IRREGULATORS Treasure Map, Part 1

Hiding a $5 Billion State Telecommunications Utility that No One Even Knows Exists.

Adapted from an article by Bruce Kushnick, Feb 6, 2018 | Original Medium article here.

PART 1: Verizon NY, The Art of Hiding a $5 Billion Public State Telecommunications Utility ('PSTU') Company That Many Have Forgotten Even Exists

Everyone keeps asking the same basic questions:

Why do my communications bills keep going up?
Why isn’t the internet and broadband service considered a utility — one that is required to serve everyone equally at reasonable prices?
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 legacy copper telephone and internet lines and block competition?
How can anyone believe that 5G, a wireless service that requires a fiber optic wire ever 1–2 city blocks and has a wireless range about the same can serve all of America? Answer: it cannot. This whole so-called Race to 5G is merely a real estate grab for extreme density 4G Wireless infrastructure installed in neighborhoods, in order for Verizon/AT&T et al. to market a fixed wireless video subscription, designed to compete against Comcast, Charter/Spectrum and other Cable TV companies.
How do we recover $500+ billion of misappropriated funds to complete the promised fiber optic to the premises (FTTP) broadband service in America, close the Digital Divide, lower prices and finally bring real competition to the telecommunications and information services markets?
How do we get the municipalities, especially in rural areas and low income areas, the same high-speed fiber optic services — that we all already paid for?
How do we explain that Verizon’s Wireless services depends on PSTU-owned-and-maintained wires (copper and fiber), as do Verizon’s Internet and Cable TV services? In addition, these unregulated, private, wireless subsidiaries are not paying market rates to use these wires.
Most importantly, why do we allow the companies that control the wires to also control . . .
- the pricing of almost all services
- who gets upgraded from copper to fiber and who doesn’t?

For some answers . . . Download the Treasure Map:
Verizon-New York's 2017 Annual Report, published in June 2018

Allow me to walk you through the financials presented in the Verizon NY-2017 Annual Report. This report tells a story that is virtually mirrored in every other state, but the story has been systematically and cleverly hidden from view — by design.

NOTE: The following is an excerpt from a much larger report and consulting package, offered by the IRREGULATORS here. Other summaries from this IRREGULATORS report include:

PART 2. IRREGULATORS Treasure Map: Recover Billions to expand fiber optic broadband in your state and get refunds for consumers' telecommunications bills.
PART 3. PROOF: Verizon, AT&T and the FCC have manipulated Access Line Accounting in many states across America
PART 4. 5G Wireless is Not Profitable when it finally starts paying the PSTU for using its utility wires (copper and fiber optic).

Answers: The Dirty Dozen

How do you hide a $5 billion Public State Telecommunications Utility ('PSTU') company? Somehow, Verizon-New York ('Verizon-NY'), the primary PSTU for New York State, has been hidden — covered up, on purpose. Even the phone bills providing basic service never mention this fact.
There are existing PSTU companies in every state, and they, too, have been hidden.
Few appear to know that virtually all copper and fiber optic wires in NY state, used by Verizon, are owned and maintained by, Verizon-NY, the PSTU.
Few know that this is NOT just the aging, legacy copper wires, commonly known as Public Switched Telephone Networks ('PSTN') and sometimes called “landlines”.
Few know that DSL or the “Business Data Services” are also part of the PSTU; DSL lines are using the exact same aging, mostly copper wires.
Few know that the PSTU infrastructure includes the fiber optic wires for FiOS as well as the Verizon Wireless networks.
Few know that fiber-to-the-home ('FTTH') service branded as Verizon FiOS was installed as a “Title II” service and, therefore is the property of the PSTU. This allowed Verizon to access the rights-of-way and to charge local phone customers for the construction and other perks.
Few know that Verizon, by 2010, decided that it could also claim that the wires to the wireless cell sites should be Title II and it appears to be using the FiOS agreements to transfer billions of dollars in construction expenses to local phone customers and to the PSTU.
Few 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.
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 even ask where did all the money go that their townsfolk paid — year, after year.
An estimated $7-$10 Billion more, in just New York, is hidden. Few know that there is an additional $7-$10 billion dollars in revenues from subsidiaries of Verizon in New York, which almost no one has tracked. Verizon Wireless, Verizon Online, Verizon Business, Verizon Enterprise Solutions, and other Verizon subsidiaries that use this state-based utility infrastructure in New York State, probably brings in an additional $7-$10 billion.
This means that Verizon, in New York, probably had revenues of $12-15 billion in just 2017.

