IRREGULATORS v FCC: Oral Arguments, January 17th, 2020

UPCOMING: JANUARY 17th, 2020 IRREGULATORS V FCC MOVES FORWARD:

Oral Arguments Challenging the FCC’s Manipulated Cost Accounting Rules to be Presented in the DC Circuit Court of Appeals

Contact: Bruce Kushnick, Managing Director bruce@newnetworks.com

Scott McCollough, Esq., Counsel wsmc@dotlaw.biz

IRREGULATOR v FCC Documents

On April 15th, 2019, the IRREGULATORS filed a challenge of an FCC decision with the DC Court of Appeals and this case exposes one of the largest accounting scandals in American history.

The IRREGULATORS is a consortium of senior, independent experts, forensic auditors and lawyers. Members of the group have been working together in different configurations since 1999.

WHAT WE FOUND: Over the last decade, we uncovered a massive financial cross-subsidy scheme and it is being done by manipulating the FCC’s cost accounting rules that are being applied to the state-wired telecommunications public utilities’ revenues and expenses controlled mostly by AT&T, Verizon and Centurylink.

We estimate the overcharging in America is $50-$60 billion annually. We filed 18 expert reports and filings/comments requesting that the FCC investigate this massive financial shell game since 2015. Our analyses are based on Verizon New York’s annual reports—an irrefutable source.

THE DISCONNECTS:

MOST PEOPLE DO NOT KNOW: The state public telecommunications utilities still exist and are hidden in plain sight

In almost every city or town, most of the wires under your feet and on the poles, were put in as part of the state-based utility, and while some of it may have been upgraded from copper to fiber, no other company came in to upgrade the state’s infrastructure.

MOST PEOPLE DO NOT KNOW: The utilities are not just the existing copper wires, but most/all of the wires in the State that are used by the company, such as Verizon. This infrastructure can include the fiber optic wires for FiOS or for Wireless or broadband or even the “Business Data Services”, (sometimes called “backhaul” or “special access”); the wires that are the ‘guts’ of the networks.

MOST PEOPLE DO NOT KNOW:  Wireless service, including 5G, requires a fiber optic wire attached to the cell sites. The companies that control most of these wires, then, control the wireless service and costs to customers or the data caps applied.

MOST PEOPLE DO NOT KNOW: There has been a serious failure to properly upgrade and maintain the networks. Unfortunately, large segments of each state were left to deteriorate over decades of neglect. The cable companies did put in cable networks, and in many parts of the US, it is the only company offering high speed broadband and cable, as AT&T et al. didn’t show up. However, this lack of competition allowed Comcast et al. to be able to continuously raise rates on all services, not to mention added fees, and even data caps.

MOST PEOPLE DO NOT KNOW: The FCC cost accounting rules are applied to the state utilities to divide up the expenses.

The different lines of business offered by Verizon et al., such as FiOS or wireless, are supposed to pay their expenses based on formulas set by these FCC accounting rules. Verizon et al. was able to make, with a single gesture, all of the state utility networks appear unprofitable by having the FCC rules frozen to reflect the year 2000, 20 years ago. I.e.; the expenses paid in 2019 are based on the same percentage as 2000.

Local Service, the basic copper-based phone service, was the majority of revenues in 2000 and paid the majority of expenses. Yet, in 2019, Verizon NY Local Service is only 21% but is still paying 60%+ of expenses. Conversely, all of the other lines of business are paying a fraction of the actual expenses that they incurred. I.e.; wireless in NY paid a fraction of the construction expenses while Local Service paid the majority—even though the wires weren’t upgraded or maintained by these capex budgets.

OVERCHARGING AND PUBLIC POLICY HARMS: This case impacts every communications service. The FCC rules now puts the expenses into state-based Local Service (known as “intrastate”). This created major financial losses and has given the companies tax benefits, not to mention helping to raise basic phone rates multiple times. And it created the Digital Divide by claiming it was not ‘profitable’ to upgrade rural areas and even inner cities.

US PRICES ARE INFLATED: (FACT SHEETS) By controlling the wired infrastructure, these companies also control the price of wireless. America is paying 6-10 times more for our wireless services as compared to parts of Europe and Asia. And because the companies never properly upgraded their networks to fiber optics, we’re paying 2-5 times more for broadband and the Triple Play.

WIRELESS CROSS-SUBSIDIES: The construction budgets that should have been used to upgrade NY and other states were diverted to the wireless company; the plan to ‘shut off the copper’ was done because wireless makes more money and there are no obligations to offer service, so they left most of the state infrastructure to deteriorate.

This is not about New York or just Verizon, but this is happening throughout the US, including AT&T California or Kentucky, or Centurylink Colorado.

MOST PEOPLE DON’T KNOW: The FCC never investigated how their own accounting rules were causing this massive customer overcharging and other harms, and they ignored our presentation of the basic facts. In fact, in their most recent court filing, the FCC presented no evidence to refute our claims.

OUTCOMES:

  • If we win, the FCC will have to fix the rules to stop the cross-subsidies, including wireless – saving billions of dollars per state that can be used for building out the state infrastructure, and lowering rates on most services.
  • And if we win, where it is decided that the FCC rules are no longer required (as the FCC insists), then the FCC loses control over the infrastructure and the states can go after the billions in cross-subsidies we identified.
  • Conversely, the status quo will get worse due to a hyper-growth of cross-subsidies, based on questionable 5G deployments, no competition, continuous higher prices, made-up fees and government subsidies given to companies that failed to previously deliver on broadband commitments. And there will be no oversight by a corporate-industry captured government agency that has stopped working for the public’s best interests.