FIOS, Lightspeed, Net Neutrality, Municipalit

Should the companies that are in control of America’s broadband networks be entrusted with our digital future? If customers funded the networks, what are the implications for net neutrality, municipalities wiring and Wi-fi-ing their cities, new franchises, or competitive services? Do Customers have rights? Should Google and Ebay be charged more money for using these customer-funded networks? And will the new, crippled fiber-based services like Verizon’s “FiOS” and AT&T’s (SBC) “Lightspeed” be competitive in a global economy or ever show up? Is America a third-world broadband nation?

FACT: Customers Paid Hundreds of Billions in ‘Extra Fees” for Open, Ubiquitous, Fiber Optic, 45 Mbps, High-Definition Video (in both directions) Networks They Never Received.

It’s All about “Infrastructure and Money”: New Neutrality Is a Subset of the Issues.

The key to understanding the state of America’s telecommunications and broadband is infrastructure—who owns and controls the delivery wires into our homes and businesses, who restricts their use, who pays for upgrades on the “first mile” or the last hundred feet, who enforces the laws (or doesn't), and where new services are and are not deployed.

The biggest fight is over who owns the “pipes” (i.e., the wires) into homes, businesses, schools and libraries. The phone companies naturally argue that they own the pipes and can therefore control who accesses them. Ed Whitacre of SBC (now AT&T) has said:

“Now what [content providers] would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it . . . The Internet can't be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo!, or Vonage or anybody to expect to use these pipes [for] free is nuts!”

The Bell propagandists are all screaming at the top of their lungs that these “poor” Bells need more, new, financial incentives. Mike McCurry, from Hands Off the Internet claims that net neutrality is "truly alarming” and “threatens democratic access to the Web”. Without this money, it will “shackle broadband network providers as they try to find new ways to finance and build out the next-generation Internet.”

What is truly ‘alarming’ is that America is 16^th in broadband because our phone companies failed to deliver on their promised previous fiber deployments, even though they collected billions per state from customers– and now there’s talk of rewarding them even further with financial gifts from Congress?

When someone robs you, do you say – thanks, may I please have another? --- The Bells already got financial incentives, then took the money and ran. Built into current phone rates, customers continue to pay a de-facto broadband tax for services they never received or may ever get.

It’s time to investigate the money the Bells collected for fiber infrastructure deployments they never built. More importantly, the phone companies have stolen our essential rights, and it impacts every aspect of our digital future, from net neutrality, municipalities wi-fi and wiring their communities, fiber optic deployments, state and national cable franchises, the new digital divide, VOIP and competitive services, not to mention America’s global competitiveness.

In our article for Harvard’s Nieman Watchdog Project, ”Where’s that broadband fiber-optic access?”, we outline how the majority of

America

should have already been rewired with a fiber optic service, replacing the copper wiring to homes and offices. It is supposed to be capable of 45 mbps in both directions. Customers paid the phone companies over $200 billion in excess fees as well as tax and other financial incentives, and there is nothing to show for it.

By 2006, 86 million households should have already been rewired. Instead, America got a copper-based-dirt-road, DSL, which was considered inferior in 1992. America is 16^th in broadband because the phone companies failed to deliver on the promises for fiber optic upgrades, even though they charged customers.

There were also the 24 different applications with the FCC for Video Dial tone services, outlining how 43 cities/states would have 9.7 million homes wired around 1997.

Video Dial tone is also included the Telecommunications Act of 1996 as “OVS” --- that’s “Open Video Systems”. It is still a mystery that AT&T, Verizon, GTE, and the other Bell companies, all failed to roll out these networks as defined by these filings.

We need to stress ---customers have been a major funder of the networks. State laws were changed to give the companies more money in the form of higher phone rates and tax breaks – a de-facto broadband tax.

Also, customers are still paying for networks they may never get. According to SBC, the money to build new services comes out of the budgets for local phone service. What’s happening is that they are simply playing a shell game with the already existing funding for maintaining and upgrading the networks.

