4 Charts that Will Scare Every State & Federal Broadband, Digital Divide Policy Maker

This is not a history lesson. It is a call to action.

Chart 1: Will America Repeat the Fiber Optic, Broadband, Wireless, Bait and Switch?

We present four charts from the new book, Violations & Egregious Acts: Trillion Dollar Broadband Scandal, which is a summary of 30-years of research, legal and regulatory challenges and it is the 4th book following an overstuffed trilogy, “The Book of Broken Promises”, beginning in 1992.

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Did the fiber optic, broadband bait and switch actions that appear in Chart 1 happen in your state — ISDN, Info Highway, Video Dialtone, DSL, (or AT&T’s U-verse)? How about the multiple wireless bait and switch boondoggles? Of course they did. Yet no state has examined how the Digital Divide was created in any Verizon, AT&T and Centurylink (Lumen) state — (the 3 holding companies that are mostly in control of America’s wired telecommunications, and thus wireless communications).

Worse, customers were charged for upgrades which were not deployed and were supposed to replace the copper wires with fiber optic wires. And state laws were changed to force customers to fund these different upgrades, over and over, and over — over the last 3 decades.

America spent over $½ trillion dollars (by 2018) and we still have a massive Digital Divide. And yet, America is preparing to throw over $100 billion in state and federal subsidies, much of which will end up with the same companies that created this communications have-and-have-not diss-connect. Worse, these companies will use their influence to block, harm or degrade any other company that enters their ‘footprint’.

The impacts to you? Chart 1, (which includes some of the harms from the telco mergers that had conditions that were supposed to bring broadband to America), shows you just how many times they screwed you — each box representing some gift to the companies at your expense, with almost nothing to show for it. I.e.; If you live in a rural area and had basic phone service and was waiting for the upgrade you paid for through increases to your costs — Did you get it? And, since this is a repeating broken record, they did it again and again, and in the end they just gave you continuous rate increases, and increases on every service, and increases on top of increases.

And the cable companies? To add insult to injury, since the telcos pulled a no-show and didn’t do the broadband upgrades, there was never serious competition for the cable companies, who have been able to continually raise rates — and then add ‘made up’ fees, which also continually increase.

“But I have wireless!”, we hear in the background. Overseas, customers can get a 5G service with 100 GB for $10.00, or there abouts. America’s low-end users are paying $8.00-$14.00 per GB because these companies, through these bait and switch tactics, now control the underlying infrastructure in their territories and can keep all prices inflated, wireline and wireless. And the triple play (broadband/internet, cable TV and phone) overseas averages about $35 bucks a month; America’s average was $215 a month in 2019 according to Consumer Reports.

Collusion of the wires: Verizon et al. control the wires to the cell sites and have a defacto deal with the cable companies — Verizon et al. get wireless, and the cablecos get wired broadband, with overlaps. In fact, Spectrum is selling Verizon’s Wireless services under its own brand name, where the bottom-line price will always be controlled by Verizon.

When we say this is not a history lesson, while this first chart details the various historic bait and switch actions that occurred, these actions and others not only created the Digital Divide, but would give cover to a current and ongoing massive accounting scandal that has been going on for 2 decades.

Chart 2: One of the Largest Ongoing Accounting Scandals in American History.

NOTE: We did a separate walk-through by the numbers for those who have an aversion to reading annual reports. Verizon New York 2021 Annual Report Reveals Massive Financial Scandal.

This is not a history lesson — FRESH DATA: Published June 2022.

This is an excerpt from the Verizon NY 2021 Financial Annual Report (as separate from Verizon Communications, Inc., the holding company). Published in June 2022, this report relies on the “Uniform System of Accounting”, “USOA”, financial reporting requirements that were supposed to have been removed — but are still in use because of the massive financial cross-subsidy scheme that is underway that benefits the company. And this is happening in every state as every state’s telecom utilities have these financial books as the basis of their business. I.e.; the other services, like business data lines, pay a fraction of the expenses they incur.

How Bad is It?

The state telecom public utility became an illegal cash machine for the companies’ other lines of business, and it is hiding in plan view. Verizon NY is the largest state-based telecommunications public utility in New York State, covering over 80%-90% of the population, including New York City. And there are multiple services using these networks, but the rules have been manipulated so that most of the expenses for using the networks end up being charged to one service, local phone service.

  • “Local Service”, is the basic copper-based phone service, and had about $930 million in revenues in 2021 (Column 1)

However,

  • It is being charged over $1.2 billion in construction and maintenance (Column 1, Row C) when it really only had less than $50 million in actual expenses (shown on a different part of the financial report). Where is this construction budget going, if not to maintain and upgrade the state public telecommunications utility?

The other lines of business, including “Backhaul”, (Column 3), the business data services that are used by competitors and wireless, and the services classified as “Nonregulated” (Column 2) which includes (FiOS video) are paying a fraction of each expense, even though they are the majority of revenues.

Inflated profits and prices on the critical service — Backhaul. These are the wires that go down the street, or are on the poles. They are just regular wires/lines but have been designated to handle your call or stream after it leaves your computer or device and your location, then connects to the other networks. Moreover, they are also the wires and services that connect the cell sites to the networks, or are used for data lines like ATM machines.

