Does $9 Billion Sound Excessive for AT&T and Verizon’s Wireless Revenue from One Junk Fee? “Cost Recovery” Garbage Pail, Slush Fund.
The “Cost Recovery” charge, sometimes called “Cost Recovery & Admin Fee” is one of those “junk fees”, that are part of the dirty, little secrets in communications and this is a garbage pail collection of made up, junk fees on your communications bills.
This story is Part 1 and focuses on AT&T and Verizon’s wireless services, and the charging of Cost Recovery fees that averages $3.40 per connection per month. It appears that it is being applied in 2024 to approximately 230 million ‘connections’, from the laptops to the smart phones — about $9.4 billion in revenues.
But this is only a fraction of the number of wireless connections or the monies being collected. And this is a subset of the total Cost Recovery charges that include cable, ISP, Internet-broadband and wireline services.
According to Google AI:
“The total number of wireless connections in the United States in 2023 was 558 million, which is more than 1.6 connections per person. This is a 6% increase from 2022.”
Data Caveats: Different sources use different numbers due to different time-frames, (first or second quarter vs the 2023 annual report) or the addition of different products, such as broadband or FWA wireless. The next story will continue our discussion of what this charge covers for AT&T and Verizon, as well as address the wireline, broadband, internet , etc. and the other made up fees.
Please Note: This is a starting point and our experts can not ‘reverse engineer’ the basic financials that are listed in this one charge. In fact, nobody knows the details and we are using best guesstimates. But, we don’t see any indications that this is a valid charge, much less all of the other supposed compliance recovery that should not be charged to customers in a separate line-item on the bill. As we expose, the reality is that this non- government mandated charge is ‘revenues’ that are taxable, but never show up in the advertised price of service. We, as customers, are concerned; we, the public, have the right to know.
And what might piss off a lot of people is the fact that this fee was added to the low income ACP government subsidy recipients, and thus the government paid this fee. Weren’t we told that the primary reason for the Digital Divide and Equity was affordability? — And some of companies even raised this fee, some over 70% since the pandemic started. And it is only a trivial amount to those who can easily afford broadband, as this is one of multiple additional made up fees put on most of 23 million low income families’ telecom bills.
One glimmer of potential hope: The Biden-Harris FTC has put forward a proposed rulemaking to get rid of these bogus fees in all service areas. It does covers not just telecommunications but has a broader focus and goes after the deceptive advertising.
IRREGULATORS Position: This charge and the other made up fees should never have been allowed to be placed on the bills and it and the other made up garbage fees should be removed — immediately. Period.
Second, halting this fee is not enough and the companies need to be held accountable for the overcharging of the customers, not to mention America. As we describe, we could not find the expenses that would match what was charged to the public and that difference could be billions that should be returned as it comes to over $9 billion that is in question a year. And this is for just the Cost Recovery for AT&T and Verizon Wireless, and not the other made up fees or other wireline and wireless companies and services.
But other, more serious red flags litter this discussion. For example, in some of the specific items listed, such as E911, almost every state has imposed separate line items to pay for these emergency calling networks, and this is on top of a 1–3% admin fee paid out from what is collected. Where’s any documentation to prove that there is a shortfall, and that they should receive compensation, and from the actual end users.
And the 2 examples we present may require a warning for those with high blood pressure to take their meds, or in 2024, gummies might help.
Why are there still this and other junk fees on our bills? Not only are they proliferating post-Pandemic, but are increasing at an alarming rate.
This has all been a slippery slope. There have been cases over the last few decades to remove the fees, but, in the last round, there was a settlement based on the fact that the companies failed to notify the public that the charges were put on the bills, even though they are not government mandated. Verizon claimed it did nothing wrong and has kept the junk fees on the bill.
“Verizon won’t stop charging $3.30 “Telco Recovery” fee, may raise it again. Users will get up to $100 each in refunds, but Verizon fee isn’t going away/”
Excessive Revenues to the Companies.
