Connected Nation, a broadband advocacy group with ties to some of the nation’s largest telecommunications companies, is accused of rewriting a Florida state budget amendment to divert proceeds from a federal broadband grant to itself.

A growing scandal over broadband map funding and allegations of political maneuvering and favoritism has now extended into the offices of several state Republicans now accused of doing the group’s bidding to change funding allocations in ways that could ultimately threaten Florida’s broadband grants.

Connected Nation’s involvement in the state’s broadband expansion efforts began in earnest in 2009 when the group won a $2.5 million contract to map broadband availability in Florida. A follow-up federal grant for $6.3 million to extend broadband deployment brought the group’s lobbyists back to Tallahassee to secure a “no-bid shot” at that new money for itself, which turned out to be a big surprise to the Department of Management Services, the Florida state agency charged with overseeing the project.

The grant award mandated that money be spent on additional broadband mapping and broadband expansion specifically for libraries and schools. When DMS hired contract employees to manage the project for the next two years, Connected Nation declared war on the effort, considering it their turf.

The Miami Herald called the lobbying battle that then ensued as “an audacious display of lobbying clout [that] got the Legislature to force DMS off the contract and steer the grant to [Connected Nation] instead.”

The newspaper reports the end effect of the bitter feud is a less than useful broadband mapping operation and a threat from the federal government it will yank back what remains of the grant money if things do not improve… quickly.

Connected Nation told the newspaper it defends its position as creating value for taxpayers and citizens. But the group also openly admits its broader goal is to increase broadband usage, which directly benefits its telecommunications partners, which the newspaper says includes AT&T, Verizon, and Comcast.

DMS officials are just as willing to play hardball in the statewide dispute, accusing Connected Nation of producing erroneous broadband maps and being responsible for “repeated performance problems.” They announced last year they would not renew Connected Nation’s contract.

Political observers note DMS probably did not realize who they were dealing with, and Connected Nation’s high powered lobbyists descended on the state capital to pull the rug completely out from under DMS, yanking the entire project away from the state agency and assigning it to another.

Holder

With the help of several Florida Republican legislators and the governor, DMS found itself without a broadband project, as lawmakers transferred it to Florida’s new “Department of Economic Opportunity.” The ultimate decision approving the transfer of broadband matters to an agency that suggests an allegiance to the private sector came from Florida’s governor Rick Scott.

The governor’s office muzzled DMS protestations. Marc Slager, deputy chief of staff for Gov. Rick Scott, acknowledged to the Herald he told DMS to stand down because “we don’t need to have different people from the governor’s agencies advocating an issue.”

Revenge is a dish best served cold, and Connected Nation is not through paying back DMS for interfering in their Florida plans to capture broadband grant funds. The group is taking its time working with several Republican legislators to cut more legs out from under the government agency.

With respect to the $6.3 million broadband expansion grant, the newspaper reports Connected Nation last year simply rewrote a state budget amendment, inserting themselves as the grant winner.

“Attached is a document that reflects conversations we’ve had with Chairman Weatherford, the draft language is consistent with the bill, and it is language we believe the [Legislative Budget Commission] would approve,” wrote Alli Liby-Schoonover, from Connected Nation’s lobbying firm, Cardenas Partners, in February 2011, making the change.

What a broadband mapping group was going to do with the money intended to wire schools and libraries remains unknown.

The New York State Attorney General has argued that Sprint’s failure to pay at least $100 million in owed sales taxes to New York taxing authorities may leave its customers in the state on the hook for past taxes, interest, and fees the company never paid.

As the state continues its lawsuit against Sprint-Nextel for what it argues is deliberate underpayment of New York sales tax, Sprint’s lawyers argued Thursday that the entire case should be dismissed because the state is selectively interpreting state and federal law.

The case originally began as a whistleblower action through a private company, Empire State Ventures, which is seeking a 25% share of any lawsuit proceeds. N.Y. Attorney General Eric Schneiderman is seeking $300 million in damages from Sprint for knowingly violating tax laws.

