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Do broadband providers really deserve their billions from taxpayers?

In New Jersey, taxpayers gave Verizon $13 billion in surcharges in return for having the entire state by 2010, a plan called “Opportunity New Jersey.”

Published onMarch 5, 2015

Broadband Monopoly

One of the most common themes stated by those against net neutrality and Title II classification is the need to get the government out of the Internet. As one corporate-funded group noted in their petition to stop the Federal Communications Commission (FCC) from issuing rules on net neutrality: “The American people won’t stand for a federal takeover of the Internet. The best way to keep it open and free is what has kept it open and free all along—no government intervention.”

In terms of that government view, many share it and I generally agree with it. I prefer to see the government stay out of meddling in the tech sector. But, why are these same people/groups ignoring the massive involvement that the carriers have with the government on a daily basis?

Let’s start way back in the early 1990’s. In order to receive billions from state and local governments, Bell Atlantic (now Verizon) promised the world without any rules being given to them about how to use such taxpayer money.

What was promised?

By 2000, according to the Bell companies’ annual reports, press releases and state filings, about 50 million households should have been rewired. California’s Pacific Telesis (Pac Bell) promised to have 5.5 million households wired with fiber optic services, Ameritech; which covered 5 states including Illinois, Indiana and Michigan, Ohio and Wisconsin) promised 6 million homes by 2000, Bell Atlantic claimed 8.75 million homes, and NYNEX said 1.5-2 million by 1996. (Ameritech, Pac Bell, Bell Atlantic and NYNEX were four of the original Bell companies.) Alongside the annual reports, the Bell companies also filed with the FCC to offer “video dialtone” services over fiber optic wire. Over 9,787,400 households in 43 cities were supposed to be upgraded between 1995 and 1997. – Bruce Kushnick, “$200 Billion Broadband,” Teletruth Executive Director, New Networks Institute.

I feel quite comfortable summarizing that we didn’t see results anywhere close to those goals. But maybe over time broadband providers have gotten better at their promises of using taxpayer money in exchange for improved broadband.





In 2012, West Virginia taxpayers gave Frontier Communications over $125 million in broadband stimulus funds. How did that money get spent?

Last year the state buried a study on their spending of the stimulus money (which they spent $118,000 for) that leaked anyway, highlighting that how Frontier Communications did a sloppy job in tracking spending, may have overbilled taxpayers substantially, and only built a mish mash of geographically scattered fiber upgrades that the majority of state residents wouldn’t benefit from in the slightest. – DSLReports

In Pennsylvania, taxpayers have given Verizon nearly $2.1 billion for services that never came to fruition. In 1994, Verizon (then Bell Atlantic) agreed to have 20% of the state broadband wired by 1998, and 50% by 2004. Note that we are talking about 45MB/s symmetrical fiber service right to the door.

So, how did Verizon do? Not well. In fact, by 2002, the state of Pennsylvania acknowledged that Verizon (again, then Bell Atlantic) would not come close to reaching the agreement and asked Verizon to update their plans as to how they would accomplish the agreement going forward.

That update, which needed to show Verizon was working toward that 45Mbps goal, never really came. Instead, in a ruling this week, the state essentially allowed Verizon to completely ignore the agreement, keep all financial incentives, and provide state-wide connectivity via copper lines, ignoring the language of the original agreement. – DSLReports

In New Jersey, taxpayers gave Verizon almost $13 billion in surcharges in return for having the entire state by 2010, a plan called “Opportunity New Jersey.” Again, Verizon didn’t even come remotely close to finishing off the agreement. When asked why Verizon never even wired many cities in the state, Verizon claimed that their more expensive, data-capped wireless service was more than enough to fulfill the 45 Mbps broadband agreement.

When some state government politicians in New Jersey called out Verizon, Verizon defended themselves by sending bogus public support letters to the state Board of Public Utilities, in the hopes that the state would let Verizon off the hook with the agreement. Verizon was let off the hook.

On the whole, this country seems to have a rich history of simply handing out freebies to the broadband providers. Pulitzer Prize-winning reporter David Cay Johnston wrote a book in 2012, which detailed how for years taxpayers have handed hundreds of billions to cable and phone companies for networks that were never delivered.

To quote one of my favorite tech writers:

Verizon wants what any massive, government-pampered duopolist wants: more strings-free taxpayer money, a lazy regulatory body with no consumer protection authority whatsoever, government protection from competition, and the ability to engage in any business practices they like, no matter how unethical or anti-competitive. – Karl Bode

Back in 2009, the wireless industry’s primary trade and lobbying group, the CTIA, proposed that the FCC use taxpayer dollars to acquire additional spectrum for the wireless industry. According to the CTIA, taxpayers would spend between $1.37 billion and $1.83 billion to free up specific spectrum for mobile broadband service.

But getting back to the federal government, Verizon made $19.3 billion in U.S. pretax profits from 2008-2012. Therefore, it makes sense that Verizon would have to pay a sizeable amount in taxes. Oh, wait.

Verizon paid no federal income taxes during the period; instead got $535 million in tax rebates. Total tax subsidy: $7.3 billion. Received up to $6 billion in federal contracts from 2011 through 2023. – Institute for Policy Studies

AT&T also got quite the help from the terrible federal government by having received over $77 billion in tax breaks from 2008-2012.

Cable and broadband providers have no interest in keeping the government out of their industry. They want the government as involved as ever when it benefits them, which is apparently often.