THE BLOG

Dear Governor Cuomo and Mayor De Blasio: Want Universal Broadband? Get Billions Back from Verizon and Time Warner Cable

05/05/2015 05:11 am ET | Updated May 04, 2016

The Tech Crunch headline reads:

"Mayor De Blasio Makes A $70M Commitment Toward Universal Broadband In New York City."

And Press Republican, an upstate newspaper that started in 1811, states:

"Gov proposes $1 billion broadband investment
Gov. Andrew Cuomo wants to make a $500 million broadband investment for high-speed Internet across the state.... The New York Broadband Program funding would be made available to match $500 million in private business investments, bringing the total initiative to a total $1 billion."

Over the last two decades there has been a continuous pattern of throwing money, our money, at broadband again and again. Ironically, instead of taking on the companies, many times these additional funds can end up in the hands of the same companies; in this case -- Verizon and Time Warner Cable (TWC).

We have a different approach -- Let's get the billions of dollars back from Verizon and Time Warner Cable for their failure to live up to commitments while overcharging phone and cable customers over and over. Let's hold the companies accountable for their bad acts, their misrepresentation, the manipulation of their financials, the egregious bills --where added 'made up' fees, pass-through taxes (we get charged for their taxes) or surcharges now run amok, not to mention going after the failure to fulfill commitments, even though they got billions of dollars that were to be used for broadband.

And I challenge the press and media to stop publishing the companies' press releases or what some actress is wearing at the next opening, but actually investigate -- if you can still remember how.

And let me be clear -- this is not just a New York City or State specific problem. Everyone reading this has been charged thousands of dollars extra because at every turn the politicians would rather not investigate and do audits -- just write checks, many times to the same companies that screwed us.

A simple example: Out of $9 million in broadband grants announced by NY State in February 2014, TWC got $5.3 million, about 59%.

"Time Warner Cable, Inc. (TWC), among the largest providers of video, high-speed data and voice services in the United States, will receive approximately $5.3 million to expand services to municipalities across seven regions in New York State."

And it is clear that Verizon, the largest incumbent phone company, simply never showed up and properly upgraded and maintained the state's networks, even though they got paid billions extra for decades.

According to the Fierce Telecom:

"The governor's office revealed that 5.4 million New Yorkers and 55,000 businesses cannot get access to broadband at 25 Mbps and that 7 million New Yorkers and 113,000 businesses cannot get access to broadband at 100 Mbps, including 70 percent of Upstate New Yorkers. Over 2,000 of New York's public schools report speeds lower than 100 Mbps, while nearly 500 have no broadband service at all."

I note that Cuomo's plans are based on "capital funds from bank settlements", but in the discussions of all of this money, there is nothing that details how much will simply end back up in the pockets of Verizon and Time Warner. Also, these are but a few of many grants from the federal government, or the Universal Service Fund (which is a tax on your bills that you pay) which is paid to these companies.

How to Pay for Broadband in New York City or State.

Here are some scandals, areas to investigate and items that are broken and need to be fixed instead of giving these companies the "pin number" to our bank accounts.

1) The Cable "Social Contract" Overcharge -- Time Warner Cable and the other cable companies cut a deal with the FCC in 1995 called the "Social Contract". -- YES, A REAL CONTRACT -- which is an agreement to charge customers an additional $5.00 extra a month to upgrade their networks as well as wire the schools at cost and supply free Internet cable modems.

The Contract ended in 2001 but there has never been any investigation or audit by New York City, the State or the FCC. We uncovered that there is no evidence that TWC ever wired the schools and based on actual bills, they never lowered the rates -- that's an additional $840.00 per household from 2001-2014 and counting. And I note that TWC had a 97% profit margin on its High-Speed Internet (ISP) as told by the company's SEC-filed annual report for 2014 - a coincidence?

Time Warner Cable has 2.2 million cable customers in New York -- That's $132 million a year; times 14 years, comes to about $1.85 billion dollars extra could have been collected from 2001-2014 (Yes, there are caveats like the rise and fall of TWC NY cable subscribers.)

To old? Imagine you go to your bank and find that for the last 14 years they added a hidden fee to your account. Wouldn't you want the money back?

2) Extra Costs to School Wiring: Let us not forget the billions collected to wire the schools we all paid for. If Time Warner Cable had supplied the Internet modem service, then the Universal Service Fund tax on every bill, at 16% which is applied to various parts of your cell phone and wired phone charges, would be reduced, if not mostly eliminated. The USF has an 'e-rate' to do school wiring. Ironically, Verizon gets reimbursed at business retail prices for doing the work and most of this e-rate has ended up going to Verizon or the other phone incumbents, AT&T and Centurylink, over the last decade.

3) Why is Verizon Not being Sued Over the NYC FiOS Deployment Holes? NYC has a contract with Verizon NY to have 100% of the City wired with FiOS TV, its fiber optic cable service, by July 2014. They finished maybe 80%, but it's hard to say as there are lots of people in 'completed' areas that can't get service.

