April 24th, 2009 by Gordon Cook
Here is the Executive Summary of my just published June interview.
Our feature interview describes a multi year long streak of questionable practices by Verizon in New Jersey. We see the situation as a symbiotic relationship between politicians in state government who are happy to let Verizon continue to act as an unregulated free market engine that works to benefit its executives and the expense of its customers in a way reminiscent of pre meltdown Wall Street.
The predatory enablement of the telco incumbent in New Jersey began 20 years ago with the successful effort of the Deloitte Touché - NJ Board of Public Utilities funded study on New Jersey’s telecommunications future. This study was used by the BPU and NJ Bell, later Bell Atlantic, and finally Verizon to, in the aftermath of the 1984 break up and the rise of free market funamentalism, change the regulatory environment for the state’s local phone company. The change was from the staid rate of return utility model that had made ATT a blue chip for people to count on for retirement since 1934 to a darling of Wall Street model that would take whatever risks necessary to participate in the beginning of the great bull market that ended last year. It opened the way for the NJ incumbent to earn vast new sums of money. In return for the change, NJ Bell and Bell Atlantic agreed to a course of action that they asserted would increase NJ tax revenues and employment. Most important of all they promised to reinvest their increased revenue by building a fully symmetric 45 megabit per-second fiber optic infrastructure to all customers in the state.
The Consequences of Deregulation Run Amuck
As is by now well known, this did not happen. Verizon got a huge windfall. New Jersey lost jobs, and lost tax revenue. Our discussion with Tom Allibone recounts these events in detail. We outline the ways in which Verizon, by getting itself effectively deregulated on the federal and state level, has been able to enforce practices on its customers that leave them with little choice but to accept. Customers, without the protection of tariffs, are forced into contracts of adhesion where Verizon billing systems send incorrect bills and the customer has no choice but to pay or loose service.
We trace in great detail an as yet little recognized struggle on Verizon’s part to quit paying the state’s Business Personal Property Tax. Verizon has been paying NJ municipalities about $100 million dollars a year as recently as 2000. It is down to 43 million a year now and Verizon’s lobbyists are informing municipal governments that payments will soon cease because they claim to be under fierce competition and point to a clause that says the tax is applicable only to companies that have 51% or more of the local phone lines in a political jurisdiction.
The only problem is that as Verizon makes these assertions there is no means of independent audit and ample reason to believe that the company is not telling the truth. We present evidence that, to support this assertion, Verizon has tried to spin off its FiOS arm as an independent unregulated information service and claim therefore that lines lost to its FiOS customers are lines lost to competition – all of which brings Verizon closer to its “trust us” 51%-of-the- phone-service belongs to competitors so we do not pay BPPT to your township any more.
But this line of revenue enhancement on Verizon’s part seems to involve some other issues. Verizon’s FiOS marketing has involved deceptive practices that have become so blatant that the NJ State Attorney General actually launched a class action lawsuit against Verizon on March 19th. sadly the State AG Office is the only part of state government to lift a finger on behalf of its citizens. In looking for a down loadable pdf of the complaint I just found that the NJ Divsion of Consumer Affairs is soliciting input from residents who bought FiOS in the past 24 months.
Our discussion with Tom shows that verifiable inventories of Verizon property in the state have never been taken since divestiture. Some local audits now are uncovering poles that are, in effect, off the tax records. A Verizon VP of Taxes sent written assurance to Tom’s mayor that Verizon in payment of local taxes did not depreciate more than 80% yet a councilman in Summitt New Jersey claims to have records that show 90% depreciation. Verizon is legally required to remove broken poles but there is no enforcement of penalties for non removal.
The BPPT situation is set up in such a way that the ability to enforce the state law governing the tax is removed from the hands of municipal authorities. Verizon has constructed an arrangement with the State Division of Taxation where records of the value of Verizon’s inventory and the nature of the inventory itself are sent every year to Trenton. There, with no public transparency or oversight, each township is told every year the dollar amount of Verizon property on which it can level its local tax rate.
Yet when Verizon decides it wants more revenue, it goes to NJ politicians be they the Seantor Doria’s of the legislature or Governor Corzine. the politicians always come through. When it threatens to close its Newark offices, it winds up being relieved of its legal responsibility to pay 1.9 million in taxes every year to Newark. There is no one following the big picture – no one speaking on behalf of the public just the Verizon friendly former investment bank billionaire who is now Governor of NJ and free to help a business friend out. It is a sordid picture full of interrelated complexities of Verizon is using its cozy relationship with NJ politicians to maintain a one-sided predatory relationship with the state of New Jersey. One may only wonder if we will every see the day when, as a part of the pendulum swing, the people of NJ and other states will be able to demand redress from the abuses of the currently all powerful incumbent.
Verizon gave its lead attorney a ten million dollar plus retirement bonus last year – one that was written up in the New York Times. One that caused another well known telecom attorney to write on our list that this was to be expected. Under the mantra of market fundamentalism “the best investment a regulated company can make is in regulation and litigation, not infrastructure or new products.” I would only add that this avarice need not be not a sine-qua-non of regulation if we can only do a fundamental reset of the expectations for our political system and economy.