A Guide to Understanding Why US Broadband is so Poor

Publication Date: 
October 7, 2010
David Rosen
Bruce Kushnick

David Rosen and Bruce Kushnick discuss the ways in which telephone companies have bilked Americans for over $300 billion - increasing their profits while failing to deliver the services they promised.

The scam was simple. Starting in 1991, Verizon, Qwest and what became AT&T offered each state -- in true "Godfather" style -- a deal they couldn't refuse: Deregulate us and we'll give you Al Gore's future. They argued that if state Public Utility Commission (PUCs) awarded them higher rates and stopped examining their books, they would upgrade the then-current telecommunications infrastructure, the analog Public Switched Telephone Network (PSTN) of aging copper wiring, into high-speed and two-way digital optical fiber networks.

State regulators, like state politicians, are seduced by the sound of empty promises -- especially when sizable campaign contributions and other perks come their way. Hey, what are a few extra bucks charged to the customer every month for pie-in-the-sky promises? And who cares about massive tax breaks, accelerated depreciation allowances and enormous tax write-offs? The promises sound good on election day and nobody, least of all the voter, reads the fine print.

Few have the expertise necessary to decipher the many scams these companies have pulled as ineffective public utilities commissions do little to safeguard the public interest. This is the larger problem with embracing regulation as a solution for ensuring essential infrastructure benefits the many rather than the few. PUCs are inevitably "captured" by the industries they are supposed to regulate (think BP Gulf Oil Spill). Public ownership is a structural solution that offers fewer opportunities for massive companies to game the system to their exclusive advantage.

The article offers some in depth examples of how this regulation system has failed.

New Jersey state law requires that by 2010, 100 percent of the state is to be rewired with 45-mbps, bi-directional service. To meet this goal, Verizon collected approximately $13 billion in approved rate increases, tax break and other incentives related to upgrading the Public Switched Telephone Networks. To cover its tracks, Verizon submitted false statements year after year, claiming that it was close to fulfilling its obligations. For example, in its 2000 Annual Report, it claimed that 52 percent of the state could receive "45-mbps in both directions or higher."


The company also benefited from more invisible perks. It secured massive write-offs on its network even though it wasn't being replaced; it actually secured a write-off of over 105 percent above the amount of construction. These write-offs helped save it billions in taxes. These factors have helped significantly heighten the company's Return on Equity, the standard measurement of profits, jump from 12-14 percent before deregulation to 30-40 percent.

But all this gets complicated as they are no longer required to submit full New Jersey annual or quarterly reports and the FCC's filing requirements stopped in 2007. So, in 2009, Verizon, New Jersey outlined financials showed a "net income" loss of $194 million dollars, and a $160 million "tax benefit" and a series of "affiliate transactions," meaning transferring expenses to the utility but without showing monies flowing back.

This is not a ballot issue and probably never will be. Most Americans will never take the time to understand why our broadband is more expensive, less reliable, and considerably slower than key peer nations. Take a few minutes to read the full article and get a better sense of how these massive companies are able to enact their agenda at the expense of the rest of us.