A review of the lawsuit shows there are serious implications for Sprint’s customers in New York if the company loses the suit or fails to pay sales taxes the state claims are owed.

Over three million current and former Sprint customers could be liable for sales tax underpayments representing a portion of their monthly bills dating back to 2005, potentially including accumulating interest charged at 14.5% annually, and penalties amounting to double the amount of the unpaid taxes or up to 30 percent of the underpayment.

Sprint has also misled millions of New York customers who purchased Sprint flat-rate plans. In its customer contracts, on its website and elsewhere, Sprint represented that it would collect and pay all applicable sales taxes. Yet Sprint did not, and it concealed this fact from its New York customers. As a result, Sprint exposed these customers to the risk of having to pay the unpaid taxes, for they are also liable under the law if Sprint fails to pay.

Although Sprint misrepresented how it would handle sales taxes, it has locked its customers into contracts with early termination fees. The customers must remain in these contracts sold under false pretenses unless they pay hundreds of dollars to Sprint.

Schneiderman

Schneiderman’s office appears to have a strong case, with evidence showing Sprint allegedly conspiring to undertax customers using an arbitrary formula to gain a competitive advantage over other wireless carriers with the promise of a lower monthly bill, in part because the company was not collecting the proper amount of state sales tax.

The lawsuit claims Sprint repeatedly ignored warnings from state taxing authorities, including senior tax officials, that declared Sprint’s creative way of determining applicable taxes was putting the company at serious risk of adverse tax department action.

That adverse action came in April when the state filed the lawsuit against Sprint seeking back taxes and triple damages.

A careful reading of the lawsuit reveals just how much bureaucracy America’s wireless industry maintains to seek out any edge it can find against regulators, tax authorities, and local, state, and federal elected officials.

Sprint, the third largest wireless company in the country, can afford to maintain that bureaucracy with $33 billion in annual revenues partly at stake.

Wireless Industry’s Tax Employees Go to Vail to Ski Discuss Tax-Avoidance Strategies

The wireless industry employs hundreds of workers who spend their days pouring over tax laws in all 50 states looking for loopholes, strategies, and creative solutions to the ongoing problem of paying local, state, and federal taxes. Sprint, a considerably smaller wireless carrier than either Verizon or AT&T, still has the resources to maintain more than 100 workers in their State and Local Tax Group. It includes a well-defined management chain, with an assistant vice-president that runs the unit reporting to Sprint’s vice president of Tax, who, in turn, reports to Sprint’s chief financial officer.

These employees, and similar ones working at every other wireless phone company, try to figure out how to pay the least amount of owed tax possible, and kick tax strategies around in regular sessions and conferences at posh resorts in places like Vail (come for the corporate meeting, stay for the skiing), Colorado.

At the 2002 Communications Tax Executive Conference in Vail, Sprint executives told other wireless carriers that tax avoidance strategies like “unbundling” posed risks of audits by taxing authorities and litigation.

The wireless industry sends their tax experts to posh resorts in Vail, Colorado to discuss tax-avoidance strategies.

The following year, a Sprint executive turned up at another industry-backed conference run by “the Wireless Tax Group,”  alerting other wireless companies that “unbundling for taxes causes significant assessment risk.” He told the group that his “marching orders” at Sprint were to “mitigate tax issues by pursuing legislation or pre-audit agreements that allow for component taxing.”

In Schneiderman’s view, Sprint never followed those marching orders in New York.

In fact, the lawsuit argues even as Sprint was lecturing other phone companies about the importance of being conservative when dealing with tax authorities, the company was conspiring to use its own creative tax interpretations to undercut their competitors with a lower monthly cell phone bill.

