Verizon Communications is cutting investment in its landline and fiber optic networks, spending the money on improving the company’s more profitable wireless business, which now accounts for 67 percent of Verizon’s total revenue.

Verizon reported second-quarter results this morning, meeting most Wall Street analysts’ expectations. The company reported a minor increase in capital spending to bolster its wireless LTE 4G network which is seeing strong growth in data traffic.

Verizon Wireless added one million new wireless customers in the last quarter, many transferring from Sprint’s now-discontinued Nextel network shut down last month. Among the new customer additions, 941,000 signed two-year postpaid contracts.

A growing number of Verizon Wireless customers are also migrating to the company’s Share Everything plan. At least 36 percent of Verizon’s wireless customers are now on shared, usage-limited data plans. Verizon expects more customers to switch, especially when legacy plan customers discover they will not receive a subsidized phone upgrade unless they abandon the grandfathered, all-you-can-eat data plan. Verizon believes the Share Everything plan will keep the company in a strong place to accelerate earnings as customers find they must regularly upgrade to higher capacity data allowances to handle increasing data usage.

Verizon’s wired success story

The growing adoption of more expensive data plans means higher bills for Verizon Wireless’ 35 million contract customers. The average Verizon Wireless customer now pays $152.50 per month, an increase of 6.4 percent. In total, over 100 million Americans now use Verizon’s prepaid and postpaid wireless services.

In June, Verizon Wireless reported its nationwide upgrade to LTE 4G service was now essentially complete, with 99 percent of 3G service areas also covered by 4G. Verizon reports 59% of its total data traffic is carried on the 4G LTE network, which is five times more efficient than the 3G network.

Wireline: Success When Verizon Invests in Upgrades, Ongoing Customer Defections Where Verizon’s Copper Network Continues to Deteriorate

Verizon’s success story in wireless is not repeated on its wireline network. Verizon lost another 5.2 percent of its residential copper landline customers during the quarter, down from 6.6 percent at the same time last year. In contrast, where Verizon’s fiber optic network FiOS is in place, customer numbers are growing along with revenue.

In fact, 71 percent of the revenue Verizon now earns from its wired residential network now comes from FiOS. The fiber network helped Verizon boost revenues by another 4.7 percent in the second quarter. With an average Verizon FiOS bill now at over $150 a month, the company saw a 9.4 percent increase in the average revenue per wireline customer over last year.

Verizon added 161,000 new FiOS Internet customers and another 140,000 new video customers in the second quarter. FiOS Quantum, which offers a broadband speed upgrade to 50/25Mbps for $10 more a month, has continued to be a hit with customers. More than one-third of all FiOS Internet customers have upgraded to faster Quantum speeds.

Shammo

With continued growth possible in the wired network business, Verizon could increase investment in expanding FiOS fiber into more markets, but instead the company continues to divert its attention and money to Verizon Wireless.

Verizon’s legacy copper wire phone and FiOS businesses saw a further reduction of 5.9 percent in capital expenditures in the second quarter — just $1.5 billion spent in the quarter and $2.9 billion year to date. Verizon’s full-year capital spending outlook which includes wireless, in contrast, is on track to spend between $16.4-16.6 billion this year. The majority of Verizon’s capital investments are aimed at improving its wireless network. Verizon’s aging copper wire network will continue to see a declining percentage of investment, and the company continues to leave FiOS fiber expansion on hold.

Fran Shammo, Verizon’s chief financial officer, this morning told investors they should expect to see a continued decline in spending on Verizon’s wired networks and more cost savings wrung out from Verizon’s declining unionized workforce, which has been asked to make concessions in labor contracts and increase work rule flexibility.

Other highlights:

• 51 percent of new phone activations were Apple iPhones during the second quarter;
• Over 64 percent of all activated phones on Verizon Wireless’ network are now smartphones;
• Verizon’s 3G network will increasingly be used by prepaid and reseller (MVNO) customers not allowed on Verizon’s LTE network;
• Verizon’s proposed entry into the Canadian wireless market is primarily focused on serving southeastern Canada from roughly Montreal to Toronto;
• 60 percent of Verizon’s revenue declines in its enterprise division were due to the federal government’s sequestration — automatic spending cuts, and declining spending by state and local governments;
• Verizon has no interest in competing with AT&T to acquire Leap Wireless (Cricket);
• The impact of Verizon’s agreement with cable operators to sell each other’s products has underwhelmed, at least so far;
• Voice Over LTE service, which will dramatically improve sound quality on voice calls, will arrive in Verizon handsets later this year with an aim to introduce the service sometime in 2014. But Verizon Wireless wants to be certain 4G LTE coverage is robust, because if reception deteriorates, VoLTE calls are not backwards-compatible with its current CDMA network and the call will get dropped. Getting it right is more important for Verizon than getting the service out quickly.

