Comments of Teletruth to the New Jersey Board of Public Utilities

Reclassification of Incumbent Local Exchange Services

Docket No. TX 07110873


Click to Read as a Word Document

Submitted June 24th, 2008 (Updated)

Information from the Board of Public Utilities:


Submitted by: (Contact info below)

Tom Allibone, Director of Audits, President, LTC Consulting,

Bruce Kushnick, Chairman, Executive Director, New Networks Institute

  • Is a proposed 80% increase to local phone service by Verizon, New Jersey really 'fair and reasonable'? Are profit margins of 5,695% or 36,900% on various local service products fair and reasonable?
  • Should increases pay for Verizon’s FiOS, a cable service?
  • Should Verizon be allowed to submit false and misleading materials without being questioned?
  • Does Verizon, NJ owe customers $5-$6 billion for failed fiber optic upgrades of the Public Switched Telephone Networks (PSTN --- the "utility"?

Verizon, New Jersey filed to increase various costs of local phone service. The New Jersey Board of Utilities (BPU) should not accept Verizon’s proposal to raise local service phone rates. It violates every ‘fair and reasonable’ statute and directly harms Verizon residential and small business wireline customers.

We also claim that misleading data has been submitted by Verizon in its requirement to have 100% of the state rewired with 45mbps services (in both directions) by 2010 and that FiOS is harming the PSTN – Public Switched Telephone Network. Thus, customer phone bill increases are very likely funding a cable service.

Verizon’s intentions --- Increases of 79% for local residential service, 70% for small businesses, 800% for directory assistance, and 40%-70% per line-item is now being considered “fair and reasonable”. This is in contrast to the exorbitant profits from these services.  Caller ID and Non-published telephone numbers have a 5,695% or 36,900% profit margins, respectively.

In fact, when examining a total local service bill, including all of the required charges, there has been a 303% increase in local service in New Jersey since 1982, (347% for some customers). Verizon lies when it claims that they have not had an increase to its residential basic exchange service since 1985. We have tracked over 5 different increases since 2003, all documented on phone bills.

And why has the Commission allowed Verizon to use the “411 networks”, a valuable resource, without paying for the use of these networks for local and long distance information?

It is clear that by raising these rates, there is no serious local service competition to stop their implementation. Prices should have seen serious declines as the costs of offering local service has continuously decreased, such as major cuts in staffing or the aging of the networks. Meanwhile, the local service profits have skyrocketed.  And now, FiOS may be funded illegally through the profits of local service.  FiOS is a cable and ‘interstate information service’ and the Commission is supposed to be protecting LOCAL SERVICE, not helping to illegally fund a cable project that is essentially stealing customers and resources from the PSTN -- Public Switched Telephone Network.

We also note that in previous testimony and complaints with the BPU, Teletruth showed that Verizon has been submitting falsified documents, that it misled the public and owes over $5-$6 billion for financial incentives it was supposed to use for network upgrades of the PSTN.   

We also filed a complaint in 2002 outlining how Verizon has also illegally taken massive tax deductions and increased local rates by including billions of dollars of missing network equipment which remains on their companies’ inventory books.

In our previous filing on Verizon’s Long distance application in 2002 we demonstrated that when it comes to actual phone bills that represent the current costs to customers – about $200 million dollars is being annually overcharged because the phone bills hide overcharges. Our independent audits continue to find customers who are paying for services they never ordered, or don’t know it is hidden on the phone bill.

While Verizon continues to claim that their bills are 100% accurate, our work with law firms has led to two settled class action suits in New Jersey; one showing that 40% of small businesses were missing their discounts while another showed that an estimated 10% of customers were paying for non-existent special circuits. Teletruth’s forensic auditing service through LTC Consulting shows that at least 90% of all business customers have mistakes that lead to refunds.

Therefore, these proposed increases are unconscionable. There is no stand alone local service competition and thus Verizon can simply hold customers hostage through rate increases. These rate increases are NOT going to fund the PSTN, but will be siphoned-off to pay for a cable service. How does this help local phone customers or build essential infrastructure for residential and business customers? It doesn’t.  The Commission’s mandate is to protect the public interest, not harm the public. These increases are targeted at seniors and low income families, and small businesses that don’t have choices or may not qualify for bundles or packages. 

