Dear New Jersey Governor Murphy: Fix the NJBPU; Make Verizon Finish 100% of the Fiber Optic Upgrades.

(Not in New Jersey? Though it various by state, over the last two decades America’s communications customers have paid multiple times to replace the existing copper utility networks with fiber optics.)

According to the NJ Board of Public Utilities (NJBPU):

“The Governor appoints the five Commissioners (to the New Jersey Board of Public Utilities) who must be confirmed by the Senate, for six year staggered terms. The Governor appoints one of the five to serve as Commission President.”

Fact: By the end of the year 2010, 100% of Verizon NJ, (the state utility covering about 95% of NJ) was supposed have replaced the aging copper wires with a fiber optic wire capable of handling speeds of 45Mbps and up, in both directions. This upgrade includes all homes, businesses, schools and libraries, including rural areas. To pay for this, the state law was changed in 1993 to fiberize the entire territory—and charge local phone customers for the upgrades.

Unfortunately, Verizon NJ customers paid an estimated $15-$17 billion or more from 1993-2017 in deregulatory rate increases, tax perks and massive cross-subsidies of the state utility and the company’s other lines of business, including wireless. And this is the low number as there are a host of related issues that add to customer overcharging on multiple services using these wires, including wireless services.

Yet, by 2017, the majority of the Garden State was never completed with fiber to the home or business, etc.; probably less than ½ of the Verizon territory was done.

In fact, the NJBPU, with the help of former Governor Christie, (it would appear), created a ‘stipulation agreement’ in 2014 to erase the fiber optic commitment and allow for more expensive, much slower speed wireless services to replace the fiber to those who did not get upgraded, seriously impacting rural areas.

Compounding this, the State then created a second stipulation agreement in 2017 to make sure that many rural municipalities would be ‘Have Nots’, as even their existing copper wires, which should have been replaced, have been deteriorating.

To make matters worse, the FCC is planning on preempting state laws to ‘shut off the copper’ wires and replace them with an inferior wireless service. America’s new broadband standard will be a wireless smartphone capable of only 10Mbps down and 1Mbps up, and it will have data-caps and other inferior pricing schemes.

On top of this, there is a need for immediate attention by the State. There has been an investigation of Verizon New York covering the deterioration of the state utility networks, but more importantly, the cross-subsidies of Verizon Wireless and Verizon’s other lines of business. Verizon NY is currently attempting to settle this as there are billions of dollars at stake. New Jersey has the same issues yet they have not been investigated for decades and have been growing.

While the current wisdom is that everyone is on wireless, this is not a replacement of a wired home or office. But more importantly, wireless relies on a wired service, especially the overhyped “5G”. When a person calls or sends a selfie, the signal goes to an antenna which is attached to a ‘special access’ wire. Unfortunately, it appears that instead of finishing the state wired commitments, the company manipulated the accounting to have a large part of the construction budgets and other expenses go to build out the networks used by the Wireless company and not finish most of New Jersey.

As the new Governor, it is time for not only investigations, but the removal of these stipulation agreements, and to fix the NJ Board of Public Utilities who let this charade go on. And it should be the start of a new era—making the Garden State a fully fiber optic state to all, not lip service to many.

Let’s start at the beginning.

State Laws Were Changed to Pay for a Fully Fiber Optic State, 1991-1993

In 1991, a plan, “Opportunity New Jersey”, (ONJ) was created by Deloitte & Touche and it laid out a fabulous fiber optic future. The existing copper wires, some of which had been in place since the 1930’s or earlier, would be replaced by a fiber optic wire. And since everyone had a copper wire, this was just a technology swap.

This was part of the state-by-state push that was tied directly to Al Gore’s ‘Information Superhighway’, a plan to give America a fiber optic future, completed around the year 2010. And state laws were changed throughout the US to give the companies billions per state to be used for these utility network infrastructure upgrades.

100% of Verizon NJ Was to be Completed by 2010 with 45Mbps Speeds.

Taken from the original Order, the box marked in red shows that in 2010, 100% would be completed under the “ONJ” plan with speeds of 45 Mbps, as opposed to ‘business as usual’, “BAU”, which shows that the networks would be done by the year 2030 if the laws were not changed.

After the First 5 Years, the NJ Ratepayer Advocate Wrote that Verizon Benefited Enormously.

In 1997, the NJ Ratepayer Advocate wrote: (Now called the Division of the Rate Counsel)

"Since the time of the adoption of the ONJ Plan, Bell Atlantic NJ (BA-NJ) has received enormous financial benefits, greatly in excess of the Company's original projections. (Emphasis added) During this period:
• "BA-NJ paid out an additional $954.8 million in dividends over what was projected in 1992."
• "The Company is earning a return on equity in excess of 21%, well above the average New Jersey State utility rate of return and substantially higher than any rate of return authorized by the Board in recent memory."