In the race to acquire spectrum and market share, AT&T and Verizon Wireless have already won most of the awards worth taking and have little to fear from smaller competitors. The U.S. government has seen to that.

The two wireless giants have benefited enormously from government spectrum auctions that award the most favorable wireless spectrum to the highest bidder, a policy that retards competition and guarantees deep-pocketed companies will continue to dominate in the coverage wars.

Winner-take-all spectrum auctions have already proven that AT&T and Verizon are best equipped to bid and win coveted 700MHz spectrum which provides the best indoor and fringe-area reception. This is why AT&T and Verizon customers often find “more bars in more places” than customers relying on Sprint or T-Mobile. Smaller carriers typically have to offer service over much-higher frequencies that don’t penetrate buildings very well. With a reduced level of service, these competitors are at an immediate competitive disadvantage. They also must spend more for a larger number of cell towers to provide uniform service.

Verizon’s own presentation materials tout the benefits of controlling 700MHz spectrum, which is less costly to deploy and offers more robust coverage.

Sprint and T-Mobile have two strikes against them at the outset — less favorable spectrum and much smaller coverage areas. Customers who want the best reception under all circumstances usually get it from the biggest two players. Those focused primarily on price are willing to sacrifice that reception for a lower bill.

The same story is developing in the wireless data marketplace. AT&T and Verizon Wireless have the strongest networks as Sprint and T-Mobile fight to catch up.

Where America Went Wrong: The Repeal of Spectrum Caps

Tom Wheeler: America’s #1 advocate for repeal of Spectrum Caps is now the chairman of the FCC.

Originally, the United States prevented excessive market domination with a “Spectrum Cap,” — a maximum amount of wireless spectrum providers could hold in any local market. The rule was part of the sweeping changes in telecommunications law introduced in the mid-1990s. Wireless spectrum auctions replaced lotteries or strict frequency assignments based on merit. The U.S. government promoted the auction system as a win for the U.S. Treasury, which has been promised $60 billion in proceeds from the wireless industry (not the amount actually collected) since auctions began in 1994.

The cost to U.S. consumers from increasing cell phone bills in barely competitive markets is still adding up.

After the auction system was introduced, the largest carriers acquired some of the most favorable, lower-frequency spectrum, easily outbidding smaller rivals. Most of the smaller regional carriers that ultimately won coveted 700MHz spectrum emerged victorious only when AT&T and Verizon felt the smaller markets were not worth the investment. In larger markets, spectrum caps were a gatekeeper against acquiring excess spectrum and, more importantly, rampant industry consolidation.

Under the pre-2001 rules, wireless companies couldn’t own more than 45MHz of spectrum in a single urban area or more than 55MHz in a rural area. That was when Verizon and AT&T competed with carriers that no longer exist — old familiar names like Nextel, Cingular, VoiceStream, Alltel, Centennial Communications, Qwest, and many others considered safe from poaching because the most likely buyers would find themselves over their spectrum limits.

As the largest carriers realized the caps were an effective merger/buyout firewall, the wireless industry began a fierce lobbying campaign against them. Leading the charge was Tom Wheeler, then-president of the CTIA Wireless Association, the nation’s top cellular industry lobbying group. Today he is chairman of the Federal Communications Commission.

“Today, America faces a severe spectrum shortage for wireless services,” Wheeler said in 2001. “The spectrum cap is a legacy of spectrum abundance, not shortages; the inefficiencies it perpetuates cannot be allowed to continue. While the U.S. government is looking for ways to catch up to the rest of the world on spectrum allocations, removal of the cap can at least increase the efficiency of existing spectrum.”

Former FCC Commissioner Michael Copps opposed retiring Spectrum Caps: “Let’s not kid ourselves: This is, for some, more about corporate mergers than it is about anything else.”

Wheeler was backed by an intensive lobbying effort funded by the largest wireless companies itching to merge and acquire.

By the end of 2001, the new Bush Administration’s FCC was ready to deal, gradually repealing the spectrum caps and fueling major wireless industry consolidation in the process. Providers everywhere could now own or control 55MHz of spectrum in any market, with the promise the caps would be repealed altogether by March 2003.

