Bruce Kushnick, 212-777-5418 brucekushnick@teletruth.org	Lee Gierczynski, 412-633-5574 lee.j.gierczynski@verizon.com

Click here to read the Teletruth Complaint and documents.

http://www.teletruth.org/PennBroadbandfraud.html

Click here to read Verizon’s response:

http://www.newnetworks.com/Teletruthresponse2-2-04.htm

 Click here to see our response at our new site: Verizonlies.com

http://www.verizonlies.com

NEW YORK --- Isn’t it embarrassing when a large monopoly, utility and corporation can essentially lie to the public and the press, making up facts and statements to rewrite their own acts – and slander an independent customer alliance – Teletruth?

Teletruth's complaint in Pennsylvania is simple --- In 1994, in exchange for massive financial incentives, tax deductions and other perks, Verizon promised to rewire the state with a fiber-optic based, two-directional 45mps service. By 2004, half of the states' rural, urban and suburban areas should have been wired for this fiber-optic based network that was supposed to extend to customer’s homes and offices. As we and other independent researchers have pointed out, Verizon collected an estimated $3.9 billion in excess profits and tax benefits --- About $1135 a household.

More to the point, statements made by Verizon in 2003-2004 clearly show Verizon entered into a contractual agreement with the states' customers for a network they couldn't build in 1994, and are only now doing fiber optic 'test' deployments.

Here’s what they said --- and here’s the truth.

Lie 1 (misdirection) _--Fiber, fiber everywhere, but not where it counts

• "The truth is that Verizon Pennsylvania has consistently delivered on its promises to deploy a broadband network for its customers under Pennsylvania’s alternative regulation law, Chapter 30"
• "Verizon Pennsylvania has…deployed nearly 1.2 million miles of fiber optics in its network over the past nine years while under alternative regulation."

First, let’s make something clear ---Verizon was supposed to deliver a fiber-optic service directly to the homes and offices. Who cares if there’s 1.2 million miles of fiber in the network if none of it connects the house or office directly or can deliver what was promised.

Verizon’s commitment was to "fiber-to-the-curb", meaning the customers’ house, and there are thousands of statements made about this. An example we quote, from a 1994 PA Public Utility Commission filing:

"In this second filing, Bell reiterates its intentions to design a broadband network that meets both current and anticipated future demand for transportation of voice, video and data throughout its service area. The system is a hybrid of coaxial cable and fiber optics. Coaxial cable will run from a subscriber's home, office, factory, or educational system." (emphasis added)

More to the point, in a Verizon 1996 press release, Verizon specifically discusses the fiber-to-the-curb services being rolled out in Philadelphia in 1997-98! Click here to read the original release: http://newscenter.verizon.com/proactive/newsroom/release.vtml?id=37942&PROACTIVE_ID=cecdcdc6cecfc7cacac5cecfcfcfc5cececcc8c7cec6ccc9cfc5cf

"The company plans to add digital video broadcast capabilities to this "fiber-to-the-curb," switched broadband network by the third quarter of 1997, and broadband Internet access, data communications and interactive multimedia capabilities in late 1997 or early 1998." (emphasis added)

"Bell Atlantic plans to begin its network upgrade in Philadelphia and southeastern Pennsylvania later this year." (emphasis added) 

We didn’t make any of these quotes up – Verizon and the regulators tell the story, we’re just pointing out the facts of this case.

Lie 2 – We can deliver 2.2 gigabits today --- Customers say – Don’t hold your breath.

• Broadband capability, at speeds from 1.5 megabits per second to 2.2 gigabits per second, is available to nearly 100 percent of the phone lines in Verizon Pennsylvania’s service area.

Verizon says it can deliver a 2.2 gigabit service to nearly 100% of phonelines, now, today, February 2^th, 2004. That is 220 times faster than the 1.5 mps service and about 400-500 times faster than a 56K modem.

Teletruth was contacted by number of Pennsylvania, Verizon customers who called Verizon to get this service. It doesn’t exist.

Robert Lee from Pennsylvania wrote:

"Dear Mr. Gierczynski:

I read your response to the Teletruth.org complaint concerning Verizon’s failure to install high speed broadband to 50% of the homes in Pennsylvania. I did not know that Verizon had installed that high speed fiber optic network to 50% of the homes in Pennsylvania, much less the 100% that you mentioned. Unlike DSL if you have done it to 100% of the homes in PA my house should be among them!

"I called you and asked you to call back. I cannot for the life of me figure out why you folks at Verizon are hiding the fact that we can get 2.2 gigahertz of broadband speed while at the same time you are duking it out on the DSL front with the courts, the FCC, state utilities, and all the competitors. For Pete’s sake, it makes no sense at all.

"I need to know where to go to sign up for this. I did call my Verizon local office, and they didn’t even know about it. What good does it do to have this kind of service and have no one know about it? And why would the FCC be encouraging you to build a fiber network for homeowners if you already built it?

"It seems so crazy. Nothing in telecommunications is what it seems to be. You don’t know who to trust. You would think you could trust an organization like Teletruth.org that has truth in its name but then that would be too simple.