The Verizon NY financial report shows that the profits for the ‘backhaul’ have been dramatically inflated to 60%+ profit margin (commonly referred to as EBITDA); it should be 10%-12%. Thus, America is being held hostage with ultra-high prices, and these financial reports are the key to cleaning house and lowering rates 50% or more — on all services.

Is America really giving billions to the companies that failed to properly upgrade the critical state telecommunications infrastructure, even though they were paid via deregulation to do the work? Worse, how did Verizon, AT&T and Centurylink, instead of using the funds to build out the state critical infrastructure, divert billions per state to illegally build out their other lines of business, including wireless? All of this has been going on for decades, right under the nose of the regulators (or with the help of) who should have not allowed these violations and egregious acts to continue.

Waves of Deception Over Time Erased America’s Institutional Memory.

Shocking but True: They Just Don’t Remember? What is truly insidious is the ultimate con — AT&T, Verizon and Centurylink have been able to hijack common wisdom, literally. We have identified 7 basic diss-connects; seven facts that have been manipulated where the public has been deceived. Even the experts are quoting a fictional history of broadband and virtually no one can answer basic questions — such as the fact that all of AT&T’s 21 state ‘footprint’ is really just a collection of the original wired, state telecom public utilities which were to be upgraded with fiber, starting in the 1990’s, but bait and switch after bait and switch prevailed.

Chart 3: America’s Broadband and Fiber Optic, Bait and Switch Timeline

This is a partial list, tied to Chart 1, of the fiber optic, broadband, and merger announcements, each claiming it was going to bring us a new Digital Future. It is also a roadmap of the number of times America was punked — as these actions not only happened on the federal level but also in almost every state.

And let us be very clear — you are seeing a continuous stream of violations and egregious acts being repeated over and over because no one seems to realize the companies have used the same pattern — ‘promise them any new technology’, then, after a year or two, no one will remember what was promised, so the companies just repeat the pattern, which includes rate increases, tax breaks, the removal of basic obligations to the state and the public, and then using all of this as an excuse to get more money.

The government subsidies, then, are being given on top of over a trillion dollars of deceptive acts, including the cooked financial books, and the reformation of the Bell companies, acting as a cartel; they let the entire US wired infrastructure deteriorate — causing the Digital Divide.

Does anyone think that the government subsidies will ever close the Digital Divide when the regulators have been captured, and these companies still control the state’s underlying network infrastructure and no regulator has examined the actual accounting books that have been hidden from view?

Chart 4: Just One Bait and Switch — The Video Dialtone filings with the FCC to upgrade cities that still have not been upgraded.

We want to drive home the magnitude with this last chart. This was just one of the bait and switch games played — called Video Dialtone. After taking the FCC to court to be able to offer video services and compete with cable, and tied to the ‘information superhighway’ state plans, the companies claimed that they were rewiring America with fiber to the home to be completed by 2010, and in the early 1990’s, this ‘fabulous new fiber optic future’, was brought-on with so much fanfare as to make the ‘5G’ noise machine seem like a whisper. Based on the announcement by the Clinton-Gore Administration, around 1992, the National Infrastructure Initiative was announced. Every phone company made claims it would be rewiring America, state by state, city by city — and they lied. As soon as the ink was dry, and all of the states granted billions per state in deregulation (so they could charge wired customers for these networks) the companies started merging and by the end of 1995, almost every company cancelled these plans.

Chart 4, taken directly from the filings by the phone companies with the FCC, shows that from San Francisco to Baltimore, cities were to be upgraded to fiber, starting in 1993. Today, these cities, and everywhere throughout America, are still searching for solutions to the Digital Divide — almost 30 years later.

Rate Increases on Top of Rate Increases: Virtually no state removed the rate increases or went to get refunds, and by 2004, over $200 billion had been collected — and customers paid thousands of dollars per line, extra. And each of the boxes on the Chart 1 was another bait and switch where increases were piled onto the previous increases with no audits or investigation.

Thus, in 2022, the prices of all services are based on a corrupted starting point and over the decade, AT&T et al. were able to take control of the network infrastructure for all services — inflating all prices in America, including wireless, including broadband, including even cable TV.

And all of this is compounded by the corrupted accounting that no state has investigated, but it continues and thus keeps this corrupt model in place.

This is a current reality. And no amount of new government subsidies will fix the structural flaw — the takeover of America’s communications. There is no regulatory framework to halt this next bait and switch and no serious competition to add balance and bring back ‘market forces’.

The Call to Action:

Every state should be investigating their state telecommunications public utility and how much was already collected in the name of broadband, but also all of the current, ongoing cross-subsidies, including wireless, and the financial hanky-panky.

There is enough funding available to properly upgrade America to fiber, if only the regulators, politicians, etc. finally went after the violations and egregious acts.

We believe any state agency (or federal agency) that does not examine the financial reports before giving the companies government subsidies, is negligent in its duty to protect the public — They are called “public utility commissions” for a reason.

to be continued…

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Bruce Kushnick

New Networks Institute,Executive Director, & Founding Member, IRREGULATORS; Telecom analyst for 40 years, and I have been playing the piano for 65 years.