LEAVING NEW YORK BEHIND:Verizon’s Attack on Consumers, Economic Development and Jobs

02 Verizon Has a Plan for New York—and It’s Not Pretty

03 The Verizon Wireless - Big Cable Monopoly

05 The Big Cable Deal

06 Buffalo Left Behind

07 Syracuse Abandoned

08 Charging More for Rural Broadband

09 Worse Service Now— and in the Future

10 Attack on the Middle Class

11 Outsourcing and Offshoring

12 Exorbitant Executive Compensation

13 Massive Profits

14 Tax Dodging

CONTENTS

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Bypass upstate cities. Abandon rural and elderly customers. Lock in the digital divide. Cut regulations. Cut service. Cut jobs. Slash workers’ standard of living. Enter into monopoly deals with the big cable companies like Comcast and Time Warner. Focus on high-profit wireless and FiOS customers. Dodge taxes. Defraud government. Pile up billions in profits. Pay executives hundreds of millions of dollars. Forget about the average New Yorker.

VERIZON HAS A PLAN FOR NEW YORK— AND IT’S NOT PRETTY

Verizon’s corporate strategy has now become crystal clear. And it will have devastating consequences for millions of New York consumers and workers.

It is a classic strategy of self-dealing deregulatory manipulation. “Free us of burdensome regulations, and we will invest hundreds of millions in New York State,” Verizon’s executives proclaim. But they neglect to tell us that while they may invest in marketing high-end services to the most lucrative customers, they intend to divest from the rest of us—failing to build the high-speed networks that upstate cities need, cutting back on service quality, abandoning traditional phone customers and leaving rural customers in the dust.

At the same time, Verizon is mounting an all-out attack on the living standards of a New York State workforce that has already been cut in half in the last decade. After a two-week strike and a year of negotiations, Verizon continues in its attempt to end job security and health and retirement security for its 18,000 unionized workers in New York State.

Key to Verizon’s emerging corporate strategy is its pending deal with the big cable companies to all jointly market

their products: instead of building FiOS to provide a competitive alternative to Time Warner cable, Verizon will allow Time Warner to sell its cell service as part of a “quad play” package—internet, phone, TV and cell phone. This anti-competitive deal is currently being reviewed by the Department of Justice and the Federal Communications Commission. If it goes through, it means the end of FiOS build-out in regions of the state which have no commitments for such a build now, costing the state an estimated 25,000 future jobs. Upstate cities will lose economic development advantages, and upstate urban residents will lose competitive choices.

This deal must be stopped.

This report outlines Verizon’s strategy and what it means for New York workers and consumers. Verizon ranked 15th on Fortune Magazine’s list of America’s largest corporations, with revenues of over $110 billion and profits of nearly $2.5 billion in 2011. It is the largest U.S. corporation headquartered in New York State. Its decisions have a profound impact on all of us in New York.

Together, we must force Verizon to act as a responsible corporate citizen and employer.

THE VERIZON WIRELESS – BIG CABLE MONOPOLY Behind Verizon Wireless’s end run around antitrust laws.

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“ Once again, consumers are faced with the possibility of less market competition, fewer choices and companies with little incentive to lower prices across multiple markets. Verizon Wireless already holds the greatest amount of spectrum compared to its wireless competitors. This deal would only add to its control. These joint-marketing arrangements are effectively agreements to not compete.”

— Parul P. Desai, policy counsel for Consumers Union1

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Verizon Wireless, the Verizon subsidiary, has proposed a deal with its long-time rivals in cable, including Time Warner and Comcast. If the FCC and Department of Justice approve the deal as it stands, a new, unregulated monopoly will be created. Under the deal:

• Verizon Wireless and four cable companies will jointly market each others’ products, offering a “quadruple play” of video, internet, voice and wireless service on an exclusive basis.

• The companies will form a joint operating entity to develop proprietary technology, giving them a monopolistic lock on wired and wireless video and internet service, leaving carriers like Frontier Communications that aren’t in on the deal unable to compete. This monopoly will destroy jobs at the other carriers and drive up prices for consumers.

