New York City Internet Master Plan Is Missing Key Components: IRREGULATORS v FCC

bruce kushnick
Jan 16 · 10 min read

On January 7th, 2020, NYC Mayor De Blasio’s Administration Released Internet Master Plan for the City’s Broadband Future.

On January 17th, 2020, the IRREGULATORS v FCC Oral Arguments will be heard in the DC Circuit Court of Appeals, detailing one of the largest accounting scandals in American history. It is based on the annual financial reports of Verizon NY, the state-based telecommunications utility.

Mayor Bill de Blasio stated: “Every New Yorker deserves access to affordable, high-speed internet. However, the private market solution to broadband service continues to leave out too many New Yorkers. With the Internet Master Plan, we are giving notice to corporations that the days of creating a digital divide in our city are over.”

The press release includes experts, pundits, politicians and those who are part of the NYC government. While they are passionate about solving the Digital Divide, most appear to not know that there is still a state-based telecommunications public utility, Verizon NY, that it covers both NY State, (as well as NYC), and virtually no one knows that the public utility is required to publish an annual financial report, which is never mentioned in this Internet Master Plan.

Worse, it appears that many do not know that they have bought into a revisionist history of broadband and the plan appears to know nothing about the how we ended up in this mess.

The Master Plan details specific holes in New York City’s broadband:

  • “Current broadband subscription costs can be a burden on the budgets of low-income families. For example, 46% of New York City households living in poverty do not have broadband in the home.”
  • “18 percent of residents — more than 1.5 million New Yorkers — have neither a mobile/wireless connection nor a wireline home broadband connection.”

However, the plan never discusses more basic issues that impact all of us:

  • The wireless plans in America, (and in NYC) are labeled, “unlimited”, yet most plans come with only 20–50GB. Unfortunately, the US plans are 6–10 times more expensive than overseas. Almost ½ of the Europe has true unlimited — over 1000GB, at half the price.
  • The price of America’s ‘triple play’ is now averaging over $200.00 and it costs 2–5 times more than overseas, where the average is about $45.00; there are packages at ½ the cost.
  • FACT SHEET: Verizon NY Local Service has been overcharged an estimated $3,100.00 per line from 2006–2018, which has been caused by the FCC accounting rules that are used by the NY Public Service Commission. Customers have been illegally funding wireless and paying extra for the corporate jets and lobbyists via this overcharging.

The City’s plan will take 25 years to implement and will cost $2.1 billion in new infrastructure. That extended timeline would only make the Digital Divide worse over time, since it is an average of only $85 million per year for new infrastructure buildout and the upgrade of old infrastructure.

WHY IT MATTERS TO AMERICA

IRREGULATORS v FCC Followed the Money. What we found, based on Verizon NY Annual Reports, was billions of dollars in cross-subsidies and financial hanky-panky that if halted and redirected, could be used by the City and State to fund fiber to the home. Moreover, it could dramatically lower prices and bring in direct competition over the next 5 years.

Instead, there is a bait-and-switch of massive proportions underway. Verizon is claiming that 5G, an expensive and overhyped wireless service, could replace any wired service, even though it appears to be subsidized by the wireline utility budgets, and the deployment is more of a PR stunt that building infrastructure and offering service.

NATIONWIDE PROBLEM: What you are about to read is not just happening in New York City or NY State but across America — in every state and confronting almost every city.

It took the IRREGULATORS, a group of senior telecom experts, auditors and lawyers, almost a decade to unravel this financial corrupt accounting plan. We will attempt to lay out a very short, basic understanding of just how this financial shell game is both state and federal, how the FCC’s cost accounting rules and formulas have become corrupted but are being applied to the state utility revenues expenses, and that this has gone unnoticed for a decade but is happening in plain sight.

We challenge the City and all those mentioned in this release to challenge our data, which is actually based on the financial reports and filings of Verizon — and/or join us. We note that the FCC’s oversight is federal and that what you are about to read impacts every FCC and state financial report, as well as the regulations, laws and public policies that are based on this corrupted accounting.

