CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 1
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`2
`
`$200 Billion Broadband Scandal
`
`By
`
`Bruce Kushnick
`Chairman, Teletruth
`Executive Director, New Networks Institute
`
`This book has been prepared by New Networks Institute. All rights reserved.
`Reproduction or further distribution of this report without written authorization is
`prohibited by law. For additional copies or information please contact Teletruth in
`writing at 568 Broadway, Suite 404, New York, NY 10012, or by phone at 718-238-
`7191, or by e-mail at book@teletruth.org.
` © 2006 Teletruth
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 2
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`3
`
`Dear Juror,
`
`Thanks for purchasing this book. A bit of a roadmap might be useful.
`This micro-history of the Bells' fiber optic plans is designed to let the reader decide if the
`case we present is correct. The Bells currently are SBC (renamed AT&T), Verizon, BellSouth
`and Qwest. It is also designed to serve multiple purposes, such as providing case studies for
`various states including New Jersey, Massachusetts and California, as well as data to back
`Teletruth’s Federal Trade Commission (FTC) complaint against SBC and Verizon.
`
`The Roadmap
`
`NOTE: The book officially starts at Part One, Chapter I. However, we've added other items to
`the front and the back of the book for the reader.
`
`• The Players: Who Are the Bell Companies? — This section is designed to give a
`thumbnail sketch of the Bell phone companies, the territories they served, as well as their old
`and new relationships with AT&T and MCI.
`• How I Came to Write this Book — This is the Preface.
`• Introduction and Summary — This was designed as the 'Cliff Notes' version of the
`entire story — Volume I and II. If you don't want to read the punchline, but want to read the
`material as an expose, skip this section.
`
`NOTE: Some of the materials in the extra sections are repetitive because they are being used in
`various filings.
`
`The Book
`
`Part One: The Diss-Information Superhighway — Driven by
`the Clinton-Gore
`Administrations' desire to fiberize America, the entire country in the early 1990's went into a
`techno-frenzy for the “Information Superhighway”, commonly known as the "National
`Information Infrastructure", (NII). The Bells claimed they would deliver a fiber optic future.
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 3
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`4
`
`TELE-TV and Americast, the Bells’ billion-dollar lobbying effort, was designed to pass
`the Telecom Act of 1996 and allow the Bells to enter long distance more than upgrade America's
`networks.
`
`Part Two: What Was Promised? — Using the Bells own words and filings, by 2000,
`approximately 50 million homes should have been rewired with a fiber optic wiring to the home,
`capable of 45 Mbps in two directions, which could handle over 500 channels of video and was
`totally open to competition. About 86 million households should be wired by 2006.
`
`Part Three: Splat — Detailing how the Information Highway was pitched state by state, we
`discuss the dark secret — the networks couldn't be built at the time of the commitments. In fact,
`after the ink was dry, these companies essentially closed down all of the fiber deployments, even
`though the state commitments were never even close to being fulfilled.
`
`Part Four: The Bell Mergers Killed Broadband and Competition — This series of chapters
`examines the real story — that the mergers of SBC-Ameritech-SNET-Pacific Telesis-
`Southwestern Bell, and the mergers of Verizon-Bell Atlantic-GTE-NYNEX essentially closed
`the fiber optic deployments in 26 states. We also demonstrate that the Bells’ commitments to
`compete with each other, which was the paramount reason to merge, went unfulfilled.
`
`Part Five: Follow the Money — In order to understand how customers were overcharged for
`networks they never received, we explain the principles of state “rate of return” regulation and
`the switch to “alternative regulations”, which were changes in state laws that gave the phone
`companies billions per state in higher phone rates and tax incentives. We estimate that $200
`billion was subsidized for networks that customers never received — about $2000 per household.
`
`The book officially ends here.
`
`More Stuff: Additions to the Book
`
`Part Six: The States Get Hosed — We have done extensive case studies, some based on
`previous state filings. Case studies include: New Jersey, (the New Jersey case study is expanded
`because it as part of the franchise battles), California, Texas, Pennsylvania and Massachusetts.