"SBC now expects that three-year deployment costs for Project Lightspeed will be approximately $4 billion . . . Because a significant portion of capital expenditures for Project Lightspeed will replace and refocus ongoing spending for its current network, SBC expects incremental capital investment for this project to be relatively small."

Worse, the phone companies have seriously cut their wireline construction budgets and never put the fiber they promised --- that’s fiber directly to the home or office, not somewhere in the ether of the network. In 1984 the Bells (with GTE) spent more on construction than in 2004, even though their revenue went up 128%. And their expenses have also been slashed --- they have 65% less people as compared to revenue than they had in 1984, the time of the Bells’ birth.

In truth, their “exclusive, proprietary” interstate information product is being directly funded by customers.

Open Networks: Customers funded OPEN networks, not shuttered and not for the exclusive use of the some. In the industry, this is commonly known as “common carrier” obligations. Again, phone companies are utilities: they control essential services. When the customers were charged these excess fees it was with the agreement, in writing, that these networks would be totally open to all forms of competition. Customers have rights, though the FCC erased some of them through deregulation.

Ubiquitous Networks: Customers funded ubiquitous networks, meaning that they were going to be built in rural, urban and suburban areas equally, rich and poor neighborhoods alike. The financial incentives were being paid for by ALL customers, from low-income and seniors, to schools and libraries.

Instead of 86 million fiber optic homes, capable of 45mpbs in both directions, according to the FTTH (fiber-to-the-home) Council, as of January 2006, only 548,000 customers had fiber optic services. And in many cases, it was not the Bells, but cities and municipalities that undertook the wiring projects.

Congress and the American Public should not trust or rely on the phone companies’ new fiber-optic based deployment plans. Turning over the responsibility to build infrastructure to the phone companies without enforceable commitments is poor public policy and will continue to harm America’s technological economy.

The solution is simple…. Have the Bell companies either return the $200 billion so that others can build what was already paid for, or start digging and fulfilling their obligations of open, ubiquitous, 45mpbs, fiber based services.

The rest of the article goes into Verizon and SBC’s crippled networks, FiOS and Lightspeed, the “infrastructure” implications for net neutrality, municipalities wiring and wi-fi-ing, as well as why America will remain 16^th in broadband, and the new, international, fiber-divide.

Since 2004, the phone companies have revised their schedules, and have made new announcements. Verizon’s new residential fiber optic product is “FIOS”, and SBC’s is called “Lightspeed”. However, our conclusion is that Verizon and SBC made their latest deployment announcements as part of their push to merge with MCI and AT&T, respectively. The companies promised to wire more homes only to curry favor, so that the FCC to would approve mergers. Therefore, these stated deployments may have already fulfilled their job.

There is absolutely no guarantee that any of these services will be available, much less offered en mass. Indeed, SBC is still in testing stages as of mid-June 2006, and it is very doubtful they will achieve their announced deployments to 18 million homes by 2007. (changed to “19 million in 2008” as of June 2006.) Verizon also claims that delays in local franchise negotiations may also slow down deployment and that it might leave them behind schedule.

Using history to predict the outcome of these networks is easy. The companies will never supply what they committed to in 1992, much less have ubiquitous competition or service.

And when SBC wanted to buy AT&T they promised Lightspeed--- or, as we will show, ‘Dim-speed’.

Meanwhile, Verizon was supposed to spend $15.6 billion on 17.7 million households by 2000. After the state deals were still drying off, NYNEX and Bell Atlantic merged and closed down 13 state’s plans.

Here’s a summary of the mergers, the money, and their failure to bring fiber optic broadband to

America

And all of the companies lied to regulators about competing with each other, which was the primary reason for the Ameritech-SBC and Bell Atlantic-GTE mergers to be granted. SBC promised 30 cities outside their region, Bell Atlantic promised 24 outside their region. It’s clear that they both submitted false documents about their competition with each other.

Teletruth filed a complaint with the FTC over this deception. AT&T and Verizon gamed the regulatory system and were able to have the mergers completed in their favor while scamming the public interest.

America

is 16^th in the world in broadband according to the International Telecommunications Union. And there are 3 reasons.

