FCC urged to investigate Verizon’s statements on utility rules
arstechnica.com
arstechnica.com
Verizon swears up and down in FCC filings it is not a title II common carrier FOR THE FIBER LINES (it always has been for PSTN). But in it's statements to state regulatory commissions and it's franchise agreement with states/municipalities state specifically that it is upgrading/building THE FIBER LINES under Title II.
This is because Title II allows them to do so without getting further permission/process from the state.
You can't tell the FCC one thing, and state regulatory agencies the other.
The rest of this filing should have been removed. Press statements/etc are pretty much irrelevant, and they should stick to the simple facts. Anything else will just be fodder for arguing over when it doesn't matter.
For those wondering about perjury, there are a number of federal perjury statutes (the most general that i'm aware of being 18 USC 1621, http://www.law.cornell.edu/uscode/text/18/1621).
If you tell the federal government something, and it includes the words "I declare under penalty of perjury, ....", and you are knowingly misrepresenting something in that document, you have committed a felony.
(In the case of tax returns, it's at least two felonies, since there is also a specific tax return perjury statute, and in either case it doesn't matter whether you owe the IRS money or not)
Currently its ISP service is not a Title II service.
The FCC common carrier rules are about services not the underlying network technology.
The statements aren't even contradictory, let alone so obviously contradictory that they were knowingly lying.
Sure, but it then claims to use Title II to do upgrades to it's ISP service capacity on those licenses, which is ... contradictory.
If the agreements, etc, said "we will perform necessary upgrades to telephone service over fiber lines under Title II, all others will be under Title X", that would be different. But they don't. The claim it all falls under Title II.
So they are definitely contradictory.
The real discussion is not whether the country's big media duopoly should be forced to conduct their business model like a public utility or not, but whether a duopoly is healthy at all. If communication infrastructure requires few large investors and centralized ownership it is a natural monopoly and should be managed as such (and in fact resold on a market of small service providers a la the UK's internet and American power). If it does not, let anti-trust law hammers fall. Comcast and Time Warner consistently collect the very worst consumer reviews (Comcast was the worst of all corporations for year running). They are both larger and more predatory than Ma Bell was leading up to 1984.
And American wired telephone service (infrastructure owners must allow competitors to lease that infrastructure).
People talk about regulating telecom like the power company, but the trend over the last 30 years has been to deregulate the power companies as much as possible.
NB: The UK example is a poor one. British Telecom was originally a government entity, and was "privatized" under agreements that made clear that they would be subject to constraints. In contrast, since 1996, the telecoms have invested tens of billions of dollars in capital under the premise that the industry was deregulated.
Which is exactly how Congress chose to deal with the possibility of companies abusing exclusive rights to put wires down on public rights of way--by making it illegal for municipalities to give them exclusive privileges.
[1] E.g. http://arstechnica.com/information-technology/2013/08/snubbe.... Ars talks about how Baltimore's franchise agreement with Comcast "effectively makes the company the exclusive cable television provider in the city." (Quoting the Baltimore Business Journal). If you actually read the 2004 franchise agreement, it clearly says it's not: http://www.baltimoregrassrootsmedia.org/PublicAccessTV/Franc... ("City hereby grants to Franchisee, subject to the terms and conditions of this Agreement and the Franchise grant ordinance, a non-exclusive Franchise with the right, privilege and authority to construct, operate, repair, maintain, and reconstruct a Cable System on, over, under upon, across, and along the Public Ways within the Franchise Area in accordance with the City's specifications and this Agreement.")
Ars makes it seem like Comcast bamboozled the city into signing an exclusive franchise agreement, but in reality nobody else wants to build here for the same reason Google didn't want to build here. Large parts of the city are a burned-out husk, a quarter of the population is below the poverty line, and it's unacceptable in the eyes of the city for anyone to just build-out to the parts of the city that might be able to afford fiber service.
So what is it. No person willing to fund a company in Baltimore? No investors willing to spend the same price as Comcast, or less if a smart founder can out-perform the past production cost?