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 4
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`5
`
`Special 20th Anniversary Data and Analysis Summary Report — This book's core is a 20-
`year analysis (1984-2004) of Bell revenues, profits, construction, employees, depreciation, and
`other business indicators and is based on previously published data from New Networks Institute
`--- Revenues are up 128%, employees are down 65% based on revenue, construction is down
`60%, and only 11% of new construction hasn't been written off. During our 'fiber-optic' years,
`1993-2000, the profits (return on equity) were 188% higher than other utilities.
`
`CODA 1: ISDN — The Advanced Network Posterchild: "It Still Does Nothing" — Taken
`from the “Unauthorized Bio of the Baby Bells”, this section demonstrates that the fiber optic
`failure was not the first time the Bells failed to deploy a new technology. ISDN, in the 1980’s,
`was never fully deployed even though they received financial incentives.
`
`CODA 2: The Verizon FIOS FIASCO and SBC's Dim-Lightspeed: The Rise of the Crippled
`Networks: Enemies of Openness. The World Is Laughing at Us. — Verizon’s new fiber optic
`product, FIOS, and SBC’s Lightspeed are the wrong plans for America. Korea and Japan have
`100 Mbps services for $40, while FIOS's top speed is 1/3 that at $199. FIOS will not be
`ubiquitous, is not open to competition, and does not fulfill state obligations even though each
`household paid $2000. We cover the harm to net neutrality, municipality plans for wiring and
`Wifiing, the Bells’ current cable franchise requests, increasing the digital divide, the current
`regulatory environment, and America’s ability to be competitive in a global economy.
`
`CODA 3: Fake Consumer Groups, Biased Research, Lots of Lobbyists, Paid-Off
`Politicians: Behind the Broadband Curtain —There is an underground network of political
`deceit in the telecom and broadband industry. It is made up of very well funded fake or co-opted
`consumer groups, research firms, think-tanks, lobbying groups, politicians and PR firms
`throughout the United States that are out to fool reporters, state legislatures, Congress, the public
`and the FCC that they represent the public interest. We out Consumer for Cable Choice, TRAC,
`APT, New Millennium Research, Issue Dynamics and other fake or co-opted groups.
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 5
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`6
`
`Table of Contents
`
`Roadmap
`Who Are the Bell Companies?
`Preface: How I came to write this book.
`Introduction and Summary
`What’s in Volume II
`
`The Diss-Information Superhighway
`Part One
`Promises, Promises: The Future Is Always.
`Chapter 1
`Chapter 2 Why Do It? Benefits of the Superhighway — Justifying the Hype
`Chapter 3
`Hollywood Calling — TELE-TV and Americast
`Chapter 4
`Hollywood Calling, Part 2
`
`Part Two What Was Promised?
`Interlude: What Was Promised?
`Chapter 5
`And the Promises? The Annual Reports Tell No Lies.
`Chapter 6
`And the Promises? Video Dialtone Commitments
`Chapter 7
`And the Promises? Fiber Optic Upgrades-to-the-Home Were Promised.
`Chapter 8
`Speed Matters: The Faster the Service, the More Stuff You Get, Faster.
`Chapter 9
`And the Promises? Channels Galore, Interactive Programming
`Chapter 10
`And the Promises? Open to All Competition
`Chapter 11 And the Promises? NOT DSL— SPEED and Coverage Are the Issues.
`
`Splat
`Part Three
`Interlude: The Paths to the Fiber Optic Scandals.
`Chapter 12
`The Lay of the Land: The Interplay of Federal and State “Fiber-Optic-Speak”.
`Chapter 13
`Splat — The Retreat: What Happened with the Info Bahn?
`Chapter 14
`Technology Doesn't Work and It Is Too Expensive: Original Cost Models
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 6
`Kushnick
`IPR2016-01257
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`

`

`Broadband Scandal
`
`7
`
`The Bell Mergers Killed Broadband and Competition.
`Part Four
`Interlude: How the Bell Mergers Killed Fiber Optic Broadband.
`Chapter 15
`The SBC-Pacific Telesis-SNET-Ameritech Mergers Were the Death of the State
`
`Fiber Optic Deployments.
