Verizon’s Sweetheart Deal

This article is part 3 of 3 in the Carving Up New York series, please also see part 1 and part 2 in this issue of The Indypendent.

With little public attention, Verizon has won a sweetheart contract from the Bloomberg administration to rewire the city’s phone, television, and Internet service. The build-out will begin in the most lucrative parts of New York City and only gradually reach all of the boroughs.

Verizon and the city’s Department of Information Technology and Telecommunications (DoITT) negotiated in secret for 18 months to shape DoITT’s request for proposals (RFP), which it published on April 11 of this year, and Verizon’s response, which it submitted just four days later on April 15. In most cities, the standard procedure is to assess the city’s needs and shape an RFP based on that, then let any company that thinks it can fulfill those needs submit a proposal.

Under the terms of the 12-year agreement, Verizon can begin selling its FiOS-TV television service throughout the city in competition with Time Warner and Cablevision. The service offers Internet, video, voice and even wireless for those customers who really love a one-stop-shop.

“This is a market-changing deal,” said New York City Council Member Gale Brewer, referring both to its financial size and the impact of running fiber-optic cables to every residence in the city.

These high-capacity fiber-optic lines are considered the gold standard of telecommunications and DoITT considers it a coup that a private company would invest billions of dollars with no direct subsidies to install this system for all residents. Other cities such as Seattle, San Francisco, and St. Paul, are considering plans to invest tax dollars to achieve this goal.

Verizon is required to offer the service to the entire city within six years, but there are provisions for three one-year extensions and no clear consequences if Verizon fails to meet its deadlines.

The company plans to begin by offering service to 98 percent of Staten Island homes and to nearly all of the single-family homes in Manhattan by the end of the year. (Apartment buildings are a bit more challenging to wire.) Most residents of Brooklyn, the Bronx, and Queens won’t have service until 2011, according to the build-out schedule in the contract.

Since the percentages vary by borough and are subject to extensions, Council Member Brewer has called on DoITT to maintain an up-to-date build-out schedule on its website. DoITT has been known to withhold information from the public.

Many New Yorkers are excited for FiOSTV because a second option for cable service can lower prices by as much as 15 percent, according to Consumers Union.

Still, Verizon-NY needs this deal and the estimated $70 billion it could generate for the company. Revenues from its DSL and landline services have been declining steadily, in part as subscribers defect to cable, which can offer faster speeds for Internet, lower prices for phone service, and cable TV service, too. In fact, on June 3, Verizon was granted $3.6 million in property tax relief it had been liable to pay the City of New York until that time. Verizon said the city’s property taxes were too high and the Commission said these subsidies “would provide it some relief from the poor financial results it has experienced.”

PUSHOVER NEGOTIATIONS

It appears that DoITT has gone easy on Verizon. During negotiations, Verizon’s threat was to serve just Staten Island and Manhattan, where it has already replaced much of its old copper wires with fiber optics.

Verizon was able to weaken the penalty for a missed service appointment from a month of free service to $25. But the deal requires an annual “Cable Consumer Report Card,” which Consumers Union and Comptroller Bill Thompson advocated. Verizon will have to post on its website information on service outages and customer complaint calls, as long as other cable providers face the same requirement.

Another issue centers around whether Verizon will commit to funding centers like Manhattan Neighborhood Network and Brooklyn Community Access Television, where people can go to use expensive television production equipment and broadcast their programming. Existing cable providers already do this. But the Internet is different. People can upload video content from their homes. Training and equipment access can happen at the neighborhood level.

“Public access and citywide buildout are a given,” Brewer said, “but Verizon also needs to support the social layer.”

Details like these were discussed when the Franchise and Concession Review Committee (FCRC) held a hearing, as required, but gave minimal notice to the public and scheduled the hearing on a Tuesday afternoon while the state legislature was in session. The FCRC, which includes Mayoral appointees, the Comptroller, and the Borough Presidents, has to approve all franchises.

More than a dozen members of the New York City delegation to the state legislature asked DoITT to postpone the hearing so they could attend, but DoITT ignored the request.

“So many issues are on the table during negotiations,” said Chuck Bell of Consumer’s Union.

Following the hearing, activists from People’s Production House (where I work), Common Cause New York, Consumers Union, and NYPIRG (New York Public Information Reasearch Group), as well as City Council Chairs Gail Brewer (Technology in Government) and Tony Avella (Zoning and Franchises) called on the FCRC to delay its approval to allow for more assessment and public input. Nevertheless, the FCRC gave its unanimous approval just four business days after the hearing.

The franchise agreement currently awaits approval from the state Public Service Commission (PSC), but the outcome is not in doubt. The PSC has rubber stamped every one of Verizon’s other 115 franchise applications in recent years and recent media reports indicate that Verizon expects this application to receive the very same treatment when it comes before the PSC in July. And this doesn’t come without any up-front investment on Verizon’s part. Through 2006 and 2007, Verizon spent more money lobbying ($5.4 million) and hired more lobbyists (24) than any other company in New York State.

Consumer advocates are now looking ahead to the city’s negotiations with Time Warner and Cablevision, whose franchises are up for renewal in the fall. They are also proposing procedural changes that would require more transparency in the franchise negotiation and approval process at both the city and state level.

Joshua Breitbart is the Policy Director of People’s Production House. He writes a monthly column on media and technology for Gotham Gazette, where most of this reporting first appeared. (GothamGazette.com.) Cindy Hom of Common Cause contributed research to this article.