National Broadband Plan: Follow the Money; Take Back the State Public Utility Telecommunications Networks.

They erased the “U” word and harmed the fiber optic future we paid for.

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There can never be a workable National Broadband Plan; the Digital Divide can never be properly repaired, prices can not go seriously down because there is no competition — and all of the made-up, taxes, fees and surcharges that should have been removed that were added over the last two decades continue to grow.

We are entering the election cycle and there are lots of national broadband plans and proposed solutions to solve the Digital Divide and most of them require throwing billions of dollars of government funding at the problem. Some of them, especially from the FCC, or the groups and pundits funded by the corporations, are designed to give more money to those who failed to deliver, over and over — AT&T, Verizon and CenturyLink.

Critical Legal Challenge: On Friday, January 17th, 2020, the IRREGULATORS v FCC will be heard in oral arguments in front of the US Court of Appeals for the District of Columbia Circuit. As we will discuss, this quintessential case solves the Digital Divide by ‘following the money’ and exposing one of the largest accounting scandals in American history.

The Goal: We don’t need more government handouts. We need to stop all of the massive cross-subsidies and customer overcharging underway — and get the money back to build our fiber optic digital future.

The Disconnect: How They Got Away with It.

The problem is, at the core, virtually no one knows that there are still state telecommunications utilities, mostly controlled by AT&T, Verizon and CenturyLink. No one knows that these networks are not just the aging copper wires but also include the fiber optic wires. No one knows that customers have paid, multiple times, for fiber optic upgrades or that the fiber optic wires that were put in, somehow were used for other services, like wireless.

And while ‘common wisdom’ claims that these networks are not profitable, the reality is that there has been a massive manipulation of the FCC’s basic accounting formulas that are applied to the state-based utilities’ revenues and expenses with the outcome being — the entire US wired state-based public utility infrastructure has been made to appear artificially unprofitable.

IRREGULATORS v FCC

IRREGULATORS v FCC follows the money and Americans are paying about $50–60 billion dollars annually in overcharging. Based on a decade of research, this case will start solving the Digital Divide, lower prices and provide a new path for getting America upgraded. It does not give more money in the form of various government subsidies to those who have already wronged us. We want the money back, the cross-subsidies and the overcharging stopped and it should used for our fiber optic future that should have been here by now, not to mention lower prices via direct competition — an open, competitive, very fast, low cost, fiber optic utility — everywhere.

AT&T et al.’s plan has been to NOT build out America’s infrastructure but to force customers onto more expensive wireless — 5G, which doesn’t even work as advertised. But hidden from view, 5G is not profitable once we remove these cross-subsidies.

POLITICIANS, REPORTERS, PUNDITS AND THE PUBLIC MUST ‘FOLLOW THE MONEY’. AMERICA ALREADY BUILT BROADBAND STATE PUBLIC UTILITIES AND THEY ARE BEING DISMANTLED.

THE DISCONNECTS:

1) They Erased the “U” Word and the Public has been Deceived.

Forget about the financial hanky-panky. At the very core of this scandal we found a very disturbing fact — Democrat or Republican, citizens, reporters, pundits or politicians — no one knows that almost all of the wires under their feet, in the homes, offices and on the roads are actually part of a state utility — much less that state telecommunications utilities still exist.

However, many politicians in this election cycle want broadband and internet to be a ‘utility’, for the right public policy reasons, but are unaware of the underlying sub-plots.

Business Insiders’ headline discusses Bernie Sanders’ plan.

“Bernie Sanders has a $150 billion plan to turn the internet into a public utility with low prices and fast speeds — here’s how his plan works”.

This ‘broadband-internet as a utility’ theme has been going on for years. Susan Crawford, Harvard Law professor, has been a proponent of fiber optic-based utilities for years.

“Fiber cities know the difference between publicly overseen networks, aimed at providing a utility service, and wholly private, “demand-driven” communications networks. There is no single meaning of the word utility, but the concept is familiar to many people. The basic idea is that a utility is a service that 1) relies on a physical network of some kind and 2) is a basic input into both domestic and economic life. A utility is not a luxury.”

Conversely, there are those who are tied to AT&T et al. who claim that having a utility is harmful to economic growth, and that using ‘utility-style’ regulation, harms investment.

