[antidote] Is the Sky Falling for the Bells? Nah, it's just "Dirty math."
- From: "Bruce Kushnick" <bruce@xxxxxxxxxxxxxxx>
- To: <antidote@xxxxxxxxxxxxx>
- Date: Thu, 4 Dec 2003 02:51:37 -0500
Karen Furbish wrote:
< However, as you know, the Bells are currently experiencing line losses due
>to wireless and broadband deployment.
(I was working on this piece. I thought it would appropriate to share it
now.)
====================
Is the Sky Falling for the Bells? Nah, it's just 'Dirty Math"
The Bells have continually complained -- "woe is us. We're losing phonelines
and
we losing business, right and left, and we need to get rid of any
regulations that allow competition."
It's another smoke and mirrors campaign by the Bells. --- It's all about
"Dirty
Math", --- the ability to play with numbers by leaving out significant other
facts.
Our last report refuted the Bells claims that the number of lines are
dropping at the rate the Bells are telling the world. (It includes Bell
data, including
overseas losses and executive compensation, through second q, 2002)
http://www.newnetworks.com/profitreport2002.htm
Next month, New Networks and Teletruth will be releasing a report on the
20th anniversary of the Bells' stats -- lines, employees, revenues, (lack
of) broadband
deployment, etc. And as many of you know we've been tracking this stuff
since 92.
Let me give you the crux of the issues as we see it.
Overall market:
a) yeah, the number of copper wiring lines into customers homes and offices
has been dropping. One of the largest drops is from people dropping
second
lines. This is being caused by what we now believe was hyper-growth during
the Internet boom because when you track the census data from 1995-2002,
the number of lines increased way more than the population and then starts
to decline in 2001. --- I'll be supplying this in data form for our upcoming
report.
An example ---BellSouth, 1998 "The increase was primarily attributable to
continued economic growth in BellSouth Telecommunications' nine-state
service region.
Growth in additional residential lines ordered by existing customers
accounted
for approximately 30.8% of the overall increase in total access lines
since December 31, 1996."
What utility and monopoly has growth of 31% in three years without major
increases
in the overall population and households?
In short, there is simply a 'rebalancing' of customer demand going on.
a1) This rebalancing is also reflecting the overall economic downturn which
everyone went through. The losses of the CLECs and Internet business and
other companies who have either went bankrupt or cut back, not to mention
every other business that were suppliers in this food-chain, were also
impacted and cut back on the lines they ordered or used.
a2) It is ironic that the hyper-growth was created, NOT by the Bells who
just sat there
and took orders, but by the small independent ISPs -- the Innovation Engine,
who
brought America to the Internet. Ironically, the Bells have done everything
in their power
to put out of business. We've argued that had the Bells a) actually
fulfilled the promised
fiber-optic deployments and b) used the ISPs as another sales channel, and
c) the FCC
and states got off their butts and enforced the laws on the books, a large
part of the telecom
crash could have been avoided. (we've written separately about this.)
Dirty Math Accounting
b)Voice Line Equivalents, the data that redefines the various products the
Bells sell as voice circuits and which Verizon uses when it tells investors
how well they are doing, have continually increased over the last 4 years.
(Voice Line Equivalents were not published in the 1990's in the annual
reports.)
Here's Bell South's last three years --- Oops.. an 8% increase in lines!
2000 4thq2001 4thq2002
3rdq2003 increase.
BellSouth 53,800 65,879 70,029
70,955 32%
c) Next, some of the Bells are NOT counting the addition of DSL and other
various circuits as a second line when it is line-shared --- so all of the
DSL is simply not being added into the equation. Also, this is a reason
people drop second lines ---who needs a second line when one will do? But it
is a second circuit of service.
d) Some of the Bells, Verizon, for example DO NOT COUNT COMPETITIVE RESOLD
OR UNE-P LINES as part of their number of lines... oops. --- So, when the
company loses a line, no,
it's really reselling the line and simply doesn't account for it in the
number of lines.
e) We don't argue that some excess growth is being taken up from the cable
modem side. But remember, DSL is an additional service that the Bells are
making more revenue from, it is not part of 'local service'.
f) The wireless impact? Well, in a survey by PEW, only 4% left their current
land line for a total wireless experience and based on our informal focus
groups in the last two weeks, the "college' student factor" where everyone
leaving college gets rid of their land line is so far fantasy... One
factor-- many college students live at home or with roommates and those
households aren't really changing too fast. People don't like not being able
to get a signal in their bedrooms and feel wire lines are more stable.
