Update: Verizon's Sale of Maine, New Hampshire and Vermont

I've written here in the past about Verizon's pending sale of their Maine, New Hampshire and Vermont networks to Fairpoint Communications. Here are some highlights on the sale taken from a Burlington Press piece written yesterday:

• The sale represents roughly 1.6 million land lines in the three states.
• Sale price is $2.72 billion which, without any dept relief, would put FairPoint into $2.5 billion of debt
• Proposed deal has Verizon giving Fairpoint $235 million in debt relief.
• Maine has approved the sale but has not written a final order yet.
  
• Last week the staff of the New Hampshire Public Utilities Commission recommended state regulators sign off on the deal.
  
• Vermont's Public Service Board is currently meeting on FairPoint's proposal.
• Fairpoint has agreed to cut dividends to shareholders by $50 million a year and will not be permitted to raise the dividend until its debt ratio has been lowered.

Each state must approve the sale individually so each is also negotiating based on their own needs. For example:

• In New Hampshire, the proposed deal calls for Verizon to give FairPoint $50 million over two years to help build infrastructure and make high-speed Internet access available to 95 percent of the customers by a certain date.
• In Vermont, the proposed deal calls for 80 percent high-speed Internet availability by 2010 -- and a requirement that all customers in at least half of FairPoint's telephone exchanges have access to broadband Internet service.
• In Maine, FairPoint has agreed to freeze DSL rates for existing Verizon customers at $15 to $18 a month for two years.

Much of the discussion has been around the huge amount of debt Fairpoint would assume if the sale happens. Saddled with this debt, many are concerned about Fairpoint's ability to upgrade existing services as expensive higher bandwidth technologies go mainstream. Sure, current ADSL offerings scream when compared to dial-up but - we won't be saying that in a few years.

I'm trying to remain optimistic - is there another more cost effective technology (perhaps WiMAX, higher bandwidth DSL or even Broadband over Power Line, etc....) that will make these concerns moot? Time will tell if the sale gets final approval.

Tiered Internet Services Coming?

On January 18, Business Week published an interesting article about a trial Time Warner’s cable division will be running in Texas later this year. Here’s a quote from the article:

Time Warner Cable plans to test a multi-tiered price system for high-speed broadband service later this year. New customers in the trial area of Beaumont, Texas, will be charged different rates based on the amount of data consumed in a month, much like a cell-phone plan charges based on minutes used.

Right now Time Warner is saying they will offer plans priced for up to 5, 10, 20, and 40 gigabytes per month, with middle-tiered plans running roughly the same amount average users currently pay (around $30 per month) for high-speed connections. The company also says they will allow customers to go over their limit but they will be billed for the extra.

This actually makes some sense from both a business and a consumer perspective – the ISP’s have always said 5% of users consume as much as 50% of network capacity downloading vast numbers of large files, such as movies, videos, and songs. I think of my parents who use little bandwidth to check email and occasionally surf the web and compare them to our house where my teenagers are often watching and uploading videos on YouTube, uploading to Flickr, downloading Mike Q and my podcasts , etc. I’m certainly not putting my kids in that top 5% but you get the idea – why are my parents paying just as much as us when we’re using a lot more bandwidth?

Companies looking to sell audio and video products on the web (NetFlix, Apple, Amazon, etc) are the ones who could ultimately get hurt. If I’ve used up my 20 gigabytes this month I’m not going to download that movie I wanted to watch on Friday night……… Here’s another piece from the article:

Another unintended consequence of tiered pricing is that it could discourage some companies from launching new services that require large bandwidth, consumer advocates say. The plans could also penalize early adopters whose heavy use of new services helps developers come up with refinements that use up less bandwidth……

According to the Business Week article, Comcast is considering a similar plan. Right now, Verizon does not appear to be.

I’ve written in the past about the Amazon Kindle eBook reader. The Kindle uses a cellular network connection to deliver books purchased by users. The cost of cellular service is bundled into the price of the book by Amazon - users do not need a cellular contract to make purchases on their Kindle. Perhaps the ISP’s should consider similar arrangements with companies selling audio and video products on the web.

Broadband Divide: People and Businesses Moving for Bandwidth?

Ars Technica has an interesting post titled FiOS tops satisfaction survey; worth moving for? The post discusses a recent issue of Consumer Reports that rated Internet Service Providers (ISPs). In the Consumer Reports article Verizon's fiber optic FiOS service was declared to be best of breed. The Ars Technica post then goes on to highlight a couple of people who's recent moves were, at least in part, due to Verizon FiOS availability. Here's a quote describing Andru Edwards' relocation:

Andru Edwards of Gear Live tells Ars that he's one of those willing to relocate for the promise of fiber optic goodness. "I moved 10 minutes north of Seattle specifically for FiOS service," he tells Ars. "We push a lot of video to the web, and Comcast's 768k upload wasn't cutting it. Gear Live now has a 30 megabit down/15 megabit up connection. While customer service is horrendous (even ignoring possible security flaws that can result in easy identity theft), the FiOS connection is a Godsend for us."