A Billion Dollar Tax Benefit

Verizon NJ also took a $1.01 billion dollar tax deduction directly tied to ONJ. The Verizon NJ 1994 Annual Report stated:

"The Company's determination was that it was no longer eligible for continued application of the accounting required by Statement No. 71. It was based on the belief that the convergence of competition, technological change (including the company’s technology deployment plans)... (Emphasis added)

Access New Jersey: Fiber Optics to Schools and Libraries

In 1997, the State agreed to add “Access New Jersey”, a plan to provide all schools and libraries with advanced communications. This is from the NJBPU’s show cause order of 2012.

Did Verizon Commit Fraud and Was the State Complicit?

From 1996 to 2005 Verizon had done virtually no fiber to the home build outs, but had collected billions extra from customers because the extra profits were never returned.

However, Verizon NJ was required to supply an annual report to make sure that the deployment was on schedule. In its 2001 annual infrastructure report, Verizon claimed it had completed 55% of the entire territory with 45Mbps in both directions. This service did not exist in 2001. This is an excerpt of that report (page 29). We marked the areas of interest in red.

Verizon Announced FiOS and Got a System-Wide Cable Franchise in 2006

In 2004-2005, Verizon announced it would be deploying its FiOS, its fiber optic-based services, via a ‘system-wide’ franchise which would only serve a partial list of municipalities, creating a new ‘have’ and ‘have not’ future.

As of December 2013, Verizon’s cable TV franchise was up. (Read our testimony.) The 2006 franchise only required 70 towns would be completely upgraded. Verizon had another 352 municipalities that were partially done - but there was NO obligation to finish these towns. Out of 526 towns in the Verizon NJ territory, this means that at least 1/3 of all municipalities are never getting cable competition while the number of customers who can actually get the service may be 50%, as most towns are ‘partially’ done.

The State Issued a Show Cause Order, 2012

In 2012, the State issued a ‘show cause order', which claimed that two small towns, Stow Creek and Greenwich, NJ had not been properly upgraded. We helped the towns get Verizon to put in fiber – and we were too successful, it would appear.

Stipulation Agreement to Erase the Fiber Optic Obligations, 2014

In January 2014, the State and Verizon issued a ‘stipulation agreement’ to essentially erase any fiber optic commitments – (Verizon claimed it had fulfilled its obligations) – and this agreement slowed down-squashed the hopes of ½ the state from a fiber-to-the-home 1 gig service to the speed of DSL over the existing copper wires which was considered inferior in 1992—and it can be wireless.

In the Creation of the Stipulation Agreement the State Got Everything Wrong.

Using the transcript, the State claimed that a) Verizon never received any financial benefits, that b) there was no obligation to deploy fiber optics and that the speed wasn’t supposed to be 45 Mbps in both directions and c) there were no tax abatements or rate increases as part of ONJ.

a) The State wrote:

“The first one, ONJ deployment obligations and the suggestion that a surcharge tax credit or other financial benefit has been paid to Verizon — dedicated to the deployment of broadband through ONJ. These arguments are not correct.”

b) The State wrote:

“Many argue that ONJ’s obligation — rights and obligation under ONJ is fiber build-out and that is not true. The board order -- up to 45 megabytes but did not order a specific transmission medium or a minimum speed of transmission.”

c) The State wrote:

“There was never …rate increases or tax abatements dedicated to ONJ. ONJ is a single element of the plan for alternative regulation.”

Worse, at this time, Gov. Christie decided to appoint a new president who had been part of his cabinet and whose background included professional tennis referee and married to a former Commissioner and she helped to push through this agreement with Verizon.

These findings are directly contradicted by facts and with NJ’s broadband future and billions at stake, this lack of basic knowledge created a policy that harmed cities and the economic growth or the State.

Second Stipulation Agreement: Sleazy as the First

In May 2017, a second stipulation agreement was put in place. According to Whyy.org’s article, quoting one of the towns that are impacted:

“’Unfortunately, the BPU continues to allow Verizon to pick and choose which residents will receive modern telecommunications at an affordable cost,’ said Greg Facemyer, a Hopewell Township committeeman in Cumberland County…’Verizon’s refusal to offer FiOS in certain rural areas of southern New Jersey widens the ‘digital divide’ there, hurting students, small business owners, and senior citizens’.”

Verizon New York’s Settlement & New Jersey: Follow the Money

As mentioned up front, besides these stipulation slight-of-hands, the State has been negligent in examining the massive cross-subsidies of the wireless service and other Verizon lines of business and the state utility.

Consultant for the investigation into Verizon New York, March, 2017

“There are strong indications that Verizon NY, and its parent Verizon Communications, engage in practices which misallocate expenses and revenues to the detriment of the regulated New York operations. I recommend the Commission direct Verizon to submit detailed information on these interaffiliate transactions and allocations, and that, in a separate proceeding, the NYPSC examine Verizon’s cost allocation methodologies.”
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