In 2013, “Scott Cleland, Chairman of NetCompetition, (that is supported by “broadband interests”), claimed that Crawford’s analysis was ‘obsolete’. This headline telescopes the telco opinion.

“Professor Crawford’s Obsolete Public Utility Thinking for Broadband”

There have been and continue to be thousands of backs-and-forths about this. Sadly, ‘common wisdom’ has been hijacked over the last decade to make everyone believe that there are no state-based telecommunications utilities and that broadband was never part of the state utilities. Worse, common wisdom has been robbed because America paid for a fiber optic, broadband internet, state-based utility — and is still paying for it.

We believe this was done consciously by AT&T, Verizon and CenturyLink, the holding companies that control most of these state utilities in the US, with the help of the FCC.

IF ALL OF THE EXPERTS, PUNDITS, POLITICIANS AND COMMON FOLK DON’T KNOW THE FACTS, WHAT DOES IT SAY ABOUT THE POWER OF THE COMMUNICATIONS CORPORATIONS TO OBFUSCATE AND REWRITE OUR HISTORY?

2) The Telecom State “Public” “Utilities”; the “U” Word, (and the “P” Word) has been Erased.

Did you know that AT&T California, Verizon New Jersey, Centurylink Colorado or AT&T Illinois are all state-based public telecommunications utilities?

The state-based telecommunications utilities are hidden in plain sight. Here are the definitions from two state public utility commissions. Notice that telecommunications is one of the utilities — just like electric, gas or water and that Illinois uses the word “public”.

Illinois Commerce Commission

“The ICC oversees the provision of adequate, reliable, efficient and safe utility services at the least possible cost to Illinois citizens served by electric, natural gas, telecommunications, water and sewer public utility companies.”

New Jersey Board of Public Utilities (BPU)

“The Board of Public Utilities (“Board”) is the state agency with authority to oversee the regulated utilities, which in turn provide critical services such as natural gas, electricity, water, telecommunications and cable television. The law requires the Board to ensure safe, adequate, and proper utility services at reasonable rates for customers in New Jersey.”

But some states try to hide the fact. The California Public Utility Commission doesn’t mention the word “utility” in its own mandate, even though ‘public’ and ‘utility’ are in the very name of the regulatory agency.

“The CPUC develops and implements policies for the telecommunications industry, including ensuring fair, affordable universal access to necessary services; developing clear rules of the game and regulatory tools to allow flexibility without compromising due process; removing barriers that prevent a fully competitive market; and reducing or eliminating burdensome regulation.”

Unfortunately, the Commission should have been reading its own laws and regulations as they still make it clear that these companies are ‘public utilities’.

California laws and regulations:

  • DIVISION 1. REGULATION OF PUBLIC UTILITIES [201–3297]
  • ( Division 1 enacted by Stats. 1951, Ch. 764. )
  • PART 1. PUBLIC UTILITIES ACT [201–2120]
  • ( Part 1 enacted by Stats. 1951, Ch. 764. )
  • ARTICLE 1. Specified Utilities [1001–1013] ( Article 1 enacted by Stats. 1951, Ch. 764. ) 1001.

“No railroad corporation whose railroad is operated primarily by electric energy, street railroad corporation, gas corporation, electrical corporation, telegraph corporation, telephone corporation, water corporation, or sewer system corporation shall begin the construction of a street railroad, or of a line, plant, or system, or of any extension thereof, without having first obtained from the commission a certificate that the present or future public convenience and necessity require or will require such construction. If any public utility, in constructing or extending its line, plant, or system, interferes or is about to interfere with the operation of the line, plant, or system of any other public utility or of the water system of a public agency, already constructed, the commission…”

3) The Fiber Optic Wires Put in by Verizon for FiOS Are Part of This State Utility — and “Title II”.

Verizon’s entire fiber optic deployment for their FiOS cable and internet service has been done as part of this state-based telecommunications utility — as “Title II”, common carrier networks. (That’s right; the same “Title II”, that is tied to Net Neutrality. In fact, we filed in the Net Neutrality proceeding in 2014 because on the state level the ‘broadband’ network infrastructure is classified as Title II in all of the Verizon state utilities.)