`Chapter 16
`Failure to Compete, Failure of the FCC to Enforce Merger Conditions
`Chapter 17
`The Verizon-Bell Atlantic-NYNEX-GTE Mergers Were the Death of State Fiber
`
`Optic Deployments: The “Con Job”.
`Chapter 18 Analysis of Verizon's Merger Conditions and "Truth in Speech" Statements
`
`Follow the Money
`Part Five
`Follow the Money: The Regulations.
`Chapter 19
`Chapter 20 Alternative Regulations: The I-Way Sleight of Hand
`Chapter 21
`Fiber Optic Scandal Alternative Regulation, Round 2
`Chapter 22
`Show Me the Money.
`
`Additions to the Book:
`
`The States Get Hosed.
`Part Six
`Case Study: Opportunity New Jersey — A Broadband Failure
`Chapter 23
`How Pac Bell and SBC Stole California’s Digital Future.
`Chapter 24
`Texas’ Infrastructure Act: A Vanishing Act?
`Chapter 25
`Chapter 26 Massachusetts’s 330,000 Fiber Optic Lines that Never Showed Up.
`Chapter 27
`Liberty, Bell, Stolen. The Pennsylvania Fiber Optic Scam and the Muni Future.
`
`Special 20th Anniversary Data and Analysis Summary Report
`
`CODA 1:
`CODA 2:
`
`CODA 3:
`
`
`ISDN — The Advanced Network Posterchild: "It Still Does Nothing".
`Verizon’s FIOS FIASCO and SBC’s Dim-Lightspeed: The Rise of the Crippled
`Networks: Enemies of Openness. The World is Laughing at Us.
`Fake Consumer Groups, Biased Research, Lots of Lobbyists, Paid-Off Politicians:
`Behind the Broadband Curtain.
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 7
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`8
`
`Exhibits
`
`Exhibit 1
`Exhibit 2
`Exhibit 3
`Exhibit 4
`Exhibit 5
`Exhibit 6
`Exhibit 7
`Exhibit 8
`Exhibit 9
`Exhibit 10
`Exhibit 11
`Exhibit 12
`Exhibit 13
`Exhibit 14
`Exhibit 15
`Exhibit 16
`Exhibit 17
`Exhibit 18
`Exhibit 19
`Exhibit 20
`Exhibit 21
`Exhibit 22
`Exhibit 23
`Exhibit 24
`Exhibit 25
`Exhibit 26
`Exhibit 27
`Exhibit 28
`Exhibit 29
`Exhibit 30
`Exhibit 31
`
`The Original Regional Bells by State
`The Current and Past Hype — In Verizon’s Own Words
`The Current and Past Hype — In SBC’s Own Words
`The Current and Past Hype — In BellSouth’s Own Words
`Deloitte & Touche Benefits of Information Highway, Indiana Bell, 1993
`Opportunity Indiana's Impact on Health Care
`The RBOC's TELE-TV and Americast Partners
`Bell Cable and Entertainment Investments
`Announced RBOC Upgraded Residential Subscribers, 1994-2000
`GTE and SNET Projected Fiber-Deployments, 1994-2000
`Total Bell Household Deployments 2000, 2005 (with GTE, SNET)
`Permanent Video Dialtone Applications, Company and Location, 1994
`Requested Video Dialtone Applications by the Phone Companies
`Speed of Service Comparisons, 2005
`Number of Channels on Bell Video Dialtone Services
`New Jersey Bell Advanced Network & Broadband Deployment Schedule, 1993
`ONJ’s Broadband Digital Deployment vs without ONJ
`Rollout of Telephone Companies and Interactive TV, 9/96
`Local Exchange Carrier Video Dialtone Pullouts, 1994-1995
`The Ongoing Bell Rollouts as of December, 1995
`Verizon and SBC Fiber Optic Broadband Spending and Households
`The SBC Hatchet of Fiber Optic Deployments
`Pacific Bell Video Dialtone Deployments, 1995
`SNET’s Filed Connecticut Fiber Optic Video Dialtone Deployments, 1995
`Ameritech Video Dialtone Requested Permanent Authorizations
`Ameritech Investment Commitments, 1992-1998
`SBC “Out-of Region” Cities, National-Local Strategy
`SBC Long Distance Applications and Status as of 2001