First we have the largest bait and switch in history. DSL.DSL travels over the old copper wiring can handle, on average, less than 1 megabit, and is incapable of handling high-definition TV. DSL was considered inferior in 1992 and every state pitch claimed that it would harm out economic growth if we based on future on this ‘limited’ product.

Thirdly, the services being offered, FiOS and Lightspeed, are inferior. We don’t have the speed and we’re overcharged for what speed we get. Let’s assume that these new fiber-optic networks do show up. One has only to look at what is being promised to know we will never be Number 1 in broadband and technology with the Bells’ current plans.

FiOS or Lightspeed can’t compete with Asia’s current services. FiOS is up to 30 Mbps in one direction and cost $199. Korea and Japan offer 100 Mbps in both directions for around $40.

Comparison Verizon’s FIOS to South Korea and Japan

	Price		Top Speed		Upstream		Cost per Meg
FIOS		$199.		30 Mbps		2-5 Mbps		$6.63
Korea		$38		100 Mbps		4-100 Mbps		$.34
Japan		$41		100 Mbps		35-100 Mbps		$.41

In comparing the cost per-megabit, the US is $6.63 as compared to $.34 to $.41 cents in Korea and Japan. If this is the best we get, in 5 years America will be farther behind.

We can’t compare Lightspeed because it hasn’t been deployed. In the test, the company was offering 6 Mbps as top speed, and the plan does NOT call for replacing the copper wiring, but to bring fiber closer. Thus, it is not expected to be able to go faster than 25 Mbps. Also, in June 2006, SBC (AT&T) is now claiming that it will roll out ‘wireless’ services as a replacement for competition --- backing out still further from their original announcements of ‘light-speed’.

Some disparage Japan and Korea’s networks by arguing that they are government run, but we argue that that would be better than what we have today— a duopoly with no constraints and no enforcement of contractual agreements. Others argue that these countries were smaller geographic locations, and therefore easier to wire. But remember that the U.S. had fifty deployment plans, one for each state. In terms of population, states are smaller than these countries and should have cost less. And remember that these costs were averaged over rural, urban and suburban distribution.

But here’s the real kicker --- Singapore announced it will be giving their residential customers gigabit-speed services in the next few years. That’s 1000 times faster than most DSL today. With America’s inferior services at high prices how is America going to compete globally?

If you really want to see the lack of a broadband plan for America, one has only to look at the FCC or even the new bills in Congress to realize we’re screwed as compared to the rest of the civilized world. The FCC declared that anything over 200K is broadband. 1/5^th of 1 Mbps. --- Ironically, this speed is incapable of ‘high-definition video’ in both directions, which was the standard for broadband in 1992, as well as the definition of ‘advanced network services in the Telecom Act of 1996.

With two cans and a string,

America

can say we lead in broadband connections, but it’s a hollow statement because we’re simply falling behind in technological growth.

The Economic Harms of the Bells’ Failed Deployment and Current Plans --- $5 Trillion and Counting.

According to the Bell companies’ own reports, $1/2 trillion could be garnered if America had high speed broadband. Thus, America already lost $5 trillion since 1996, when deployments of fiber were supposed to be in full swing. A decade later, because we don’t have the ability to keep up with any new developments in Asia or Europe, America will continue to lose its technological edge. This will include slower sales of technology, slower growth in new products, and technology will continue to be created in other countries with more vigor.

The Bell companies have started an aggressive campaign to be granted “statewide franchises,” which would allow them to offer cable television in addition to their phone services. At the same time, the Bell companies went to Congress and the FCC for a national franchise.

Cable companies today have “local franchises,” where they negotiate a deal with a municipality or a franchise area. These franchises include various obligations, from requiring public access programming to making sure that low income or less desirable areas of a community.

A national franchise or statewide franchise would allow the Bells to simply pick and choose which areas they want to offer service in without having to negotiate with communities. They might only want to serve rich areas, or not be bothered with specific less populated areas even within a community.

