It’s hard out there for Verizon. You’re part of the cable TV and internet service industry, the two most hated sectors of the economy. One Democratic presidential candidate denounces you for corporate greed and pickets with striking workers. The other, the one to whom you paid a $225,000 speaking fee, sides with your workers while her husband joins a picket line. But $18 billion in annual profits certainly makes it feel better.
It’s impossible to over-estimate how surprised industry observers were by Verizon’s announcement that they’re bringing FIOS — their internet and cable TV service — to Boston. No less than President Obama had announced that one should not expect any new competition in the cable TV and internet service provider industry. Academics had written entire books about this failure in the marketplace. The FCC chair, a man who describes himself as a cheerleader for capitalism, has been promoting the essentially socialist solution of municipally-owned fiber optic networks. The Boston Globe, entirely out of character, had written an editorial saying that Boston should build a municipal network.
The Globe was so surprised it ran a 5-part explainer, which almost, but not quite, tells the story of revolving door advisors, crony capitalism and predatory business practices. Here’s what they missed in those 5 parts:
- “A more receptive audience in City Hall.” Let’s just quote from biography of Paul Trane, the man the Globe calls Verizon’s lead negotiator: “Mr. Trane is an active fundraiser for a variety of organizations, democratic and republican candidates throughout the United States….In 2013, Mr. Trane served as a policy advisor for Martin J. Walsh’s successful campaign to become Mayor of Boston. Additionally, Mr. Trane served as a member of Mayor Walsh’s Mayoral Transition Team.” As the Globe notes, Trane advised on “telecom and tech matters.” When you help write the policies that define how to receive your clients, one would only hope you’d be well received.
- “Intervention from a prominent business leader.” That business leader would be New England Patriots owner Robert Kraft who is no simple, disinterested civic-minded businessman. He brought Mayor Walsh, whose approval he needs to build a soccer stadium for his New England Revolution, and Verizon CEO Lowell McAdam together at his home for dinner. Kraft chairs the NFL’s Broadcast Committee, which negotiates billions of dollars of rights fees from the TV industry. The NFL’s revenue growth is directly tied to the revenue growth of TV companies.
- “A big shift in Verizon’s business model.” Verizon’s business model is to provide you with telecomm services and charge for them. That’s not changing. What Verizon is seeking to do is change, from copper to fiber, the cables through which your phone service is provided. For Verizon, there’s one key difference between fiber and copper: regulation. Legacy phone service on copper brings with it legacy government regulators, the kind who actually enforce consumer protections. Locally, the Massachusetts Department of Telecommunications and Cable will intervene effectively on your behalf with Verizon. But, that same phone service was on FIOS, they’d have no jurisdiction. You can thank telecom lobbyists for that loophole. Verizon has been seeking to make that change in all its markets for the last few years, creating many local controversies, as they resort to heavy-handed tactics to get rid of copper.
- “A corporate decision to ‘get smart.’ ” No company wants to be the “dumb pipe,” the business of transmitting other people’s stuff from place to place. You want to own at least some of the stuff, which is why Comcast bought NBC/Universal and Verizon bought AOL and is bidding for Yahoo. And, you want to sell “value added” services that can be derived from the stuff. A lot of the information that will be transmitted to make a city “smart” — and the US Department of Transportation is running a $40 million contest to help define what that even is — will move over Verizon networks. If you’re Verizon, of course you’re going to take a shot at being part of the smart city bandwagon. It won’t cost you much and the returns could be phenomenal.
- “A different kind of fiber-optic rollout.” The Globe never really answers why this rollout will be different than all other rollouts. It does say that Verizon has been given the opportunity to buy its way to the head of the line for construction permits. This is more a way to legitimize the time-honored municipal gratuity that expedites certain services, not a different kind of fiber optic rollout. It also says that it’ll be different in that much of Boston is promised nothing. Verizon will cable Dorchester, Roxbury and West Roxbury and then reassess. The tell here is that Verizon is not seeking to amend its cable TV franchise. That would trigger another regulatory process. If a city cares — and Cambridge, for example, is a city that does — this process is an opportunity for it to negotiate substantial givebacks to enhance public, educational and government media and network. One will know Verizon is serious if they decide to open that can of worms. Or, perhaps, Verizon, just like it’s doing with phone service, will offer “television” over the internet, and seek to avoid regulation altogether. And FIOS, for Dorchester and Roxbury, is a mixed blessing. Wealthy urban professionals who are flocking to cities are going to be attracted to neighborhoods with excellent Internet, only increasing gentrification pressures.
The Globe only alludes to what has to be a core reason for Verizon’s shift:
Verizon was going to be putting in a lot fiber optic cable anyway and needs many more micro-cell sites. Verizon is preparing for 5G, the next generation of wireless technology. 5G requires many, many more antennas and cell sites than 4G, antennas that need to be connected by fiber optic cables. If you’re going to be digging up the city for cabling, somebody’s going to notice and start asking about FIOS. Why not flip the script and try to turn it into a positive? You’re going to make perhaps $100 billion in profit over the six years of this project. A $300 million investment in better headlines barely touches that number.
The author is a member of the Cambridge Broadband Task Force. The views expressed are his own.
Photo credit: Nick Hoh, CWA.