Teletruth News Alert--- June 7th, 2007

Testimony in Front of the Massachusetts Joint Committee on Telecommunications,

Utilities And Energy.

To read the entire testimony:

http://www.teletruth.org/docs/Masstestimony.doc

To read our original MA complaint.

http://newnetworks.com/Masscomplaintsummary.html

America is 15th in the world in broadband based on two reputable international organizations, the ITU and OCED. And the reason for America's abysmal showing is that Verizon failed to deploy the fiber optic services it had promised the state and the FCC and state failed to hold then accountable.

We request that the state immediately start an investigation into the failure of Verizon to build a fiber optic network in Massachusetts with the majority of the communities completed by 2010, even though company collected over $1 billion by 1999 - about $4 -$5 billion by 2007. It cost the state more than $110 billion over the last decade in new business opportunity and economic growth and almost $2 billion in higher cable rates because competition failed to materialize. Without the audits we suggest, it is impossible to know how much money the state's residential and business customers have paid for fiber optic services they never received.

Cable Franchise? If our analysis is accurate, then the state should first get what was already paid for deployed with the same specifications or better, than what is being proposed with new deregulations. Verizon's FiOS is a crippled network which is not open to competition and Verizon would like to deploy these networks without state obligations, as if they were no longer a utility but a free-market monopoly of the state's PSTN - That's public switched telephone network. They want to pick and choose who gets served - the new digital divide --- and supply less services than the current cable franchises in terms of public access stations.

Worse, it is 2007 and America does not have the capability to compete with other industrialized nations where the phone companies actually delivered 100 mbps services in both directions for less than the cost of DSL. FiOS is also inferior to what was proposed by Verizon in 1992, when the standard speed for broadband was 45mbps in both directions.

Background:

In 1999, I testified in front of the DTE pertaining to Verizon (NYNEX/Bell Atlantic/New England Telephone) Massachusetts' proposal to enter the long distance markets. After examining the issues of telecommunications and broadband in Massachusetts, it became clear that NYNEX/MA was out to deceive the public pertaining to broadband deployment. By 1999 it cost the state over $1 billion dollars in extra fees, higher phone rates and tax perks. We even filed a complaint, which went unanswered, which I submit as part of this testimony.

Appendix One. It is also online at: http://newnetworks.com/Masscomplaintsummary.html

To summarize using Verizon's own statements:

It was clear that Verizon had made serious commitments to Massachusetts residents that it would deploy a fiber optic-based broadband service, capable of 45mbps in both directions as well as handle 400-800 channels. This was to be delivered to 330,000 homes and have the majority of the state completed by 2010. Verizon claimed it would start "immediately" in 1995, and to date, there is no sign of anything ever being created. These commitments were outlined in a) press statements, releases, annual and state reports, b) filings at the FCC, and c) state submissions for alternative regulations.

Here's Verizon's own words: [FCC 95-50 Order and Authorization, released 3/6/95]

"On July 8, 1994, NYNEX filed two (Section 214) applications ... to provide video dialtone service in Massachusetts ... proposes a system that will pass approximately 334,000 homes and businesses."

"NYNEX proposes to deploy hybrid fiber optic and coaxial (HFC) broadband networks that will provide advanced voice, data, and video services, including interactive video entertainment, multimedia education and health care services. The allocation plan provides for the offering of 21 analog channels, all but one of which will be used for over-the-air broadcast programming services, and, depending on compression rates, between 400 an 800 digital channels."

"NYNEX plans to deploy this type of network to the majority of its customers by the year 2010."

An outline of this plan was part of Verizon's 1994 state pitch for alternative regulations, where the company would no longer be regulated by the original 'rate-of-return', which examined profits but deregulated through alternative regulations where the company could earn a great deal more, as well as speed up depreciation and a host of other financial perks.

Here's the Verizon submission: http://www.newnetworks.com/massfiberfailurepage2.htm

There was even a plan of who would be wired. The Patriot Ledger quoted NYNEX spokesman Kenneth Horne describing a very specific plan:

"In Massachusetts, NYNEX plans to begin the new service in Somerville, Revere and Winthrop, then move to Brookline, Cambridge and neighborhoods in Boston, including Roxbury, Brighton, Beacon Hill and the Back Bay…."

Throughout the Verizon Territory.

It is now clear that deceptive statements were made to game the regulatory commissions and state legislatures, not to mention federal regulators and politicians. Bell Atlantic/NYNEX had pitched all 13 states with almost identical plans starting in 1992.

In recent testimony in front of the New York Broadband Advisory Committee, created by the NY City Council, we presented a series of original documents that Verizon had made massive claims to rewire their entire territory.

Testimony: http://www.teletruth.org/brooklynbroadband.htm

Here's some links to the original documents.

