This article was written by Bruce Kushnick, Executive Director of New Networks Institute
A wireless phone is really a wired phone with an invisible extension cord. Every time you make a wireless call walking down the street, within a few hundred feet there's a 'cell site' that is attached to a wire. Almost every wireless 'hot spot' is connected to a wire and every time you use a device at home, it most likely connects to the wired broadband connection.
Verizon, AT&T and Centurylink have monopoly controls over most of these wires to the cell sites (sometimes called 'backhaul' or 'special access') in their own territories which gives these companies control over your wireless service prices, even speed, as well as control over the wireless service offered by competitors who use these wires.
And the wires used to connect the wireless sites, which can be copper or fiber optics, are part of a larger network of wires, the state-based telecommunications utility, which are the wires that go to homes and offices, not just for voice calling but for everything from alarm services to the wires used for FiOS services or DSL.
Verizon has a very simple but very calculated plan -- go wireless (mobile) at the expense of the wired networks. Fran Shammo, Verizon's CFO, discussing the second quarter 2015 earnings, made it clear that the focus of Verizon is wireless, advertising and digital media.
"As always, we continue to invest in our networks and platforms to position us for future growth. We are very focused on developing new products and services in mobile video and the Internet of Things. We are excited about the potential for revenues from these new products and services to grow quickly and become more meaningful in the future. Our acquisition of AOL will be a key piece in our over-the-top mobile video strategy, accelerating our capabilities in digital media and advertising."
Verizon will point out that wireless is much more profitable than the wired networks, that the wired networks are, in fact, unprofitable and that the plan is to stop doing any upgrades and just shut off the copper wires in large areas of the company's state holdings and force-migrate customers to wireless.
But Verizon (et al.) control most of the critical wired infrastructure throughout America -- If they are not upgrading and maintaining the networks, who will? (Municipalities? Google? I'll get to that.)
And there are others that will say that none of this matters as the companies are deregulated, that the price of service is not related to the expenses. Or that Verizon should be able to move money to the wireless side of the business; it's their money. -- The facts tell a different story.
Let me expose the underbelly of this plan. To summarize:
1) Make the wires look unprofitable through the manipulation of the financial accounting.
2) Dump the expenses for the wires to the cell towers into the wired local service network costs, which makes them look 'unprofitable'.
3) Pump and inflate the profits of wireless and the other businesses by moving the majority of expenses into the local service networks.
4) Give the other Verizon subsidiaries financial advantages, from not paying market prices, moving expenses into local service, or handing over wired customers to the wireless company.
5) Stop maintaining the copper, even in areas where the networks are not going to be upgraded.
6) Continually raise wired phone raise rates by using this claim of 'unprofitability'.
7) "Shut off the copper" in large areas and make wireless the only choice.
8) Stop upgrading the fiber, claiming it, too, is unprofitable.
9) In areas that are upgraded, shut off the copper and move customers onto the fiber optic service or wireless.
10) Don't shut off the wires to the cell towers and keep the monopoly on these wires.
11) Charge competitors inflated rates to use these networks and make money off of every wireless call, etc.
12) Cut a deal with the cable companies to bundle wireless with the cable Triple Play in areas not upgraded.
13) Continue the turning of the screw: Continue this process for years until completed.
Almost all state and federal broadband and infrastructure build out discussions and public policy issues are tied to this plan.
14) This is about the FCC's "IP Transition"-- which claims that "Internet Protocols" are replacing telecommunications and the hype is that it is about going from copper to fiber optics. That's just a 'con'; this transition is using the technology as a 'carrot' to shut off the copper wires and force customers onto wireless.
15) Case in point -- In AT&T's Carbon Hill, Alabama, IP Transition trial, 60% of working phone lines will be shut off and replaced with a wireless phone service that can't even do Internet service or handle alarm services.
16) The migration of the 'copper' is really, then, more about shutting off the copper and forcing customers onto wireless (or the upgraded service where it exists).
17) There's also the American Legislative Exchange Council's (ALEC) "IP Transition" which is based on "model" state-based legislation targeted at removing regulations on the wires to get rid of the obligations so that the ALEC members, AT&T, Verizon and Centurylink, can shut off the networks.
18) This plan helps Verizon get rid of the union staff as their fate is tied to the wires.
19) This plan shuts down wired competitors' ability to compete as they are restricted from using the fiber optic wires and must use only the copper wires.
20) Verizon's control of the wires controls the price of 'special access' service to the wireless competitors, such as Sprint and T-mobile.
21) This controls the final price to customers for all services, wireline or wireless.
22) This even controls the price of cable service and the Triple Play as there is no competition coming from Verizon et al. to lower prices on all services. Nor is there serious competition to fix industry-wide abusive behavior, like the deceptive advertising that offers prices a customer can never get for the Triple Play, or that the overall costs goes up 100%+ after the promotion ends.
23) Bait and Switch -- In some states where there were/are commitments to have territories wired with fiber optics, such as Verizon New Jersey or Pennsylvania, the plan now is to not finish any requirements for fiber optics and replace it wireless broadband.
24) Cities Left Unupgraded -- It has harmed the cities, including those in upstate NY, where the monies to build out fiber to residential and business customers turned into construction budgets for the fiber to the cell towers.
25) The plan is used to claim that Net Neutrality is harming investment and is increasing the slow down of wired construction, even though the companies' investments have been made via rate increases and making the customer a defacto investor.
Some of the Details
26) Verizon Wireless (VW) is a separate company from the wired business and VW's business plan is based on building out wireless coverage that requires cell towers that are connected to the high speed wired networks.
27) Most of these wires to the cell towers are part of the state utility, (though Verizon will claim it is not true).
28) Verizon's wired business are the state-based utilities, such as Verizon New York, which control the "PSTN", Public Switched Telephone Networks, that includes the aging copper wires as well as the fiber optic upgrades that have been replacing some of the copper wires.
The Fiber Optic Upgrades and Wires are classified as Telecommunications, "Title II", and Part of the State Utility.
29) In 2004, Verizon announced a fiber optic-based wired service called FiOS.
30) "FiOS" is not the fiber optic wire but uses these wires; FiOS is a group of services -- cable TV, digital phone, Internet and broadband, commonly known as the "Triple Play".
31) In 2005, Verizon went to the NY Public Service Commission ("NYPSC") and claimed that the fiber optic wires to be used by FiOS TV were just an extension and upgrade and part of the state utility networks.
32) This means that the fiber optic networks are being put in as "Title II", common carriage, telecommunications networks.
Phone Customers Are Charged for the Fiber Optic Construction.
33) Starting in 2005, Verizon went to the NYPSC and was able to secure what would the first of multiple rate increases in 2006 on basic copper-based phone service and add-ons, like nonlisted numbers, to pay for -- "investment in the state telecom infrastructure", and 'losses'.
34) Verizon New York received additional rate increases in 2008 and 2009 on basic service and increases to add-on services for "massive deployment of fiber optics" and 'losses'.