`The Verizon Con Job of Fiber Optic Deployments, by 2000
`The Original Bell Atlantic/NYNEX States
`Verizon US Territories, 2004
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 8
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`9
`
`Exhibits
`
`Exhibit 32
`Exhibit 33
`Exhibit 34
`Exhibit 35
`Exhibit 36
`Exhibit 37
`Exhibit 38
`Exhibit 39
`Exhibit 40
`Exhibit 41
`Exhibit 42
`Exhibit 43
`Exhibit 44
`Exhibit 45
`Exhibit 46
`Exhibit 47
`Exhibit 48
`Exhibit 49
`Exhibit 50
`Exhibit 51
`Exhibit 52
`Exhibit 53
`Exhibit 54
`Exhibit 55
`Exhibit 56
`Exhibit 57
`Exhibit 58
`Exhibit 59
`
`Video Dialtone Filings by Verizon, 1992-1994
`Video Dialtone Filings by Verizon, 1992-1995
`New Jersey Bell Advanced Network & Broadband Deployment Schedule, 1993
`NYNEX Video Dialtone Announcements, 1992-1994
`Nationwide Telephone Charge Increases 1983-1996,
`Allowable Advertising Expenses by PUCs, 1995
`States' Rate of Return Policies on Contributions and Dues
`Southwestern Bell's TeleFuture 2000, 1989
`Southwestern Bell's TeleKansas, 1989
`Southwestern Bell's TeleFuture 2000 Return on Equity Splits, 1989
`Alternative Regulation in Illinois, Ameritech, 1993
`Alternative Regulation in Michigan, Ameritech, 1993
`Revenue, Expense & Profit Margin, Selected BellSouth Calling Features, 1999
`Profit Margins for Directory Publishing in 1999
`New Jersey Bell Advanced Network & Broadband Deployment Schedule, 1993
`Bell Atlantic New Jersey, Write-Off Bonanza, 1994
`Verizon New Jersey Employees, 1993-2003
`New Construction by New Jersey Bell, 1991-2003
`New Jersey Bell Return on Equity, 1991-1997
`The Verizon Opportunity New Jersey Commitments vs FIOS
`Opportunity New Jersey Broadband Digital Deployment vs Without ONJ
`Pac Bell’s Consumer Broadband Hybrid Fiber/Coaxial Direction
`Pacific Telesis’ Consumer Broadband Deployment Schedule for California
`Video Dialtone Applications by Pacific Telesis for California, Filed 1993
`Pacific Telesis Construction & Capital Expenditures, 1984-1996
`Pacific Telesis Return on Equity, Staff, 1992-1996
`San Diego Tribunes’ Year by Year: A Plan that Failed
`Discretionary Services, Southwestern Bell, Texas
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 9
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`10
`
`Exhibits
`
`Exhibit 60
`Exhibit 61
`Exhibit 62
`Exhibit 63
`Exhibit 64
`Exhibit 65
`Exhibit 66
`Exhibit 67
`Exhibit 68
`Exhibit 69
`Exhibit 70
`Exhibit 72
`Exhibit 71
`Exhibit 72
`
`Bell Atlantic's Return on Equity and Profit Margins
`Bell Atlantic-New England Tel Dividends, Depreciation, and Expenses
`Bell Atlantic-New England Telephone Revenues, Expenses, and Income
`Regional Bell Residential ISDN Offerings, July, 1995
`Ameritech ISDN Deployment: (Customer Lines), 1993
`ISDN Deployment for Specific RBOCs
`FCC Statistics: ISDN Lines, Kansas and Missouri, 1994-1995
`Verizon FIOS Pricing, December 2005
`Korean VDSL Pricing and Costs, December 2005
`Japan VDSL
`Comparing FIOS to Korea and Japan for Broadband Price and Speed
`Bell Atlantic, Opportunity NJ Broadband
`The Verizon ONJ Commitments vs FIOS
`Bell Atlantic, Opportunity NJ Broadband (Up to 45 Mbps & Higher)
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 10
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`11
`
`The Players
`
`Who Are the Bell Companies? — BellSouth, Qwest, SBC, and Verizon.
