IRREGULATORS Big WIN: We Freed the States from the FCC

Bruce Kushnick, Managing Director bruce at New Networks dot com

Scott McCollough, Esq. Counsel  wsmc at dotlaw dot biz

FOR IMMEDIATE RELEASE

IRREGULATORS BIG WIN: We Freed the States to Get the Money Back from AT&T, Verizon & CenturyLink

(This is similar to the DC Circuit decision that freed Net Neutrality from the FCC’s control to become a state issue.)

  • We got the decision that we wanted—billions of dollars per state can now be freed to solve the Digital Divide, lower prices and bring in competition.
  • All wireless cross-subsidies can be stopped — 5G is no longer profitable.

IRREGULATORS v FCC: DC Court of Appeals Opinion, March 13th, 2020

WE CAN NOW TAKE THE NEXT STEPS 

WHAT WE NEEDED TO FIX: Unknown to most, AT&T, Verizon and CenturyLink control America’s telecommunications utilities, and over the last decade they have used the FCC’s accounting rules and formulas to charge the majority of all company-wide expenses to the local wired state-based telecommunications utilities, while the other services that are also using the same wired copper and fiber utility facilities, like broadband, internet and wireless, do not pay their fair share.

This financial shell game has made the entire state-based utility infrastructure appear unprofitable and they have relied on these distorted financial results to argue that they cannot upgrade rural areas or even inner cities, and it has been used to justify local rate increases multiple times, as well as save billions in taxes. More importantly, it is also the excuse to “shut off” the wired networks and go wireless with 5G.

Over the last five years we filed more than 18 separate pleadings and reports to stop the continuing use of these obsolete and now deformed rules. The FCC refused to take action, claiming that the rules didn’t apply, even though the companies still use them and the state commissions still accept them to the detriment of utility customers.

We brought this case to expose one of the largest accounting scandals in American history and to get a decision by the U.S. Court of Appeals – D.C. Circuit—and we won. The Court made clear that the FCC does not have control over the state accounting and the states are free to adopt new regulations. This also allows the states to go after the billions in cross-subsidies and overcharging that has been costing America an estimated $50-60 billion annually.

This is one of the largest victories for consumers in recent years. The states now clearly have the authority to pick up the mantle and act to narrow the Digital Divide, promote Digital Inclusion, lower prices, bring in competition and end the cross subsidization of 5G by the public utility. And it provides a national broadband plan which is not funded by government subsidies but by dismantling this financial shell game.

This is a partial list of what this decision means going forward:

  • We help to take down the billions in Corporate Operations overcharging: In NY, Verizon Local Service was overcharged an estimated $1.5 billion dollars a year for the corporate jets, the executive pay, and the lawyers and lobbyists pushing anti-customer agendas. Now a state can now stop the billions of dollars in unrelated expenses that has been put into local service and caused rate increases.
  • We help to take down billions in tax losses: Today, the state utility pays the majority of expenses, even if it has nothing to do with Local Service. In NY, Verizon has been showing artificial losses of $2 billion annually. The states can stop the cross-subsidies and let these companies pay their fair share of taxes.
  • All subsidies to wireless can now be stopped by the states: The states are free to stop the cross subsidies where the fiber optic networks are being built for the benefit of the wireless company, instead of properly upgrading cities and towns, especially in more rural areas.
  • 5G Is Not Profitable Once We Do This.
  • We take down the 75-25% rule with this decision: Today, 75% of the costs of the wired network expenses (even for wireless, broadband and internet) are dumped into ‘local service’; wireless and these other services got a free ride — Not anymore. The states can come up with their own allocation factors.
  • We just lowered prices billions of dollars if the state decides to go after the money: After all of this shell game is exposed and removed, a state can make the price be ‘incremental’ — and it can decide that local service and the wired networks should only be based on the actual costs, and not made up expenses.
  • We now present billions in new found cash to solve the Digital Divide:  Removing this long standing shell game means billions can now be properly allocated to build out the wired state-utility infrastructure for broadband to EVERYONE in the state.
  • Cities can now build out their networks. NYC’s Master Internet Plan to solve the Digital Divide requires government funds and never held Verizon NY accountable. The City of New York, like all cities across America trying to get a digital future for every citizen, should have examined the financial cross-subsidies that were exposed in this case and the bait-and-switch funding for wireless. Now, NYC can go after the money and provide a fiber optic future to everyone.

