|
=================COMPLAINT ===============
Idaho Attorneys General Offices
AND ON THE NEED TO INVESTIGATE US WEST'S FAILED DEPLOYMENT OF ADVANCED NETWORKS, TREATMENT OF COMPETITORS AND THE IMPACTS ON CUSTOMERS
Bruce A. Kushnick NEW NETWORKS INSTITUTE 826 Broadway, Suite 900 New York, New York 10003 Phone: 212-777-5418 e-mail [email protected] http://www.newnetworks.com
L.J. Davis Boise, Idaho 83706
Dated: November 4th, 1999
Table of Contents Executive Summary Complaint Statement of Interest The US West and MediaOne Story Directory "DEX" Transfer US West Pays MediaOne's Debt of $4 Billion Dollars Discussion of Ratepayers' Stake Wireless Transfer to AirTouch Other Issues: 1) Failed to Deploy Advanced Networks in A Timely Fashion 2) The Bells' Profits are Excessive. It is Possible that they are Outrageou Why? 3) Outrageous Profits From Not Delivering Advanced Networks? 4) Did US West Write-Off A Network In Never Replaced And Take Over $3 Billion Dollars In Deductions? 5) Customer Service Issues 6) Sub-standard Customer Services for CLECs and ISPs 7) Executive Compensation 8) Other Questions About Bell Activities Leave Open Issues.
IMPACT CONCLUSION
DOES US WEST OWE CUSTOMERS FOR ITS SPINOFF OF MEDIAONE OR FOR ITS MERGER WITH QUEST? AND DID US WEST'S FAILED DEPLOYMENT OF ADVANCED NETWORK SERVICES HAVE AN ADVERSE IMPACT ON CUSTOMERS?
With all the current talk about MediaOne, a spin-off of US West, (one of the original 7 Regional Bells), and US West's proposed merger with Qwest Communications, it is surprising that few regulators have questioned certain of US West's other recent maneuvers. In hopes of breaking this silence, we are calling on the state Public Service Commissions and the Attorneys General offices in the 14 states where US West operates to immediately investigate the possibility that certain of US West's actions materially benefited the company's shareholders while illegally costing the company's customers a sum of money that is potentially very large. We estimate that over $15 billion dollars is in question. We realize that state regulations vary greatly and it is hard for us to determine which states have addressed these important issues. However, there are no major indications from US West's annual reports to indicate that adequate compensation has been paid to US West customers as a consequence of these maneuvers. Also, we would like to stress that AT&T is blameless in any and all violations mentioned in this complaint regarding MediaOne. Our Complaint clearly shows that US West is responsible for these actions. As the authors have discussed in other writings, AT&T's purchase of MediaOne may in fact be aiding MediaOne's cable users and the future deployment of broadband services.
Background: In 1995, US West split itself into two parts, US West Communications and US West Media Group. US West Communications retained the local phone companies while the Media Group received numerous cellular and cable television properties as well as the company's lucrative home directory business. In 1998, US West converted the Media Group into MediaOne, a separate and independent entity. During that same year, US West/MediaOne spun-off its cellular telephone business to AirTouch. We call for an investigation because:
In addition to the similarities between the MediaOne deal and Pac Tel's spin-off of Airtouch, audits in California, Ohio and Wisconsin clearly demonstrate that the regional Bell companies used rate-payer monies to improperly fund enterprises as various as the development of the PCS telephone business and the Directory services. ("Audit of the Affiliate Interests of the Pacific Telesis Group, 1994" "Review of Affiliate Transactions at Ameritech Services Inc., May 95" National Association of Regulatory Utility Commissioners) Pac Bell's audit stated that: "Pac Bells Directory Research and development was funded by the general body of ratepayers", while Ohio and Wisconsin's audit found that: "Ameritech charged ratepayers for developing new products, from non-regulated data services and personal communications to video conferencing development." With these precedents in mind, it is important to discover if US West's customers repaid any or all of the MediaOne debt, and if their monies were used to fund any or all of the products and services that were spun off. Other Implications: These issues are being played against a backdrop of other problems and questionable actions, which make the possible case against US West appear to be even more compelling. 1) US West Failed To Deploy Advanced Networks In A Timely Fashion. By its own accounting, US West was supposed to provide almost 3 million households with 500 channel full motion video interactive services. The US West 1993 Annual Report states: "In 1993 the company announced its intentions to build a 'broadband', interactive telecommunications network... US West anticipates converting 100,000 access lines to this technology by the end of 1994, and 500,000 access lines annually beginning in 1995." This is not ADSL, the Bell's current "advanced network" service. What was promised instead was an interactive broadband fiber-optic based digital service about 700 times more powerful than ADSL. In Omaha, Nebraska, the case of Cottonwood vs US West clearly outlines how US West had promised over 500 digital channels, but instead rolled out cable services. In return for the promised network, US West received a number of accounting changes that were highly advantageous to the company. The network was never deployed. The advantageous accounting changes remain in place. 