How to Stop Verizon from Screwing New York City
The telecom giant has optic fiber, but not moral fiber. But here’s a plan that will serve both its bottom line and New Yorkers hungry for high speed access.
Late last week, New York City’s internal tech auditors released a stunning seventeen-page report about Verizon and its performance in keeping its promise to the city and its inhabitants. In 2008 Verizon promised to make FiOS available to everyone in the city by June 30, 2014, and signed an agreement to that effect. It is a year past that date, and Verizon is simultaneously telling the city that its work is done while refusing or failing actually to connect residences.
While there’s a lot of back-and-forth about the details, two things are obvious to me. First, the city has been out-lawyered and out-gunned every step of the way. Chances are its current attempt to get Verizon to change its ways under the 2008 agreement will be similarly hapless: Although the audit report is clearly right in its overall thrust, Verizon will have a bazillion arguments and tactics on its side. The company has unlimited resources it can deploy to frustrate any effort to enforce an agreement that is as full of definitional holes as a screen door — and as full of weird regulatory oddities as life at the FCC.
For example, the agreement required Verizon to “pass” homes with fiber (not actually connect them), but no one wrote down in the agreement what they thought “pass” meant. (Verizon’s interpretation, predictably, is that it doesn’t have to get very close.) And Verizon wouldn’t let the auditors see records for anything other than “cable service” (the one-way delivery of pay TV), even though what the city and its inhabitants need is a really fast, fiber data connection to the Internet. Plenty of ammunition for squabbles among lawyers; little to hang onto.
The second thing is a real heartbreaker: my great city of 3.5 million households and 8.5 million inhabitants — the media capital of the world and the nation’s densest metropolis — is not going to get cheap, competitive, unlimited data access over fiber with its complementary cloud of unlimited public WiFi. Because it has to wait for Verizon, our only shot at city-wide fiber, to do the work.
Why isn’t Verizon doing that work? Because, from the perspective of this huge telecom giant, it’s not worth it. In their terms, it’s “non-economic” to install fiber for everyone, particularly when there’s already a provider (in this case, New Charter, the anticipated product of Time Warner Cable’s merger with Charter and Brighthouse) selling okay-ish cable lines in the market.
Installing fiber — future-proof, infinitely upgradeable by swapping out electronics, potentially unlimited data capacity, and now the global standard — is a long-term play in a context in which shareholders are accustomed to quarter-over-quarter dividend increases and frequent buybacks. So Wall Street punishes the idea. And Wall Street also isn’t happy about cheap, competing commodity networks, which means incumbents are focused on selling content along with data. Which, in turn, means buying programming, which means paying ever-higher prices as the concentrated companies that produce that content consolidate.
In the meantime, rather than install fiber, Verizon can continue to wring profits from its existing, and pretty much outdated, copper network in the form of increasingly obsolete DSL access. These are married to pay TV services from satellite provider DirecTV. Verizon has zero reason to be enthusiastic about ripping up that copper, particularly in areas where it expects that subscription levels for its extravagantly expensive FiOS bundled services will be low.
But I have a suggestion. Here’s a plan for New York City, one that has the potential to be a win for everyone concerned: Cut a different deal with Verizon. Make Verizon into the operator of a passive, neutral fiber network that (as in Seoul and Stockholm) is connected to every single home and business. (This would require an expanded network, which is necessary in any case.) Release Verizon from the shackles of serving customers and acquiring programming. Let other ISPs emerge that will actually have the relationships with customers. Set a reasonable price for provision of wholesale fiber access that Verizon must charge to any ISP.
Result: a thriving, competitive retail marketplace for high-speed Internet access that reaches every single New Yorker (including, particularly, the 36% of the city’s residents who now don’t have a connection at home). Cheap prices for world-class data connections. Economic growth for the city, as it retakes its position as a global metropolis. Cheaper healthcare costs, as residents replace expensive in-person visits with equally in-person, but remote, contacts. And on and on.
Verizon is already mostly a wireless company — more than 60% of its revenues come from Verizon Wireless — because it thinks its profits are more certain there. It bought out Vodafone’s 45% interest in its wireless operations in early 2014 so that it would have sole control.
Meanwhile, it has shed a bunch of its wires, selling off lines in New Hampshire, Vermont, and Maine in 2007 to second-tier telco FairPoint, and more recently selling lines in Florida, Texas, and California to similarly-challenged telco Frontier. Since at least as early as 2010, Verizon’s executives have been telling Wall Street that the company has no plans to expand FiOS.
But Verizon would be a fine operator of a neutral, wholesale network for New York City. Plenty of steady, reliable profits there — lower as a percentage of revenue, perhaps, but fine in the long-term. This would be a great, if different, business for Verizon to be in. And we’d finally get the network service we need.
No one needs more than one street grid in New York City that reaches every home and business. Nor do we need more than one provider of wholesale, passive fiber. But fiber does need to be built.
So the very first thing the city needs to do is hire a canny, experienced thug, well-versed in the ways of telecom companies, to get a better deal from Verizon. What may be surprising to Verizon, if it is honest with itself, is that the result would be a better deal for the company as well.