The NY Public Service Commission (NYPSC) is having hearings to discuss their new report, "Staff Assessment of Telecommunications Services", (June, 2015) and it is also looking for comments about the Connect NY Coalition's Petition for Investigation that was filed last year (and is based, in part, on our research).
Let me summarize the work a group of us has been doing over the past six years. And while it focuses on Verizon and New York, we know that the issues are nationwide.
In 2009, I came across a rate increase on Verizon New York's regular, residential local phone service which was granted by the NYPSC. It was based on Verizon's claims that they had undertaken a "massive deployment of fiber optics" and had major financial 'losses'. The fiber optic deployments were supposed to be used by FiOS, (which is the brand name of a group of services -- cable TV, phone, internet and broadband).
Like that old vaudeville comedy skit where someone pulls on a loose thread that is dangling from a new suit, only to find that the more they pull, the more the suit falls apart-- first an arm falls off, then the lapels -- and it goes on until the guy in the suit is now just standing there in some underwear and socks -- the more we examined Verizon's financials, not to mention the deployment of broadband and competition, the more it exposed a massive financial shell game, among other harms.
Unraveling the Financial Shell Game
Simply put, starting in 2006, Verizon was able to secure multiple rate increases for this "massive deployment of fiber optics" by convincing the State that the fiber optic wire was just part of an enhancement to the State-based utility telecommunications network, which is classified as "Title II".
Here's the actual wording from the New York City franchise materials:
This is problematic for a number of reasons. First, Verizon has maintained in every Internet and Net Neutrality filing with the FCC or public statements that Title II harms investment and that the fiber optic networks are NOT a telecommunications service, but "Title I", an information service. (The FCC's Internet Order modified this, but there are law suits claiming the networks should not be "Title II".) We filed a perjury case with the FCC against Verizon because Verizon never bothered to disclose to the FCC that Title II is Verizon's primary investment vehicle or that most, if not all of the fiber upgrades were done as Title II.
Rate Increases on "POTS", Plain Old Telephone Service Customers
Since 2006, customers who are still relying on the copper-based phone service had an 84 percent increase in the cost of local service and 40-300 percent increases or more on specific items, like inside wire maintenance or nonlisted phone numbers.
The average regular phone customer paid $752.00 counting taxes, per line, since 2006 through 2014 and about $300 extra per added service. This comes to over $5 billion dollars collected by the end of 2014 and it continues today.
The Majority of Customers Paid for Services They Will Never Get.
But that's only pulling the string for part of this Verizon-suit. Verizon announced around 2011-2012 that it had stopped its fiber optic upgrades.
In June, 2015, the City of New York released a scathing review and audit of Verizon's cable franchise fulfillment. Cross-checking it with Verizon's own quotes, we found that Verizon could have as little as 46-59 percent of housing units covered and capable of getting FiOS TV today. By July 2014, however, Verizon was to have 100 percent of NYC completed with fiber-to-the-home.
And upstate New York is worse as Verizon claims it only has commitments to have 183 municipalities completely upgraded to fiber optics, replacing the aging copper wires. According to Wikipedia, there are a total of 996 towns and cities in New York State.
Simply put, this means that everyone who had phone service since 2006 paid over $750.00 to over $1000.00, (with one added service) and the majority will never get any upgraded service; those that dropped the service still paid hundreds of dollars extra.
And this impacts low income families and rural areas the hardest as these are areas Verizon has not been eager or even willing to upgrade, claiming it is 'uneconomical'.
Verizon's Losses and the Financial Shell Game
And the "losses"? In just 2014, Verizon NY lost $2.58 billion on paper, in just New York State. And over the last five years Verizon NY averaged $2+ billion in losses per year. In fact, Verizon NY paid no income taxes over the last decade, starting before 2005.
But this is nothing compared to the massive financial shell game that has become the standard operating procedure for Verizon -- with the consent of NYPSC.
