While the New Jersey Board of Public Utilities was able to quickly settle its differences with Verizon by granting the phone company’s wish to walk away from its commitment to offer 45Mbps broadband across the state, New Jersey ratepayers are out $15 billion in excess phone charges levied since 1993 for promised upgrades many will never get.

The Opportunity New Jersey plan the state government signed with Verizon was supposed to expand advanced broadband across the state in return for “a modest amount of pricing flexibility” in the fees Verizon charged customers in New Jersey. But Verizon is not a modest company and a new report shows the phone company used the agreement to boost rates as much as 440% — primarily through ancillary surcharges including inside wire maintenance, wire investment, an investment recovery fee, a local number portability surcharge, merged local calling area charge, and various other charges for phone features including Caller ID, Call Waiting, etc.

Tom Allibone, the president of LTC Consulting joined forces with New Networks’ Bruce Kushnick to analyze more than 30 years of Verizon New Jersey phone bills and discovered when it comes to tallying up rate increases, Verizon’s addition skills are akin to taking out a bag of M&M’s and only counting the yellow ones.

“This Verizon New Jersey bill from April 2002 […] has an “FCC Subscriber Line Charge”, which was $6.21 cents per line. Verizon’s quote doesn’t include this charge in their analysis of no increases between 1985 to 2008,” Kushnick writes. “The FCC Line Charge (it has many names), is on every local phone bill and the charge started in 1985. You can’t get service without paying this charge and the money does NOT go to fund the FCC but is direct revenue to Verizon New Jersey.”

After adding up various other surcharges, Kushnick’s bill increased a lot.

“Add up the ‘Total Monthly Charges’ for 2 phone lines— It’s ugly,” Kushnick said. “While the cost of the ‘monthly charges’ was $25.62, there’s an extra $17.70 cents — 70%. I thought that Verizon said there were no ‘increases.’”

“Anyone who has ever bought a bundled package of services from Verizon (or the other phone or cable companies) knows that they all play this shell game; the price of service you have to pay is always 10-40% more than the advertised price. That’s because the companies leave out the cost of these ancillary charges and taxes in their sale pitch,” he added.

Verizon raised local residential service rates 79% in 2008, according to Kushnick. Business customers paid 70 percent more. Caller ID rates increased 38% — remarkable for a service that has a profit margin of 5,695%. But Verizon did even better boosting the charge for a non-published number by 38% — a service that has a 36,900% profit margin as of 1999 — the services are even cheaper to offer now.

Telephone service is one of those products that should have declined in price, especially after phone companies fully depreciated their copper wire networks — long ago paid off. Companies like Verizon have cut the budgets for outdoor wire maintenance and the number of employees tasked with keeping service up and running has been reduced by over 70 percent since 1985, dramatically reducing Verizon’s costs. But Verizon customers paid more for phone service, not less.

The cost of service might not have been as much of an issue had Verizon taken the excess funds and invested them in promised upgrades, but that has not happened for a significant percentage of the state and likely never will. Instead, they just increased company profits. More recently, Verizon has directed much of its investments into its more profitable wireless division.

Even though Verizon achieved total victory with the Christie Administration-dominated BPU, the company is still making threats about any future plans for investment.

“It’s important that regulators and legislators support public policies that encourage broadband growth in New Jersey rather than ones that could jeopardize the state’s highly competitive communications industry, or risk future investments by providers like Verizon,” wrote Sam Delgado, vice president of external affairs.

Comcast and Time Warner Cable have achieved new lows in the most important customer satisfaction survey in the United States, winning bottom honors as the two most despised companies in the United States.

The American Customer Satisfaction Index found Comcast and Time Warner Cable the only two companies in the country that scored below 60 on the ACSI’s 100 point scale. Comcast fell 5% to 60, while Time Warner Cable plunged 7% to 56, its lowest score to date.

“Comcast and Time Warner assert their proposed merger will not reduce competition because there is little overlap in their service territories,” says David VanAmburg, ACSI director. “Still, it’s a concern whenever two poor-performing service providers combine operations. ACSI data consistently show that mergers in service industries usually result in lower customer satisfaction, at least in the short-term. It’s hard to see how combining two negatives will be a positive for consumers.”

Broadband service seems to be a significant issue for customers. High prices, slow data transmission, and unreliable service drag satisfaction to record lows, as customers have few alternatives beyond the largest Internet service providers. Customer satisfaction with ISPs drops 3.1% to 63, the lowest score in the Index.

