FCC urged to investigate Verizon’s “two-faced” statements on utility rules
FCC urged to investigate Verizon’s “two-faced” statements on utility rules

            
  
  
  
    

    

    
      Verizon built fiber network with higher phone bills and other Title II perks.
    

    

    
            
              
            
          

    
  



  

  
      
    
    
                      
                      
          Verizon has repeatedly claimed that utility rules would harm investment in broadband networks, urging the Federal Communications Commission to avoid imposing new regulations. Yet Verizon’s statements to the FCC have avoided mentioning that its own utility-style common carrier status helped the company charge landline phone customers higher prices to fund construction of the fiber network over which it provides FiOS Internet and TV.
That’s the crux of a complaint by telecom analyst Bruce Kushnick of New Networks Institute and audit director Tom Allibone of telecom customer advocacy group Teletruth. They are petitioning the FCC to investigate Verizon for perjury; the petition is available online and will be filed with the FCC tomorrow, Kushnick says.
“Bottom line—We caught the culprit red-handed,” Kushnick and Allibone wrote. “It is an open and shut case. Verizon either did or did not tell the FCC that their entire current investment in fiber optics is based entirely on using the Title II [common carrier] classification. Or that the Verizon companies have made phone customers ‘de facto’ investors by using Title II... We allege that Verizon did deceive the FCC. These material misrepresentations taint every FCC decision and policy affecting Verizon’s regulatory status, but most importantly now the Open Internet [net neutrality] Proceeding.”
The complaint calls Verizon "the 'Janus' of telecom," referring to a two-faced god of Roman mythology. "Verizon has claimed and continues to claim that Title II would harm the companies’ [Verizon and Verizon Wireless] investments," they wrote. "However, this is in direct contradiction to Verizon’s own filings, statements, SEC and state-based filings, the companies’ cable franchise agreement—every fiber optic wire appears to be Title II." That includes fiber lines used to deliver home Internet service and the fiber lines that feed into Verizon Wireless' cell towers, Kushnick and Allibone wrote. Kushnick pointed to a 2012 statement by Verizon CFO Francis Shammo that wireline capital dollars were paying for wireless expansion.

          
                      
                  
                    
        
          
    
    
          
          
We contacted Verizon this morning to ask for a response or a phone interview but haven’t heard back yet. The FCC also did not provide a response to Ars.
“The FCC can start criminal proceedings against Verizon for perjury,” Kushnick told Ars. “In every document we went through there is no mention whatsoever that Title II is the foundation of their investment in fiber optics.” Verizon claims that “Title II harms investment,” Kushnick noted. “Well, no, Title II is the basis of their investment.”
It seems unlikely that the FCC would go after Verizon for perjury, but the complaint contains details that might help FCC Chairman Tom Wheeler bolster his case that Title II won’t harm broadband providers.
Title II helped Verizon raise rates on phone customers
Verizon is a “common carrier” regulated by Title II of the Communications Act because of the utility phone service it offers over the Public Switched Telephone Network. Verizon’s wireline phone network mostly consists of old copper lines, but the company has upgraded the copper to fiber in areas where demographics justify the investment.
Verizon provides Title II-regulated phone service over both copper and fiber, but the fiber network also supports FiOS Internet, TV, and the largely unregulated Digital Voice service. Despite its claims about Title II harming broadband providers, Verizon used its common carrier status to gain perks that helped build the fiber network.
Kushnick described how Verizon plays both sides of the utility debate in a report that we covered in May 2014. (Verizon did not provide a response to that report, either.) His latest complaint to the FCC fleshes out his argument and adds some new details.
Kushnick and Allibone pointed to a 2009 decision by the New York Public Service Commission (NYPSC) that raised phone rates to fund fiber expansion.

          
                  
                    
        
          
    
    
          
          
“We are always concerned about the impacts on ratepayers of any rate increase, especially in times of economic stress,” Commission Chairman Garry Brown said at the time. “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.”
Verizon’s 2014 cable franchise agreement with New York says that “Verizon New York Inc. (‘Verizon’), as a common carrier under Title II of the Communications Act of 1934 (the ‘Act’), constructed its Fiber To The Premises (FTTP) network as an upgrade to its existing telecommunications network,” the Kushnick/Allibone petition said.

    
              
                
              
                Bruce Kushnick/Tom Allibone
                              
            
                  
          
    
    
      Bruce Kushnick/Tom Allibone

          
  
        
            

The statement “is similar, if not identical to every other Verizon state-based fiber-to-the-premises (FTTP) deployment,” the petition states.
Kushnick and Allibone contrasted that with Verizon’s statement to the FCC in July opposing net neutrality rules based on Title II. “Imposing a Title II common carriage regime on broadband providers would be a radical change in course that would only chill, not spur innovation,” Verizon said in that case. “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. Imposing a Title II common carriage regime on broadband providers would be a radical change in course that would only chill, not spur innovation.”
Consumer advocates and customers have accused Verizon of letting its copper lines rot in order to push customers onto fiber. Some customers prefer to keep copper-based phone service because it can keep working during power outages; others can’t upgrade to fiber even if they want to, because Verizon has stopped major expansion of the fiber network. In both scenarios, customers have paid higher rates to fund fiber networks they don't want or can't use, while Verizon allegedly drags its feet fixing longstanding problems in the copper lines.

