Treasure Chest of Billions to Solve the Digital Divide for Cities, Counties and States: Dear LA County.

In just 2019, the IRREGULATORS estimated that AT&T California, also known as Pacific Bell, had overcharged customers about $1.7 billion — $2.4 billion, and this is a fraction of the total. Moreover, it has been going on for decades. Fixing the cross-subsidies and overcharges should provide enough funds to upgrade LA County — and the state of California. Of course, the cable companies, including Charter Spectrum, or Verizon-GTE-Frontier, also require investigation. But AT&T has been and is the largest state telecommunications public utility, and yet, no one has connected the dots that the company helped to create the Digital Divide — and they have enough market power to rewrite history, avoid detection and erase common sense.

This is our 3rd open letter to LA County and we’re going to lay out one of the largest ongoing accounting scandals in American history, though we note that this overcharging isn’t just a California problem but is going on in all states as it involves the manipulation of the actual Uniform System of Accounts, which is the accounting regulation for the telecommunications utilities. Ironically, Verizon et al. filed to get rid of these rules, which was done by the FCC, but they are still in use… because they have been corrupted to turn the state utilities into a cash machine for the companies, while overcharging their customers.

The IRREGULATORS filed with the California Broadband Council to investigate this corruption; and we filed at the FCC, NY State and other states for over a decade and even took the FCC to court. And the DC Court gave us the decision we wanted; stated that the states now have the jurisdiction and ability to create their own accounting and fix the obvious malfeasance — they are not controlled by the FCC.

Who we are: The IRREGULATORS is an independent, consortium of senior telecom experts, analysts, forensic auditors, and lawyers who are former senior staffers from the FCC, state advocate and Attorneys General Office experts and lawyers, as well as former telco consultants

These compromised accounting practices are responsible for helping AT&T et al create the Digital Divide, not to mention saved billions in taxes for the telcos and inflated all communications rates. They also are used to get rid of trained union staff, and has allowed billions in ‘corporate operations’ expenses — lawyers, lobbyists and even the corporate jets, to be improperly charged to local phone customers, We will come back to this.

We write this 3rd open letter to request that LA County halt all funding and plans to roll out inferior wireless services to low-income families and rural areas. There are those who are well-meaning and have bought into the hope of doing ‘the right thing’ — but what we see is just the wrong path being taken.

I note that not one state has done a full analysis of the accounting or has investigated AT&T et al, or lowered rates based on the failure to do upgrades — for at least 15+ years.

  • AT&T failed to properly upgrade and maintain the state’s telecommunications infrastructure

In the first Open Letter we gave details a continuous series of broken promises to upgrade LA County and the rest of California for a fiber optic future that would replace the existing coppering wires with fiber optics by Pacific Bell, what is now AT&T California — starting in the 1990’s.

Hiding in plain sight, AT&T California is the largest telecommunications public utility in California and covers over 80% of the state; the rest is covered by GTE-Verizon-Frontier

Ironically, no one, not the California Broadband Council or LA County has acknowledged that the failure to show up and provide high-speed competition by AT&T caused the Digital Divide And no one even knows that AT&T California let the entire state infrastructure deteriorate and never showed up, even though there were multiple state rate increases to fund the upgrades?

In the first Open Letter, we also created a map of the coverage areas of AT&T California, and it shows massive holes in high speed deployment. Moreover, we pointed out that according to the Pacific Bell filings with the FCC in 2007, there was over 4.8 million kilometers of fiber in the ground and 80% was dark fiber; fiber never turned on, that ran through AT&T California and most likely LA County. And, what is worse is that each merger made claims that AT&T would be putting fiber everywhere, or at least deliver high speed broadband. By the end of 2007, 100% of AT&T’s 21 state territories were to be upgraded to broadband, albeit slow but used the FCC’s then broadband speed standard (of 200Kbps in one direction).

Are there fiber optic lines that cities could use now?

Communications Prices Are Out of Control:

In the second Open Letter to LA County we discuss that America, and thus California and LA County, are paying 5–20 times more for our communications services vs overseas. Using respected and accurate reports and analysis from the European Commission and research firms like Rewheel Research that focuses on wireless,

We ask LA County to answer basic questions: how can:

  • Wireless service cost under $10 dollars and come with 100GB while in America, Spectrum cable (which is reselling Verizon Wireless under their own name) is charging $14.00 per Gig — before taxes, fees and surcharges?.
  • The triple play cable TV high speed internet and phone) averages $35 overseas but the US average is about $220.00 a month. While there are deals in America, in some countries it cost only $22.00 a month on average; only $10–15 for broadband and phone service. How are these oversas prices possible?