And we've been tracking this for years. In 2013 we wrote "Verizon Wireless and the Other Verizon Affiliate Companies are Harming Verizon New York" and the report information was used by Communications Workers of America (CWA) District 1, joined by Common Cause, Consumer Union, AARP and the Fire Island Association as part of comments filed with the NYPSC questioning the misallocation of monies -- that the price of service may have had increases based on wireless and non-local service expenses.
In May 2014 we wrote "It's All Interconnected", published by the Public Utility Law Project, PULP, (with the assistance of David Bergmann, Esq). In July 2014, the Connect New York Coalition (CWA, Common Cause, Consumer Union, and Mayors from upstate cities, politicians, etc.) filed a Petition at the NYPSC calling for an investigation of 'misallocation' of monies, based, in part, on our previous reports.
Using Verizon's own SEC-filed investor financials, FCC data and the Verizon New York annual reports filed with the State, what has happened is appalling.
- Verizon has been and continues to manipulate the financials so that the local service networks look unprofitable, but aren't.
- Verizon has been able to dump massive amounts of corporate expenses into the books to make local service look unprofitable.
- Verizon has been able to divert the construction budgets for 'massive deployment of fiber optics' to the other lines of business.
- Verizon Wireless has been able to divert billions of construction expenses, charging the wired networks to pay for the wires-to-the-cell-towers.
- Verizon has dumped the majority of other expenses into local service.
- Verizon's other affiliate companies aren't paying market value or their fair share for the use of the networks.
Using the suit metaphor, when we pulled on some more strings, we exposed that each of these issues has billions of dollars attached to them.
For example, Verizon's Corporate Operations was able to dump $2.6 billion of expenses, in just 2014, into the accounting of Verizon New York. Corporate Operations, it appears, is a garbage pail category for anything from the lawyers who are suing over Net Neutrality to paying for Verizon's PR machine to tell their side of the story.
And, in just 2014, Verizon dumped the majority of this expense, $1.5 billion, into the expense accounting of local service, even though local service only brought in $1.4 billion in revenues -- i.e., just this one expense line item, corporate operations, made local service 'unprofitable'.
Are low income families, rural customers, and just plain folk with phone service supposed to be paying for these corporate expenses, which were used, in part, to justify the rate increases?
Are Customers 'Defacto Investors', Paying Extra for FiOS TV and Wireless?
Then we have the question about the rate increases that were granted for "massive deployment of fiber optics". The NY Attorney General's Office found that in 2011, 75 percent of the construction budgets were being diverted to wireless or Verizon's FiOS and not maintaining or upgrading the state utility.
FiOS TV is a cable service for example, that rides on the upgraded wires. Where are the revenues from the TV service going? As far as we can tell, they aren't going back to make sure that low income families aren't being gouged or to fund the construction of the fiber networks.
But the bottom line -- If Verizon hadn't manipulated the books, or more importantly, if the State had noticed and stopped this shell game, including the diverting of construction budgets to wireless, areas of New York State that were 'uneconomical' could have been built out, especially since only 10 percent of the State's municipalities are getting upgraded and some areas of large cities aren't even being finished.
The State Report is an Abomination: Billing Issues and Competition
Now, six years later, there are hearings and a new proceeding by the Commission to discuss their recently released report, a model of 'regulatory capture', (which is when an industry takes over the regulatory agency that is supposed to be doing oversight of the companies' business practices and is supposed to be protecting the Public Interest.)
First, nothing I just wrote about herein, or the reports we filed with the State, including the PULP Report, (which was used as part of the Connect New York Coalition's filing), were mentioned in the State report -- NADA. No footnotes or references.
The Connect New York Coalition also noticed. In a letter to the NYPSC:
"We took seriously the written commitment 'that the issues raised in their petition will be addressed in the Commission's ongoing Study on the State of Telecommunications [and there would be] a robust dialogue conducted in a transparent process as we work with all stakeholders, including the Coalition'."
"The Petition and the issues in the Petition remain unaddressed. Can you please explain why these promises have not been kept? Issues of misallocation of monies, inadequate basic service requirements, disinvestment in the copper systems, failure to build out promised telecommunications systems, failure to adequately measure the deterioration of service to millions of New Yorkers and others have been ignored by the Commission in spite of promises to take them seriously."
