Oversight and Action Is Required to Protect Verizon New York Telephone Customers and Expand Broadband Services
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It’s All Interconnected: Oversight and Action is Required to Protect Verizon New York Telephone Customers and Expand Broadband Services Public Utility Law Project of New York, Inc. Authors Bruce Kushnick Executive Director, New Networks Assisted by David C. Bergmann Telecom Policy Consulting for Consumers May 13, 2014 It’s All Interconnected. Major Sections § Introduction § Executive Summary § The Future of Telecommunications: Asserting and Regaining the Rights of Customers, Including Low-Income Consumers in New York State § Time to Clean House: Getting New York and America Wired, Opening the Networks to Competition and Protecting the Rights of Customers § A Brief History of Residential, Fiber Optic Broadband in New York State § Implications of the Report’s Findings: Legal and Regulatory Issues § Data and Research — Verizon NY's Financial Relationships with Customers and with Verizon’s Affiliate Companies: Verizon Online, Verizon Business, and Verizon Services, et al. § SPECIAL SECTION: Time Warner and the Social Contract § APPENDIX 1 — About the Authors and Organizations § APPENDIX 2 — Descriptions of Verizon NY and its Affiliate Companies § APPENDIX 3 — Time Line of Verizon NY’s Deregulatory Orders For More Information: § Gerald A. Norlander, [email protected] § Bruce Kushnick, [email protected] § David Bergmann, [email protected] Acknowledgements: PULP analysts include William Yates. New Networks’ experts and advisors include Fred Goldstein, Alexander Goldman, W. Scott McCollough, Esq, Dana Spiegel, Chuck Sherwood, Paul Hartman, Joly MacFie, and Thomas Allibone. 2 It’s All Interconnected. PART I Introduction 1.0 Introduction This report supplies previously unexamined data and new analysis based on primary source information from Verizon New York (VNY) and offers a new alternative path to the future of communications in New York State and the rest of the country. It is focused on residential low income customer issues, but also generally addresses Verizon New York’s communications services in New York State. This includes deployment of advanced services, network investment and maintenance, trends in subscribership for telephone and availability of broadband services, prices paid by low-income Lifeline-eligible customers, the implications of business practices for residential and business customers, and recommendations for action and increased public oversight. VNY is the incumbent provider of telecommunications services for most of New York State. The networks over which these services ride is commonly known as the Public Switched Telephone Networks (“PSTN”) or “the utility” networks.1 In addition to telephone service, Verizon provides broadband and Internet services via Digital Subscriber Lines (DSL) and FiOS products, including cable television service in localities where it has cable television franchises. Wireless services are provided by its affiliate Verizon Wireless. Appendix 2 gives full descriptions of Verizon Communications, the holding company (“Verizon Corporate”), VNY and Verizon’s primary affiliates that do business with VNY. Verizon NY has been allowed to raise rates for the basic telephone phone and ancillary services of the utility residential “Plain Old Telephone Services” (“POTS”) by the NYPSC multiple times. Starting in 2006 prices increased 84% for basic service. Inside wire maintenance and other services like non-published numbers increased 100%-300%. These increases were permitted by regulators because of expected ‘massive deployment in fiber optics’ and perceived need for ‘financial relief’ from losses. From 2009-2013, Verizon New York reported losses of over $11 billion dollars, with an income tax benefit to Verizon Communications of $5 billion. Thus, VNY paid no state of Federal income tax for the last five years or more. 1 Note: Verizon New York has had other names in the past. In 1984, NYNEX was created and controlled New York Telephone, which became NYNEX-New York. Then NYNEX merged with Bell Atlantic in 1997 and the state-based utility became Bell Atlantic-New York. Bell Atlantic merged with GTE and created Verizon Communications, in 2000, and the new name was Verizon New York. 3 It’s All Interconnected. The deployment of FiOS started in the 2005-2007 timeframe in earnest. But by 2010, Verizon Corporate announced that it would stop expanding Verizon FiOS services, except for commitments within its existing TV franchise areas.2 And in the areas that were not upgraded, Verizon Wireless has a marketing agreement with cable companies to bundle Verizon Wireless’ service with the cable companies’ wired cable, phone, broadband and Internet service.3 Then in 2012, Verizon announced plans to ‘‘kill