It requires digging but this charge, even though it is an expense to you, are revenues to AT&T and Verizon — as are the other made up fees.
This is an excerpt of the Verizon 2nd Quarter Report 2024, and it says something so outrageous I had to look twice. As we just mentioned these fees are considered revenues and are taxed. Verizon has made $3 billion by the second quarter 2024, in ‘other wireless’ revenues.
This excerpt from the second quarter 2024 shows the other’ category in the wireless consumer market and this area brought in about $1.5 billion in each quarter — about $6 billion is expected for 2024 in toto.
And it contains increases in revenues, some of which are the made up, not government mandated, junk fees.
“Other Revenue
“Other revenue includes fees that partially recover the direct and indirect costs of complying with regulatory and industry obligations and programs, revenues associated with certain products included in our device protection offerings, leasing and interest recognized when equipment is sold to the customer by an authorized agent under a device payment plan agreement.
“Other revenue increased during both the three and six months ended June 30, 2024 compared to the similar periods in 2023 primarily due to:
“An increase of $46 million and $79 million for the three and six months, respectively, driven by regulatory surcharges, primarily related to higher net Federal Universal Service Fund surcharge rates, along with an increase in other regulatory surcharges.
Revenue increases are from “regulatory surcharges” and “higher Federal Universal Service surcharges”, about $125 million dollars in just the first 2 quarters.
You got to be kidding me. The exact amount for this one charge is hidden but the implications are: We just gave these companies $14 billion dollars in ACP funding because customers couldn’t afford basic broadband service and yet these companies not only got billions in government subsidies but they are making an undeserved profit on the bogus surcharges.
And, as we discuss, and as you can see from this financial excerpt, there is no information how much of this other fee are pass-throughs for the taxes, or are just kept by the company as profits. However, because many of the items are just part of the cost of doing business or are some partial compensation of some expense, the research points to an analysis that is filled with a few basic questions — is the surcharge justified or not; or is it legit or just made up high=profit revenues.
Is the Cost Recovery Charge Taxed As Revenue… Yes, But…
iAsk AI wrote about taxing the Cost Recovery charge:
“State Tax Implications: Many states impose sales tax on telecommunications services, which can include various surcharges like the Cost Recovery Fee. Therefore, if state law classifies this fee as part of taxable revenue from telecommunications services, it may be subject to state sales tax. Each state has its own regulations regarding what constitutes taxable services and fees.”
We note that there is not definitive break out of the Cost Recovery or Universal Service Fund tax and surcharge application, no “Rosetta Stone” with the answers, so our analysis here is missing some basic answers.
230 Million Connections for Wireless. There Is No Need for Government Subsidies.
Verizon and AT&T have about 230 million wireless ”connections” and they both charge a Cost Recovery Fee per connection, per month, so a household with 3 lines, and/or some laptops, etc. all pay $3.40 on average per line per month. But this is not the complete charge; as we mentioned; this charge is revenue and is treated as such. (We do not know if all of these lines pay the fee based on the fact that the packages and services have differing bundles of service, or there can be state issues as well as historical issues as a customer can have the same package for 20 years — before the fee was charged.
This next chart details how AT&T and Verizon reap an estimated, whopping $9.4 billion a year from their wireless customers for this one junk fee. This is $782 million a month, and I hate to break it to you but this gets worse because, as we mentioned, it can be ordinary revenue for the companies. On top of this, taxes, fees and surcharges are applied to the junk fee revenues, so the harm to customers is multiplied.
Verizon’s Wireless Cost Recovery Estimates
This is a summary of Verizon’s Cost Recovery Fee as reported in the 2nd Quarter Report 2024, based on current pricing and cost per household.
To summarize, Verizon is charging $3.30 per line per month, that’s about $40 bucks a year. The average ‘account’ was about 3 people (2.87) so that’s about $114 a year. But, with 114 million customers the company brought in $3.7 billion and with 20% added for taxes, the total is $4.5 billion for just this made up fee and some estimated taxes.
What Is in this Slush Fund?