No Actual Bills Were Collected and Cited.
The State claims that its primary interest is that service is available at 'just and reasonable' rates.
"The Commission continues to have a primary and overarching interest in ensuring that telecommunications services are available at just and reasonable rates and are provided in a reliable and adequate manner."
Based on the information supplied, the State didn't bother to actually collect communications bills to see if they were 'fair and reasonable'. Just the opposite. The State included a chart that shows that Time Warner Cable's Triple Play costs $89.99, the advertised price, and Verizon's Triple Play is $74.99.
What the F@$#X$!? I wrote an article about this:
"Time Warner Cable's Advertised $89.99 Triple Play: Now $190.77. What the F@$#X$!?"
You see, I have that Time Warner Cable Triple Play advertised at $89.99, which is the basic package, and it went to $190.77 -- that's 112% above the advertised price (and it went up since the article came out as well.) How is this 'fair and reasonable'? It isn't. How much effort did the State use to get accurate data?-- Zero.
Bottom line -- You can never, ever get the advertised price.
I also wrote a separate article about Verizon's Triple Play and the 'fine print' and showed how the sale of that service uses the same deceptive advertising, made up fees, or massive rate increases once the 'promotion' ends, etc. In fact, the advertised price of $74.99 leaves out 60 percent of the actual costs, even during the promotional period.
The State Is Negligent in Its Duties Make Sure Prices are "Fair and Reasonable".
We told the State multiple times about the issues with billing.
- We filed about the Time Warner billing issues and costs during the Time Warner-Comcast merger proceeding.
- We even testified in front of the State Commission in 2014 and even held up a copy of the marked up of the Time Warner Cable Triple Play bill.
- We included most of these billing issues in the previous PULP report.
Instead, allowing this corrupt mathematics of using just the retail price helps Verizon and Time Warner to show that rates really aren't that bad.
Competition with Bad Data Equals = The State Report.
And then there is the issue of competition. The Commission claims that there are plenty of companies that want to offer customers service in New York State.
"For most of the State, the FCC has determined that 'effective competition' exists... Almost all of New York is considered to be effectively competitive as a result of satellite television availability and incumbent telephone providers that now provide video services as well."
In the PULP report we documented the rate increases of local service (and updated it). If you kept the exact same service from 1980 through 2014, you paid over 667 percent in rate increases, taxes, fees, surcharges.
And our Complaint and Petition for Investigation of Time Warner showed that there has been 22 years of continuous cable service rate increases (which was taken directly from Time Warner Cable New York City bills).
Last I heard, competition is all about 'lowering prices', not raising them.
Wikipedia writes:
"It is generally accepted that competition results in lower prices and a greater number of goods delivered to more people. Less competition is perceived to result in higher prices with a fewer number of--and less innovation in--goods delivered to fewer people."
There is no competition. There is a duopoly at best or a cable monopoly as Verizon didn't show up in most of New York. Verizon and Time Warner are the only two wired companies offering a Triple play. I have no choice from another provider that is going to give me 'fair and reasonable' prices and choice, or even high speed broadband service.
The NY State Commission is Negligent: A Decade of Silence
The final straw is that State did not perform a major telecommunications proceeding over the last decade. The report states:
"It has been almost ten years since the Commission's Competition III proceeding was conducted".
And,
"The last time the Commission embarked on a broad review of the telecommunications market in New York was the 2006 Competition III proceeding."
- This means that there have been no major audits or investigations into the rate increases or Verizon's financials for over a decade.
- This means that the additional $752 .00 was done by whim, not by anything resembling what is known as a 'rate case'.
- This means that the financial shell game has been allowed to thrive without any oversight or supervision.
- This means that the State is negligent in defending the rights of the Public.
Conclusion
It's going to take a lot more than a needle and some thread to fix this mess. Considering the State's report is a cover up, it's now clear that the Emperor has no clothes; the threads have been all removed and the suit has fallen apart.
We will be releasing a new report next month with more details and a plan of what needs to be done.
For more about broadband in America see: "The Book of Broken Promises: $400 Billion Broadband Scandal & Free the Net"