How Regulators Enticed Verizon to Sell Out Customers to the NSA

The telecompany's explanation for colluding with the FBI, FCC, DOD, etc.

Verizon, the phone company whose disclosure of customer data to the federal government is at the center of the furor over cooperation by technology companies with top-secret national security programs, has offered a precise, clear, but little-noticed public explanation of why it did what it did.

The Verizon explanation is not in the vague and cryptic memo the company issued last week after the Guardian exposed its program. It came, instead, in the company’s annual filing with the Securities and Exchange Commission, included in Verizon’s annual report to shareholders. It said, “As part of the FCC’s approval of Vodaphone’s ownership interest, Verizon Wireless, Verizon, and Vodaphone entered into an agreement with the U.S. Department of Defense, Department of Justice and Federal Bureau of Investigation which imposes national security and law enforcement-related obligations on the ways in which Verizon Wireless stores information and otherwise conducts its business.”

That explanation was offered on February 26, months before the Guardian article. But it gets right to the heart of the matter, which is that there is a connection between Verizon’s status as a highly regulated company and its agreement to cooperate extensively with the government. The New York Times reported Sunday that such cooperation advanced to the point that “Verizon had set up a dedicated fiber-optic line running from New Jersey to Quantico, Va., home to a large military base, allowing government officials to gain access to all communications flowing through the carrier’s operations center.”

Verizon needed FCC approval to sell part of its wireless business to a British company, Vodaphone. It needs FCC approval to do lots of other things, too, ranging from acquisitions to building wireless networks on new parts of the spectrum. In addition, the federal government is a big Verizon customer. The company’s Web site says, “We understand the public sector. We've worked with governmental organizations for decades. In fact, we are the leading provider of communications services to the U.S. federal government.”

These federal contracts are worth tens of billions of dollars to Verizon. A single 2009 contract from the Defense Information Systems Agency to Verizon Business Network Services Inc. was worth as much as $2.5 billion over ten years. A Verizon press release in 2008 touted another pair of defense contracts worth as much as $1.12 billion. The online biographies of executives at Verizon Enterprise Solutions include some individual Verizon executives who boast that their efforts have resulted in more than $10 billion in federal sector business for Verizon. A Verizon Web site focused on the “National Intelligence Sector” promises, “we understand technology and have the experts in place to help intelligence missions succeed.”

Verizon was created by the federal government to begin with, first through the government-imposed breakup of Bell system (the 1984 result of a 1974 antitrust lawsuit filed by the Department of Justice), then government approval of the mergers of Bell Atlantic, GTE, and Nynex.

And though details are still emerging, some of the other companies that apparently chose to cooperate with the government data collection programs rather than challenge them also are either highly regulated or do a lot of business with the government. Google, for example, is providing the email for the 7,200 faculty, staff and midshipmen at the U.S. Naval Academy, for the 5,000 staff at the Department of Energy’s Idaho National Laboratory, and for the 17,000 employees at the General Services Administration. Microsoft had its own antitrust battle with the Department of Justice, from which it emerged more whole than the Bell phone system did but nevertheless somewhat chastened.

Reasonable people may reach differing conclusions over whether these data collection activities are justified by the Islamist terrorist threat. Senators such as Ron Wyden and Rand Paul have raised concerns about the issue. The most durable policy solution may be a market-based one that would easily allow new entrants to arise and raise capital in the telecommunications business without their having to get a lot of permission from the government. If some new phone company or email service provider began with a promise that they’d obey lawful court orders, but that they’d also fight really hard as a rule not to give customer information to the government, the customers would line up — if the government would let them.

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  • Scruffy Nerfherder||

    See! SEE! This is why we need heavy handed internet regulations like net neutrality people! Otherwise Comcast might throttle our torrentz!

  • Sevo||

    Rank extortion.

  • sarcasmic||

    "That's a nice federal contract you've got there. Be a shame if something happened to it."

  • Almanian!||

    this

  • itsnotmeitsyou||

    Yeah, this for sure.

    It was the first thing I thought of while reading the article. I'm pissed that Verizon gave the NSA my private data, but when the jackboot is on your throat, very few would spit on it and tell them to fuck off.

  • KDN||

    Meh. Verizon makes a lot of money off of the Feds (it was at $3b annual excluding wireless last I had access to inside numbers), but at least 80% of it is due to their status as the ILEC for the locations where the majority of the Federal bureaucracy resides. Even if they wanted to walk away from Verizon on the local side (which for an enterprise like that is not really feasible) VZ would still make plenty of loot off of them, though it wouldn't be directly billed to the Feds.

    The greater danger to Verizon is FCC rulemaking. VZ can survive without Uncle Sugar's money, they can't survive if the FCC becomes adversarial.

  • Red Rocks Rockin||

    I'm actually surprised by the relative lack of vitriol being hurled at Verizon right now. People seem to realize that if the government compelled them to give up the data, there wasn't much they could do to resist without massive retaliation from various executive branch agencies.

  • sarcasmic||

    What can people do? They can't get out of their contract without paying a big fee. Maybe they'll switch when their contract is up, if they remember. But to what company? If they're snooping on Verizon they're snooping on all of them. What can someone do short of giving up having a cell phone?

  • grey||

    We keep assuming the boot is on the neck of AT&T and rest of them, it has yet to be revealed. I believe it will be revealed that the NSA has them all in the Socialist Sharing Data Plan, but in the meatime, if Verizon is the first (and only) to surrender, then I hope there is backlash. I'm waiting to see if my provider is on the list, if so, I'd like to start looking at my options for more privacy.

  • Bill||

    Wrong. It's not SSDP (Socialist Sharing Data Plan), it's SDSP (Socialist Data Sharing Plan). Get it right!