2) US West's Overall Profits are Outrageous---Why? US West's local phone service remains a monopoly and as such is supposed to produce profits that are "fair and reasonable", as are the services of all other utilities. However, US West has now become one of the most profitable companies in America.. A comparison of the earnings of US West Communications and the earnings of five well-known publicly traded companies, Nike, Exxon, McDonalds, Walt Disney, and Dow Jones, shows that US West outperformed the latter group by 155% in industry- standard return-on-equity, by 181% in earnings per share, and by 106% in net profit. 3) Outrageous Profits From Not Delivering Advanced Networks? It is a little known fact that most states gave the Bells massive financial incentives based on promised deployment of advanced network, as we document elsewhere. The issue of profits also begs a question--- were specific acquisitions made and services and products developed with monies that was supposed to be used in the construction of new networks? 4) Did US West Write-off a Network it Never Replaced And Take Over $3 Billion Dollars in Deductions? In 1998, New Networks Institute filed a complaint with the Criminal Justice Division of the Internal Revenue Service (IRS), against all of the Bell companies, including US West. Our finding was that US West and the other Bells took over $21 billion dollars in write-offs, claiming they were replacing the older copper wiring with new fiber-optic wiring. The wiring was never replaced, though we contend the Bells took the deductions. US West's total one-time deduction was $3,123,000,000.00. In November 1999, NNI refiled this complaint with additional information that supports our original claim. 5) Customer Services Issues Numerous Public Utilities Commissions, including those in New York and Ohio, have found a drop in the Bells' performance of customer services, i.e. everything from answering inquiries to making sure that customers receive installations and repairs in a timely fashion. Caused mainly through massive staff cuts to save money, these problems continue today. In May, 1999, the Colorado Public Service Commission issued this formal notice: "PUC staff outlined possible violations of Commission rules concerning repair response time, the number of allowable customer trouble reports, speed of answering calls to the company's business offices and the provision of timely service." 6) Anti-Competitive Behavior and Sub-Standard Customer Services being provided to Internet Service and local phone competitors. In recent testimony before a Congressional hearing on Rural Telecommunications, (9/9/99) numerous Internet Service Providers and competitive local exchange companies (CLECs) testified that US West had created a series of roadblocks to competition, including failure to deliver on service orders and the use of anti-competitive practices to lure customers away from smaller internet providers. More recently, 10/13/99, the USISPA (United States Internet Service Providers Association) held a press conference and members from Washington, Arizona, New Mexico, Wyoming, and Utah all told horror stories about US West's behavior. (For more info go to http://www.usispa.org) NNI independently documented the problems through interviews and a survey of Internet providers. The problems are widespread and need immediate attention. 7) Executive Compensation. There are a number of issues surrounding executive compensation for various affiliate transactions. In the transactions surrounding Directory, certain of the company's top executives received substantial holdings of stock and substantial stock options, in return for which no services were performed--except the moving about of the company's directory services in an opportunistic fashion that appears to have been designed to further the personal enrichment of the relevant executives. We believe that, at best, a major conflict of interest may have occurred. For example, at the end of the complex but puzzling maneuvers involving the Directory business, Messers Lillis and McCormick received a dividend of 1.5 million shares. In addition, Mr. McCormick received 212,230 stock options. The customers, whose monies were presumably used to develop the directory services, received nothing. At no point can we discover any services that Messers Lillis and McCormick performed to earn this reward. Indeed, a suspicion is raised that the maneuvers were performed precisely so that Messers Lillis and McCormick would receive this reward, and for no other reason. We ask that this be investigated. Last, Mr. McCormick received $19 million in severance pay. In view of the constraints on profits and executive compensation under which US West, a monopoly business, is supposed to operate-but under which it does not appear to operate-we ask what possible justification exists for the payment of this staggering sum.