We ask the Board to seek answers to the following questions:

  • How much profits are there in each service, including local service, Caller ID and directory assistance?
  • Is FiOS included in local service expenditures and what’s going to happen to the PSTN?
  • If there was competition, then how can Verizon simply raise rates?
  • Why is Verizon allowed to create inaccurate, misleading and downright falsified data to the Commission?

Teletruth Position, Documented in our Testimony:

1) Verizon, NJ is misleading the public about increases to Verizon’s local service.Verizon claims it has not had a rate increase since 1985, our data shows a 293% increase since 1980, 365% increase for some customers.
a) Verizon's quoted 1985 cost of $9.18 for local service was actually a bundled service and neither Verizon nor the state accurately assessed increases to local service.

b) Verizon fails to give a ‘full accounting’ of ‘basic local service’ and misses basic expenses.

c) Increases and profit margins on specific items are outrageous.

d) Other rate increases happened throughout the last 5 years.

2) Verizon should have the “411” number removed from their possession and put up for bid.

3) Continue the missing network inventory (continuing property record) audits and seek refunds.

4) Verizon is giving the commission falsified data on the various areas of the previous commitments under the original PAR 1 and PAR 2 to have 100% of the state completed with 45 Mbps services in both directions by 2010.

5) Investigatemultiple revenue streams Verizon has been allowed to develop over a single wire --- local, long distance, connection to the internet (ISP service) DSL (broadband) and cable, and whether this 'vertical integration' created through ‘deregulation’ of the utility has harmed customer choice and increased the costs to local service customers.

6) Start a Truth-in-Billing docket immediately and clean up phone bills.


1)Verizon, NJ Is Misleading the Public about Increases to Verizon’s Local Service.  Verizon Claims it has Not had a Rate Increase Since 1985.


Let’s get some data out to make some specific points.


“Verizon, New Jersey has not raised the price of its residential basic exchange service, (including touchtone) since 1985, when the price of this service for the highest rate group was $9.18.


Take out a Verizon,New Jerse phone bill and examine the charges. Verizon’s claim that it has not raised rates is simply distorting the truth. It has removed basic service elements as defined by Verizon, New Jersey’s own phone bills.


Verizon would not like anyone to examine the actual “Basic Local Service”, which in 1980 was a bundled service for $9.18. It included the wiring in the home, unlimited directory assistance, unlimited local calling and even the use of a telephone. Ironically, Verizon chose 1985 to start its definition of increases to local service because when the wire and the phone were deregulated in 1982, both the state and Verizon never recalculated the actual costs of local service, when the bundle was in play.


The next exhibit highlights that Verizon’s local service increased some 304% since 1982, using an average of the original 4 rate groups, examined later.  If you remove the phone rental entirely, local service still increased 277%, not 0%. NOTE: With Group “A” of the 4 rate groups, the increases are 365%. (see below.) Also, we did not add the touchtone charge, which was merged into the cost of local service, instead of a reduction to the cost.


Comparing Verizon New Jersey Residential Local Service







 (avg. of 4 rate groups)




FCC Line




















Deregulatory Subtractions:




Inside wiring.








(without wire and phone)








Universal Service




Taxes and Surcharges










Examining a Phone Bill


* Note: We use $9.18 in this discussion because it is in the original Verizon stipulation agreement for the year 1985.


A) Verizon’s $9.18 Was a Bundled Service and Neither Verizon Nor the State Accurately Assessed Increases to Local Service.


It is clear that Verizon chose 1985 for 2 reasons – the deregulation of the wire in the home and the phone rental occurred in 1992. Thus, these items were not included in the actual cost of service analysis.


  • Inside wiring – In 1980, the cost of inside wiring was part of local service –the cost helped to constitute the $9.18 in fact. Today inside wire maintenance plans exceed $6.00/month.
  • Phone rental – The cost of the rotary telephone was included in the $9.18 price.


The numbers included for 1982 were taken directly from a New York Telephone bill for the costs of the wire maintenance and the phone.  If you remove these costs, then the actual cost of local service should have been only $6.76.