• Verizon Wireless will have the right to purchase unused wireless spectrum from the cable companies for $3.9 billion—a significant discount from what it would be worth in an open auction. The cable companies are willing to sell spectrum at a steep discount because this deal eliminates FiOS as a competitor in the video market—and the cable companies will be able to recoup the money through increased cable and broadband prices.

This deal will deliver massive market power to Verizon and the cable companies—limiting competition, raising prices, eliminating jobs and hurting economic development throughout upstate New York.

“ The question is whether this is good or bad. All I see is bad.… Competition is what keeps the market healthy. But these companies aren’t competing anymore. Now they’re partners.”

— Jeff Kagan, telecommunications industry analyst3

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If the Verizon/Big Cable deal is approved, Verizon’s incentives to expand deployment of its state-of-the-art FiOS network—which competes head to head against the cable monopoly—will disappear. Verizon has thus far bypassed New York’s upstate cities, all rural areas, and the eastern half of Suffolk County in its implementation of FiOS, its all-fiber network.

If approved, this deal would sound the death knell for Verizon’s expansion of FiOS, cementing regional inequalities and impeding future economic development. The result: the loss of an estimated 72,000 future jobs nation-wide,5 an estimated 25,000 of which are in New York.

THE BIG CABLE DEAL: Killing 25,000 NY jobs, locking in the digital divide.

“ We are deeply worried that the anti-competitive partnership between Verizon Wireless— the nation’s largest wireless provider—and four of the leading cable companies—Comcast, Time Warner Cable, Cox, and Bright House Networks—will have a negative impact on economic development and job creation in our cities, leading to higher prices, fewer service options, and a growing digital divide.”

— Mayor Byron W. Brown, Buffalo, NY; Mayor Stephanie A. Miner, Syracuse, NY; Mayor Gerald D. Jennings, Albany, NY; Mayor Matthew T. Ryan, Binghamton, NY; Mayor Shayne R. Gallo, Kingston, NY; Mayor Susan Skidmore, Elmira, NY; Mayor Brian Tobin, Cortland, NY; Mayor Robert Palmieri, Utica, NY; Mayor Lou Rosamilla, Troy, NY4

The Verizon Wireless/Big Cable deal will also lock in the digital divide between upstate cities without FiOS and wealthier, less racially-diverse suburbs, where FiOS is available. Many of the suburban areas ringing the FiOS-lacking cities of Buffalo, Syracuse and Albany (as well as Baltimore and Boston) currently enjoy access to FiOS.

Most of downstate New York is either already built for FiOS or slated for its implementation in the coming years, as in New York City. However, if FiOS is no longer a priority for Verizon, many buildings may never get access, especially in the boroughs dominated by Time Warner Cable (Manhattan, Queens and Staten Island).

$29,285

$56,925

No FiOS FiOS No FiOS FiOS

8.2%

28.8%

No FiOS FiOS

44.9%

4.9%

BUFFALO LEFT BEHIND Hit hard by the digital divide.

MEDIAN HOUSEHOLD INCOME POVERTY RATE% MINORITY

FiOS

No FiOS

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$30,891

$52,961

No FiOS FiOS

MEDIAN HOUSEHOLD INCOME POVERTY RATE% MINORITY

No FiOS FiOS

38.0%

6.7%

No FiOS FiOS

7.0%

31.1%

FiOS

No FiOS

SYRACUSE ABANDONEDSurrounded by high speed—but not for the city.

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CHARGING MORE FOR RURAL BROADBANDAbandoning traditional customers, especially in rural areas.

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In Verizon’s Own Words“ [T]he vision that I have is we are going into the copper plant areas and every place we have FiOS, we are going to kill the copper. We are just going to take it out of service and move those services onto FiOS.… And then in other areas that are more rural and more sparsely populated, we have got LTE built that will handle all of those services and so we are going to cut the copper off there. We are going to do it over wireless. So I am going to be really shrinking the amount of copper we have out there.” — Lowell McAdam, CEO, Verizon, Guggenheim Securities Symposium, June 21, 20126

Even though Verizon still has 4.4 million telephone access lines in service in New York State, it plans to “cut” and “kill” landline telephone service. Their plan: wireless service, but at much higher cost (or telephone through FiOS).8 Elderly, low-income and rural consumers will pay more for less-reliable service.