Of the people interviewed, (Bay Ridge Brooklyn, Hollywood Video store, clip
board in hand)
about 1/2 in college or recently out, NO ONE had simply gotten rid of the
wireline service.
And guess what -- because of the mergers, Verizon and SBC have become
numbers 1 and 2 in wireless, and no one has counted those lines as
additional businesses to these companies, even when they are from the same
customer who buys from them local phone service.
g) NO one is counting the increase in Long Distance as 'another line'.
Though in common thought this isn't being done, when you realize that the
Bells have gamed the system to enter LD prematurely, what you find is that
the
Bells now have 30% of the LD mostly residential marketplace -meaning over
the same household wire
-- and while there's some local competition, only 10+% are using
competitive lines,
and that includes both business and residential. If residential is 1/3 of
that.... Who got the
deal?
h) Selling off lines --- Verizon annual report 2002, "The special and
non-recurring items
include operating results through the sale date of 1.27 million
non-strategic
access lines sold in 2002, 1.6 million non-strategic access lines sold
during 2000."
Oops. Verizon cut 2.9 million lines... could that be one of the reasons the
number
of lines is going down?
Overall Scam of Local Phone Service
i) We come to the biggest scam of all... It looks like local phone service
is
now 70+% profitable and that the Bells, from 1982-2003, increased the
local
phone price for exactly the same service in NYC by 400+%. (not counting
rotary telephones).
For those of you who don't believe this, "Phonebills don't lie.",
and we have them. Also, Employees-per-line was down 62% by 2000 ---
(we haven't found anyone publishing the number in recent years. If you find
it, please send it
along.) And local construction budgets are now at a drop of over 50% in the
last three years. So much of deregulation of a monopoly. Under price caps,
the more you cut the more you make -- Who cares about the customer?
And we need to make a very significant point -- NO regulator has examined
all of the Taxes and surcharges and other fees for profits, even though in
many cases, such as the "FCC Line Charge", "the Portability charge" or even
"911"
these companies get this revenue.
And Universal Service? What a slush fund. a), the Bells are price-capped in
most states,
yet are able to cry they need 'high-cost-funds", -- if NO Regulator is
looking at
profits, and if in most states the prices have been averaged, this is a
scam.b) Schools and
Libraries -- the Bells are the largest single recipients of the fund for
vendors, and the recent audits
found that many of these contracts were NOT up for bid.
NOTE: another dirty little secret -- Universal Service, which is supposed
to be put on "interstate" services, is being applied on local phonebills
to two other charges in the "Taxes and Surcharges" section
---the FCC line charge and LOCAL number portability!
j) Cross subsidization is rampant -- Take out a phonebill "Insert", bill
stuffer.
In the case of Verizon, it's now advertising all of its other products, even
though this
Insert, paid for and built into phone rates as 'consumer education', is now
free advertising. From use of lists, advertising space and almost anything
else
we could find, it's clear that local service -- through excessive customers
rates, is funding these products. For example, if the Insert was to open
to all competitors, the advertisements would generate revenue and thus lower
phone prices under the older rate-of return.
If you examine the loss of revenue from the local service part of the
equation,
for not getting paid its fair share and also taking up the costs, you now
know
one of the reasons why local revenues aren't higher or showing more profits.
Also, remember, buried in the local service numbers in Bell quarterly
statements are the funds to rollout long distance state by state, advertise
and
implement DSL, etc. In state like Oregon and Louisiana, DSL rollout is part
of the state
regulations and billed directly to customers in the form of price-caps.
Summary:
Here's part of the chart we're working on which shows voice lines, voice
line equivalents, competition, Long distance and DSL. and these services
are increasing. When you add them together ---
Drops in copper wiring are not the proper indicator anymore. It's Dirty
math.
The sky is not falling. It's all being done to plead poverty to convince
regulators that everything is bad.
The emperor has no clothes...
---Second q 2003 (the report will do a 20 year analysis of these line
items.)
Verizon SBC
Total lines 56,155,000 55,260,000
voice line equivalents 139,388,000 137,045,000
Total competition -------- 5,378,000 6,997,000
competition to lines 9.6% 12.6%
compared to equivalent 3.9% 5.1%
Total Long Distance ------15,900,000 11,300,000
DSL Lines 2,100,000 3,100,000
Competition 5,378,000 6,997,000
LD 15,900,000 11,300,000
LD to competition 196% 61%
Bruce Kushnick, Chairman, Teletruth
Executive Director, New Networks Institute
http://www.teletruth.org
http://www.newnetworks.com
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