“Verizon NJ has been upgrading its telecommunications facilities in large portions of its telecommunications service territory so that cable television services may be provided over these facilities. This upgrade consists of deploying fiber optic facilities directly to the subscriber premises. The construction of Verizon NJ’s fiber-to-the-premises FTTP network (the FTTP network) is being performed under the authority of Title II of the Communications Act of 1934 and under the appropriate state telecommunications authority granted to Verizon NJ by the Board and under chapters 3 and 17 of the Department of Public Utilities Act of 1948.

We also found that every Verizon FiOS deployment in every state used almost identical language. I repeat; the work is done as an upgrade of the state telecommunications facilities as “Title II”. This was filed for the FiOS FTTP (“Fiber to the Premises”) deployments in the District of Columbia, DC, in 2006 — and these fiber optic wires were part of the existing telecommunications networks, and are being put in, we repeat, as Title II, and common carrier under the very ‘legacy’ rules that Verizon claimed harmed the investment when talking to the FCC.

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4) There has been an Illegal Diversion of the State Utility Construction Budgets to Fund Wireless.

But here’s one of the kickers to this tale. Not only were the wireline network construction expenses paid as part of these state utilities, but the wireless networks were also illegally funded via this shell game.

In 2011, the NY State Attorney General’s Office detailed that 75% of the capital expenditures in New York State went to fund the building of the fiber optic wires to cell sites and to FiOS, the cable service, and not to the maintain the state’s copper networks and not to create fiber optic utility networks.

“Verizon New York’s claim of making over a ‘billion dollars’ in 2011 capital investments to its landline network is misleading. In fact, roughly three-quarters of the money was invested in providing transport facilities to serve wireless cell sites and its FiOS. Wireless carriers, including Verizon’s affiliate Verizon offering wireless, directly compete with landline telephone service and the company’s FiOS is primarily a video and Internet broadband offering….Therefore, only a fraction of the company’s capital program is dedicated to supporting and upgrading its landline telephone service.”

America was supposed to be upgraded to fiber optics, including rural areas. This transfer to fund wireless meant that cities in upstate NY were never properly upgraded.

This illegal cross-subsidy of the wireless networks being charged to the state utility happened in every state, as far as we can tell, or even company-wide.

One example: Stop the Cap quotes AT&T. As told to investors, the wireless construction budgets were paid by wireline business, which then ended up charged to local phone customers.

“I came more from the wireline [landline] business and had always a little bit of frustration for me because for many years before I picked up operations in construction and everything for the wireless side of the business, in the wireline world, I was spending a lot of money that was directly supporting the wireless operation, but it showed up as wireline spend.”

The Cover Up of All Time

5) Follow the Money: The Verizon NY 2018 Annual Report

IRREGULATORS v FCC confronts how AT&T, Verizon and Centurylink, with the help of the FCC, have been able to cook the books of the state telecommunications utilities to make them look unprofitable and have the majority of all expenses for all of the different services be charged to one category, basic local phone service, while all of the other services got a free ride and are being subsidized. By having the wireless networks, “business data services” (also called “backhaul”), being built and letting them pay a fraction of the construction or not pay ‘common costs’ — the state utility created artificial losses, making these networks appear unprofitable; this has been used in multiple ways to screw America.

6) Verizon NY Annual Reports: Hardcore, Verifiable, Primary Source, Financial Data — The Proof.

We did not have to rely on conjecture or made up financial statistics as we uncovered that New York State requires Verizon NY, the state public utility telecommunications company, to publish full annual reports — which are based on the FCC accounting rules. No other state requires a public financial report that we know of, and the FCC, in order to cover over the audit trail, stopped publishing basic state-based telecommunications utility financials in 2007.

The Verizon NY 2017 Annual Report was published in June 2018 and it is the primary, telecommunications utility for New York State, with $5 billion in revenues covering about 90% of the entire state. These financial reports are still based on the FCC accounting rules; i.e., the revenues and expenses of the state utility are controlled by formulas set by the federal FCC accounting rules.

7) Here’s How the FCC Accounting Rules Were Manipulated.

