Free
Press Proposes Broadband Infrastructure Bailout of $44 Billion --- (More Taxes
to Give Wealthy Companies that Failed to Build Out Their Networks.)
There has been a call for ‘stimulus
packages’ to help with our current economic crisis and new infrastructure
initiatives, such as the upgrading of roads and bridges, are on the top of the
list. There are also a number of groups who care about broadband
infrastructure and want their billions as well. The arguments – more jobs,
better productivity, etc, may be well intentioned, but the unasked question
is: Who should pay for it and who should
built it?
While we agree that
Free Press Report: “Down Payment
on Our Digital Future: Stimulus Policies for the 21st-Century Economy,
“a comprehensive set of proposals that would deploy a forward-looking national
broadband infrastructure.” http://www.freepress.net/node/46686
Free Press does seem to get some of
the major issues, such as the fact that
A.
Free Press does not mention AT&T, Verizon Qwest or the cable
companies, even though they were the care takers of
B.
Free Press doesn’t examine the $280 billion the telecom’s
have already collected and which continues to be collected. Today, there is a
defacto broadband tax being applied to all phone services. Over a decade ago,
the phone companies made commitments to rewire the country state-by-state. In
virtually every AT&T and Verizon state, the company should have been
completing rewiring of the states by 2010 as they have already received and
continue to receive billions per state in tax incentives or higher phone rates.
And while Free Press focuses some of its interest on rural areas, in many
states, the deployment should have been the entire state, --- rural, urban and
suburban areas equally. What was to be delivered was not DSL over the old
copper wiring, but fiber optic services capable of 45mpbs in both directions.
While many would simply like to slip
this inconvenient fact of massive wrongdoing and failed promises under the bus so
that we can put a ‘positive’ spin on the future, the data is factual. For
example, here’s a page from the NJ state law giving a timeline through 2010,
showing that 100% should be completed with 45mbps service by 2010.
http://www.newnetworks.com/nj45mbpspar1.htm
In virtually every state, the state
commissions never got refunds for the failed deployments and never lowered the
extra profits being given to the phone company to be used for upgrades to the
networks. – and this happened in IL, MA, NJ, CA, IA, TX, OH, WI, PA, CT, and
MD, to name a few.
Instead, of questioning the
incumbent phone companies, Free Press wants to have Congress give $44 billion
out, much of the money going to the VERY companies that didn’t deploy
previously, but pocketed the money.
C.
Free Press claims it wants open networks and competition but doesn’t
address AT&T or Verizon’s closed networks.
Today, Verizon has an upgraded
service called FiOS and AT&T’s is creating U-Verse. These networks
are closed to competition. The customer can not choose to use independent ISPs,
for example. Worse, whatever is being built is being funded illegally via
cross-subsidization of local phone rates – i.e., it is taking the money that
was to be used to upgrade the utility and doing with it what they want, where
they want.
If Free Press cares about open
networks, it will take a lot more than a ‘stimulus package’; it will take
the rewriting of various laws that were changed by a rogue FCC that erased the
rights of competitors to use the networks including offering competitive DSL services
via line sharing or offering competitive local service via wholesale rates.
D.
Free Press wants to raise taxes by hundreds of dollars to pay for this
bail out.
Free Press’s plan is to have major
increases to the current Universal Service system, which today is an out of
control slush fund. See our report: http://www.teletruth.org/USFReport.htm
Ionary Consulting just did a
description of some of the current problems with the USF,
Free Press wants to raise the
Universal Service to create:
·
Broadband
Infrastructure Fund for “unserved” areas. -- ($15 billion over 3 years)
·
Universal
Service Mobility Infrastructure Fund ($5 billion over 3 years)
·
Increases
to Erate and Lifeline (Total Cost: $5.8 billion)
That’s a $26 billion dollar tax
increase over a 3 year period. The USF fund is currently an 11.4% tax on all
‘interstate’ services”, which raised about $7 billion
in 2007 – This would more than double, if not triple the taxes paid today per
year.