Conclusion We believe that investigations will show that US West's business practices have rewarded the company's shareholders and executives while costing its customers considerable monies and failing to serve the public interest. --------------------------------------------------------------------------------- DOES US WEST OWE CUSTOMERS FOR ITS SPINOFF OF MEDIA ONE OR FOR ITS MERGER WITH QUEST? AND DID US WEST'S FAILED DEPLOYMENT OF ADVANCED NETWORK SERVICES HAVE AN ADVERSE IMPACT ON CUSTOMERS?
Did US West pull a fast one with the creation of MediaOne? Did US West play fast and loose with 14 states' Directory Services, costing customers almost $1 billion dollars? Did US West fail to properly compensate phone customers for products and services developed using ratepayer financing? And was the US West customers harmed when the company failed to deliver on its promises of advanced network services? With all the talk about MediaOne, a spin-off of US West, (one of the original seven Regional Bells), or with US West's potential merger with Qwest, it is surprising that few regulators have questioned the various stock deals for their impacts on local phone subscribers. We are calling on the State Public Service Commissions and the Attorneys General in the 14 states where US West operates to immediately investigate the following claims. Did US West's actions serve shareholders before ratepayers and did these actions directly cost customers money?
New Networks Institute ("NNI") was founded in 1992. Its mission is to explore, on a totally independent basis, the impact of the break-up of AT&T and the creation of the Regional Bell Operating Companies ("RBOCs") on both the telephone subscribers and on the deployment of new and advanced telecommunications networks. Since that time, the NNI has conducted extensive research on these topics. Titled "The Future of the Information Age," this seven-year analysis consists of over 1,900 pages in 14 volumes, with over 910 exhibits, two computer databases, and data from more than 2,000 consumer interviews conducted independently through Fairfield Research. We have recently updated this research in the form of a book, The Unauthorized Biography of the Baby Bells & Info-Scandal, published March 1999. NNI's research is independently funded from the sales of books, reports and databases. No company, lobbying organization, trade association or political party had any input, either editorial or financial. LJ Davis is an internationally-known writer, novelist and reporter whose work has appeared in publications as various as the New York Times and Harper's Magazine. His books include Bad Money, 1981; Aristotle and Christina, 1986; and more recently, The Billionaire Shell Game, 1998, which tells the story of the failed deployment of advanced telecommunications networks. His numerous awards include "Gerald Loeb", 1984; "Champion-Tuck", 1986; and "National Magazine", 1986. LJ Davis is a landowner in Idaho, a US West state. Conclusion We believe that these investigations will show that US West's business practices have rewarded shareholders with significant monies, while costing customers and violating the public interests. We realize that state regulations vary greatly and it is hard for us to determine which states have addressed these important issues. However, there are no major indications from US West's Annual Reports to indicate that adequate compensation had been paid to US West customers. Also, we would like to stress that AT&T is blameless in any and all violations mentioned in this complaint regarding MediaOne. Our Complaint clearly shows that US West is responsible for these actions. As the authors have discussed in other writings, AT&T's purchase of MediaOne may in fact be aiding MediaOne's cable users and the future deployment of broadband services.
