Did Verizon Scam Pennsylvania?

Written by Karl Bode

NY-based TeleTruth today released a report claiming that Verizon failed to keep their end of the bargain in a 1994 broadband deal with the state of Pennsylvania. That deal, which benefitted Verizon (then Bell Atlantic) to the tune of $2.1 billion dollars, promised the delivery of broadband infrastructure capable of 45Mbps symmetrical speeds to the door. TeleTruth claims Verizon intentionally misled the state and public simply to boost profits and ease regulation.

Chairman Bruce Kushnick, a telecom analyst and consultant for the last two decades (with access to a lot of telco dirty laundry) founded TeleTruth in January 2002 in the hopes of “fixing the problems in telecommunications” and protecting consumers from, as their mission statement indicates, “customer overcharging….and customer issues surrounding Broadband deployment and competition”.

Last week, Teletruth urged the Securities and Exchange Commission to investigate Verizon’s accounting practices, citing more than $5 billion in assets the group claims were improperly accounted for during Federal Communications Commission staff audits in the 1990s.

As part of that agreement, Bell Atlantic agreed to have 20% of the state broadband wired by 1998, and 50% by 2004. The TeleTruth report suggests that this wasn’t copper based DSL they were talking about…but 45MB/s symmetrical fiber service right to the door of homes and businesses, ambitious and impractical for certain, but nonetheless included in the language of the agreement.

The report goes on to note that by March 28, 2002, the Pennsylvania PUC acknowledged Bell Atlantic’s failure to adhere to the state’s Alternate Regulation plan: “…this Commission has a legal obligation to reject Verizon PA’s 2000 Update and require it to submit a new update specifying its plans to satisfy its legal obligation to provide a modernized network with broadband capability of at least 45 Mbps upstream and downstream, to be available within five days from the customer request date.”

That update, which will need to show Verizon is working toward that 45Mbps goal, is expected by the end of next month, and will be reviewed and ruled on by the Pennsylvania Public Utility Commission shortly thereafter.

The bottom line? Teletruth argues that Bell Atlantic made false and misleading statements about future broadband rollouts to the Pennsylvania PUC and the public in order to reduce regulation and significantly ramp up profits. According to the report, Bell Atlantic “succeeded in getting large financial incentives for a broadband network they could never deliver.”

Speaking to the Philadelphia Inquirer, Ronald F. Weigel, director of government relations for Verizon’s Pennsylvania division, says the company could provide any school, business, or residence within Verizon’s service area with a 45 Mbps connection, provided they could pay for it. “I don’t care if they’re in Altoona or Philadelphia, we’re prepared to offer it,” he suggests.

Teletruth puts the profits made by Verizon thanks to the 1994 deal at roughly 2.1 billion dollars, $1.5 billion of which consisted of extra tax deductions the company received from significant tax write-offs thanks to the deal. Bruce Kushnick suggests this breaks down to $785 per household, a total he believes Verizon should be forced to pay out in refunds for broken promises to Pennsylvania residents.

But the claims don’t end there, in addition to urging an SEC accounting investigation, and slamming Verizon for broken promises, Teletruth is also taking the FCC to task, criticizing the commission for using research that fails to include state level data analysis, and for allowing the telcos to “game the system”.