IRREGULATOR TREASURE MAP; PART 1: Hiding a $5 Billion State Telecommunications Utility that No One Even Knows Exists.

PART 1) Verizon NY: The Art of Hiding a $5 Billion State Telecommunications Utility that No One Even Knows Exists.

Everyone keeps asking the same basic questions:

  • Why do my communications bills keep going up?
  • Why isn’t the internet and broadband a utility?
  • How do we stop the FCC’s current attack on the public interest with over 30 different interlocking actions and proceedings, each designed to erase Net Neutrality, shut off the copper networks and block competition.
  • How can anyone believe that 5G, a wireless service that requires a fiber optic wire and has a range of 1–2 city blocks is going to service America?
  • How do we get billions for fiber optic broadband in America, close the Digital Divide, lower prices and finally bring in real competition?
  • How do we get the municipalities, especially rural areas and low income areas, the same high-speed fiber optic services — that we all paid for? (I’ll come back to this point.)
  • How do we explain that Verizon’s wireless services use these utility wires (in region) or that Verizon’s internet, broadband and even Cable TV also use these wires?
  • Most importantly, how do we explain that the companies that control the wires control the pricing of almost all services, as well as who gets upgraded and who doesn’t?

First, Download the Treasure Map: Verizon NY 2017 Annual Report, published June 2018

Verizon New York 2017 Annual Report

We are going to walk you through the actual financial numbers presented in the Verizon NY 2017 Annual Report. But is it also almost identical to every other state utility, but this has all been hidden from view.

NOTE: This excerpt is a summary and part of a larger report and consulting package by the IRREGULATORS.

This is Part 1. We also Present

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Before we start, here’s the problem. You probably don’t know that

1) How do you hide a $5 billion state telecommunications utility? Somehow, Verizon New York, the primary telecommunications state-based utility for New York State has been hidden, covered over on purpose. Even the phone bills providing basic service never come out and mention this fact.

2) Moreover, there are still state telecommunications utilities in every state, and they, too, have been hidden.

3) No one appears to know that almost all the wires in the state, used by Verizon ended up, somehow, as part of the incumbent state utility, Verizon NY.

4) No one knows that this is NOT simply the aging copper wires, commonly known as the “PSTN”, “Public Switched Telephone Networks”, sometimes called “landlines”.

5) Virtually no one knows that DSL or the “Business Data Services” are also part of the utility and they are using the exact same aging, mostly copper wires.

6) No one knows that this New York utility infrastructure includes the fiber optic wires for FiOS as well as the Verizon Wireless networks.

7) In fact, no one knows that the fiber-to-the-home of FiOS was put in as a “Title II” service and part of the state utility so that it can use the rights-of-way and can charge local phone customers for the construction and other perks.

8) And no one knows that Verizon, by 2010, decided that it could also claim that the wires to the cell sites should be Title II and it appears to be using the FiOS agreements to have billions in construction be charged to the local phone customers and the state utility.

9) Moreover, what is surprising is that none of the cities appear to have a clue that in every state there was already a plan to bring fiber optics to most cities throughout the state.

10) More surprising is that the cities never asked for audits of all of the wires under their feet and on the poles that are part of a state-based utility or ask where did all the money go that their townsfolk paid for year after year.

11) Estimated $7-$10 Billion More, in Just New York, is Hidden. No one knows that there is an additional $7–10 billion dollars in revenues from these subsidiaries of Verizon in New York, which no one knows about or has tracked. Verizon Wireless, Verizon Online, Verizon Business, Verizon Enterprise Solutions, and other Verizon subsidiaries that all use this state-based utility infrastructure in New York State, probably brings in an additional $7-$10 billion.

12) This means that Verizon, in New York, probably had revenues of $12–15 billion in just 2017.

And let us be very, very clear:

  • No one knows that the FCC’s cost accounting rules have run amok. As we discuss elsewhere, the FCC cost accounting rules were established to allocate the expenses to the different lines of business using the utility infrastructure and in 2001 they ‘froze’ these rules to reflect the year 2000, when Local Service represented 65% of the revenues and it paid 65% of the expenses. However, over the last 19 years the FCC never examined that the rules distorted and have been putting the majority of all expenses into Local Service, even though it is only 21.6% of revenues in New York.
  • No one knows that these rules are still in place, as shown in the Verizon NY Annual Report, even though they are supposedly been erased (“forborne”).
  • We call this “Zombie Rules”, for like the Walking Dead, they still are working to harm the public.
  • And no one knows that the FCC decided to extend this freeze in December 2018 for an additional 6 years.
  • But no one knows that while the total revenues in New York are being accrued but are not used to upgrade and maintain the state utility wires; instead, the expenses are now mostly paid by local phone customers — due to these rules.
  • No regulator, not the state commissions, not the FCC, ever examined all of the revenues in the State and where the expenses went, as far as we can ascertain. It is hard realize that the state commissions never actually audited the flows of money when they were increasing rates.
  • If the regulators actually examined the expenses, they would all find that the expenses were not caused by Local Service and that the losses are artificial.
  • It is also mind-boggling that the FCC has never examined the state-based construction expenses yet has made pronouncements about the “investments”. In the Net Neutrality decision, the FCC claims that investments declined under Net Neutrality and “Title II”.
  • If the FCC had examined all of the investments made, it would have found that the majority was done, at least for Verizon, as Title II and part of the state utility. Moreover, the FCC would have found that its own accounting rules have been diverting billions of expenses into Local Service, and was paid by local phone customers — as rate increases.