Verizon has already hiked DSL prices to about $50 a month by requiring a landline with DSL service.9 As telephone and cable companies stop competing, the prices of mid-range broadband (3-15 megabits download) are rising from $30-$45 to $55-$70.10 The basic Verizon “Share Everything” wireless plan is about $90 per month, and is limited to 1GB of data transmission.

Market watchers agree: consumers will pay more and more.11

“ This makes a mockery of ‘affordable broadband.’…The detente between telcos and cable companies means the prices of modest Internet speeds (3-15 megabits down) are typically going up from $30-45 to $55-70.…High prices, unacceptable service choices and further rural depopulation are bad policy.” — Dave Burstein, DSL Prime7

FIOS COMPETITION MAKES A DIFFERENCE IN PRICE AND SERVICE OFFERINGS

Time Warner Verizon FiOS Verizon Price Difference

Top Tier $199.99200+ channels50 Mbps “burst,” but normal speed is less

$144.99380+ channels, 4 premium75/35 Mbps

-$55 or -38%

Middle Tier $164.99200+ channels50 Mbps “burst,” but normal speed is less

$104.99290+ channels50/25 Mbps

-$60 or 57%

Basic Tier $89.99200+ channels10/1 Mbps

$94.99210+ channels15/5 Mbps

+$5 or 5%

Source: Time Warner website: order.timewarnercable.com/OfferList.aspx and Verizon website: www22.verizon.com/home/shop/shopping.html (Data for Albany, NY)

Verizon’s plan to “shrink” and “kill” the landline business has already resulted in deteriorating service quality, enabled by regulators at New York’s Public Service Commission (PSC). As New York State Attorney General Eric Schneiderman detailed in his filing with the PSC, Verizon’s disinvestment and failure to maintain workforce levels caused customer complaint rates to soar, rising six-fold from 2005 to 2010 alone.14 Service quality has decayed throughout the State, including at restaurants and stores in Manhattan4 and outages in the Hudson Valley.15

Massive outages in the wake of Tropical Storms Irene and Lee exposed excessive workforce reductions and shoddy network maintenance, as Verizon failed to meet even the PSC’s watered-down standards: Verizon actually cut its repair workforce while customers languished for weeks without service.16 In October, a month after the storms, out-of-service customers waited an average of six days for service restoration. Only pressure and publicity forced Verizon to put repair crews on overtime.17 The PSC

WORSE SERVICE NOW— AND IN THE FUTURE

“ Rather than meet its obligations to provide wireline telephone customers with minimally adequate telephone service, Verizon is continuing to drastically reduce its workforce with the result that the company cannot meet its customers’ repair needs in a timely manner. Verizon’s management has demonstrated that it is unwilling to compete to retain its wireline customer base, and instead is entirely focused on expanding its wireless business affiliate.” — New York State Attorney General Eric Schneiderman’s filing in NYS Public Service Commission Verizon Service Quality Proceeding13

subsequently fined Verizon $400,000, a miniscule sum equal to .0004% percent of the company’s $112.1 billion annual revenue.

The company’s plan is also legislative: repeal “carrier of last resort” regulation, which requires universal access to service. In states like Texas and Florida and Virginia, Verizon can simply walk away from unprofitable customers. CEO McAdam wants New York and New Jersey legislators to grant the company the same freedom here. Verizon’s utility responsibilities would be eliminated.

Verizon is also pushing to prohibit any future telephone consumer protections. The company and its cable industry allies want to preempt State oversight of the VoIP telephone service delivered over FiOS and cable lines.18 Verizon’s legislative goals are part of the larger agenda of the American Legislative Exchange Council (ALEC), which supplies model legislation and support for gutting consumer protections, for voter suppression and for anti-worker legislation.19

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In Verizon’s Own Words“ Over my career, every time I have seen that kind of regulation, all it does is slow down investment.… And so I think restraining the regulators is probably in the best interest of everybody right now.… We have gotten Florida and Virginia and Texas to pass sort of deregulation, which allows us to be a lot more flexible in the marketplace… and start to sunset some of the older technology. We have got some work to do in New York and New Jersey there that are frankly pretty backward compared to the rest of these states.”

— Lowell McAdam, CEO, Verizon, Guggenheim Securities Symposium, June 21, 201212

ATTACK ON THE MIDDLE CLASS Workers have been battling for a fair contract for a year.