In theory, the cable companies and the Bells were to compete for customers. Cable companies would start offering phone services, phone companies would go into cable television, and both would extend their broadband services. In fact, this “inter-modal competition” was one of the primary justifications for allowing the Bells to run many Internet Service Providers and CLECs out of business.

But the idea that a duopoly, with the wires controlled by 2 players, will result in robust competition is ridiculous. More telling are the actual numbers. By 2005, less than 5% of households were using the cable companies’ local and long distance telephone services.

“Cable TV competition?” under the current franchise agreements proposed, the phone companies can essentially pick and choose where and when to deploy. A recently passed New Jersey bill would require the Bells to wire only 60 of the 526 municipalities in the next three years; and those deployments will likely take place only in the wealthiest areas, worsening the “digital divide.” In other states, equally squishy numbers are being presented, and the hype far exceeds the probable deployments.

How embarrassing is this? Well, according to the New Jersey state order that granted the phone companies more money for upgrading the state with fiber, by 2010 the ENTIRE state is supposed to have been upgraded with 45mbps services, capable of high definition video, as well as “open” and “ubiquitous”.

Here’s the actual info from the New Jersey Order, created in 1993. This “Order”, including this timeline and commitments is still on the books.

The New International, Local, Trans-Competition Digital Divide Is Being Created --- US Against Them.

If these companies may or may not roll out new services, and if they may or may not roll out services in your neighborhood, and if you keep paying for the development and deployment of these new services, even though you may never get a thing for your money, ---- why is Congress considering any new plans? More importantly, there is no plan for America to become a serious broadband player.

Even if the Bells actually roll out something, it will never be competitive with what kids are currently using in Korea. --- 100 Mbps in both directions. The have and the have nots won’t be simply rich and poor but a new class --- US as a third-world-broadband nation is upon us.

Ironically, even public interest and Consumer groups have fallen for the Bells’ line that if you change laws they will build it.

The true irony of the Bells competing with cable companies’ rhetoric is the fact that the FCC killed off over 6000 ISPs and CLECs who were competing with the Bell companies using the open infrastructure. This included AT&T and MCI,—who tried to offer competitive local service and had 6 million customers before laws were changed to make local competition unprofitable.

Didn’t you know that competitors were “parasites” and we only need “intermodal-competition”?(two wires competing.)

For more discussion of this topic, see our second Nieman article, “How the Baby Bells and the government destroyed competition for DSL, long distance and local phone service”

As discussed, the Telecommunications Act of 1996 “opened’ the public networks, known as “common carrier” obligations, so that competitors could rent parts of the networks.

The FCC’s new regulations done as part of the “Triennial Review”, (a review of the regulations), decided that competitors using the lines, from the Internet Providers who wanted to use the copper wiring to offer DSL service, known as line-sharing, or the entire wholesaling of parts of local service to competitors, known as UNE-P, and even the ability to use any new fiber optic builds, known as ‘greenfields’, were all closed to competitors. This regulatory favoritism to the Bell companies put AT&T and MCI up for sale, since they were told that the PSTN was no longer available to them to offer competitive service.

The independent ISPs were the backbone of the Internet revolution. These entrepreneurs, and not the Bell companies, were the ones who brought America online and web surfing. In 2000, the Bell companies weren’t even in the Top 10 ISPs in America. Now, the phone companies offering broadband are all considered “ISPs”,

We need to be clear that throwing away the ISPs was done when the FCC was able to change a definition --- It’s a long story but simply put, broadband was two services:

A ‘telecommunications services’, i.e., the pipe. This was separate from and the application of going to the Internet ---an ‘information service’. Two services.

The FCC redefined ‘broadband’ as an interstate information service, so that both services were a bundle, and this bundle no longer had any obligations --- telecommunications was common carrier and open, ”Information service” is not..

There is a common misperception – that Net Neutrality is about the blocking the Internet, and that fixing it will solve the “Open Network” issues. They are not quite the same thing.

