Close the Digital Divide with No Government Subsidies; Get the Money Back from those Who Created It — Verizon, AT&T et al. — Big Telecom

FAQ: How does the Verizon NY 2020 Annual Report detail billions that can be used to solve the Digital Divide in NY, as well as nationwide, with no government subsidies?

What is the Verizon New York 2020 Annual Report? (Hidden in Plain Sight). On May 28th, 2021, the Verizon NY 2020 Annual Report was published. Verizon NY is the primary state telecommunications public utility and New York is the only state we know of that requires and makes public a financial annual report for the state-based public utility.

This is not the Verizon Communications Inc. Annual Report, which is for the entire holding company. Verizon NY is just one of Verizon’s East Coast telecom utilities, from Massachusetts to Virginia. Moreover, the FCC stopped publishing information by state of the primary telecom utilities in 2007.

  • DOWNLOAD the Verizon NY 2020 Annual Report (Spreadsheet), and the IRREGULATORS Analysis and “How to Read the Report — Walk-through”.

The Accounting Formulas Used by Verizon have been Manipulated. The Verizon NY report relies on the FCC’s accounting rules, known as “USOA”, “Uniform System of Accounting”, and over the last decade we uncovered that they have been manipulated so that by 2020, the majority of all expenses for Verizon’s services using the state infrastructure are mainly charged to one category; the wireline, local phone service (“intrastate”), while the other services using the networks are getting a free ride.

Billions of Dollars Per Year in Overcharging and Cross-Subsidies. Thus, right on the graphic above, anyone will see billions of dollars of expenses, including Verizon’s “Corporate Operations” expenses, which includes everything from the corporate jets, executive pay, lobbyists and lawyers, that are mainly being charged to the local basic phone service subscribers. (See our previous analysis of Verizon NY Corporate Operations.) Moreover, it is clear that billions of dollars of the utility construction budget have been primarily charged to the Local Service line of business.

These transfers and the corporate expense dumping caused the Digital Divide. Irony laden, the company claims that fiber is not profitable or too expensive and they used it as an excuse for rate increases. This financial report shreds that argument.

  • How Much are We Talking About? The scale of how much money has been manipulated, for just one year, in just New York, is mindboggling —

How is it possible that Local Service paid over 60% of Corporate Operations, $833 million, on revenues of only $1 billion? How can Local Service pay $1.1 billion in ‘Construction & Maintenance’, (sometimes called “Plant” and “Non-Specific Plant”) yet it spent only an estimated $75-$100 million for maintaining and upgrading the copper networks. Where did the $1 billion in capex go?

We estimate that out of these excessive charges, while a small amount would be considered legitimate and tied to Local Service, almost $2 billion dollars was overcharged, which is only a partial accounting.

  • Local Service and the state utility were overcharged an estimated $925 million in corporate operations and marketing expenses, in just New York, in just 2020.

The ‘Free Ride’ of the Other Lines of Business. Verizon NY has two other lines of business on the books; “Nonregulated”, (which includes VOIP and FiOS video), and “Business Data Services”, data lines (sometimes called “backhaul” or “special access”), used for wireless or businesses — and they are getting a free ride since they don’t pay at the same rate as competing providers are charged to access the network, nor the ‘fair share’ of the total as compared to Local Service.

“Nonregulated” Service revenues were $1.1 billion but paid a fraction of all costs. Local Service paid 263% more in Marketing expenses than Nonregulated services, 497% more in Corporate Operations expense 217% more in overall expenses — Why?

  • This Is Verizon NY’s Data: Not Ours: The financials that detail this massive cross-subsidy scheme comes from Verizon NY’s own annual report, filed with the NY Public Service Commission. (NOTE: We did not generate these financial reports, but for presentation purposes, we streamlined some of the entries and added their ‘common names’. For example, “Backhaul” is called “Other” in the annual report.)

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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.