According to AT&T: (edited)
“To help AT&T recover payments of certain government fees imposed on AT&T and to recover the costs of compliance with government-imposed regulatory requirements, including, but not limited to, expenses incurred related to Federal Regulatory Fee, Telecommunications Relay Service, Wireless Number Portability and Number Pooling, Enhanced 911 (not otherwise recovered), Wireless Tower Mandates Costs, Customer Proprietary Network Information (CPNI) Compliance Costs, Network Outage Reporting Costs, State Commission Annual Reporting Costs.”
Virtually all of these items are required as the “cost of doing business” and should have never have been allowed to increase the revenues posing as an expense.
The rest of this story will focus on 2 of these areas and show just why these should be investigated and the charges removed.
- “State Commission Annual Reporting Costs, Network Outage Reports” This includes the costs of preparing and filing these reports with the state commissions.
- “CPNI” — “Customer Proprietary Network Information” — is your phone number and other tied information like your address, but also demographic information, which is then tied to you cell phone service, lap top etc. wireless services, including 5G, etc. This claims that it is recovering ‘compliance costs’
Every Industry has a Litany of Rules, Regulations and Compliance to Those Regulations.
Making sure that the phones are working, that the fees required are paid, and that the companies can use the state forms and formats to prove that the work was done, is one aspect of ‘compliance’ with the laws and regulations. And these obligations have been around for decades to protect the public.
Go into a restaurant in Brooklyn and the place must be able to pass a health inspection, and a host of other obligations like waste removal — and this costs money to do and fees to pay — but it is part of doing business. There is no added ‘waste disposal surcharge’ or kitchen cleaning fee” added to bills… at least not yet.
Regardless of the ability to manipulate the story lines, at the core, Verizon and AT&T are holding companies that still own and control state telecommunications public utilities and they have been claiming that they should not be ‘burdened’ with compliance, or at least should be able to get additional funds to make the profits ever higher. It is clear that our findings makes it an imperative to do audits of these expenses, and full investigations of this garbage pail of monies known as Cost Recovery.
But the list of the areas where Verizon uses the Cost Recovery for more profits needs immediate investigations.
The subtlety of hiding basic facts — Is it deception and perjury?
How is 3 Verizon accountants and a manager, covering 300 reports in NY and other states, worth an unknown part of $4.1 billion dollars?
We note that the wireless Cost Recovery may or may not cover wireline, broadband, internet, ISP, services, as the charge is applied to both wireline and wireless services.
Over the last 2 decades Verizon et al. claimed that the maintaining of accounting for the utilities using the USOA, Uniform System of Accounting was a ‘burden’, and the FCC granted “forbearance’ of the requirements circa 2008, meaning that the laws are in place but were not going to be enforced.
We believe the removal of the FCC’s requirement for basic state-by-state financial data was done to hide the audit trail that would show massive cross-subsidies of the wireless networks, and other financial harms we documented — a financial burden on the public.
However, the Verizon state annual reports that are required appear to also have a partial reimbursement for the state commission requirements in the Cost Recovery charge. And we use the FCC’s statements and the Verizon statements to detail the disparity of the expenses to do the work- which brings into question — how much money was in Cost Recovery and is it accurate?
These are excerpts from Verizon New York, which is the state telecommunications public utility and it is required to submit an annual report and other reports pertaining to service quality.
Verizon wrote the NY State Public Service Commission to give Verizon an extension to file their annual report and this has been going on every year for at least 14 years.
- Notice: Verizon, the holding company, is writing this, not Verizon NY
- Notice: the “ magnitude of the burden” is only in ‘relation to the force available for the work’.
- Notice that there are only 3 individuals and a manager, and
- Notice that the staff covers 300 reports in NY and other states.
Thus, Verizon, the holding company, is requesting an extension to file the Verizon NY 2023 Annual Report, which was published May 23, 2024
“Because of the magnitude of the burden in relation to the force available for the work, it is Verizon’s considered judgment that it would be difficult, if not impossible, for it to complete the Report by the March 31 deadline.”