A Few More Answers

Few know that the FCC’s cost accounting rules have run amok. As we discuss elsewhere, the FCC’s accounting rules (recently extended through 2025) were established to allocate expenses of the different private Telecom subsidiary companies using an allocation percentage (a breakdown between regulated vs. unregulated subsidiaries) — based on a formula from the year 2000. In 2001, the FCC ‘froze’ these rules to reflect the year 2000, when Local Service represented 65% of the revenues and it paid 65% of the expenses. It has remained frozen since then and will be frozen for another six years.

Over the last 19 years the FCC never examined that the rules have become distorted and have been transferring the majority of all expenses into Local Service, even though it is only 21.6% of revenues in New York in 2017.

Few know that these rules are still in place, as shown in the Verizon NY Annual Report, even though they have allegedly been erased (“forborne”).

We call this bad situation “Zombie Rules”: like the Walking Dead, they still are working to harm the public.

Few know that the FCC decided to extend this freeze in December 2018 for an additional six years.

Few know that while the total revenues in New York are being accrued, the revenues are not being used to upgrade and maintain the state utility wires; instead, the construction 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 find that the construction expenses were not connected to Local Service and that the losses are artificial.

Structural Flaws in FCC Analyses

The FCC has never examined the state-based construction expenses, yet the FCC has made pronouncements about the levels of Telecom “investments” as evidence in the FCC Repeal Net Neutrality Order, which went to trial on Feb 1, 2019 in the Federal DC Circuit Appellate court. This faulty analysis is present in nearly all of the 30+ interconnected FCC actions from 2017-2018 — which invalidates the whole lot of them.

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 PSTU. Moreover, the FCC would have found that its own accounting rules have been diverting billions of expenses into Local Service that were paid by local phone customers in the form of rate increases and other phone bill fees.

All of this adds up to ignorance, which has impacted public policy decisions, and enabled the Telecoms to amass as much profit, as possible.

The Public State Telecom Utilities have been Abused and Harmed Customers and the State. Few know 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 PSTU's wireline division, the copper-wired part of the state utility — and then improperly charged the expenses to local phone customers. In addition, these cross-subsidies make the PSTUs appear unprofitable — artificially so.
In fact, the FCC’s cost accounting rules have allowed billions of expenses, per state, to be improperly transferred to Local Service, making it unprofitable to influence public policies, among other harms which include:
- Rate increases, based on the false losses created by these illegal 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's Order to allow the ‘shutting off the copper’, claiming the PSTUs were unprofitable, when they were not.

Answers: The Four Final

1. This is not about ‘voice calling’ and it is not about “VoIP” . . .

This is about the infrastructure, which are the physical copper and fiber optic wires and the boxes attached to these wires.

With revenue of almost $5 billion in just Verizon-NY, other Verizon subsidiaries are using the wires — both copper and fiber — and not paying their fair share of the costs. 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 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 high-speed 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-NY 2017 Annual Report shows is that ALL of these services are not paying the common costs. The expenses, starting in 2000, were diverted into the Local Service, i.e. legacy, copper-based telephone and Internet lines.

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.

Few know that AT&T et al., and the FCC have manipulated the accounting of the copper 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, as shown in the Verizon NY financial reports.

4. This FCC is not only captured by Verizon, AT&T, and Centurylink, but is laying the foundation for an ugly future.

For each of the three non-competing, wired broadband Telecom companies, the primary infrastructure of these companies are being dismantled to stop the retail sale of wired networks so that that this public asset is being handed over to the wireless company as private property — with no obligations or reimbursement to the public.

Conclusion: End this Fraud

Follow the Money: None of this financial hanky-panky should be allowed to continue. There are billions of dollars in New York alone that should never have been allowed to be diverted from SPTUs companies to private Wireless companies.
Let’s get the money back: Let’s bring fiber optic broadband to everyone, close the Digital Divide, lower prices across-the-board on all services, and get refunds for charging landline consumers for wireless deployments
- There are Billions in Taxes that were dodged.
- What Happened in Your State? This financial shell game is based on a manipulation of FCC accounting rules. The last similar financial report published in your state is the evidence your city can use to demand refunds.