35) The NYPSC allowed Verizon to 'harvest' customers by continually raising rates which helped to force many to drop their lines and use wireless for voice service.
In New York State there have been continuous increases to local rates. Since 2006, basic local service has been raised multiple times, 84 percent, and local phone customers have paid an additional $750.00, not to mention about $300.00 extra for each added item, like nonlisted numbers.
And customers have been 'harvested'-- i.e., the plan has been to continually raise rates until the customer screams 'uncle' and leaves (for wireless) or are gouged.
Policy Shift to Wireless Starts Around 2010
36) Around 2010, Verizon Communications decided it would focus its attention on wireless services and promotes Lowell McAdam, former CEO of Verizon Wireless, to be the new head of Verizon Communications.
37) In 2010, Verizon also announces it will halt any further deployments of FiOS, except based on existing contracts.
38) 'Cut the Copper' in 2012 -- To speed up this process, after the Sandy Storm in 2012, Verizon states it will 'cut the copper' wherever possible.
39) In Pennsylvania, Verizon was able to erase the original agreement to have 100% of their territory covered with fiber optic services by 2015, with speeds of 45 Mbps in both directions. Instead, the company is being allowed to offer wireless as a substitute at DSL speeds.
Divert the Wireline Budgets to Wireless and Other Fiber Deployments.
40) Verizon has taken the budgets for maintaining and upgrading the utility and diverted the money to build out the fiber optic wires to the cell towers.
41) Basic phone customers end up paying for some/most of the construction expenses.
42) This diversion of the utility construction expenditures stops the maintenance of the networks, allowing them to slowly deteriorate (though this has been going on since at least the year 2001).
43) Verizon's refocus of the construction to do wireless leaves areas in major cities in New York State unfinished.
Fran Shammo, Verizon's Chief Financial Officer stated to investor representatives that the wireline construction budgets have been diverted to charge regulated wireline budgets for the less regulated wireless affiliate's construction needs.
"The fact of the matter is Wireline capital -- and I won't get the number but it's pretty substantial -- is being spent on the Wireline side of the house to support the Wireless growth. So the IP backbone, the data transmission, fiber to the cell that is all on the Wireline books but it's all being built for the Wireless Company."
In 2011, the New York State Attorney General's Office noted that while there was a billion+ budget for construction, 75% of it had been diverted to wireless and fiber optics.
Dump Most Expenses into Local Service
44) Place as many expenses as you can into the state utility, including the costs of the upgrades for wireless and all other lines of business that use fiber optic wires, like special access.
45) Place most of the "Corporate Operations" expense into local service to help make it look unprofitable.
In 2014, Verizon New York's financials showed an expense item called "Corporate Operations" , which came to a whopping $2.6 billion dollars -- that's just in one state and in one year. However, the majority of this expense, 60 percent, has been dumped into the "Local Service" category. This comes to about $1.5 billion in 2014. Problem is -- "Local Service" only brought in $1.4 billion and this one line item alone made local service unprofitable.
Make Local Service Look Unprofitable; Make Wireless Be Very Profitable.
46) Make sure that the wireless company pays a fraction of what the competitors pay.
47) Have the monies from various subsidiary companies that use of the wired networks go into different financial buckets that do not pay for the upgrades of the wires, making the local networks look even more unprofitable and help the revenues continue to decline.
In our previous report we found that AT&T and Sprint paid 2-3 times more than Verizon Wireless paid to the incumbent utility, Verizon NY, for access fees and related expenses for the years, 2009-2010. This was based on Verizon NY's own SEC-filed financial statements.
Moreover, we found "black hole" revenues when comparing different Verizon NY financials. In 2009, there was an additional $2.7 billion dollars in revenues in the SEC books vs the annual reports filed with NY State, but the construction budgets were identical, indicating that a large chunk of revenues was accruing off the regulated books and not paying for the network upgrades.
Manipulate the Accounting of Access Lines
48) Only supply an accounting of copper-based 'basic phone service' access lines andleave out almost all other access lines in service, including any data lines, like special access, or FiOS broadband, or the wires to the cell towers or...
49) Verizon, the FCC and the NYPSC do not have or provide an accurate accounting of all wired lines in service, copper or fiber.V
Get Control of the State Commission and FCC or even the State Legislature; No Audits, No investigations, and No Rate Cases.
50) Make sure that the State doesn't audit the books in a 'rate proceeding' over the decade and never investigates the cross-subsidies.
51) Make sure that the FCC erases the requirement to file financial books by state.
52) Make sure there is never a check of the affiliate transactions between and among the state utility and the Verizon affiliate subsidiaries.
53) Make sure that the public has no clue about any of this and thinks that the wires have nothing to do with their wireless phone service.
54) Get the State to issue a report that claims that there is plenty of competition and that ignores or fluffs off any major problems.
55) Get ALEC-like bills to be continually pitched by politicians, and even attempt to stick language in the budget appropriations bills
There has never been an audit of the incumbent phone utilities and the cross-subsidies with the affiliate companies for at least 15 years in any state we could find. In New York, while the NYPSC granted multiple rate increases, there was never any rate case to examine the expenses being claimed.
Cut Business Deals to Solidify the Wireless Plan
56) Cut a deal with the cable companies to bundle the wireless service with the cable Triple Play in areas that are not upgraded (or the wires are shut off).
57) Consolidate -- Pay $130 billion to buy out Vodaphone.
In 2014, Verizon paid approximately $130 billion dollars to buy out the Vodafone group, which had a 45 percent interest in 'Cellco Partnership', (which had a D/B/A as Verizon Wireless).
58) When questioned about the holes in broadband fiber optic deployment...punt.
In June 2015, the City of New York released an audit of the status of Verizon's fulfillment of their commitment to have FiOS cable TV available to 100% of New York City's residences by July 2014.
The New York Times wrote:
"The city's Department of Information Technology and Telecommunications released a scathing audit report in June concluding that Verizon 'systematically refused to accept orders for residential service.' By the company's admission, nearly one-fourth of the blocks in the city have no buildings wired for FiOS, the report said."
Verizon has stated that it has finished the deployment and the rest is just clean up.
And upstate New York, Verizon has left massive broadband gaps in cities and has stopped deploying FiOS and doing fiber optic upgrades, only covering 186 communities with a FiOS cable franchise out of 932 towns and 62 cities.
"Despite what you may have heard from civic leaders, upstate New York areas currently not served by Verizon FiOS won't be getting the high-speed internet service soon. And maybe, not at all.
"From Central New York to the Catskills and the Southern Tier to the Capital Region, people are clamoring for high-speed internet, and they've heard good things about broadband, especially when it comes to Verizon's fiber optic FiOS service. But Verizon says it has no plans to bring that service to places where residents currently make do with less than desirable or no service at all, such as large parts of cities like Kingston and Albany along with Delaware, Sullivan and Schoharie Counties."
59) Municipalities are not going to rise up.
There are some who believe that Google Fiber is the savior of municipality gigabit speed broadband. While inspiring, even with all the hype, Google Fiber only has about 30,000 customers, total.