The US West and MediaOne Story US West is one of the original seven Regional Bells comprising of 14 states, including Arizona, Colorado, Idaho, Iowa, Montana, Minnesota, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Wyoming, and Washington, In 1995, US West divided itself into two parts, moving the cable, wireless, and Directory businesses into a "Media" company, while the majority of revenue producing (and profitable) business, the regulated phone business, was put into US West Communications Group. In short, US West took most of its relatively new acquisitions, many of which were losing money, and offset their losses an underperforming assets with the very profitable Directory's profits. The Directory was supported and underwritten in significant measure by the company's ratepaying customers. In fact, NNI's "The Unauthorized Biography of the Baby Bells & Info-Scandal" found that while the media group of US West has generated 3% of the company's profits, the phone side of the business generated 97% of all profits. The exhibit below, developed directly from information supplied in US West's 1995 and 1996 Annual Reports, gives a simple model of the two companies' revenues and profits. The US West companies had $12.2 billion dollars in revenue, with the media company-directory, wireless, cable, information services, international, etc-providing only 22% of these revenues. This is in contrast to the telecommunications services provided to local subscribers, which produced 78% of the revenues. On the grand scale of things, the media company only represented 3% of the total net profits (% of Net), while the phone company made $1.2 billion and accounted for 97% of the total profits. Revenues and Net Profits, 1995-1996 (in the millions) Revenues % of Rev Net % of Net Telephone
Company $ 9,558 78% $1,233 97% Media
Company $ 2,665 22% $ 35 3% Total $12,222 $1,268 MediaOne was formed when US West renamed the Media group and the Directory business was returned to the parent company. The official version, as stated in the US West's 1998 Annual Report, discusses these transactions, though trying to follow the various twists of the story is not simple. "On October 25, 1997, the Board of Directors of our former parent company, herein referred to as "Old U S WEST," adopted a proposal to separate Old U S WEST into two independent companies. Old U S WEST had conducted its businesses through two groups: (i) the Communications Group, which included the communications businesses of Old U S WEST, and (ii) the Media Group, which included the multimedia and directories businesses of Old U S WEST. On June 4, 1998, stockholders of Old U S WEST voted in favor of the Separation, which became effective June 12, 1998. As part of the Separation, Old U S WEST contributed to us the businesses of the Communications Group and the domestic directories business of the Media Group known as Dex. Old U S WEST has continued as an independent public company comprised of the businesses of Media Group other than Dex and has been renamed MediaOne." With all this movement, a question is begged--aren't the Bells regulated monopolies? And what about the products and promises made by US West to its customers in 14 states? We argue that many customers had a serious financial stake in many of these transactions and should be compensated accordingly.
Directory "DEX" Transfer Let's start with the transfer of the Directory business from MediaOne to US West. Directory is historically a monopoly product. In fact, in many states the profits from Directory are used to subsidize the cost of local phone service. That is because the directory, as a monopoly product, has no serious competitor to lower the price. The directory business produces profit margins of OVER 50%---and continues to do so today, according to the US West 1998 Annual Report. We suggest that these profits should have been shared with the customers. What exactly is Directory and what exactly is Directory services? They are the common "White" and "Yellow" pages. US West calls them "Dex". "Through Dex, we publish approximately 270 White and Yellow Pages directories in our (14 state) Region. Dex's business scope includes all facets of directory-related publishing services such as market identification, analysis and planning, advertising and sales, customer service, directory design, printing and distribution, billing and collection, and product service promotion. Dex's customers include businesses that purchase advertising in its directories and other related products, and consumers who use directories and other advertising and information services. Dex also provides directory publishing services to other telephone companies on a contract basis and electronic directory services. Dex is expanding its directories business onto the Internet by marketing innovative and interactive listings and advertising, primarily through existing sales channels throughout our Region. Our revenue from the directory services business accounted for 10% of 1998 revenues." In the transfer of the Directory from MediaOne back to US West, the shareholders were paid $850 million dollars, seemingly a handsome sum. But remember: directory services had started as a US West product, were moved into the Media group, the Media Group became MediaOne and MediaOne then, puzzlingly, gave Directory services back to US West. We suggest that the purpose of all this to-and-fro was the material enrichment of certain US West executives, and that it served no other purpose. "In connection with the Dex Alignment, under the Separation Agreement, (i) Old US WEST distributed, as a dividend to holders of MediaOne common stock, approximately 16,341,000 shares of our common stock (net of the redemption of approximately 305,000 fractional shares) with an aggregate of $850 (million) in value (the "Dex Dividend") " This appears to be a simple transaction. US West transferred the Directory business back and forth, and the shareholders--including senior officers of the company--received almost a billion dollars. In the argot of the company, it was called the "DEX Dividend".
US West Pays MediaOne's Debt of $4 Billion Dollars Then we have another interesting fact. When MediaOne was spun off, US West paid its $4 billion in debt. "The Separation was implemented according to the terms of the Separation Agreement between U S WEST and MediaOne. (ii) we refinanced $3,900,000,000 of Old U S WEST debt, formerly allocated to Media Group" In short, US West paid almost $5 billion dollars to spin off MediaOne, making the property vastly more attractive to any potential acquirer.
