Verizon’s ‘One Fiber’ Scam for 5G Wireless: Did Verizon Fool the Public and Investors?
At recent investor meetings for their 4th quarter results and plans for 2021, Verizon Communications, Inc. has tried to not only cover over basic results with confusing findings, but has also failed to make basic disclosures, including the fact that most of Verizon’s wireline networks are actually wired, state-based public telecommunications utilities, and that these networks are deteriorating. Worse, the utility construction expenditures that should have been used for fiber optic upgrades to cities, rural areas and inner cities, have instead been subsidizing their wireless business.
Note: These results are for Verizon Communications Inc., the holding company that controls the state utilities as well as Verizon Wireless, and all of the other subsidiaries, such as AOL.
Verizon’s “One Fiber” plan — is designed to hide the financial trail by combining the wired construction expenditures of the state public telecom utility networks (which extends from Massachusetts to Virginia — i.e., a large part of America’s East Coast) with the construction budgets to build the wireless networks. In reality, this is nothing more than a plan to divert billions per state to fund Verizon’s wireless business and to prioritize and give multiple advantages to its own wireless service and the other Verizon subsidiaries, such as Verizon’s ISP services. Worse, the majority of these networks have been improperly charged to local phone customers and the other parts of the wireline business.
And with unsuspecting state public utility commissions, attorney general offices and politicians, not to mention the compromised, captured government agencies, including the FCC — everyone, from the business reporters to the public — all of us have been snookered as this is not new; it’s being going on for a decade.
The Actual Harms and Consequences have Been Severe.
These actions caused the Digital Divide as cities were never upgraded, state-by-state, and there has been a basic abandonment of rural and low income areas. Alongside this, the prices have been able to have continuous increases for all services because there has been little competition for high-speed internet with the cable companies, who can charge what they want and add made up fees.
Because Verizon controls the wireline and wireless networks there are no ‘market forces’ to fix the current harms. In fact, some of the cable companies are reselling the Verizon wireless service — collusion of the largest wired companies.
It is the consequence of this control that America’s communications prices are 5–20 times more expensive than overseas. And this is not just a Verizon problem but America’s problem as AT&T and CenturyLink also control the state wired utilities in their territories.
In toto, America is being overcharged at least $20 billion for these cross-subsidies of wireless, but there is an additional $30–40 billion for other related financial harms caused by the manipulation of the accounting.
In the end, this is about a slow but steady dismantling of the state utilities through a wireless bait and switch underway using 5G as the lure — Promise them fabulous new tech — anything to be delivered sometime in the future, for deregulation and financial benefits that are delivered — today.
Halting this financial shell game should be a national priority as there is enough funding, per state, to bring a fiber optic future to everyone.
Show Us the Money
Let’s Parse What the ‘One Fiber’ Plan Is Really About.
Verizon Communications Inc, 4th quarter results has a number of issues, but we will focus on the implications of the ‘one fiber’ fiction and the massive financial cross-subsidy scheme underway — which is never mentioned by Verizon to the public and only hints at it to investors.
First, Waiting for FiOS in Your Community?
Except for some specific pre-existing arrangements for FiOS, or pressuring Verizon to fulfill previous contractual obligations, as in New York City:
VERIZON HAS NO ANNOUNCED PLANS FOR FIBER OPTIC NETWORKS TO REPLACE THE EXISTING COPPER WIRES TO HOMES — ‘ONE FIBER’ MEANS THAT THE PRIMARY SERVICE WILL BE WIRELESS 5G.
In an RCR Wireless article about Verizon’s fiber builds, Verizon’s plans are for 5G wireless and not a wireline fiber optic future for the most of the East Coast.
“Verizon’s Executive VP & CTO Kyle Malady spoke… at the Well Fargo TMT Conference, offering an update and some insight into the carrier’s fiber plans and progress.