"Google Fiber, which started in 2012, has 27,000 video subscribers combined in Kansas City, Kansas, and Kansas City, Missouri, and less than 3,000 in the other cities, according to U.S. Copyright Office data collected by MoffettNathanson."
The cities and towns aren't going to rise up to do bypass of the incumbent companies.
We will be discussing other options in the next few weeks as leaving everything on this course harms America, except for maybe Verizon's executives.
Verizon's 'Local Service' and Wired Networks Are Profitable Once the Slush Fund of Corporate Expenses Is Removed
This article was written by Bruce Kushnick, Executive Director of New Networks Institute, and appeared in the Huffington Post on June 14, 2015
Did you know that -- if you have been or are a Verizon residential or business customer, it would appear that you are paying extra for Verizon's lawyers to take legal actions to block Net Neutrality or to create laws to raise your rates or to remove your right of having the wires fixed if they break? Did you know that you pay for "corporate governance and external affairs", (whatever that means) not to mention the company's advertising and media relations, which is used to promote the company's agenda over your own interests? In fact, without audits, it is impossible to say whether Verizon Foundation's grants that Verizon gives to non-profits, (sometimes in exchange for backing the company's proposals), or even executive pay, are part of this garbage pail accounting. And while we will present information from Verizon New York's 2014 annual report to prove this point, this is happening, we suspect, in all Verizon and AT&T state holdings.
Now, AT&T and Verizon have continuously said that it is 'uneconomical' to upgrade most areas and that the solution is to force customers onto their wireless services, (which also gets a number of financial perks, but that analysis is for another story).
But, it has all been a financial shell game. There has been massive dumping of corporate expenses, which has been going on for a while, but is now out of control and in high gear -- and this is one (of many) reasons "Local Service" and the wired networks are 'unprofitable'.
In 2014 Verizon New York showed a loss of $2.58 billion, while Verizon's "Corporate Operations" dumped a whopping $2.6 billion of Verizon corporate expenses into the Verizon NY State utility books. More troubling, in 2014, Verizon New York's 'Local Service' bucket of revenues, (which includes the copper-based residential and business phone services), came to $1.44 billion, but the expenses for Corporate Operations came to $1.57 billion -- i.e.; Local Service would be profitable if the excessive corporate subsidies weren't being dumped into the expenses.
And, as we will show, if Verizon's other lines of business were paying their fair share of this expense, Local Service would be profitable. I'll get to that in a moment.
"Corporate Operations": Verizon Services
The opening includes a description of a Verizon affiliate company called "Verizon Services", which is an umbrella for the corporate-expense slush fund that ends up in the accounting of the state utility. Almost identical language appeared in every Verizon state-based SEC report for the year 2010, from Massachusetts down through Virginia, (with the exception of most of Connecticut), and even in the SEC-filed reports for the former GTE territories, including California and Florida, which are now being sold off.)
These different corporate expenses appear to be part of a collection of affiliate companies with names that sound like someone just started shuffling small pieces of paper with the words 'corporation', 'group', 'Verizon' and 'services' into different configurations to form the names of a collection of business entities.
Here is what it looks like. This is a partial collection of affiliate companies where "purchases from affiliates" are services bought (or dumped) into Verizon New York's financials. Unfortunately, there are no descriptions of these companies in the financial books or any coherent description anywhere else online.
(NOTE: We can't even get the numbers to exactly match the summary information provided, and we are not even sure if all of these companies are part of Verizon Services or are there affiliates missing. We just know that they sound similar, were part of a long list of companies, and they all charge Verizon New York for services.)
Local Service Paid 109% of Corporate Expenses as Compared to Revenues.
The first obvious question should be -- how the hell did they get away with this as it is happening in every state; we can only document New York because the State requires Verizon to file their financials annually and we could find no other state that requires and publishes this financial detail. (And, the FCC is useless and stopped collecting and publishing basic data in 2007.)
But that's only a slight wrinkle.
Verizon dumped the majority of these expenses into the Local Service category; the category that is dedicated to regular phone service that uses the existing copper wires. The company isn't focused on even advertising these services anymore, much less doing upgrades of the existing infrastructure. So, why is it paying the majority of this expense?
Local Service had $1.44 billion of revenues but was charged $1.57 billion in Corporate Operations in 2014, meaning -- Local Service losses were generated, in a large part, by these corporate expenses.
Also, the Local Service category didn't pay just its fair share. It turns out that Local Service paid the majority of Corporate Operations, 60% of the total amount that was charged to Verizon New York. However, the Local Service financial bucket only comprises about 28% of the total revenues these days.
Now there are some that might say... but these are Verizon's companies; they can do what they want, right?
Well, not in this case. Local phone customers were charged extra -- in the form of rate increases for "massive deployment of fiber optics" and "losses".
Local Phone Rate Increases Are Directly Tied to Losses Created by 'Corporate Operations'.
In June 2009, the New York Public Service Commission (NYPSC) granted Verizon NY the third rate increase for residential POTS customers since 2005. The NYPSC press release explained that the rate increase was due to "massive deployment of fiber optics" and because VNY was "in need of financial relief" due to major losses.
"'We are always concerned about the impacts on ratepayers of any rate increase, especially in times of economic stress,' said Commission Chairman Garry Brown. 'Nevertheless, there are certain increases in Verizon's costs that have to be recognized. This is especially important given the magnitude of the company's capital investment program, including its massive deployment of fiber optics in New York. We encourage Verizon to make appropriate investments in New York, and these minor rate increases will allow those investments to continue'."
The NYPSC Order also indicated that the Commission granted the rate request because VNY was experiencing major financial losses.
"Verizon's financial condition is 'relevant' when the Commission considers pricing changes because the state has an interest in a viable company.... there seems to be little question that the company is in need of financial relief; Verizon reported an overall intrastate return of a negative 4.89% in 2006 and its reported intrastate return on common equity was a negative 73.6%."
And in granting the second rate increase in 2008, the NYPSC said there were the same 'dual financial pressures' as found in the first increase in 2006 -- fiber optic investments and financial losses of basic service. ("Intrastate" service is where the calls never cross state boundaries or the service has been classified as 'in-state'.)
"This is especially important given the magnitude of the company's capital investment program, including its massive deployment of fiber... There seems to be little question that the company is in need of financial relief; Verizon reported an overall intrastate return of a negative 4.89% in 2006 and its reported intrastate return on common equity was a negative 73.6%."
And then there are those who will argue that local phone service is not based on the old 'rate-of-return' where expenses and revenues were taken into account. Unfortunately, the State and Verizon tied the increases to specifics --'massive deployment of fiber optics' and 'losses', so the expenses do matter.
In going through the total rate increases, and just examining basic residential phone service and a few 'ancillary' service increases, (such as inside wiring or non-published numbers), the consequence of this pile-on of additional costs to Local Service financials is that:
- Verizon charged local service customers -- including seniors and low income families,752.00 EXTRA per line on just basic local service (counting taxes, fees and surcharges). (This is based using actual Verizon NY phone bills as the primary source.)