`
`• BellSouth
`• Qwest — US West
`• SBC — Southwestern Bell, Pacific Telesis, Ameritech, and SNET, (and now AT&T)
`• Verizon — Bell Atlantic, NYNEX, and GTE (and now MCI)
`
`For over 100 years, “Ma Bell”, sometimes called the "Bell System", and sometimes called
`"AT&T", controlled almost all telecommunications in the US. Once the largest company in the
`world with over one million employees, the company consisted of 22 local Bell companies
`(including New York Telephone and Ohio Bell), AT&T Long Lines (the long distance division),
`as well as Western Electric (the subsidiary that manufactured telephone equipment), and Bell
`Labs, (one of the world’s premier research organizations).
`In 1984, because of the monopoly control the company had over phone service, the
`company was broken-up and the local Bell phone companies were divvied up among seven,
`artificially created, very large companies called the "Regional Bell Operating Companies"
`(RBOCs, pronounced "R-BOKS"), and sometimes the "Regional Bell Holding Companies"
`(RHC), and sometimes "The Baby Bells".
`
`Please note: AT&T no longer has any ownership relationship of the Bell companies.
`
`The original seven RBOCs were:
`
`• Ameritech
`• NYNEX
`• US West
`
`Bell Atlantic
`Pacific Telesis
`Southwestern Bell
`
`BellSouth
`
`Each company controlled specific geographic regions of the US. For example, Ameritech
`controlled a five-state region — Illinois, Indiana, Michigan, Ohio and Wisconsin. The exhibit
`on the next page gives the original Baby Bells, the phone companies and the states they
`controlled.
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 11
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`12
`
`Exhibit 1
`The Original Regional Bells by State
`
`Ameritech
`Illinois Bell
`Indiana Bell
`Ohio Bell
`Michigan Bell
`Wisconsin Bell
`
`Illinois
`Indiana
`Ohio
`Michigan
`Wisconsin
`
`Bell Atlantic
`New Jersey Bell
`New Jersey
`Bell of Pennsylvania
`Pennsylvania
`Chesapeake and Potomac West Virginia
`Delaware
`District of Columbia Maryland
`
`Virginia
`
`BellSouth
`Southern Bell
`
`South Central Bell
`
`NYNEX
`New York Telephone
`New England Telephone
`
`Pacific Telesis
`Pacific Bell
`Nevada Bell
`
`North Carolina
`South Carolina
`Kentucky
`Mississippi
`
`Florida
`Georgia
`Louisiana
`Tennessee
`
`Alabama
`
`Rhode Island
`Maine
`
`Vermont
`
`New York
`Massachusetts
`New Hampshire
`
`California
`Nevada
`
`Southwestern Bell Corporation (now SBC Communications)
`Southwestern Bell
`Arkansas
`Missouri
`Texas
`Kansas
`
`US West
`Mountain Bell
`
`Northwestern Bell
`
`Pacific Northwest
`
`Arizona
`Montana
`Wyoming
`Minnesota
`Iowa
`Idaho
`
`Colorado
`New Mexico
`Iowa
`North Dakota
`South Dakota
`Washington
`
`
`
`Oklahoma
`
`Idaho
`Utah
`
`Nebraska
`
`Oregon
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 12
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`13
`
`Two Bell Companies Escaped. Cincinnati Bell and Southern New England Telephone (SNET)
`were both spun off after the break-up.
`
`GTE was a separate “8th” Bell. GTE was considered the 8th Bell in that it was as large as the
`other companies, though it was spread over multiple states.
`
`What's in a Name? Renaming the Local Phone Companies. Starting in the 1990’s, all of the
`holding companies replaced the local Bell names with the name of the holding company names.
`For example:
`
`•
`•
`
`
`
`New Jersey Bell became Bell Atlantic, New Jersey.
`Ohio Bell, Indiana Bell, Wisconsin Bell, Michigan Bell and Illinois Bell were all
`renamed "Ameritech".