“Fiber is such a key component to Verizon’s 5G plan, that the carrier combined its fiber assets and plans into single program called One Fiber back in 2016. The initial deployment was focused on the Boston area and included plans to invest $300 million over six years…
“‘We are putting the fiber into these urban areas, and then we’re adding our 5G nodes on it…I think in a conference like this a couple of years ago, I basically said, our 5G Ultra Wideband networks are really going to be a fiber network with antennas hanging off of it. And that still holds true. And so we continue to deploy the fiber.”
“‘So, we’re meeting the small cell with the fiber build and doing really well there…The vast majority of our 5G sites are on the One Fiber asset right now…It’s full steam ahead with the One Fiber’.”
Verizon Admits that the ‘Vast Majority’ of All the 5G Sites have “Our Own Fiber”.
“When it comes to the fiber question, yes, we continue to roll out fiber. We’re probably in the year three or four right now. We — I would say, we — the majority or vast majority of all the 5G sites they have our own fiber. We are migrating our 4G sites where it’s a good return on investment to our own fiber. And over time, we will also open up opportunities for resell to our — to enterprise customers and wholesale. So I think that we are seeing that benefit already on the 5G build, because we are using our own fiber. To get the full impact, we also have a couple of years left in order to have it in all the areas. But we are coming far away on a fiber build and we will continue to do it where it makes sense from a return on investment. So we feel really good about that and that’s part of our Verizon Intelligent Edge Network.”
§ In areas where Verizon already put in fiber optics, “our own fiber” (like Boston), for FiOS, the company will use the fiber optic wires for 5G small cell antennas.
§ The focus is on only 5G as there is no mention of the FiOS FTTP build outs in any state mentioned, much less that the company would be upgrading the state utilities.
BUT IT GETS WORSE.
The 4th quarter, 2020 Verizon investor briefing never mentioned that these ‘wireline’ networks and wires, copper and fiber, are part of state-based telecommunications public utilities. Verizon is even too lazy to name the states.
“Our wireline services are provided in nine states in the Mid-Atlantic and Northeastern U.S., as well as Washington D.C., over our 100% fiber-optic network by our Verizon Fios product portfolio and over a traditional copper-based network to customers who are not served by Fios. Our Consumer segment’s wireless and wireline products and services are available to our retail customers, as well as resellers that purchase wireless network access from us on a wholesale basis.”
Notice that the 100% fiber optic refers to only the FiOS product; Verizon also has the “traditional copper-based networks”. So, in toto, how much is fiber and how much is copper? There’s no mention of that or that the fiber for FiOS is part of the state utility.
And no one appears to know that the state telecom utilities are just like water, or gas or electricity. It is supposed to serve all in their territories and there are customer obligations because they also get the use of the rights-of-way and have a monopoly on specific parts of the telecom market, giving them market power. However, Verizon has turned the utilities into cash machines for their other lines of business, as has AT&T. Verizon and AT&T have been dismantling the publicly funded utilities, claiming that they are only aging copper networks for voice-only services when they are actually publicly-funded, fiber optic-based, broadband, critical infrastructure that is hiding in plain sight but is now being privatized.
Verizon’s Upgrades of the State Utilities Never Happened as Promised.
First, a bit of history. We created a summary of Verizon’s primary East Coast telecommunications utilities and the failure to properly maintain and upgrade their franchised telecom territories.
- Verizon’s Massive East Coast FiOS Scandal: 41 Percent Coverage. This summary also links to separate books and reports, focusing on MA, PA, NJ and New York.
Fiber Optic Bait-and-Switch 1: In 1991, the Clinton-Gore presidential ticket ran on a platform that included the ‘Information Superhighway’, a plan to replace the existing copper wires with fiber optics — to be completed by 2010, or there abouts.
Verizon (formerly Bell Atlantic and NYNEX, as well as GTE) claimed it would spend over $11 billion to have 12 million households wired on the East Coast by the year 2000. (This does not include the GTE territories.)
Using the promises of a fabulous fiber optic future, Verizon went state-to-state to have the state utilities’ regulations changed — deregulated, to get ‘price caps’ — that would give the company more profits, per state, to be used to replace the existing copper wires with fiber optics. Instead, the company was able to get state-based rate increases and tax benefits, yet virtually nothing was built.
