Part 2: Verizon Wireless Bait & Switch: What Verizon Tells Investors But Has Been Hiding from the Public.

FULL REPORT 5: 5G: The Wireline-Wireless Bait & Switch: Because It Makes Them More Money.

• INTRODUCTION
• PART 2: VERIZON
• PART 3: AT&T

VERIZON

1) Verizon “Cut off the Copper” in Rural Areas, 2012

““Cut the copper off” said Lowell McAdam, former Chairman and CEO of Verizon Communications, speaking at the Guggenheim Securities Symposium, June 21, 2012.

“And then in other areas that are more rural and more sparsely populated, we have got LTE [Verizon Wireless] built that will handle all of those services, and so we are going to cut the copper off there. We are going to do it over wireless. So I am going to be really shrinking the amount of copper we have out there, and then I can focus the investment on that to improve the performance of it.”

At the September 2012 J.P. Morgan analyst conference, McAdam said moving the customers to wireless makes the company more profits:

“And in many areas we’re also taking customers that aren’t performing well on copper and we’re moving them over to the wireless technology. So that improves our cost structure significantly and streamlines all those ongoing maintenance costs.”

In every statement, there is no mention that these networks are part of a utility with obligations to serve the entire state. There is no mention that there have been changes in the state regulations to fund these upgrades in rural areas, or worse, that the state utility budgets were diverted to fund other lines of business — but essentially charged to the local customers.

2) The NY Attorney General Found Massive Wireless Cross-Subsidies.

In 2012, the NY Attorney General filed in a proceeding at the NY State Public Service Commission, discussing how there had been a shift; Verizon New York, the state telecommunications utility, was being shortchanged to support Verizon Wireless instead of building and maintaining the wired networks.

“Maintaining a reliable telephone network and performing timely repairs to customers’ telephones requires both preventive maintenance of the outside plant and an adequate workforce to respond to trouble reports as they are received. Verizon has chosen instead to spend the bulk of its investment and manpower on expanding its wireless business. Left to its own choice, there is every reason to expect that Verizon’s service quality and network reliability will continue its downward slide to even greater depths. Rather than invest in the workforce and network improvements to maintain reliable telephone service and perform timely repairs, the company has relentlessly downsized and avoided upgrading its wireline network.”

And they continued:

“Verizon’s own actions have demonstrated a disinterest in continuing to compete for wireline customers or invest in traditional telephone service. Instead, the company’s resources and management focus is concentrated on its wireless affiliate, to the detriment of Verizon’s wireline customers.”

3) Verizon’s Boston Bait-and-Switch: Promise them Fiber; Give them Wireless.

Throughout the US, Verizon and AT&T have figured out that they can do a bait-and-switch and announce that they are doing fiber to the home, but instead, are using the fiber wireline budgets, staff, and rights of way, etc., to roll out their wireless services.

At the Oppenheimer 19th Annual Technology Internet Communications Conference, August 9th, 2016, Timothy Horan, an analyst at Oppenheimer & Co., asked Verizon about their Boston deployment:

“So are you deploying fiber differently now in Boston than you’ve done for FiOS in the past? Does each small cell need like their own fiber home run to that small cell? Are you going to be deploying a lot more fiber than you have historically?”

David Small, Verizon, EVP responded that they were doing a few small ‘suburb’ areas, and beyond that it will be wireless.

“Yes, we will. And so, as it relates to FiOS, we’ve announced a few of the suburb areas, for lack of a better word, for cities, sub cities that we are going to be building into. But beyond that, if you think about the use case for small cells and the coordination elements of the radio access network that need to occur between its corresponding home macro and the small cell, that suggests that, as a general rule, you need home runs from that small cell directly back to that coordinating macro-level cell site. And that’s exactly what we are doing.”

Notice that Verizon claims that the areas being covered are ‘suburbs’. In fact, Roxbury and Dorchester are neighborhoods of Boston, not the burbs.

4) Verizon Boston is a Bait & Switch: It was about Fiber to the Home; Not Wireless.

This is clearly a bait-and-switch. One has only to read through the articles, like The Boston Globe, to realize that ‘wireless’ substitution was never part of the story told to the public.

The Boston Globe, in April, 2016, wrote that this deployment was for the whole city and it was supposed to be wired fiber optic service.

“Verizon is finally ready to offer its high-speed fiber optic service to Boston — a victory for city officials who have long sought meaningful competition for high-speed Internet and TV service in a city dominated by Comcast Corp.”

5) Why Stop Doing FiOS FTTP? To Save Money and Get Rid of the Unions.

