Did Governor Cuomo Sell Out NY State by Killing Off a Multi-Billion Dollar Investigation of Verizon NY & Verizon Wireless?

Governor Cuomo gave Verizon NY over $85 million in state broadband grants for areas that customers paid to upgrade and maintain and attempted to push through a Verizon-AT&T wireless bill to preempt cities, which was tucked into the state budget (but didn’t go through). At the same time, there has been a multi-billion dollar ongoing investigation into Verizon NY’s losses of over a billion annually, cross-subsidies with Verizon Wireless and overcharging customers. However, it now appears that the financial investigations have been dropped in a proposed settlement, with all fingers pointing to Cuomo.

On March 2nd, 2018 a settlement was proposed between Verizon NY, and the NY Department of Public Service, (NYPSC) and joined by CWA union and PULP, to end an investigation which started in 2016. However, this was part of a series of proceedings over the last 5 years at the NYPSC.

This investigation has 2 parts:

  • Part 1: Verizon has left the state copper-based utility networks to deteriorate and there has been a lack of upgrades to broadband or even maintenance of the existing networks.
  • Part II: There is a massive financial shell game between the state utility, Verizon NY, and the other Verizon subsidiaries, especially Verizon Wireless.

And, while there are some basic fixes to the neglected infrastructure being offered, Part 2 has been eliminated from this proposed settlement.

Keep This Quiet: You probably didn’t know about the settlement or that there was a ‘comments’ period that ended April 16, 2018. Thousands of people, companies, cities and politicians participated and testified in the previous related proceedings, but the State failed to properly notify these people and organizations — anyone — about this proceeding.

Click Here: Read more about our work, the settlement– and to file Late Comments.

New Networks Institute and the IRREGULATORS have requested an extension of the comments period, (as the new, Verizon New York 2017 Financial Annual Report is due out at end of May 2018), a halt to this settlement and stepping up the investigations of the cross-subsidies between Verizon New York and the other Verizon subsidiaries. We’ve been examining Verizon NY’s financials, business practices, etc. since 2010 and some our research was the basis of this investigation.

Cuomo’s Fingerprints Are All Over This. The investigating of Verizon NY’s multi-billion dollar financial manipulations is now missing from this settlement. The State has been touting a broadband plan — which, at this point, gave over $85 million to Verizon NY, the incumbent state utility — even though their financials have been under investigation. In fact, Cuomo’s plan is referenced in the proposed settlement. I’ll get back to this in a moment.

What We Found: (Click for 2 Page Fact Sheet)

  • Verizon NY Didn’t Pay Most Taxes: From 2010–2016, Verizon NY lost $15.7 billion dollars and didn’t pay most taxes. Instead, Verizon had tax benefits of $7.2 billion. How did the state utility lose billions every year?
  • The Utility Illegally Funded the Wireless Networks. There is a massive financial shell game afoot that has local phone customers and others who use the wired networks fund parts of the Verizon Wireless network buildouts with construction budgets paid for and done by the state utility, Verizon New York.
  • From 2010 to 2012, alone, Verizon New York paid about $2.8 billion to build out the fiber optic wires used by Verizon Wireless — and that money was charged to local phone customers, not paid for by Verizon Wireless.
  • Local phone customers paid over $1000.00 extra, per line, in rate increases from 2005 to 2015.
  • Worse, local phone customers have been paying around $500 extra a year based on the fact that the actual costs to offer the copper-based services should have been in steep decline, and prices should have followed. It didn’t happen.
  • Instead, low income families, seniors, small businesses, people and cities in rural areas — everyone paid thousands of dollars extra to build out the Fiber-to-the-Premises, (FTTP) wires first to be used by FiOS, services that these customers may never get. However, post-2010 through cross-subsidies, customers also paid for some/most of the wires to the cell sites. Cities were not wired because of this and there is no serious cable competition. And all services, from wireless to broadband, have been overcharged via this financial shell game.