How to Lower Your Prices Without Risking Profits

The technique Sprint uses to this day to hand customers that lower bill is based on selectively applying sales taxes only to certain portions of a customer’s voice plan. Sprint is the only company engaged in this practice in New York. Verizon, T-Mobile, Cricket, AT&T, and MetroPCS won’t go near the concept.

New York tax law says that phone companies must collect taxes on the monthly voice plans wireless companies sell customers. If Sprint sells you 450 minutes a month for $39.99 a month, New York taxing authorities expect customers will be charged the prevailing state and local tax rate on the fixed amount of $39.99 each month. Only Sprint does not do this. Sprint leverages federal rules which state that telephone calls placed to numbers outside of the state (also known as an “interstate call”) cannot be taxed. Therefore, in Sprint’s view, customers deserve a tax break for those interstate, non-taxable calls.

But Sprint does not actually review individual calling records to figure out what specific out-of-state numbers were called. Instead it created what New York officials argue is “an arbitrary formula” to guesstimate how much the average customer spends talking to in-state vs. out-of-state numbers. But those percentages varied wildly from 2005 to the present day, with different amounts for Sprint-Nextel customers living in upstate and downstate New York:

• July 2005-October 2008: Sprint did not pay state or local sales taxes on 28.5% of its fixed monthly voice service charge;
• April 2006-October 2008: Nextel of New York did not pay state or local taxes on 13.7% of its fixed monthly voice service charge;
• May 2006-October 2008: Nextel Partners of Upstate New York did not pay state or local taxes on 15% of its fixed monthly voice service charge;
• October 2009-Present Day: Sprint does not pay state or local taxes on 22.5% of its fixed monthly voice service charge.

Here comes the taxman.

In January 2005, an internal Sprint memo obtained by New York State found the company could save $4.6 million per month using this tax avoidance strategy, without costing the company a cent in profits.

It implemented the strategy later that summer.

New York’s lawsuit makes it clear the company was warned about the practice before the suit was filed:

Sprint continues to not collect and pay New York state and local sales taxes on the full amount of its receipts from its fixed monthly charges for wireless voice services, despite being specifically informed of the illegality of this practice by a field-auditor of the New York Tax Department in 2009, and then, in 2011, by a senior enforcement official of the New York Tax Department.

Customers Caught in the Middle?

As the case winds its way through court, New York has informally put Sprint customers on notice they could be held responsible for the unpaid taxes and penalties if Sprint reneges on the owed amounts. Schneiderman’s office recognizes customers are caught in the middle, partly because Sprint decided to keep the tax changes “secret” to keep customers off the phone to Sprint customer service:

[…] In its contracts with these customers, on its website and elsewhere, Sprint represented that it would collect and pay all applicable sales taxes on its calling plans. […] Sprint’s representations in the contracts, on its website and elsewhere were false because Sprint knew it would not collect and pay the applicable sales taxes in New York.

Contrary to its promises, Sprint failed to collect and pay sales taxes on substantial portions of the fixed monthly charges for voice services under its flat-rate calling plans. As a result of this non-payment, Sprint left its New York customers liable for those unpaid amounts of sales taxes under New York law.

At no point did Sprint disclose to its New York customers that it was leaving them liable for the sales taxes that Sprint failed to collect from the customers and pay to the government, as promised.

Before Sprint began unbundling, members of its State and Local Tax Group and its marketing group considered in the early part of July 2005 whether to communicate with customers about the fact that Sprint was unbundling and that the unbundling would affect taxes for some customers. They jointly opted not to communicate the change. Sprint’s Director of External Tax was concerned that disclosing the information would “drive too many calls” to Sprint’s customer care division.

In November 2005, just months after Sprint began unbundling, a Sprint employee in the Customer Billing Services department questioned a member of Sprint’s State and Local Tax Group about whether unbundling was “presented to the customer as part of the Subscriber agreement, shown in the invoice and/or available to Customer Care Rep.” The response was simply that “we have not educated our customers on how we are de-bundling transactions for their tax relief.”