The result was already foreseen by former FCC Commissioner Michael Copps in November 2001, when he strongly dissented to the Republican majority gung ho for dissolving spectrum caps.

“Let’s not kid ourselves: This is, for some, more about corporate mergers than it is about anything else,” Copps wrote in his strong dissent. “Just look at what the analysts are talking about as the specter of spectrum cap renewal approaches – their almost exclusive focus is on evaluating the candidates for corporate takeovers and handicapping the winners and losers in the spectrum bazaar we are about to open.”

Just in case Copps might be making headway in his campaign to protect competition, Wheeler began complaining even louder about spectrum caps during the spring of 2003, just before their dissolution.

“The wireless industry fought long and hard to secure this spectrum for America’s wireless consumers,” said Wheeler. “Now we must tread carefully — in this era of rapid technological change, writing rules that are too restrictive would be irresponsible. In order to use this spectrum both efficiently and effectively, those who purchase this spectrum at auction must be allowed the freedom to grow and evolve with the demands of the market.”

Europe: Protecting Consumers from Giant Multinational Competition Consolidators (Some of the same ones AT&T reportedly wants to buy)

There is a reason Europeans are shocked by the costs of wireless service in the United States and Canada. North Americans pay higher prices for less service than our European counterparts. Most of the New World also has fewer choices in near-equivalent service providers.

Much of this difference can be attributed to European regulators maintaining focus on driving competition forward and disallowing rampant industry consolidation. But as Wall Street turns its attentions increasingly towards Europe to push for the next big wave of wireless mergers, the European system of “competition first” could be undermined if providers follow the North American model of high profits and reduced competition through consolidation.

Across much of Europe, at least four national carriers serve each EU member state, almost all controlling a share of the most valued, low-frequency wireless spectrum. European regulators do not allow a small handful of providers to maintain a stranglehold on the most valuable radio spectrum. Competitors have traditionally been offered a spectrum foundation to build networks that can stand up to their larger counterparts — the large multinationals or ex-state monopoly providers who had a head start providing service.

A report released by Finland market research firm Rewheel in May found clear evidence that the European model was benefiting consumers at the expense of rampant provider profits. Europeans in “progressive” markets that welcomed new competitive entrants pay lower prices for far more service. In some cases, the price differences between the five giant multinational providers that dominate Europe — Vodafone, KPN, France Telecom, Telefonica and Deutsche Telekom — were staggering. Competitors like Tele2, TeliaSonera, and “3” charge up to ten times less than the larger companies for equal levels of service.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg ATT Takeover List of European Wireless Carriers 7-15-13.flv[/flv]

“Europe is ripe for competition,” reports Bloomberg News. Providers like AT&T may be preparing to embark on a European wireless acquisition frenzy, but Wall Street warns profits are much lower because of robust price competition in Europe that benefits consumers. (4 minutes)

The study also found a number of the largest European providers were following in the footsteps of Verizon Wireless, AT&T, Rogers, Bell, and Telus here in North America:

• Prices were enormously higher in markets that lack effective competition from an upstart competitor able to deliver a comparable level of service. Smaller cell companies with very limited infrastructure or with non-favored spectrum could not provoke dominant players to cut prices because reception quality was starkly lower and consumers would have to cope with a reduced level of service. In Europe, when new competitors were able to fully build-out their networks using favorable spectrum, incumbents in these progressive markets slashed prices and boosted services to compete. In North America, upstart competitors cannot access favorable spectrum for financial reasons and the investor community has dismissed many of these players as afterthoughts, starving them of much-needed investment.
• Large dominant European providers are now heavily lobbying for deregulation of merger and acquisition rules and want the right to acquire the competition entering their markets.
• In almost half of the EU27 member state markets spectrum is utilized very inefficiently by the largest incumbent telco groups who are keen to protect their legacy fixed assets and cement their European dominance with more consolidation at the price of competition. In the United States and Canada, many of the largest providers crying the loudest for more wireless spectrum have still not used the spectrum already acquired.

From the Finnish report:

The obvious question that needs to be asked is how is it technologically possible and economically viable for Tele2, 3 and TeliaSonera to offer four times more gigabytes of data usage at a fraction of the price charged by larger companies.