Where's the enforcement and penalties, like making them wire the commercial buildings (which was left out of the original franchise) or to start payments for failure to complete the networks? (And of course, it is the low income areas that appear to have gotten left out.), There should also be fines, the money given to those who attempted to order the service in a completed area and got denied.

As City Advocate, De Blasio found in 2013 that only 50% had access to FiOS.

4) Customers Paid Massive Rate Increases on Basic Phone Service to Fund Verizon's FiOS and Wireless -- To add insult to injury, every customer that had basic phone service was hit with multiple rate increases, 84%, from 2006-2013, and 100%-300% increases on ancillary services like non-published numbers. These increases were for 'massive deployment of fiber optics' and 'losses'.

From 2006-2013, we found about $4.4 billion dollars extra had been charged to phone customers, over $500.00 per line, and this is more targeted at seniors, who have a higher percentage of land lines, and low income families, who are in areas that are not getting upgraded.

5) A Massive Financial Shell Game Goes Unchecked. Verizon stopped deploying FiOS and instead of maintaining and upgrading the networks, diverted funds for the construction of fiber optic wires-to-the-cell-towers, and other non-local phone service construction. It is not legal to charge basic phone service customers, including low income families, and seniors, not only for a wireless build-out but also for services they will never get.

Verizon has also been able to manipulate their books to create massive losses, which includes dumping corporate expenses, such as lawyer fees, lobbyists, PR firms, etc., into the costs of local service. This created massive losses and let them claim that the networks were 'uneconomical' to upgrade. This was helped by the company's ability to divert construction budgets of the utility for the wires-to-the-cell tower expenses and other lines of business like building out the high-speed Internet service.

6) Fact: Verizon NY appears to have paid no state or federal income taxes starting in at 2005 and lost almost $2 billion a year from 2009-2012.

If you paid income taxes in NY State you paid more than this multi-billion dollar company.

7) Verizon's Shell Game Is Based on a Bizarre Fact:
All of Verizon's Fiber Optic Construction Has Been Done as "Title II", Common Carriage, Networks.

Verizon has continually argued in the Net Neutrality fight that the "Title II" classification on broadband harms investment. Fact is -- Title II is Verizon's cash cow and their fundamental and primary investment vehicle. We believe Verizon committed perjury at the FCC for its failure to disclose this material fact.

Also, note that while a wire can have different classifications, the flows of money of Verizon New York as told by their state financials, as well as their state filings revealed that the cable service (Title VI) and the ISP service (that was "Title I", an "information" service), did not pay for construction as Verizon got the State to agree that FiOS and the other fiber optic networks are all part of the State 'telecommunications' utility. This also gave Verizon billions in 'rights-of-way' of the state-based utility -- for free.

8) Empire Subway is a Monopoly and a Sink-Hole of Problems
. The City's competitors have to rely on a network that was created in the 1890s (literally running throughout the subway system), as the contract is still in the hands of Verizon, which has a monopoly on this network. From all reports, it has been mismanaged at best; at worst... it is time to separate Verizon from the controls over these wires.

9) Open the networks
so everyone can choose their own ISP, broadband or cable provider over the wires coming into homes and offices. If we all paid EXTRA for the upgrades of the networks that many may never get the use of, then we should at least have the ability to choose who provides us service over these wires.

Competition will also lower prices. What we have today is a 'duopoly' at best. (But worse, Verizon Wireless has a deal with the cable companies to bundle their own services in areas not upgraded with the cable service. Talk about collusion...)

10) Go after the Egregious Bills-- Duh. One plan being discussed is to give low income families discounts on services. Why? Where is any regulator going after the obscene add-on-charges, made up fees, pass-through taxes and the deceptive billing? This Brooklyn NY, Time Warner Triple Play bill went from an advertised price of $89.99 a month to $190.77 in just 2 years.

And Verizon is doing identical manipulations of their bills as well.

The Punchline?

We've been taken advantage of over and over. Last year, a friend, living outside of Paris, France wrote:

"For 19.99 Euro per month we get unlimited internet, telephone (with free unlimited VOIP calls to almost all countries for fixed lines and most of the relevant ones for cell phone numbers called) and TV (40 or channels). Included for free is the box and one cell phone SIM card/number [2 hours France and 100 countries fixed". (1 Euro= $1.11 US as of May 3, 2015).

Follow the money and make customers whole--that is the way to pay for NYC's next generation broadband. Where are the politicians who actually care about accountability, oversight, customer overcharging, failure to comply with contracts or any enforcement?

There is a call by NYC to figure out how to provide broadband - This article is now part of our submission.

"The City of New York is seeking bold ideas and innovations to provide residential and commercial customers with expanded broadband service offerings in underserved communities."

See our report on Verizon New York's financial shell game, written with PULP in May 2014, and used as part of the petition by the Connect New York Coalition, filed with NY Public Service Commission in July 2014.