- The price of local phone service went up 84%, based on these multiple increases.
- Verizon also has been continuously raising the rates on all ancillary services, such as inside wiring. Inside wiring, which is popular among seniors, for example, had a 190% increase since 2006, and customers paid an additional430.00 extra, counting taxes, fees, and surcharges. NOTE: Lifeline costs do not cover inside wiring or other related calling features.
- This comes to about4.9 billion collected from local phone customers for basic service and one ancillary service (and taxes, some of which are also revenue to the company).
- Many of the various phone services and ancillary services had increases. The chart at the end of this article lists the increases and changes to everything from the "Essentials" package to Directory Assistance, for the year 2013.
Re-engineering Expenses: Local Service Is Profitable.
The losses appear to be manipulated so that Local Service would pay an unfair share -- not a 'fair and reasonable' share.
There are four major financial areas -- buckets -- of revenues and expenses in the state-based financial books.
- "Local Service" -- are the revenues from the local phone services based mostly on the copper networks, (also defined as "Intrastate" or "In-state").
- "Access" -- (which includes 'Special Access', sometimes called 'backhaul'), are revenues related to services using broadband business networks that have been classified as 'inter-state', (cross-state boundaries) and carry everything from wireless calls, video and data for Verizon as well as for competitors, from T-Mobile to Netflix.
- "Non Regulated" -- are services that were once regulated but are now 'deregulated', 'forebeared', or the regulations were erased. There are a host of issues surrounding this category. (In future articles I will explain all the details.)
- "Black Hole" -- When examining two different sets of Verizon New York's financials, one set being the SEC-filed reports for Verizon New York, (which stopped being published in 2010) and the other, the Verizon NY State filed financial reports, we found that in 2009 there was an additional2.7 billion dollars of revenues that was in the SEC books but was not included in the State annual reports. (We do not have any data about 2014 for this category. We will address this in future articles.)
Simply Put: What would happen if the other two financial buckets of revenues, Access and Non Regulated, paid their fair share for just "Corporate Operations" expenses based on the revenues they bring in? In 2014, Access revenues were $2.38 billion, while Non Regulated revenues were $1.4 billion and this financial bucket is about the same size as Local Service.
However, the Non-Regulated financial bucket only paid 10% of the Corporate Operation expenses and this calculation had nothing to do with the total revenues it brought in.
Low and behold, if we re-engineer the expenses based on revenues, Local Service overpaid Corporate Operations expenses by $855 million while the Non Regulated side underpaid by about $448 million and Access underpaid by $407 million.
Moreover, Local Service should have only paid about $718 million for just this one massive expense item. Rebalance this expense and Local Service was profitable in 2014. And even that should be contested because of the myriad of expenses being added that have nothing to do with provisioning phone service.
Is it legitimate to reverse engineer the expenses based on revenues? With $2.5 billion in losses a year for the last five years and losses extending over the entire last decade while the 'massive investment in fiber optics' is not happening for the majority of New York State -- you bet it's legitimate and should be demanded by every customer who had rate increases, especially those who can't get the high-speed or cable services.
But there are deeper issues that require investigation. If Local Service is really profitable, especially if Verizon's other subsidiary businesses are not paying their fair share of the expenses, the premise that Verizon's failure to properly upgrade and maintain the network because they are 'uneconomical' is suddenly in question. Worse, forcing customers onto inferior wireless services using this manipulated mathematics -- requires immediate audits and investigations.
As we go through the rest of Verizon New York's financials, feel secure in the knowledge that every Verizon state and most likely every AT&T state is using the same corrupted slush fund shell game.
And this analysis also calls into question all of the previous rate increases, and there have been many over the last decade. I leave you with a chart of rate increases and changes to service in New York for just the year 2013. And remember, each service is taxed, fee-ed and surcharged multiple times.
Verizon New York Lost $2.5 Billion in Just 2014, and that Might be the Good News
This article was written by Bruce Kushnick, Executive Director of New Networks Institute, and appeared in the Huffington Post on June 5, 2015
To understand Verizon's financial shell game see: The Book of Broken Promises: $400 Billion Broadband Scandal and Free the Net.
Verizon New York's Annual Report for 2014 has just come out and it is a page turner. Let me start with some facts and then answer two questions -- How did Verizon New York lose billions in 2014? Isn't FiOS, Verizon's fiber optic service, profitable?
Note: In the last article, we detailed major holes in Verizon's New York City and New York State's deployment of fiber optic upgrades, known as FiOS. Here's why.
Verizon's Losses and Charging Customers Extra
Dumping Expenses Makes Local Service and the Wires "Unprofitable".
- Verizon New York lost $2.58 billion in just 2014; and that's just New York State.
- Verizon New York lost $12.5 billion over the last five years, 2010-2014, with a $1.28 billion income tax benefit -- and paid no income taxes since 2004. (There are some questions about 2013).
- Verizon charged local service customers -- including seniors and low income families, about $752.00 extra on just basic local phone service (counting taxes, fees and surcharges, some of which are also revenues to Verizon).
- The State granted this largess based on "massive deployment of fiber optics" and "losses", starting in 2006.
Consequence besides Rate Increases: Not Enough Broadband Upgrades.
- There has been a massive dumping of expenses into the "Local Service" accounting that makes Local Service look "unprofitable".
- These multi-billion dollar expenses include corporate lobbying and lawyers, to possibly executive pay and foundation grant money.
- In fact, "Local Service" accounting for regular copper-based wireline phone service paid 173 percent more in expenses than all of the other areas.
- Moreover, the construction budgets for the "massive deployment of fiber optics" were diverted to pay for the companies' other construction needs, including Verizon Wireless' fiber optic wires to the cell towers.
- This also means that Verizon's services, like Verizon FiOS TV, or "special access" business services aren't paying "market prices" and are getting a free ride or reduced costs.
Local Service is Profitable.
- Because of this shell game, only 46-59 percent of New York City has been upgraded to fiber optics, even though the franchise called for 100 percent by July 2014. Only 42-51 percent of the rest of New York State has been upgraded.
- 80 percent of the New York State municipalities will not be upgraded in parts or not at all.
- 100 percent of phone customers were hit with multiple rate increases for "massive deployment of fiber optics" but 50 percent will never get what they paid for.
- The wired phone networks, including local service, are profitable when the flows of money are recalculated to remove the cross-subsidies, expense dumping and other financial games.
- In fact, Local Service over-paid about $1.7 billion in just one year, 2014, while Verizon's other services that use the wired networks, including business services like "special access", under-paid at least by $1.3 billion.
This is happening, to varying degrees, in every Verizon state and most likely All AT&T states --and it is time to stop this chicanery.