IRREGULATORS v FCC

Links: Verizon NY 2017 Annual Report with a ‘by the numbers’ walkthrough.

Before we expose the flows of money, we need some facts stated:

1) Verizon NY, with revenues of $5 billion dollars, is the primary NY State public telecommunications utility that covers the majority of NY State as well as most of the wires in New York City.

2) Verizon’s subsidiaries, like Verizon Wireless, Verizon Online, Verizon Business,

and others, are estimated to have $7–10 billion more in revenues, but they also rely on the state utility wired infrastructure.

3) Verizon New York publishes annual financial reports and NY is the only state we know of that requires and makes public the telecommunications state utility revenues and expenses.

4) The FCC stopped publishing the financials of the state-based utilities in 2007 — we believe to remove the audit trail.

FiOS Fiber Optic Wires are Part of the State Telecommunications Utility and Title II.

5) The state utility is based on the original copper wires as well as fiber optic wires.

6) The fiber optic wires used for FiOS are “Title II”, common carrier and part of the state utility. Starting in 2005, Verizon, in all of its states, including New York, decided to classify the fiber optics wires as Title II, common carrier wires when installed. This excerpt is almost identical in every Verizon territory.

7) Verizon misrepresented this entire Title II usage to the FCC and the public in the Net Neutrality case. Verizon’s Open Internet Comments, July 15, 2014, claimed that “Imposing a Title II common carriage regime on broadband providers …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. All of the hallmarks of Title II…”

8) Verizon uses Title II as the investment mechanism to build FiOS and received multiple rate increases of basic phone service to fund this “massive deployment of fiber optics”, starting in 2005 — i.e., low income families and rural customers were all charged extra for fiber optic networks. Verizon NY had 3 rate increases, adding 84% to basic service and 50–250% for add-on services. This is the NYPSC statement about one rate increase, June 2009.

9) Verizon also put Verizon Wireless construction into the state utility as Title II. By 2010, Verizon stopped installing FIOS in most of its territories, and diverted billions in construction to wireless, leaving most upstate areas without being upgraded. According to the NY Attorney General, about 75% of Verizon NY’s one billion dollar wireline utility budget had been diverted to fund the construction of fiber optic lines mostly for Verizon Wireless’ cell site facilities.

10) In New York City, Verizon has a contract with the City to offer FiOS, and it was supposed to be installed to 100% of residential locations in the City by mid-2014. Ars Technica wrote “The City sued Verizon in 2017, saying the company hadn’t met that obligation. The case is still pending in a state court, but Verizon and New York are in negotiations for a settlement.”

11) IMPORTANT: This agreement never covered business locations, leaving many buildings without an upgrade.

12) IMPORTANT: We expect this settlement to be a bait-and-switch to have a wireless replacement of a fiber optic wire. This needs to be stopped.

WHY DID WE TAKE THE FCC TO COURT? FOLLOW THE MONEY

13) Verizon NY’s annual revenues and expenses are published and public. They are divided into 3 primary categories: “Local Service”, which are the basic phone lines, with revenues of about $1 billion, “Access Services”, (which include the wires to the cell sites and the ‘Business Data Services’ (also called “Backhaul” or “Special Access”)) with revenues of about $2.5 billion, and “Nonregulated”, about $1.5 billion, which includes FiOS video and VoIP phone service.

14) The Verizon NY utility revenues include the Verizon NYC revenues, but not the ‘affiliate’ companies, that are also in New York State, such as Verizon Online or Verizon Wireless, even though they use most of the same networks and rights of way.

FCC Rules are Corrupted and Make the Utility Infrastructure Appear Unprofitable.

15) The FCC cost accounting rules are an overlay to the state financials and are based on formulas that are supposed to divide up the expenses incurred by the different lines of business that use the state utility networks — and they are corrupted.

16) Structural Flaw in Every FCC Financial Report: No mention of the state-based utilities. Imagine a pie chart where the majority of the construction budgets for broadband paid by the state-based utility customers are missing. Every FCC report has ignored every state-based broadband commitment, funding, or that customers pay for construction.