In the telecom world net neutrality is simple—the phone and cable companies want total control of the infrastructure. They want to control all the bits and bytes over the lines. In classical telecom talk, ‘open networks’ mean ‘common carrier’ networks – i.e., that the networks are open to all competitors using the pipe itself – you should be able to choose whichever ISP provider, or any other service, such as video providers giving you service over the wire, even if the wire also has ‘broadband’ – i.e., a fast pipe. As previously discussed, the ‘common carrier’ obligations were erased by the FCC.

Like the FCC’s bad decisions, many equate the phone networks and the applications, the Internet, which travels over the phone networks, as the same thing. From the proposed bills in Congress to consumer groups make this miss-step. The phone companies have said it so many times that it becomes fact.

The difference… If an Internet Service Provider blocks your service you can get another Internet provider who doesn’t. If the Internet Service is tied to the pipe, then one company controls everything.

The view promoted by phone companies and their hired think-tanks, such as Progress and Freedom Foundation, is that net neutrality is really the “theft of property of [broadband] infrastructure providers.” And Wall Street analysts claim that “Mandated net neutrality would further sour Wall Street’s taste for broad-band-infrastructure investments.”

“Customer Takings”. As we discussed, the real takings is a customer takings, customers already made the investments and have nothing to show for it, and have lost their rights to open networks.

And from the competitor side, people such as Jeff Pulver of Pulver.com, a company dedicated to everything VOIP (Internet-based telephone), has called control measures, “legalized extortion”: "I think it's probably true that companies are coming to Qwest willing to pay for better treatment on their network," he said. "But I think they're doing it out of fear.”

“Control, Type 1” regards control of data from the providers’ end. This can include:

a) Use-based Fees. The broadband provider can charge Google or Ebay more money, claiming that because these companies use more of the network, they should pay more.

b) Preferential treatment. Giving their own services “preference.” That is, if you don’t give us more money, we will give our own service better access.

c) Blocking competitors. VOIP companies like VONAGE or Skype would have to pay extra for “quality access,” or would simply be blocked from using broadband networks. (NOTE: VOIP requires a broadband connection.)

d) Video blockout. With a broadband connection able to handle high quality video, companies can offer their own video content (even advertiser sponsored) and the phone companies want extra money or to even block this outside video source.

In every case, blocking competitors harms customers. If customers would save money by using VOIP, then they are harmed when that application is blocked or the company is forced to raise rates. And any fee increases will likely be passed through to customers. More to the point, both the customer and the competitive services should receive the same high-quality service. Charging for better quality service is essentially giving worse service to everyone else. Non-discriminatory service has been one of the hallmarks of the digital age.

“Control, Type 2" controls data from the customer side. Consider Verizon’s FIOS service, which has the following restrictions (source: Verizon’s web site, December 2005):

We do not argue against blocking spam or for charging more for using the network for serious commercial purposes (though that could be argued). However, when you enter the world of file-sharing with video services, videos can be 300 megabits or more. Can Verizon simply say—enough? Some experts believe this is one of the reasons Verizon has crippled the networks by making them asymmetric, so as to limit what you can do with the service.

The practice of “bundling” costs customers billions in excess charges. According to Verizon’s 4^th quarter report for 2005, the company now has 65% of their clientele purchasing 2 or more services. The primary reason is that if you purchase DSL, you must also purchase local service, and the company also offers more discounts if you get a package of local, long distance. For high-volume users, these packages can be a deal. The majority of customers, however, do not get a great deal.

Teletruth’s phone bill audits found that about 20% of the population pays more for local-long distance package than they would a la carte, mainly because the phone companies do not reveal the total cost of the packages. Extra “taxes and surcharges” add 35% to the purchase price, even though many of these charges are NOT taxes, but direct revenues.

The second problem with bundling is that it allows the phone companies to cross-subsidize. That is, they are able to charge the local phone subscriber for the advertising and implementation of their long distance and DSL business. For example, current phone bill 4-color, 4-page inserts that were supposed dedicated to “consumer education and information” in New York City are now used to advertise all Verizon products Money for this insert came directly from costs built into local rates.

