Verizon New York 2021 Annual Report Reveals Massive Financial Scandal.

Bruce Kushnick
10 min readJun 30, 2022

IRREGULATORS: The Cooked Books Need Immediate Audits in Every State; Halt All Government Subsidies.

Excerpt, Verizon NY 2021 Annual Report Detail, published June 1, 2022

On June 1st, 2022, Verizon NY 2021 Annual Report was released, (as a spreadsheet) and it represents the largest telecommunications public utility in NY State. And this excerpt shows massive financial fraud that has been going on for 2 decades.

The Report’s financials are divided into 3 primary lines of business; Local Service, Nonregulated and Access/Backhaul. As we will discuss, these are other Verizon lines of business not covered in this excerpt, that are operating in NY State through subsidiaries, including Verizon Online and Verizon Wireless. Yet, while the revenues go into a different financial bucket, it appears much of the expenses are dumped into Local Service. Note that all of these are using these same wired networks, and these include all wires — copper as well as the fiber optic lines.

NOTE: This is NOT Verizon Communications, Inc. the holding company, but one of Verizon’s state telecom public utilities, never discussed, but it is part of their ‘footprint’.

(We modified the chart above for clarity, and numbered the items so you can follow along.) See our Reading Library for details.

1) “Local Service”, represents the copper-based phone service and add-on features. Also, known as “POTS”, (“Plain Old Telephone Service”), Verizon has stopped offering the service to new customers, and has let these networks fall apart.

  • 1A: Local Service had $932 million in revenues in 2021.

However,

  • 1C: Local Service was charged $1.2 billion in construction and maintenance, (known as “plant” and “non-specific plant”) in just New York, in just 2021, but there has been no serious maintenance or upgrades. Where is all the money going?
  • 1F: Local Service was charged $615 million in Corporate Operations expenses — i.e., for lawyers, lobbyists and executive pay, even the corporate jets. This is 61% of the total charged to Verizon NY yet these expenses have nothing to do with local service or even New York State.
  • 1D: Local Service was charged the majority, $31 million, for Marketing, when there is no marketing.
  • 1G: All of these artificial expenses caused massive losses of $1.9 billion dollars, which should have never occurred.

What’s worse:

2) The “Nonregulated” services, which include FiOS video and VOIP

§ Compare Column 2 and 1: It is paying a fraction of all expenses, including construction and maintenance or even marketing and corporate operations.

3) “Access”, also known as “Backhaul” or “Business Data Services” — are data lines used by competitors or to cell sites.

§ 3A: Access had $1.7 billion in revenue in just NY in just 2021.

§ Compare Column 1 and 3: It is paying ½ of what Local Service is paying in expenses. How is that possible?. Moreover, it has a profit margin (EBITDA) of over 60%, when historically it was 12–14%.

Virtually no one has ever examined these financial books; no one knows that there are still state public utilities, and no government agency has audited these corrupt accounting documents, especially examining the cross-subsidies of Verizon’s state utility and Verizon’s different lines of business or Verizon’s other subsidiaries, especially wireless.

And the corrupt accounting is right on this page, in clear view for anyone who has ever read a financial statement.

The Harms to the Public, the State and the Economy have been Real.

The financial maneuvers here created the Digital Divide, taking billions in construction and moving it to wireless; it saved Verizon billions with tax benefits from artificial losses, it was used as an excuse to continually raise rates, and ‘harvest’ customers who depend on these services. Verizon used these manipulations to claim it was not ‘profitable’ to upgrade the rural and low-income areas, and that they should ‘shut off the copper’. At the core, it uses the state utility as a cash machine to fund the company’s other lines of business. It was used as an excuse to cut trained union workers, and through a campaign over decades, Verizon et al. were able to cover over that there are still state telecommunications public utilities and manipulate the accounting rules because no one knows that these financial books exist, or that the state even has the expertise to challenge these corrupt accounting practices.

Ludicrous Mode: How corrupt is all of this? Not one politician or regulator that we know of, has called for an audit or investigation of these financial practices. And now, even after it was exposed that the ‘Digital Divide’ is larger and more pervasive than previously known, instead of halting the cross-subsidies and using the billions to upgrade the state — the current Biden plan to give $42 billion to ‘solve the Digital Divide’, and probably over $100 billion when state funding is added, will just reward those that harmed us with billions in government subsidies.