"I also read where you had decreased other rates by $400 million during the last 20 years. My phone bill is nowhere near that! What is that number all about?

"Please call. Right now I am using cable, but I am on a month to month and can switch immediately without penalty. "

Oops. We ask every reporter and regulator to order their fiber-optic lines today.

Lie 3 – The Bait and Switch.

"The truth is that Verizon Pennsylvania has consistently delivered on its promises to deploy a broadband network for its customers under Pennsylvania’s alternative regulation law, Chapter 30: 

DSL (digital subscriber line) service is available to nearly 70 percent of Verizon Pennsylvania’s total lines in the commonwealth.

DSL goes over the 100 year old copper wiring, not fiber, and it is not 45mps, but less than 1.5mps. The term "Broadband network" was never defined as DSL. It was fiber based. And the speed of 45mps was what was promised, not some inferior product – thus Verizon is trying to pull a bait and switch. This is what the Commission wrote:

"When the Commission accepted Bell's proposal, that proposal became binding on the Company. Any modifications or deviations from a 45 Mbps two way interactive network must be approved by this agency, since such would constitute a modification to the June 28, 1994 Opinion and Order which ruled on the Company's original Petition and Plan." (emphasis added)"

And according to the Commission, Verizon decided to change the definitions themselves through a slight of hand, changing the required speed from 45mps to only 1.5 mps. The Commission wrote that:

"It is our view, however, that Verizon PA’s 2000 Update claiming that it is only obligated to provide capability at speeds of 1.544 Mbps downstream (and even slower speeds upstream) is plainly inconsistent with its original commitment to provide broadband capability at speeds of 45 Mbps or more. We believe that Verizon PA has unilaterally changed its broadband commitment without properly notifying this Commission that it seeks a change to this fundamental aspect of its 1995 NMP. 

Customers paid for a Ferrari but are now being promised a skateboard on a dirt road.

Lie 4-9- – Prices didn’t go up in 20 years.--- What planet are you on?

• "In addition, Teletruth’s claims of overearning don’t hold up. The fact is that Verizon’s basic local phone rates have not increased in almost 20 years, and we have reduced other rates by close to $400 million while operating under alternative regulation

It’s amazing how many lies are contained in this one statement. Anyone paying a phonebill knows the truth – prices have gone up. But more importantly, prices should have been plummeting because the major expenses --- construction and staff— have been slashed.

4) Total Profits --- Teletruth is not the only group that found massive financial gains Verizon received under this deregulation plan. Both the Pennsylvania Consumer Advocate and Economics & Technology, a respected market research firm, published numerous reports about Pennsylvania’s excesses. For example, Economic & Technology found $4 billion in excess financial gains, while the PA Consumer Advocate found $1.7 billion from 1994-2001 and that the return-on equity, normally 12% under the old regulation, went to an average of 27% --- 125% above the standard regulation for a utility and monopoly. (Note: The differences in analysis are based on the scope of the items examined. Please read the other documents for a complete understanding of the excess profits.)

Economics & Technology found $4 in excess financial gains.

"Verizon Pennsylvania has realized financial gains in excess of $4-billion as a direct result of Chapter 30 'alternate regulation'." 

The PA Consumer Advocate’s Office found an additional $1.7 billion from 1994-2001.

"In testimony recently presented to the PUC, our Office determined that Verizon PA’s return on equity – when estimated profits from Yellow Pages are included – was 24.26% in 2001, 26.19% in 2000, and 29.40% in 1999. In that proceeding, we compared those returns to an estimated fair rate of return of 12% on equity, and concluded that Verizon PA had earned approximately $1.7 billion in cumulative excess profits since 1994."

Our Complaint asks –How much was collected under Chapter 30?

5) Local phone rates have not increased in almost 20 years –Really?- There are so many examples of increases to the local bill that it’s hard to know where to start. Just take out a phone bill. The FCC Line Charge, which is listed as part of local service in most Verizon states, was added to the bill about 20 years ago, and it went from $.00 to $6.50 in 2003. –an additional $78 a year. Most customers don’t know that this is direct revenue to Verizon and doesn’t go to fund the FCC. And since you can’t get local service without paying this charge, and since it’s revenue to Verizon, thus, local phone rates increased. In a recent survey of Verizon New York and NJ bills, this charge added 75% increase to local service rates.

Lie 6) No One Examines the Profits on Some Products: Verizon’s analysis doesn’t take into account another startling fact – Under "Deregulation", the Public Utility Commission did not examine Verizon profits from various services, including Call Waiting and Call Forwarding . These services cost about a penny to offer! With an average price of $4-6$ per service in most states, while Verizon can say that prices haven’t increased, they don’t mention that profits have skyrocketed.

Lie 7) Prices Should be Plummeting. What really happened under Chapter 30 was that profits were shipped out of the state, while Verizon ‘optimized’ its profits by cutting staff and new construction. In PA, Construction is down 62% since 2000. Meanwhile, staff cuts were almost 30%, and Dividends are up 131% since 2000. Since 2000

• Construction is down 62%
• Staff cuts were almost 30%
• Dividends increased 131%.

