screws even more on iPhone users by blocking the Edge Up feature for Apple phones. Instead of being eligible for an early upgrade after 18 months, Verizon will commit its iPhone customers to a full two-year waiting period or until the phone is completely paid off. Magnanimously, Verizon will let the customer keep the phone after they pay it off completely. It is unclear if Verizon will allow their legacy unlimited data customers to participate in the Edge program without forfeiting their unlimited data plan.

For many customers, this will represent a distinction without much difference. Phone subsidies have always been effectively paid back to the wireless carrier through artificially high service plan rates charged over the length of a two-year contract. The installment payment plan brings the cost of the phone subsidy out into the light where a customer will see (and pay) a separate installment payment for their device instead of having the subsidy’s recovery buried in the price of service. But Verizon has clearly sought constraints on its iPhone customers who aggressively pursue upgrades at the appearance of any new iPhone model. Going forward, they will have to pay off any remaining installments owed on their old phone before upgrading to a new one.

Verizon Communications this morning announced it will buy AOL, Inc., in a $4.4 billion cash deal that will provide Verizon with powerful mobile video and advertising platforms.

Originally known for its ubiquitous dial-up Internet access, AOL today is better described as a content and advertising aggregator — putting online video in front of viewers bolstered by AOL’s powerful advertising technology that can match a targeted advertising message to a specific viewer in milliseconds.

AOL’s portfolio also includes the well-known Engadget, TechCrunch and Huffington Post websites, which many analysts expect will not be part of the deal, quickly spun off to a new owner(s) to avoid any political headaches over Verizon’s control of the well-known content sites, some including coverage critical of Verizon.

All signs point to the AOL acquisition as more evidence Verizon management is shifting priorities to its mobile business, Verizon Wireless. In 2014, Verizon acquired the assets of Intel Media, which was planning an Internet TV service called OnCue. Verizon’s acquisition will help it develop an alternative television platform and many analysts expect it will primarily reach Verizon Wireless customers.

Complimenting online video with AOL’s ad placement and insertion platform will likely be the best chance Verizon has to monetize that video content.

“Certainly the subscription business and the content businesses are very noteworthy,” confirmed Verizon’s president of operations, John Stratton. “For us, the principal interest was around the ad tech platform.”

[flv]http://www.phillipdampier.com/video/Bloomberg Why Verizon Coveted AOLs Ad Technology and Mobile Video 5-12-15.flv[/flv]

Bloomberg says Verizon’s real interest in AOL is their online advertising platform, which can bolster Verizon Wireless’ mobile video service. (2:39)

Verizon’s $4 billion investment in AOL did not go into expanding its fiber optic platform FiOS.

Verizon Wireless Multicast

“For the price it’s paying for AOL, Verizon could deploy its FiOS broadband service across the rest of its service area, bringing much-needed services and competition to communities like Baltimore, Boston and Buffalo,” said Free Press research director S. Derek Turner. “Instead, the company is spending a fortune to wade into the advertising and content-production markets. In terms of the latter, Verizon has already shown a willingness to block content and skew news coverage.”

As Stop the Cap! reported last week, that isn’t a surprise to some utility companies that believe all signs point to Verizon’s growing disinterest in its wireline division. Florida Power & Light expects Verizon will become a wireless only company within the next 10 years.

While AT&T explores expanding its wireless service internationally and seeks approval for its acquisition of satellite service DirecTV, Verizon Wireless is moving to monetize increased customer usage of its network with the forthcoming introduction of a video service this summer. The product would offer a mix of ad-supported and paid short video content and may offer live multicast programming that can reach a larger audience without disrupting network capacity.

Increased viewing of high bandwidth video will force Verizon customers to continually upgrade data plans, further monetizing Verizon’s wireless business. AOL’s ad insertion technology will allow Verizon to earn advertising income from viewers, creating a dual revenue stream.

Verizon can also sell advertisers information about its massive customer base of wired and wireless customers, including their browsing habits and demographic profile to deliver “data-driven marketing and addressable advertising.”

[flv]http://www.phillipdampier.com/video/Bloomberg Verizon-AOL Deal 1999 All Over Again 5-12-15.flv[/flv]

Bloomberg News puts together several of Verizon’s puzzling recent acquisitions, which point to a shift of Verizon’s business towards its mobile and content platforms. (5:42)

Verizon Wireless: The Neiman Marcus of mobile providers

A customer retention call with Verizon Wireless is short and to the point: enjoy the coverage you get from us now at the prices we charge or cancel and live with inferior cell phone service from one of our competitors.

Verizon chief financial officer Fran Shammo waved goodbye to 138,000 Verizon Wireless customers in the last three months and he could care less.

“If the customer who is just price-sensitive and does not care about the quality of the network—or is sufficient with just paying a lower price—that’s probably the customer we’re not going to be able to keep,” he said in the company’s quarterly earnings call today.

The wireless industry’s price war has not yet inflicted much damage on Verizon, which considers itself above the fray.

Average revenue per customer has started to significantly decline for the first time in wireless industry history, despite efforts to bolster earnings with expensive data plans and bundling services, including unlimited voice calling most cell phone users no longer care about. Both T-Mobile and Sprint are resorting to slashing prices and reducing the fine print to pick up business, with T-Mobile being the more successful of the two pulling it off. But the combined market share of Sprint and T-Mobile remains a fraction of what AT&T and Verizon Wireless have captured.

Verizon believes it has a premium product and expects to be paid for it. Like a Neiman Marcus of the wireless industry, customers can expect a superior level of service, if they can afford to pay for it.

To keep customers dazzled, this summer Verizon Wireless is planning a new wireless video service featuring content from the NFL and likely more. Verizon hopes customers without unlimited data plans will be willing to pay several dollars extra for the new streaming service. But perhaps not too many extra dollars. Verizon executives have discovered a loophole in the FCC’s new Net Neutrality regulations allowing video content to be sponsored by Verizon or its advertising partners and exempt from usage allowances or caps.

Known as “zero-rating,” the practice is much more common overseas, where content providers pay for customer’s usage of their applications. Critics call the practice an end run around Net Neutrality. The FCC has continued to avoid the issue of broadband usage caps and usage-based billing, which ISPs have interpreted to mean a green light on the practice. In fact, some earlier comments from the FCC suggest the agency believes subsidized Internet traffic might be beneficial to consumers. Verizon pockets the money in either case.

Tim Berners-Lee, who created of the World Wide Web, called zero-rating “positive discrimination,” giving too much power to Internet providers.

“Zero-rated mobile traffic is blunt anti-competitive price discrimination designed to favor telcos’ own or their partners’ apps while placing competing apps at a disadvantage,” added Antonios Drossos, managing partner of Rewheel. “A zero-rated app is an offer consumers can’t refuse.”

Verizon Wireless has not yet priced its forthcoming video offering, but it could be marketed as a monthly add-on feature or as a pay-per-view option.

[flv]http://www.phillipdampier.com/video/Bloomberg Verizon Bids Good Riddance to Customers Leaving for a Cheaper Deal 4-21-15.flv[/flv]

Bloomberg reporters talk about Verizon’s disinterest in competing with other carriers in the ongoing price war, and is fine with letting price-sensitive customers leave. It won’t be cutting prices anytime soon. (2:01)