IRREGULATORS vs. FCC: Exposing One of the Largest Accounting Scandals in American History

Adappted from an article by Bruce Kushnick, Apr 8, 2019 | Original Medium article here.

The IRREGULATORS are appealing a recent FCC decision that tries to fix one of the largest accounting scandals in American history. It is directly tied to AT&T, Verizon and CenturyLink’s State Public Telecom Utliity companies.

Click to Read the Details and learn how to help out.

Nineteen years ago, the FCC, (with the help of AT&T, Verizon and Centurylink) ‘froze’ the cost accounting rules that are used to divide up the expenses of the different subsidiary companies owned by the Telecom Holding Cos. — subsidiaries that share the use of the State Public Telecom Utillity Co. (SPTU) Wireline telecommunications infrastructure (the copper and Fiber Optic wirelines in each state).

In December 2018, the FCC extended this freeze for six more years, through 2025. Unbelievably, for almost two decades the FCC never audited the books. But what is most surprising is — this has been completely under the radar of mainstream media and under the noses of our elected representatives in Washington, DC.

AT&T, Verizon et al. figured out that they could use these FCC accounting rules, (which few know even exist), to force the SPTUs in each state to pay the majority of many expenses for the private Wireless subsidiaries. This trick allowed the Telecom Holding Cos. to artificially make the entire Wireline telecommunications networks in America appear to be unprofitable. These rules also enabled the other Holding Co. subsidiaries that share the use of these Wireline networks to get a free ride.

Most people don’t know that there are still SPTUs, like Verizon-NY, Verizon-MA or AT&T-CA. In addition, few know that these SPTUs are more than just the copper wires: in fact, the SPTUs in each state own and maintain nearly all of the wires within each state — copper and fiber optic. This scheme diverted billions of dollars of construction budgets in each state to pay for

  • FiOS internet and video, Verizon’s fiber-to-the-home service (FTTH)
  • U-Verse internet and video, AT&T’s fiber-and-then-copper-to-the-home DSL service,
  • Private Wireless subsidiaries (Verizon Wireless, AT&T Mobility and others) use of the Wireline infrastructure — the special access copper and fiber, also known or business data services — for data “back haul”.

Unbelievably, Verizon was also able to convince various State Public Utility Commissions to not only grant rate increases of Title-II regulated landline phone bills to fund the construction of the shared fiber optic networks, but to also allow Verizon to claim that the shared fiber optic networks were “Title II”, common carrier lines, and, therefore part of the existing SPTU!

The following quote is from a Verizon franchise for FiOS; this language is nearly identical in every state.

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This is the same “Title II” that is part of the Net Neutrality battle, but this has fact been ignored by the Trump FCC analyses in their various proceedings throughout 2017-2018. That is one major reason the FCC has been losing many law suits challenging the FCC’s 2017-2018 Reports and Orders that were voted through by the Trump FCC Majority voting block: Ajit Pai, Brendan Carr and Michael O’Rielly.

Verizon, elsewhere, has claimed that Title II harmed investment in broadband networks, but here it shows that Title II was used to charge local customers for broadband upgrades using the SPTU construction budgets.

This FCC Accounting Freeze Created Vast Consumer Harm

  • It created the Digital Divide. In almost every state, Verizon et al. had agreements, which started in the 1990’s, to upgrade their entire state territory from copper to fiber optic — rural, urban and suburban areas were all to be upgraded equally. In fact, in most states, the state laws were changed to charge local phone customers rate increases for this work. Instead, the companies left many of the rural, inner-city and low-income areas to deteriorate — claiming they were ‘unprofitable’, but this was only part of this financial shell game.

  • Customers were overcharged Billions of dollars for Wireless. With this cross-subsidy scheme, local phone customers in most states were illegally charged billions to pay for the build outs of fiber optic networks that are used for Verizon Wireless, AT&T Mobility and other private subsidiaries. In addition, the private Wireless subsidiaries have been paying a fraction of the market prices and expenses that it should be paying for the use of the SPTU Wireline networks for back haul.

  • Holding Cos. reaped massive tax benefits from these artificial losses. With SPTUs forced to pay the majority of expenses, these companies "lost" billions a year, accruing massive ill-gotten tax benefits.

  • The harmful plan to shut off the copper. Making the SPTUs appear unprofitable is now being used as justification for the Telecom Holding Cos. to ‘shut off the copper’ and force-march customers onto wireless, a move that conveniently makes the Telecoms more money. And to help AT&T, Verizon et al. even more, the FCC’s current plan is to dismantle the SPTUs altogether, handing SPTU public assets over to the The Wireless companies as private property for private use.

All of this was accomplished in conjunction with ALEC, the American Legislative Exchange Council, who writes model legislation (paid for by Verizon, AT&T et al.) to hand to our State and Federal legislators to work in concert with the FCC’s industry-friendly and consumer-unfriendly agenda.

The IRREGULATORS — an independent, expert Telecom Team comprised 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 and former telco consultants — know where the skeletons are buried and, therefore we MUST appeal the FCC’s accounting freeze extension, because it impacts every AT&T, Verizon and Centurylink state and we have the data.

The IRREGULATORS MUST appeal the FCC’s Accounting Freeze Extension

1. We Have Hard-Core, Irrefutable Evidence:

  • The Verizon-NY 2017 Annual Report was published June 2018. It supplies the full financials of New York’s state-based telecommunications utility.
  • In July 2018, there was a settlement of Verizon-NY with the New York Public Service Commission, estimated at $300-$500 million, which ended an investigation that started in 2015 which was based, in part, on our data.
  • This settlement forced Verizon-NY to upgrade 32,000 lines from copper to fiber optic and maintain the existing copper networks.

2. What We Found in New York is Obscene — $Billions in Cross-Subsidies, Tax Dodging and Customer Overcharging.

  • From 2005–2017, local phone customers were overcharged an estimated $2,700 per line due to rate increases using artificial losses and cross-subsidized expenses.
  • Verizon Wireless diverted the utility construction budgets to do the fiber-to-the-cell sites. From 2010–2012, Verizon Wireless appears to have underpaid Verizon-NY, the state utility, $2.8 billion for construction.
  • Verizon-NY Local Service was charged $1.8 billion for Corporate Operations expense, 62% of the total, in just 2017, due the FCC accounting freeze. These are the expenses for the corporate jets, executive pay and lawyers.
  • Verizon-NY shows losses of over $2 billion a year for almost a decade, resulting in $billions of tax benefits.

3. This Happened in Every Other State, as well.

New York is the only state that we know that still requires a full annual report for its SPTU. The FCC, in order to hide these financial maneuvers, stopped publishing any SPTU data in 2007.

4. 5G Is Another Bait and Switch.

"The Race to 5G" is just another set of hyped-promises designed to remove all remaining regulations, preempt state laws and charge customers more money. It appears that current fiber build outs are being cross-subsidized and charged to local phone customers via the SPTU construction budgets.

5. If We Stop the Cross-Subsidies, the Money Can be Used to Help Cities and Customers.

The FCC accounting freeze has harmed every aspect of communications and this and related cases will hopefully slow down and even reverse the 2017-2018 FCC decisions, resulting in lower prices for customers.

6. We Found a Structural Flaw in Every FCC Decision in 2017-2018

Ironically, the FCC has left out everything dealing with SPTU issues for decades. The FCC does not even acknowledge that SPTUs even exist, and the FCC never examined how their own rules were harming America, or that the broadband commitments that were made by the SPTUs never got built as planned. We wrote a separate report about this flaw in FCC analyses in its 2017-2018 proceedings.

If the IRREGULATORS don’t file this appeal with the FCC to expose the corruption of the FCC accounting rules right now  — making AT&T, Verizon and CenturyLink state-based utility cos. look artificially unprofitable for public policy manipulations — then it** will be harder to reverse the FCC’s decisions later**.

Click to Read the Details and learn how to help out.