There is a massive financial shell game afoot to use public funding of a utility to fund Verizon's other "subsidiary" companies. It has harmed customers and NY State by allowing Verizon's other subsidiaries and services, like Verizon Wireless, or FiOS TV, or "special access" business networks, to dump their expenses into the State utility and the financial accounting for "Local Service", thus creating massive losses for basic wireline services. This is then are used to raise rates, to stop building out the fiber optic broadband networks because they are "uneconomical" and to show the need to "shut off" the "unprofitable" networks and force customers onto Verizon Wireless. And the kicker is the company's losses are then used to not pay income taxes and the losses are a tax benefit to the corporate parent, Verizon Communications.
However, recalculating this financial shell game reveals that the wired networks are profitable and there is enough money to start upgrading New York State -- but the "will" to actually hold Verizon accountable, audit the books, enforce the basic laws and penalize the company for its financial chicanery is what's missing, The NY Public Service Commission, the State Attorney General's Office and even New York City or the Governor's office could have all investigated by now. Instead, the regulators and politicians just keep giving the same company that has been manipulating their books, overcharging customers, and not upgrading their networks, more money.
I repeat: This is happening in every Verizon state and most likely All AT&T states -- And it is time to stop this chicanery.
I can hear someone in the back saying -- But everything is going wireless? Besides the fact that very High-speed Internet or cable TV isn't going to be coming via wireless (especially at reasonable prices), every cell phone call, sent photo or video that is picked up by WiFi or hot spot or cell site connection goes back to a wire -- and guess who controls that wire, including the costs to all that use the wire, including the competitive cell phone companies...
Verizon New York is a Utility that Controls Critical Communications Infrastructure. It is NOT an "ISP" or a Cable Service.
Verizon New York is the state telecommunications utility, which are the wires into homes and offices, and schools and libraries, etc., and today, and while many believe it is still mostly based on copper wires that could have been put in over the last 100 years, all of the fiber optic networks are being constructed as part of this Public utility network, including FiOS.
As a utility, it is based on "Title II" telecommunications regulations as set by the Communications Act of 1934. "Title II" has been all the rage as the FCC's Open Internet Order declared that broadband and Internet were now classified as "Title II". But, the utility has always been Title II, something the phone companies have been attempting to erase for a decade-plus, or use to their advantage when it suits them.
NOTE: We previously filed a perjury case against Verizon with the FCC as Verizon claims that Title II harms investment. These financials prove that Title II is Verizon's primary investment vehicle -- and phone customers have been forced into being defacto investors.
Verizon New York also receives perks for running the state utility. It receives the use of the public rights-of-way, in the past it had guaranteed profits (but still has rate increases to compensate the company), and it has a monopoly on the use of the wire (I.e., Verizon doesn't have to share this network to let competitors offer High-speed Internet (ISP) service or cable service, and controls critical infrastructure as a monopoly provider.)
Title II also requires that the company can not "interfere" with what's carried over the wires, (known as "common carriage") and it has to make sure that everyone receives phone service, that repairs are done on a timely basis and that prices are "fair and reasonable", though some of these regulations have been "erased", "forebeared", or "relaxed" in favor of the company over the last decade.
And starting in the 1990s, in every Verizon and AT&T state there were plans to replace this aging copper wire with a fiber optic wire, though each state has different laws and regulations to give the phone companies more money via rate increases and tax perks to pay for this fiber optic upgrade. In some states, like New Jersey or Pennsylvania, the Verizon state-based companies made commitments to have 100 percent of their territories upgraded to fiber optics and capable of speeds of 45 Mbps in both directions. Verizon New Jersey was to be completed 100 percent by 2010; Verizon Pennsylvania should have 100 percent broadband deployment by the end of 2015.
In New York, Verizon got out of the requirements to have fiber optics deployed in the 1990s, (though they announced plans) but in 2006, Verizon went to NY State and was able to secure multiple rate increases, claiming it was for "massive deployment of fiber optics" -- with brand name, FiOS and "losses".
Over the last decade there has been a massive financial and regulatory shell game.
First, Verizon goes to the New York State Public Service Commission around 2005 and claims that FiOS is a "telecommunications" service, "Title II". and that it is an extension of the utility networks. This allows Verizon to get rate increases on basic service phone customers to start to fund and roll out their FTTP, fiber-to-the-premises networks used by FiOS TV, the cable service.
But instead of upgrading the utility, Verizon decides to divert the funding from these rate increases and the construction budgets to Verizon's other subsidiaries, including the Verizon Wireless', which gets what appears to be a free ride on the costs of installing the wires to the cell towers. Verizon's "special access" wires, sometimes called "backhaul", which are wires in the network that handle the calls, videos and content of the competitive cell phone providers or the content companies, like Netflix, pays a fraction of the expenses as compared to Local Service, while Verizon's own services using these networks appears to be paying below market prices.
In fact, the New York State Attorney General's Office pointed out that 75 percent of the billion dollar budget to upgrade and maintain the utility networks in 2011 was being diverted to fund the construction of these other lines of business.
So, besides diverting the construction budgets that should have been used to upgrade the state utility, Verizon has also been able to dump the majority of expenses for "special access" or even most of the corporate expenses, including lawyers, and lobbying firms into the "Local Service" accounting, making it look unprofitable.
And the consequence has been that while Verizon did start to do FiOS fiber optic deployments in 2006, by 2012 the company left the majority of New York State unfinished. And it now claims it has stopped its deployment, except for where there are remaining contracts.
This shell game gets more complicated -- Verizon's plan has been to "shut off the copper", claiming it is uneconomical to upgrade. After the Sandy Storm, the plan has been to not upgrade or even fix the copper wires but to force customers onto more expensive wireless plans. At the same time, Verizon uses the losses to continually raise rates, claiming local service is losing money; this is commonly known as "harvesting", which hits low income families, seniors and rural areas that depend on these networks, the hardest. But it also helps to drive customers to get rid of their wired phone lines -- the lines that were never upgraded.
This manipulation of the books doesn't stop there. In previous reports we uncovered "black hole revenues" which only showed up when comparing different sets of financial books for Verizon New York. There was the investor-based SEC filed financial reports for Verizon NY, (which stopped being published in 2010), the State-required financial annual reports, and the FCC's phone company financials known as ARMIS (which stopped being made public in 2007).
All of the revenues that Verizon New York or Verizon's subsidiaries makes that are "Internet Protocol"-based ("IP") appear to be in a separate "Black Hole" financial bucket that goes to corporate and doesn't pay for most, if any, of the construction or maintenance of the public networks, and there were no details about this "black hole" revenue. In 2009, this was about $2.7 billion extra of revenue that showed up on the SEC-investor books, but not on the State-filed financials and cross-referenced the "Black Hole" revenues was paying no construction expenditures and was profitable; meanwhile, Verizon New York, the utility, lost a few billion.
Manipulating the revenues into this "black hole" financial bucket, diverting the construction budgets to other lines of business, dumping expenses into the costs of local service, and giving the affiliate companies a free financial ride, all shortchanged the NY State utility revenues and dramatically increased expenses, which created the massive financial losses.