B)        Verizon Fails to Give a ‘Full Accounting’ of ‘Basic Local Service’ and Misses Basic Expenses


Additional Charges



  • FCC Line Charge Verizon fails to include this charge. It adds 71% to the actual costs of basic residential local telephone service. N.J.A.C. 14:3 – 7.17 (a) clearly states:


"’Basic residential local telephone charges’ include charges for basic residential local telephone service, basic residential local service usage, nonrecurring charges for basic services (service ordering charges and installation charges for basic services), the Federally mandated subscriber line charges, and applicable State and Federal taxes.”


The federally mandated line charges are part of ‘basic’ local service. It is now at the maximum at $6.50. It is also a truth-in-billing violation to claim that it is not part of local service as it cannot be removed or not paid.



  • $.65 credit a month On Verizon, New Jersey local phone bills for residential and single line businesses, the credit has been removed announced 4/16/05.



  • Touchtone The cost of offering touchtone has been and continues to be $0. In fact, it costs more to offer rotary service. And yet, New Jersey still insisted on getting paid for this service, even though most states removed this charge in the 1990’s. In 2005, it was merged into the rate group increases.



  • Directory Assistance In 1985 and through most of the 1990’s, directory assistance in New Jersey was free. If the average person made 5 calls, at the new level, the customer will now pay an additional $4.50 for three calls.



  • E911 as a profit center In 1991, New Jersey Bell annual report showed a $17 million revenue increase from providing e911 services. It is clear that it is not up for bid.


c)         Increases to Service, Costs and Profit Margins


How outrageous are the increases and the profits from these increases? Based on data provided by the Florida Commission in 1999, the only Commission we know of to do a full cost analysis of added features, below are just some of the harmful increases. ( Source: "Report of the Florida Public Service Commission on the Relationships Among the Costs and Charges Associated with providing Basic Local Service, Intrastate Access and other Service by the Local Exchange Companies in Compliance with Chapter 98-277, Section (2) 1 Laws of Florida, February 19, 1999.")


Local service will go up 79%, Business about 70%. While Caller ID will go up 38%, non-published number rise 68%. Caller ID has profit margin estimated to be 5695% and non-published numbers has a 36,900% profit margin.


Verizon New Jersey Cost Increases, Actual Costs and Profits







Profit margin

Local Service












Caller ID













d)         Other Rate Increases

New Networks Institute and Teletruth published a recent report on phone charge increases in Verizon New York and New Jersey.


This list, for just New Jersey is long:



  • 8/16/03 VNJ eliminated the small business discount of $1.01/month on auxiliary business lines associated with accounts with 2-4 lines.

* Impact: Auxiliary business lines for small businesses with < 5 lines went up approximately 10%.


  • 4/16/05 VNJ eliminates touchtone charge, creates statewide rate group.








Individual flat rate







Ancillary line







*Basic primary residential and business line monthly rate increased 15.5% for customers in Rate Group A (There are 4 groups). Like virtually every other state in the US, New Jersey should have removed the separate touchtone fee. The separate charge should never have occurred because the network upgrades, funded by customers through rate increases, supplied touchtone for free. The new increases simply moved the touchtone fee into the overall costs without a separate line item. (Note: It is almost impossible to buy a rotary phone and it cost more to offer rotary service than touchtone.)

* Rate Group “A”  Total Increases Examining the increases from 1980, using our previous model, the total increase to a Rate Group “A” is 347%, up from 293%.

Increases Since 1982 Using Rate Group “A”.





Line with taxes





  • 4/16/05 — Eliminates $.65 cent credit on residential and small business phone bills.

*Impact: Elimination of $.65 cent credit yields over $23 million annually in new profits.


  • 11/01/06 VNJ hiked statewide rates for multi-line business customers and introduced 2-year term plan.



  • 2/1/07 VNJ raised rates again. This is the second rate hike in 3 months, from $16 to $17, auxiliary business lines increase from $12 to $13.


Verizon, New Jersey Recent Rate Increases on Small Businesses, 2007 







Primary Business




13% increase





20% increase

NOTE: The costs being quoted for  small business service have nothing to do with the final phone charges. These costs do not include the FCC Line Charge, which can be up to $9.00 on business lines per month, taxes and surcharges, increases to calling features, etc.

