Just Released for Public Review: The Verizon NY 2022 Annual Report Shows a Massive, Corrupt, Financial Accounting Scheme.
Anyone who has ever read a corporate financial annual report knows that a company has revenues from different services or products; and it also has expenses, from marketing to answering customer questions. Moreover, in this case, Verizon is running and maintaining a state-wide telecommunications public utility network.
Answer This — This excerpt was taken directly from the Verizon NY 2022 Annual Report, (spreadsheet) released May 26th, 2023. How is it possible that “Local Service”, the basic copper-based voice phone service, which is no longer being sold, and had revenues of $826 million, is being charged the majority of corporate expenses (Column F, Line 15)? (Keep in mind that these expenses are mostly for Verizon Communications, Inc, the holding company, that owns the state telecom utilities in their service areas as well as many other affiliated corporations, which includes cellphone services.)
We will go through this in detail, but Local Service was charged: *(Estimates for overcharging are based on other information in the financial reports and filings.)
- Construction — Over a billion dollars which is not being used by Local Service. This should be $20–40 million; $1 billion in overcharging.
- Marketing — Charged almost $148 million, the majority, for a service that is not being marketed — Overcharged $148 million.
- Corporate Operations expenses — Paid $738 million, 60+% of the total (which includes the executive pay, lobbying, lawyers and even the corporate jets). Overcharged $725 million (or more).
- CONCLUSION: Over $2 billion, in just 2022, in just Verizon NY. The other expense categories are equally egregious.
At the same time, as we will discuss, the other lines of business are being subsidized by Local Service. Worse, it is the very customers, many being the low income and rural customers, who are on the wrong side of the Digital Divide.
Now multiply this one state telecommunications public utility egregious acts for this one year, with all of America’s other state utilities — from AT&T California or Illinois, or Verizon Massachusetts or Centurylink Oregon…
How Many Accounting Violations & Egregious Acts are there?
Again, the chart above is taken directly from the Verizon NY 2022 Annual Report which was published on May 26th, 2023, and is required by the NY Public Service Commission. Verizon NY is the largest telecommunications public utility, covering almost 90% of NY State.
Using this published financial report, and previous reports, we will show that in 2022, (and every year for the last 2 decades), billions of dollars in cross-subsidies and miss-allocation of corporate expenses have been underway.
In essence, using manipulated accounting, Verizon et al. have been able to make the wireline utility be a corporate cash machine to fund the other lines of business, especially wireless. Worse, in the end, not only did New York’s rural communities and low-income inner city neighborhoods not get upgraded to fiber optics, but customers were overcharged thousands of dollars extra for services they never received — and to add insult to injury, they have and are being charged for the fiber that was diverted to the wireless subsidiary, and didn’t go to give customers a fiber optic service to their homes and businesses.
- All of these financial machinations helped to create the Digital Divide on multiple levels.
- Requiring a halt to these and the other illegal cross-subsidies would be enough for the state to be upgraded to fiber optics — and lower rates.
Institutional Amnesia and the Hijacking of the ‘Common Wisdom’.
What is also shocking — Virtually no regulator or politician knows that Verizon NY is still a state regulated public telecommunications utility or that these massive financial cross-subsidies are current and need to be addressed — and halted as soon as possible.
Answer This — How can the federal and state government agencies give out government subsidies of over $100 billion in state and federal grant and loan funding — when it will mostly go to and reward the same companies that helped to create the Digital Divide?
NOTE: Every Verizon, AT&T and CenturyLink (now Lumen) state in America appears to still be using these same corrupt accounting rules, and New York is the only state we know of that requires a full annual report be presented to the public.
3 Primary Lines of Business using the Same Infrastructure
New Networks Institute (NNI) and the IRREGULATORS have been tracking Verizon NY’s financials reports for decades and this summary analysis will expose that this is a long term problem that has never been examined and dealt with by the states or the FCC.
Verizon NY has 3 primary different lines of business.
- “Local Service” — (COLUMN F) is the copper-wire based phone service, and is commonly called “POTS”, Plain Old Telephone Service.
- “Backhaul”, (COLUMN G) also called “Business Data Services”, “BDS”, or “Special Access”, are just copper and fiber lines used for data that go to banks or cell sites.
- “Nonregulated”, (COLUMN C) are items that are non-regulated services such as FiOS video and VOIP phone service.
IMPORTANT: A Lot More Revenues via Subsidiaries — There are many other Verizon subsidiaries, such as Verizon Wireless or Verizon Online, that also use the networks, but the revenues do not go back to the utility, and the payments to use the networks can be a fraction of the actual costs incurred.
Let’s Do the Math: Follow the Money
Local Service are the revenues and expenses from offering basic POTS service. (We will be using rounding for simplicity.)
