Testimony in Front of the New York State Public Service Commission on the Comcast-Time Warner Merger.

June 19th, 2014


Video, Bruce Kushnick (at 1:44)

JUDGE PRESTEMON:So that brings us to Bruce Kushnick.

My name is Bruce Kushnick. I work for New Networks. We recently published a report with the Public Utility Law Project which you are probably familiar with, called It’s

All Interconnected. It has a section about Verizon New York and its Fiber optic deployment, which is a separate subject. It also has section called, a special section on Time Warner and the special — and the social contract, and the Time Warner situation in New York.

For those of who don’t know, in 1995 the FCC decided that had to go out and solve a couple of hundred different complaints filed by the cable companies pertaining to the fact that they wanted to go into new businesses and wanted to raise rates to go out and build these new parts of the network. They wanted to go into the internet service and broadband service. 1995 Time Warner signed a contract called the social contract with the FCC that was for five years that was supposed to end in the year 2000 where they were supposed to spend 4 billion dollars, and they were supposed to go out and they were allowed to raise rates a dollar a year, so that it would be $5 by the end of the year 2000, and in order for them — and they would go out and actually upgrade the networks, and B, they would wire all of the schools within the franchise areas, and they would do it at cost, and they would do the wiring at cost, and they would do the rooms at cost. And it turned out that in 2001 when the contract expired, the $5 was never removed from the bill.

They’ve been collecting the $5, as far as we can tell, for the last thirteen years in the State of New York and all other states. Comcast has done the exact same thing. Starting in the year 2000 Comcast has — Comcast and Verizon — sorry, Comcast and Time Warner have collected 49 billion dollars for the social contract, which is $5 extra per customer per month, which is $60 a year for the last thirteen years. Two, we have no idea how many schools were wired. In fact, we can find of the auditors that we work with in multiple states dealing with Time Warner and Comcast, we could not find any of the — any of the school boards or any of the principals who had wiring done by Time Warner under the social contract.

Now there are two questions. Question one, did they collect in New York 1.7 billion dollars over the last thirteen years for the 2.6 million customers, every year collecting $60 extra for the wire of schools? Now if it was a contract with the state — with the FCC and it was terminated and it was expired, which it was, did they collect money illegally past the year 2000? We believe the answer is yes. Two, we believe that if they are collecting the money, then they should have been wiring the spools.

We are asking every franchise holder in the country to go out and find out what the hell happened with the money and what the hell happened with the wiring of every school because every school in the United States in the Time Warner and Comcast areas should have had a fiber — a fiber optic or coax wire or a cable modem service that was an internet service paid for at cost for the cable modem and paid for by the wireless schools. We have seen no audits by the state or by the FCC at this point

So we are asking the state before they sign any agreements or make this — these mergers go through, that they audit the books to find out if the schools had actually gotten wired at any point between 1995 and 2014 under the social contract, and B, was the — $5 a month added to the bills, — and C, was it ever removed from the bill starting in the year 2001. That’s pretty much it.

I will give you one other finding. It turns out that in our report we go through the profit margins of Time Warner. Time Warner, it cost Time Warner’s internal numbers $1.34 a

month to offer internet service, high-speed internet service to the customers, and I believe their average is $34 from the customer. If customers have paid since 2000, $5 a month to have the networks upgraded, and to basically wire the schools and then we find out that the profit margins are 97 percent for Time Warner, isn’t this a little — shouldn’t we question whether or not there should be a merger? Also you should know this happened in all the Comcast areas as well. So we are asking before anything is done in the state, to have an investigation of all of our — which we filed already at — with the – with the Commission, and PULP has filed separately about the Comcast essentials, and please read our comments. They are available.

We posted them as of yesterday. Thank you very much. If you have questions, please let me know.

JUDGE PRESTEMON: When was the study performed?

MR. BRUCE KUSHNICK: Our study was done in May — May 2014.

The social contracts were actually written in 1995. We have links to all of the documents, and they’re available.

JUDGE PRESTEMON: You performed the study for the Public Utility Law Project?

MR. BRUCE KUSHNICK: We — Public Utility Law Project hired New Networks to do the study.

JUDGE PRESTEMON: Is the study available online -MR.



MR. BRUCE KUSHNICK: And I’ll be glad to send information that everybody has a copy because I think it’s — I should tell you the other punch line because you asked about the wiring –the wiring of New York State. Verizon has only wired twenty percent of the territory; however, there’s been three rate increases in the State of New York that started in the year 2005 that said they were for massive deployment of fiberoptics and losses. Our study showed that the massive deployment of fiberoptics, which was FIOS, because it was — it was FIOS-based, based on a title 2 common carriage telecommunications network service, and they were able to use the utility rights-of-way and charge customers for the cable parts based on that finding, and two, they collected something like 4 billion dollars from pots customers to pay for that wiring. So if you want to know what’s gonna happen to the state, Verizon will stop doing the upgrades. Oh, literally only eighty percent of the state is not got gonna get wired as far as municipalities and there will be no competition, and Verizon is filed basically to shut down all the copper in their territories, and they started in the Rockaways, filing with the 251, Section 251 location, which basically said in the area of the Rockaways we are going to shut off all the copper and for 50,000 people we are going to file it with the FCC because we can. That’s the only paperwork we’re gonna do, and essentially we have no more obligations whatsoever. We asked whether or not that wire that was — is the Title II part of the utility or is it basically owned by Verizon as a private property.

This -these– these big questions, this means that there will not be any competition of wires by Verizon to — to Time Warner in the State of New York if we are right. So whether — if the merger goes through, you’re basically sitting here with whatever is there in the ground with Time Warner, and Comcast will be there. There won’t be any competition for it, and Verizon is not going to show into FIOS in most of the areas to compete, so the prices cannot go down. There is no other competitor around that can offer services, and putting all these people on wireless and shutting off copper, as you know, with the Fire Island docket that was open, we showed that the cost — the cost models that were done by Verizon are basically made up. All of the expenses that we found, that basically a lot of losses are being created by the various parts of the business basically dumping expenses into the utility raising rates, raising the expenses, and Verizon New York has paid no taxes for the last five years, income taxes.

So as far as the ultimate question about the merger here, what we are left with is one big question, if Verizon isn’t going to show up and Time Warner/Comcast goes through, they can just raise rates at will, as they’ve shown to do. So we are asking for investigations of these issues today, and we will definitely get you all reports, no problem. Thank you very much.

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