Verizon Uses 'Title II' as a Cash Machine Today -- It Harms Customers, Not Investments

This is PART 1.

Verizon's Open Internet Comments, Excerpts, July 15, 2014

"Imposing a Title II common carriage regime on broadband providers would be a radical change in course that would only chill, not spur innovation. Title II is a regulatory dinosaur, crafted eighty years ago - and based on 19th-Century laws regulating railroads - to address the one-wire world of rotary telephones. All of the hallmarks of Title II..."

You've been lied to. It's that simple. This is a direct excerpt from a Verizon NY cable franchise agreement, 2014, and it is similar, if not identical to every other Verizon state-based fiber-to-the-premises (FTTP) deployment.



You probably heard about "Net Neutrality" or something called "Title II." Simply put: In 2004-2005, the FCC closed the networks to direct competition by changing the classification of the wires from a "telecommunications" (Title II) service, to an "Information service," (Title I) -- i.e., today you can not pick your own ISP, cable TV or broadband provider over the wires coming into your home or office. Before 2004, the Telecommunications Act of 1996 opened the phone wires to all forms of competitors -- and broadband was always Title II and was always telecommunications. An "information service" doesn't the same obligations.

Closing the networks caused Net Neutrality issues. Verizon can block most competition and control the wires and the services, including your broadband, Internet and cable TV service. This gives them the power to create "fast lanes" or "prioritize" -- or all of those other buzz words you've been hearing about.

Meanwhile, there has been a call to return, i.e., "reclassify" the wires back to Title II to solve Net Neutrality (with caveats). But it is not necessary for Verizon; Verizon fooled everyone and never changed their classification. The language in the example above is similar, if not identical to Verizon's agreements in every state we checked.

Verizon Uses Title II to Charge Phone Customers and Get Rights-of Way.

We uncovered that Verizon has lied to the FCC, the courts and to the media as Verizon's entire fiber optic networks have been and continue to be classified as "Title II" in state-based proceedings. Verizon did this (and got the state regulators to agree) so that Verizon can use the state utility rights-of-way and, at least in New York State, charge phone customers extra for network upgrades used by FiOS, Verizon's fiber-to-the-premises (FTTP) fiber optic service, among other expenses. The sick part -- these rate increases are on all phone customers in the State, from low income families, seniors and minorities, to small businesses -- everyone with phone service.

FACT: Title II doesn't harm investment. It is a cash machine and has made customers defacto investors in the networks -- networks that they may never get as Verizon announced it is no longer upgrading their networks for FiOS by replacing the aging copper wires with fiber optic landlines.

FACT: This use of Title II is in direct contradiction to every Verizon statement, filing, not to mention the statements, reports, filings and tweets of the phone companies' paid consultants, analysts, associations and astroturf groups that all claim that Title II harms investment.

Verizon's Financial Shell Game Exposed.

But this is only part of the story. At the heart of this is a massive financial shell game, maneuvering billions of dollars per state through the flows of money between and among Verizon's utility networks, such as Verizon New York, and Verizon's other affiliate companies, including Verizon Wireless, Verizon Online, Verizon Business and other Verizon entities.

And this is done by using different classifications for different services to manipulate the flows of money. The fiber networks are being built as Title II so that some, if not most of the construction expenses of these other affiliate companies' can be placed into the utility and charged to customers, while the company uses other 'classifications' to have most of the revenues NOT go to pay for construction but into different financial buckets -- a shell game, which we will expose in detail in the upcoming articles.

There are those who will say that, of course the networks can have different services with different classifications at the same time (i.e., a cable service is classified as "Title VI"). These 'experts' and pundits have not bothered to 'follow the money'. Moreover, many confuse the physical networks, the wiring that goes into homes, offices, and in the streets, or connect to the cell sites and hot spots -- with services that ride over these wires. Simply put: The "Internet" is not the wired network; it is a service that uses the Title II networks. However, as we uncovered, words like 'networks' and 'services' are intertwined or are substituted by Verizon and even the regulators, which confuses this situation even more.

Let me lay out why the FCC and every state commission must immediately start investigations into Verizon's deception about the use Title II and why everyone reading this should make sure that the FCC and that the media wakes up to properly investigate the facts we are about to present; it is not just about Net Neutrality but the future of communications in the US -- from the services you pay for, or whether you can even get them or not.

I've divided this tale up into multiple articles.

To read the full story, see: The Book of Broken Promises which was written to supply all of the gory details of the history of broadband in America, how we ended up in this place, and what we should do about it.

Part 1: Proving the Fiber-to-the-Premises Networks Were Constructed as Title II and Funded by Customers.

1) Verizon Charged Residential Phone Customers for the Deployment of Fiber Optics.

In 2009 we came across a decision by the New York State Public Service Commission (NYPSC) to allow Verizon New York to increase basic residential phone rates for "massive deployment of fiber optics".

According to the NYPSC, June 2009:

"'We are always concerned about the impacts on ratepayers of any rate increase, especially in times of economic stress,' said Commission Chairman Garry Brown. 'Nevertheless, there are certain increases in Verizon's costs that have to be recognized. This is especially important given the magnitude of the company's capital investment program, including its massive deployment of fiber optics in New York. We encourage Verizon to make appropriate investments in New York, and these minor rate increases will allow those investments to continue'." (Emphasis added).

