Thought Piece

[This editorial piece seems so dated. It invokes all of the old arguments about Baby Bells, cable and telecom regulation from the distant past. Absolutely absent from this piece is any discussion of the future of broadband, telecommunications, technology and the Internet of Things.

Is anyone else bothered by the hyperbole and doomsday-itis capture in the Eve of Destruction headline?  Steve]

FCC: I Do Believe We’re on the Eve of Destruction.

Bruce Kushnick, Contributor Executive Director

02/27/2017 12:35 am ET

In 1965, the song Eve of Destruction hit the music charts and it listed a litany of the world’s ills. I believe many may feel that the Trump Administration’s road map for 2017 and beyond could leave America singing:

And you tell me

Over and over and over again my friend

Ah, you don’t believe

We’re on the eve of destruction.

On Thursday, February 23rd, 2017, the FCC held its first official meeting with the new FCC Chairman, Ajit Pai. And like a polluted stream filled with dead fish floating belly up, the meeting just added to the stench from the FCC we’ve seen in this ‘transition’. As I previously mentioned, Pai is a former Verizon attorney, while the head of the transition team, Jeffrey Eisenach, has been a consultant to Verizon, wearing multiple hats, for two decades.

(I note that at this time there are only three current commissioners, two Republicans and one left-over Democrat, Mignon Clyburn. There should be five commissioners, (3 Republicans, 2 Democrats). This has given Pai complete control over the FCC’s entire agenda.)

But I’ll let the FCC’s actions or in-actions speak for themselves.

Overarching Theme: Remove All Regulations & Consumer Protections: The FCC’s plan is extremely clear – erase all laws and regulations and consumer protections and let a few very large monopolies/duopolies – Verizon, AT&T, Centurylink, and the cable companies – do what they want.

Block Privacy Rules: Illustrating this point, during the writing of this article, the FCC, (actually Pai), has decided to block the FCC’s new privacy rules from going forward, stunning many, including Commissioner Clyburn. To put this simply, (and, as we will discuss in the next article), the previous FCC administration created a new rule to let customers decide how their own data, information and online habits would be made available to the phone and cable companies, if at all. Blocking this new rule allows Verizon et al. to sell the customer’s information to advertisers and give their own affiliate companies the ability to spy and track customers’ purchases, friends, contacts, etc., on multiple devices.

And this stuff is insidious and a grotesque invasion of privacy. CNET quoted Bill Diggins, U.S. chief for the Verizon Wireless in 2012.

“‘We’re able to view just everything that they (the customers) do,’ Bill Diggins, U.S. chief for the Verizon Wireless marketing initiative, told an industry conference earlier this year. ‘And that’s really where data is going today. Data is the new oil.’ Verizon Wireless says that its initiative, called Precision Market Insights, is legal because the information is aggregated and doesn’t reveal customers’ identities.

“Verizon’s Diggins touted the carrier’s extensive monitoring abilities: ‘We’re able to analyze what people are viewing on their handsets. If you’re at an MLB game, we can tell if you’re viewing ESPN, we can tell if you’re viewing MLB, we can tell what social networking sites you’re activating, if you’re sending out mobile usage content that’s user-generated on video’.”

Erase the Accounting Rules

But, the real harms are being done in obscure, wonky areas that most people or even telecom geeks would never know are important. How is it that Pai’s first meeting was used to erase the basic accounting rules, Part 32, which are known as the “Uniform System of Accounts”? These and other rules have been whittled away over the last decade, and have been turned into the plaything of the telcos. I’ll get to that in a second.

And even the Notice for this first meeting was rigged. A decision about these obscure accounting rules that should have been investigated over the last 16 years was now a complete Report and Order—nicely tied in a bow. And while we hear there is a movement to ‘transparency’, it’s just a lie. The Report and Order was not made public before the meeting (nor is it available yet, February 26th, 2017) and the FCC already decided these rules were no longer needed when it announced this meeting.

“Comprehensive Review of the Part 32 Uniform System of Accounts “The Commission considered a Report and Order that would streamline and eliminate outdated accounting rules no longer needed to fulfill the Commission’s statutory or regulatory duties.”

There Should be Audits of the Accounting to Expose the Billions in Cross-Subsidies.

Some Context

In 2014, our report “It’s All Interconnected”, was part of a filing in this proceeding by the National Association of State Utility Advocates (NASUCA). Published by the Public Utility Law Project (PULP) and based on Verizon New York’s state-based financial reports, we uncovered and detailed massive cross-subsidies—where local phone customers have been paying the majority of expenses for over a decade. In fact, billions of dollars were diverted to other lines of businesses or were used to pay excessive amounts of ‘corporate expenses’, which includes the Verizon corporate jet and executive salaries. I.e., local telecom customers, who were never upgraded in rural areas, or worse, low income families, small businesses, etc., were forced to pay extra due to the failure of the FCC and the state regulators to properly audit and investigate how the accounting had been manipulated.