Discussion of the Ratepayers' Stake Are customers entitled to refunds for products they paid to develop? First, who paid for the development and creation of many of the assets being spun off? Well, if US West in any way resembles Pac Tel or Ameritech, then the scant audits conducted in California, Ohio and Wisconsin a few years back clearly show that many of the telephone company products, from PCS development to Directory, were funded by the customers.("Audit of the Affiliate Interests of the Pacific Telesis Group, 1994" "Review of Affiliate Transactions at Ameritech Services Inc., May 95" National Association of Regulatory Utility Commissioners) Pac Bell's audit stated that "Pac Bells Directory Research and development was funded by the general body of ratepayers", while Ohio and Wisconsin's audit of Ameritech found that "Ameritech charges ratepayers for developing new products, from non-regulated data services and personal communications to video conferencing development." (For a full discussion of the audits, see "The Unauthorized Bio of the Baby Bells") Therefore, customers do have a stake, especially if their money was used to develop products only to have those products spun off. In California, the spin-off of Pac Bell's AirTouch cellular telephone operation is a case in point. When Pac Bell established AirTouch as a separate company, Pac Bell had to refund millions to its customers. However, the value of the AirTouch transaction was in the billions and the primary shareholders received hundreds of millions of dollars. This is a classic maneuver. In business, there are only two explanations for a maneuver that is either too complicated to understand or that appears to make no sense: to throw off any possible pursuit by baffling any possible pursuers, or because stupidity has come into play. Because company insiders received substantial financial benefits at the apparent expense of the customers, we suggest that stupidity was not involved.
Wireless Transfer to AirTouch There is also the issue of the transference of US West Cellular properties to AirTouch. According to the MediaOne 1998 Annual Report, some $6 billion in assets were moved, and so was a great deal of cash. "Investment in AirTouch Communications $ 5,919,000,000"
Other Issues: The Dex Dividend, the debt paid by US West for products that were spun off into MediaOne, and the movement of cellular licenses are only part of the problem. While these issues are disturbing, they are being played against a back-drop of other substantial issues, including:
To summarize some of the data about US West: 1) Failed to Deploy Advanced Networks in A Timely Fashion By its own accounting, US West was supposed to supply almost 3 million households with 500 channel full motion video interactive service. The US West 1993 Annual Report states: "In 1993 the company announced its intentions to build a 'broadband', interactive telecommunications network... US West anticipates converting 100,000 access lines to this technology by the end of 1994, and 500,000 access lines annually beginning in 1995." This is not ADSL. This is interactive broadband, about 700 times more powerful than ADSL. Also, ADSL stands for Asymmetric Digital Subscriber Line, which means that the speed of the network is in one direction. Interactive broadband was supposed to deliver incredible network speeds two-way over fiber-optic cable. The fact that these networks do not exist today, and the fact that funds given to these companies to create these new networks were never spent are serious, yet unexplored issues in many states. In New Jersey, the Consumer Advocate found that "Customers paid for fiber-optics every month, but had yet to benefit." The plan that was supposed to deliver these new networks to Bell Atlantic's customers was called Opportunity New Jersey. It materially benefited the company and served no other purpose. The advocate wrote: "Since the time of the adoption of the ONJ Plan, BA-NJ has received enormous financial benefits, greatly in excess of the Company's original projections. The gains captured by BA-NJ, which probably would not have been achievable but for the Plan, as set forth immediately below, involve earnings, dividends, return on equity, cost of debt and additional benefits." US West is not exempt from these charges. In Omaha, Nebraska, the case of Cottonwood vs US West clearly outlines how the company promised over 500 digital channels but instead rolled out ordinary cable services. In Cottonwood, it seems that US West's failure to deliver on its promises has caused the company to attack small companies who speak out and who, unfortunately, can not financially support themselves in lawsuits. Therefore, every state should investigate US West's claims of promised technology and its alleged spending on same.