If you can explain the monopoly without invoking government intervention, I am all ears.
The Ars Technica narrative is that we need to regulate the telecom companies because they abuse their privileges to keep out competitors. But what's keeping out competition is, e.g., Baltimore forcing companies to build fiber service to the 25% of the city that's below the poverty line as a pre-condition for building anywhere in the city. It's Bill de Blasio turning FiOS deployment into a civil rights issue.[1] It's not clear to me how these requirements are the result of telecom companies abusing their privileges. And it's not clear to me how the solution to a problem created by over-regulation is imposing even more regulation.
I'm not a anti-regulation type. If a telecom company is digging under roads in a way that's hazerdous to public safety or the environment, that should be regulated. But this is an issue that turns mainstream liberals into Nader-ites espousing thoroughly discredited regimes like Title II. For god's sake Kushnick thinks the government should be in the business of telling companies what prices they can charge. As someone too young to remember the 1970's, it comes across as insanity.
[1] http://www.speedmatters.org/blog/archive/new-york-mayor-bill... ("If you can’t afford to feed your family by the end of the month, you can't afford $75 a month for the broadband service. And that's what we have to fix.")
Why is that pre-condition supposedly preventing companies from building infrastructure? It's not as though the City has also demanded that they operate at it a loss, merely that they build out service to the entire city as opposed to building service out to the choicest bits. And, isn't that exactly what a city government ought to do?
It costs you $1,000 just to pass a house, even if they don't subscribe, and you have to maintain that infrastructure too. If 40% of passed houses subscribe (Verizon has been struggling to hit that number for years), you pay $2,500 per house that does subscribe. This is the "uptake ratio" and a fiber provider lives and dies by that number.
Build-out requirements tank your uptake ratio, because you spend a bunch of money passing houses where people can't afford to subscribe. It increases how much you need to make on all the other houses to recoup your costs.
But your other subscribers don't give a shit about your costs. They're willing to pay, e.g., $100/month for triple play, and they don't care if your per-house cost is $2,000 or $4,000. If you raise your prices to recoup your costs, they'll just stick with the incumbent, again tanking your uptake ratio.
A small ISP may be willing to ask for a $10 million bank loan to wire up a yuppie neighborhood like Fells Point, with the prospect of seeing how it goes and building out from there. Nobody will ask for a $250 million bank loan to wire up the whole city of Baltimore.
A city that wants fiber has the obvious choice to subsidize the investment of a large ISP, say Comcast, thus severely reducing the investment cost. The permission to build is of course non-exclusive, but the subsidizing is not. Once built, the ISP gained a government granted advantage, and thus a monopoly is born.
Alternative, a city can create a government bid for administrating and building a city fiber network. On paper, this mean that the city owns the fiber, and the ISP that builds it has to sell access on equal ground with competitors. The ISP do still get an advantage in operation knowledge, some payment for doing the administration, and first mover advantage. This tend to result in healthy, if somewhat constrained, competition.
Ars Technica narrative talk about how the cable division paid little or no construction costs. That is very different aspect than if the permission to construct, operate, repair, maintain, and reconstruct a Cable System is non-exclusive.
Cities don't subsidize cable companies. Indeed, they extract concessions from them. E.g. every time Comcast re-ups the contract in Wilmington, DE, where I used to live, they have to kick in a random couple of million to government programs.
> Ars Technica narrative talk about how the cable division paid little or no construction costs.
Who cares what division within the ISP paid the construction costs? At the end of the day, the money came from the company's paying customers, not the municipalities.
A second mover really only has a chance of getting 50% of the market. But it still has to build a network that services 100%.
A third mover really only has a chance of getting 33%, but has to service 100%.
The first mover doesn't get subsidies, they just get 100% of the market. The second mover likely can't be profitable. The first mover will match or beat their prices.
>> But what's keeping out competition is, e.g., Baltimore forcing companies to build fiber service to the 25% of the city that's below the poverty line as a pre-condition for building anywhere in the city.
