Verizon Locking Customers into New Fiber Optic Service (and Not Telling Them)

Readers may think we are being unfair in picking on Verizon. After all, the name of the game in business is to try to create barriers to entry, or failing that, establish some form of product differentiation that makes your offerings more attractive to some, hopefully many, customers, enabling you to charge more (the generic alternative is to be the low cost producer).

And on the surface, Verizon’s new fiber optic service, FIOS, is a big step up. It’s super fast. Even its slowest package, at 5 mbps downstream and 2 mbps upstream, beats DSL hands down and is almost certain to be faster than cable (FIOS is a dedicated pipe, while you share your cable bandwidth with other users, so your realized speed depends on how active they are when you are using the ‘Net).

So what’s the problem? Verizon is taking out the local copper for FIOS customers and, according to this Associated Press article, in many cases not telling them about it. For customers, that means they no longer have the assurance that they can make calls in a power outage, and they are locked into a higher cost service. While a Verizon spokesman said they would “restore” copper if a customer insisted, one can imagine that they wouldn’t make the process easy.

In some respects, this shouldn’t be surprising. Verizon has announced it intends to retire large sections of its copper network. But it was supposed to manage the transition in a way that didn’t unduly damage competitors, and that clearly isn’t happening. Verizon is required to lease its copper network and its central office ports to competing internet service providers (ISPs), but no such requirement exists for fiber optic networks. AT&T and Quest are going through the same transition to fiber optic, but are not yanking out the copper infrastructure as fast as they can.

As a Verizon customer, and having friends who have run ISPs and have had to contend with Verizon’s high handedness, none of this is surprising.

From the Associated Press (via the International Herald Tribune):

When Henry Powderly II ordered Verizon Communications Inc.’s FiOS fiber-optic service, he knew he was about to be connected to the future of telecommunications.

He also got unplugged from its past. Which meant that while Powderly was gaining features, he was losing some telecommunications options.

Verizon’s installer — without warning, Powderly says — removed the copper wires that used to carry his phone calls. For most of the world, copper still links homes and businesses, as it has for a century.

Verizon’s new high-bandwidth fiber lines are fully capable of carrying not only calls but also Internet data and television with room to grow. But once the copper is pulled, it’s difficult to switch back to the traditional phone system or less expensive Digital Subscriber Line service. And Verizon is not required, in most instances, to lease fiber to rival phone companies, as it is with the copper infrastructure.

What’s more, anyone who owns Powderly’s house in the future will face higher bills with FiOS than another home with copper. Right now, for instance, Verizon’s DSL plans cost as little as $15 (€11) a month. FiOS Internet starts at $30 (€22) a month.

“I was not given an option,” said Powderly, a 30-year-old resident Long Island, just east of New York City.

Besides limiting options down the road, the switch to FiOS can have other implications. Unlike copper-connected phone service, FiOS does not work during power outages once a backup battery goes out — not even for emergency calls. Home-alarms and certain other devices work best with copper.

As it hooks up homes and businesses to its fiber network, Verizon has been routinely disconnecting the copper and, many subscribers say, not telling them upfront or giving them a choice. More than 1 million customers have signed up for a FiOS service, which is offered mainly in the suburban areas of 16 states.

Verizon spokesman Eric Rabe said customers should have been notified at least three times — once by the sales representative when FiOS is ordered, by the technician before copper is cut and through paperwork given to the customer. Some customers say that has not happened.

The New York phone company has made it clear its entire network is going to fiber-optics. Verizon has decided to spend $23 billion (€17 billion) to make fiber available to 18 million homes by 2010. Network maintenance savings could top $1 billion (€740 million) a year, Verizon said.

“It’s a huge expense to maintain those copper networks,” said Scott Randolph, federal regulatory director at Verizon. “At some point in time, it would not make sense to operate two networks.”

Mark Cooper, research director at the Consumer Federation of America, says there are other reasons for snipping the wires.

“They don’t want to maintain it — they don’t want the expense and they don’t want the competition,” he said.

Under the Telecommunications Act of 1996, incumbent phone companies like Verizon must lease to rivals their copper network. That is generally not the case for next-generation fiber systems. And so far, Verizon has filed more than 100 notices with the Federal Communications Commission to retire portions of copper throughout its network.

The FCC allows the retirement of copper as long as public notice is given so the phone companies can work together to ensure the smaller companies’ access. But rivals say access at reasonable prices is not guaranteed and it is just a matter of time before they are cut off.

“It’s a horrendous situation … We don’t let General Motors build a highway and decide what size cars to let on the road,” said Joe Plotkin, marketing director for Bway.net, a New York Internet provider. “The small guys have tried to fight this re-monopolization of the network infrastructure.”

He and other smaller rivals contend the communications market is fast becoming a two-player game between giant phone and cable companies — diminishing consumer choice.

While AT&T Inc. and Qwest Communications International Inc. are also retiring their copper networks, they are not touching the so-called “last mile” of copper wiring that runs from each customer’s dwelling to the central office where other lines aggregate. Laying fiber, a robust pipeline, through the last mile is much more expensive because each line goes to a particular home or business.

Verizon is taking the pricey route because it believes fiber offers a superior service that will lure customers away from cable operators, who now offer telephone service in addition to television and high-speed Internet.

Rabe, the Verizon spokesman, said the company will restore copper to homes if the customer insists, but Verizon would rather not reconnect the copper and will try to convince the customer to agree. At any rate, the phone giant provides ample warning, he said.

An example of what Rabe describes as adequate notice is the fine print on Verizon’s FiOS policy, which is printed on its Web site. It says “current Verizon Online DSL customers who move to FiOS Internet service will have their Verizon Online DSL permanently disabled after their FiOS conversion.”

Bill Kelm, a FiOS customer in suburban Dallas, filed a complaint with the Federal Trade Commission last year because of Verizon’s “inconspicuous” policy rules.

“It’s buried within these long terms of service that people never take the time to read,” he said. “It needs to be more conspicuous.”

While Kelm has no quarrel with FiOS itself — he pays $145 (€105) a month for TV, Internet and phone — he would like to have been told before he signed up that Verizon would cut the copper. He was counting on Verizon’s clearly advertised 30-day money back guarantee in case he did not like the service and wanted to switch back.

“I blew a gasket,” Kelm said. “The 30-day money back guarantee was worthless in my opinion.”

He’s also concerned that Verizon initially priced its current FiOS service lower only to jack rates up once the subscriber is reeled in.

“Then, you’re stuck,” Kelm said.