`
`Hundreds of Companies with the RBOC Names. The holding companies own literally
`hundreds of other companies, each with their name brand. For example, here are just a few of the
`original NYNEX companies: NYNEX Entertainment & Information Services Company,
`NYNEX Asset Management Company, NYNEX Credit Company, NYNEX Capital Funding
`Company, and NYNEX Trade Finance Company. (Source: NYNEX 3rd Q, 1996)
`
`Mergers and More Renaming. Starting in 1997, there were a host of mergers of the Bell
`companies:
`
`• Bell Atlantic bought NYNEX and called the combination “Bell Atlantic”.
`• Verizon became the combination of Bell Atlantic (with NYNEX) and GTE.
`• SBC now owns Southwestern Bell, Pacific Telesis, Ameritech and SNET.
`• US West became Qwest.
`• BellSouth did not merge.
`
`Instead of the original 9 RBOCs, today there are only 4: BellSouth, Qwest, SBC, and Verizon.
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 13
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`14
`
`Other Local Companies. There were over 1,400 other local phone companies, including
`United/Sprint, Lincoln Telephone and Rochester Telephone (renamed Frontier). However, this
`number keeps changing because of the sales and mergers of properties over the last two decades.
`
`How Does AT&T and MCI Fit into this Equation?
`
`Originally, the Bell companies were excluded from offering long distance service. — a "Long
`Distance" phone call crosses state lines. A call from New York to New Jersey or from Texas to
`Arkansas is a long distance call.
`AT&T, MCI and Sprint were the largest long distance companies in the 1990’s. In 1996,
`the Telecom Act of 1996 formally opened the “Public Switched Telephone Networks” (PSTN),
`the local phone networks, to competition. The long distance companies started to enter the local
`markets. Meanwhile, the Telecom Act also allowed the Bell companies to enter long distance
`once the networks were officially “open”.
`Because of seriously flawed regulations, the power of the Bell companies to control the
`regulatory environment, the long distance companies were forced out of local service. Renting
`the local phone lines became unprofitable. Meanwhile, by 2005, the Bell companies have been
`able to garner over 60% of the long distance market because they could upsell local and long
`distance as a package.
`In the Unauthorized Bio of the Baby Bells1 we argued that the Bells should never have
`been allowed into long distance services until there was stable competition. AT&T and MCI are
`currently sold, and merged into SBC and Verizon, respectively. SBC has taken the AT&T name.
`As we will discuss, local and long distance distinctions are blurring — it’s all just
`electrons over wires or through the air. The companies that own the wires can block competition,
`either through bad legislation or "friendly regulators", who have essentially been bought off or
`have not bothered to enforce the laws on the books.
`In 2005, Verizon purchased MCI. SBC purchased AT&T and is now called “AT&T”.
`
`VOIP, Wireless, WiFi, CLECs, ISPs, Municipalities Offering Service, Etc.
`
`As we go through this discussion we will address the other types of companies, such as
`Wireless/Cellular, Wifi, VOIP, Internet Service Providers (ISP), Competitive Local Exchange
`Companies (CLECs and DLECs), etc..
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 14
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`15
`
`Prelude: How I Came to Write this Book.
`
`Cover Story, Washington Technology, September 15th, 1994 2
`
`“A telecom analyst's report should raise some eyebrows among those who want to
`build the forthcoming National Information Infrastructure (NII) and do business
`on solid, honest ground.”
`
` “If telecommunications analyst Bruce Kushnick is talking the truth (and we think
`he is), systems integrators, content providers, Internet service providers and just
`about anyone involved with building the forthcoming National Information
`Infrastructure had better read his report word by word.”
`
`No one ever listens to analysts who do not preach the gospel of infinite growth combined with
`infinite revenue, or are not paid-for by the phone companies to explain why their vision of the
`future is correct.
`As an analyst to the phone companies from 1985 through 1993, I and my gang of
`consultant/analyst associates had a front row seat to what was going to be a whopper of a tech
`bubble, the “Information Superhighway”, also called the “National Information Infrastructure
`Initiative”.