“Verizon’s regulatory reporting team is comprised of three individuals who, together with their manager, have responsibility for preparing, reviewing, and filing over 300 reports annually, in New York and in other states.”
How crazy is this? Verizon is collecting billions from ACP and is getting money as part of the additional Cost Recovery — and total is over $4 billion, and yet Verizon only had 4 staffers to do this and 300 other reports in other states.
“The Magnitude of the burden in relation to the force available — will always go down in history as one of the most disingenuous things ever said. The Holding Company didn’t put enough staff to do the basic work so the burden was only on ‘those available’ — 3 staffers and a manager.
This probably less than $1 million in expenses; so where is all of the other money?
And, Verizon NY in 2016 claimed that one of the staffers was on medical leave and another had been somewhere and just returned?
“One of those individuals has only recently returned to their normal job, but due to reasons unrelated to the strike, another individual whose work is critical to the accurate completion of the report is currently on medical leave, and will not be returning to work until mid-June. As a result of the foregoing, Verizon needs additional time to complete the Annual Report, and requests a further extension to June 30, 2016.”
“Burden” is the word used by the FCC and Verizon, et. al to claim that these ‘books’ cost hundreds of millions of dollars to do — and yet what is 3 staffers and a manager cost, and how much of this staff is doing work in the other states.
The Real Burden; FCC Fails the Smell Test: Under FCC Chairman Ajit Pai, the FCC decided it would get rid of the burdensome accounting requirements claiming that would save money that could be used to drive network upgrades.
“There is simply no need to continue requiring these and only these carriers to waste time and money keeping two sets of books.
“This is especially important because every dollar used to comply with the Commission’s outdated regulations is a dollar that can’t be used to build 21st-century networks. And the money involved here isn’t chump change: The record suggests some carriers have been spending millions of dollars a year to comply with the accounting rules. To me, that represents potentially thousands of American consumers who could have been digitally connected.
“Recently, we asked Bureau staff to determine how often of late the FCC used this Part 32 data for price cap carriers. The staff responded that it was not aware of any federal reliance on this data in the last five years. In addition, the Bureau said that going forward, none of the changes in this Order would prevent them from having the necessary accounting data to carry out any of the agency’s statutory duties.
“Let all of that sink in for a moment. For at least half a decade, the Commission has been mandating that carriers devote scarce resources to accounting paperwork that the Commission doesn’t even need. This is the telecom equivalent of the government levying a tax and the IRS then burning the money.”
The accounting was never a scarce resource, and the utility ended up at the short end of the stick. FCC chairman Ajit Pai was a former Verizon attorney and his ‘staffers’, included current FCC Commissioner, Brendan Carr, who was one of Verizon’s attorneys to remove the accounting requirements at the FCC in 2008.
The idea that the FCC’s staffers didn’t look at the financial books for years shows us the failure of the regulators to provide proper oversight.
But the conclusion for the Cost Recovery garbage pail charges and the state commission compliance and other related issues must be:
- The Cost Recovery payment to comply with a state commissions is a made up play to have more revenues,
- There are no documents we could find or are open to the public about the breakouts of this money being paid.
- There is zero coordination of the FCC and the states and we assume that no one audited the financial books or the other made up fees.
- This idea that the FCC didn’t need to examine these financial books shows just how corrupt their analyses are, from the bias of the chairman and staffer who both worked for Verizon to the plan to remove the regulations and safeguards protecting the public interest from financial shenanigans, all of this not only calls into question how much money the Cost Recovery charge allocated to state compliance.
- The Verizon NY financial books use the USOA accounting, and we have told the FCC and states that these were corrupt and were manipulated to cross-subsidize the wireless business.
Bottomline: These items are all just the cost of doing business and should not be concealed in this junk fee, but it must be audited. The FCC and the telcos claimed it cost hundreds of millions and yet, Verizon states that the entire process is 4 people, responsible for 300 reports in multiple states. The Cost Recovery for this must be audited to compare, but this is most likely another way to inflate profits through unaudited added, made up line items.