We also need to point out that the construction budget for 2003 was the lowest it’s been in the last decade. Meanwhile, Verizon, corporate, announced on January 29^th, 2004, that in 2004 new Broadband fiber-optic construction would be ‘essentially flat’.

Lie 8)  Multiple Construction Budget Scams.

• "Verizon Pennsylvania has invested more than $8 billion and deployed nearly 1.2 million miles of fiber optics in its network over the past nine years while under alternative regulation."

Below are the stats for Verizon PA’s construction for the last 9 years, taken directly from Verizon Annual 10K reports. According to their own data, they spent about $7 billion, not $8 billion over the last nine years.

The 2003 construction budget for PA (based on 3rdQ 2003) shows that construction is at an all-time low. --- Estimated at $444 million.

But it gets worse from the customer perspective. When you start dissecting the statistics you find that Verizon’s increases in 1999, 1999 and 2000 can be attributable to their roll out of Long Distance (which was applied for in January 2001), for the Y2 K fixes (over $400 million) and their roll out of DSL, a competitive product that should not be charged to customers. Thus, putting fiber in the network benefited Verizon's Long Distance plans, not customers waiting for fiber-to-the-curb.

We would also like to make clear that even the current Verizon announcement on January 8th, 2004, pertaining to a new broadband initiative which stated that the company would be investing $3 billion in the next two years is also more of a smoke screen that a real promise.

What Verizon didn't tell anyone is that there's been a 44% cut in expenditures on wireline services since 2000 – having spent- a drop of $5.3 billion. These new expenditures won't even cover over the cuts of the last few years.

More to the point, while Verizon, on one hand, talks about its robust fiber deployments, according to their own outlook for 2004, spending will be "essentially flat" and well below spending in previous years. http://newscenter.verizon.com/proactive/newsroom/release.vtml?id=83519

"Wireline capital spending will be essentially flat, ranging from $6.5 billion to $7.0 billion in 2004, including spending for the company's fiber optic and VOIP initiatives."

Lie 9)  "The Pennsylvania General Assembly’s Joint Legislative Budget and Finance Committee found that Verizon is meeting or exceeding its network modernization commitments under the Chapter 30 law, and can be expected to meet its future commitments as well."

Looking at the report that was published we find:

"This report was developed by Legislative Budget and Finance Committee staff. The release of this report should not be construed as indicating that the Committee’s members endorse all the report’s findings and recommendations."

More to the point, this report failed to quote any of the Public Utility Commission’s discussion of the required 45mps speed, the fact that Verizon’s own testimony claimed that copper wiring was inferior, or that the fiber-optics and coax was supposed to be connected to homes and offices, not somewhere nubulous in the networks.

Lie 10) This is a fraud case and collusion . The networks couldn’t be built and this happened in multiple states.

In 2004, it is now obvious that Verizon couldn’t build the networks that they had told the public would be delivered to them. In a press release dated December 22, 2003, the nebulous fiber-based roll outs are only now starting "initial test deployments".

"Verizon will continue performing lab and technology interoperability tests on the FTTP (fiber to the platform) systems, ensuring the new technology works properly with existing and new Verizon operations support systems. In the first half of 2004, Verizon expects to begin initial test-deployments in at least two communities. By the end of the year, the company expects to deploy the new technology in over 100 central offices across nine states." (emphasis added)

Not one of the regulators has asked the questions:

• Could Verizon build the networks it was contracted to build or not?
• Did Verizon’s stated promises make sure that the company got Alternate Regulations – and thus the billions in excess profits.

Lie 11) "Chapter 30 has enabled Verizon to provide Pennsylvania with one of the most advanced networks in the nation, enabled competition to flourish and protected customers through stable rates for local phone service, and we will continue to live up to our promises to bring our customers a state-of-the-art network that’s second to none."

"Second to None?" Because of the failed broadband deployments, we contend that America lost a generation of innovation and it directly harmed the US economy, helping to cause the Telecom Crash of 2000. To read our analysis see; The Fiber-Optic Fiasco:  http://www.newnetworks.com/fiberopitcfiasco.htm

More to the point, as of 3^rd Quarter 2003, according to DSL Forum, the United States is not even in the Top 10 of countries with broadband roll outs. South Korea, Japan and Canada have more DSL lines per number of phonelines. And Verizon is directly to blame for this lack of innovation and technological advancement.

Or maybe Verizon didn't see the headline from USA Today, on Feb. 2, 2004 "U.S. falls behind on broadband. Meanwhile, other nations make high-speed Internet access a priority." The article states:

"Despite its economic and political might, the United States is falling behind other nations in arming consumers and small businesses with a key economic tool: high-speed Internet access, also known as broadband.

"The United States ranks 11th worldwide in broadband use, according to the United Nations."

We're now Number 11 and falling, not second to none.

Conclusion:

Verizon wrote: "In a move reminiscent of the movie ‘Groundhog Day,’ this organization would have Verizon face over and over the same baseless allegations."

Thanks for the compliment. Verizon seems to have missed the major point about Groundhog Day. After many trials and tribulations, Bill Murray, the main character, succeeds and moves forward.

We look forward to our open public debate.