In short, there has been increase after increase, not to mention the removal of a credit, the removal of the small business discount, and rebalancing that harms specific municipalities --- just a few new tricks to raise the rates.

* Inside Wire Maintenance Has Had Multiple Increases.

In New Jersey, even the ancillary services, such as inside wire maintenance, have also had increases in 2007.


  • 1/1/07, Sentry I (Business maintenance) plan went up from $5.20/month per line to $6.20/month.



  • 1/1/07, the optional wire maintenance plan went from $4.25 up to $5.75.

In short, Verizon is misleading the public about increases. – Will the Commission simply stand by and allow the company to distort the record?



2)         Verizon Should Have the “411 Number Removed from Their Possession and Put Up For Bid.



In 1980 and through the 1990’s Directory assistance in New Jersey was a free call and came with local service. Today, customers receive 4 calls and pay $.50 for each. Under the proposed plan, the customer still gets 2 calls, but after a few years, the cost for each call above the allowance will be $1.50, not counting taxes.


Directory Assistance will have a massive 800% increase, based on 5 calls.. More importantly, it will have a profit margin of 1857%.  (Note: The cost of directory was examined in a NARUC Report “411”, which showed that costs industry-wide were $.15-$.30, depending on the technology and required human intervention.


Directory Assistance Increases and Profits.





5 Calls





4 calls







2 calls






Since 2000



Since the 1990’s, using $.01 (as dividing by 0 does not work), for 5 calls, the customer will be paying a 44,900% increase.


Free Ride on the Valuable “411” Networks?


The 411 networks should be put up for bid, the long distance portion sold separately, the names used to be rented by the telco. A National Association of Regulatory Utility Commissioners, (NARUC) Telecommunications Staff Subcommittee Report on Directory Assistance, November, 2003 made some of the same points:


“Allow the States to individually bid out DA provision. State public utility commissions have traditionally imposed requirements related to DA service for quality of service, speed of answer, price, number of free DA calls per month, or in the case of people with disabilities, free DA service. Consider giving them the authority to issue “requests for bids” among the qualified competitors…The 411 dialing code should be preserved as it is a universally recognized access code….Through the bid process, the state commissions could lower DA rates for consumers and possibly use some of the excessive profits that are currently being generated through monopoly control of the DA market to support fund such programs as… state universal service funds.”


The “411” dialing code, is a very valuable public asset.  Universally known and easy to remember, Verizon currently is able to receive a free advertisement, and the ability to supply both local and long distance information, not to mention a fee for connecting the call. 


As of 2008, directory is not only profitable, but with the increases to Directory, is obscenely profitable. What is the advantage to the public interest?  If the companies are free market and competitive, why should the incumbent get the right to use this valuable asset for free? Why should it not be put up for bid?


NOTE: In 1992, New Networks Institute, working with Cox Newspapers, rolled out the first “N11” number – “511”, in the BellSouth territory in Atlanta and Florida.


3)  Continue the Continuing Property Record Audits and Get Massive Refunds.

The state rejected our original call for an audit of the phone companies’ inventory of network equipment, known as “Continuing Property Records”, which would have showed that over 20% of the equipment in the networks was missing or unverifiable. PAR-1 based its starting analysis on the unverified inventory which would have revealed billions of dollars in missing equipment, unjustified tax savings taken by the carrier and inflated phone rates paid by subscribers.

Here are other related materials to this audit.

In 1999, the FCC released an audit showing that Bell Atlantic, NYNEX et al had over $18.6 billion dollars of missing or unverifiable equipment in their inventory books and that this was only ¼ of the audits that should have been done.

The New York Attorney General filed comments with the FCC pertaining to audits of New York Telephone/NYNEX’s inventory of the equipment in the networks. As pointed out, the price of service is based on the capital investments. The AG's office suggested that $631 million in rates could be affected, accounting for a $1.2 billion dollar write-off.  (CC Docket 99-117, Comments in Response to April 6th, 1999 Notice of Inquiry, ASD file No. 99-22, Audit of Continuing Property Records of NYNEX Telephone Operating Companies also, Known as Bell Atlantic North.)