• Do independent challengers have privileged access to more efficient technologies (i.e. LTE) than the E4 group members?
• Do they hold relatively more spectrum capacity than the E4 group members?
• Do independent challengers have access to more radio sites and their spectrum reuse factor is higher than the E4 group members?
• Or are independent challengers (i.e. Tele2, DNA) unprofitable?

None of the above are true.

The answer is actually very simple. Independent challengers and incumbents such as TeliaSonera present mainly in progressive markets are utilizing the spectrum resources assigned to them. In contrast, incumbent telco groups […] rather than utilizing their spectrum resources instead appear to be more concerned about keeping the unit price of mobile data very high […] by restricting supply, the same way the lawful “cartel” of OPEC controls the price of oil by turning the tap off.

In progressive markets (where at least one independent challenger is present, triggering spectrum utilization competition) such as Finland, Sweden, Austria and the UK, mobile data consumption per capita is up to ten times higher than in protected markets.

In some European countries dominated by the biggest players, consumers are being gouged for service. Where robust competition exists, prices are dramatically lower.

The European nation where market conditions are most similar to the United States is Germany. Two large carriers dominate the market: Deutsche Telekom, the former state-owned telephone company and Vodafone, part owner of Verizon Wireless.

In Germany, consumers spending €20 ($26) end up with a data plan offering as little as 200MB of usage per month. In progressive markets in adjacent countries, spending the same amount will buy an unlimited use data plan or at least one offering tens of gigabytes of usage. In short, German smartphone service is up to 100 times more restrictive than that found in nearby Scandinavia or in the United Kingdom. These same two companies charge Germans double what English customers pay and a Berliner will end up with 22 times less data service after the bill is settled.

So what is going on in Germany that allows the marketplace to stay so price-distorted? The fact all four significant competitors have close ties to or are owned by the large multinational telecom operators mentioned above. Deutsche Telekom, Vodafone, Telefonica and E-Plus, the latter one belonging to the Dutch KPN Group are all members of a lobbying organization attempting to persuade the EU to invest public funds into improving Europe’s wired broadband networks. Playing against that proposition is a growing number of Europeans moving to wireless. By charging dramatically higher wireless prices in Germany, all four companies have successfully argued that wireless adoption is not a significant reason to stall public financing of private broadband projects. In fact, Germany’s wireless growth is well below other EU nations.

The Finnish researchers point out the evidence of informal provider collusion is pretty stark in Germany:

“One would expect these ‘European Champions,’ especially the ones with lower market shares (Telefonica and E-Plus), to look at the smartphone centric market transformation as an opportunity to secure or improve their market share, especially in light of the fact they should have plenty of unused radio spectrum capacities to make their offers more consumer-appealing,” the report finds. But in fact these new entrants have priced their services very closely in alignment with the larger two.

“Undoubtedly, multinational incumbent telco groups and their investors have good reasons to lobby EU decision makers to enact friendly policies that will protect their inherited oligopolistic high profit margins,” the report states. “But will the German model serve the best interest of consumers and business in other EU member states? In Rewheel’s opinion, clearly not. Enforcing an overly ‘convergent player friendly’ German model would severely limit competition in the mobile markets, leading to high prices for consumers and the Internet of mobile things and sever under-utilization of the member states’ scarce national radio spectrum resources.”

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg ATT Entry in Europe Not Seen as Competitive Threat 7-15-13.flv[/flv]

Competition is brutal in Europe’s wireless marketplace — a factor Bloomberg News says could temper AT&T’s planned “European Wireless Takeover.” What makes the difference between enormous profits in North America and heavy price discounting in Europe? Spectrum policy, which gives European competitors a more level playing field. Bloomberg analysts speculate AT&T will bankroll its rumored European buyouts and mergers with the enormous profits it earns from U.S. subscribers.  (4 minutes)

Verizon Wireless customers and public safety personnel are upset that the cell phone company was caught unprepared after a rural roaming agreement with AT&T expired at the end of June, leaving police officers without communications and others with no way to reach 911.

AT&T no longer permits Verizon Wireless customers to roam on its acquired former Alltel network, which has dramatically reduced service in Geraldine, Absarokee, Ft. Benton, Browning, Harlem, Evaro, Cascade, Stanford, Lincoln, Ennis, Virginia City, and Great Falls.

Lincoln resident Gayle Steinch is living with the result of that business decision. She has a single bar of service on her Verizon Wireless cellphone at her house. It is her only phone — she dropped landline service in 2007.

