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AT&T, Verizon & CenturyLink are State Public Telecom Utilities

By Bruce Kushnick, Dec 23, 2020 | Original Medium article here.

Forget Big Tech: Break Up Big Telecom, then Big Cable.

While the “FTC” (“Federal Trade Commission”) and Attorney General offices around the US are actively going after Facebook, and there are other cases against Amazon or Google, claiming they are “Big Tech” and harming America, all of these services ride on the wires or airwaves that are mostly controlled by just a few companies: “Big Telecom" — AT&T, Verizon & CenturyLink, and “Big Cable” — Comcast & Charter.

Going after Big Telecom is a challenge because industry lawyers and lobbyists have rewritten history and blanketed the place with fiction. Truth be told, there is a disconnect between myth and reality about their telecommunications and cable services.

Many people are calling to make the Telcom’s broadband infrastructure a utility. It already is and has been hiding there in plain sight.

  1. Every state still has a primary regulated State Public Telecom Utility (SPTU).

  2. The copper and fiber optic wires, for the most part, are owned and operated by these SPTUs, yet few are aware of these key facts.

  3. These wires and the SPTU laws/regulations were not just about ‘voice’ calls but also about broadband, internet, data, video and gaming.

  4. Since the early 1990’s, SPTU landline customers have paid (and continue to pay) additional charges ($5-7 per month) on their SPTU phone bills to fund fiber optic for wired broadband which was supposed to have replaced the aging copper wires.

  5. The SPTU utilities never completed these network upgrades.

  6. Most Wireless service is 95% wired — only the last 5% is Wireless.

  7. Wireless broadband and Wireline broadband are NOT "functionally equivalent services," per the 1996 Telecommunications Act (1996-Act) and Conference Report.

1996-Act Conference Report:

"When utilizing the term ‘‘functionally equivalent services’’ the conferees are referring only to personal wireless services as defined in this section that directly compete against one another."

AT&T, Verizon and CenturyLink— control the primary, critical wires, the infrastructure of most of the US, upon which all "personal wireless service" depends. Since Wireless requires fiber optic wires, the SPTU Wireline construction budgets that should have been used to upgrade America’s SPTU public Wireline networks, were, instead, diverted to build out Telecoms’ private Wireless networks. The SPTU Wireline construction money was also spent on everything from overseas investments to buying media or social media companies.

This has resulted in Big Telecom’s control over all telecommunications and broadband prices in America and in:

  • overcharging for wireless and wireline phone services and cable tv services, as the companies never showed up to compete for high-speed broadband.
  • creating the Digital Divide and Net Neutrality problems
  • controlling — by Big Telecom — who gets service and at what speeds, and so Big Telecom can prioritize their own services over others.

Worse, when you realize that all of the wires — for phone, but also data services, DSL, VOIP, FiOS, U-Verse, backhaul, and Business Data Services (special access), are all still using the SPTU Wireline networks and all are part of the utility but have been ‘hidden from view’. In addition, the services, listed above, aren’t paying market prices, or most of their expenses have been diverted to be charged to local phone customers. All of this has made these SPTU networks appear unprofitable.

These maneuvers have been used to influence policy decisions, to get new deregulatory perks or more government subsidies — or to not build out the networks in rural areas or inner cities; it was used to raise rates, get tax benefits and cut staff, while making wireless and the other lines of business appear exceptionally profitable.

Big Telecom has been able to manipulate the FCC cost accounting rules and formulas that allocate expenses in order to cross-subsidize from public Wireline networks to private Wireless networks. That is against the 1996 Telecommunications Act’s Section 254(k) Subsidy of competitive services prohibited:

"A telecommunications carrier may not use services that are not competitive to subsidize services that are subject to competition. The Commission, with respect to interstate services, and the States, with respect to intrastate services, shall establish any necessary cost allocation rules, accounting safeguards, and guidelines to ensure that services included in the definition of universal service bear no more than are and they are now adjusted to have the majority of all expenses go into one category, Local Service, while all of the other services using the networks are paying a fraction of these expenses."

And while this article has focused on Big Telecom, there have been no significant audits of the cable companies and it appears that their accounting has the same structural flaws.