‘Price caps’ has been a total failure and yet the deregulation stuck and was not reversed or revisited. There have been no audits of the accounting, even though the rate increases were created through deceptive, if not unlawful cross-subsidies.
The second wave of ‘fiber optic promises’ bait and switch. In 2004, Verizon announced FiOS, a fiber to the home service. (AT&T announced U-Verse, which AT&T claimed was a fiber optic service, but in reality was a bait-and-switch, relying on the existing copper wires.) The companies were able to have All of the broadband, including DSL or u-Verse or FiOS, end up being classified so that it could use the existing construction budgets of the state utilities — and charged to customers via the misguided price caps.
In 2010, the 3rd Bait and Switch Started: Verizon claimed it had finished the deployment of FiOS, except where there were contractual agreements — and started transferring the construction budgets that had been earmarked for the Fiber to the Home for FiOS to connect wireless cell sites to the networks.
We created a separate report to supply 15 basic, sourced quotes from Verizon’s senior staff as well as government documents that document this wireline-wireless play.
THE ESSENCE OF THE QUOTES
The Quotes Include:
- According to former Verizon CEO Lowell McAdam, Verizon decided to go ALL wireless and “Cut Off the Copper” in rural areas, 2012.
- Verizon was moving customers to wireless because it makes the company more profits, 2012.
- In 2012, Fran Shammo, former Verizon CFO, told investors that the wireless company’s construction expenses have been charged to the wireline business.
“The fact of the matter is Wireline capital — and I won’t get the number but it’s pretty substantial — is being spent on the Wireline side of the house to support the Wireless growth. So the IP backbone, the data transmission, fiber to the cell, that is all on the Wireline books but it’s all being built for the Wireless Company.”
- In 2012, the NY Attorney General confirmed that wireless and FIOS cable were funded via the state utility construction budgets. In 2011, Verizon NY stated that the company spent over $1 billion on the utility capital investment. The NY Attorney General claimed that 75% of the expenses for wireless and fiber optic cable networks were being charged to the state utility.
“Verizon NY’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 offering. Wireless carriers, including Verizon’s affiliate Verizon Wireless, directly compete with landline telephone service and the company’s FiOS is primarily a video and Internet broadband offering.”
- Verizon NY received rate increase after rate increase on basic service, starting in 2006 for “massive deployment of fiber optics” and “losses”. The fiber, by 2012, went to wireless, not homes, and the losses were created because the wireless company didn’t pay for this construction or pay market prices to use the networks.
- The Fiber to the Home (Fiber to the Premises, “FTTP”) used for FiOS is a “Title II”, common carrier service and part of the state utility, as told by Verizon’s FiOS cable franchises. Title II allowed Verizon to add the fiber to the home as Local Service costs, which, in turn, were charged to local phone customers.
- In 2016, Verizon CEO Lowell McAdam, stated at an investor briefing that using the fiber optic wires for FiOS for wireless helps to eliminate staff, and cuts expenses to do fiber to the home installs with a wireless substitution.
- 5G nationwide deployment construction expenditures will remain being paid by the wireline networks.
- “One Fiber” plan is now a euphemism to put expenses into the wireline budgets.
In this list of quotes we reference the Verizon NY financial annual reports.
Verizon New York’s Annual Reports Contradicts Verizon’s ‘One Fiber’ Financial Plans and Exposes the Bait and Switch of the Wireline Networks with 5G Wireless.
The 4th quarter, Verizon Communications, Inc, financials we point to in the opening are specifically about the financial results of the entire holding company and its subsidiaries.
However, there are also separate state-based annual reports for Verizon New York, the largest telecommunications public utility in NY State. And, there should be annual reports for every state-based telecommunications utility, though only NY makes the reports public, as far as we know.
The Verizon NY 2019 report was published in June 2020 and it relies on the FCC’s cost accounting formulas to allocate revenues and expenses. It appears that these formulas have become distorted but they are still in use in most states we examined.