“And I live a half a block off the main street,” she told the Great Falls Tribune.

Verizon’s road to no bars in rural Montana.

Capt. Gary Becker of the Montana Highway Patrol told The Montana Standard troopers in the area haven’t been able to communicate on their cell phones or their computers installed in their cruisers since the roaming agreement expired. Becker said police have to travel at least 30 miles to get any usable reception from Verizon.

Jessica Constantine, manager of the AT&T Elite Wireless store in Butte, said AT&T “had a roaming agreement with Verizon and we allowed them to use our towers for three years. The contract is over.”

And with it, Verizon Wireless network reception.

The agreement was part of a deal between AT&T and Verizon over Verizon’s 2010 purchase of Alltel. Federal regulators required Verizon to divest itself of certain Alltel territories for competitive reasons, transferring those customers to AT&T. As a result, territories that used to be well-served by Alltel’s CDMA network are now being converted by AT&T to GSM and data service, exposing Verizon’s sparse home cellular coverage in several parts of the state.

“They had years to prepare for AT&T switching off Alltel’s old CDMA service Verizon was dependent on, and Verizon did little to nothing,” said Jim Brown. “The Verizon person I spoke with told me it did not make sense to build a network out here because the only thing it would serve are crows. But they promised they would at least try to equal the coverage Alltel used to give us. That never happened and still isn’t.”

Verizon denied there was a major service loss in rural Montana. Bob Kelley, corporate spokesperson for Verizon, said that the change in service was planned and its impact would be limited to “less than optimal” service. He confirmed there were no unexpected outages.

After negative media coverage reported Verizon’s inability to provide quality cell service in rural Montana, the company agreed to temporarily deploy portable cell towers to improve coverage.

The “COWs”— cellphone towers on wheels — are stationed in Lincoln, Virginia City, Lima, Broadview, between Absarokee-Fishtail, as well as in Jackson, mostly meeting the needs of law enforcement monitoring the Rainbow Family Gathering last week. Verizon is also deploying repeaters that can re-broadcast signals and enhance range, as well as add coverage to existing permanent facilities. The company is planning on adding permanent towers this week in Marion and Tarkio. Additional permanent towers are also planned for Lincoln and Columbus by the end of August.

That cannot come soon enough for some customers.

Cell tower on wheels

“Verizon brought up this 40-foot [temporary] antenna, but you really can only get service on it on Main Street,” said Steinch, the manager of The Bootlegger, a Lincoln bar and restaurant. “We had a guy in here this morning who has a towing company who missed out on an $1,800 job because his cellphone didn’t get the call.”

Service has deteriorated so badly in rural Montana, some AT&T stores had lines of soon-to-be-ex-Verizon customers snaking out the door, and at least one reported it was completely sold out of cell phones and wireless broadband devices.

“Dillon sold out of cell phones yesterday,” said Constantine, “because everybody in Lima who was using Verizon just flooded the Dillon store.”

Verizon subscriber John Ulias found his cellphone useless at his cabin in the Little Belt, as did many of his neighbors in that area.

Although Verizon told Ulias and the Tribune subscribers should still be getting service in the Little Belts area from a Verizon antenna in Stanford, Ulias said that isn’t the case.

“I gave the Verizon representative the cell numbers of two of my Little Belt neighbors after he told me we should be getting service up there,” Ulias told the newspaper. “The guy called me back and said his calls went straight to their voicemail.”

Montana residents affected by the disruption of Verizon Wireless service seeking to file a complaint should contact the Office of Consumer Protection at the Montana Department of Justice by emailing: [email protected], faxing 406-444-9680 or calling 800-481-6896 or 406-444-4500.

For customers planning to switch carriers because of reception issues in Montana, Verizon is waiving early termination fees. For those customers the company can convince to stay, discounted service will be available along with discounts on a Verizon Network Extender, a portable in-home mini-cell tower that interfaces with a home broadband connection. To pursue either option, prepaid consumers should call Verizon Customer Service at 1-888-294-6804; all others should call 1-800-922-0204.

In New York and New Jersey, Verizon is attempting to convince some rural residents to abandon their landline service in favor of Voice Link, which relies entirely on Verizon Wireless reception.

“I have one word for my friends back east: don’t,” said Brown.

The general counsel of the Federal Communications Commission predicts your landline will stop working within the next ten years, abandoned by companies like AT&T and Verizon in favor of wireless service in rural America or fiber (if you are lucky) in the cities.

