FOR IMMEDIATE RELEASE:
- Contact: Bruce Kushnick, Managing Director
- IRREGULATORS Reply Brief, 10/10/19
- IRREGULATOR v FCC Documents
- Excerpts from the Reply Brief
- Consumer Federation of America press release
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.
CURRENT: On October 10th, 2019, after a series of legal steps, the IRREGULATORS filed a reply brief, refuting the FCC’s claims that our arguments are “meritless”.
WHAT WE FOUND: Over the last 5 years, the IRREGULATORS, a consortium of senior, independent experts, forensic auditors and lawyers was formed. Working together we uncovered a massive financial cross-subsidy scheme, and it was done by manipulating the FCC’s cost accounting rules being applied to the state-wired telecommunications public utilities controlled mostly by AT&T, Verizon and Centurylink.
We estimate the overcharging in America is $50-$60 billion annually and we filed 18 expert reports and filings/comments for the FCC to investigate this massive financial shell game since 2015. Our analyses are based on Verizon New York’s annual reports—an irrefutable source, and these reports show that Verizon and the NY Public Service Commission actively use the FCC’s deformed rules for rate increases and public policy decisions. Verizon NY is the primary, state-based telecom utility in NY State. Instead, 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.
IRREGULATORS v FCC exposes all of the financial hanky-panky that has been going on for over a decade. We took this case to stop these abuses at the federal and state level. Moreover, we filed because this FCC has been ‘weed-whacking’ the rules to get rid of any obligations on the companies to file basic financial information, and has been working to get rid of the audit trail.
- 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 gets 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.
MOST PEOPLE DO NOT KNOW: The state telecommunications utilities still exist and they are not just the existing copper wires, but most/all of the wires in the state, which can include the fiber optic wires 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. Also, ‘wireless’ service, including 5G, requires a fiber optic wire attached to the cell sites. The company that controls most of these wires, then, controls the wireless service and costs to customers or the data caps applied.
In your 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. Unfortunately, large segments of each state were left to deteriorate over decades of neglect. The cable companies did put in some cable networks, and in many parts of the US, it is the only company offering high speed broadband and cable, as the 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.
SEE: (Free Download) “The Book of Broken Promises: $400 Billion Broadband Scandal & Free the Net”
OVERCHARGING AND PUBLIC POLICY HARMS: This case impacts every communications service you, your friends, family and business use. The FCC rules put 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 is 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.
HOW IT WORKS: The FCC’s cost accounting rules were supposed to be designed to divide up the expenses to be charged to the different lines of business that use the state utility wires and the rights of way. And this was supposed to be done so that local service was not gouged or paying the costs of other services.
ALMOST 20 YEARS IN THE MAKING: The rules were set to reflect the percentage of the expenses that were paid in the year 2000–19 years ago; i.e., they have been ‘frozen’ in time, literally. The FCC has never examined their impacts on the state accounting, ever. And the rules were never adjusted. In December 2018, the FCC decided to extend the rules for 6 more years, through 2024. This has been done 7 times before.
THE CORE: The FCC claims that their rules are no longer in use, that the companies do not have to abide by them, that the states, including Verizon New York, are not using the rules, that there are no ties to the cross-subsidies of billions of dollars – and that we do not even have the right to take the case.
We prove, using the Verizon NY annual reports and other primary source documentation that the FCC has never examined the impacts of their rules on the state-based utility revenues and expenses, that there are massive financial cross-subsidies that are now designed to make the state utilities appear unprofitable and that the rules are set to have local phone customers and others using the basic phone networks fund the other lines of business.
If we win, it would eliminate the overcharging:
- “Allowing the freeze to expire, on the other hand, would end between $2.4 and $3.7 billion in Verizon NY annual overcharges. On a nationwide basis expiration would save consumers somewhere between $14 and $53 billion.”
- It would free up billions by stopping the dumping of Corporate Operations expenses into Local Service; In NY, Verizon’s Local Service category was charged $1.8 billion against revenues of only $1.1. billion, creating losses. This amount is based on the FCC’s freeze calculations using the year 2000.
- It would stop the cross-subsides of the construction expenses, via the 75-25% rule where 75% of the expenses for construction are put into Local Service, even though these funds have been used to build out the companies’ other lines of business. I.e., As shown by the Verizon NY annual reports, Local Service has acted as the cash machine, paying the construction budgets of wireless or FiOS.
- Stopping the wireless cross-subsidies: “Going forward, no LEC (state utility) could use the current jurisdictional cost misalignment to engage in anti-competitive affiliate transactions or subsidize wireless service build-out, including 5G. Consumers would benefit, competition would benefit and pricing would become more rational. That would “help.”
Exposing and documenting the massive financial cross-subsidies has been one of the goals of this case. The other is get the FCC to admit that the rules are either not in play and therefore the FCC no longer has jurisdiction over the state accounting and practices, or are in-play and they have been manipulated through negligence or by design.
Like Net Neutrality, the states could then take back control of the wired networks and could implement new rules that eliminate the overcharging and use the cross-subsidies to fund building the state-based infrastructure networks to everyone as well as lowering rates, solving the Digital Divide, and getting municipalities upgraded in rural, urban and suburban areas equally.