17) Verizon, AT&T et al., were able to capture the FCC. Th FCC’s rules and formulas have been ‘frozen’ to match the year 2000, literally, and this has gone on for 20 years. This has made the entire US wired infrastructure appear unprofitable because they are putting the majority of ALL expenses into the state utility budgets. Moreover, this allowed these other lines of business to have excessive profit margins as well as created massive financial losses.

18) Verizon Wireless’ buildout of fiber optic wires to the cell sites and towers, have been subsidized using the state utility construction budgets charged to Local Service and the state utility. From 2010–2012, in just NY State, we believe Verizon put $2.8 billion into the state utility capex while not building out most of upstate NY cities. It also left gaping holes in all cities, including NYC. Worse, the wireless subsidiary is paying a fraction of market prices for the use of the networks.

19) 75%-25% Rule: The FCC’s formulas make Local Service (“intra-state”) pay 75% of the fiber optic construction budgets, even though this mostly copper part of network infrastructure has been left to deteriorate. This means that the basic state-based utility has funded these other services, as seen by the ‘network-in-use’ statistics for the last 15 years.

20) Excessive Corporate Operations Expenses: Local Service, with revenues of $1 billion in just NY, in just 2017, paid $1.8 billion–61% of these expenses charged to Verizon NY because this formula was the set in the year 2000 and never changed. (This includes executive pay, lobbyists and the corporate jets.) This is an overcharge of $1.5 billion in just New York, in just 2017.

21) Dismantling of the State Utilities: At this time, Verizon et al., with the help of the FCC, are dismantling the state utilities and moving the publicly funded wireline networks into different financial categories to hand over the networks to the wireless company as private property for private use. This must be stopped as it ignores customer-overcharging to fund these networks, and it is removing critical infrastructure from the cities and states.

No Institutional Memory: The Same Mistakes Over and Over

22) NY Fiber Optic Plans Started in 1991: It’s All Interconnected was published by Public Utility Law Project, May 2014, and it documented a history of NY State fiber optic plans, starting in 1991, that never showed up.

23) No Cable Competition: It also detailed how the cable companies got the FCC to create the “Social Contract”, which gave billions in rate increases starting in 1995. Moreover, because Verizon never deployed fiber optics, the cable companies have had continuous rate increases and can add made-up taxes, fees and surcharges.

24) Killed Off the ISPs: The Telecom Act of 1996 opened all of the networks to direct competition and created over 9,000 small independent ISPs (over 325 in just NY City) by 2001. NY City was an epicenter of the Internet with “Silicon Alley”. Starting in 2001, Verizon et al. got the FCC to kill off competitors. By 2006, 7,000 small ISPs were put out of business.

25) Net Neutrality issues started because the FCC killed off competitors. This was done by combining the broadband network and the ISP service to be classified as “Title I”, an information service. Problem is — Verizon gamed the regulators and still uses Title II.

26) Investigation and Settlement: This report was one of driving forces in an investigation of Verizon NY and settlement in July 2018. Unfortunately, it did not stop the cross-subsidies of the wireline utility and the wireless services.

We took the FCC to court to expose how the FCC accounting rules are corrupted and are in use, causing billions per state in cross-subsidies and losses that can be seen clearly from the actual Verizon NY annual reports.

The NYC Master Plan has failed to address almost every item listed above and the outcome is already predicted: The failure to examine the financial reports and the implications of the corporate corruption of the FCC accounting rules will not fix anything.

Moreover, the 5G deployments are nothing more than a bait-and-switch; the wireless networks are being cross-subsidized and they are not profitable once they have to pay for the fiber optic wires and its use to deliver voice, video and data services.

The IRREGULATORS is an independent, consortium of senior telecom experts, analysts, forensic auditors, and lawyers who are former senior staffers from the FCC, state advocate and Attorneys General Office experts and lawyers, as well as former telco consultants.

A Full Library of Reports, Filings, and Documentation

YOU DECIDE: Listen to the Oral Argument by our counsel for the IRREGULATORS as well as the FCC’s counsel, then you decide.