  • Bill||

    Although I would go along with SS Data Plan.

  • db||

    Of course. Government regulation and licensing are at the root of all this. Anytime an organization or individual is subject to licensing requirements, a situation is created where the regulating agency can compel certain behaviors that may only be tangentially related to the licensed activity. Because enabling legislation for regulatory agencies is written so broadly, the agencies are able to do this with impunity.

  • Loki||

    Because enabling legislation for regulatory agencies is written so broadly, the agencies are able to do this with impunity.

    ^This times 1,000,000. Congress has essentially abdicated their responsibility over the years and have basically put the unelected bureaucrats of the executive branch in charge. When you put unaccountable shitheads in charge of creating policies to "govern" (rule?) the country by, you shouldn't really be surprised when shit like this happens.

  • grey||

    Second the motion, "Government regulation and licensing are at the root of all this."

  • Bardas Phocas||

    Verizon sent me an email this morning giving me free HBO for loyalty. Hmm, coincidence? Since we now know they are reporting all my porn choices to the federals, will free HBO keep me on the plantation?

    Thank you for being a loyal FiOS® TV customer! As a token of our appreciation, we are now including HBO® in your FiOS® TV programming package. There is no additional cost to you and no action is required.

  • Brett L||

    We're hemhorraging customers! Please stay! We'll send over a masseuse of either sex (your choice!) to give you a 1 hour massage with happy ending.

  • Loki||

    Shouldn't they already know his prefered choice of masseuse after tracking his porn habits for all this time? They shouldn't even have to ask:

    "We'll send over a petite 5'2" blonde dominatrix with DD hooters* to give you a 1 hour massage with happy ending and a spanking."

    *Not sure if this is his preference or not, although I would know if I worked for the NSA.

  • Bryan C||

    I think you got Al Gore's email by mistake.

  • grey||

    HBO, but no free porn?

    Perhaps NSA will give you the free porn package for your Data Sharing Loyalty. They already know your tastes, so they'll save you from having to choose. Too much choice anyway.

  • Floridian||

    I'm having a hard time blaming the companies for playing ball. I would not blame a rape victim that had a knife to her throat for not fighting back hard enough, even if should took the twenty the rapist tossed her as he left.

  • Scruffy Nerfherder||

    You need to hate the Korporashunzzz more.

  • Floridian||

    I hate cronyism plenty, I just hate coercion more.

  • Scruffy Nerfherder||

    I'm just drawing attention to the argument that the progressives will use.

  • Floridian||

    Ah. I see what you did there.

  • OldMexican||

    It said, "As part of the FCC's approval of Vodaphone's ownership interest, Verizon Wireless, Verizon, and Vodaphone entered into an agreement with the U.S. Department of Defense, Department of Justice and Federal Bureau of Investigation which imposes national security and law enforcement-related obligations on the ways in which Verizon Wireless stores information and otherwise conducts its business."


    Oh, I am sooooo sure the FCC twisted Verizon's executives' little arms into this deal! Oh, you poor, poor babies!

    They perfectly know that they could've taken the FCC to court if it insisted with that illegal quid pro quo. But now is clear the executives decided to tread the path of the craven, and their decision it was; no question about it, in my mind.

  • ant1sthenes||

    Says who? You can't take SUPER SECRET NATIONAL SECURITY MATTERS into real court, only kangaroo court.

  • itsnotmeitsyou||

    Yup, what is Verizon to do OM? Tell them no, we won't go along with your deal. Then when they try to sue the FCC for not allowing them to conduct business, what evidence do they have?? "Well, they won't let us do X because we wouldn't go along with their highly classified project." "What kind of project?" "It's classified and we can't tell you anything about it or acknowledge it exists under penalty of treason."

    Yeah, that'd work out well.

    I think, as a few of these articles have hinted at, that these companies were forced under threat to go along with these programs and told that if any of the few people aware of their existence were to leak the info, they would go to GitMO.

  • T||

    Yeah, that worked out so fucking well for Joseph Nacchio, didn't it?

  • KDN||

    Verizon needed FCC approval to sell part of its wireless business to a British company, Vodaphone.

    Verizon would need FCC approval to wipe its own ass if it had one, but this sentence is technically incorrect: Vodafone always had an interest in VZW, the whole operation was done as a joint venture between the two companies. BA needed Vodafone's technical expertise and lack of union entanglements in order to get the service off the ground and running properly.

  • Bill Dalasio||

    Much of what is discussed here is precisely the reason I'm sceptical of moves to create liability for tech companies that provide information to the government. In effect, they'd be given a choice of get sued or get screwed. The proper liability for this should rest with the government, not the organizations they're coercing into cooperation.

  • Zeb||

    Some nativist douchebag this morning was saying it's all payback for the government allowing massiveimmigration so the companies could keep wages low.

  • heartburn||

    Can someone explain why this isn't a bigger story? I mean, even if the whole country decides they want total surveillance, Isn't this a blatant case of malfeasance?

  • John Galt||

    Well, of course it is. But, look around you. The average American is a coward who will happily trade all of our most important liberties for the illusion of security. Most of the rest are too stupid to even care about anything past who is winning American idol, or which celebrity is doing what.

    Liberty is doomed. And along with it America's great experiment with constitutionally limited government.

  • John Galt||

    I'll be dropping Verizon as my carrier the day my contract expires.

  • Bill||

    I would have expected something bolder from someone with your moniker.

  • Eeyore||

    I'm wondering if Sprint (who is losing money) bent over for this one. Is it becomes apparent that the only way to succeed in this country is through the evils of cronyism and selling away other peoples freedoms, then nobodies freedoms will be safe.

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