As we dug further we found that this was not the first but the third increase on residential rates -- over 84% increase on basic phone rates starting in 2006, and there was 100-300% increases on other related services, such as unlisted numbers or inside wire maintenance.

Finding these increases started what has become a five-year investigation into Verizon's business practices by New Networks Institute's independent expert team, and it is continuing today as it relates directly to current telecom and Internet policy issues, including Net Neutrality.

2) Verizon NY's SEC Reports Details that the Networks are Telecommunications -- I.E., Title II, and it Includes FiOS TV.

Here is a direct excerpt from Verizon NY's SEC 4th quarter report for investors for 2010; the language is similar, if not identical to all of the other Verizon territory holdings, including NJ, PA, MA, etc. It says -- Verizon provides telecommunications services (Title II) and it includes the FTTP networks for FiOS TV.


Note: Nowhere does the SEC report discuss how Title I or Title VI applies -- as they don't; the networks are Title II.

3) Even in the Verizon Cable Franchise Agreements, the FTTP Networks are Title II.

We uncovered that in every state we examined, besides these SEC reports that details that the FIOS TV networks are based on telecommunications (Title II), Verizon also details that the FTTP, fiber-to-the-premises networks, that are used to offer cable services ("Title VI") are also based on Title II.

Verizon New Jersey's Cable franchise Agreement, 2014:

"Verizon NJ has been upgrading its telecommunications facilities in large portions of its telecommunications service territory so that cable television services may be provider over these facilities This upgrade consists of deploying fiver optic facilities directly to the subscriber premises. The construction of Verizon NJ's fiber-to-the-premises FTTP network (the FTTP network) is being performed under the authority of Title II of the Communications Act of 1934 and under the appropriate state telecommunications authority granted to Verizon N by the board and under chapters 3 and 17 of the Department of Public Utilities Act of 1948. The FTTP network uses fiber optic cable and optical electronics to directly link homes to the Verizon NJ networks... Pursuant to the NJSA 45:5A-15, telecommunication service providers currently authorized to provide service in new Jersey do not require approval to upgrade their facilities for the provision of cable television service."

4) NY State PSC Decision: The FTTP Networks are Telecommunications.

In a 2005 proceeding at the NYPSC, Verizon claimed the networks were Title II, telecommunications, and that it only needed to be classified as a cable company, 'Title VI', once the company was offering cable service. The State wrote:

"Verizon claims that its FTTP network is not a cable television system as defined under federal and state law. Rather, Verizon asserts that it is conducting a network upgrade to its existing telecommunications system for voice and broadband services...Verizon argues that it has the requisite authority to conduct this upgrade under its existing state telephone rights."

And the conclusion of NYPSC was that Verizon's FTTP networks are Title II.


This means that the FTTP networks are built first, then the cable service, which rides over these networks, and not the other way around.

5) Different 'Titles" Over the Same Wire are Used to Manipulate the Financials and Public Policies.

There are many who commented to us that the services can have different 'classifications' over the wire. For example, Verizon's cable TV service is classified as Title VI, while Verizon's Online Internet service is Title I, an information service. But, if Verizon claimed that these networks were, say, a cable TV service, (Title VI), then they couldn't be built using the telecommunications rights-of-way of the state utility nor have the construction budgets paid for by customers. In fact, the cable part of company didn't pay for the construction.

This is the summary written by the NYPSC, 2005, claiming a) Verizon is building the networks as Title II, that b) it uses the telecommunications rights of way, and b) that it isn't a 'cable service' until it 'enters head-to-head competition'. I've kept the entire quote to make this point clear.

"Second, Verizon objects to the imposition of cable franchising requirements upon its FTTP network until Verizon actually enters head-to-head competition with cable companies, because Verizon is already subject to entirely different regimes. Verizon has already obtained the legal right to use the rights-of-way to upgrade and maintain its existing telephone system. Verizon has maintained its telecommunications network for years under its existing authorizations and consents. The record here suggests that Verizon has the requisite authority from local governments to use the public rights-of-way and that municipalities have sufficient legal authority over Verizon's upgrade activities as a telephone company to properly manage their rights-of-way. Verizon has represented in its pleadings that it is subject to local oversight. Municipal governance over rights-of-way is still in effect and Verizon must adhere to those requirements.

"Accordingly, to the extent the network upgrade to further Verizon's telecommunication service is consistent with pre-existing rights-of-way authorizations, and inasmuch as Verizon's activities are subject to municipal oversight and do not involve plant used exclusively for cable nor do they involve the offering of broadcast programming for hire, we do not construe Article 11 as mandating that Verizon must first obtain cable franchises to construct its FTTP network. Thus, we conclude that Verizon does not need to obtain a cable franchise at this time. However, should Verizon seek to install plant in its network that can only be used exclusively for cable or offer for hire broadcast programming, we conclude that Verizon's network would then constitute a cable television system requiring cable franchises prior to any further build-out."

To sum up:
  • Title II is a cash machine today; it doesn't harm investment.
  • Customers are the defacto investors because it is classified as Title II.
  • All of the other services did NOT pay for the deployment of the fiber networks, including the cable service or the Internet service.
  • Verizon failed to disclose these facts to the FCC, courts and the public in any comments, filings, blogs or statements.

Next articles: Follow the Money: Verizon's Financial Shell Game Exposed, and a lot more.