But Most Important: Most people do not you know that Verizon New York is New York State’s largest, state-based communications utility (like water, or gas or electric utilities) and that in its territory it controls almost ALL of the copper wires as well as all of the fiber optic wires that are used for FIOS, or used by Verizon Wireless, or are the wires used for Business Data Services, known as “Special Access”. In fact, Verizon was able to get the State to make the fiber wires a ‘Title II’ network so it could dump the costs into the state utility construction expenses and get free use of the rights-of-way and other valuable perks — like charge local phone customers extra.

Ironically, while the FCC claims that Title II harmed investment in the Net Neutrality case, this proves the FCC failed to examine that it in the states it is the method for investment, directly contradicting the FCC’s analysis.

Most Important 2: These financial cross-subsidies are happening in every Verizon state, as well as AT&T and CenturyLink states as these holding companies control most of the state incumbent wireline telecommunications utilities. But, through continuous bombardment of faux facts and years of made up story telling, virtually no one understands that all of America’s infrastructure has been created via local phone customers paying the majority of all expenses to fund the companies’ other lines of business — or that ALL of the wires, fiber or copper, are part of the state utility when you “follow the money”.

Free Download: The Book of Broken Promises documents this rewriting of the history of broadband in America and how we were all played over the last 2 decades.

Cuomo’s Fingerprints are All Over the Elimination of this Financial Manipulation Investigation.

Imagine our surprise when the proposed settlement came out and it had not included any of the massive financial cross-subsidies, tax payments and losses, inflated rates, among other issues. Instead, it appears that Governor Cuomo has sold out NY State by eliminating any issues from the investigation and more importantly he even gave Verizon massive financial ‘gifts’.

The Governor’s headline reads:

“Governor Cuomo Announces Round III of Nation-Leading New NY Broadband Program to Bring High-Speed Internet Access to All New Yorkers.” January 31, 2018

Full Stop: In January 2018, NY State was in the middle of a settlement being discussed and instead of waiting until the State examined all of the facts of Verizon’s financial shell game, Governor Cuomo, in the first part of Round III, gives Verizon $71 million dollars, with additional money coming from the federal government. This was 1/3 of all of the money given out in this round.

But, it continues. On March 1, 2018, more money was poured on Verizon. And this announcement came a day before the proposed settlement was released.

“As a result of the Program’s competitive Round III process, Verizon will receive awards driving $148 million in new statewide broadband investment, including $85.3 million in state funding, $18.5 million in CAF support and nearly $45 million in private financing. These projects will deliver fiber networks to 18,314 locations across Upstate New York”

This comes to Verizon receiving $8081.25 per ‘location’.

As we pointed out in our reports and filings, there were three rate increases for “massive deployment of fiber optics” and losses. By 2010, the “massive deployment” went to build out the wireless networks and this diversion of the construction budgets and dumping of expenses into local service caused artificial losses; artificial because they have nothing to do with offering the copper-based local service. 
 
 Cuomo’s play, then is to kill off the facts and not hold Verizon accountable — and give ‘gifts’ instead of what should happen — billions of dollars in cross-subsidies should be stopped and the money used to upgrade New York State and lower rates (or even refunds) for most services, and bring in competition.

“5G” ALEC Model Legislation Tucked into the State Budget

But it gets worse. Cuomo also decided to give Verizon other help. Tucked away in the State budget was some telco-written legislation that aids in the removal of city regulations and any examination of what the phone companies want to do. And this is based on ‘model legislation’, which has been making the rounds through various states as it is written by AT&T and Verizon and is based on work at ALEC, the American Legislative Exchange Council. The phone and cable company members write ‘model legislation’, which is then handed to state legislators, most of whom receive various forms of financial support, from campaign financing to large foundation grants from the companies, such as in California.

Moreover, the companies are using the claim that they are going to deploy “5G”, which is a mythical non-existent service. No one mentions that this ‘small cell’ wireless service requires a fiber optic wire to the antenna and has a range of only 1–2 blocks, 500–1000 feet. That’s it. What rural area is going to get wired with fiber for this wireless service, if and when it shows up?