The report claims that programs
should be “following the money” with proper accountability to giving the taxpayers some comfort. –
that’s just ain’t going to happen. Two things; First,
this week, the FCC Commissioners’ Copps and Adelstein in a dissenting view
wrote about the FCC’s wholesale removal of reporting requirements by the phone
companies – so there’s no way to actual track expenditures.
“Today, the
Commission takes another step in the dismantling of its financial reporting
requirements for incumbent telecommunications providers. As we detailed
in our joint statement of earlier this year, more transparency and increased
accountability, not less, are essential to any plan to put the country’s
economy on sounder footing. The Commission has ample authority and the ability
to engage in a careful and transparent analysis of our financial reporting
requirements and to develop revisions where appropriate. Regrettably, the
Commission instead is moving towards the wholesale jettisoning of these
safeguards. Given the importance of the telecommunications sector to the
broader economy, this Commission should be on heightened alert to avoid
complacency and the similar mistakes made in the financial and housing
markets. (Petition
of
Qwest Corporation for Forbearance from Enforcement of the Commission’s ARMIS and 492A Reporting Requirements Pursuant to
47 U.S.C. § 160(c), et al)
And every part
of this fund is ‘at risk’ today. A report this week by the FCC Inspector
General found that a program is at risk if the erroneous payment rate exceeds
2.5% or $10 million. The erroneous payment rate for the Schools and Libraries
Program is estimated to be 13.8%, or $232.7 million dollars. In another
report, the FCC Inspector General, found the worst area of ‘erroneous payments’
to be the High Cost fund. In 2006 it had an error rate of 23% for $970
million dollars.
E. Each part of the plan pertaining to USF
issues, such as Lifeline or Erate, is flawed.
Free Press
wants to increase the Lifeline program to include broadband, which is currently
a program that is supposed to supply phone service to low-income families.
“The
fund will subsidize up 50 percent of the cost of broadband Internet access
installation, up to $100. This amount may also be used to subsidize the cost of
an Internet access device, including subsidizing the interest payments on a
qualifying loan for such device. --- The fund will also provide a monthly
subsidy to offset the cost of broadband Internet access service, up to $10 per
month”
Free Press doesn’t seem to understand
that the current Lifeline is broken. Only 30% of those eligible get Lifeline.
Had Free Press actually examined the Lifeline program, as we did by surveying
actual phone bills, it is clear that the discounts for phone service do not
cover actual phone calls or basic services like call waiting or inside wiring.
So, the average Lifeline customer can spend almost as much as regular phone
service, which, for many, is too expensive.
If anyone offered Lifeline customers
broadband, the customers would never be able to pay for the phone service as
well as the broadband service, not to mention all of the increases to taxes
being proposed, even with steep discounts.
F.
The largest Amount is going to “underserved areas”.
Free Press wants to spend $15 billion in 3 years to
go to “underserved” areas, mostly in rural areas. This is a giveaway to already rich, unaudited
companies.
Who builds it? Well, it’s most
likely going to go to the phone companies. Besides AT&T and Verizon, (though
they service some rural areas), there are many smaller rural carriers, who, in
many cases, are living off of the current Universal Service High Cost
fund, even though their companies can have returns on profits
(*EBITDA) of over 50%. This makes them some of the most profitable companies in
And then there’s the shear waste.
Ionary Consulting, in the previously linked article, discussed the USF fund and
USAC, the organization that manages the process. --- or
doesn’t. Here’s one story of $150,000 per line.
“USAC does not
waste precious ratepayer time doing cost-benefit assessments of its HCF
recipients’ projects. It does audit them to be sure that the money was spent
on allowable projects, but that doesn’t mean that projects must be
sensible. Take, for instance, Border to Border Communications, the
telephone company in rural
And now we should give these
companies billions more?
Depreciation is the ability to write
off your equipment, and accelerated depreciation means the company can write it
off faster and save a bundle on paying taxes.
