Broadband Cable Association of Pennsylvania


March 27, 2014

New Jersey cities, towns, rural communities - as well as Division of Rate Counsel - all argue that Verizon reneged on agreement to provide broadband to entire state.

The so-called stipulation settlement will not take effect unless approved by the BPU commissioners, who have not decided yet when to take up the issue, a source of controversy for years. Opponents argue Verizon has not complied with a 1993 law, requiring 100 percent of its territory to be upgraded to high-speed broadband service by 2010. That failure has left some rural towns and poorer communities without access to meaningful broadband service, according to critics. Verizon responds that New Jersey is the most wired state in the nation, with 99 percent of it having access to broadband service. New Jersey is one of only five states where 81 percent to 97 percent of the rural population has access to high-speed Internet service, the company argued in briefs filed in the case. "Verizon has satisfied its regulatory commitment under Opportunity New Jersey," said Lee Gierczynski, a spokesman for Verizon New Jersey, referring to the 1993 law.

Division of Rate Counsel Stefanie Brand contested that view, acknowledging a substantial part of the state has been wired, but more remains to be done to meet the 100 percent commitment made 21 years ago. "The last part of it is less profitable," Brand said, adding "A deal is a deal. The board should not accept anything less that what was bargained for and paid for by New Jersey ratepayers." Under Opportunity New Jersey, Verizon won approval to deregulate many of the phone services it offers to its customers in exchange for providing 100 percent of its customers access to fast broadband service. Just what form that service would entail remains a big source of dispute.

Critics say the law requires the company to install fiber optic-services, a high-speed line that can deliver telephone services, Internet access, and TV programming. Gierczynski disputed that assessment, saying the BPU recognized that DSL (digital subscriber line) satisfied that requirement. Brand disagreed, primarily because she accused Verizon of not maintaining its traditional copper wireline system. DSL broadband service is delivered over traditional phone lines, which some argue cannot consistently match the speed of fiber-optic service. In part, the settlement would allow the company to meet those obligations through a wireless transmission medium, a system not as reliable and more costly than traditional copper and fiber-optic services, according to Brand.

Others have argued Verizon has profited from the Opportunity New Jersey law, while failing to live up to its commitments. Bruce Kushnick, executive director of New Networks, a telecom consulting firm, claimed the company has collected $15 billion from customers for its upgrade of the system, a charge Verizon disputes. "The board never authorized and Verizon never charged a surcharge for doing this," Gierczynski said. Brand argued otherwise. "They certainly profited from this," she said. "They definitely made money from this." Towns large and small also opposed the settlement.

In comments filed by Newark, the city said any settlement must further the public interests' goals. "The proposed stipulation does not do so - not even close," according to a brief filed by Newark. The New Jersey State League of Municipalities also weighed in against the settlement, saying it runs counter to Verizon's obligation under Opportunity New Jersey.

Dish Network Corp. Chairman Charlie Ergen recently contacted DirecTV Chief Executive Officer Mike White to discuss a merger of the two satellite television companies, according to several people with knowledge of the matter. Shares of both companies rose. Ergen made the approach in response to Comcast Corp.'s $45 billion acquisition of Time Warner Cable Inc. announced in mid-February, one of the people said, asking not to be identified discussing confidential information. White is reluctant to push forward with formal talks out of concern regulators may block the deal because the two companies directly compete with each other, another person said.

DirecTV is the largest U.S. satellite-television operator, with about 20 million paying subscribers. Dish is No. 2 with about 14 million subscribers, and also has a spectrum portfolio that may be valued at almost $26 billion, according to Bloomberg Industries. Dish has said it remains open to all options to monetize the U.S. airwaves, including building its own network or teaming up with an existing carrier, such as Verizon Communications Inc. or AT&T Inc. "Given the rapidly changing industry dynamics, everyone should be talking to everyone, and if you're not you might be left behind," said Walt Piecyk, an analyst with BTIG LLC. "I highly doubt that DirecTV is the only company that Ergen has spoken with. This should serve as a reminder to AT&T and Verizon that a strategic asset has other options that could make Dish un-buyable in the future."

A deal may be more likely to pass after the current administration departs, one person said. The key to a deal being approved is how regulators view the market, another person said. If video competition is extended to online services, such as Netflix Inc., a deal could pass, the person said. Even if regulators allow Comcast's acquisition of Time Warner Cable, DirecTV management doesn't see the cable deal as a proxy for an approval of deal with Dish, said another person. DirecTV and Dish's 2002 attempt to merge was blocked by regulators. "We aren't suprised that the two CEOs would discuss a deal," James Ratcliffe, an analyst at Buckingham Research Group, wrote in a note after the report. "Ergen has made it clear in the past that he believes a combination with DTV would create significant value (and we agree), so the fact that he approached DTV CEO Mike White wouldn't surprise us." Still, Ratcliffe wrote, "we remain skeptical" because of prospects for a "difficult regulatory approval process." Shares of DirecTV rose 5.7 percent to $77.34 at the close in New York, giving the company a market value of almost $40 billion at the close in New York. Dish gained 6.3 percent to $62.09, giving it a market value of $28 billion.

"There is obviously a business case that makes a lot of sense for consolidation in the satellite industry," Ergen said in November, before the Comcast-Time Warner Cable deal was announced. "You're going to see consolidation, maybe first in the cable industry," he said. "You're seeing in the government's part that they do negotiate things within the airline side, so it makes a lot of sense," Ergen said, referring to the U.S. government's willingness to negotiate on antitrust issues in the airline industry. While federal regulators initially sued to block American Airlines parent AMR Corp.'s $17.2 billion merger with US Airways Group Inc., in November the companies reached a settlement with the Justice Department that put the merger back on track. "Whether that ever comes to fruition is another story, but I mean I think both Dish and DirectTV realize that that can make a lot of sense."

Although White is hesitant to pursue a deal, he hasn't ruled it out entirely, one person said. The talks are being conducted at a senior level with no official process yet under way, several people said. White has been openly more wary about a possible combination. "While I certainly believe our industry has changed substantially and I believe there are a lot of reasons why consolidation in our industry would be pro-consumer to try and improve the balance between programmers and distributors, you still have to go sell that in Washington," White said in December. Darris Gringeri, a spokesman for DirecTV, declined to comment, as did Bob Toevs, a spokesman for Dish. Bloomberg