Verizon NY in Multi-Billion Dollar Settlement


Contact: Bruce Kushnick

Verizon NY in Multi-Billion Dollar Settlement Underway in NY State

New and under the radar: There is a major settlement underway at the NY Public Service Commission (NYPSC) based on a long standing investigation of Verizon NY, which is being driven by CWA,( the Communications Workers of America) but started as the “Connect NY Coalition”.

And this investigation started, in large part, based on our original research.

There was supposed to be an evidentiary hearing that would have aired the dirty laundry at the end of June, 2017. Instead, Verizon NY filed to settle. We summarized some of it in a Huff Po piece, and we filed comments as well as created a new report analyzing Verizon NY’s 2016 Annual Financial report, which the State posted in June 2017.

No other state we know of publishes this level of detail, though some may collect the data.

Briefly, Verizon has played a financial shell game. It used the state utility as a cash machine at the expense of cities and customers. In NY, Verizon Wireless diverted about $2.8 billion of the construction expenses from the wireline, state utility, ‘local service’ networks from just 2010-2012. At the same time, Verizon Wireless is paying a fraction of the expenses that competitors pay to use the networks.

Verizon Wireless used billions that should have been used to upgrade and maintain the state utility and cities, for a non-regulated company. In fact, all ‘interstate’ services including FiOS and special access, (Business Data Services) were built via charging local customers the majority of the expenses. This created obscene profits for these services while making local service appear unprofitable. And yes, it is billions, not a few bucks. In fact, the copper networks are profitable.

And all of this has left the copper-based networks to deteriorate as most was put in decades ago.

The investigation corroborated much of our previous work, but the settlement will probably not go far enough and much of the ‘investigation’ didn’t dig deep enough. But it is a needed first step.

A Wicked Twist: At the core of all of this is the FCC’s cost accounting rules, which allocate costs based on the year 2000 – 17 years ago. Local Service pays 57% of all expenses in NY, 75% of all construction, but only brought in 23% of the revenues. The FCC has never audited their own rules and it is in the process of erasing them.

What’s at Stake?

Since the FCC’s rules are federal, this impacts every state and city. And it impacts every FCC proceeding, from the ‘shutting off of the copper’ or the deployment of wireless, to broadband deployment in rural areas or the price of service.

  • The FCC’s rules caused massive cross-subsidies that caused rural areas and cities to not be properly upgraded or maintained, and the construction budgets were diverted to another subsidiary.
  • The FCC claimed local service is unprofitable, when it was its own accounting manipulating the financials that is at fault.
  • The FCC’s recent Business Data Services (special access) decision, which blocks competitors and raises rates, was not based on actual financials but ‘mathematical models’ that failed to take into account that local service customers were being charged the majority of expenses.
  • All “interstate” or non-regulated services had excessive profits, including wireless and ‘special access’, while local service (intrastate) customers were overcharged, including ‘low income families’, seniors, anyone with phone service.
  • The price of phone service should have been in steep decline as the expenses were not caused by the copper-based networks as they were already written off.
  • Verizon NY did not pay most taxes due to made up losses. For at least 5 years, Verizon NY claimed losses of over $1 billion annually, attributed to Local Service.
  • Verizon NY had $5.2 billion in revenues from wireline services in 2016—that’s a lot of money for networks that are not being used.
  • Even the accounting of the lines has been manipulated. It only counts the ‘intrastate’ local service lines and not “interstate” lines. I.e; it does NOT count the ‘special access’ lines or FiOS or DSL or VOIP, all of which have increased.
  • Net Neutrality and Privacy Harms: Verizon has ‘vertically integrated’ the services over the wires to give preferences to their own services and to ‘share’ data, about you, and even sell that data.

We have filed at both the FCC and NY State:

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

The investigation docs at the NY State Public Service Commission: