IRREGULATORS v. FCC Ruling Frees States from FCC Separations Rule

Adapted from an article by Bruce Kushnick, Mar 16, 2020 | Original medium article is here

States Can Now Decide Their Own Separations Accounting Principles


This is similar in many ways to the DC Circuit Court of Appeals decision that upheld the FCC repeal of Net Neutrality regulations from the FCC’s control. Net Neutrality is now mostly a state issue, due to the 1996 Telecommunications Act which sets up cooperative federalism.

  • State Public Telecommunications Utilites (SPTUs) and others can now sue their State Public Utility Commissions to free billions of dollars per state to stop an unnecessary and rampant cross-subsidy from SPTUs to private Wireless cos.

  • Finally ending such cross-subsidies — although slowly, state by state — can help solve the Digital Divide, lower prices and spur more competition.

  • The Densified 4G/5G Small Cell roll out could be rendered significantly less profitable as a result.

  • IRREGULATORS v FCC: DC Court of Appeals Opinion, March 13th, 2020

What We Needed to Fix

Unknown to most, AT&T, Verizon and CenturyLink control America’s telecommunications utilities, and over the last decade they have used the FCC’s accounting rules and formulas to charge the majority of all company-wide expenses to the local wired state-based telecommunications utilities, while the other services that are also using the same wired copper and fiber utility facilities, like broadband, internet and wireless, do not pay their fair share.

This financial shell game has made the entire state-based utility infrastructure appear unprofitable and they have relied on these distorted financial results to argue that they cannot upgrade rural areas or even inner cities, and it has been used to justify local rate increases multiple times, as well as save billions in taxes. More importantly, it is also the excuse to “shut off” the wired networks and go wireless with 5G.

Over the last five years we filed more than 18 separate pleadings and reports to stop the continuing use of these obsolete and now deformed rules. The FCC refused to take action, claiming that the rules didn’t apply, even though the companies still use them and the state commissions still accept them to the detriment of utility customers.

We brought this case to expose one of the largest accounting scandals in American history and to get a decision by the U.S. Court of Appeals — D.C. Circuit. The D.C. Circuit judges clarified that the FCC does not have control over the state accounting and the states are free to adopt their own accounting principles. This also allows the states to go after the billions in cross-subsidies and the rampant overcharging that has been costing Americans an estimated $50–60 billion annually.

The states have had the authority to pick up the mantle and act to narrow the Digital Divide, promote Digital Inclusion, lower prices, bring in competition and end the cross subsidization of 4G and 5G by the public utility for many years. The judges’ Ruling confirmed that this is so. This means that additional state-by-state lawsuits can now proceed to dismantle the current financial shell game.

This is a partial list of what this decision means going forward:

  • IRREGULATORS Treasure Map: Billions for Broadband expansion and refunds on your Telecommunications Bills.

  • Can reduce $Billions in Corporate Operations overcharging: In NY, Verizon Local Service was overcharged an estimated $1.5 billion dollars a year for the corporate jets, the executive pay, and the lawyers and lobbyists pushing anti-customer agendas. Now a state can now stop the billions of dollars in unrelated expenses that has been put into local service and caused rate increases.

  • Can recover $Billions in tax losses: Today, the state utility pays the majority of expenses, even if it has nothing to do with Local Service. In NY, Verizon has been showing artificial losses of $2 billion annually. The states can stop the cross-subsidies and let these companies pay their fair share of taxes.

  • Can stop cross subsidies to private Wireless Cos.: The states are free to stop the cross subsidies where the fiber optic networks are being built for the benefit of the wireless company, instead of properly upgrading cities and towns, especially in more rural areas.

  • 4G/5G densification would not be as profitable, once this happens.

  • Can change the 75–25% rule with this decision: Today, 75% of the costs of the wired network expenses (even for wireless, broadband and internet) are dumped into ‘local service’; wireless and these other services got a free ride — Not anymore. The states can come up with their own allocation factors.

  • States can decide to go after $Billions : After all of this shell game is exposed and removed, a state can make the price be ‘incremental’ — and it can decide that local service and the wired networks should only be based on the actual costs, and not made up expenses.

  • These recovered $Billions could address the Digital Divide: Removing this long standing shell game means billions can now be properly allocated to build out the wired state-utility infrastructure for broadband to EVERYONE in the state.

  • Cities can also build out their own networks. NYC’s Master Internet Plan to solve the Digital Divide requires government funds and never held Verizon NY accountable. The City of New York, like all cities across America trying to get a digital future for every citizen, should have examined the financial cross-subsidies that were exposed in this case and the bait-and-switch funding for wireless. Now, NYC can go after the money and provide a fiber optic future to everyone.

NOTE: The IRREGULATORS lost this DC Court decision, based on lack of standing:

In losing the case, we achieved clarity about these cost accounting rules. The court confirmed that the states are free to do as want. Our strategy in bringing this case was to secure a definitive answer about the rights of states vs the control by the FCC over the financial accounting. The Court made it clear that the states are independent from the FCC and from the application of the federal accounting formulas known as “Part 36”.

“This means that any injuries the petitioners suffer through the application of outmoded Part 36 rules to price-cap carriers are traceable not to the Commission’s freeze order but to the states’ voluntary and independent decisions to use the rules of Part 36 for their own purposes.” (PAGE 9)

“Price Caps” Need Investigation and Repair: AT&T, Verizon et al. and the states may say: “We are under price caps and the utility expenses are no longer examined.”

ANSWER: The States can now go back, do the audits, and stop the financial shell game. “Price caps” is a form of regulation that was supposed to keep prices capped and reasonable, which never worked. This was to increase the companies’ profits, which were supposed to be used to replace the existing copper wires with fiber optics — and that never happened. Instead, using the FCC’s corrupted formulas, it allowed for this massive overcharging. Prices are no longer ‘just and reasonable’ when you can charge local phone customers to build the wireless networks or pay for the corporate jets.