IRREGULATOR Treasure Map: Billions for Broadband in Your State and Refunds on Your Communications Bills.
PART 1: Verizon NY: The Art of Hiding a $5 Billion State Telecommunications Utility that No One Even Knows It Exists.
PART 2: The Treasure Map: This is a marked up excerpt of the Verizon NY 2017 Annual Report, published June 2018
FOLLOW THE NUMBERS: FOLLOW THE MONEY
This treasure has been hidden deeply by the lawyers and accountants of Verizon, AT&T and the FCC. And they have even been able to erase the history of what really happened, including the audit trail. Verizon New York is the only state telecommunication utility still required to submit an annual report; the FCC stopped publishing basic financial data in 2007 to cover all this over, and to cover over the real culprit — the FCC’s own accounting rules. More recently, the acts of the FCC to steadily erase the remaining trail and to absolve the companies of wrong-doing have sped up dramatically.
Let’s just start with the numbers presented:
DOWNLOAD: ACTUAL REPORT: PAGE 27 (Treasure Map has been modified for clarity.)
Using the above excerpt. Verizon New York 2017 Annual Report shows (rounded numbers)
1) “Total Operating Revenue” shows $5 billion in revenue in 2017.
Focusing on Local Service
2) Local Service had about $1.1 billion in revenues which is based mainly on the aging copper wires known as “POTS”, “Plain Old Telephone Service”.
3) Local Service was charged $1.8 billion in “Corporate Operations” expenses, which includes executive pay, lawyers, lobbyists, the corporate jets, and golf tournaments. These expenses have virtually nothing to do with Local Service.
4) This Corporate Operations expense represents 62% of the total of $3 billion. How did this happen?
5) Local Service was charged $1.2 billion in construction and maintenance — even though elsewhere we find it spent an estimated $100-$125 million only. Where did the rest go?
Tax Dodge and Benefits
6) Local Service, counting all expenses, lost $2.9 billion, in just NY, in just 2017.
7) Didn’t Pay Taxes and Got Large Tax benefits. These losses made Verizon NY show $2.5 billion in losses, which generated $943 million in tax benefits.
Focusing on “Access”, Business Data Services, FiOS and Nonregulated
8) “Business Data Services”, sometimes called “Special Access” represented about $2 billion of this $2.4 billion in “Access” fees. These are not special wires; they are mostly the existing copper and fiber optic networks, used for data or the wires for wireless. However, they have been classified as “interstate”.
9) “Access” is more than double Local Service revenues but only paid $600 million of the Construction expenses.
10) “Access” paid less than ½ in Corporate Operations expense or Marketing as compared to Local Service.
11) “Nonregulated” is a garbage pail for revenues that were once regulated or never regulated and they now include FiOS video and other services.
12) “Nonregulated” paid a fraction of the Corporate Operations Expenses and Marketing and paid less than Local Service for fiber optic builds. Why?
Where Will the Other Money Come From? $12–15 Billion in Revenues?
Verizon, in New York, is bringing in and estimated $7–10 billion in revenues from the other subsidiaries that are using the networks, but it appears that they are not paying market prices for the use of the networks. In fact, the majority of all expenses have been assigned to Local Service, which helped to raise rates 95% since 2006, claiming ‘losses’ that are artificial and not related to Local Service.
The Treasure Targets:
The Plan is Simple: We Want the Money Back to be used for Fiber Optics to Everyone — and Refunds.
Stop all of the massive cross-subsidies that have been caused by the FCC’s deformed cost accounting rules. And what you’ve just read are the details that are supplied by Verizon NY.
Target I: Corporate Operations Expense Overcharging: Why was $1.8 billion charged to Local Service for Corporate Operations, in New York, in just 2017?
§ Local Service only had $1.1 billion in revenues. This represented 62% of the total of $3 billion for Corporate Operations Expense.
§ This one expense item, that was diverted into Local Service, made Local Service unprofitable.
As mentioned, these are the basic phone lines known as POTS, Plain Old Telephone Service. How did end up paying $1.8 billion in Corporate Operations expenses?
Target II: Overcharged Construction: Local Service was charged $1.2 billion for construction and maintenance, when only about $100-$125 million was spent on the copper networks. In fact, Local Service was charged more than either Access services or the Nonregulated services.
- Where did the other $1.1 billion dollars go?
- Why was it charged to Local Service?
Target III: Taxes: Local Service lost $2.9 billion, and Verizon NY paid no income taxes and most other taxes and had almost $1 billion in tax benefits.
Target IV: Wireless Cross-Subsidies. Verizon Wireless was able to use the wireline construction budgets to fund the wires required for their wireless cell sites. From 2010–2012, it appears Verizon was able to have almost $3 billion, in just New York State, that was used for the wireless company instead of the state utility customers. At the same time, other documents show that Verizon Wireless paid a fraction of the expenses other companies paid for use of the networks in Access fees.
The Wireless company should be required to pay back these funds and pay market prices for use of the utility networks — and the pay back the local phone customers that were charged for the construction and deprived of upgraded and properly maintained services.
Target V: FCC Cost Accounting Rules: Take the FCC to court over their cost accounting rules that created this financial shell game.
To repeat — it is hard to believe but the FCC’s rules that determine how much each of the lines of business should for use of the state utility infrastructure wires were frozen to reflect the year 2000. So, Local Service was 65% of the state utility revenues and it paid 65% of the expenses. By 2017, Local was only 21.6% and yet it paid 62% of this one expense — i.e.; $1.8 billion — as shown on item 4 in the walk through.
The FCC never, ever examined the impacts their rules had and so, over 19 years Local Service continued to pay around 65% of the total of this one expense.
Just to demonstrate how brain-dead this FCC is, in 2018 they proposed to keep this ‘freeze’ in place for an additional 15 years; the FCC lowered it (we filed to investigate) to just 6 years.
Conclusion: You just saw the actual financials for Verizon NY, the only state utility we know of that requires a financial annual report.
Your State Needs Immediate Investigations. Unfortunately, these cross-subsidies were federal and set by the FCC. What happened in your state most likely looks exactly like these financial manipulations.
Leaving the current situation intact means that the next generation of services are in serious jeopardy. Leaving this situation as is, is not an option.
PART III: Treasure Map: One of the Keys to the Treasure: Find the Missing Lines. PROOF: Verizon, AT&T and FCC have Manipulated Access Line Accounting in the States and in America