the copper,’’ referring to the wireline service received by most VNY telephone customers.4 Wireline customers in upgraded areas would be migrated to FiOS; customers outside those areas would be relegated to wireless services, starting with areas where the company has decided it does not want to upgrade to FiOS and does not want to maintain copper line service. On May 7th 2014, Verizon New York filed with the FCC’s Wireline Competition Bureau a “Short Term Network Change Notification”, which states “Verizon plans to retire copper facilities (feeder, distribution and loops) and to serve all customers over a fiber infrastructure,” in Bell Harbor Queens, New York City. Verizon also filed for an area in Virginia.)5 It is too soon to know if there will be legal challenges against this practice.6 Verizon has also been seeking deregulation in New York State to remove or lessen regulation of local telephone service (and other services), citing as justification competition and customer migration to “IP” (Internet protocol-based) telephone service and wireless services. This same deregulation effort is also occurring on the federal level at the FCC, currently driven by AT&T’s petition to start trials based on the advent of IP-based services.7 2 http://online.wsj.com/news/articles/SB10001424052702303410404575151773432729614. 3 http://usatoday30.usatoday.com/money/industries/technology/story/2012-08-16/Verizon-cable- companies/57093934/1 4 http://www.media-alliance.org/downloads/Verizon_Kill_Copper.pdf. 5 http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-326960A1.docx 6 Different parts of VNY’s services and business practices are controlled by different laws and regulations. VNY’s utility networks and local service are regulated by the New York Public Service Commission, (“NYPSC”), while the FCC has jurisdiction over services defined as “interstate”. Telecommunications services are regulated under the Telecommunications Act of 1934 (as amended in 1996), while other activities of the company fall under state corporation law, local municipality regulations, the Securities and Exchange (“SEC’) laws and even the IRS. Continuing deregulation and the transition to Internet-based services (known as “IP” for “Internet Protocol”) have resulted in regulations, oversight and obligations that are now in flux.. 7 http://connected.att.com/external/publicpolicyviewsnews/WMU_FN_ATT_Reply_Comments_4_9_2014.pdf. 4 It’s All Interconnected. It’s All Interconnected: The Alternative Path This report is designed to be a data and research resource for advocates, politicans, regulators and concerned citizens and relies on Verizon’s own data as the primary source of information. It lays the groundwork for next steps, which will be announced over the next few months. This report has seven basic parts: § Executive Summary — Highlights of the primary findings § PULP WHITE PAPER The Future of Telecommunications: Asserting and Regaining the Rights of Customers, Including Low-Income Consumers In New York State — Using Verizon data, recommendations are made for the public interest, focusing on Verizon’s low-income customers. § NEW NETWORK WHITE PAPER Time to Clean House: Getting New York and America Wired, Opening the Networks to Competition and Protecting the Rights of Customers — Based on Verizon’s financial statements and business practices, recommendations focus on the broader issues of the telecommunications landscape, the impacts on the deployment of broadband, and competition in New York City, New York State, with the goal of creating change. § A Brief History of Residential Fiber Optic Broadband in New York State § Implications of the Report’s Findings: Legal and Regulatory Issues § Verizon New York Data and Research — This report relies on Verizon-supplied information and examines VNY’s financial statements, based on Verizon’s own SEC- filed state-based reports, VNY’s financial annual reports submitted to the New York State Public Service Commission (“NYSPSC”), the FCC’s Automated Reporting Management Information System “ARMIS” and “Statistics of Common Carriers” (“SOCC”) reports, as well as related information, such as Verizon Communications’ financial information, the companies’ statements, and transcripts of investor briefings. § SPECIAL SECTION: Time Warner and the Social Contract 5 It’s All Interconnected. Page Numbers Page 1.0 Introduction 3 1.1 Executive Summary 16 1.2 The Future of Telecommunications: Asserting and Regaining 23 the Rights of Customers, Including Low-Income Consumers in NY State 29 1.3 Time to Clean House: Getting NY and America Wired, Opening the Networks to Competition and Protecting the Rights of Customers 39 1.4 A Brief History of Broadband Deployment in New York State 44 1.5 Implications of the Report’s Findings: Legal and Regulatory Issues 51 Part II Verizon New York Rate Increases