The original, specific contention (exclusive cable laying rights) may be untrue according to you.
Does that matter whether the government is enforcing the monopoly through excesive coverage requirement or through limiting cable laying rights? The government is still helping to enforce a monopoly.
I think the argument is that the telecom companies need to be regulated because they're a monopoly. So... government is helping to enforce a monopoly
The original contention was not that the government is helping to perpetuate the monopoly, it's that the cable companies were using special privileges in an anti-competitive way. There's no special privileges, and if you look at e.g. Verizon's tussle with Baltimore, they're not the ones lobbying for excessive coverage requirements.
I don't know why the solution to government policies that discourage competition isn't getting rid of those policies.
It's a wacky wacky pricing scheme to get space on poles and in utility rights of way.
The government should stop granting companies privileges and let the free market work.
So it's more a matter of creating 'good' regulation and designing markets (think cap-and-trade) that meet all criteria. It's not easy and you are right to be skeptical of industry's current role in designing its own regulation.
And it's not like anything has happened since then that has made people rethink power company deregulation, too: http://en.wikipedia.org/wiki/California_electricity_crisis
“I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. . . . corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed.”
Not interested really in figuring out the real source. There's enough substance to the quote that I think it stands on its own.
Pedigree for this quote is often asserted by pointing to the 1950 Lincoln Encyclopedia, compiled by Archer H. Shaw, which "authenticates" the quote by citing a purported 1864 letter from Lincoln to one Col. William F. Elkins found in Emanuel Hertz's 1931 book, Abraham Lincoln: A New Portrait. However, this source is fraudulent: the Elkins letter reproduced by Hertz was a forgery, and Shaw, a sloppy compiler, added the bogus letter to his encyclopedia (along with several other pieces of Lincoln apocrypha) without verifying its authenticity. As historian Merrill Peterson, author of Lincoln in American Memory, noted of Shaw's work: Read more at http://www.snopes.com/quotes/lincoln.asp#TmQ2MSs5eXjUah3P.99...
It's honestly too bad none of us have real time to put into digging up and verifying this stuff on our own. The snopes source says "was a forgery...added the bogus letter to his encyclopedia (along with several other pieces of Lincoln apocrypha) without verifying its authenticity" but doesn't give reference to how this is known, or by whom it was confirmed to be a forgery.
The only other point made is that given the author's (Merrill Peterson) knowledge: "Nonetheless, Peterson concluded, even Lincoln's wartime experience and pro-labor credentials don't justify the attribution of the 'money power' warning to him".
And the other reference 'W.J. Ghent' is an article in a newspaper where he's giving what appears to be an opinion. According to his wikipedia page, he was not a historian: http://en.wikipedia.org/wiki/W._J._Ghent
It's hard to read the article given that it's scanned copy of the newspaper from 1905, but here it is: http://goo.gl/Qfsqry
So we have an argument that the letter was fraudulent without references to who asserts this, and we have the author's own authoritative "spin" as justification that the letter wasn't real.
I'm no historian, but if the "forgery" claim is based on the fact that they can't pin the handwriting to Lincoln's own, is it out of the question that the letter was transcribed?
On the other hand we have a reference which claims to contain a letter written by Lincoln, the original of which may or may not still be in existence. Who knows how far down the rabbit hole we could go just to figure this out. Instead perhaps it's best to leave it to the internet to argue the point further if they decide to.
https://www.techdirt.com/blog/netneutrality/articles/2015010...
The irony of the article is that it's kind of right in a way that really undermines the whole premise of the argument. Suppose that Verizon did use "Title II money" (i.e. revenues from rate increases on wireline subscribers) to fund FiOS deployment. That may very well not be kosher according to the rules, but that just goes to show that the rules are ridiculous. Should we launch a federal investigation to see if Apple subsidized iPhone development by increasing Mac prices?