According to Verizon, this is not about building infrastructure of the state utility, but is being done because it is cheaper and gets rid of the unions.

Francis Shammo, former EVP, Verizon, stated at the Goldman Sachs Communacopia Conference, September 22, 2016:

“But it’s going to be a fixed broadband wireless solution.

“And if you think about the cost benefit of that, today, if you think about FiOS and what it costs me to connect a prem to FiOS. I have to lay the fiber down the street, but then I also have to then connect the home, go into the home, make sure the wiring is right, put in install the boxes, install the routers.

“If you think about 5G, you put the fiber down the road, which is what we’re doing in Boston. Then all of the labor and the expense of drilling up your driveway connecting the OT to your house and all the labor involved with that, all that goes away, because now I can deliver a beam into your — into a window with a credit card size receptor on it that delivers it to a wireless router, and there’s really no labor involved and there’s no real hardware other than the router in the credit card. So the cost benefit of this is pretty substantial, at least, we believe it is.”

And it is worth noting that Lowell McAdam also pointed out in the second quarter 2016 investor call that — I paraphrase: ‘Well, wireless is so much cheaper (and more profitable), why bother doing fiber to the home? (“ONT” is an “Outside Network Terminal”.)

“From a pure cost perspective, again I think it’s a little too early to tell, but what I will tell you is about half of our cost to deploy FiOS is in the home today and the next biggest thing outside the home is the drop. And so our take is that with the router roughly costing the same — and, remember, we wouldn’t have to have an ONT as we think about it today.

“So when we deploy 4G and densify the small cell cantennas (to provide) 5G (service) for very little incremental cost. With the router in the house being probably less than an ONT and router combination today and losing the wiring in the house and losing the drop, we expect there to be a significant cost reduction.”

6) The FiOS Fiber-to-the-Home Expenses are Dumped into Local Service as is Wireless; Part of the State Utility

In the franchise applications for FiOS TV in Boston, Verizon was asked to provide maps of the areas of coverage. Verizon’s response was that this FTTP is just a network upgrade of the existing copper “Title II” networks, and it doesn’t have to provide maps.

Verizon was also asked whether there will be any other ‘non’ fiber to the home, FTTP, components, meaning — Are you planning on using wireless? Verizon claims it is doing FTTP. These responses are directly contradicted by the statements we just quoted from the executives to the investor community, where the company stated plan is to substitute the fiber to the home with fixed wireless.

7) Verizon New Jersey Wireless Bait-and-Switch at the Speed of DSL.

The ‘promise-them-fiber-optics-to-the-home’, then switch to wireless at the speed of the aging copper-wire based DSL happened in multiple states.

One of the most egregious bait-and-switch cases has been in New Jersey. “Opportunity New Jersey”, (“ONJ”), was an agreement with New Jersey Bell (now Verizon New Jersey), the state telecommunications utility, that required the company, starting in 1996, to have 100% of their territory covered with fiber optic services, capable of 45Mbps in both directions, and completed by 2010. Verizon completed less than ½ of their Garden State territories (representing 94–96% of the state), then halted. In 2014, Verizon was allowed a bait-and-switch to substitute wireless, at the speed of DSL, for the home-based high speed broadband connection.

Leecia Eve, Verizon VP, in her testimony, March 24th, 2014, concluded that there were never any requirements to do fiber previously until FiOS, which was not deployed until 2006. And Verizon adds that FiOS did not exist in 1992. Therefore, it was OK to create a stipulation agreement that removed any obligations.

“Another false assertion is that Verizon’s broadband obligation could only be met through the deployment of fiber facilities. The fact is, as the Board has recognized for years, DSL deployment satisfies the broadband commitments in Opportunity New Jersey…And, of course, FiOS as a broadband service did not exist in 1992, when Opportunity New Jersey was developed.”

“Furthermore, the Verizon Wireless 4G LTE network provides broadband at average data rates that in many cases exceed those provided by DSL”

We estimate that over $13–15 billion was collected to upgrade to a ‘fully fiberized’ state, starting in 1993 through 2015, thus overcharging customers for networks they never received.

This same pattern happened in Pennsylvania, which had requirements to have rural, urban and suburban areas upgraded to fiber by 2015, only to have various maneuvers that would allow for wireless to replace this agreement with speeds of 1.5Mbps, not 45Mbps in both directions.

8) Wireless to Replace the Wires — Not Just in Rural America Anymore.

In 2016, there was a shift. Originally, the shut off was in more rural areas, but by 2016 it now included everywhere, including cities. The ‘last mile’ — the connection to the home or office — will be wireless.