NOTE: We lost this DC Court decision on standing: Since the rules don’t apply, we can’t be harmed.  We now have clarity about these cost accounting rules. The states are free to do what they want. Our strategy in bringing this case was to secure a definitive answer about the rights of states vs the control by the FCC over the financial accounting. The Court made it clear that the states are independent from the FCC and from the application of the federal accounting formulas known as “Part 36”.

“This means that any injuries the petitioners suffer through the application of outmoded Part 36 rules to price-cap carriers are traceable not to the Commission’s freeze order but to the states’ voluntary and independent decisions to use the rules of Part 36 for their own purposes.” (PAGE 9)

“Price Caps” Need Investigation and Repair: AT&T et al. and the states may say: “We are under price caps and the utility expenses are no longer examined.”

ANSWER: The States can now go back, do the audits, and stop the financial shell game. “Price caps” is a form of regulation that was supposed to keep prices capped and reasonable, which never worked. This was to increase the companies’ profits, which were supposed to be used to replace the existing copper wires with fiber optics—and that never happened. Instead, using the FCC’s corrupted formulas, it allowed for this massive overcharging.  Prices are no longer ‘just and reasonable’ when you can charge local phone customers to build the wireless networks or pay for the corporate jets.

FCC Accounting Rules Caused Verizon NY Cross-Subsidies

IRREGULATORS Take the FCC to Court Based on Verizon New York 2017 Annual Report. Billions Revealed in Cross-Subsidies Caused by the FCC’s Manipulated Accounting Rules. This is Happening Nationwide.

On June 3rd, 2019, the IRREGULATORS won Round 1, the right to take the FCC to court over their cost accounting rules. However, the case relies on the Verizon New York financial annual reports, the latest published May 30th, 2019. It is one of the largest accounting scandals in American history and it impacts all telecommunications in the United States – and all FCC decisions and proceedings, and almost all state decisions that relied on the FCC’s work.

PRESS: We created a by-the-numbers walk-through of the official Verizon New York 2017 Annual Report to spotlight some of the specific harms.

http://irregulators.org/verizonnywalkthrough/

The FCC’s rules were supposed to divide up the expenses that are to be paid by the different lines of business, such as Verizon Wireless or Verizon Online, for the use of the infrastructure and services of the state telecommunications utility – Verizon New York.

Unfortunately, the rules became corrupted and the expenses to be paid are set, “frozen”, to reflect the year 2000, 19 years ago. Using the Verizon New York annual reports, we prove that the rules are still in use and they now divert the majority of all expenses into Local Service, the basic POTS, phone service category. This has caused billions of dollars annually to be misallocated by charging phone customers excessive Corporate Operations expenses, everything from the corporate jets and golf tournaments to executive pay. It also diverted the construction budgets to pay for the wireless deployments. And Verizon was able to create losses that were used not only for rate increases, but to avoid paying billions in taxes. Ultimately, Verizon claims it is not profitable to upgrade rural or low income areas and is now planning a bait-and-switch, claiming 5G wireless will fix everything.

How crazy does it get?