`The brainchild of the Clinton-Gore administration, it was a plan to fiberize America — it
`was a digital chicken in every pot. A fiber optic wire that could handle enormous amounts of
`data at one time (bandwidth), would replace the 100-year-old copper wiring in your home and
`office. It’s the difference between driving a Ferrari on the German Auto-bahn where there is no
`speed limit versus a skateboard on a dirt road.
`It was actually the right plan for America, but it would never happen because the phone
`companies would never roll it out.
`By 1992, I had created New Networks Institute to give a fact-based accounting of how
`the future was not going to be as televised. In 1994 we released a report called “The Information
`Superhighway: Get A Grip”, which claimed that the phone companies could never build what
`they were promising. The equipment didn’t work and the data being presented wasn’t even close
`to being economically correct. In fact, a lot of us knew that the Bell companies were using this as
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 15
`Kushnick
`IPR2016-01257
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`

`

`Broadband Scandal
`
`16
`
`a ploy to do what they had wanted to do since 1984 — enter and control the lucrative long
`distance market.
`However, with discussions of multiple billions of dollars being thrown around, not to
`mention a lot of campaign financing, except for a few believers in something called ‘facts’, no
`one seemed to care.
`Looking back, almost none of the wonderous techno-color visions of the future came into
`focus, much less showed up when they were supposed to. Take a look at the next quote, which
`discusses the first round of Information Superhighway rollouts, the cable rollout of the 1970's.
`Here, the writer bemoans the fact that the two-way interactive world, promised in the 1970's, still
`hadn't arrived by the mid-1980's.
`
`"March 4, 1984 Ten years ago, when cable was young, it was envisioned as a
`technological wonderland, a purveyor — through an 'ultimate box' of 108
`channels atop the television set — of a lavish menu of two-way services, home
`banking, and tele-shopping, home security and energy monitoring, video games,
`polling, news and sports scores on demand. Some telecommunications experts
`predicted that the revenues of such services would eventually dwarf the sums
`realized from cable's more conventional home-entertainment fare."3 (The New
`York Times)
`
`Hype is a timeless thing. For example, the next quote from the New York Times, this time about
`John Malone, former-President of TCI Cable, echoes almost the same promises, almost 10 years
`later.
`
`"October 14, 1993 In announcing the $33 billion deal with Bell Atlantic, the
`cable industry entrepreneur John Malone held out the vision of a single powerful
`box on top of each home television set that would combine the diverse streams of
`information that now flow separately into the home: telephone calls, television
`shows, video rentals, newspapers, and even books."4 (The New York Times)
`
`And the irony and hype keeps on coming. SBC, in announcing its new “IPTV” cable services,
`based on fiber optics and the Internet Protocol (IP) is developing a “rich array of next generation
`television”.5
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 16
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`17
`
`November 11th, 2004 “SBC Communications Inc. … plans to deploy fiber optics
`closer to customers and build an advanced, IP-based (Internet Protocol) network
`capable of delivering a rich array of integrated next-generation television, data
`and voice services substantially beyond what is available from today's telephone,
`cable or satellite TV providers.”
`
`I have always been amazed that hype (I mean history) keeps repeating itself, rewriting itself to be
`current. I remember going to the 1964 World's Fair with a group of over-excited kids, running in
`and out of AT&T’s egg-shaped videophone rooms, listening to the words of the telephone
`company stating that “videophones” would be available by the 1970s. Personal vision aside, the
`Information Age and its associated products, services, and "dramatic" changes have always been
`driven more by hype than by a sense of reality. And the hype keeps changing, modifying itself to
`fit the product that is being hyped for this year.
`In point of fact, the original Bell vision of the I-Way has been around since the 1980's.
`Here's SBC on Integrated Service Digital Network's (ISDN) potential from the 1980s. Notice
`that the words "Information Superhighway" or “Broadband” can almost be substituted for ISDN
`without missing a beat.