Worse, this is happening in every state in America, and we believe that this was all a calculated plan by Verizon, AT&T and CenturyLink to dismantle the state utilities and remove all regulations and obligations on their businesses.

But at the bottom of it all: These 3 holding companies control the state public utilities and they are privatizing the networks; their failure to properly upgrade America’s critical infrastructure created the Digital Divide. And, they control the underlying (read inflated) prices of communications because they control the wires and wireless networks. America can never have affordable prices because these financial reports show a manipulated financial base no regulator has cleaned up.

The Flows of Money: Expenses Go to Local Service, the Other Lines of Business Get a Free Ride.

This next chart shows just how corrupt the allocation of expenses has become. As we pointed out elsewhere, these financials are based on the USOA accounting rules, (“Uniform System of Accounting”) — and the percentage of expenses was set to mimic the year 2000 and was never changed — but for each expense item, the different lines of business that use the state utility and rights of way, etc. are all paying a fraction of what Local Service pays.

Massive Financial Losses from Artificial Expenses.

Local Service should never have been charged for construction or maintenance, which appears to have been only $21 million actually spent on the copper networks maintenance. (According to another page in the annual report.) Worse, it should never have been charged the majority of corporate operations expenses that had nothing to do with the Local Service or even services in the state.

These 2 expenses helped to create losses of $1.9 billion dollars for Local Service, which caused the overall state utility to have losses.

The Formulas Also Make Local Phone Customers be Defacto Investors — Not the Investors.

This next excerpt from the Report makes it clear that Local Service was always the funding source for the networks and NOT investors or the other lines of business.

This shows that Local Service paid 62% of the total Verizon NY network in service for decades while the Nonregulated part is barely paying, only 4% rounded; even Backhaul paid only 34.5% of the total.

But here’s the rub, on average about $30 million has actually been spent on the ‘Local Service’ networks annually, and as we previous highlighted it paid over $1.2 billion; in 2021, the report shows only $21 million was spent on the copper based maintenance.

Accounting of Access Lines in Service has been Manipulated

Just like the failure of the regulatory agencies to provide basic information about who has broadband in a state or city and the mapping of this information has been more Swiss cheese than factual, the information for the number of actual lines in service has been eliminated in part and manipulated. The Verizon NY 2021 Report (Schedule 61) shows that there were 1.2 million residential customers in the beginning of 2021, then only 1.1 million at the end of the year — missing businesses completely.

  • We estimate that up to 2.3 million lines in service for basic copper phone service based on FCC subscriber line charge revenue.

Missing Lines — There is $2.8 billion in revenues showing Zero lines in service, copper or fiber.

  • Holes in the Data: The Report provided ZERO lines for $2.8 billion of revenues from the Verizon NY access services, (Special Access) or the nonregulated VOIP and Verizon video services.

Thus,

  • We have no information about the actual number of lines from these lines of business.
  • The FCC stopped publishing “Statistic of Common Communications Carriers”, in 2007, which supplied much of this information by state utility. These reports started in 1939.
  • No one is using the state-based wired services is simply not true. While there has been a steady decline of customers who have wired-copper-based phone service, all of the other lines in service were never counted and never presented to the public.
  • All of the fiber optic lines in service were also never counted at any time and these wires are also part of the state utility, even though common wisdom has denied this fact.

Affiliate Transactions — Monies To and From the Utilities and the Other Verizon-Tied Companies. SCHEDULE 59

  • Verizon Online only paid $1.8 million dollars to Verizon NY.
  • Verizon Online, which is the ISP service that is used as part of FiOS, had a massive unexplained drop in payments: it was paying $908 million dollars in 2019 but only $1.8 million in 2021.
  • Empire City Subway are the conduits for fiber optic services that Verizon and competitors rent, and in 2019, Verizon NY paid $88 million dollars and in 2021, there is no payment

The Big Missing Financial Payment Is from Verizon Wireless to Verizon NY for the Use of the Construction Budgets and Rights of Way.

As we pointed out elsewhere, the NY Attorney General in 2012 detailed that wireless was using the state utility budgets.