In 2014, Verizon New York showed losses of $2.5 billion -- that's just for one year. For the last five years, Verizon New York lost $12.5 billion, and has paid no income taxes for at least a decade because of these losses, (though there is a question about 2013).
But, since almost all of these expenses some how ended up in the "Local Service" accounting, it makes local service looks "uneconomical". This allows the company to use this as the excuse to "shut off the copper" and raise rates, and get more deregulation.
"Reverse Engineering" this shell game -- asking what would happen if all of these cross-subsidies and financial games were stopped and the other parts of the business paid their fair share -- we found that local service and the networks would be profitable, and build outs in areas that have been neglected, could be started.
There is still a lot that we don't know which will require audits and legal actions to stop these cross-subsidies and other acts of manipulation.
But it is clear leaving this mess is no longer acceptable.
Next week, New Networks Institute will be publishing a report detailing the basic financial findings and outing the shell game.
Think you could now answer the question -- "How did Verizon New York lose billions in 2014? Isn't FiOS, Verizon's fiber optic service, profitable?"
This article was written by Bruce Kushnick, Executive Director of New Networks Institute, and appeared in the Huffington Post on June 4, 2015
Verizon's Coverage Area of NYC for Fiber Optic FiOS Is a Miserable 46% to 59%; Upstate NY Is Worse
Read more "The Book of Broken Promises: $400 Billion Broadband Scandal & Free the Net"
Verizon NY (VNY) is supposed to have 100% of New York City upgraded, replacing the aging copper-based networks with a fiber optic infrastructure for the delivery of a service called FiOS that offers cable TV, High-speed Internet and Digital Phone services. Being done as part of a cable franchise that was signed in 2008, the construction was to be completed by June 30th, 2014.
Unfortunately, in April 2013, then NYC Public Advocate, now-Mayor Bill de Blasiopresented facts that Verizon's buildout was way behind schedule. Using data from July-through-December 2012, (and published in April 2013), Verizon only had 51% of NYC residential 'housing units' capable of ordering FiOS service. According to the City, there are 3.4 million housing units and Verizon had "passed" only 1.7 million of them.
And the devil is in the details, as there are different terms being used. Updating this data using Census and FCC information we found that:
- "Housing Units": Verizon may have as little as 59% of residential "housing units" covered with FiOS in New York City, and only 51% of the rest of New York State covered.
- Examining "Homes & Businesses": Verizon's own press releases supply the coverage of "homes and businesses"; Using this metric, NYC only has about 46% covered while only 42% of New York State has been done.
- In New York State, about 80% of the municipalities and cities are out of luck or are getting partially done. Verizon is only doing work in 183 towns and cities out of 996 municipalities in New York State.
- Yet, 100% of Verizon phone customers have been hit with multiple rate increases since 2006 for "massive deployment of fiber optics" (a story we will be telling in future articles).
Note: There are different measurements at play. If you read through press statements and documents you will see a host of terms being used. For example, there are residential 'homes', 'households' or 'housing units' while there can be "businesses", "firms" or even "establishments", not to mention combining "homes and businesses", that can also use the terms "locations" or "premises". And note; the City of New York examined only residential 'housing units', as the NYC Verizon FiOS cable franchise does not include commercial spaces.
And yet, according to Ars Technica, quoting Verizon, Verizon's claimed that their fiber optic service in June 2014 passed buildings in "90 percent of the Bronx, 89 percent of Brooklyn, 94 percent of Manhattan, 90 percent of Queens and virtually the entirety of Staten Island".
However, in conversations with people who contacted us because they couldn't get FiOS in areas that have been marked 'completed', we now believe that the contradictory data reveals massive holes in deployment and holes in Verizon's story.
Let's Walk through the Numbers
(The bulk of this information was originally presented in the Public Utility Law Project, (PULP) report "It's All Interconnected", published May, 2014 and written by New Networks Institute, with David Bergmann, Esq. of Telecom Policy for Consumers.)
Updating the New York City Advocate's 2013 data (for the year ending December 2012), we find a problem.
Verizon's press releases detailing the FiOS deployment in New York State showed that by the end of 2012, Verizon only had 3.45 million 'homes and businesses' that were capable of getting FiOS and by the end of 2014, Verizon had added about 550,000 additional "passed" locations that were capable of getting the service, for the years 2012-2014.
If we do the basic math for just 'housing units', Verizon only had 59% covered by the end of 2014, but the rest of New York State, then, only had 51% covered. Based on the information supplied, it would appear that Verizon split the construction between upstate NY and NYC, around 50%-50%.
Verizon NY's Press Releases about Wireline Construction for 2012-2014
Here is the series of Verizon NY press releases detailing the wireline construction in New York State. Unfortunately, notice that the numbers provided by Verizon are for "homes and businesses". Moreover, it covers New York as well as Verizon's Connecticut territory, (which is a small part of CT, so it has nominal affect on the deployment information).
- 2012: "Verizon invested over 1.5 Billion on New York's and Connecticut's wireline communications, IT Infrastructure in 2012."
- "At year's end, FiOS services were available to more than 3.45 million New York and Connecticut homes and businesses."
- 2013: "Verizon Invested More than1.6 Billion in New York's and Connecticut's Wireline Telecommunications Infrastructure in 2013."
- "At year's end, FiOS services were available to more than 3.7 million homes and businesses in the two states."
- 2014: "Verizon Invested More Than 2.3 Billion in 2014 to Further Strengthen New York's and Connecticut's Telecom Infrastructure" (but only1.5 billion was spent on wireline networks).
- "At year's end, FiOS services were available to more than 4 million New York and Connecticut homes and businesses."
The Math: FiOS Coverage in New York and Connecticut
The following chart supplies the raw Census information for New York City and New York State for housing units and businesses, followed by the percentage of Verizon New York's holdings in the State, as well calculating NYC and New York State's percentage of homes and businesses. And we added the FiOS information provided by Verizon's releases, (excluding the Connecticut portion).
- There are about 3.4 million residential units and 944,000 businesses in New York City, while there are about 10.1 million business and residences, total, in New York State.
- Verizon New York covers approximately 90% of the state's population, based on using FCC-supplied data on phone lines. This means that there are about 9.1 million 'locations' total. However, Verizon covers 100% of New York City.
- Outside of New York City, there are 3.94 million housing units and 816,931 businesses in New York State -- 4.76 million total 'premises'.
- Basic math suggests that at the end of 2014, Verizon New York has passed about 42% of the 'premises' with FiOS in its New York State service territories.
- Basic math suggests that at the end of 2014, Verizon NY passed about 46% of 'locations' in New York City.
80% of New York State's Municipalities are Not being Served by VNY's FiOS.
According to Newsday, January 31, 2014, Verizon spokesman John J. Bonomo stated that Verizon had commitments to deploy FiOS fiber optic services in 182 communities.
"Bonomo said the company is required to complete fiber-optic 'buildouts' in about 182 New York State communities where Verizon holds franchise contracts."