* Verizon claimed in 1993 it would be rolling out 'fiber to the curb' - NYNEX 1993 Annual Report. http://www.newnetworks.com/nynexfibercurb1993.htm

* Verizon claimed it would have 1.5-2 million lines installed by 1996. (This included Massachusetts' 330,000 lines.) NYNEX 1993 Annual Report http://www.newnetworks.com/nynex2millionlines1993.htm

* Verizon claimed it would have 8.75 million homes wired by 2000, and its plan was to go to each state to get "incentives to invest in new technologies"-- 1993 Bell Atlantic Annual Report. http://www.newnetworks.com/bellatlantic1993fiberplans.htm

* 45Mbps: Here's the New Jersey Timeline, 100% competed by 2010, with broadband defined as high definition video capable of 45mbps in both directions. (It is still part of state law.) http://www.newnetworks.com/nj45mbpspar1.htm

In fact, this was a nationwide scandal. Here's our Harvard's Nieman Foundation for Journalism Watchdog article: Where's that broadband fiber-optic access?, March 14, 2006 http://www.niemanwatchdog.org/index.cfm?fuseaction=Ask_this.view&askthisid=186

The Secret: It couldn't be built. Worse, if you examine what was being promised in statements made, and what can now be delivered in 2007 - it is clear that the commitments could never be fulfilled at the time as the equipment that Verizon had stated would be used in this endeavor didn't work as advertised nor cost anywhere near the cost models Verizon submitted in multiple states.

Massachusetts outcome. After the ink was dry on the state alternative regulation in 1995, by 1996, the company simply stopped the plans and by 1999, it was clear that the failure to deploy made Verizon over $1 billion in excess profits and tax perks, an estimated $4-$5 billion by 2007, and it continues today - as the rates were never returned to the original regulation or the monies refunded.

According to the Bell companies' research, if broadband was deployed the entire economy would grow by $500 billion annually - or $5.5 trillion in the US. Since 1996, that would mean that it cost Massachusetts over $110 billion over the last decade in new business opportunity and economic growth.

AT&T and Verizon also claim that an extra $82 billion was spent by households because there was no cable competition to lower cable rates. Thus, the failure to deploy cost Massachusetts about $2 billion in higher cable rates.

There are other problems we found since 1999.

o DSL was a bait and switch - DSL runs over the old copper wiring and did not require 'alternative regulations' to fund it. It was considered an inferior service to fiber-based services in 1992.

o The long distance business was able to cross-subsidize its costs as it could use the local phone service revenues, advertising and perks to pay most of the freight.

FiOS and Cable franchising: Verizon's FiOS is a crippled product. It is closed to competition, and right now the phone companies want to pick and choose who does and does not get wired -- the new digital divide. Also, comparing the deployments current specifications, it is slower than what was promised in 1992 and it is not competitive worldwide, as other countries are already offering 100 Mbps services for the price we pay right now for DSL.

See: http://www.newnetworks.com/fioslightspeed.htm

Next Steps: Audit the Books, Investigate Our Claims.

We hear rumors that Governor Patrick is proposing new telecom taxes. This would be a big mistake. Besides the monies we list in our original complaint, it is now clear that there are many other areas of financial harms that should be investigated.

We have highlighted these issues in our FCC Comments on broadband:

http://www.teletruth.org/docs/FCCcustomerfunding.doc

a) Audit the phone bills for mistakes - in DC, Verizon overcharged the city by $10.4 million http://www.newnetworks.com/DCAuditRefundEstimate.htm

b) Audit the missing equipment that has been added to the phone rates. FCC audits of NYNEX showed that 20% of the equipment in the network was missing. As we show, billions of dollars of missing equipment was added to rates per state. In New York, the PSC report found $634 million and that was only ¼ of the potential added to rates. We filed a complaint in MA which was ignored pertaining to this issue: NY Audit: http://www.teletruth.org/docs/NYplantdoc10309.pdf

c) A COPY OF THE NEW YORK (MASSACHUSETTS DTE) COMPLAINT. http://www.newnetworks.com/fccauditcomplaintny.html

d) Audit for 'cross-subsidization' of the other lines of business, including DSL, long distance and wireless. NASUCA, the National Association of State Utility Consumer Advocate found that billions have been added to rates for non-local services, such as DSL and long distance, both interstate products. http://www.nasuca.org/newsroom/NASUCA%20Separations%20Comments%20PR.pdf

e) Audit the other expenses added to rates - from the executive expenses to the lobbying costs. California found that $1.94 billion had been added to rates. http://www.cpuc.ca.gov/PUBLISHED/COMMENT_DECISION/29330.htm#P948_207131

f) Remove ALL of the utility perks the company enjoys, from free use of the valuable 411 networks or the use of the mailing lists, or free rights of way.

In summary, Verizon's plans are NOT a utility-based product but ownership for private use of whatever they want to build. This is contrary to the billions already collected for open, ubiquitous services. And it isn't their money. Deregulation should not be profit center when the public interest is harmed.

Think of it this way… The state hires a firm to create a new highway. The contractor not only just refurbishes the old roads but now wants ownership of whatever they build or connect to, and have exclusive rights to these networks - thus not allowing some cars to get on, or charging fees to others. And the roads will only go where the company has deemed profitable, with no obligations to serving everyone.

Massachusetts should be a technological wonder. Massachusetts should be leading the world, not trying to manage how the utility is going to stymie that leadership.

Bruce Kushnick

www.teletruth.org http://www.teletruth.org

bruce@teletruth.org