A tale of two telcos

Frontier Communications has renewed its commitment to expanding rural broadband in the US by working through the Federal Communications Commission’s (FCC) Connect America Fund (CAF). The Company was awarded $71.9 million from the fund to expand its network throughout rural America. While Frontier works to expand its network, Verizon filed a brief in the DC Circuit Court of Appeals against the FCC last week, arguing that it has the right to edit and limit subscriber access.

The FCC established CAF to accelerate broadband build-out to the 18 million Americans living in rural areas who currently have no access to robust broadband infrastructure. By accepting this funding, Frontier has pledged to provide broadband service to an additional 92,876 households covering more than half of the 27 states it serves, ensuring rural customers in states such as Michigan, Oregon, Washington and West Virginia have access to broadband connectivity.

“The CAF program directly supports broadband infrastructure, a critical first step to offering services to the high-cost, rural parts of our nation. This support will supplement the more than $1.5 billion of private investment made by Frontier over the last two years to deploy an advanced communications network to rural America,” said Kathleen Quinn Abernathy, Executive Vice President of External Affairs for Frontier Communications in a statement.

As CivSource has reported, broadband access in these areas and other rural areas around the US lags international broadband penetration rates, even in arguably poorer and more geographically challenging areas. What’s more, large incumbent providers like Verizon, AT&T and Comcast have been pretty open about not planning to build out rural networks and sponsoring legislation to ensure state’s don’t take up the issue on their own.

Incumbent providers have been so vocal in underlining this so called scarcity, and their push for usage caps and pricing tiers, Former FCC commissioner Michael Copps has taken to the internet to call out what he considers to be artificial scarcity. Writing in a post on the Benton Foundation website, Copps says, “There is just too much evidence that the big broadband providers operate a scarcity-based plan that works really well for their quarterly reports, but one that would be up-ended if they went out and invested in the increased broadband capacity consumers will need.”

“Broadband strategist Blair Levin put it well in a recent speech: “When it comes to the wireline access network, instead of talking about upgrades, we are talking about caps and tiers. Instead of talking about investment for growth, we are talking about harvesting for dividends.”

In a recent report entitled “The Future of The Wireline Business,” Seeking Alpha discusses some of the issues large incumbent providers have with their networks. Report authors note that providers have seen a dip in their wireline margins as people move away from landlines and toward smartphones. However, in a contrast to what the providers themselves claim, the report explains that while residential telephone service may be dropping, providers are making that up in broadband subscriptions.

To wit: “However, major telecom carriers seem to be doing well as far as their wireline operations are concerned. Most of them are experiencing an increase in their Broadband and Internet subscription base, triggered by increased residential and corporate usage. Residential demand continues to be the growth driver for wireline.”

In the case of Verizon, this is a specifically notable claim. In the report, authors explain, “FiOS has performed exceptionally well and continues to be the growth driver for the company’s wireline. In the first quarter of the year, FiOS revenue grew almost 18% year over year.”

Copps also points to a pending Verizon transaction to add to its competitive edge through the purchase of SpectrumCo. According to the transaction details, on December 19, 2011, Verizon Wireless and SpectrumCo filed an application for the consent of the Federal Communications Commission to the assignment of 122 Advanced Wireless Services (“AWS” — the 1710-1755/2110-2155 MHz bands) licenses from SpectrumCo to Verizon Wireless. The 122 licenses cover 120 markets. SpectrumCo is mostly owned by Verizon’s competitors including – Comcast.

The company’s other competitor AT&T is also working to add markets but lags behind the Verizon network in LTE deployments and its U-Verse broadband offering.

Now Verizon is asking for the ability to not only cap data usage but limit what users can see. According to a report in Media Matters, Verizon has filed a claim with the FCC to essentially edit the internet. The company argues that it may be held liable for activities users engage in on its service, even though that claim runs counter to specific exceptions removing liability from ISPs for user activity in statute.

In a separate claim, providers are also concerned about liabilities stemming from users contributing to political campaigns via text message. An interesting argument considering these same companies apparently feel as though they assume no liability for text message based charitable contributions or American Idol votes.

Frontier Communication’s wide-eyed optimism over working with the FCC on rural broadband provides a stark contrast to the activities of Verizon and its cohorts. Frontier operates an entirely US-based staff in 27 states. Verizon is a global company, and operates most states. While this may just be a play to add to Frontier’s market share, the business philosophy is fundamentally different. One wants to build, and one doesn’t think its worth it while limiting access on what’s already there.

Again Copps, “Make no mistake: America is not going to have the telecommunications infrastructure its future so urgently needs without a national commitment, public as well as private, to increase our broadband performance by orders of magnitude. We cannot harvest our future without planting the seeds for our future. It’s something we need to talk about—before the land goes barren.”

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