There are different lines of business using the state utility infrastructure:

  • “Local Service” — basic phone service over the copper wires
  • “Access Service” — the wires to the cell sites, or ‘Business Data Services’, used by banks for ATM machines, or the ‘guts’ of the networks.
  • “Nonregulated” — are services not regulated, like FiOS video or VoIP phone service.

By 2018, Local Service was about 20% of the revenues; yet, somehow, Local Service, one category, got charged 60+% of the expenses.

“Frozen” FCC Accounting Rules Applied to the State Utility Financials

These distortions were created due to a ‘freeze’ of the FCC formulas so that the percentages of expenses allocated to each category would be identical to those used in the year 2000, literally.

With the help of AT&T, Verizon and Centurylink, these totally wonk-inside baseball FCC’s rules over the last 2 decades were never changed, never examined or audited, and the states never woke up to realize that the expenses were creating massive financial losses to ‘Local Service’.

And no one realized that this corrupted accounting was due to the FCC rules being applied to the state utility revenues and expenses. It took us years to figure it out.

To repeat: What we found was that billions of dollars are being manipulated to not only make the entire state wired utility appears to be unprofitable, but at the same time, it is designed to fund the other lines of business.

IRREGULATOR TREASURE MAP; Hiding a $5 Billion State Telecommunications Utility that No One Even Knows Exists.

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The FCC accounting rules’ harms include:

  • Obscenely Excessive Corporate Operations Expenses — These reports show massive financial hanky-panky that cost New Yorkers billions in overcharging. Verizon NY Local Service revenues from basic phone service were about $1.1 billion yet it was charged $1.8 billion in ‘Corporate Operations expenses’ in 2017, representing 61% of the total. These expenses are for the corporate jets, executive pay and lobbyists and lawyers to push 5G or to stop Net Neutrality and have nothing to do with Local Service provisioning.
  • This percentage, 61%, is directly attributable to the manipulation of the FCC accounting rules and they were set in the year 2000.
  • 75%-25% Rule dumps 75% of the construction expenses into the local wired networks while the other lines of business pay a fraction of the expenses. For the last 20 years, because of this freeze, and this 75–25%, rule, the construction expenses were paid for by local phone customers — even for FiOS, even for the wireless networks. This cross-subsidizing of these lines of business are occurring because they are based on the FCC rules.

MULTIPLE HARMS: This meant that the wired networks appeared unprofitable and this was used as an excuse for rate increases, tax savings, and the illegal transfer of the state utility construction budgets for nonregulated services, seriously harming rural areas and low income families. And now it is being used to ‘shut off the copper’ wires and dismantle the state utility, making publicly funded networks become private property and to hand over the networks to the wireless subsidiary because it makes the company more money.

IRREGULATORS VS FCC: STATE UTILITIES VS FEDERAL COVER UP.

  • Every FCC decision and every state decision pertaining to telecommunications, broadband, internet, wireless and cable have been based on basic fundamental, structural flaws:
  • The FCC left out all references that there is a state-based utility. All FCC decisions have neglected to include any basic information about the state-based telecommunications utilities — There is no mention of the decades of collecting billions per state for fiber optic upgrades of the state utility or charging local phone customers multiple rate increases to fund networks they never received.
  • The FCC deformed rules created deformed FCC analyses and deformed public policies. Besides leaving out the state financial information (or even broadband commitments), the data presented by the FCC is based on the results of the rules — thus, 75% of the construction ‘investment’ is not from investors but from local phone customers being overcharged.

Conclusion: Show Us the Money

No concocted national broadband plan could work because it never examined the basic financials of the state utilities. The FCC has been attempting to claim that the utilities don’t exist, that the FCC’s accounting does not apply, and it has never examined the flows of money and direct harms the rules have caused over 2 decades.

  • We want to solve the Digital Divide — Let’s get the money back.
  • We want high-speed fiber optic broadband in America — Let’s stop the cross-subsidies and build out America.
  • We want competition, lower rates and the companies to be held accountable — now.
  • Follow the Money: We do not want to give these companies another cent of government funding until there has been a full audit of the accounting.

Click for more about IRREGULATORS v FCC

Written by

New Networks Institute,Executive Director, & Founding Member, IRREGULATORS; Telecom analyst for 38 years, and I have been playing the piano for 63 years.

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