New Networks Institute,  December 9th, 2009

Report filed with the FCC:  Docket Nos. 09-47, 09-51, 09-137
Contact: Bruce Kushnick,[email protected]

FREE REPORT:
The History, Financial Commitments and Outcomes of Fiber Optic Broadband
Deployment in America:  1990-2004

The Wiring of Homes, Businesses, Schools, Libraries, Hospitals and
Government Agencies

READ THE REPORT: http://www.newnetworks.com/FCCCITIbroadband.pdf

The FCC tasked the Columbia Institute for Tele-Information (CITI) to do "an analysis of the public statements of companies as to their future plans to deploy and upgrade broadband networks as well as an historical evaluation of the relationship between previous such announcements and actual deployment". The FCC adds that the focus is on data analysis of "investment plans and
deployment figures of upgraded broadband infrastructure in this century."

CITI's historical evaluation only goes back to 2004.  After talking to CITI we decided to create a separate report to cover  fiber optic promises for the period of 1990-2004 because, in many states, the changes in state laws are still on the books for deployments and there have been current rate increases based on the previous fiber optic based-broadband deregulation.

The report uses only primary resources such as AT&T, Verizon, Qwest annual reports, FCC filings, state regulation and legislation, documents from legal actions and articles. It covers the companies' federal plans, including video dialtone, as well as state incentive regulations (deregulation) in 26 states that were supposed to fund upgrades of the utility plant for fiber optic-based broadband to serve homes, businesses, schools, libraries, hospitals and government agencies -- the same institutions targeted by the current stimulus. We also included a separate analysis of the implications of this data to the FCC current investigations.

Commitments and Outcomes.

1)      The statements and promises made by AT&T, Verizon and Qwest about fiber-optic deployments are an untrustworthy guide for regulators because providers have failed to deliver on their promises.

  • Based on announcements in annual reports, state filings and press accounts, the companies should have collectively spent $53.4 billion to have 46 million homes upgraded, mostly by the year 2000. AT&T stated it would spend $36.1 billion on 12.5 million homes, (which does not include some of their current properties) and Verizon stated $16.6 billion on 21 million homes. 
  • State alternative regulations (sometimes called "incentive regulations") were granted in all AT&T, Verizon and Qwest states. Previously, the companies were regulated under 'rate-of return', which examined profits and controlled depreciation rates. The excess profits from incentive regulation, in the form of higher phone rates and tax cuts, were to go to fund upgrades of the Public Switched Telephone Networks -- the state utility.
  • Though the commitments varied by state, most states agreed to this deregulation to fund fiber optic broadband to homes and offices, as well as schools, libraries, hospitals, and government agencies, and in some states to bring in competition to the local phone provider. 
  • On the federal level, the FCC received 35 different video dialtone applications, for 'permanent'  fiber optic upgrades of the telephone plant, representing 8.6 million homes completed by 2000. (This term was changed to "Open Video Systems" in the Telecommunications Act of 1996.)

 

2)   "Incentive Regulation" failed to bring fiber optic broadband because of a lack of vigorous and transparent reporting and monitoring. Furthermore, when companies were fined, the fines were often lower than the profits gained through illegal behavior.
.

·       By 2000, less than 1% of lines had been upgraded. AT&T, Verizon and Qwest combined had deployed 1.8 million ADSL lines over the existing copper plant, representing 3.9% of promised deployments -- at approximately 1/45 the speed.

·       Video Dialtone: Except for trials, none of the 35 video dialtone projects services were deployed. Instead, some of the companies created cable networks, which were sold off or closed after each phone company merger.

·       In many states, the companies were allowed to supply ADSL over the copper wiring, such as Oregon and Louisiana, even though the telcos promised fiber.

·       In many states, including Wisconsin, Texas and Indiana, schools, libraries, hospitals were not wired as discussed in the original plans.

·       The money was promised and never spent. Pacific Bell (now part of AT&T) claimed they would spend $11 billion by 2000 to deploy 5.5. million homes in California. Pacific Bell spent approximately 1.6% of the money. Bell Atlantic (now part of Verizon)claimed it would spend $11 billion on 8.75 million homes and businesses (not counting GTE or NYNEX) and spent only 1.8%, and Qwest spent approximately 5.8% of the announced financial commitments. In fact, in almost every state, the amount quoted included the original annual expenditures; it was not "above" the current spending.


3)        This is not a history lesson - Fiber optic broadband funding sources and state obligations are

            still on the books in many states.

  • In New York State, Verizon is receiving major rate increases to pay for 'fiber optics', while in New Jersey 100% of the state is to be completed in 2010, capable of bi-directional, 45mbps services. Pennsylvania is to be completed in 2015.