"The New York State Attorney General is an advocate on behalf of New York State's residential and small business utility ratepayers, before both the FCC and the New York State `Public Service Commission ("NYPSC"). The interest of New York consumers in the FCC's audit of NYNEX/Bell Atlantic North's continuing property records is manifest. Approximately half of NYNEX/Bell Atlantic North's reported costs represent capital investment recorded in the continuing property records. The FCC and the NYSPSC use these cost figures to set NYNEX/Bell Atlantic North's rates. The audit shows that NYNEX/Bell Atlantic North's costs are inflated. New York State telephone customers, both commercial and residential, are adversely affected if the various charges which comprise their rates are inflated because of overstated capital investment figures. In rough terms, as much as $631 million of NYNEX/Bell Atlantic North's New York intrastate rate base could be affected by a potential $1.18 billion write-off of NYNEX/Bell Atlantic North's capital investment accounts recommended by the auditors. This estimate is based upon the fact that New York Telephone Company represents approximately two-thirds of NYNEX/Bell Atlantic North's operations and about 80% of this is contained in the intrastate jurisdiction. Thus, the auditors' findings, if adopted by the FCC, could lead to significant adjustments in the intrastate and interstate rates paid by New York businesses and residents."


The FCC turned over the audits to the states in a deal that was even questioned by some of the Commissioners. The New York State Public Service Commission issued a report outlining that $634 million of equipment was missing. This was only ¼ of the potential missing equipment that had been added to rates. Thus, $2.5 billion in missing equipment may be at stake and the State should continue the audits.


And yet, the New Jersey BPU rejected our original complaint to examine the books ---  Filing August 22, 2002, Reply, November 7th, 2002.


“In summary, the Board has expended much in the way of resources in determining the rates that VNJ is charging are fair and equitable especially compared to other states in the nation. Given the recent efforts and steps already taken by the Board to investigate and research VNJ's operations and finances, your request for a continuing property records audit is not under consideration at this time.”


In short, the BPU never examined the Continuing Property Records and since prices are ‘fair and reasonable”, why investigate the fraudulent bookkeeping claims, even though the FCC and New York State found serious issues.


If the BPU is about to again raise Verizon’s rates, shouldn’t it be based on accurate data, not inflated costs, and thus inflated price to customers?



4)         Verizon Is Giving the Commission Falsified Data on the Various Areas of the Previous Commitments under the Original PAR 1 and PAR 2.


In our previous testimony in front of the BPU, we pointed out that customers have paid $5- $6 billion in financial incentives that were supposed to be used to rewire the state and upgrade the PSTN – Public Switched Telephone Networks.


PAR 1 called for Verizon, New Jersey to live up to a deployment schedule where 45 mbps services capable of high quality video delivery in both directions was to be deployed – 100% completed by 2010.


Here are the commitments:

"Switching capabilities matched with transmission capabilities supporting data rates up to 45,000,000 bits per second (45 Mbps) and higher, which enables services, that will allow residential and business customers, for example, to receive high definition video and to send and receive interactive (i.e., two way) video signals."

What happened was appalling. In the 1990’s, Verizon, New Jersey collected billions in the form of higher rates and tax perks to deploy a new fiber-based service starting in 1996.  The companies’ documentation was essentially fraud as the networks couldn’t be built at the cost models presented. Instead of deploying, this revenue was used to roll out inferior copper-based DSL service.


The loss in broadband for over a decade cost the growth to the economy, as stated by the original agreements, extra cable charges because of a lack of competition, and harms to customers who paid over $2000 per household for networks they never received.

Here is a section from a page from Verizon’s New Jersey’s own Annual Report for the year 2000, submitted to the BPU. It claims that Verizon had deployed 52% of the entire state with a service capable of 45mbps in both directions. It also shows that this was based on the funding through Opportunity New Jersey --- PAR 1.


In fact, every year since 1996, Verizon has essentially committed fraud as every year the company claimed it had deployed residential 45mbps services in both directions – and it was never built.


Who Is Funding FiOS?