Returning to the Numbers: Verizon NY Local Service brought in about $826 million dollars in 2022 (Column F, Line 9) and elsewhere we find that there were over 1 million copper-based lines still in use and this number is missing millions of copper-based wired services that are still in use but not presented to the public. (We will address the miss-counting of access lines in a separate story.)
Going Down Local Service Expenses, Column F:
*(NOTE: The Report calls this column “NY State” and “IntraLATA” Revenues and Expenses (State-based)
Corporate Operations (Line 15) is a garbage pail for corporate expenses including executive pay, lawyers, lobbyists and even the corporate jets, but the majority has been dumped into this Local Service line of business; it is paying $736 million (Column F, Line 15) which is 61% of the total charged to Verizon NY.
This one corporate expense charge is 79% of the revenues.
Construction and Maintenance (Line 11) are known as “plant” and “non-specific plant”, — Local Service was charged over $1 billion dollars, (Column F, Line 11) — 126% above the revenues, which was only $826 million.
This means that Local Service was made unprofitable through the addition of these massive corporate expenses and the construction budgets, that were not related to or caused by Local Service.
Marketing (Line 12). This is for a service that is not being marketed or is even on sale. Local Service paid $147,868,792, 54% of the Total charged to Verizon NY (Line 12, Column F).
Let’s Pause. This Makes Absolutely No Sense.
- Verizon, over a decade ago, decided to stop properly maintaining the copper wires.
- Verizon is no longer even selling the copper-wired POTS service —
- There is no marketing for this product.
- There has been virtually no maintenance and construction.
- Corporate Operations expenses have been obscenely, excessively charged to Local Service. Keep in mind that no state or federal regulatory agencies have audited or investigated this accounting practice.
Exposing the Cross-Subsidies via the Expense Allocation.
This next chart should be like reading the Riot Act to every city, municipality, state, not to mention the broadband agencies and all those living in underserved, unserved areas.
Local Service is only one-quarter of the revenues (Column F, Line 9) but in every category it is paying the majority of expenses. How can Local Service be charged the majority of these expenses? It is paying 54% of Marketing which is $147 million when the other lines of business such as Nonregulated, including FiOS video, and Backhaul, which represent 77% of the revenues, are paying only a fraction of these expenses?
Where Did the Construction Money Go?
Local Service is paying 73% of the construction that is underway; known as “Work in Progress”, the other lines of business pay chump change.
This chart shows that Local Service (Column F, Line 19) paid $629.6 million dollars in “plant under construction”, which is 73%, while the other lines of business, like the Nonregulated FiOS video, paid only 11%, only $92 million.
Local Service Utility Functions as the Bank:
Moreover, the state utility appears to be acting as the bank by paying for the ‘working capital’ of $172 million.
- If there is no construction of the state utility’s intrastate networks, then how is it that the Local Service category is picking up the majority of the expenses?
- And where is the (Line 19) $630 million dollars going?
Continuous Price Increases.
While there are many who will say that these financial books are for legacy services and they are a formality, this is patently not true.
Others will say — Why should anyone care?
First, these financial reports are used to set the rates of the state telecommunications utility services — and somehow, every year there are rate increases — a continuous stream over the last four decades:
This is known as “harvesting”, which is the price gouging of the customers until they scream “uncle” and leave or they just keep paying seriously inflated rates, thus violating every fair and reasonable statute.
This next chart summarizes the last 5 years of rate increases on various services that were highlighted in the Verizon NY Annual Reports.
The Connections between the Annual Reports and the Litany of Verizon’s Violations & Egregious Acts.
- How do we know that the wired local phone rates *(and thus all rates of all wireline and wireless services) have been increased based on fiber optic construction announcements and the state of FiOS?
- How do we know that this corrupt accounting has been used to divert the construction budgets to wireless?
- How do we know that there are billions of payments for the use of the networks missing from the ‘affiliate companies’ that should be paying market prices for these services, yet as the accounting shows, expenses were improperly allocated to Local Service?
- And how do we know that the affiliates and subsidiaries are NOT paying back to the utility for use of the construction or even the rights of way?
In June 2009, the NYPSC issued a press release stating that this rate increase was being done due to a ‘massive deployment of fiber optics’.
“We are always concerned about the impacts on ratepayers of any rate increase, especially in times of economic stress,” said Commission Chairman Garry Brown. “Nevertheless, there are certain increases in Verizon’s costs that have to be recognized. This is especially important given the magnitude of the company’s capital investment program, including its massive deployment of fiber optics in New York. We encourage Verizon to make appropriate investments in New York, and these minor rate increases will allow those investments to continue.” (Emphasis added)
PART II: HOW MANY VIOLATIONS & EGREGIOUS ACTS ARE OCCURRING BECAUSE OF THESE COOKED BOOKS?