“ You said you needed to outsource work in order to save money to operate, and then that wasn’t enough; and now you have tax loopholes where you don’t pay your fair share of taxes, and now that’s not enough; and now you have a contract negotiation where you have an opportunity to demonstrate your willingness to participate in society and support society, support middle class people and middle class jobs, and that’s not enough! Where does it end?”

— Javier Espionsa, 15 years with Verizon

45,000 CWA and IBEW workers were forced into a 15-day strike last August. Verizon’s demands included:

• Freezing the value of pensions for active workers and eliminating them entirely for new workers

• Eliminating all job security language and outsourcing more and more work to low-wage, low-benefit, non-union contractors domestically and overseas

• Drastic increases to insurance premiums and other out-of-pocket health-care costs for current workers and retirees

• Limiting workers to no more than five paid sick days

Union workers returned to work under the terms of their contract—and the promise of good faith negotiations by Verizon’s management under a restructured process. Yet Verizon’s management—after a year of negotiations

and billions more dollars in profits—still refuses to offer a fair new contract, continuing to insist on all the above demands.

Even though the company makes billions in yearly profits, Verizon claims wireline profits are too small. But Verizon Wireless is not rewarding its workers for the division’s relatively higher profits: Wireless workers who have joined the union are also fighting for a fair contract.

Verizon Wireless has already raised health care costs for its workers by thousands of dollars, and has slashed benefit levels even as its costs have dropped dramatically. When non-union Verizon Wireless workers have tried to form a union, the company has intimidated and harassed them, going so far as to close call centers to stop the union from spreading.

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Verizon has already offshored at least 1,000 high-tech customer service jobs to Mexico, India, Canada and the Philippines. Close to 800 of those are jobs servicing New York DSL customers—from India.

Earlier this year, Verizon notified call center workers in its Syracuse-area FiOS customer support call center: the company is considering using additional contractors for work currently done by union workers.20 In the last four years, the workforce at the Syracuse Fiber Solutions Center has shrunk from 386 to 262 workers even as hundreds of thousands of new customers have signed up for FiOS internet and TV and FiOS has gained approximately 1/3rd market share where it is being offered.

OUTSOURCING AND OFFSHORINGVerizon has sent at least 1,000 good NY call center jobs overseas while also outsourcing to low-wage, non-union domestic contractors.

The two CWA locals representing business and residential customer-service workers in NYS have lost more than 60% of their membership over the last decade, shrinking from 5,100 to under 1,900 jobs in that time period.

Verizon is also outsourcing good jobs that cannot be moved offshore to domestic contractors. From dispatch and digging work to in-home installation and Verizon Business monitoring, the company is transforming good, middle-class, union jobs into low-wage, low-benefit work with no employment security.

Verizon’s top five executives took in $349,226,194 in just five years

Annual Cumulative

2007 $82,258,818 $82,258,818

2008 $63,094,456 $145,353,274

2009 $82,612,322 $227,965,596

2010 $55,571,937 $283,537,533

2011 $65,688,661 $349,226,194

EXORBITANT EXECUTIVE COMPENSATIONCEO Lowell McAdam just got a 200% raise. He and other Verizon executives make hundreds of millions while workers endure cuts.

In March, Verizon announced it had awarded a large compensation increase to CEO Lowell McAdam. To be specific, McAdam is now making $23.1 million per year—three times his previous salary.

At the same time, the company is going after workers’ pensions, healthcare and more, claiming it can’t afford them.

McAdam is of course not alone in receiving an exorbitant compensation package from Verizon. The company’s entire executive suite is massively overcompensated—all while the company has been demanding enormous cuts to basic benefits for workers and retirees.

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Lowell McAdam is now making $23.1 million per year

2008

$145,353,274

2009

$227,965,596

2010

$283,537,533

2007

$82,258,818

2011

$349,226,194

Here are some things $349.2 million could buy: 11,035

new Chevy Volts22

1,572 homesat the median U.S. price21

Four years of college, all expenses paid, for

4,369 students23

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How the dollars have stacked up for the top five in the Verizon executive suite:

$21.8 billion in profits:*

2007$5.521 billion

2008$6.428 billion

2009$4.894 billion

2010$2.549 billion

2011$2.404 billion

* Net income attributable to Verizon

MASSIVE PROFITS

Verizon pays low or even negative taxes—and engages in contracting fraud.