In an interview on WAMC radio, November, 27, 2013, Bonomo claimed there are 183 municipalities in VNY's service territory that do or should be able to receive FiOS TV. VNY had no plans for expansion beyond these commitments.
"But right now we have commitments to 183 municipalities where we need to complete 100% of our network. So we want to make sure that we make good on those commitments before we reach out and get new commitments. Of franchises in other communities, namely like Albany."
According to Wikipedia, there are a total of 996 towns and cities in New York State.
"This is a list of towns in New York. As of the 2010 United States population census, the 62 counties of New York State are subdivided into 932 towns and 62 cities."
With an estimate of 90% of coverage of New York State households by Verizon New York, based on the FCC's access line accounting, this would mean that only 20% of towns have been or are being upgraded by Verizon New York for FiOS.
But it appears that low income areas were doubly harmed. In May 2012, a group of nine mayors from upstate cities outlined how Verizon had been 'redlining poor and minority communities'. Stop the Cap wrote:
"Virtually every mayor in the urban centers of upstate New York is accusing Verizon Communications of redlining poor and minority communities when deciding where to provide its fiber-to-the-home service FiOS...The mayors are upset that Verizon has chosen to target its limited FiOS network primarily on affluent suburbs surrounding upstate New York City centers."
"'Verizon has not built its all-fiber FiOS network in any of our densely-populated cities. Not in Albany, Buffalo, Syracuse, Binghamton, Kingston, Elmira or Troy,' the mayors say. 'Yet, Verizon has expanded its FiOS network to the suburbs ringing Buffalo, Albany, Troy, and Syracuse, as well as many places in the Hudson Valley, and most of downstate New York. As a result, the residents and businesses in our cities are disadvantaged relative to their more affluent suburban neighbors who have access to Verizon's FiOS, providing competitive choice in high-speed Internet and video services."
This issue has been both a downstate as well as upstate issue. On April 26, 2013, now-Mayor Bill de Blasio, and then New York City Advocate, released a statement:
"Public Advocate Bill de Blasio today assailed the City and Verizon for falling behind schedule in providing access to high-speed Internet, especially in the lowest-income communities. Five years into one of the biggest franchise agreements issued by the city, roughly half of homes still have no access to fiber network connections--most of them concentrated in low-income areas like Upper Manhattan, the South Bronx, Western Queens and Central Brooklyn.
Verizon Claims They Are on Now Track for Wiring All of NYC with FiOS.
According to a Verizon interview in the New York World, March 28, 2014
"'Verizon is on pace to meet our obligations called for in the franchise agreement to run an all-fiber network throughout the entire five boroughs," said company spokesperson John Bonomo in an emailed statement. 'We will complete the premises passed portion of the FiOS build in 2014, meaning we will have fiber up and down each street and avenue in the entire city, providing meaningful competition that benefits all City residents'."
Uptake Issues: New York State is Mostly Copper-Based
According to Verizon Communications Annual Report for the year ending December 31, 2013, of the premises passed nationwide Verizon had about 40% 'penetration rate for FiOS Internet and 35% for FiOS video. i.e., FiOS Internet and broadband are sold separately from the cable TV services in some areas.
"As of December 31, 2013, we achieved penetration rates of 39.5% and 35.0% for FiOS Internet and FiOS Video, respectively, compared to penetration rates of 37.3% and 33.3% for FiOS Internet and FiOS Video, respectively, at December 31, 2012."
This means that of their 3.7 million households and businesses passed in 2013, Verizon NY only had, at best, 40% are actual customers - 1.48 million customers.
Others have Noticed
According to Crain's, in September 2014, the City initiated an audit of Verizon's bookspertaining to the FiOS franchise agreement, which was supposed to be done in four months.
And then there are the holes in deployment. The Communications Workers of America, CWA, the largest telecommunications union, put up a site called "Where's my FiOS?" in 2015. They have people on the ground doing the installs... and they know that NYC has major deployment gaps and they blame it on staff cuts.
"When it received its franchise from New York City in 2008, Verizon promised FiOS would be available to every NYC resident by 2014. Now the company says it's completed its obligations. But customers in many parts of New York City still can't get FiOS. Instead, Verizon has cut 8500 jobs in New York State and slashed its workforce in New York City by 37% over the last decade."
Verizon of course, refuted Advocate de Blasio's numbers. According to Crain's,Verizon claimed that the City's "numbers refer to the video deployment Verizon has committed to rather than the fiber Internet deployment we have completed in the city", and that it had completed its obligations by 2012. However, according to Crain's, the City also pointed out that the "data reported by the company to the state shows whether each census tract has at least one household with access to fiber broadband as of December 2012". Similar to a zip code, this means that if they have one customer in the 'census tract', it is considered a 'completed' area.
This minutia is 'weasel room'--and it is what Verizon has done in all of their states to puff up their deployment numbers or get out of obligations. Problem is--the Franchise Agreement says every residential unit has to be offered cable service and all households, including those in an apartment complex, gets service--not some 'census tract' accounting or--where they might say 'We only have to 'pass' the house--we don't have to actually offer service to an individual'.
"3.1. Initial Availability of Cable Service: Franchisee (Verizon) shall make Cable Service available to all residential dwelling units..."
"DEPLOYMENT; PROVISION OF CABLE SERVICE
"The FTTP Network will pass all households served by Franchisee's wire centers within the Franchise Area in accordance with the table attached hereto as Appendix F, with final completion no later than June 30, 2014. For purposes of this Agreement ..."pass" or "passage" of a household shall mean MDU's (Multiple Dwelling Units), whether or not network created and single family units whether or not a drop is installed."
Verizon also has complained that it has been having trouble getting access to buildings. With only 46%-59% still not upgraded in New York City, or worse in New York State, there's more going on than simply blocked access to a few buildings.
And what about the fact that 100% of Verizon NY phone customers were charged extra for 'massive deployment of fiber optics', even if they can't get the service? I'll get back to that in the next few stories.
This article was written by Bruce Kushnick, Executive Director of New Networks Institute, and appeared in the Huffington Post on January 15, 2015
Did Verizon Commit Perjury in the Net Neutrality Proceeding About the Use of Title II?
New Networks Institute has filed a Petition for Investigation with the FCC to examine Verizon's use of Title II and whether the company has committed perjury in the current Net Neutrality, Open Internet Proceeding, (Docket number 14-28).
Click Here to Send a Note to the FCC: Request the FCC Investigate Verizon's use of Title II and mention "Open Internet", use "Proceeding Number 14-28" and add "New Networks Institute's Petition".
Let Me Summarize Our Petition for Investigation.
Simply Put: Verizon has told the FCC, the courts and the public that applying Title II would harm investment if it is reinstated in the current Net Neutrality proceeding. In fact, Verizon has gotten their 'friends', corporate-paid think tanks, 'academics', astroturf groups, and even co-opted non-profits to parrot this statement as if it was true.
The Problem? Verizon's entire fiber optic deployment (including FiOS) and financial plan is based on using Title II and this has not changed since Net Neutrality became an issue about a decade ago.