In 1993-1995, Verizon, AT&T et
al took $27 billion dollars in ‘accelerated depreciation’ tax savings for
broadband investment and had their annual depreciation schedules changed so
dramatically that in many years the companies wrote off more than they put into
infrastructure. These seem to be illegal deductions, because the copper wiring
that was supposed to be upgraded to fiber wasn’t– savings the billions in
taxes.
Accelerated depreciation did not
result in building out the networks.
Free Press also wants to give tax
credits to competitors. This is seriously problematic. First, why is Free
Press not saying ---- FiOS and U-Verse are closed networks and should be open.
Secondly, the proposal calls for tax credits to help competitors, of which
there are few, if any, left. But the overriding problem is -- laws would have
to be changed because a competitor still has to connect to other incumbents
who, historically, do not have to sell to competitors anymore based on bad FCC
decisions. Giving financial tax credits
to companies who could not compete, will certainly limit the ability of any
competitor to raise capital to compete.
Conclusion: Really Following ALL of
the Money and Real Accountability is Needed.
If ubiquitous, high-speed broadband
is a national goal that is believed to spur on the economy, then there are
other areas to get funding to pay for this goal without taxation.
Some areas to investigate:
1. Under
the merger conditions that created the new AT&T (the merger of
SBC-AT&T-and then BellSouth) AT&T was required to offer $10 DSL to
customers in their 22 states at a speed of 200K in one direction, the definition
of broadband by the FCC. If you want rapid deployment of cheap
broadband, make AT&T complete it’s promises to
sell low cost broadband, which we can prove was never done and did not cover
100% of AT&T’s territories. If done, broadband is deployed and AT&T
might have to hire back some of the thousands of people it just let go.
2. Audit
the books:
·
Fix
the Errors of the USF – The FCC had over $970 million in erroneous payments in
a
sample of the High Cost fund. There’s a billion dollars in money that could
have been put to good use without raising taxes.
·
Did
you know that AT&T and Verizon have taken billions in write off of networks
that
are still in use? The tax deductions of $27 billion are in
question – back taxes alone would be over $10 billion, not counting penalties.
·
Did
you know that when you pay your current phone bills, there’s a remaining
defacto
broadband tax built into current rates that has been accruing since
the 1990’s? – That should yields billions annually.
·
Remove
the subsidies going to Verizon’s FiOS and U-Verse from local rates –The
subsidies come from the fact
that Verizon’s FiOS is being funded through local phone rates, and the other
services, such as DSL and long distance do not pay their fare share in
marketing and other expenses --- That would yield billions annually.
3. .Make the USF ‘Needs’
Based.
If you want to cut
out billions of current USF payments, simply change the rules to make companies
show a financial need -- i.e., losing money, to
offer local service before they can get subsidies. That should yield a few
billion annually.
4. Reopen All Networks to All Competitors.
AT&T and Verizon’s networks were closed by bad changes to laws by the FCC. If Free Press wants to lower prices and have competition to built out the networks, then open the networks.
This would also have an added advantage of stopping any Net Neutrality problems. If someone is being blocked, the customer can simply leave and go to another service provider. Today, they are locked into local, long distance, DSL/broadband, and ISP connectivity by one provider who can therefore control the entire customer service channels.
These are just some of the questions
that a report on building our broadband networks should have been required to
have addressed.
In short, instead of paying a new
“Down Payment on Our Digital Future”,
We shouldn’t throw money at
companies that failed to deploy. We should not be subsidizing wealthy companies
who had the money to supply broadband but chose not to. We should question why
Verizon FiOS and AT&T’s U-Verse are now closed networks being funded by
phone customers, and we should not simply tax customers hundreds of dollars
when the previous policies failed to hold anyone accountable and why the
current programs need revamping.
And if anyone is going to be bailed
out, maybe it should be us, the customers. Maybe we should be getting a refund
for the failure to deploy, a refund for not supplying us with service we paid
for…
By not confronting the major
players, AT&T and Verizon, and instead asking Congress to give $44 billion,
Free Press simply seems to not care about accountability or even fixing the
primary issues.