Phillip “Did you know your landline will be dead within ten years?” Dampier

Sean Lev, the FCC’s general counsel, said in a blog post that “we should do everything we can to speed the way while protecting consumers, competition, and public safety.”

But the FCC seems to be abdicating its responsibility to do exactly that by singing the same song some of America’s largest phone companies have hummed since they decided to get out of the copper landline business for fun and profit.

Traditional boring telephone service is regulated as a utility — a guaranteed-to-be-available service for any American who wants it. Hundreds of millions of Americans do, especially in rural areas where America’s cell phone love affair is tempered by dreadful reception, especially in mountainous areas. Oh, and the nearest cable company is ten miles away.

AT&T and Verizon — two of America’s direct descendants of the Bell System, just don’t want to pay to keep up a network most of urban America doesn’t seem to want or need anymore. In addition to a dwindling customer base, providing a regulated legacy service means having to answer to unions and government-types who make sure employees are fairly compensated and customers are given reasonable service at a fair price. The alternatives on offer from AT&T and Verizon carry no such regulatory (or union) baggage. Prices can change at will and customers have no guarantee they will receive service or have someone to complain to if that service is sub-standard.

While in the past regulators have taken the lead to make sure telephone companies meet their obligations, the new FCC seems to spend most of its time observing the business agendas of the companies themselves.

Lev implied to the Associated Press the FCC is not exactly leading the parade on the future of landlines. He seems more comfortable trying to analyze the intentions of AT&T and Verizon’s executives:

Most phone companies aren’t set to retire their landline equipment immediately. The equipment has been bought and paid for, and there’s no real incentive to shut down a working network. He thinks phone companies will continue to use landlines for five to 10 years, suggesting that regulators have some time to figure out how to tackle the issue.

Lev

AT&T is more direct: It wants to switch off all of its landline service, everywhere, by 2020. Customers will be given a choice of wireless or U-verse in urban areas and only wireless in rural ones. Where U-verse doesn’t serve, AT&T DSL customers will be in the same boat as Verizon customers on Fire Island: pick an expensive wireless data plan, satellite fraudband, or go without.

Verizon prefers a “gradual phase-out” according to Tom Maguire, Verizon’s senior vice president of operations support.

Verizon claims it has no plans to shut down working service for customers, but it does not want to spend millions to continue to support infrastructure fewer customers actually use. That means watching the gradual deterioration of Verizon’s copper-based facilities, kept in service until they inevitably fail, at which point Verizon will offer to “restore service” with its Voice Link wireless product instead.

For voice calls, that may suffice for some, especially those comfortable relying on cell technology already. But at a time when the United States is already struggling with a rural broadband problem, abandoning millions of rural DSL customers only makes rural broadband an even bigger challenge. The wireless alternative is too variable in reception quality, too expensive, and too usage capped.

Schneiderman

The New York Attorney General has some strong words for Verizon Communications:

“Verizon [must] divest those portions of its New York franchise where it is no longer willing to continue providing wireline service and replace Verizon with another carrier that will provide wireline service.”

Attorney General Eric Schneiderman is more than a little concerned with Verizon’s plans to abandon offering landline service on the western half of Fire Island and potentially other areas further upstate to satisfy the company’s wireless business strategy.

In a hostile 13-page filing directed to the New York Public Service Commission, Schneiderman’s office accused Verizon of abdicating its responsibility to provide universal access to high quality landline service in favor of moving customers to inferior Verizon Wireless service.

“Verizon is asking the Commission to depart from a century of telephone service regulation, which had as one of its fundamental principles, universal wireline telephone service for all customers,” Schneiderman wrote.

In return for a guaranteed monopoly, profits, and a secure franchise area across portions of New York, telephone companies like Verizon historically agreed to offer phone service to any customer who wanted it. State and federal universal service rules provided subsidies to phone companies to reach their most rural or expensive-to-reach customers.

The goal, Schneiderman argued, was for every resident in New York to have home phone service, enabling them to communicate with their doctors, families, schools, friends and businesses, as well as to send for police, fire and ambulance assistance in an emergency.

Verizon’s intended replacement, Voice Link, represents a downgrade in service even worse than hundred-year old copper wire “plain old telephone service,” according to the attorney general. Schneiderman called Verizon’s Voice Link inferior and its thick 10-page terms, conditions, and disclaimers “legalistic,” leaving consumers without services they previously received or imposing significant new burdens and obligations.