  • We believe that the wireless subsidiary has taken over the construction and maintenance budgets that were charged to Local Service, as well as getting use of the other services, such as the Business Data Services, — and it could be as much as $750 million to $1 billion annually being illegally transferred.

Annual Rate Increases for No Reason

There is some voodoo accounting at work here as there have been continuous rate increases that have been based on USOA accounting and made-up expenses. (Schedule 8: Rate increases, 2019–2021).

INVESTMENTS

342 Companies are shown in the Verizon NY 2021 Annual Report, published June 1st, 2022.

Question: The common stock of the respondent is wholly owned by NYNEX LLC which is wholly owned by Verizon Communications Inc. This list displays companies in which Verizon Communications Inc. has interest of 5% or more:

This first excerpt are part of a list of hundreds of companies worldwide that Verizon has an investment interest in — instead of having to fulfill basic obligations of the state-based telecommunications public utilities it controls, such as Verizon NY.

Verizon Communications Egypt LLC

Verizon Communications Guatemala Limitada

Verizon Communications India Private Limited

Verizon Communications Malaysia Sdn. Bhd.

Verizon Communications Philippines Inc.

Verizon Communications Singapore Pte. Ltd.

Verizon Communications Slovakia s.r.o

Verizon Communications South Africa (Pty) Limited

Verizon Communications Technology (Beijing)

Verizon Connect (China) Co., Ltd.

Verizon Connect Australia Pty Ltd.

Verizon Connect Canada Inc.

Verizon Connect Chile SpA

Verizon Connect Finland Oy

Verizon Connect France

Verizon Connect Germany GmbH

Verizon Connect Ireland Limited

Verizon Connect Italy S.p.A.

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Verizon really cares about you, your city and America… Really —

Verizon writes: Facts at a glance:

  • Verizon owns and operates one of the most expansive IP backbone networks in the world.
  • The Verizon global network includes more than 500,000 route miles, including terrestrial and undersea cable, spanning six continents.
  • Verizon provides voice, data and Internet services on its state-of-the-art fiber-optic network, reaching customers in more than 2,700 cities and 150 countries.
  • Verizon currently operates three satellite facilities located in the United States and the United Kingdom, supporting service in more than 75 countries for government and business customers.
  • The Verizon network is large enough to circle the world more than 20 times.
  • After deploying the industry’s first commercial 100G ultra-long-haul system for live traffic in 2009, Verizon continues its 100G leadership position, and in 2011, established the first standards-based, multivendor 100G Ethernet link on its IP backbone on a portion of our European long-haul network. Verizon also is deploying 100G technology on its major U.S. backbone network routes.
  • Verizon carries IP, data and voice customer traffic on its global IP global network, including traffic on more than 80 submarine cable networks worldwide.
  • Verizon is a consortium member of the 15,000 kilometer Europe India Gateway (EIG) cable system which enhances capacity and diversity from Europe to the Middle East, Africa and India. The design capacity on the full system is 3.84 terabits per second (Tbps) using dense wavelength division multiplexing (DWDM) technology to provide upgradeable transmission facilities supporting present and future Internet, e-commerce, data, voice and video services. The cable system was activated in 2011.
  • Verizon was the first to deploy undersea mesh technology — providing multiple diverse paths for voice and data traffic reliability — to connect major submarine cable systems traversing the Atlantic Ocean with eight-way diversity.
  • Verizon has five major global Network Operations Centers in the United States, Europe, and Asia-Pacific.

NOTE: We’ve been covering the Verizon financial reports for decades and brought up questions about them that should have already been answered, “Verizon NY in Multi-Billion Dollar Settlement Tangle, Underway in New York State”Aug 4, 2017, Huff Post.

See our Reading Library

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PS: We particularly liked this collection of companies that almost appear to be straight out of a James Bond movie — with no idea what they do, or why there would be a string of companies detailed with “NCC”.

NCC Charlie Company

NCC Delta Company

NCC Echo Company

NCC Farnborough Company

NCC Farnborough Investments Limited

NCC Farnborough Trustee Limited

NCC FSC V, Inc.

NCC FSC XII, Inc.

NCC Golf Company

NCC Hampshire Investments Ltd.

NCC Key Company

NCC Micron Company

NCC Sierra Company

NCC Yearling Company

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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.