If we are really going to solve the Digital Divide, lower prices and bring in competition, then cities, states, politicians and government officials all have to** start investigations** of this financial scandal and halt the cross-subsidies that have become accepted, and then — Break up Big Telecom and Big Cable.

For a simple view of what happened, see our video: Aunt Ethel Explains the Telco Accounting Scandal that Caused the Digital Divide — Halting the billions in subsidies caused by the accounting can pay for a fiber optic future and solve the Digital Divide.

Every State Still has a State Public Telecom Utility — Hidden, Yet in Plain Sight

In every conversation, virtually no one knows that there are still State Public Telecom Utilitoes (SPUTs). Even the California Public Utility Commission leaves out the basic “U” word in recent proceedings, as does the FCC in every proceeding.

But the laws in California and in almost every state, make it clear that** the wires are part of the utility covered by utility laws**.

CALIFORNIA

  • “DIVISION 1. REGULATION OF PUBLIC UTILITIES 201–3297 (Division 1 enacted by Stats. 1951, Ch. 764. )
  • PART 1. PUBLIC UTILITIES ACT [201–2120] ( Part 1 enacted by Stats. 1951, Ch. 764. )
  • ARTICLE 1. Specified Utilities [1001–1013] ( Article 1 enacted by Stats. 1951, Ch. 764. ) .

§ 1001:

“No railroad corporation whose railroad is operated primarily by electric energy, street railroad corporation, gas corporation, electrical corporation, telegraph corporation, telephone corporation, water corporation, or sewer system corporation shall begin the construction of a street railroad, or of a line, plant, or system, or of any extension thereof, without having first obtained from the commission a certificate that the present or future public convenience and necessity require or will require such construction. If any public utility, in constructing or extending its line, plant, or system, interferes or is about to interfere with the operation of the line, plant, or system of any other public utility or of the water system of a public agency, already constructed, the commission…”

Many of the laws were solidified in the Communications Act of 1934. The Telecom companies got a franchise for the wired services in the Public Right of Way (PROW) in every state, and almost all of America was wired — rural, urban and suburban areas — by the end of the 1960’s with a copper wire, the original standard wire for America’s telecommunications infrastructure.

AT&T, for example, controls 21 state utilities and yet AT&T never mentions that these utilities exist. And, we are talking about companies that have billions of dollars in revenues per state. In NY, the Verizon-NY Annual Report for the last 5 years showed annual revenues of $5 billion, with an additional estimated $7–10 billion in annual revenues from Verizon Wireless and other Verizon businesses in New York that are not on these books, but most are using these SPTU Wireline networks. The last data for AT&T California by the FCC showed over $10 billion in annual revenues — which is NOT all of the revenue in the state going to AT&T, so it could have as much as another $20 billion in annual revenues.

And this brings up the most serious question — why did these companies let their state-based infrastructure deteriorate to such an extent, as documented by the Communications Workers of America and others?

The Copper and Fiber Optic Wires Are Part of the State Public Telecom Utilities

Verizon’s fiber optic deployments for FiOS are done as “Title II”, Common Carrier networks and part of the State Public Telecom Utility

In 2014, we filed with the FCC that all of the Verizon fiber optic networks are Title II and part of the state utility. This quote is from the Verizon NJ FiOS franchise which was supposed to cover 95% of the state.

“The construction of Verizon NJ’s fiber-to-the-premises FTTP network (the FTTP network) is being performed under the authority of Title II of the Communications Act of 1934 and under the appropriate state… As such any construction being performed in the public rights of way is being undertaken pursuant to Verizon NJ authority as a telecommunication service provider.”

The “Title II” part is very controversial because Verizon talked out of both sides of its mouth. To the States it claims that these fiber optic wires are part of the state utility as Title II — this way Verizon could charge these networks to local phone customers and the utility.

But, at the same time, Verizon claims that these exact same wires are “Title I” because they are broadband and based on Internet Protocol (IP), making them an “Information Service”.

  • “Title II” is like a road — everyone should be able to use it.
  • “Title I” is private property and was used to block competition.

So, the FTTP, fiber to the premises, is Title II and part of the SPTU in every state.