I like Ars, but they've been beating an anti-telco trumpet recently that's totally detached from reality. Ars paints telecom service as this cash cow, but the fact of the matter is that nobody in the U.S. is making money on fiber on deployments of any substantial scale. It's not clear that Verizon is even earning a positive return on the thousands of dollars per household it has invested in FiOS in many markets: http://www.businessweek.com/magazine/content/11_13/b42210461... (In the PNW: "He estimates the project will end up having cost Verizon $4,000 per connected home. Moffett calculates the present value of acquired subscribers at $3,200 each. That would give FiOS a negative $800 net present value per customer.")
Wall Street wants Verizon to get out of the wireline business entirely, and it's precisely because there's little return on the billions in required investments, coupled with the regulatory swamp that is Title II.
[1] Kushnick's whole shtick is that there's some rate that's okay for a telecom carrier to charge, and any price increase beyond that rate is a "subsidy" from the public to the carrier. Hence, Verizon raising rates on its own customers to pay for its fiber network is some sort of questionable act. Applying Kushnick logic to another industry: if Apple raises prices on Macs and uses that cash to bankroll iPhone development, well that's something that requires a federal investigation.
This isn't a good analogy -- if Apple had been granted use of public goods (rights-of-way, airwaves, and local/regional monopolies on service) in exchange for guarantees of service, raising their prices on such a service to fund another segment of the company would absolutely require investigation.
You can't "purchase" a public good like a segment of the wireless spectrum and do with it whatever you please. Exclusive access to that segment can be granted to you in exchange for money by the government, and it comes with many conditions.
Sure you can. Indeed, one of the dominant theories of contemporary economics is that market failures in public goods should be handled by turning them into property rights and privatizing them.
There is a large population of people (including many economists) who DON'T subscribe to your supposedly "dominant" theory.
That power company is required to permit pole attachment for telecommunications (but not necessarily broadband internet service) companies, according to Title II.
No, his point is that using Title II status to legally enforce rate increases under the guise of telephone upgrades and then using that money to invest in a completely different business (cable and broadband) is a questionable act
And further, to take advantage of this status as Title II to increase capital investment and then turn around and claim that Title II decreases capital investment is glaringly hypocritical.
I do agree, however, that Ars is on an anti-telco hunt these days.
>Ars paints telecom service as this cash cow, but the fact of the matter is that nobody in the U.S. is making money on fiber on deployments of any substantial scale.
This is a really misleading sentence. I agree that fiber deployments arent a big money generating enterprise, is any capital investment? They make money off of subscribers, not capital investment and they certainly are raking in plenty of cash doing so (over 120 billion revenue in 2013 for verizon)
edit: added the phrase 'questionable act'
The problem with the argument is the phrase "take advantage of this status as Title II." The default state of affairs is that a company does not need a reason to raise its prices. Title II forces rate regulation. So Verizon didn't "take advantage of Title II" to raise rates. It raised rates despite Title II. Doing that is not at all hypocritical against the argument that Title II will decrease capital investment. Indeed, it's entirely consistent with that argument. Investors are less likely to throw $23 billion into building a fiber network if they have to work within a regulatory regime where they need permission to raise prices to fund upgrades.
from the article:
>every fiber optic wire appears to be Title II." That includes fiber lines used to deliver home Internet service and the fiber lines that feed into Verizon Wireless' cell towers,
>Verizon provides Title II-regulated phone service over both copper and fiber, but the fiber network also supports FiOS Internet, TV, and the largely unregulated Digital Voice service. Despite its claims about Title II harming broadband providers, Verizon used its common carrier status to gain perks that helped build the fiber network.
You can't say capital investment is harder under Title II, then use your Title II branch of your company to gain investment for buildouts of your non-Title II business. That is directly hypocritical. If it were true, you would be seeing their fiber rollout financed without the guise of their Title II upgrades, by private investment rather than public.
[1]http://www.njspotlight.com/stories/14/03/26/state-s-deal-wit... [2]http://www.dslreports.com/shownews/30544
edit: formatting
As I have described before, there never was any "massive amounts of money" paid by state governments. What Kushnick calls "subsidies" was just agreements that allowed the phone companies to increase their prices. To Kushnick, that's a "perk."