Sprint continues to misinform its current and prospective customers about sales taxes, and to subject them to undisclosed sales tax liability even today.

Sprint’s position in court is that New York’s tax laws give the company the option of unbundling its tax obligations and that the state was trying to collect money it was not owed.

“The New York Attorney General’s complaint seeks to impose liability for practices that do not violate New York law,” said Sprint’s response to the lawsuit.

Luckily for Sprint’s tax experts, many states foreclose the possibility of creatively escaping taxes by imposing a “gross receipts tax” on the total gross revenues of a company, regardless of their source. That makes it difficult, if not impossible to escape the kind of sales taxes Sprint has been maneuvering around for nearly a dozen years in New York. With fewer loopholes to find, that leaves the wireless industry’s tax experts more time on the ski slopes.

It is safe to assume Sprint hopes for a positive outcome of the case, if only to avoid the inevitable avalanche of customer complaints from New York customers who might find a notice of apparent tax liability in their mailbox one day in the future.

While larger cities like Virginia Beach and Richmond have enjoyed broadband service for years, residents in the western half of the state often are not so lucky. The region is home to some serious broadband black holes, where residents have no access to Internet service beyond dial-up, satellite, or borrowing a friend’s expensive DSL connection in town.

Like West Virginia to the northwest, much of this part of the state suffers with very low speed DSL, occasional wireless Internet, and a handful of cable companies trying to provide access. In addition to the rural character of the region, landline networks have deteriorated over the years and large phone companies have focused their efforts on network improvements further east.

Now a series of government-funded broadband expansion projects, regional and local broadband and telephone co-ops, and local providers are working together to expand modern broadband into areas that have never had access before.

The Virginia Tech Foundation and the Mid-Atlantic Broadband Cooperative are now working to expand a fiber broadband middle-mile network from Bedford to Blacksburg — the areas surrounding Roanoke that have suffered with difficult Internet access for years.

Among the first clients is PemTel, a telephone cooperative in Pembroke. PemTel still speaks of DSL as a “new technology” in the area, and has speeds that reflect that:

PemTel started with an original plan offering just 256kbps — speed that does not even qualify as “broadband.” But increasing capacity is opening the door for Pembroke residents to get speeds that can at least manage today’s web pages. Customers are also glad to see the back of satellite “broadband” which severely limited usage.

With fiber middle mile networks now stringing through southern Virginia, local providers can access backbone capacity at lower prices, which can, in turn, deliver substantial broadband capacity to new high tech businesses setting up in the area.

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/WDBJ Roanoke Fiber Through New River Valley 6-11-12.mp4[/flv]

The New River Valley in Virginia is building a multi-county fiber network to act like an interstate highway system for broadband.  WDBJ reports. (2 minutes)

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/WSLS Roanoke Bedford to Blacksburg gets hi-speed internet boost 6-12-12.flv[/flv]

WSLS in Roanoke explores a new fiber network going in from Blacksburg to Bedford, Va., and what it could mean for broadband-deprived residents.  (2 minutes)

When a company like Comcast grows so big, it no longer cares whether its marketing claims are true or false, perhaps it is time to put those claims to the test in court or before a state attorney general for review.

Recently, Comcast’s claim it runs the fastest Internet Service Provider in the nation came under scrutiny by the Better Business Bureau. The simple truth is, Comcast is not the fastest ISP in the nation — not even close. But because PC Magazine ran a limited test of some national broadband providers and found Comcast barely making it to the top, the cable giant has been running ads across the country that are disingenuous and incomplete at best, completely misleading and false at worst.

Phillip “Comcast is not too big to deserve a FAIL“ Dampier

The National Advertising Division of the BBB, a self-regulating industry-controlled body, found the advertising deceptive, which says a lot for a group that lives or dies on the whims of the industries that support its operations.