Conclusion

All of this adds up to total ignorance, which was done over time to impact public policy decisions, and get as much money as possible.

  • The State Utilities have been Abused and Harmed Customers and the State. No one knows that these other lines of business have been “cross-subsidized”, getting a free ride; the revenues go into separate financial buckets and subsidiaries, but the expenses end up being paid mostly by the wireline part of the utility, the copper-wired part of this state utility — and improperly charged to local phone customers. And all of these cross-subsidies make the networks appear unprofitable.
  • In fact, the FCC’s cost accounting rules have allowed billions of expenses, per state, to be put into Local Service, making it unprofitable to influence public policies, among other harms which include:

§ Rate increases were created based on claiming losses created by these cross-subsidies.

§ Unserved areas were created claiming that the networks were unprofitable.

§ The losses were used to avoid billions in taxes per state.

§ The FCC has been ‘shutting off the copper’, claiming it is unprofitable.

Four Other Things:

1) This is not about ‘voice calling’ and it is not about “VoIP”; this is about the infrastructure, which are physical wires and boxes attached to the wires.

With revenue of almost $5 billion in just Verizon NY, someone is using the wires — and they are copper and fiber and they use different technologies, and this is now new.

The Verizon New Jersey 2001 Infrastructure Report (the state telecommunications utility) discussed the capabilities of the network for ALL services using the same infrastructure — in the year 2001. Customers were charged for these other broadband, data, internet, video and even the phone network upgrades.

“By integrating a number of services on a single network, Verizon NJ will optimize our service delivery capabilities. The evolution to the full service ATM switched broadband network will significantly increase the efficiency of serving New Jersey…Verizon NJ’s integrated network of switches,
 transmission facilities and operating systems provides New Jersey’s residential and business communities with an advanced telecommunications infrastructure that is ready, willing and able to act as the onramp to the Information Super Highway. Our network investments are being driven by the exploding demand for a broadening array of services. These services range from additional lines, Internet access, and highspeed transport to applications requiring packet-switched networks, combinations of switched and private networks, and customized network designs….Verizon NJ’s sophisticated and intelligent communications network provides a world-class vehicle for accessing voice, data, imaging and video…”

What the Verizon New York 2017 Annual Report shows is that ALL of these services using the networks are not paying the common costs; the expenses, starting in 2000, were diverted into the Local Service, copper-based phone networks.

2) The FCC Cost Accounting Rules are Zombie Rules.

The FCC claims that their accounting rules which created this financial mess — and which you will be able to examine in the Verizon NY 2017 Annual Report — no longer matter. Like the Walking Dead, these rules are in place and are in use, and no one is examining the harms. In the Verizon NY settlement, these accounting rules were front and center… Rate increases were based on losses created by these rules, and the tax dodging is based on these rules.

3) The accounting of the actual lines in service has been manipulated.

Nobody knows that AT&T et al., and the FCC have manipulated the accounting lines so that it only shows the copper-wire voice lines and leaves out approximately 80% of the lines in service based on the revenues, using Verizon NY financial reports as the model.

4) This FCC is not only captured by Verizon, AT&T, and Centurylink, the three-non-competing companies for wired broadband services (even though every merger required competition out-of-region), but it has been supplying a totally distorted, biased and ugly future where the primary infrastructure of the utilities are being dismantled to stop the retail sale of wired networks so that that the networks are handed over to the wireless company as private property with no obligations.

Conclusion

  • Follow the Money: None of this financial hanky-panky should be allowed to continue. There are billions of dollars in just New York that should never have been allowed to be diverted to fund these other lines of business.
  • Let’s get the money back: Let’s bring fiber optic broadband to everyone, closing the Digital Divide, as well as lower prices across-the-board on all services, and refunds for having charged everyone for network deployments of wireless — or using the money to buy OAF or Time Warner or…
  • There are Billions in Taxes that were Dodged.
  • What Happened in Your State? This Happened in Your State. This financial shell game is based on a manipulation of FCC accounting rules, which are federal and the last financial report published showed that this is happening in your state.

You Want Proof?