[1]https://www.techdirt.com/articles/20131012/02124724852/decad... [2]http://www.nyc.gov/html/doitt/downloads/pdf/verizon_nyc_fran...
Second, they were able to 'accelerate' depreciation, meaning write off the networks faster, regardless of the life of the network product, such as the copper or fiber wires.
Depreciation, in this case, lowers the taxes paid as it is an expense, but in the old days, it was part of the calculations of the costs to offer service, so more expenses would mean -- oh, we're losing money, give us more rate increases.
I don't have problems with accelerated depreciation -- if they actually were doing what they said which was replacing the aging copper utility wires with fiber optics -- but in most of these cases, they didn't replace it but took the deductions and got the benefits.
Go into an audit with the IRS and tell them you wrote off equipment that you didn't buy or that you didn't replace-- see how that works for you.
Ok, you've got my attention
> extra taxes to fund rural deployment
Well, no, the small guys don't have extra (federal) taxes imposed on them, unless they're interstate.
"Every telecommunications carrier that provides interstate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, to the specific, predictable, and sufficient mechanisms established by the Commission to preserve and advance universal service." S.254(d)
On the other hand, even if they are interstate,
"The Commission may exempt a carrier or class of carriers from this requirement if the carrier's telecommunications activities are limited to such an extent that the level of such carrier's contribution to the preservation and advancement of universal service would be de minimis." S.254(d) continued
They may, however, have extra (state) taxes imposed on them:
"Every telecommunications carrier that provides intrastate telecommunications services shall contribute, on an equitable and nondiscriminatory basis, in a manner determined by the State to the preservation and advancement of universal service in that State." S.254(f)
But that same section limits what kind of additional regulations states can impose:
"A State may adopt regulations to provide for additional definitions and standards to preserve and advance universal service within that State only to the extent that such regulations adopt additional specific, predictable, and sufficient mechanisms to support such definitions or standards that do not rely on or burden Federal universal service support mechanisms."
> having to build out to neighborhoods too poor to subscribe to fiber service
Well, yes.
That's kind of what the universal service fund is _for_.
> having to petition rate authorities to set their prices.
That's what that whole forebearance thing is about. Nobody wants to put that kind of rate control on ISPs. (I'd be all for putting that kind of rate control on backbone-tier ISPs, though)
> That's kind of what the universal service fund is _for_.
No, USF is mostly for rural areas. I'm talking about build-out requirements in franchise agreements, which makes building in poor neighborhoods a prerequisite for building anywhere in the city. We'd see a lot more small fiber companies if they were allowed to operate only in expensive neighborhoods where they could sell a premium service at a premium price.
Which section of Title II defines that?
See, e.g., Google's blanket rejection of such requirements as a pre-condition for deploying Google Fiber.
Do they not have it coming? Consumer satisfaction with telecom companies, across the board, is horrible. Nobody likes their phone company or their ISP in the USA, they're a company that is dealt with out of necessity, and is usually (rightly) seen as operating in bad faith.
The behavior of the largest telcos are extremely dubious if not outright evil. (Examples: Comcast, Time Warner..)
They're not quite mustache-stroking Saturday morning cartoon villains, but dammit, they're trying!
I do. Sonic.net Fusion ADSL2+ resold by Omsoft. 14M/1M for $50/mo, bonus copper POTS included with free nationwide calling (nice emergency backup). Purportedly you can bond two lines for twice the speed, and/or Annex M for 5M/3M instead, but I haven't had the need.
No data caps - I've had many months >1TB. And this kind of attitude, too: http://www.jwz.org/blog/2012/06/sonic-net-we-delete-user-log...
The few times I've called with a problem, Omsoft has been ahead of me in diagnosing, which is actually a bit unnerving because with every other "customer service" these days, it's your job to figure out the problem and then additionally figure out how to convince them to fix it.
