FCC to Respond by (Update 2) September 12th, 2019 to IRREGULATORS v FCC

bruce kushnick
IRREGULATORS v FCC: Fixing theHarms

UPDATE 2:The FCC was granted an extension until now until September 12th, 2019.

WHAT: By September 12th, 2019, the FCC will be responding to our court challenge.

On July 22nd, 2019, the IRREGULATORS v FCC moved forward with the filing of our initial brief. This legal challenge exposes one of the largest accounting scandals in American history. The FCC’s accounting rules have been manipulated, with the help of Verizon, AT&T and Centurylink, and it impacts all communications services and public policies in the US.

We estimate that America’s communications users are being overcharged $50-$60 billion annually, in multiple ways. While the FCC will most likely claim that the Agency is not at fault and nothing is wrong, the IRREGULATORS believe that this financial shell game must not continue and needs to be exposed, addressed and fixed immediately. Thus, this case is critical, now. (We address the cable companies elsewhere.)

NOTE: We include ‘Fact Sheets’, full reports, our filings and full articles about the issues raised.

Communications Pricing in America vs Overseas is Out of Control

Let’s start with the super-inflated prices America’s customers pay for the Triple Play and unlimited wireless services, as compared to the prices of services offered in the combined 41 OECD-EU countries. Using primary research from Rewheel Research and the European Commission, we found:

1)America Is being Overcharged for the Triple Play (including Broadband, Internet, Cable TV and Phone Services).

§ FACT SHEET: TRIPLE PLAY 1: We estimate the overcharging of America’s basic Triple Play to be about $70-$155 a month, counting taxes, fees, and surcharges, but not counting add-ons. The range starts with the original promotional price through the removal of discounts.

§ FULL ARTICLE “Triple Play for $45; Deals for Only $15 a Month? America Is Paying 2–5 Times More for Our Broadband, Internet, and Cable Services.”

2) America Is being Overcharged on Our Wireless Services.

§ FACT SHEET WIRELESS 2: We estimate that the US unlimited wireless customers are being overcharged $50-$70 a month, while the average ‘basic’ wireless plan can be overcharged by $20-$40 a month.

§ FULL ARTICLE “Wireless Overcharging: Why is America’s Wireless Prices 6–10 Times More than Other Countries?” Many OECD-EU countries now have “unlimited” wireless which comes with 500–1000GB, a month, for $20-$40 dollars. The US unlimited plans cap services at 25–50GB, and cost an average of over $90.

3) Most people do not know that the holding companies, AT&T, Verizon and CenturyLink, control most of the primary wireline state public utility networks, which gives them control over much of America’s wireless networks.

4) Wireless is a Wired service. Your wireless services do NOT go into the ‘ether’ or to some satellite; Most calls or data first goes to a hot-spot or cell site, then travels the rest of the way over a fiber optic wire.

Unknown to most, there are still state-based telecommunications utilities in America, and their wires are the guts of all services; wireless, wireline, fiber optics and copper. AT&T, Verizon and Centurylink control most these wired state utility networks, including the “Business Data Services”, sometimes called “backhaul”, which are used for data, internet or broadband services, from bank ATM machines to hospitals, but they are also the basis of wireless in America.

5) The FCC Cost Accounting Rules Are Manipulated, Creating Massive Financial Cross-Subsidies. Verizon’s own wireless services were mostly built by cross-subsidies, it appears, by charging local phone customers and the wired-state-based utility for the construction expenses. Wireless Services, then, are extremely profitable because they a) do not pay most of the construction expenses (in-region), b) have inflated ‘backhaul’ pricing on the wireline side that competitors pay, which c) allows Verizon to inflate its rates and profits. d) Moreover, the wireless companies appear to pay a fraction of the actual expenses to use the networks.

6) 5G Wireless Is a Bait-and-Switch. Since the number 5 comes after 4, 5G was inevitable. 5G requires a fiber optic wire to work and has a range of 1–2 city blocks. Moreover, 5G wireless has to have a ‘line of sight’ and not have trees or buildings in the way. And no company is going to run fiber optics in rural areas for 5G. Worse, 5G is not profitable once the companies have to pay for construction expenses or other costs that are now being diverted to fund wireless.

7) How Manipulated Is the Accounting? Billions Per Year in New York. The FCC has never examined the Verizon New York state-based annual reports, even though their accounting rules are directly applied to the state utility’s expenses. The FCC never examined the fact that local phone customers have paid 65%-75% of the construction budgets and that these actions caused artificial losses attributed to Local Service and used to create harmful public policies, as well as tax benefits. At the same time, it gave obscene profits to the “interstate” lines of business, like wireless, while causing more losses.

§ FACT SHEET Local Service 3: Verizon NY Local Service Overcharging Estimated at $3,100.00, 2006–2018, Caused by the FCC Accounting Rules.

§ FULL REPORT “New York 2017 Annual Report: An Analysis of Cross-Subsidies and Customer Overcharging”

§ FACT SHEET Construction Expenditures 4: Local Phone Customers are Paying Billions Per State in Cross Subsidies of Network Infrastructure.

§ FULL REPORT: Wireless-Cross Subsidies “Verizon’s Wireline Networks Diverted Capex for Wireless Instead of Wiring Municipalities, and Charged Local Phone Customers.”

8) Source Material: Verizon NY Annual Reports with Walk-Through

§ Documentation: We prepared a by-the-numbers walk-through of our primary source, the Verizon NY 2017 Annual Report, published June, 2018, as well as previous Verizon reports.