To flip this analysis — for reasons that must be investigated, America’s triple play customers are paying, on average, over $180, a month extra, about $2200 extra a year while we estimate that wireless users are paying $30 to $70 a month to $360–900 a year, extra, depending on whether they are heavy or light users.

LA County’s own survey showed that the main reason people are not online is because it is expensive. As discussed, if the price of services is one of the primary reasons that has created the Digital Divide, then where are the investigations of how these other countries and cities and offer the same communications services, but at a fraction of the costs.

Shouldn’t’ the state and the county start investigations into how America’s communications giants in creating market power, have the ability to fool the public, over and over?

Worse, why is the government subsidizing wealthy companies that are gouging the public and who caused the Digital Divide by not doing the upgrades that they got paid to do?

Follow the Money

After more than a decade of research and analysis with specialists in telecom accounting, what we found may rise to the egregious acts that may be both civil and criminal in scope.

  • Manipulation of the Accounting Formulas to make Local Service-Utility a Cash Machine

Verizon NY is required by NY State to provide a full financial annual report based on the USOA accounting rules, and we examined a series of reports and previous SEC and FCC data (until 2007) that gave us a picture of the corrupt mathematics being promulgated. The latest public financial annual report was Verizon NY 2021, published June 2022. Click for a library of reports, analyses and related work.

  • However, these rules were part of the communications regulation and controlled by the FCC

The USOA accounting rules are used to break out the revenues of the utility and the expenses and allocate the expenses to the different lines of business that use the same infrastructure. So, the DSL service, or the alarm circuits or fiber optic networks are all using the rights of way, the poles, etc, and they all should be paying their fair share of the expenses. However, manipulation of the accounting formulas started in 2000 so that the majority of the expenses ended up charged to local phone customers and it is one of the most elegant creations of deception.

Simply put, Verizon et al., were able to create a “Freeze” of the accounting rules to reflect the year 2000 when Local Service was the majority of the revenues and paid the majority of the expenses.

I.e.; in 2000, Local Service was around 65% of the revenues and 65% of the expenses — by 2022, Local service is 20% of the revenues but still paying 50=60% of the expenses.

In 2021, Verizon NY Local Service, which are just the revenues from the copper-based voice phone service, is paying the majority of all expenses, which is ludicrous.

  • Local Service paid $612 million in ‘corporate operations’, 62% of the total in 2021, with less than $1 billion in revenues. These expenses include lobbyists, lawyers and even the corporate jets.
  • Local Service paid $1.2 billion in construction and maintenance, — even though only $37 million was actually spent on the basic copper-based phone lines — and it paid 62% of the total ‘plant in service and 74% of the new construction.
  • Where did the capx go? According to a report by the NY AG in 2012, 75% of the Local Service utility budget was being used by wireless and FiOS, which stopped being deployed in 2012 — there were never any updates about this by the AG.
  • These 2 expense items made Verizon NY lose $1.9 billion in 2021 and saved over $800 million in federal and state taxes.

And yes, these annual reports with these financials, using ludicrous allocations of expenses, are still being used for everything including rate increases.

The Shell Game of Counting Lines: The ability to reclassify an access line, a wire, to NOT be counted as an access line, even though it is the exact same line, has been in vogue since 2007, when the FCC stopped requiring the basic financial and business information of the state telecom public utilities.

Big Telecom has been diverting the business to make the public think that these utility networks were just the copper-based-phone networks when, in fact, starting in the 1990’s state laws were changed and there was supposed to be a replacement of the existing copper wires with a fiber optic wire — a swap out. We wrote a number of reports and filings detailing the multiple deceptive practices.

How bad does it get? The Verizon NY 2018 Annual Report showed at least 2 million lines; (The later years have been redacted.) But, these are only the basic copper phone lines. which are not discussed in the Report. However, Backhaul Business Data Services, which can be based on copper or fiber and are used for alarms and bank ATMs to the wires that go to competitors, had almost $2 billion in revenues — and there are zero lines shown. This is, of course, impossible and deceptive, as it covers over the majority number of access lines in service and makes it appear that there are major line losses, even when there has been a growth of broadband and wires to the cell sites.

