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.

Cogeco Cable is mailing flyers to residents in eastern Canada promoting the company’s ‘value’ option:

• 4Mbps download speed
• 12 Month Contract with $75 early termination fee
• Increases to $32.95/mo off contract
• “Generous” 15GB usage cap with $1.50/GB overlimit fee (maximum penalty: $50)

Cogeco calls this plan ideal “for anyone who uses the Internet to exchange emails with friends, search sites and download pictures.”

In other words, it’s barely broadband for those who barely use the Internet.

Many Ontario and Quebec phone companies can offer even faster speeds through traditional DSL service. In Bell Fibe areas, for $6 more a month, customers can get a 15/10Mbps package for $26.97/mo for six months, which includes a safer 75GB allowance. At the end of six months, threaten to walk and Bell will extend the offer an extra six months.

Customers bundling services with either Bell or Cogeco may be able to negotiate for a package with better speeds and a more generous allowance. While Cogeco has cracked down on promotions, Bell has not, so customers served by Cogeco are advised to ask about all available deals before committing to either provider.

A consumer firestorm is growing over Verizon Wireless new service plans.

As a growing firestorm over Verizon Wireless’ newly-announced plans continued today as some on Wall Street are becoming convinced Verizon has bungled the case for their new “Share Everything” concept.

Industry analyst Rob Enderle told ComputerWorld that Verizon’s handling of their pricing changes “is similar to the Netflix mistake last year that almost sunk that company.” Enderle believes the changes Verizon wants to force on the wireless market are potentially too radical to be embraced within the next two weeks, when Verizon’s new rate plans become active.

Verizon Wireless has been trying to quell the increasing criticism from consumers by reminding them they will not be forced to move to the new plans from an existing account.

“We’re allowing the existing customer base to have a choice; we’re not forcing anyone to more to new plans,” said Steve Mesnick, head of marketing for Verizon Wireless. “I take exception to [suggestions] of people leaving Verizon,” he said.

While Mesnick is correct Verizon will not force customers to choose new plans on June 28, the company will require existing grandfathered data customers to abandon unlimited data when they renew their Verizon contract or upgrade to a new discounted device.

Verizon claims it interviewed 50,000 customers before implementing the new plans and believe they will be embraced by the majority of Verizon customers.

Verizon Wireless spokeswoman Brenda Raney followed a different approach, pretending consumer complaints don’t exist: “We are very pleased with the response to our announcement as customers begin to understand how the new Share Everything Plans will save them money or provide them with more value for the same money they are paying today.”

Meanwhile, customers who have no intention of either forfeiting the unlimited data plan they have grandfathered on their account or who refuse to pay Verizon’s new asking price are busily upgrading their phones and signing new two-year contracts before June 28, buying an additional two years of unlimited data. Many others claim to be leaving, often for Sprint, which continues to offer unlimited data, or a prepaid provider.

Customers are worried about losing their grandfathered unlimited data plans.

Verizon and AT&T have a combined 38 percent of customers on grandfathered unlimited data plans and most are insistent on keeping them. News that customers could retain unlimited data by forfeiting the wireless carrier’s subsidy for new phones has gone over like a lead balloon, especially with price tags of $699 or more for popular new smartphones.

“The importance of this client base cannot be overstated–unlimited mobile data plan users are some of the most valuable subscribers in the industry,” Iain Gillott, president and founder of iGR, told Fierce Wireless. “Our research shows that these two carriers need to be very careful to offer a migration plan to replace the grandfathered unlimited plans that provides the data service, value and recognition that meets these valuable consumers’ needs.”

With popular new smartphones like the iPhone becoming available on no-frills prepaid carriers like Cricket, wireless carriers are at risk of subscriber defections.

Despite consumer discontent, Wall Street has supported the income-enhancing new wireless plans and is embracing the increased fees Verizon will likely earn as data demand rises.

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)