The third problem with bundling is that it blocks other competitors, because the customer is obligated to get the bundle if they want the discounts. For example, if you are obligated to purchase the local service from Verizon when you get a DSL line, why would you not simply get the long distance portion as well? Thus, any VOIP service that is offering a bundle of local and long distance will be harmed because it is easier to just get the bundle than pay for services from two companies. Also, the phone company may give the customer worse phone service if they get the VOIP product.

As we pointed out, Competitors are no longer invited to use the customer funded networks, and it includes part of the various other control types, as it controls infrastructure. For example, with FiOS or Dial up

As we pointed out, if the ISP is blocking a service, you can replace the ISP. If the phone company no longer is required to allow common carrier obligations, then there are no other choices.

Customers funded open networks, and each of these items of blocking are rights you already lost.

In an ironic twist to the saga of broadband in the US, municipalities got tired of waiting for Godot, and decided to fund their own networks. Yet the phone monopolies—by using fake consumer groups, well-paid research firms, and substantial amounts of lobbying money—are trying to block deployments state by state. The attempt to block “muni” competition is being played on a federal as well as state level. Bills in Congress would eliminate the ability of municipalities to create competitive networks.

A Wall Street Journal headline on June 23, 2005, shows that the phone companies are once again screaming—"Phone Giants Are Lobbying Hard to Block Towns' Wireless Plans. As Cities Try to Build Networks, SBC and Other Companies Say It's Unfair Competition."

Take the case of Pennsylvania. By 2004, Verizon should have rewired 50% of the state with 45 Mbps services, distributed equally over rural, urban and suburban areas. These numbers were based on a 1994 law that gave the phone companies financial incentives in the form of excessive profits and tax perks to roll out this new upgraded networks.

A decade later, Philadelphia still had no network. But plans to build one on its own were almost scuttled. Pennsylvania passed HB30, a new law that banned municipalities from offering competitive services, unless they first asked permission of the incumbent phone company. Philadelphia was allowed to offer Wi-Fi services as a concession, but every other city in the region—none of which got deployments—were outlawed from offering competitive services. Yet the infrastructure and network services had already been paid for by customers in the form of higher rates.

And the absurdity? Here’s a Verizon (Bell Atlantic) press release from 1996, explaining how the company was going to rewire Pennsylvania, starting with Philadelphia and Pittsburgh with fiber-to-the-curb.

“The signal is clear: In the tug of war between Big Telecom and little governments, the powerful telecommunications lobby is winning, which could have major implications for how wireless Internet and other high-speed Internet service is doled out countrywide.”

However, there is some hope. There are many innovative plans, both wireline and wireless that are in the works. For instance, the Utah Telecommunications Open Infrastructure Agency (UTOPIA) which has survived legal battles and is now “a 14-city consortium.” It plans to offer “as a minimum . . . 100 Mbps of bandwidth to every connected home and 1 Gbps of bandwidth to every business over fiber optic lines. (See http://www.utopianet.org/).

Similarly, in 2005 Google announced it was going to offer cheap or free Wi-Fi internet services in San Francisco. To do so, it partnered with Earthlink, one of the few remaining major Internet Service Providers.

However, the Bell companies won’t go quietly and have continued legal actions against municipalities for not granting them franchises, or, like in Lafayette, Louisiana, trying to deploy new fiber services.

Astroturf and Skunkworks --- A Common Part of America’s Broken Campaign Finance and Political Process.

Teletruth has written extensively about how the Bell companies have been able to control the FCC, Congress and the political agenda in telecom and broadband through the use of fake and co-opted consumer groups, think tanks and research firms, run through a series of lobbying/grass-roots building Bell-funded companies. From control of your phone bill charges to broadband regulations, these very well funded groups have been deceiving the press, regulators and the entire political process.

It’s All about “Infrastructure and Money”: New Neutrality Is a Subset of the Issues.

Comparison Verizon’s FIOS to South Korea and Japan

And new groups abound, including “Consumers for Cable Choice” to “Hands Off the Internet”. Common Cause even wrote a report on this topic, the new wolves in sheep clothing.

Key Points and Conclusions: