October 27th, 2005 To Read this Complaint in PDF Format To Read the MINI-REPORT on SBC's Mergers (PDF) Federal Trade Commission, RE: Request for Immediate Investigation Pertaining to Commercial Speech Violations of the Previous SBC and Verizon Mergers and Harms to Customers.
Teletruth files this Complaint with the FTC, claiming that the previous Bell mergers were based on a massive, 10-year pattern of misrepresentation, untruthful and outright fraudulent statements made to customers. We include our analysis of misrepresentation by SBC-Southwestern Bell, Ameritech-Pacific Telesis-SNET merger, its harm to fiber optic deployments in America, local, long distance, Internet and broadband competition, and the economy. However, this issue pertains to both Verizon and SBC and we can supply data to substantiate that claim. Complaint: How many misleading, deceptive or fraudulent statements does it take to become a case of fraud? Are corporations allowed to say or do anything to change state and federal laws? Isn’t it illegal for corporations to make Commercial Speech that is false, misleading or deceptive, designed to increase the companies’ sales and profits, or receive beneficial mergers or relaxed regulation? The materials we present to the FTC today are specific. They are statements made by Verizon and SBC to the public about the phone companies’ intentions for fiber optic deployments in multiple states, as well as their need to compete with each other as the reason for the previous mergers. As we will show, there has been a decade of miss-statements, but more to the point, probable fraud and collusion. 1) Verizon and SBC Made False Statements to Every State It Controlled about Their Commitments to Roll Out Fiber Optic Deployments From 1993-2005 We now know that the companies that comprise Verizon and SBC lied to over 26 states about their commitments to roll out fiber optic deployments from 1993-2005. These misleading and out-and-out fraudulent statements were made to alter state laws that gave the phone companies billions of dollars per state in excess profits and tax perks ---the money to be used for upgrading the copper phone networks. The simplest example -- Compare these statements. Verizon, in 2004, claims it was just starting to roll out a new fiber optic technology. However, starting in 1992, the company made claims that it was rewiring whole states with fiber-to-the-home by 2000, as told by other statements below, made a decade earlier. Verizon May, 2004
Bell Atlantic, 1993-1996
The last two quotes by Bell Atlantic (pre Verizon), are just a few of tens of thousands of statements, filings, testimony, state commission orders, state legislature decisions, all to change state and federal laws to give these companies more money -- money that was supposed to be spent on fiber optic-to-the-home upgrades that did not happen. For example, the fiber optic deployment schedule from Bell Atlantic, NJ, as told by the Order in 1993 from the state Board of Public Utilities (BPU) to change state law, called for speeds of 45mps or faster. Using simple math, by 2005, about 65% of that state should have already been wired with fiber optic services at high speed. http://www.newnetworks.com/OpportunityNewJerseyFiber.htm The NYNEX Massachusetts, FCC video dialtone application was for fiber optics and coax, 400-800 channels, and completed by 2010. "NYNEX proposes to deploy hybrid fiber optic and coaxial (HFC) broadband networks that will provide advanced voice, data, and video services, including interactive video entertainment, multimedia education, and health care services. … The allocation plan provides for the offering of 21 analog channels, and, depending on compression rates, between 400 and 800 digital channels. …NYNEX plans to deploy this type of network to the majority of its customers by the year 2010." This is NOT DSL. DSL is a bait and switch of massive proportions since it a) goes over the old copper wiring, b) did not require changes to state laws, since DSL was considered inferior technology in 1992, and c) its speed is at least 1/50 of the 1992 commitments. And this is not fiber somewhere in the ether of the network. This is directly to the customers’ premises. In our analysis of SBC et al, it is also clear that in almost every state the phone companies had made extensive commitments to build out networks, even though it couldn't be built at the time. We note that these commitments did vary by state. Pacific Telesis's deployment plans, as stated in their 1994 Fact Book, shows major deployments in every city, from San Diego and Los Angeles, to San Francisco and Silicon Valley. See: http://www.newnetworks.com/cabroadbandpacbell.htm This timeline of Pacific Bell's California First Plan, created by the San Diego Tribune, clearly shows how SBC closed down whatever was being built. http://www.newnetworks.com/californiabroadband.html By 2002, over $33.6 billion should have been spent by SBC's companies for fiber optic cable deployment in over 11 million households in 13 states. Pacific Bell promised deployment in 5.5 million households and to spend $16 billion by 2000; Ameritech promised 6 million households at over $6.6 billion by 2000 (in just 3 states); SNET promised $4.5 billion for just Connecticut. Texas was to commit $1.5 billion to wire schools, libraries and government agencies with fiber optics, all by 2000. Verizon-Bell Atlantic-NYNEX-GTE was to spend at least $16 billion and have 17.5 million homes wired by 2000. And let’s be clear --- This wasn’t a soft sell. The companies spent over $1 billion on TELE-TV and Americast, and millions per state, from research reports and ‘experts’, to lobbyists and co-opted consumer groups, funded by the Bell companies. The SBC and Verizon Merger Hatchet While some of the companies made an attempt to deliver some fiber product – SNET and Ameritech rolled out cable services, though these were never close to what was committed to, it still provided cable competition. More to the point, SBC and Verizon pulled the plug on every fiber based deployment in all 26+ states, as well as the GTE territories, even though state laws had been changed, and extra profits were being accrued to build these networks. 2) Residential and Business Competition With Each Other Was the Reason For the SBC And Verizon Mergers In the case of competition, both SBC and Verizon claimed that they would be competing with each other if the mergers went through. Numerous documents go on for hundreds of pages about this point. (From testimony by James S. Kahan, Senior VP SBC.) "SBC/Ameritech would not undertake this merger without National-Local strategy….In the absence of the merger with Ameritech, the National-Local strategy will not work. The problem is not primarily that SDB on a stand-alone basis, is incapable of raising the capital necessary to fund the national a-local strategy. The more important constraints are a) customer base, b) personnel and earnings dilution and market reactions." And SBC-Ameritech was to be in 30 cities by 2002.
The FCC agreed to this merger because the Bell company committed to competing outside its regions in 30 of the largest US cities, offering both business and residential customers local phone service. The claim was that this would stimulate nationwide competition as well. The FCC writes:
In investigating SBC’s Annual Reports, it is now clear that the company stopped going into the other markets as committed when the ink was dry on the agreement, and used the money to enter the long distance market in their own regions. They also cut short any new fiber optic commitment, such as Project Pronto. 3) The Role of the Regulators The FTC may argue that the regulators, the FCC and the state commissions, are the ones who were responsible for holding the companies accountable to their commitments. We consider this a fraud case, a case of collusion and a violation of Commercial Speech. These companies can do or say virtually anything and then skirt the real issue --- What the public was told over and over, proved to be false. The public statements in toto violate every version of every commercial speech law. How could All of the phone companies give the same bad business and economic models that all pointed to their success? All of them got billions of dollars per-state for services they never rendered. We now know that it was all not real — a phantom fiber optic highway. This was not simply hyping "vaporware" --- a new product that may or may not exist, being offered by a competitive concern. This was on a grand scale of larceny involving funding for essential infrastructure, and changing state laws to give the companies the right to print money. How many statements does it take for something to go from a company’s overzealous speculations about the future products to fraud? Is it fraud when you present thousands of statements with actual product descriptions, deployment schedules, vendor-deals, and state law manipulations to make billions more? And on competing outside of the regions as the primary reason for the merger, regardless of the verbiage or lack thereof in the FCC’s merger conditions, or the lack of enforcement of those conditions, customers were directly harmed because they would never have agreed to the mergers if they knew the truth. –‘ We need to get larger to control the local wireline market in our own regions and also go into long distance to make more profits. We have no intention of competing, and we lied about our fiber optic deployments.’ And since Verizon and SBC also assumed the assets and liabilities of the merged companies, then they too, were responsible for failed deployments. 