The FCC stopped publishing the state-based financial report data in 2007 and most states do not publish (or even collect) financial information, except NY State. More importantly, the FCC has never examined how their own accounting rules have become deformed. In fact, the FCC will claim that they erased the rules, even though we found and can prove they are still in use — and overcharging America in multiple ways. We dubbed these “Zombie Rules”, because, like the walking dead, they still do harm.

9) Creation of the Digital Divide and Homework Gap

  • FULL REPORT “Did AT&T, Verizon, CenturyLink & the FCC Intentionally Create the Digital Divide?” Verizon, AT&T and CenturyLink control the majority of America’s state telecom wired utilities, and with the help of the FCC, we now believe that they were intentionally made to appear artificially unprofitable since 2000.

Make Rural Areas Unprofitable; Give the Money to Wireless.

  • This has allowed the companies to claim that the rural areas were unprofitable, and also to receive billions per state in state and federal grants, high cost funds, universal service support and host of other perks.
  • The companies took the construction budgets that should have upgraded the rural areas and diverted them to fund wireless and other services.

Raise Rates; Harm Competition

  • At the same time, these ‘unprofits’ were used to raise rates, get changes to state and federal regulations, but also were responsible for a lack of direct competition adding to excess charges for all services. And because the companies used the utilities for their wireless roll outs, they could inflate rates to all competitors and customers, and directly harm customers.

Billions in Artificial Tax Losses

  • Moreover, it also meant that the state utilities were showing billions in losses, resulting in major tax benefits to the companies and harming the state tax base.

Cable Company Abuse Caused by AT&T and Verizon Not Showing Up.

  • The cable companies have gotten a free pass about the rate increases because AT&T and Verizon decided not to show up and compete. AT&T controls 21 states and yet it only has 3 million fiber optic residential and business customers out of 76 million locations passed (and almost all of them have (had) a utility phone line). Verizon has a deal Comcast and Charter to bundle and/or have them resell the Verizon wireless services.

10) All of this Shell Game is Geared Towards Public Policy Manipulation. The plan has been to not only make the networks appear unprofitable but to dismantle the state utilities and turn over the publicly funded wires to the wireless company as private property for private use. This includes:

Control Public Policies and Let the Networks Deteriorate

  • The companies can claim that renting to competitors is unprofitable, that having to supply “carrier of last resort” services or even fix broken lines is unprofitable, and that keeping the unions to work on these lines is unprofitable.

Shut Off the Copper; 5G Wireless and Net Neutrality

  • Using manipulated accounting, the companies now claim that they should ‘shut off the copper’ wires and replace it with 5G Wireless.
  • They also claim that Net Neutrality harmed investment.
  • The investments were never done on the federal level but are based on local phone customers being overcharged to fund parts of the 5G deployment, while the claims of Net Neutrality harming investment is just the opposite; the investments were made using Title II. This classification allowed the other lines of business to use the state utility construction budgets and charge to local phone customers.

11) Every FCC Proceeding Is Now in Question; Every State Decision that Relied on Financials Using the FCC’s Accounting Is Now Up for Grabs. All of the previous information pales in comparison to just how corrupt the FCC’s accounting rules really are. The FCC ‘froze’ the rules to match the year 2000 — literally. They were supposed to divvy up the expenses based on the different lines of business and be in the public interest, protecting America from cross-subsidies. Instead, the rules were deformed so that Local Service and the basic utility networks pay the majority of all expenses, while the other services using the networks, such as wireless or broadband, pay a fraction.

For 19 years, the FCC has never, ever examined the impact the rules had on the ‘intrastate’ (state-based) financials and yet, in December 2018, the FCC decided to continue the ‘freeze’ for 6 more years — i.e., 6 more years of overcharging with no oversight, audits, or investigations.

12) Corporate Operations Expenses Charged to Local Service: The Ultimate Insult.

  • In 2017, Verizon New York Local Service category was charged $1.8 billion dollars, 61% of the total charged to Verizon NY. Local Service had revenues of $1.1 billion; the 61% is based on applying the FCC’s cost accounting rules — the rules frozen to the year 2000. 19 years ago, Local Service was 65% of the revenues and the expenses matched. By 2017, revenues has declined, but the percentage Local Service paid is still 60+%.
  • Corporate Operations can include executive pay, lobbyists, lawyers, the corporate jet and even golf tournaments; which may not even be in the state or related to Local Service.
  • Local Service should have been charged maybe $100 million, bringing the overcharging to $1.6 billion, in just NY, in just 2017.
  • This is happening in every state as the FCC’s rules are federal.
  • FULL ARTICLE: “Cooked Books: Verizon NY’s Local Service Was Charged $1.8 Billion for Corporate Operations Expenses in Just 2017. Why?”

13) IRREGULATORS v FCC: It Starts with Exposing the Financial Shell Game.

  • Because these rules are ‘federal’, they have impacted every state.
  • Fixing these cross-subsidies will lower rates and bring billions back to the states for fiber optic upgrades, and finally fix the Digital Divide and the Homework Gap.

Who We Are: Over 5 year ago the IRREGULATORS formed as an independent consortium of senior telecom experts, analysts, forensic auditors, and lawyers who are former staffers from the FCC, state consumer advocate and Attorneys General Office, as well as telecom auditors and consultants. In fact, members of the IRREGULATORS have been working together, in different configurations, since 1999.

bruce kushnick

Written by

New Networks Institute,Executive Director, & Founding Member, IRREGULATORS; Telecom analyst for 37 years, and I have been playing the piano for 62 years.

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