Implications:

4)        Competition, Net Neutrality, common carriage and ubiquitous deployments were the basis of

            state and federal deregulation.

Customer funding -- i.e., raising local rates and services and giving the phone companies higher profit margins through incentive regulation -- was only done because of the commitments made to the state. Because customers were the primary funding source, almost all state laws, not to mention federal laws, required common carriage obligations, direct competition for almost all levels of services, including Internet and even video competition, and net neutrality was a 'given' as Net Neutrality is only a consequence of a market failure - a lack of competition. If a company blocks or degrades the service, the customer should be able to leave for a competitor.

All deployments were supposed to be 'ubiquitous'; rural, urban and suburban areas, rich and poor would equally by fiber-ized as ALL customers were paying for the upgrades.

5)      The strip-mining of the State utilities is underway as state laws conflict with the FCC.

Incentive regulation's primary premise is that customers pay for network upgrades. In fact, the video dialtone and state laws all made it clear that the a phone company was not to 'cross-subsidize' a competitive service.

Customers were funding the utility. The promise was clear. It was ubiquitous, bi-directional 45 Mbps networks, open to all competition.

Verizon's FIOS and AT&T's U-verse are now defined by the FCC as "interstate information services", and are closed networks, being deployed where the company wants, at speeds slower than the 45 Mbps promises, even as the world goes to 100 Mbps or even 1 Gbps services.

In fact, Verizon's largest competitor is - Verizon. When Verizon installs FIOS they remove the old copper wiring (counted as a loss of line to the utility) and offer a competitive service, which they then claim shows there's competition to the ILEC and that the phone company is 'losing lines' so that they can raise rates. If there was actual competition, the price of local service could not keep increasing as is happening in most states. And this impacts those who depend on the utility -- Seniors, low volume customers, small businesses, rural customers who have been hit with higher rates with no benefits, etc.

The CITI Report also shows that the major telephone companies have shifted investment from their "legacy" telephone networks to wired broadband, with broadband capex expected to reach nearly 60% of total wireline capex in 2011".

And this shift is not a mute point. The FCC just created a docket to examine the shift of using Voice Over Internet Protocol (VOIP) instead of the 'circuit switched' phone lines. If VOIP is only used on broadband, then, is the FCC expecting to harm 50% of the US; those who can least afford service or don’t need other services in a traditional bundle?

6)        The rewriting of fiber optic broadband history. The FCC has never examined any of the data

presented in this report. Video Dialtone was part of state commitments and was used to change state laws.

  • The FCC's previous broadband data and financial commitments includes none of the materials presented in this report.

The FCC has never examined the state broadband commitments, the customer-funding issues, nor any of the details of wiring schools, libraries, etc. Thus, a policy  was created that allowed the phone companies to claim ownership and control,  but also have the luxury of utility funding sources.

Also, from 1993-1995,  while none of the 35 video dialtone applications filed with the FCC to offer fiber optic-based broadband and cable services were ever completed,  there are  a number of mistaken analysts, phone company staffers and regulators who have promulgated a story that Verizon and AT&T had no remaining obligations when all 35 applications were withdrawn. State laws were created and changed based on the video-dialtone commitments.Massachusett’s filed alternative regulation plan, the video dialtone plan, and the information supplied to the the press and public were  identical; 330,000 lines of fiber optic services were to be deployed by 2000. None were ever deployed, yet state laws were changed to give Verizon financial incentives for network upgrades.

7)        Kushnick's Law applies to incentive regulation:

"A regulated company will always renege on promises to provide public benefits tomorrow in exchange for regulatory and financial benefits today".

8)        There is plenty of money to pay for broadband.

It is clear that billions of dollars have already been collected in most states for broadband upgrades of the Public Switched Telephone Networks, the utilities. If it didn't go into the ground in the form of fiber, where did it all go?

Besides the raising of local rates now being diverted to other lines of business, from FIOS and U-Verse to even wireless, there are the various taxes and surcharges, including the state and federal Universal Service funding or state based funds, such as the California Advanced Services Fund.

None of these funds have been examined as a group, much less in specifics. If customers are still paying through local rates and tax perks to upgrade the essential facilities, shouldn't the FCC be investigating ALL funding sources and then determining whether the issues, such as cross-subsidization of the 'interstate information products' or giving USF funding to companies who do not 'need' the money to be profitable, be examined before the FCC determines it needs to raise the Universal Service fund or give other financial incentives to pay for broadband?

 

The FCC claims it wants a data-driven policy. We supplied the data --- It’s now the FCC’s turn.

This report was created with editorial assistance from Alexander Goldman.
http://net-statistics.net/wordpress

For more information:
[email protected]
http://www.newnetworks.com

 

NOTE: New Networks Institute and Teletruth have been filing with the FCC since 1998.