2) The Bells' Profits are excessive. It is possible that they are outrageous. Why? Probably the most disturbing issue is that of Bell profits---the pennies, nickels, dimes and quarters customers pay every month. The Bells are monopolies and as such are supposed to have profits that are "fair and reasonable", like all other utilities. However, the Bells are now among the most profitable companies in America.. The chart below compares the Bells' earnings with five well-known, publicly traded companies: Nike, Exxon, McDonalds, Walt Disney, and Dow Jones. The result? US West outperformed this group by 155% for the industry standard return-on-equity, generated 181% in earnings per share, and produced 106% in higher net profits.
Net ROE EPS Nike, EXXON,
McDonalds, Walt Disney, Dow Jones Avg 5.92 11% $1.00 US WEST
COMMUNICATIONS 106% 155% 181% (Source: Business
Week's S&P, 3/1/99) NET- Net profit, ROE- Return on Equity, EPS-earnings per share Overall, the Bells' return-on-equity was over 200% higher than the S&P 500's Utilities for 1998. And how does it effect the customer bill? Call Waiting costs less than one cent to offer yet customer prices range from $3-7 dollars----a 50,000% markup. Many states still charge for Touchtone, even though it costs the company nothing. 3) Outrageous Profits From Not Delivering Advanced Networks? There have been a few independent studies performed that clearly show a direct relationship between the failed advanced network deployments and the Bells' increased profits. Economics and Technology, Inc., a respected Massachusetts-based consulting firm, documented these problems for Bell Atlantic of Pennsylvania in its report, "Broken Promises: A Review Of Bell Atlantic's Performance Under Chapter 30" It clearly demonstrates the same broken promises common throughout the US West territories. "In 1993, the Pennsylvania legislature added Chapter 30 to the Public Utility Code with the specific goal of assuring that all areas of the state will be provided with a modern, state-of-the-art broadband telecommunications infrastructure. Basically, Chapter 30 offered Pennsylvania's incumbent local exchange carriers (ILECs) a quid pro quo: In exchange for a firm commitment to provide broadband service capability throughout its entire network by the year 15, each participating ILEC would become subject to an alternative form of regulation providing substantially greater pricing and earnings flexibility than the traditional rate of return form of regulation under which the ILECs prices and earnings had been set. The issue of profits also begs the question--- were specific acquisitions, services or products developed with monies that were supposed to be used for new construction? 4) Did US West Write-Off A Network In Never Replaced And Take Over 3 Billion Dollars In Deductions? In 1998, New Networks Institute filed a complaint with the Criminal Justice Division of the Internal Revenue Service (IRS), against all of the Bell companies, including US West. Our finding was that US West and the other Bells took over $21 billion dollars in write-offs, claiming they were replacing the older copper wiring with new fiber-optic wiring. The wiring was never replaced, though we contend the Bells took the deductions. US West's total amount was $3,123,000,000.00 In November1999, NNI refiled this complaint with additional information that supports our original claim.
5) Customer Service Issues Customer Service issues have also been a problem, since most of the Bells have made massive cuts in this area. For example, in May, 1999, the Colorado Public Service Commission stated that US West not only had problems answering phones in the past, but that it was still having the same problem today. "The Colorado Public Utilities Commission issued formal notice to U S West Communications today that it believes the company has violated the Commissions quality of service rules. In a letter from Director Bruce Smith, PUC staff outlined possible violations of Commission rules concerning repair response time, the number of allowable customer trouble reports, speed of answering calls to the company's business offices and the provision of timely service." However, the problem doesn't simply impact regular phone customers. It also applies to specialized customers wanting high-speed services. Here's an e-mail NNI received in August, 1999 from a US West customer seeking help. Notice that the customer not only couldn't and didn't get what was advertised, but he was also given false information about prices. "This story is the so ridiculous I would love to try to embarrass the management at US West. They may not care. We believe that in regards to US West's handling of Advanced network services, testimony should be solicited from Internet Service Providers, CLECs and their customers. 6) Sub-Standard Customer Services for CLECs and ISPs. While the residential customers are experiencing a declining quality of service, US West has shown almost a willful pattern of mistreatment to its local phone and data competitors, as well as the Internet Service Providers. Since mid-1999, New Networks Institute has been surveying Internet Service Providers and CLECs about obtaining customer services that the RBOCS promised to provide. Preliminary results showed that over 50% of all ISPS were experiencing relatively serious problems in obtaining adequate services--- and that competition was thus being stifled. This is a serious problem in the US West territories. A recently convened Congressional meeting, "CEO Summit on Rural Telecommunications: Closing the Digital Divide", 9/8/99, clearly showed that US West's treatment of its competitors was stifling independent Internet providers and CLECs. Dan Languth, CEO, Black Hills Corporation, which is a mostly rural energy company that has entered the telecom market with a new fiber-based 10 megabit service, stated that his company built an entire new network, but it can't finish it because US West hasn't delivered basic services---in over a year. "So let's talk about some of the problems that we've seen. We've put in a whole new fiber optic service, with a Sonet ring extending for over 200 miles, in one year, yet we still can't get the basic trunking requirements from US West. Susan Ashdown, CEO of Xmission, a Utah ISP stated US West was even slamming her customers. "In many regions where competition doesn't exist, which in our service territory is US West, we have faced a much greater difficulty to offer high speed Internet services. On October 13th, 1999, the USISPA (United States Internet Service Providers Association) held a press conference focusing on Bell abuses of Internet providers. Members from Washington, Arizona, New Mexico, Wyoming, and Utah all told horror stories about US West's behavior. (For more info go to http://www.usispa.org) Unfortunately, neither the FCC nor the states have yet to enforce the basic tenets of the Telecom Act of 1996, which protects competitors from this sort of behavior.