Newsday writes:

“Towns and cities are crying foul about a little-noticed provision tucked away in Gov. Andrew M. Cuomo’s state budget that would boost phone companies’ efforts to build a “5G” wireless network, saying it gives away public access at unfairly low prices and undermines their ability to regulate location and appearance of the new technology.
“’Everybody wants more broadband, but this really usurps the authority of local governments,’ said Gerry Geist, executive director of the New York Association of Towns and Villages. ‘This is really an industry bill’.”

This legislative round was defeated. Unfortunately, most don’t understand that this is just a play to remove regulations, not to deliver new tech, so it will return. And, like previous bait-and-switch plans, there is so much hype around this service that history is just going to repeat itself — promise them high-tech to remove regulations, then live with the consequences.

I note that this is extremely well documented in “The Book of Broken Promises”.

Specific Terms of the Joint Proposal Tied Directly to Cuomo.

Here it is in black and white. The settlement agreement directly ties the “joint proposal” to Cuomo’s state broadband plan, and it acknowledges the grants given to Verizon.

This was in the Public Utility Law Project (PULP) support letter, April 20th, 2018.

“1. Additional deployment of Verizon fiber-optic services to between 10,000 and 12,000 customer premises in Verizon’s Long Island and Upstate Region; and to between 14,000 and 20,500 households in census tracts proximate to areas covered by State Broadband Program Office (“BPO”) grants.
“The Joint Proposal will lead to the extension of broadband to up to 32,000 new households, distributed between Long Island and the Hudson Valley, and also in areas for which Verizon received BPO funding. This extension of fiber will bring more high-speed Internet access to areas in need of such connectivity, and through the potentially higher reliability of well-kept fiber-optic and hybrid fiber-copper networks, should lead to increased service quality as compared to older copper networks. As was noted in the record, copper plant can be more susceptible to weather-related outages than well-kept fiber or hybrid networks.”

I note that this proposal only calls for 10,000–12,000 lines and the total being 32,500 lines on the high side. Verizon New York covers 9 million residential and business locations and these lines are not ‘installed’ services but ‘passing’ a location. So this is not serious coverage. Verizon last claimed to have 4 million locations in New York State, only to find that in New York City, 25%-35% of the lines that were being counted were not installed, and NYC has taken Verizon to court over this.

The Landscape and the Capture by Verizon Et Al.

Finally, this settlement must be seen in light of the ‘landscape’. Verizon and AT&T have announced that they are wireless-only companies so their plan it to shut off the existing retail copper wires and privatize the publicly funded fiber optic wires, which are also part of the state utility, for the wireless company. At the same time, the funding will come from diverting as much as possible to the wireline, ‘intrastate’ utility — and all other services will be classified as ‘interstate’, and private property — and under the jurisdiction of the FCC.

This play is now being driven by the FCC who has created 15–25 inter-locking proceedings to complete this Verizon-AT&T vision. It has given the companies the right to shut off the copper, to block cities and states from interfering in wireless deployments, and got rid of Net Neutrality and privacy rules so that the companies can ‘vertically integrate’ and use the state utility infrastructure for all services, block competitors from using these networks and allow the companies to take all the information about your online use, sell it and pass it to their other affiliates, from AOL to Time Warner.

So, most rural areas that don’t get upgraded will be ‘shut off’ and forced onto more expensive, pay-per-gig wireless services and this will not bring serious competition to the other provider — cable TV. In fact, Verizon has a deal with the cable companies to bundle their wireless service with the cable bundle — or rent the networks to the cable companies — instead of them building their own.

And our research documents the flows of money between Verizon New York, the Verizon subsidiaries, and the manipulation of the accounting — which is being done with the help of the FCC.

Moreover, this move by Cuomo, then, to reward the company that has been able to manipulate the accounting and the public policies, needs to be investigated as well.

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