Verizon exploited loopholes to pay nothing in federal corporate income taxes between 2008 and 2010, but worse: they’ve actually gotten tax rebates of nearly $1 billion from the U.S. Treasury.

• Verizon’s 2010 effective federal income tax rate: NEGATIVE 5.9%

• Verizon’s 2009 effective federal income tax rate: NEGATIVE 5.0%

Verizon doesn’t pay its fair share in New York State corporate taxes, either.24 The New York State corporate income tax rate is 7.1%, yet from 2008 – 2010, Verizon paid only a 2.6% tax rate, despite billions in profits. The

TAX DODGING New York State tax rate for a family of four making $58,000 would have been 4.1%.

In New York City, Verizon committed billing and contracting fraud on the City’s schools.25 The Special Investigator for the New York City schools concluded that Verizon bilked the City of at least $800,000. Over a year after the investigator’s report, despite promises from Verizon and pressure from elected officials the company still appears not to have paid back the school system with its profits from the fraud scheme.

Verizon also shakes down local governments. For example, in Western New York, Verizon extracted commitments for $518 million in sales and property tax rebates and $96 million in electricity cost subsidies for a never-built data center. The cost per job created would have been $3.1 million.26 After hyping the project, Verizon pulled out once it acquired another company.

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1 www.consumersunion.org/pub/core_telecom_and_utilities/018377.html

2 www.latimes.com/business/la-fi-lazarus-20120727,0,6191430,full.column

3 www.cwa-union.org/news/entry/nine_upstate_new_york_mayors_tell_fcc_doj_verizon_wireless_big_cable_deal_h/#.UBLpN0T-CWg

4 www.cwa-union.org/news/entry/cwa_study_verizon_wireless_cable_deal_is_job_killer#.UA0THaPAFts

5 www.phillipdampier.com/documents/vz-guggen_6_21_12.pdf

6 www.dslprime.com/dslprime/42-d/4815-mcadam-of-verizon-we-will-turn-off-almost-all-copper

7 http://stopthecap.com/2012/07/17/verizon-ceo-ponders-killing-off-rural-phonebroadband-service-rake-in-wireless-profits/

8 www.dslprime.com/dslprime/42-d/4815-mcadam-of-verizon-we-will-turn-off-almost-all-copper

9 www.dslprime.com/dslprime/42-d/4815-mcadam-of-verizon-we-will-turn-off-almost-all-copper

10 www.billingworld.com/news/2012/07/verizon-s-shared-data-strategy-is-disciplined-pri.aspx

11 www.phillipdampier.com/documents/vz-guggen_6_21_12.pdf

12 http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={E46EDB40-99B2-4664-8BE4-A9646D09BBBF}

13 http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId={E46EDB40-99B2-4664-8BE4-A9646D09BBBF}

14 http://cityroom.blogs.nytimes.com/2011/10/14/is-verizon-out-again-madison-ave-cant-connect/

15 www.dailyfreeman.com/articles/2011/09/17/opinion/doc4e7252ab2856f271478936.txt

16 http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId=%7b27A3ABB1-DD8A-4194-AB22-E7635C219D79%7d

17 www.huffingtonpost.com/2011/08/30/verizon-hurricane-irene-repairs-union-strike_n_942099.html

18 www.nrri2.org/documents/317330/0179150e-ef83-4e94-bf94-80c7af830ab6

19 http://capitaltonightny.ynn.com/2012/05/squadron-wants-hearing-on-alec/

20 www.syracuse.com/news/index.ssf/2012/02/verizon_to_outsource_some_work.html

21 U.S. Census Department

22 www.Chevrolet.com

23 US News and World Report

24 www.99percentny.org/2012/01/09/top-five-tax-dodgers/

25 http://gothamschools.org/2011/04/29/report-on-thieving-doe-consultant-damning-for-ibm-and-verizon/

26 Sales and property tax rebates would come to a projected $518 million and discounted power would save Verizon an estimated $96 million over 15 years.

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ENDNOTES

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