`
`Southwestern Bell 1986 Annual Report6
`
`"At the forefront of new technology is ISDN. Scheduled for commercial
`availability in 1988, ISDN will revolutionize day-to-day communications by
`allowing simultaneous transmission of voice, data and images over a single
`telephone line… With ISDN customers will have the potential to access videotex,
`telemetry, alarm services, sophisticated calling features, teleconferencing much
`more economically than they can today."
`
`It is interesting to point out that ISDN, the posterchild for all failed digital deployments and a
`technology that could have been rolled out in the 1980's, waited until the 1990's before any
`actual implementation occurred — and it was never fully deployed. We will address ISDN's
`rollout problems in the chapter subtitled, "It Still Does Nothing".
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 17
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`18
`
`But it wasn’t until my switch away from the dark side in 1992, when I remembered a
`conversation with a Bell ISDN honcho. Paraphrased, "We’re never going to roll ISDN out. It
`allows customers to use their single phone line for 2 call-channels. That means they don’t need
`to buy a second line, and we make a lot of money from that line." I then realized that the Info
`Highway and all tech deployments had nothing to do with what was good for the customer, but
`what the phone company could make off the press of a new, hot product. Do you think it’s any
`coincidence that the phone companies weren’t running to put in ADSL back in 1993, when it
`was thought of as an inferior service to fiber optics?
`And fiber optics? The phone company makes money by charging lots more for more
`“bandwidth”. How could they give away something for $50 a month, when they could charge
`$1000 to $5000 a month for the same service? No, they’d never cannibalize their offerings for
`the Public Interest.
`
`This expose is a sort of sequel/update to the Unauthorized Bio of the Baby Bells, but it is also my
`collected archives. Hopefully, this time the same story will stick –- the phone companies are not
`to be trusted with our Digital Future. They do not care about their customers as much as their
`own stock options or "global presence". They are not interested in bringing the future to America
`but in killing off whatever competitors get in their way. They are no longer the benevolent ‘Ma
`Bell’, but are hatchet men and con jobbers who will say anything for a quick buck at the expense
`of the Public Interest.
`This iteration of the tale is different than previous versions. In 1994, when I wrote ‘The
`Grip’, I had no idea just how completely the companies were able to control the regulators. And
`in 1998, I didn’t know the full extent of the deception, which was nationwide and required ALL
`of the companies to essentially lie to the public in a form of collusion. How could ALL of the
`phone companies give the same bad business and economic models that all pointed to their
`success? And ALL of them got billions of dollars per-state for services they never rendered. We
`now know that it was all not real — a phantom fiber optic highway.
`As we discovered, this was not simply hyping “vaporware”, a new product that may or
`may not exist. This was grand scale larceny, changing state laws to give the companies the right
`to print money. How many statements does it take for something to go from a company’s
`overzealous speculations about future products to fraud? Is it fraud when you present thousands
`of statements with actual product descriptions, deployment schedules, vendor-deals, and then
`manipulate state laws to make billions more?
`
`CISCO SYSTEMS, INC. v. FOCAL IP, LLC
`FOCAL IP, LLC EX2057 - 18
`Kushnick
`IPR2016-01257
`
`

`

`Broadband Scandal
`
`19
`
`To be quite honest, we didn’t know the extent of just how much money was collected
`state by state until we actually filed complaints in Massachusetts in 1999 and Pennsylvania in
`2001 over the failed deployments, and did a 20-year summary for this book.
`And boy were we naïve to the power of the Bell companies to control the agenda through
`fraudulent data and gaming the regulatory system using fake consumer groups, biased research
`firms and campaign-financed politicians to control everything from the FCC, to Congress, to the
`state legislatures and commissions to vote for phone-company-financed laws that are not in the
`public interest. After being a member of the FCC Consumer Advisory Committee (2003-2004),
`it became clear that many of the groups on the Committee, then and now, were nothing more
`than mouthpieces for those who fund them – the Bell companies.
`And when the fix is in, data and facts are never taken into account. Over the last decade
`we’ve filed multiple complaints, comments, and letters, with the FCC, FTC, Congress, state
`public service commissions, and even the IRS to alert the regulators that the Bells were
`supplying false data, failing to live up to state and federal obligations, or to the fact that the
`FCC’s own data on broadband was flawed, incomplete a