The issues cited by Schneiderman:

Voice Link Service “is not compatible with fax machines, DVR services, credit card machines, medical alert or other monitoring services or some High Speed or DSL Internet services.” Customers in western Fire Island and other rural parts of New York have no FiOS or cable modem Internet providers to switch to, so those who rely on these services have no alternatives if switched to Voice Link.

Because Voice Link “may not be compatible with certain monitored home security systems,” customers’ homes and businesses will be at greater risk from flooding by burst plumbing, fire or burglars. In the case of plumbing emergencies, visit Carlson Plumbing Company website for reliable solutions and prompt support.

Although wireline customers whose service is suspended for nonpayment can still reach a 911 operator in emergencies, suspension of Voice Link “will prevent ALL Service, including any 911 dialing and associated emergency response services. Customers may also lose the ability to receive or place calls, even to 911, if they fail to “promptly notify Verizon” of a change in their address, email, or credit card expiration date.

Customers must “defend, indemnify and hold harmless Verizon from and against all claims … for infringement of any intellectual property rights arising from use of Voice Link or its software.”

Voice Link Service “does not allow the Customer to make 500, 700, 900, 950, 976, 0, 00, 01, 0+, calling card or dial-around calls (e.g., 10-10-XXXX),” so customers will be unable to use such pay-per-call information services. Voice Link Service “does not allow the Customer to accept collect calls or third number billed calls. The Company will not bill any charges on behalf of other carriers. [Customers] must have an International Calling Plan in order to make international calls. Wireline customers are able to subscribe to toll and international calling plans provided by other carriers, and have these and other third-party service charges included on their Verizon bills.

Verizon Voice Link

Voice Link Service “is subject to the availability of adequate wireless coverage throughout your home, and is not available in all locations.”

Unlike wireline service, which supplies its own power over the copper wiring, Voice Link uses customers’ house current to operate. Verizon has not disclosed how much customers’ electric utility bills will increase to power the Voice Link device. Also, if electric power is interrupted, Customers may have to “reset or reconfigure equipment prior to using” Voice Link. This may be difficult for some physically limited or technologically unsophisticated customers to perform.

During power interruptions, the wireless Devices used in Voice Link are battery operated. Although the Devices include a rechargeable battery back-up that provides only 36 hours of standby power and up to 2.5 hours of talk time in the event of a commercial power outage, “[a ]fter the battery is exhausted, the Service (including 911 dialing) will not function until power is restored.”

After the expiration of a one year replacement warranty for the battery back-up included with customers’ wireless Device, customers “are responsible for replacing the back-up battery as needed,” but Verizon has not disclosed the cost of such replacement batteries.

Wireline customers purchase their own telephones from competitive manufacturers, but the Voice Link device is only supplied by Verizon, which continues to own it. Thus, customers will have to pay Verizon to repair the device if “such repair or maintenance is made necessary due to misuse, abuse or intentional damage to the Device.” Verizon has not disclosed what [the] repair or replacement might cost customers in such event.

When wireline customers end their service with Verizon, they have no equipment to return to the company. However, Voice Link customers who cancel their service “are responsible for returning their Wireless Device to [Verizon] in an undamaged condition. Failure to return the Device within 30 days … may result in [Verizon] charging [customers] an unreturned equipment fee.” Verizon has not disclosed the amount of this fee.

Schneiderman accused Verizon of dragging its feet on repairs on Fire Island and forcing Voice Link on customers as the only available alternative.

“It is clear that Verizon is leveraging the storm damage from Sandy as part of its long-term strategy to abandon its copper networks by substituting Voice Link for [landline] service on western Fire Island and forcing customers to accept wireless Voice Link wherever it does not build FiOS,” Schneiderman argued. “Verizon’s failure to make prompt repairs to its Fire Island facilities during the seven months following Sandy left the Commission little choice but to provide temporary approval of Voice Link so that customers would have some form of telephone service during the 2013 summer beach season. However, this ‘temporary approval’ should not be expanded to allow Verizon to avoid its obligations permanently, on Fire Island or anywhere else in New York.”

Schneiderman wants the PSC to force the issue with Verizon, and not on the preferred terms of its senior executives.

“Rather than allow Verizon to provide inadequate Voice Link service to Fire Island and other New York customers, the Commission should compel the company to either maintain its wireline network throughout its franchise territory or sell
those parts where it is unwilling to do so to another provider that will provide adequate service,” Schneiderman wrote.