They can do all this because they're able to obtain unbundled copper from AT&T, as per 1996 telcom deregulation. The real problem with this larger debate is that we're having it after the fact. The US infrastructure is still based around DSL, yet most people thought it was a good idea to jump ship to monopoly cable companies for higher advertised speeds. Of course once you're hooked into a cable company contract, traffic caps and engineering congestion leave you worse off than DSL.
If you're in a decently sized metropolitan area and want to actually vote with your wallet (and lower your stress level), check to see if you have any competitive DSL options left. Even if it's just a business-oriented connection from Megapath (Speakeasy), wouldn't you rather give your money to people who appreciate you?
The article doesn't seem to be based on any argument he makes that the use of money is not "kosher according to the rules", instead it is about his argument that Verizon failing to mention that their broadband network is funded that way is an omission of a relevant fact which results in their other statements in their filings in the Open Internet proceedings being misleading, in violation of a specific legal prohibition on such material omissions that result in material filed with the FCC being incorrect or misleading.
Its not a call for investigation of misuse of funds, its a call for investigation of perjury.
> Should we launch a federal investigation to see if Apple subsidized iPhone development by increasing Mac prices?
If Apple makes a filing under penalty of perjury in which they claim they did not, or omit the fact that they did when there is evidence that they did, and that omission is such that it results in other claims they made misleading, and there are specific laws governing the kind of filing they made which prohibit such omissions, sure.
The article is about Verizon making false and misleading statements to the FCC about its use of “Title II”, where it has told the FCC, the courts and the public that if the companies are ‘reclassified’ as title II in the net neutrality proceeding it would harm investment. And we nailed them, showing that their entire fiber to the premises networks are already Title II, and we are using Verizon’s own documents, which directly contradict what they told the FCC. -- And it's not legal to lie to the FCC.
Then you rant about something-- “any price increase beyond that rate is a "subsidy" from the public to the carrier.”
One day you should actually read what I wrote. Starting in the 1990’s, Verizon got regulators to change the laws to charge customers to fund fiber optic deployments – and instead now-Verizon pocketed the money and didn’t build the networks. But you don’t mind being ripped off or that from 1993-2005 there were no build outs of networks which we paid for. And this continued with FiOS.
Going back to the article, not only are Verizon’s networks Title II but they did this to charge customers for these networks-- as Verizon claimed it was building out FiOS as part of the state utility telecommunications networks. As we showed, using Title II, Verizon got the State to charge regular phone customers rate increases – well, it ain’t legal to charge phone customers for say, the roll out of a cable service. Worse, Verizon stopped the FiOS deployments so in NY state, 80% of the state municipalities, and their customers, paid for network upgrades that they’ll never get – including low income families, seniors—people who weren’t supposed to be charged.
Then you claim that somehow we should investigate Apple "if they subsidized iPhone development by increasing Mac prices?"
Wha? Verizon controls essentially facilities and is still a utility network and gets the ‘rights of way’ based on a franchise. Apple is a free market company that doesn’t control any wired or wireless facilities and I can go and get any phone I want.
But you can’t tell the difference nor did you even bother to read the story.
> One day you should actually read what I wrote. Starting in the 1990’s, Verizon got regulators to change the laws to charge customers to fund fiber optic deployments – and instead now-Verizon pocketed the money and didn’t build the networks.
I've almost certainly read more of your organization's publications than 99% of the people on HN reflexively upvoting this story because it fits with their biases and worldview.
I'll concede that you may be right about some of the stuff you bury "below the fold" (e.g. accelerated depreciation), only because I don't have the energy to really dig into those numbers. But the headline numbers, based on the premise that regulators should be setting rates in the first place, that's nonsense. The government shouldn't be in the business telling private companies what prices they can charge.
Yes, if Apple claimed in an SEC filing that they hadn't raised prices on Macs to fund iPhone development and it turns out they had, I'm sure they'd let it slide the way they always do. It's not like the SEC filed criminal charges or anything when they found out Apple had mixed up a few stock option dates. Oh, wait: http://www.sec.gov/news/press/2007/2007-70.htm