The State Deregulations Were to Replace the Copper with Fiber to Deliver ALL Services, Not Just Voice Services Over the Copper, But Video and Data.

The state utility networks, sometimes called the “PSTN”, “Public Switched Telephone Networks”, were always designed to cover ALL services, which includes broadband and video services.

This is a quote from the Order by the New Jersey Board of Public Utilities granting New Jersey Bell (now Verizon New Jersey) “Alternative Regulations” in 1992. Dubbed “Opportunity New Jersey”, this was supposed to transform the existing utility networks to broadband — and in this case, fiber optic broadband.

“NJ BELL’S PLAN FOR AN ALTERNATIVE FORM OF REGULATION MAY 21, 1992 — NJ Bell’s plan declares that its approval by the Board would provide the foundation for acceleration of an information age network in New Jersey and was referred to by NJ Bell as ‘Opportunity New Jersey’… Opportunity New Jersey would …accelerate the transformation of NJ Bell’s public switched network, which today transports voiceband services (voice, facsimile and low-speed data), to a public switched network, which transports video and high-speed data services in addition to voiceband services.”

The Information Superhighway Craze

Forget about the feeding frenzy over ‘5G wireless’. In 1991, the Clinton-Gore presidential ticket announced the “Information Superhighway’, a plan to rewire America by replacing the existing copper wires, (which could have been put in the ground or on the poles since the 1920’s), with a fiber optic wire that could handle video and thus provide competition to the wired cable TV companies.

Starting in 1991, throughout America, what is now AT&T, Verizon and CenturyLink went state to state to get laws changed, just like this example in New Jersey, to convince the state utility commissions and legislatures that they were going to upgrade their existing copper networks with fiber optics — and that if laws were changed to give the company more profits, it would replace the existing copper wired with fiber optics.

New Jersey was one of the first to accept this type of alternative regulation plan, but almost every state had the same proceedings. (There were previous plans for an earlier broadband technology, ISDN, that used the copper networks. It was eventually given an apt nickname: “It Still Does Nothing”.)

Customers Paid for a Fiber Optic Wired Broadband Future — Which Was a Replacement of the Copper Wires as Part of the State Public Telecom Utility

In Connecticut, Southern New England Telephone, SNET, was not officially one of the original ‘Bell companies”, but it covers most of Connecticut. In their 1996 Annual Report, SNET laid out a plan called “I-SNET” — a statewide upgrade, REPLACING the existing copper wire with fiber optic wires for broadband and video — ALL SERVICES over a fiber optic wire. And it would spend $4.5 billion and be completed in 2007.

“I-SNET: According to the 1996 Annual Report:

“I-SNET is . . . a statewide telephony and information superhighway. Since 1994, the wireline business has been replacing its existing network of twisted copper wire with low maintenance fiber-optic and coaxial cable. The buildout of I-SNET, a $4.5 billion investment, is expected to be completed by 2007. This advanced network is capable of delivering voice, video and a full range of information and interactive multimedia services. I-SNET passed approximately 234,000 households as of December 1996, and is expected to pass approximately 334,000 households by December 1997. The support of this investment will be primarily through increased productivity from the new technology deployed and customer demand for the new services offered.”

And, as the next paragraph continues, this deregulation established “price caps”, where the price of basic services, defined as “Non-competitive”, was not increased for a few years, but the “Competitive” services allowed the profits to increase immediately. This included calling features, like Call Waiting or Caller ID, which are separate charges on wireline services, that range from $4.00-$9.00 per service per month, yet Call Waiting cost less than 1 penny to offer while Caller ID is under $.25 cents. And again, this was based on a commitment to do fiber optics as part of the state utility, replacing the existing copper wires — and the profits on calling features, etc. were allowed to be increased, with the assumption it was for new construction.

“In March 1996, the DPUC (State Public Utility Commission) issued a final decision that replaces traditional rate of return regulation with alternative (price based) regulation to be employed, effective April 1, 1996, during the transition to full competition. The decision contains the following major items: price cap regulation for non-competitive services; a five year monitoring period on financial results; and a price cap formula on services categorized as non-competitive (utilizing an inflation factor, a 5% productivity offset, a narrowly defined exogenous factor, a potential service quality adjustment and various pricing bands). In addition, basic local service rates for residence, business and coin may not be raised above current levels until January 1, 1998, at which time the price cap formula becomes effective for these services, unless they have been reclassified into the emerging competitive or competitive categories..”