Reflecting on the Boston plan, Verizon’s CEO Lowell McAdam said at the 44th Annual J.P. Morgan Technology, Media and Telecom Conference, May 24, 2016, that Verizon, it appears, is not going to be deploying fiber to the home, but fiber-to-the-antenna — as an overall plan nationwide; a ‘wireless-last-mile’.

“For 4G, it gives us the ability to deal with enterprise customers that may want a fiber into their home or into their business or a small business that might want fiber into their business and it sets us up for 5G, which I’m sure we’ll talk about where that gives us the ability to do the last whatever we’ll call it the last mile is probably not a mile, but the last distance into a home and provide either broadband over the top video or streaming video over one architecture.”

Motley Fool reported at this event, that Verizon ‘hinted’ that 5G will be offered nationwide.

“Forget Your Cable Provider — Verizon Just Hinted at Nationwide 5G Home Broadband

“The telecom giant said it doesn’t see why it wouldn’t eventually bring ultra-fast wireless broadband to the entire country.”

9) There Are a Series of Subplots: Get Rid of the Unions, Get Rid of ‘Wired Regulations’, Get Rid of Other Expenses — Are Just a Start.

This message has been repeating over and over: Get rid of ‘labor intensive’ activities and lower expenses. Lowell McAdam, at the May 24, 2016 event:

“So if you think about it if I can get we than say a 1000 meters of a business and I give them a router, a basic router that has a 5G service inside it and I’m up and operating immediately, I mean, think about the difference for the carrier in the cost structure; half of our cost to establish high speed data whether it’s consumer business is inside the four walls of the business.

“Once you go wireless, you don’t have to run co-ax, you don’t have to do any of those high labor intensive activities and so you light up service overnight. So then you get into how much capacity do you want and you can — the pricing models can change dramatically.”

10) Erase All Obligations and Regulations for 5G Wireless

Getting bolder, Verizon’s press release on June 28th, 2018, stated that 5G is all about infrastructure reform and changing public policies — more deregulation. In fact, this press release just reinforces the FCC’s path to remove the barriers that block 5G, which is a euphemism for no more regulations on any service.

“Models & misdirection: infrastructure reform remains crucial for 5G. Policy reforms governing cell siting, access to rights-of-way and more are needed to simplify and speed up 5G deployment.

“The existing process impedes the roll out of services that customers want and imperils our country’s ability to remain in the lead internationally with the transition to 5G.

“Thankfully, the FCC has recognized this challenge, and is well underway in considering much-needed reforms to encourage small cell deployment. Likewise, many other jurisdictions — including approximately 20 states and some cities — have already acted and put in place measures that facilitate the deployment of wireless infrastructure. These reform efforts are vital and must continue.”

11) Verizon 2018 Is Still Cross-Subsidizing the Wireless Fiber Optic Build Outs Via the Wireline CapEx

On the Verizon 2nd Quarter 2018 Earnings Conference Call, July 24, 2018, Jennifer Fritzsch of Wells Fargo asks about the wireline construction expenses.

“Can I just explore the wireline CapEx component — it’s down about $500 million from the first quarter and yet I hear you’re doing it 50 fiber [ph] cities. Can you talk Matt maybe about the — should we begin to see that wireline portion of that CapEx ramp as this fiber build comes together? And then I guess what does that mean for what I’ll call traditional wireless spend?”

Matthew Ellis, Verizon CFO, responded; we’re just going to continue what we’ve been doing.

“So on the CapEx side, certainly as you look between first and second quarter you got timing in there; but as we build out fiber and as you say, we mentioned the 50 cities outside of the ILEC footprint where we’re deploying fiber today — you’ll see a blurring of the line of the CapEx between the segments, so obviously that fiber build shows up in our wireline segment but the largest customer for that build is the wireless piece of the business, so this is part of densifying the network, prepositioning the network to not just excel in 4G but also be ready for 5G, especially using millimeter wave spectrum as you mentioned. So I would expect to see a continuation of those spend but the total CapEx number as I said earlier, you should see consistency there, and as you — what you’re seeing is the continued evolution of our CapEx from one generation of technology to the next, and fiber build out is a key component of that. So you should expect to see a continuation of those trends and as part of the Intelligent Edge Network that will deliver 5G, and we’re excited about it as we go forward.”

“Consistency”, in this case, is to have the wireline networks fund the fiber optic build outs for wireless. The wired, copper-based, intrastate services, and thus the customers, are funding and cross-subsidizing this fiber optic deployment for wireless.