  • If the state is considering FiOS as the completion of Verizon’s fiber optic broadband deployment, then is FiOS being directly funded through the increases in local rates?
  • Is FiOS supposed to replace the PSTN? FiOS doesn’t currently support 45mbps speeds in both directions, so it is still not fulfilling the stated obligations under PAR 1.
  • If FiOS is not supposed to be funded through rates, as the state does not have the right to allow an interstate information service nor a cable service to be funded through intra-state rates, then why is FiOS allowed to use Verizon staff dedicated to the PSTN, advertising budget, etc.?
  • If FiOS is a new product, then shouldn’t it be paying its fair share to lower the rates of the utility?
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5)         Investigate Multiple Revenue Streams

Since 1985, Verizon has been allowed to develop a series of new revenue streams over a single wire --- local, long distance, connection to the internet (ISP service) DSL (broadband) and cable, and it can be argued wireless service as well. It is clear that this 'vertical integration' created through ‘deregulation’ of the utility has harmed customer choice and increased the costs to local service customers.

In another recent Teletruth report, we showed that by counting “access line equivalents” instead of the actual wire, it is clear that there’s been a massive shift – more products over the same wire is substantial growth to Verizon and AT&T.


According to their own data, AT&T has enjoyed a massive increase in “Line Equivalents” — 1391% to be exact.


Exhibit 7

AT&T’s Access Line Equivalents from 2000 through 2007



















"Given the growing importance and magnitude of data revenue streams and circuit volumes, access line growth has become less than a comprehensive measure of strength in the market. The development of Voice Grade Equivalents (VGEs), which include data circuits, provides a consistent and quantifiable means for bridging the gap between access lines and data services."


When examining the 5 different product lines over the same phone line, --- local, long distance, connection to the internet (ISP), DSL (Broadband) and cable, (and for cross-subsidization of wireless costs), we find that each new product adds revenues per line, but also shows up as an ‘access line equivalents’ numbers. Verizon has had the same phenomenal growth as AT&T in this regard. However, this ‘growth’ was at a cost to competition and the growth of broadband in the state.


  • Because of the FCC’s decision to not require wholesaling of local service, AT&T and MCI were put out of business and up for sale. Now, Verizon can bundle their own local and long distance service.
  • Is the Verizon’sFreedom ‘package’ paying back for the use of the utility?


  • Verizon now can bundle their DSL service as well as connection to the internet. Besides directly harming every independent internet provider *(helped by the FCC’s removal of line sharing), the company can now sell two new products over the same wire. (This also lowered the number of actual lines. )
  • Did Verizon pay full competitive costs back to the utility for use of the wire, the staff, the advertising, etc?


If the BPU allows these proposed increases and doesn’t examine the growth in lines of business and competitive harms, then the customer will be hit with a double-whammy – higher prices and less choice.


6)         Start A Truth-In-Billing Docket Immediately And Clean Up Phone Bills.


Since 2002, Teletruth has worked on 2 class action suits against Verizon New Jersey, with successful settlements.



In 2002,  pertaining to the Verizon, New Jersey’s application to offer long distance service,  we outlined that phone bill charges were out of control. CC DOCKET NO. 01-347


“The Verizon retail bills contain a high error rate. It is hard to imagine that the KPMG OSS (network) study did not pick up this issue as part of its test plan. It is relevant to this 271 application because the underlying Verizon retail OSS is the same OSS that was tested by KPMG. On this basis, it is difficult to understand how 100% compliance has been achieved if close to 90% of retail phone bills audited by independent phone bill auditors reveal billing errors.


“Based upon our research obtained from auditing end user phone bills, we find that consumers remain confused about the charges listed on the phone bill. In many cases, the charges are lumped under the “monthly service” charge or contain misleading descriptions. It is very common to find billing errors in the following general categories:


  • Non existent service
  • Double billing
  • Bundling of charges that hide billing errors
  • Missing or incorrect discounts
  • Incorrect one-time installation charges
  • Tariff violations


These are still common practices. The Commission has continuously ignored these issues and it is time for the Commission to protect the public interest, not Verizon’s interests.


Submitted by:


Tom Allibone, Director of Audits, President, LTC Consulting,

[email protected] 609-397-2257


Bruce Kushnick, Chairman, Executive Director, New Networks Institute

[email protected]