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New Networks Institute

Contact: Bruce Kushnick, Executive Director [email protected],

SPECIAL REPORT

HOW MUNICIPALITIES AND THE STATES CAN FUND  FIBER OPTIC & WIRELESS BROADBAND NETWORKS

Proving Verizon’s Wireline Networks Diverted Billions in Capex for Wireless Deployments Instead of Wiring Municipalities and Charged Local Phone Customers for It.

This Special Report exposes the fact that the wireline networks have been paying to build the wireless business at the expense of getting cities properly upgraded and maintained—and local phone customers have been charged to build new lines of business, at the detriment of low income families, rural areas, and anyone who uses the wired networks.

nywirelesscapxThe exhibit above shows that Verizon New York (VNY) built 5,515 cell sites from 2010-2012, at an estimated cost of $2.8 billion dollars, or about 80% of Verizon New York’s entire capex. These capital expenditures were supposed to be used to maintain and upgrade the state’s wireline infrastructure. This left most of the upstate cities incomplete or not upgraded at all. The data shows that this happened up and down the East Coast.

At the same time, the company was able to manipulate the accounting so that ‘Special Access’ services (renamed “Business Data Services”) are kept very profitable while the expenses are diverted into Local Service.  This has multiple public policy implications. However, Verizon’s affiliates appear to be paying a fraction of what Sprint and all other competitors are paying.

In April 2016, Consumer Federation of America (CFA) and NNI filed joint comments and reply comments in the current special access proceedings at the FCC relying on some of this information. CFA estimates that $20 billion annually is being overcharged for special access services.

Summary of What We Found:

  • This Happened in All Verizon States — Just 4 States Spent an Estimated $5.5 Billion, 2010-2012 —Verizon New Jersey, Pennsylvania, Massachusetts and New York, for just this three year period, used the wireline networks to put in 12,811 cell sites (or upgrades) at a cost of an estimated $5.5 billion.
  • Local Phone Customers Were Charged for Deployments and for Losses — Verizon New York received multiple rate increases for “massive deployment of fiber optics” and ‘losses’. The fiber optic budgets were diverted to the cell site construction and the losses were created by the cross-subsidies.
  • VNY Local Phone Rates Increased by 84% as a result of multiple rate increases from 2006-to 2014, and there were increases on all related add-on charges that went up 50-300%, like inside wire or nonpublished numbers.
  • Underpaying Special Access, Overcharging Sprint—Verizon Wireless was able to underpay for use of the “special access” networks. At the same time, Verizon’s inflated special access rates overcharged competitors, like Sprint and others.
  • Sprint could be Overcharged by $½ Billion to $1 Billion, nationwide, annually; other competitors are in the same position.
  • Verizon Wireless Is Vastly Profitable and Not Paying Most Capex — Verizon Wireless, in just New York, brought in estimated revenues of $7.6 billion in 2012, but spent only $249 million or 3% of revenues on wireline capex.
  • Business Data Services (BDS) and Massive Cross-Subsidies —According to Verizon NY’s 2015 Annual Report, Local Service brought in $1.3 billion in revenues yet had an EBITDA of -132%. This is in contrast to “Access” services, which were $2.5 billion and had an EBITDA of 66%. (Special Access was over $2 billion in revenue 2015, about 80% of Access services.)
  • Expenses are being Dumped in Local Service — In contrast, for the same year, Local Service alone paid $1.47 billion in network costs (plant and non-specific plant) which was 116% of Local Service revenues. Access services only paid $716 million, which was just 29% of revenues and Access was almost double the revenues.
  • No Regulator has Examined these Issues with Audits — There have been no audits of the affiliate transactions for over a decade+ in any state or at the FCC.
  • The Majority of the Access Lines Are Not Counted — Verizon et al claims that they are ‘losing lines’, but the companies DO NOT count Special Access lines, or FiOS fiber optic lines or DSL, among other services. This has been done to claim that the phone networks are unprofitable. In truth, access lines have had major growth over the last decade.

New Networks Institute is an Independent Expert Consortium. NNI was established in 1992 and over the last decade has gathered a team of independent experts, auditors and lawyers to work on projects, including “Fixing Telecom”.

“Fixing Telecom” is a research project that officially started with the release of two reports in 2015. However, this has been a six year undertaking.