And another quote describing Ars Technica's Editor in Chief' Ken Fisher's move:

"We're in a region where everybody is getting FiOS within six months, so it didn't really influence our exact location," he said. "We've had FiOS for almost four months and there hasn't been a single outage. It's always fast, it's so reliable that when you see performance problems online you can assume it's something other than your connection. In fact, some people will be disappointed when they get it and realize that it can't make Yahoo serve to you any faster."

I'm sure Yahoo (and others) will catch up in serving these high bandwidth areas so I'm not too worried about that. This is also not new news - Realtors have recognized over the past year or so that high bandwidth (like FiOS) availability can be used as a marketing/selling point - much like a 3 car garage or bonus room!

I'm also sure we'll see the cable companies going in with competing DOCSIS 3.0 based services in areas of high bandwidth availability. My concern continues to be the under served areas and, over the past year, my definition of an under served area has expanded to places where ADSL is offered. Sure ADSL is faster than dialup (if that is all you have) but when you compare it to FiOS type bandwidths.... it crawls. And........... don't forget, the "A" in ADSL stands for "Asymmetrical" - I've written in the past about the shift to symmetrical services.

Here's a few questions I've been asking myself:

• Will people start moving out of areas where high bandwidth is not available?
• What will happen to property values in these under served areas?
• Will businesses want to move into areas where high bandwidth is not available for the business and their employees?
• What kinds of academic issues will these communities face?

The Speed Matters blog has a post titled To candidates: How will we get high speed Internet?
Sounds like a pretty good question to me.

FCC, Vermont and Maine OK Verizon / Fairpoint Deal

The state of Vermont has tentatively reached an agreement with Verizon and Fairpoint Communications on Fairpoint's $2.7 billion purchase of Verizon landlines in Maine, New Hampshire and Vermont. The Vermont proposal still has to be approved by the Vermont Public Service Board. According to an Associated Press article:

The proposal, which must be approved by the three-member Vermont Public Service Board, essentially mirrors a stipulation already reached by Maine regulators. It calls for a $235 million reduction in the purchase price, reduced dividend payouts that would free more money for debt service and some special accommodations for Vermont.

The Maine Public Utilities Commission approved the purchase last week with New Hampshire still awaiting approval. Perhaps jumping the gun, the Federal Communications Commission voted 3-2 yesterday to approve the sale.

Here's a quote from a Burlington Free Press article written today:

Two FCC commissioners voted against approving the transaction. "If the seller is not committed to ubiquitous broadband deployment, then letting someone else with more commitment do the job makes sense. But if the buyer is shackled by the costs of the agreement, it becomes more difficult to see how the public interest is served," FCC Commissioner Michael Copps wrote in a dissenting opinion.

Commissioner Copps has also questioned why the FCC is issuing a ruling before all three of the state's regulatory agencies have reached decisions.

Internet Traffic Control Conflict

Yesterday, at the Consumer Electronics Show in Las Vegas, Federal Communications Commission Chairman Kevin Martin announced the Commission will investigate complaints that Comcast interferes with file sharing application Internet traffic. These BitTorrent based peer-to-peer file sharing applications are commonly used to exchange large video and audio files on the Internet. Here's a quote from an Associated Press release:

A coalition of consumer groups and legal scholars asked the agency in November to stop Comcast from discriminating against certain types of data. Two groups also asked the FCC to fine the nation's No. 2 Internet provider $195,000 for every affected subscriber.

The complaint filed by Free Press is linked here.

The Associated Press release continues:

"Sure, we're going to investigate and make sure that no consumer is going to be blocked," Martin told an audience at the International Consumer Electronics Show.

In an investigation last year, The Associated Press found that Comcast in some cases hindered file sharing by subscribers who used BitTorrent, a popular file-sharing program. The findings, first reported Oct. 19, confirmed claims by users who also noticed interference with other file-sharing applications.

The key word in Martin's statement is "blocked". Here's a piece from a DSL Reports release:

Martin's choice of words is telling. If you're a network neutrality supporter eager to see someone clamp down on application throttling, you shouldn't hold your breath waiting for the FCC. The policy statement (pdf) that guides the FCC's hand in matters of network neutrality is not law, and is intentionally vague enough to allow providers to get away with anything short of an outright traffic blockade.

The final footnote in on the FCC policy statement is most interesting:

Accordingly, we are not adopting rules in this policy statement. The principles we adopt are subject to reasonable network management.

I can see both sides of this argument: On one hand it is extremely frustrating to see my broadband data connection significantly slow in the evenings - I've often wondered how much of the slowdown is due to BitTorrent based file exchange along with streaming video, audio, etc. On the other hand BitTorrent is being used by companies that sell video and game content for distribution - if I've purchased a video online I don't want my ISP throttling the speed of my downloads.

I'm hoping the FCC can step in, mediate the disagreement and set a policy that works for all - BitTorrent based file exchange is not going away.