And, this is also about the costs of all wireless services, as the incumbent phone companies, Verizon et al., have manipulated the accounting so that the state utility wires that go to the cell sites (known as “special access”) have obscene profits, with the rest of the utility services paying the majority of the expenses.

And if you want irony, the fiber optic wires to the cell sites, or even Fi

OS, were put in under ‘Title II’ and this corrupted mess allowed Verizon to use Title II as the investment mechanism. Yeah, that is the same Title II that the FCC will also try to remove instead of investigating in the upcoming Net Neutrality fights.

And unfortunately, thinking that the previous democrat-majority FCC would fix this mess, we filed multiple reports, comments, etc., in 2015 and 2016 using the financial reporting that use the USOA – Part 32 rules, and the other cost allocation rules. We even wrote a separate report “The Hartman Memorandum” and detailed these cross-subsidies, summarized in a Huff Po piece.

So, instead of actually doing their job, this FCC is going to finish the job and just erase the rules (or ‘forbear’ them, meaning leave the rules but don’t enforce them).

The Eve of Destruction

Instead of fixing the problems, the FCC’s press release claims that removing the rules was done because the task of keeping accurate accounting books was too burdensome and this elimination will bring new economic opportunity.


Reducing the cost and burden of these FCC rules will allow carriers to allocate scarce resources toward expanding modern networks that bring economic opportunity, job creation and civic engagement to all Americans.”

But, my personal favorite from the release is this gem:

“This can be costly, requiring additional training for accountants, a second set of customized software, and two sets of audits.”

You got to be kidding. Besides the fact that the accountants are being charged to local phone customers, (which are seen in the Part 32 and other accounting details) and besides the fact that the companies have had to keep accounting books since at least the 1930s so that they already have accountants, the software, etc. in place…

 Three things stand out.

First, below is the accounting for Corporate Operations paid by Verizon New York in 2014—from the actual accounting books that use Part 32. Of this ‘accounting and finance’ category, it only takes 2-3 accountants, mostly part time, to do this work – a fraction of $40 million. But, the executives alone got $26 million while, at the bottom of this category detail, there is an additional $2.6 billion in expenses that Verizon NY pays for Verizon Corporate’s lawyers, lobbying, etc.

So, not doing the books frees up a few hundred thousand in Verizon, New York, at best. But the rest of this accounting shows that Verizon NY was charged $2.6 billion in expenses. Maybe cutting this budget would have gotten NY State upgraded by now?

Second, if the FCC and Pai had actually read what we’ve been filing at the FCC, they would see that local phone customers paid for most of these corporate expenses—60%. This is due to the manipulations of the FCC’s accounting rules, which rely on Part 32. This manipulation shows that “local service” (POTS, copper-based phone service) was charged more than the revenues it brought in, while the “non-regulated” category, including FiOS, and “Special Access” service, (like the wires built for the cell company), paid squat.

And third, the release says: “Action Will Free Scarce Resources for Network Investment”. If you’re going to lie to the people and make crap up, maybe you should actually stop using catch phrases as if you were a paid-off politician, and actually use facts. We just presented the facts for Verizon’s largest East Coast state, New York.

I challenge the FCC to a debate. I’ll use the Verizon financial accounting that incorporates Part 32, for multiple states. What will the FCC bring – dead fish?

There are those, like Pai, who will state that the companies are under something called ‘price caps’ and that there are other financial books. A debate would expose that the price caps were incorrectly set and should have been investigated because of the massive-cross-subsidies detailed by Verizon’s financial reports.

The Destruction of the Public Interest Started before this Meeting.

The Benton Foundation wrote about the customer-unfriendly carnage underway:

“On February 2, new Federal Communications Commission Chairman Ajit Pai said, ‘I want this Commission to be as open and accessible as possible to the American people. I want us to do a better job of communicating with those we are here to serve’’ while announcing a new effort to make the agency more transparent. The next day, in what some call a ‘Friday News Dump,’ Chairman Pai decided to rescind and hide facts previously released by the Commission.”

Here are some of the actions the Pai FCC took, as told by Benton:

“FCC Chairman Pai has launched a charm offensive showcasing his commitment to transparency and regulatory restraint. However, behind the scenes, he ignores due process, the rule of law, FCC tradition, bipartisanship and fair play to shut down previous FCC initiatives of which he disapproves.”

Pai Stated: “What would be best for consumers? My view is pretty simple. Our goal should not be to unlock the box; it should be to eliminate the box. If you are a cable customer and you don’t want to have a set-top box, you shouldn’t be required to have one. This goal is technically feasible, and it reflects most consumers’ preferences—including my own.

And you tell me

Over and over and over again my friend

Ah, you don’t believe

We’re on the eve of destruction?