4) The Harms? First, there is a harm to the entire economy and overcharging customers an estimated $2000 a household to start. NOTE: In the next few weeks, New Networks will release more documentation that shows clearly the phone companies' plans were to make more money, enter long distance, and not deliver on fiber optic broadband. Market Control .We contend that because of the previous mergers, these two companies now control 70% of the entire US wireline telecommunication market, and the Digital Future of 26 states. And as of this date, the companies have virtually no overlap – neither company has made any serious attempt to compete, especially for residential competition. It is clear that allowing the phone companies into long distance before competition was stable has also had a detrimental impact on competitors, especially AT&T and MCI. These companies are being bought by the incumbents because AT&T and MCI and the other competitors have been frozen out of the entire local service and DSL markets due to what we consider to be ‘bell-friendly’ FCC rulings. The Internet Service Providers, other competitors have also been driven off these networks through anti-competitive behavior and documented predatory pricing. In short, these mergers have consolidated the world into one, non-competing Bell company --- It should be called Verizon-SBC. The Largest Bait and Switch in History. We estimate that phone companies overcharged customers by over $205 billion dollars in higher phone rates and tax breaks for fiber optic services that could not be built as advertised. --- That comes to over $2000 per household. By 2005, 86 million households should have been rewired. Instead, after each merger, Verizon and SBC cut fiber optic deployment plans in 26 states. By 2000. ALL of the Bells combined only had less than 1.8 million DSL customers, even though 50 million households should have been rewired by 2000. The companies used the money to mainly enter long distance, DSL and spent the money overseas, and perks to the executives. Harm to the Economy. This broadband failure has cost the American economy over $5 trillion in new growth, $500 billion annually. America lost an entire generation of new growth and technology because these networks failed to show up when scheduled. The Rest of the World Is Laughing At Us. That's right, we're now 12th - 16th in the world in broadband. The networks that should have shown up would have made us comparable to other countries. Unfortunately, we allowed the contractors to not deliver. Harm To Competition on Every Level -- The networks that we paid for through higher phone rates were supposed to be open to all competitors. This fact appears in every merger condition and every state commitment. Who gave the phone companies, which are utilities, exclusive rights to publicly-funded networks? This is coming up on multiple levels as reports keep coming in of the phone companies desire to block competitive programming, Voice over the Internet (VOIP), limit file-sharing, and many other harms. A recent Wall Street Journal article, October 21, 2005 Verizon FIOS and SBC Lightspeed? More of a Ruse? We hear that these companies are now, a decade later, starting to roll out new services. Verizon has FIOS and SBC has Lightspeed. They are not what was paid for by customers, and they may never materialize as anything more as a way to get the next series of mergers to come to fruition. The services are also slower and less capable than what was promised in 1993, and are closed-in systems, not open to competition. But also, the equipment still doesn’t work as discussed. SBC claims it has just finished its trials for its service and Verizon’s IPTV, the video programming, is not yet working and available. --- Again, hype-ware for their current mergers. More to the point, if you order a Mercedes Benz and pay for it in 1994, and if someone finally gives you a Yugo in 2006, wouldn't you sue the company? Is a decade to wait for something you paid for reasonable? Other Financial Perks of the Fiber Optic and Merger Deregulation: (From the Upcoming Data)
5) Commercial Speech Violations and Deceptive Practices. Commercial Speech Violations vs Free Speech. This is not about the first amendment. This is about Mega corporations who are making false and misleading statements, which are NOT protected under any part of the Constitution. The FTC wrote, September 20, 2002, (FTC Staff Provides the FDA with Comments On First Amendment Commercial Speech Doctrine)
The Elements of Cases of Deception and How They Apply.Using "FTC Policy Statement On Deception", (Appended to Cliffdale Associates, Inc., 103 F.T.C. 110, 174 (1984), October 14, 1983)
In the cases involving the missing state fiber optic deployments, we now know that the service couldn’t be built, we know what the customer was told was untruthful, we know when the services were to be delivered, and we know that they were given an ‘inferior’ product to what was promised, DSL, or no delivery at all, the fiber optic lines – a bait and switch. There were thousands of false oral and written representations. We also know that the direct harm was that customers paid higher phone rates, and there was a loss of revenue to the government in the form of higher taxes that should have been paid by the phone companies.
In this case the representation made, the benefit to customers for these mergers were stated over and over again --- Customers would be given new services, and there would be extensive new competition in multiple states. In both cases, we have thousands of statements that would make any reasonable person believe that the companies should merge because of the benefits. However, in aggregate, the entire American citizenry was fooled.
The public would never have allowed the phone companies to become deregulated had they known the truth about being charged more for services they never received. But the real material harms are the harms to the entire economy. Material evidence is the entire lack of Bell competition. Material evidence is that the 2 largest competitors, AT&T and MCI, are now being bought by the companies who didn’t compete. And material harm can be documented by the fact that America is not Number 1 in broadband but 12-16th, even though we were Number 1 in creating the world wide web. Also, numerous Bell company sponsored reports claim that broadband would grow the economy by $500 billion annually. The Telecom, Internet and economic crash of 2000 may have not been so dramatic had this occurred. Finally, material harm is obviously, not only use of a fiber optic service by a consumer, but also the money collected in the form of higher phone rates, including every service, and including the Universal Service Fund. The FTC wrote; "A failure to perform services promised under a warranty or by contract can also be deceptive." We do make a distinction here. We argue that the promises for fiberizing America were not only done as ‘contracts’ with the state commissions, or in the specific merger conditions. . But most importantly, the public trust, the public interest have been harmed. Customers were told a tale that was not truthful. The changes in state law and the mergers were allowed because of these untruthful statements. The fine print of a contract may allow the companies to not have damages through the public service commissions or FCC, but this is about what the customer was told and what the outcome was – not in the customer’s best interests. Cautionary Language vs Fraud. When SBC announced Project Lightspeed, "SBC Communications to Detail Plans for new IP-Based Advanced Television, Data and Voice Network", November 11th, 2004, the company’s release had the following caveats.
And this is good because, as time progressed, the company had to rewrite their plans on delivery. IPTV was to launch late 2005, and now it looks like late 2006-2007
The announced expenditures went from $5.5 billion for 2005, announced in 2004 to $4 billion for 2005, even though the company has had significant profits every quarter 2005.
And SBC is still claiming 18 million households by 2007.
As we have pointed out, that comes to 6 million homes a year, at a cost of $222.22 per household. Please stop laughing. And we know this is tied to requests to do get deregulation. This release pertains to testimony in front of a U.S. House Energy & Commerce Committee hearing about the future of new technology. The headline says it all.
A cautionary message should be, after the AT&T merger we’ll drop all of our plans, claiming changes in the market, is what we expect. These proposed networks are also to change all of the cable franchise laws, block municipalities from competing with the phone companies, and other anti-competitive issues, such as blocking VOIP, or other services. SBC can say --- ‘See, we’re doing our part. Now block the others.’ However, cautionary changes, or even business delays are NOT what we have here. This is a concerted effort, occurring in multiple states with multiple phone companies, all of whom promised fiber to the home and competition, and it never showed up, but these companies were able to merge and become bigger. We consider the deception of the Bells to overwhelm any protections a ‘cautionary statement’ could provide. We have a great deal more data and stand ready to work with the FTC. Teletruth is a nationwide customer alliance and was a member of the FCC Consumer Advisory Committee (2003-2004.) Bruce Kushnick, Teletruth, Executive Director, New Networks Institute, Bruce@teletruth.org Tom Allibone, Teletruth, President, LTC Consulting, Tom@teletruth.org 1-800-FYI-AUDIT Teletruth 568 Broadway, Suite 404 New York, New York, 10013 |