NAD previously determined that Comcast cannot, based on its current offerings, make an unqualified claim in national advertising to be faster than the competition. NAD noted that while Comcast is the fastest Internet option for 94 percent of the 52 million households in its competitive footprint, it is not the fastest where Verizon FiOS is available.

Consumers need deep pockets to read the actual report that mildly criticizes Comcast. The NAD keeps the public out of its business with a subscription rate of $550 a year to read detailed individual case reports. We learned about the case from one of our readers who shared a copy.

Among the false claims Comcast is still making:

• “It’s official.  We’re the fastest.” — Officially, Comcast is not the fastest.
• “…the fastest downloads available.” — False.
• “FiOS Does Not Live up to Expectations….With Speeds of Up to 105Mbps, XFINITY was rated as the fastest Internet provider in the nation by PC Magazine.” — But FiOS speeds are faster than Comcast. PC Magazine did not test Verizon FiOS.

Comcast agreed to consider making changes to their advertising to comply, but that now appears to be a non-starter.

In Chattanooga, Tenn., EPB Fiber broadband beats the pants off Comcast. No, it’s actually worse than that. EPB embarrasses Comcast’s comparatively slow broadband service. While Comcast was looking for a way to manipulate customers into using its Xbox online video app to avoid their unjustified usage cap, EPB customers were bypassing that problem altogether by choosing EPB’s fiber to the home service that doesn’t have usage caps and delivers speeds up to 1Gbps.  Comcast, (remember they are “America’s fastest”) tops out at 105Mbps.

One would think Comcast would be hurrying their blatantly false advertising off the air and out of sight in Chattanooga, but the company has refused.

The Times Free Press reports Comcast won’t be making any changes to their ads, and has actually doubled-down with more blatantly false marketing claims. Why? Because EPB is too small of a player for Comcast to be concerned with telling the truth:

Jim Weigert, vice president and general manager of Comcast in Chattanooga, said the request won’t apply to this area and advertising will stay the same.

“I don’t see any changes at all,” he said. “Our use of that designation as the fastest ISP and fastest commercial ISP is still the same and will still be used the same as it is today.”

Weigert said local networks such as EPB, which delivers maximum download speeds about 10 times faster than those of Comcast, is too small of a player to affect the region’s advertising or PC Magazine‘s designation.

“Those awards exist, and we just need to make sure we’re using it properly and quoting it properly,” he said. “It doesn’t reference EPB at all because they’re not national. They’re not big enough to get that attention.”

In other words, actual facts about broadband speed don’t matter. With standards like this, it is only a matter of time before we’ll be seeing program length commercials for snake oil.

Beyond the fact Comcast is morally and ethically wrong here, I’m not sure I would want my company admitting to customers truth should come in second. With that kind of attitude, Comcast customers should put their wallets in their front pockets, leave the kids home and lock their car doors before visiting a Comcast Cable Store.

Deborah Dwyer, public relations supervisor for EPB, notes the Comcast ads are self-serving and “cause pretty significant confusion among the public.”

At least the public that still believes what Comcast Cable tells them represents the truth.

Chattanooga, Tenn. is teaming up with U.S. Ignite to leverage America’s first Gigabit broadband city as the home of super high speed broadband innovation.

Municipally-owned EPB’s fiber to the home network is already attracting big businesses and high tech jobs to southeastern Tennessee, but now it will become an incubator for America’s next generation of broadband applications and services. U.S. Ignite will use EPB Fiber’s network to help foster the creation of new digital applications that will transform health, education, public safety, and manufacturing and help keep America a leader in high tech innovation.

It took a public, community-owned utility with the vision of an American fiber optic future to make this possible. Cable and phone companies have unilaterally decided there is no need for gigabit broadband. Will community broadband and marketplace game-changers like Google ultimately be the salvation of America’s high speed future?

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Chattanooga US Ignite.flv[/flv]

Learn more about Chattanooga’s broadband success story through this video, which also introduces U.S. Ignite’s new project. (3 minutes)