This is an Open and Shut Case: Verizon Communications, Inc. and its affiliates, including Verizon Wireless, have violated Section 1.17 of the Communications Act of 1934, by "intentionally omit[ting] material information that is necessary to prevent any material factual statement that is made from being incorrect or misleading".
Simple to Prove: Compare these two statements by Verizon Communications, Inc., and the company's affiliates.
The first excerpt is from a 2014 Verizon NY cable franchise agreement, and is similar, if not identical to every other Verizon state-based fiber-to-the-premises (FTTP) deployment.
The second excerpt is from Verizon's Open Internet Comments July 15, 2014
"Imposing a Title II common carriage regime on broadband providers would be a radical change in course that would only chill, not spur innovation. Title II is a regulatory dinosaur, crafted eighty years ago - and based on 19th-Century laws regulating railroads - to address the one-wire world of rotary telephones."
Title II is a Cash Machine: Verizon's entire business plan is the based on using Title II as it allows the company to not only to use the utility rights-of-way, but as we discuss in the Petition, it also allows the company to get local phone customers to fund these investments of the fiber optic networks. In New York State, Verizon received at least three rate increases for "massive deployment of fiber optics" (and "losses", which we will be addressing in future petitions).
NOTE: The phrase "massive deployment of fiber optics" is taken directly from Verizon New York's filings and the NY Public Service Commission's orders. We did not need to 'make it up'.
If you have been reading the past articles, you know that we have been documenting all of this for years. Our research reports, based on Verizon's own financial reporting and other Verizon-authored documents have uncovered that Verizon's entire investment in the fiber optic networks, including the wires to the cell towers for Verizon Wireless or the "special access" wires, are based on the use of Title II.
Verizon Told the FCC Over and Over that Title II Harms Investment
There are pages of quotes by Verizon it their own Open Internet Proceeding filingsabout the harms to investment if Title II were imposed. Here are just a few.
Reclassification would create a major drag on new and improved broadband infrastructure, even though substantial investment in such infrastructure is precisely what is needed to keep pace with exponentially increasing consumer demands for bandwidth.
By chilling such investment and discouraging innovation, Title II and related proposals would only impede, not advance, the public's access to and enjoyment of the Internet.
The prospect of 19th-Century price regulation and Title II's other arcane requirements would stifle investment in and development of the Internet.
This is Misrepresentation on a Massive Level, Not Some Trivial Point.
This massively deceptive practice of getting Title II benefits on the state level while impaling it on the federal level has nothing to do with either the multiple classifications of services over the wire or some miss-matching 'investor tale' with that of the companies' reports to the FCC.
We are well aware of the use of multiple classifications, i.e., that the Title VI cable service, combined with a Title I Internet information service, can use a Title II network, but it is the flows of money that is at the crux of the issue here.
The "Title II" Issue is about the Flows of Money and the Use of Title II as a Cash Machine.
Verizon uses Title II to fund the infrastructure as "Title II", which means it is part of the state-based utilities as a telecommunications network and therefore fuels the financial perks including charging utility customers for the 'massive deployment of fiber optics'. Verizon also gets the rights-of-way from the state-based utility as Title II.
There are those who will argue that the networks can have multiple classifications of service over the same wire. While true, the issue of investment is about the flows of money. In at least New York State, Verizon's Title VI cable networks were built as part of the existing telecommunications network and therefore the cable division paid little or no construction costs for the FTTP networks it uses to deliver its cable programming. Similarly, it appears that the fiber optic wires to the cell towers and the wires used for Internet service, were all installed as Title II facilities -- i.e., the affiliate companies are getting a free ride on the backs of local phone customers who were charged multiple rate increases in New York for "massive deployment of fiber optics".
I note that these 'pundits' for Verizon or the ill-informed have not bothered to actually go through the financials of Verizon's state-based utilities or read the actual primary Verizon and NY State commission documents we quote, much less what we uncovered.
The "Janus" of Telecom
Janus was the two-faced Roman mythology figure. While the name in the 21st Century can have multiple implications, the simplest is when a person is "two-faced" or duplicitous.
The facts reveal, then, a massive duplicity on the part of Verizon Communications that continues to violate Section § 1.17 of the Communications Act, which requires "Truthful and accurate statements to the Commission".
(1) In any written or oral statement of fact, intentionally provide material factual information that is incorrect or intentionally omit material information that is necessary to prevent any material factual statement that is made from being incorrect or misleading...
The omission in every document of any statement that Title II is used for investments and that the fiber-to-the-premises networks are already Title II, which is then used to charge local phone customers as 'defacto investors', requires immediate investigation. It is at the very heart of the current Net Neutrality/Open Internet proceeding, and other proceedings related to network infrastructure policy and practices.
- Verizon has deceived the FCC, the courts and the public over and over, and it is time for the FCC not only to acknowledge this fact but to start investigations into the failure of Verizon to disclose critical, material facts.
- The FCC needs to examine the extent of the use of Title II today by Verizon for deployment of infrastructure used for broadband, Internet, phone and cable service.
- The FCC needs to examine the role of customers as 'de-facto' investors; how Verizon has used Title II to get rate increases on basic POTS (plain old telephone service) customers and tax perks.
- The FCC must examine the role of Title II and the other classifications ('titles') in allowing the manipulation of the flows of money between and among Verizon New York, the state-based utility, and Verizon Communications and Verizon's other affiliate companies, including Verizon Online, Verizon Business, Verizon Services and most of all Verizon Wireless
And this must be done with a focus on Verizon's own statements, information, comments, reply comments, etc, made to the FCC, as well as to the courts and the public. The FCC must examine whether Verizon intentionally provided factual information that is incorrect, or intentionally omitted material information, in an effort to mislead the Commission concerning Verizon's claim that Title II harms investments.
Did Verizon Commit Perjury?
Section 47 CFR 1.16 states:
Unsworn declarations under penalty of perjury in lieu of affidavits.
Any document to be filed with the Federal Communications Commission and which is required by any law, rule or other regulation of the United States to be supported, evidenced, established or proved by a written sworn declaration, verification, certificate, statement, oath or affidavit by the person making the same, may be supported, evidenced, established or proved by the unsworn declaration, certification, verification, or statement in writing of such person...
We ask the FCC to start an immediate investigation into the fact that Verizon has not once disclosed, as far as we can ascertain, any of the documents and information about their use of Title II, which we have uncovered and detail in the Petition.
Where are the Investigations and Oversight?
Finally, I find it incredible that the leading government agency that is in charge of all of America's communications in the United States had no clue that Verizon gamed the system. But this points to a more serious question -- Where are the other government agencies, advocate offices, politicians, state commissions, or Internet advocate groups who claim that they care about 'reclassification' to Title II? Where are the investigating reporters in the US? Why wasn't this deception exposed years ago?
NOTE: This Petition was created by New Networks Institute's independent team of lawyers, auditors, and communications experts and we received no funding from any group, organization, company or political party.
We did it because it is the right thing to do.