  • Verizon NY 2017 Local Service was charged $1.8 billion, 61%, of Corporate Operations expense, making it unprofitable. Local Service had revenues of $1.1 billion. (“61%” is based entirely on the FCC’s FREEZE and it has been this way for 2 decades.)
  • Taxes: The Verizon NY 2017 Annual Report showed losses of $2.6 billion and a tax benefit of over $900 million. Verizon NY has shown losses of over $2 billion a year for almost the last decade, (with caveats).
  • Construction: Local Service paid the majority, $1.2 billion, in construction and maintenance, but only an estimated hundred million was attributed to the copper wires.
  • The NY Attorney General’s Office in 2012 found 75% of the utility construction budgets were being diverted to wireless or FiOS video services. This is instead of upgrading the NYC and NY State infrastructure.
  • Rates Increases of Over 100%: Since 2005, every wireline customer paid over $3,000 a line based on increases granted using artificial losses, through 2018.
  • It Created the Digital Divide by claiming areas of the state utility were unprofitable, when, in reality, there was enough money to have been doing continuous upgrades. In fact, rates should have been in steep decline.
  • This happened in every state because the FCC rules are federal. The last available data in 2007 matched in every state-based utility.
  • Customer overcharging, nationwide, is estimated to be $50-60 billion annually, based on what is happening in New York.

IRREGULATORS v FCC — In December, 2018, the FCC decided to extend the FREEZE rules for 6 more years. We could not let this stand and get worse. We have the actual financial books as well as the expertise to figure out what happened, but it has taken almost a decade of investigation to understand this accounting puzzle. No other state we know of still publishes financial reports; the FCC stopped publishing the financials in 2007.  We filed 18 separate reports and comments in this proceeding (Docket 80-286) to document our claims since 2015, which the FCC has mostly ignored. http://irregulators.org/our-work-reports-filings/

Settlement with Verizon NY and the NY Public Service Commission, July 2018: Our analysis and methodology was used in an investigation of Verizon New York that started in 2015 and was settled in July 2018. Estimated at $300-$500 million, 32,000 lines of fiber optics will be deployed in unserved areas and the existing networks will be maintained. But this settlement did not go far enough to fix the existing problems or deal with the FCC’s corrupted accounting.  https://bit.ly/2O25OqQ

The Bottom Line: No one knows or understands that the FCC’s rules have become corrupted over the last 2 decades, that they actually control the state-utility accounting and that they are still in use, nationwide. Stopping the Corporate Operations expenses, the cross-subsidies of the other Verizon lines of business with the state telecommunications utility, especially wireless, and making them pay market prices, will immediately lower rates on all services – not just basic phone service, and could bring billions back to do full upgrades of the telecommunication wired infrastructure. Cleaning up this long standing financial shell game also solves some of the Digital Divide concerns and could even create financial support as part of any settlement.

5G is not profitable once the cross-subsidies for wireless are removed. 5G is nothing more than another technology promise-them-anything bait-and-switch to get rid of state and federal regulations at the FCC and in state legislatures. (This is on top of the health concerns of putting a microwave antenna, always on, on a lamppost directly outside someone’s bedroom window.)

Nationwide Problem: These are federal rules that have been manipulated by the FCC, either by negligence or design.  Thus, all states, not only in the Verizon service area, but in the AT&T and CenturyLink territories, have the same financial issues that need to be fixed immediately. Taking the FCC to court is the first step in this direction.

IRREGULATORS is an independent consortium of retired and semi-retired senior telecom experts, analysts, forensic auditors, and lawyers who are former staffers from the FCC, state advocate and Attorneys General Office, as well as telecom auditors and consultants.

http://irregulators.org/who-we-are/

 

 

Score: Verizon NY Settlement

FOR IMMEDIATE RELEASE: JULY 17th, 2018

New Networks Institute (NNI) & the IRREGULATORS— just helped to get Verizon to install 10,000 fiber optic lines in Verizon New York’s unserved areas as well as get the needed repairs for the copper networks. — We estimate this to be about $300 million to $1/2 billion dollars over time.

Our research and calls for an investigation started in 2010, and our reports, filings and analytical approach helped to initiate and was used in the investigation.

We are mentioned in the decision and will be taking next steps on this as we filed to block this settlement agreement —it left out billions in cross-subsidies and customer overcharging.

We congratulate Communications Workers of America (CWA) and PULP, Public Utility Law Project, for their dogged persistence and putting our research and analysis to good use.