CPNI has been a Profit Center, Not An Expense.
“CPNI”, “Customer Proprietary Number Identification” — is your phone number, but also the entry into your entire phone usage, who you call, or with location software, helps give you a map and directions or can be used for other purposes. And this is running over the Verizon networks and their resellers and their other companies that use CPNI information are now referred to as a ‘family’, and this includes the current and previously owned companies such as Yahoo, TechCrunch, Terramark, and a host of others as Verizon owns differing amounts of the companies after losing billions.
Verizon states:
“Customer Proprietary Network Information (CPNI) is information available to us solely by virtue of our relationship with you that relates to the type, quantity, destination, technical configuration, location, and amount of use of the telecommunications and interconnected VoIP services you purchase from us, as well as related billing information.
“We may use and share your CPNI among our affiliates and agents to offer you services that are different from the services you currently purchase from us.”
Information about your credit can also be shared.
“Information about your credit includes your credit score, the information found in your consumer reports and your account history with us. We may share this information among the Verizon family of companies for the purpose of marketing new services to you.”
If Verizon, AT&T et al are using all of these valuable data points — information about you, your family, then shouldn’t we all get paid. At the same this charges needed to be removed from the bill, especially this Cost Recovery charge.
IRREGULATORS CALL FOR OPT-IN AND PAYMENTS TO USE OUR NUMBERS. —
Halt the “Opt-Out” program and make it “Opt-in option”. Today, in order for your information to not be used or sold, you have take an action and call the company —
Verizon and AT&T also package this and sell this information, unless you select to ‘opt-out’, but this is an act the customer has to undertake to now to stop the distribution of your phone number and the related info.
n Does the customer get reimbursed for the money the number generates — of course not
n Do the affiliate companies using this information pay the customer for this? Most likely of course not.
The use of the telephone number and surrounding data is a multi-billion dollar business, including CPNI.
In fact, Verizon had a “LBS”,” Location Based Services” company that had 67 partners until the business was closed and Verizon was fined by the FCC. Here is an excerpt of Verizon’s business using CPNI.
“Customer Location Information and Verizon’s Location-Based Services Business Model. Verizon provides mobile voice and data services to consumers throughout the United States by enabling consumer mobile phones to make and receive calls or transmit data on Verizon’s wireless network. As part of its business, Verizon ran a Location-Based Services (LBS) program until March 2019. Through the LBS program, Verizon sold access to its customers’ location information to companies known as “location information aggregators,” who then resold access to such information to third-party location based service providers or in some cases to intermediary companies who then resold access to such information to location-based service providers. Verizon had arrangements with two location information aggregators: Location Smart and Zooming (the Aggregators). Each Aggregator, in turn, had arrangements with location-based service providers. In total, Verizon sold access to its customers’ location information (directly or indirectly) to 67 third-party entities (including the two Aggregators).
And the idea that they can then charge through this deceptive made-up fee, should have been a red flag on just how ugly this entire added fee is. But at around $9.4 billion for just AT&T and Verizon Wireless, where’s the expenses to cover this claimed fee? None of this requires compliance costs that are anything but the cost of doing business — but most importantly, if the company is getting billions from the use of our phone numbers, shouldn’t they pay us?
Ars Technica covered the story and added links to the FCC’s decision.
“The FCC summarized its findings as follows:
“The FCC Enforcement Bureau investigations of the four carriers found that each carrier sold access to its customers’ location information to “aggregators,” who then resold access to such information to third-party location-based service providers. In doing so, each carrier AT&T empted to offload its obligations to obtain customer consent onto downstream recipients of location information, which in many instances meant that no valid customer consent was obtained. This initial failure was compounded when, after becoming aware that their safeguards were ineffective, the carriers continued to sell access to location information without taking reasonable measures to protect it from unauthorized access.”
Part 2 Continues the story and discusses the IRREGULATORS upcoming actions to clean up this mess — and solve the Digital Divide.