          
                  
                    
        
          
    
    
          
          
As we’ve also reported, phone companies are lobbying the FCC to let them stop maintaining the traditional Public Switched Telephone Network and strip utility rules from phone service, leaving the fate of copper-based customers unsettled. The FCC has pledged to investigate complaints that phone companies such as AT&T and Verizon are failing to maintain copper networks.
Kushnick: Open the network to competition
The FCC may reclassify fixed and mobile broadband as Title II next month, using the statute to impose net neutrality restrictions on blocking, throttling, or prioritizing Internet content in exchange for payment. The FCC is expected to avoid imposing stricter Title II rules like rate regulation.
"As far as net neutrality is concerned, we believe this pretty much solves the issue of whether the FCC has the jurisdiction to do Title II," Kushnick said. "It is Title II, it’s redundant to do it again at least for Verizon and all its fiber optic services."
Since Verizon built fiber lines by invoking its utility status, Kushnick argues that the company should be forced to open the network—letting other ISPs offer Internet service directly to consumers by leasing access to Verizon’s lines.
That’s also unlikely, even if the FCC reclassifies broadband as Title II. The FCC got rid of the “unbundling” requirements that opened DSL networks to competition a decade ago, and Wheeler is likely to forbear from imposing the strictest Title II requirements on Internet service.
“Most people don’t understand that net neutrality doesn’t open the networks, it doesn’t bring back competition,” Kushnick told Ars. “It leaves the situation as it is, and you, the company, have to play nice, and the FCC will monitor you.”

          
                  
                    
        
          
    
    
          
          
It’s not illegal for Verizon to provide non-Title II services such as Internet access over infrastructure built using the benefits of Title II. But Kushnick and Allibone want the FCC to follow the money, especially where phone customers paid for improvements they might not necessarily benefit from. They wrote:
Verizon uses Title II to fund the infrastructure as “Title II”, which means it is part of the state-based utilities as a telecommunications network. This allows utility customers to get charged for ‘massive deployment of fiber optics’. Verizon also gets the rights-of-way from the state-based utility as Title II.
There are those who will argue that the networks can have multiple classifications of service over the same wire. While true, the issue of investment is about the flows of money. In at least New York State, Verizon’s Title VI cable networks were built as part of the existing telecommunications network and therefore the cable division paid little or no construction costs for the FTTP networks it uses to deliver its cable programming. Similarly, it appears that the fiber optic wires to the cell towers and the wires used for Internet service, were all installed as Title II facilities—i.e., the affiliate companies are getting a free ride on the backs of local phone customers who were charged multiple rate increases in New York for “massive deployment of fiber optics”.
In a 2005 New York proceeding, Verizon asserted that it did not have to obtain cable franchises before building fiber networks, arguing that it did not need to be classified as a cable company until it started offering TV service over its fiber lines. Until that point, Verizon argued "that it has the requisite authority to conduct this upgrade under its existing state telephone rights," an NYPSC document said. Despite objections from officials in some towns, the NYPSC concluded that Verizon was correct because of Verizon's common carrier status.

          
                  
                    
        
          
    
    

        
        
          
          
As for the perjury claim, Kushnick and Allibone pointed to a portion of US telecommunications law that says written statements to the FCC may not “intentionally omit material information that is necessary to prevent any material factual statement that is made from being incorrect or misleading," and another section that says statements made to the FCC are done so under penalty of perjury.
“I think it is important not to let companies get away with making statements that are contradicted by their own actions,” Senior VP Harold Feld of advocacy group Public Knowledge told Ars. “Based on Commission precedent, I don't have a lot of hope of them granting Bruce's request, but I am glad someone is shining a spotlight on this instance and similar instances when companies say one thing to regulators and do something else in reality.”
Shammo contradicted the company line at an investor conference last month when he said that Title II “does not influence the way we invest.”
He revised those comments in a subsequent blog post, writing that Verizon’s “short term view on investment” won’t change “based on rumors of what might or might not happen.” But he added that “experience in other countries shows that over-regulation decreases network investment. If the US ends up with permanent regulations inflicting Title II's 1930s-era rules on broadband Internet access, the same thing will happen in the US and investment in broadband networks will go down.”
Wheeler doesn't seem convinced. When making the case for Title II last week, he pointed out that cellular voice is a Title II service just as traditional landline phone service is. Verizon is thus a common carrier for both wireline and wireless voice service, though not for fixed and mobile broadband.
"Under [Title II] for the last 20 years, the wireless industry has been monumentally successful," Wheeler said. "Hundreds of millions—billions of dollars of investment as Title II regulated companies."


          
                  

                  
          


  




  
  
          
  

  
    

    
      Jon is a Senior IT Reporter for Ars Technica. He covers the telecom industry, Federal Communications Commission rulemakings, broadband consumer affairs, court cases, and government regulation of the tech industry.
    
  



  
    
    
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