Press release --  https://on.ny.gov/2L1NccN

"PSC Approves Verizon Service Quality Improvement Plan  — Telecommunications Company Agrees to Expand Broadband Service to 32,000 Customers, Helping to 
Fulfill Governor Cuomo’s Goal to Expand Broadband Service in  New York; Make Much-Needed Repairs to Existing Copper Service; Remove Unused Telephone Poles to Improve Safety —
Settlement  -- https://on.ny.gov/2mnE8QY

"The Commission declines to follow New Networks Institute’s  recommendations to reject the JP, continue investigating
Verizon’s financial practices, and require that wireline customers be reimbursed for the alleged improper cross-subsidization
of Verizon’s wireless affiliates.  The Commission’s primary objectives in this proceeding were to investigate and evaluate
the quality of service Verizon is providing to its customers (Core and non-Core).
   More particularly, this proceeding was commenced when changing circumstances called into question the Commission’s premise for
continuing Verizon’s service quality focus on Core customers. The Commission was concerned by Verizon’s announced plans to stop
expanding its fiber network beyond areas currently served.  The Commission also pointed to data indicating fewer customers  were leaving
Verizon’s networks.
    Given these indications, and the fact that more than 2 million of Verizon’s current customers remain reliant on an aging copper network,
the Commission decided to examine whether changes to Verizon’s service quality oversight are necessary.  The Commission recognized that this
investigation would inherently include an examination as to the state of the copper system and whether Verizon’s investment in its network has
been sufficient to provide adequate levels of service to consumers on regulated services.  But, the Commission did not state any intention to
revisit rate-of-return regulation.  The Commission did recognize an expectation that the Company will continue to invest in its New York regulated operations 
as the Public Service Law unequivocally requires Verizon to provide adequate service.  The Commission also made it clear
that it would take the necessary action under the Public Service Law to address shortcomings if the market fails
to provide Verizon an appropriate incentive to meet its statutory obligations.  That said, the Commission has broad authority under the
Public Service Law to initiate further investigations if the circumstances so warrant.
 
   The Commission focus has long been on ensuring compliance with minimum standards of service quality for customers lacking competitive
choice.  The Commission has previously investigated claims that Verizon has not been adequately investing in its copper network.  In that
context, the Commission has acknowledged that, in response to technological advances, the telecommunications landscape has changed
dramatically.  The Commission has also recognized that, in evaluating Verizon’s performance, it must consider the extent to which investment in the legacy 
copper network would be cost effective when that network is becoming competitively and technologically obsolete.

The terms of the JP will implement specific  improvements in Verizon’s system that will directly improve the
service quality deficiencies that led to the commencement of this proceeding.  In light of all this, we disagree with New
Network’s recommendation to reject the Joint Proposal.  The terms of the JP should result in service quality improvements
that promote the public interest. Moreover, with regard to other commenters’ complaints about Verizon’s maintenance of its copper network and being forced onto more expensive
wireless and fiber networks, the Commission notes that Verizon is required to offer its tariff services and tariffed-based rates regardless of the type of network delivering the telephone call.
Notwithstanding the foregoing, the Commission has long recognized the benefits and resiliency of the fiber network over the older vintage copper network a
nd we note here that the JP will further that goal.
    Finally, in the Commission’s Initiating Order, we raised the question of whether “Verizon’s service quality processes and programs pertaining 
to all the Company’s regulated customers” are sufficient “to determine if modification of Verizon’s revised SQIP is warranted.”
    In light of the JP’s terms and conditions being approved herein, the Commission does not believe any changes are required at this time.
However, as







Stop the FCC Proceedings and Investigate Verizon and AT&T

The FCC has proposed a series of harmful actions and regulations, all under the name “Accelerating Wireline Broadband Deployment by Removing Barriers to Infrastructure Investment”.

This proceeding is more accurately named: “Preempting state laws to allow shutting off of copper wire services so that the companies can get rid of any State Telecom Utility obligations, (and the unions) and only provide inferior wireless services (in place of a fiber optic wire to the home)— so Telecom companies can make more money”.

