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/

 

 

Reddit’s Reaction to the Book of Broken Promises

About “The Book of Broken Promises: $400 Billion Broadband Scandal & Free the Net”, by Bruce Kushnick
https://www.reddit.com/r/explainlikeimfive/comments/6c5e97/eli5_how_were_isps_able_to_pocket_the_200_billion/

explainlikeimfive:

I’ve seen this thread in multiple places across Reddit:

I’m usually skeptical of such dramatic claims, but I’ve only found one contradictory source online, and it’s a little dramatic itself:

So my question is: how were ISP’s able to receive so much money with zero accountability? Did the government really set up a handshake agreement over $200 billion?

Bruce Kushnik’s Response:

Maybe you should go to the source: I’ve written three books about this starting in 1998 — and all of these appear to be related to the same threads — over two decades.

Here’s a free copy of the latest book, “The Book of Broken Promises: $400 Billion Broadband Scandal & Free the Net”, which we put up a few
weeks ago because few, if anyone actually bothered to read how the calculations were done. They were based on the Telecom companies’ annual reports, state filings, etc.– and the data is based on 20 years of documentation.

I’ve been tracking the Telecom deployments of fiber optics since 1991 when they were announced as something called the Information Superhighway. The plan was to have America be the first fiber optic country — and each phone company went to their state commissions and legislatures and got tax breaks and rate increases to fund these ‘Utility network’ upgrades that were supposed to replace the existing copper wires with fiber optics — starting in 1992. It was all a con.

As a former senior telecom analyst (the Telecoms my clients) I realized that they had submitted fraudulent cost models, and fabricated the deployment plans. The first book, 1998, laid out some of the history “The Unauthorized Biography of the Baby Bells” with foreword by Dr. Bob Metcalfe (co-inventor of Ethernet networking). I then released “$200 Billion Broadband Scandal” in 2005, which gave the details as by then more than 1/2 of America should have been completed — but wasn’t. The mergers to make the Telecom companies larger were also supposed to bring broadband– but it didn’t. I updated the book in 2015 “The Book of Broken Promises $400 Billion broadband Scandal and Free the Net”, but realized that there were other scams along side this — like manipulating the accounting.

We paid about 9 times for upgrades to fiber for home or schools and we got nothing to show for it — about $4000-7000 per household (though it varies by state and telco). By 2017 it’s over 1/2 trillion.

Finally, I note. These are not “ISPs”; they are State Telecommunications Utility companies that were able to take over the other businesses (like ISPs) thanks to the FCC under Mike Powell, now the head of the cable association.

They got away with it because they could create a fake history that reporters and politicians kept repeating. No state has ever done a full audit of the monies collected in the name of broadband; no state ever went back and reduced rates or held the companies accountable. And no company ever ‘outed’ the other companies– i.e., Verizon NJ never said that AT&T California didn’t do the upgrades.

That’s because they are all guilty of the same scheme, more or less. I do note that Verizon at least rolled out some fiber. AT&T pulled a bait and switch and deployed U-Verse over the aging copper wires (with a ‘fiber node’ within a mile).

It’s time to take this to court. Period. We should go after the financial manipulations (cross-subsidies) where instead of doing the upgrades to fiber, they took the money and spent it everywhere else, like buying AOL or Time Warner (or overseas investments), etc. We should hold them accountable before this new FCC erases all of the laws and obligations.

The California Fiber Optic Broadband Scandal

The following is an Excerpt from $200 Billion Dollar Broadband Scandal about the failed fiber optic history of California. What is now the post-merger AT&T (formerly Pacific Bell) had promised to deploy a fiber optic network that would reach 5.5 million homes by the year 2000 and spend $16 billion dollars.

To read the third book in this trilogy, see “The Book of Broken Promises”

Click to Read