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Taking on the FCC: Unraveling a $500 Billion Rip-Off

Photograph Source: Mikhail (Vokabre) Scherbakov – CC BY-SA 2.0

On May 20th, a group known as the Irregulators submitted legal briefs to the U.S. District Court in Washington, DC, seeking standing to appeal a Federal Communications Commission (FCC) decision that, in effect, has facilitated one of the largest accounting scandals in American history.  The petitioners are accusing the FCC of allowing the nation’s telecommunications companies – the telecom trust – to engage in a bookkeeping slight-of-hand scam that cost telecom users, states and tax payers across the country an estimated $50-$60 billion a year over the last decade.

The FCC declined to challenge the Irregulators’ standing and, on June 6th, the Court is expected to formally rule that the Irregulators have “standing” and the case against the FCC can proceed.  Standing is a requirement under Article III of the Constitution, the capacity of a party to bring suit in court.  To bring suit signifies the ability of a party to demonstrate that s/he had sufficient connection to — and was harmed by — an action being challenged.

The Irregulators’ case is not unlike the case, Apple Inc. v. Pepper, in which Robert Pepper and three other iPhone users accused Apple of causing harm to them and other Apple users by requiring them to buy apps from the Apple App Store. The case was originally brought in 2011 and on May 13, 2019, the Supreme Court voted to allow the antitrust case against Apple to proceed.

The Irregulators’ case involves three critical issues:

+ How the FCC’s accounting rules directly contributed to an estimated $500 billion overcharge over the last decade that the telecoms trust has pocketed.

+ How politics – and politicians – used the FCC rules to further the ends of the telecom trust.

+ How these factors contributed to not only inflated bills and higher taxes, but the end of Net Neutrality, killing-off of fiber-to-the-home, the ever-growing Digital Divide and the promotion of the dubious 5G network upgrade.

The Irregulators are a group of smart, well-meaning activists with a combined knowledge of telecom law, skills to read accounting spreadsheets and a desire to make a difference. They came together to expose the failures of the nation’s telecom system and a major unacknowledged scandal.  They describe themselves as a group of “independent, expert Telecom Team comprised of senior telecom experts, analysts, forensic auditors, and lawyers …,” including former FCC officials. They include:

+ Paul M. Hartman, recently retired FCC Assistant Chief, Pricing Policy Division (PPD) Wireline Competition Bureau, who served in the Office of Inspector General.

+  Kenneth Levy, Esq., former FCC Deputy Chief, Operations of the Common Carrier Bureau and Chief of the Tariff Division.

+ Fred Goldstein – a consultant on technical, regulatory and business issues related to the telecommunications, cable and Internet industries.

+  Chuck Sherwood, member of the Alliance for Community Media’s Public Policy Working Group and the Policy and Legal Committee of the National Association of Telecommunications Officers and Advisors.

+  Dana Spiegel, Executive Director, NYCwireless.

+  Mark Cooper, Ph.D., Irregulator Adjunct, Director of Research, Consumer Federation of America.

+ Bruce Kushnick, executive director of New Networks Institute, an advocacy group, is the Irregulators’ “ringleader.”

The Irregulators’ case is based on the fact that the FCC “froze” it’s cost-accounting rules 19 years ago.  This permitted the different services that use the state-based telecommunications infrastructure to pay the same percentage of expenses that they did in the year 2000.  This enabled the somewhat regulated local or “intrastate” services (e.g., Verizon New York) to subsidize the more profitable and unregulated “interstate” providers (e.g., AT&T, ViOS) offering the more profitable wireless and streaming services. More troubling, the FCC has moved to extend the “freeze” for an additional 6 years, through 2024.

Among the group’s filings, Kushnick and Sherwood submitted briefs to the Court detailing how they had long suffered harm from over-billing, lack of meaningful competition and because Verizon and other providers refuse to disclose the actual cost of their services.

Kushnick’s filing argues:

We have presented over 18 separate reports and filings to document our claims to the FCC – who did nothing but extend a harmful ‘freeze’ throughout the US, with no documentation, analysis or examination of what we presented, much less the other 49 States that have yet to realize just how corrupts these rules have become.

Sherwood argues:

There is some evidence that given their familial relationship Verizon the IXC and Verizon the ILEC have implemented different and potentially discriminatory prices in comparison to what unaffiliated IXCs are charged. This may be the case for both switched and special access (Business Data Service) and in both the intrastate and interstate jurisdictions. To the extent Verizon the IXC uses fiber-based services that are not classified as BDS I believe Verizon the ILEC and Verizon the IXC are engaging in similar discriminatory and anti-competitive behavior.

As the telecom warriors case proceeds against the FCC – and, by extension, the telecom trust — the nation will witness one of the grand court challenges of the 21stcentury.  This contest might not have the glamour of cases involving abortion, immigrant rights or online content, but may – long term – have equally significant consequence. It will help fashion the nation’s telecom future.

The Irregulators’ case is really about the telecom accounting shell-game.  Under FCC rules, states don’t have to keep detailed records for intrastate wireline services, thus masking a grand accounting scam. However, New York is the lone exception, state legislators require full telecom reporting.  The Irregulators are using this data to expose the great FCC-telecom rip-off.  The Irregulators’ campaign could well lead to states and localities across the country bring suits against their telecoms, leading to the reforming of telecom services.

Critical to the development of the FCC-telecom scam have been political figures.  The current U.S. Attorney General, William Barr, got his political start serving as General Counsel for GTE Corporation, a telco that merged with Bell Atlantic to form Verizon. He worked closely with former FCC Chairman Michael Powell, a Pres. Clinton appointee, to establish the new accounting procedures. The current FCC chairman, Ajit Pai, formerly served as Verizon’s Associate General Counsel and pushes ever-greater deregulations — and limited accountability — of the telecoms.

Postmodern, 21st-century America is defined by the shift from old-fashioned analog wireline or “switched” voice services to the digital world of Internet-based landline and “smart-phone” wireless services.  Sadly, as this great transition to digital and wireless takes place, the American consumer – along with municipalities and telecom workers – are being squeezed by the telecom trust.  In 2017, the top six US telecom corps – AT&T ($170.8/b), Verizon ($130.9/b), T-Mobile ($43.3), Sprint ($32.4/b), CenturyLink ($23.4/b) and US Cellular ($3.9/b) – had combined revenues of $404.7 billion

Since Pres. Trump took office, Republicans in Congress have repealed Net Neutrality laws, encouraged new merger and acquisition deals (e.g., AT&T acquired TimeWarner for $85 billion), and have proposed to reduce the telecom’s corporate tax rate.  Americans’ phone bills are creeping up, unions are being busted, employees are being let go and services are faltering.  No wonder the U.S. is considered a second-tier networked nation.

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David Rosen is the author of Sex, Sin & Subversion:  The Transformation of 1950s New York’s Forbidden into America’s New Normal (Skyhorse, 2015).  He can be reached at drosennyc@verizon.net; check out www.DavidRosenWrites.com.

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