At the same time, the Telecom companies and the FCC will make outrageous claims about the future of “5G”, a wireless service that does not exist today and may never work as advertised. Ironically, “4G+1G HYPE” requires a fiber optic wire every block or two; these fiber optic wires could be extended to every home or business, but the Telecom companies don’t want to do that: they make more money for data-capped, unregulated Wireless services.

Once the FCC gets rid of Net Neutrality and privacy restrictions, the plan is to beef up the ad-tech to track you on all devices and sell the information. Keeping with their ‘say anything’ playbook, by using the magical terms ‘broadband’, ‘Internet’, ‘Digital Divide’, ‘revolution’ and ‘new tech’ as political carrots, the Telecom companies continue to get even more subsidies and help from the government.

This is what the FCC and the Telecom companies have planned. We are advocating for a very different future. We are asking every state, every city and every citizen to demand that the FCC stop the current series of proceedings to ‘shut off the copper’ and preempt state laws and — instead — request that the FCC start audits and investigations into the Agency’s own cost accounting rules and the massive financial cross-subsidies that its own rules have created.

At the same time, we are asking every state, every city and every citizen to request that the State Utility commissions, Attorneys General and Advocate offices start state-based audits and investigations, as has been going on at the NY Public Service Commission (NYPSC), which has been examining Verizon-NY’s quality of service issues and financial cross-subsidies: illegally transferring funds from Verizon-NY (the State Telecommunications Utility) to Verizon Wireless and other unregulated Verizon subsidiaries.

In fact, Verizon has recently started to discuss a settlement, which we will address in an upcoming post. We summarized our analysis in a new report: “Verizon New York 2016 Annual Report: Follow the Money: Financial Analysis and Implications” — which we filed in our comments at the FCC.

History shows that this tired strategy of reducing Telecom regulation has not worked to increase Wireline competition and none of the FCC, the State Utility Commissions, AT&T, Verizon and CenturyLink — or their co-opted groups, think tanks and experts — have ever publicly discussed this fact. We placed the entire book “The Book of Broken Promises” into the public record at the FCC to prove that the FCC et al. is clueless or in denial about

  • the history of Broadband and the Internet
  • the hundreds of billions of dollars in investment incentives that were given, over and over, to what is now AT&T, Verizon and CenturyLink to upgrade the copper wires to fiber optics.

The FCC should be asking:

  1. Why is most of America’s telecommunications infrastructure still based on the aging copper wires and not fiber optic wires?
  2. Where did all the money go?

The IRREGULATORS is convinced that the FCC needs to be taken to court over the decision they will make in this proceeding and we hope that commenters, organizations, cities and state organizations, and citizens will join us.

In fact, based on history, we file this knowing that this FCC will not take any action based on our filings, will ignore basic facts and documentation that refute their plans and has been doing this long before this proceeding. The FCC refuses to take seriously any of the data and facts we’ve presented in our previous filings, including the recent report submitted that used the Verizon New York 2016 Annual Report as the foundation of our analysis.

In short, the FCC has been working for the industry, not the public interest. The FCC’s goal is to remove basic consumer protections, free AT&T, Verizon et al. from any obligations of offering service, and erase the basic cost accounting rules instead of auditing the impacts of their rules.

Brendan Carr Omitted Critical Facts in His Testimony to Congress:

He Worked for AT&T, Verizon, CenturyLink, CTIA and the USTA.

In his written testimony to Congress, Brendan Carr, who has been nominated to be the third Republican FCC Commissioner, omitted the most important fact: He worked for AT&T, Verizon, Centurylink, as well as the CTIA, the wireless association, and the USTA, the telephone association. Moreover, much of this work has direct ties to his current work with FCC Chairman Ajit Pai (a former Verizon attorney). Together they have amassed a string of corporate-monopoly friendly, harmful consumer regulations that have passed or are percolating.   In the end, Carr and Pai clearly show that they are still working for the industry, not the public interest.