Sorry for the telecom-jargon, but simply put, almost every state had changes in their state regulations to grant deregulation, i.e., price caps, to the companies for this fiber optic future. In CT, after the law passed, in a decade+, dividend payments doubled, and there was a drop of 60% in staff.

We filed a complaint with the Connecticut Attorney General’s Office in 2009 about the failure to roll out the networks and about the the merger with AT&T that shuttered any fiber networks that were being rolled out. And it’s been downhill in CT from there, with the sale to Frontier.

NO COMPANY BUILT OUT THE FIBER NETWORKS AS STATED, BUT THEY STILL GOT PAID.

NO STATE WENT BACK AND GOT REFUNDS OR LOWERED RATES OR ERASED THE LAWS** — some did try, however.

We wrote a trilogy of books to document these bait-and-switch deals. The latest: “The Book of Broken Promises; $400 Billion Broadband Scandal and Free the Net”

The State Public Telecom Utilities and Network Upgrades Are Not a History Lesson But Are Current To-Dos.

What we just discussed is not history but has current, real-world consequences as every state is now attempting to solve the Digital Divide problems that have been exposed by the so-called pandemic and most are just throwing money at it, with the same terrible results. But, it is time to recognize that there are still SPTUs and that they are not just for voice calls but all services, including broadband.

Take the situation in Minnesota, for example. A complaint dated October 20th, 2020 by the Communications Workers of America (CWA) against CenturyLink, discusses that there have been staff cuts and that

  1. these are utility networks
  2. they are not just for voice services and
  3. the law itself calls for continuous upgrading of the networks for video and data services.

The CWA Letter details that there is specific language discussing that the telephone company, CenturyLink, is a telephone utility.

“7810.3300 MAINTENANCE OF PLANT AND EQUIPMENT. Each telephone utility shall adopt and pursue a maintenance program aimed at achieving efficient operation of its system so as to permit the rendering of safe and adequate service. Maintenance shall include keeping all plant and equipment in good state of repair consistent with safety and adequate service performance. Broken, damaged, or deteriorated parts which are no longer serviceable shall be repaired or replaced. Adjustable apparatus and equipment shall be readjusted as necessary when found by preventive routines or fault location tests to be in unsatisfactory operating condition.”

Moreover, the utility networks are not just for copper-based phone service. The state laws are supposed to be encouraging an upgrade to “higher speed telecommunications”; this means that the entire copper networks should have been upgrading to fiber to offer, not only voice services, but high-speed connections for data and video services — for years.

“In addition, Minn. Stat. § 237.011 provides the State goals the Commission should consider as it executes its regulatory duties with respect to telecommunications services, including “(3) encouraging economically efficient deployment of infrastructure for higher speed telecommunication services and greater capacity for voice, video, and data transmission.

As the Commission executes its regulatory duty to ensure CenturyLink maintains adequate staffing levels for telecommunications service, since the same technicians are used for both telephone and internet installations, maintenance, and repair, the Commission will be helping to achieve this statutory goal.”

In the next series of articles we will also address the most important issue — that the companies have been able to manipulate the FCC cost accounting rules and formulas to make the entire US wired infrastructure appear unprofitable — causing the Digital Divide.

  • Link to Overcharged America: Solve the Digital Divide by Halting Billions in Cross-Subsidies — What Happened in Your State?

For those of you who claim that you want a broadband utility and funds to pay for upgrades and solving the Digital Divide — this is a call to action. State legislatures, public utility commissions, cities and Attorney Generals’ offices, need to start audits and investigations of the Big Telecom so the states can clawback the public utilities and halt the overcharges to local service subscribers, as well halt the cross-subsidies so that these funds can be used to complete the build out of universal access services that are high-speed and symmetrical to all homes, businesses and institutions. This will also lower prices through competition and choice.

We’ve laid out a roadmap that we filed as part of comments with the California Broadband Council about Governor Newsom’s broadband executive order.