7) Executive Compensation Compensation for the primary shareholders reveals that US West's recent activities have been very rewarding for the company's principal executives. Besides the dividend from the DEX Directory business, Charles M. Lillis, President, CEO and Chairman of the Board received 974,558 shares of MediaOne, not to mention shares of US West, while Richard D. McCormick, Former President, CEO and Chairman of the Board, got 779,074 shares. As the MediaOne 1998 Proxy Statement states: (and the company's Schedule 14 A) "In February, 1998, the Committee also granted to Mr. McCormick, a stock option grant on 4,000 shares of MediaOne Group common stock, a stock option grant on 4,000 shares of U S WEST Communications common stock and 150,000 Dividend Equivalent Units in accordance with the U S WEST Communications Long-Term Incentive Plan. The MediaOne Group stock option grant was subsequently adjusted to cover 212,230 shares of MediaOne Group common stock in connection with the value transfer of the "Dex" domestic directories business." This is of course, not counting $18,927,904 severance pay.
8) Other Questions About Bell Activities Leave Open Issues. Why should you take this complaint seriously? First, the authors came to the conclusions presented independently. Secondly, the recent FCC audits of US West and the other Bells, found $5-19 billion dollars' worth of unanswered questions about network equipment that couldn't be found, suggesting strongly that something is seriously amiss. This immensely expensive suggestion begins to bear the tone of prophecy when one considers this letter from a former staffer at one of the Bells which showed that Directory profits in general have been manipulated over the last decade. "For the first 7 years at The Bell I was the General Accounting Supervisor for The Bell Directory Publishing and The Bell Marketing Group. One of my responsibilities during that period was to oversee the preparation of the financial reports that the Directory Publishing subsidiary of The Bell was required to provide to the various PUC's in their XXX state region. As you might well have guessed, these numbers were being used to impute what the profitability of the communications operation might have been, had not the directory business been spun off to the unregulated side of the company in 1983. This information was then factored into the rate setting calculations by the PUC's staff. It is difficult to overestimate the negative impact of US West's behavior. By placing the interest of the shareholders above those of the customers, and by failing to keep its commitments to build and make available the new network, US West has held the State's digital future hostage in the following ways: 1. US West's role in the global economy has been stifled, as have the legitimate business activities of a number of its customers. Had US West provided services as promised, the company could have been in the forefront of the global digital revolution. The benefits to the Western economy would have been substantial, and the lost opportunity is immeasurable. The clear implication of the data we present herein is that US West willfully made broad misrepresentations to its consumers and regulators. The company's motivation for doing so appears to be simple greed. If our allegations are correct, US West has perpetrated a massive fraud against every telephone user in its service territory. We call upon Attorneys General and Public Service Commissions to launch an immediate and thorough investigation and to assure that US West consumers are made whole.
Respectfully submitted, ______________________________
Bruce A. Kushnick New Networks Institute 826 Broadway Suite 900 New York, New York 10003
______________________________
L.J Davis Brooklyn, NY & Boise, Idaho |