We created “The Verizon New York Annual Report Walk Through” to explain how to understand the basic utility financials and data.
Follow the Utility Construction Budget Cross-Subsidies
As compared to Verizon’s one fiber fiction, there is much more damaging financial information from Verizon New York’s financial reports, as it represents one of the state-based telecommunications public utilities,
We created an analysis of the Verizon New York 2019 Annual Report and the flows of money between and among the Verizon subsidiaries.
The Utility Construction Expenses Mostly Paid for by Local Service.
This financial detail is an excerpt, taken directly from Verizon New York’s 2019 Annual Report, published June 2020. (We just renamed some of the categories and removed some of the sub-items for clarity.)
It shows that through the manipulation of the accounting over the last 2 decades, the construction expenses ended up being charged mostly to local service customers, while the other lines of business are getting a free (massively discounted) ride.
Verizon NY’s networks are both copper and fiber optic wires covering most of New York State, and it is a subsidiary of Verizon Communications, Inc., the parent holding company.
There are 3 major areas/lines of business:
§ “Local Service”, which are the revenues and expenses for the copper based “intrastate” basic voice phone service.
§ “Backhaul”, also called “Business Data Services” (BDS) or “Special Access” lines, are the wires to the cell sites and data services for business.
§ “Nonregulated” includes FiOS video, VoIP and other services that were previously or never regulated.
Each of Verizon’s different lines of business is supposed to pay for use of the networks and the rights of way — just like any competitor would.
To Summarize the Chart: Way too complicated to go through in detail, the essence is “Local Service” category was charged the majority of all construction expenses (62%) over the last 2 decades, which is shown as “Telephone Networks in Service” (not counting write-offs). In 2019, 73% of the current “Network Under Construction” expenses were charged to Local Service. All of the other lines of business are getting a free ride or excessive discounts as compared to what all other competitors would pay.
Within this mess, Local Service is funding the wireless networks as the construction budgets aren’t being used to upgrade the copper wires, it appears. Local Service revenues comes from the mostly copper wire phone lines and the budgets have been around $100–125 million for maintenance.. Here, Local Service is being charged $720 million. (Note that Local Service had almost a billion dollars in revenue and almost 2 million lines in 2019, and this isn’t counting whole classes of copper lines, from DSL or special access lines that are not in this accounting of lines or revenues.)
This is just scratching the surface of a massive financial shell game that has been going on for a long time.
5G Wireless Is the 4th Bait and Switch — and Needs Investigation.
This ‘one fiber’ scandal has been developing over the last decade and uses an imaginary wireless technology, 5G, with claims that it can replace a fiber optic connection to the home. But, it requires a fiber optic wire to a small cell every few blocks.
This is all about using a ‘soon to appear’ new technology as the lure, when in reality, reports over the last few years shows that the 1Gbps promised speed is a mirage; 5G has serious data caps and worse, the deployment has been Swiss cheese with the companies being reprimanded for claiming cities are covered when they aren’t.
A Sheetload of Money Is Involved.
We wrote a separate report to discuss the overcharging of customers by state, starting with NY.
“We estimate that Verizon NY Local Service was overcharged an estimated $1.1-$1.6 billion, in just 2019, for just three expense items; Construction & Maintenance, Corporate Operations expenses and Marketing. (This is the low number.) Nationwide, this equates to Local Service being overcharged in America an estimated $16-$23 billion in just 2019.”
Halting the cross-subsidies of wireless and the other lines of business would supply enough funding to upgrade the state utilities with fiber optics.
The One Fiber Scam and the Failure to Disclose Basic Facts
§ Should Verizon have disclosed some, if not all of these material facts in their investor and financial documents?
§ Does Verizon have an obligation to make it clear that there are still state-based telecommunications public utilities and that the construction expenditures for wireless are being subsidized by these utilities?
§ And should Verizon disclose that local phone customers have been the defacto investors in all of this mess?
§ Did Verizon violate federal and state laws, or SEC or anti-trust laws or…?