Here are some points.

  • AT&T California and Verizon NY Match: AT&T is using the FCC corrupted USOA-ARMIS rules and formulas which are identical to Verizon NY.

Our analysis has been based on the assumption that AT&T CA is using the FCC’ formulas just like NY and therefore, they should have the same overcharging and cross-subsidies. — and we were right.

As we discuss, the CPUC working with Economics & Technology, wrote one of the more indepnth analyses of AT&T et al in California

CA Report States

What We Filed and What They Wrote

CPUC-ETI statement about the overall issues; To return to the last quote:

Rephrased, these are the exact same items featured in our filings in CA.

There are added ‘extraordinarily large’ rate increases to ‘Harvest’ customers.

  • No Upgrades or Even Maintenance of the Copper Networks for a Decade?

CPUC-ETI

Yes, this says that AT&T spent under $50 million to maintain and repair the basic entire network in California for 8 years. The information stops in 2017.

  • Cross Subsidies between AT&T California and the AT&T Subsidiaries

We have called for audits of the current cross-subsidies, assuming the financial reports are using the same accounting rules… And they match, but New York is much more extensive, at least as presented in this report. However, it is clear that what we found in NY is identical to all of the ‘Bell Companies’, which includes AT&T California and all of the other AT&T territories, we assume.

CPUC-ETI Report

What we found and what this implies is that the subsidiaries have sweet-heart deals so that they do not pay the expenses or the fees that a competitor would pay if they, too, used these networks.

  • No Audits Or Investigations for Decades

As the IRREGULATORS pointed out, in the 2013 Annual Digital Infrastructure and Video Competition Act of 2006 DIVCA Report, (we summarize):

The California PUC has not investigated AT&T’s cross-subsidization of services, even when the Office of Ratepayer Advocates (ORA) raised the matter years ago. The Commission claimed that the FCC’s accounting, known as ARMIS data, did not include data to determine if there were violations,

The Commission even claimed that it would be too “onerous” to do an audit, and worse, there has not been an audit done for decades because of the New Regulatory Framework, which was created in 1998, though there were audits that found overcharging during this period.

  • AT&T Is Still Largely Copper Wires

Moreover, the networks are still mostly copper — but are used for U-verse and DSL.

What will Happen Next:

With one of the largest knee jerk reactions to solve the digital divide rising from cities and states once and for all, government subsidies of over $100 billion dollars are being given out, much of it will end up being taken over by AT&T, Verizon Centurylink, (and their friends the cable companies), and it will be just another bait and switch of massive proportions.

And history and behavioral psychology predicts the next steps. In year 2 it will become clear that this has all been one exceptionally large bait-and -switch, to tell the world that the companies will be doing fiber optic upgrades throughout their footprint, as well as outside their region, and that fiber optics is the only solution. And once the money is flowing. expect to hear — We can’t afford to fiber; it’s too expensive, there’s too much red tape, the costs keep going up. Those who cut the deals will be called ‘over-builders’, and they will be taken to court, and those who cut the original agreements will have left or can’t remember what was actually said.

And the problems will still be with us; there is no plan to seriously lower prices; there is no plan to stop the current cross-subsidies and other flows of money that should have already been used to build out the networks. The cable companies will expand their monopolies while AT&T et al. will keep their wireless dominance.

And we will be giving billions to the companies that created the Digital Divide — because, well, not one person, expert, or politician has mentioned that AT&T is an incumbent state-based telecommunications public utility that had obligations to do upgrades, or that they are using the monopoly-utility perks to block competition and keep their market controls — and the cable companies will keep prices inflated on purpose.

And the blind leading the clueless, or more correctly Big Telecom, working with Big Cable — i.e., the original wireline Bell companies have regrouped into 3 of the fattest-babies in history; a cartel that, with the cable companies (who resell Verizon Wireless services as their own) have brought us to the end game —

As a country, we must take back the networks we paid to build and separate the wireless and other divides that have been illegally subsidized over the last 2 decades.

New Book: Violations & Egregious Acts: You can fool all of the people all of the time… until they know the truth. IRREGULATORS

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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.