On top of this, there are even holes in Carr’s work timeline, as told by his own LinkedIn bio. His resume shows he clerked for a judge in the 2008-2009 timeframe, while his bio shows him also working from 2005-2012 for Wiley Rein and the telcos and their associations.

All of this should be a deal breaker. The Senate should not confirm Brendan Carr’s nomination as FCC Commissioner.

FACT: Carr Never Mentioned He Worked for AT&T Et Al. in His Testimony to Congress

The IRREGULATORS & New Networks Institute File FCC Comments in Settlement Case Against Verizon-NY

  • Comment 1: is a short overview as well as a bibliography of our research, which is directly tied to this proceeding It also gives a brief discussion of issues that have been overlooked or are missing and need to be part of the next steps the State should be implementing.
  • Comment 2: is a more detailed view of the current proceeding and Verizon settlement, as published in tbe Huffington Post: Verizon NY in Multi-Billion Dollar Settlement Tangle, Underway in NY State.
  • Comment 3: : is a full analysis of the Verizon NY’s 2016 Annual Report Verizon NY 2016 Annual Report: Follow the Money: Financial Analysis and Implications

Verizon New York 2016 Annual Report: Follow the Money: Financial Analysis and Implications

Verizon-NY is the state-based Telecommunications Utility serving the majority of New York State; it is a wholly owned subsidiary of the holding company, Verizon Communications. Verizon-NY is required to file an annual report with the NY State Public Service Commission (NYPSC) that suppli es data that were originally provided in state-based reports filed with the FCC, known as ARMIS. The FCC, for some reason, stopped requiring this information by-state in 2007.

Verizon Wireless, Verizon Online, Verizon Business, etc., are all separate subsidiaries of Verizon Communications and are “subsidiaries” of Verizon-NY. While they maintain separate financial accounting, there are clear cross-subsidies of these other lines of business from the state utility, Verizon-NY.

This report is part of and must be seen in light of what is happening throughout the US and at the FCC. The only thing unique about Verizon NY is that it is required to do an annual report by the NYPSC. We do not know of any other state that has publicly available financial information, though some states keep the info and require a FOIA request to obtain it.

Unfortunately, while the NYPSC collects the data, it has never acted on what we found and no other state we know of has audited the financial books. The FCC has never audited these financial books, even though they are making rules that directly impact customers in urban ad rural areas across the US.

Link to Follow the Money: Verizon New York 2016 Annual Report:Financial Analysis & Implications

IRREGULATORS Filed Comments with the FCC and the Joint Board

On May 24th, 2017, the IRREGULATORS filed comments with the FCC and the Federal State Joint Board on Jurisdictional Separations.

IRREGULATORS:

We recognize that the Commission has chosen to deregulate the so-called Price Cap Carriers such that to the limited extent that they are subject to rate regulation, it is via a price cap mechanism, not the traditional Uniform System of Accounts. Hence only the Rate of Return Carriers are directly subject to the separations mechanism for the computation of their interstate rates. However, even in the case of the Price Cap Carriers, Separations is a joint federal-state matter, and the freeze imposed by the Commission directly impacted state rates and, even more importantly, policies. Fictitious accounting leads to bad decision-making. Hence the costs of more accurate separations are not an undue burden. Rate of Return Carriers already are required to provide detailed regulatory accounting in order to determine their appropriate rate and subsidization levels. Price Cap Carriers, especially the Bells (including their successors-in-interest) are large companies with ample accounting resources. Thus, the issues we raise are not moot, even when dealing with the largest carriers.

The Federal State Joint Board has asked:

  •  Re: Federal State Joint Board on Jurisdictional Separations Seeks to Refresh Record on Issues Related to Jurisdictional Separations, FCC 17J-1
  •  Re: Federal State Joint Board on Separations Seeks Comment on Referral for Recommendations of Rule Changes to Part 36 as a Result of Commission Revisions to Part 32 Accounting Rules, FCC 17J-2