Verizon FiOS is the one bright spot in the survey, managing to grab a 71 score, beating AT&T U-verse, CenturyLink, and other providers. Cable broadband providers continued to score lowest. The best of the lot was Cox Communications, which isn’t saying much. It only managed a 6% fall to 64.

Customer satisfaction is also deteriorating for all the largest pay TV providers. Viewers are much more dissatisfied with cable TV service than fiber optic and satellite service (60 vs. 68). Though both companies drop in customer satisfaction, DirecTV (-4%) and AT&T (-3%) are tied for the lead with ACSI scores of 69. Verizon Communications FiOS (68) and DISH Network (67) follow. DISH Network may be the lowest-scoring satellite TV company, but it is better than the top-scoring cable company, Cox Communications (-3% to 63).

Among wireless carriers, things have not changed much this year.

Verizon Wireless achieved first place after climbing 3% to 75. T-Mobile (69), Sprint (68) and AT&T Mobility (68) are tightly grouped behind. As smartphone adoption continues to grow, network demands increase along with costs to the consumer, each contributing to stagnant customer satisfaction.

Verizon’s FiOS expansion is still as dead as Francisco Franco.

Verizon is prepared to watch up to 30% of their copper landline customers drift away because the company is adamant about no further expansion of its FiOS fiber to the home network.

Fran Shammo, chief financial officer at Verizon, told attendees of the Jefferies Global Technology, Media & Telecom Conference that Verizon will complete the buildout of its fiber network to a total of about 19 million homes, and that is it.

“Look, we will continue to fulfill our FiOS license franchise agreements,” Frammo said. “[We will] cover about 70% of our legacy footprint. So 30%, we are not going to cover. That is where we are still going to have copper.”

That is bad news for Verizon customers stuck with the company’s copper network because Verizon isn’t planning any further significant investments in it.

“We will continue to harvest that copper network and those customers and keep them as long as we can,” Frammo said. “But we will not be building FiOS out for those areas.”

In fact, Frammo admitted ongoing cost-cutting at Verizon’s landline division is allowing the company to shift more money and resources to its more profitable wireless network.

Verizon CEO Lowell McAdam doesn’t want to spend money on non-FiOS areas when more can be made from its wireless network.

“It is also taking cost structure out,” Frammo said.  “As I mentioned, the migration of copper to fiber has been very big for us. Our Lean Six Sigma projects have really significantly helped us in our capital investment in the wireline which is why I can put more money into the wireless side of the business.”

Verizon has shifted an increasing proportion of its capital investments towards its wireless division year after year, while cutting ongoing investment in wireline. Ratepayers are not benefiting from this arrangement, and critics contend Verizon landline customers are effectively subsidizing Verizon’s wireless networks.

Verizon will still complete the FiOS buildouts it committed to earlier, particularly in New York City, but it is increasingly unlikely Verizon will ever start another wave of fiber upgrades.

In fact, Michael McCormack, the Jefferies’ Wall Street analyst questioning Shammo at the conference foreshadowed what is more likely to happen to Verizon’s legacy copper customers.

“We have talked extensively in the past about the non-FiOS areas and I guess in my second reincarnation as a banker, I will try to help you get rid of those assets,” said McCormack.

Netflix has reached an agreement with Verizon Communications for a paid-peering interconnection between the two that will help assure Verizon’s broadband customers can watch Netflix content without repeated buffering slowdowns.

It is the second major deal for Netflix where money has changed hands to assure a more error-free experience for customers, coming two months after a similar deal with Comcast.

Both Verizon and AT&T have told their respective shareholders they anticipate new revenue streams from interconnection agreements with Netflix, which now constitutes a large percentage of evening Internet traffic in the United States.

By establishing a more direct connection between Netflix and Verizon, customers should experience fewer streaming problems. Netflix traditionally pays third parties to handle its traffic and some of those shared connections have grown increasingly overcongested. ISPs are becoming increasingly reluctant to upgrade them without financial compensation.

The FCC does not consider peering arrangements part of the Net Neutrality controversy, but for customers the result is the same — without a financial arrangement with a provider, content from certain websites may not be dependably accessible. Earlier this year, Netflix viewing was increasingly disrupted for many Verizon, AT&T, and Comcast customers.

Netflix CEO Reed Hastings has repeatedly complained Netflix is being subjected to an “arbitrary tax” to assure dependable service to its paying customers. Hastings now wants the FCC to treat the issue as an “end run” around Net Neutrality and include peering agreements and financial compensation issues in the new Net Neutrality rules expected to be introduced in May.

Most analysts do not expect FCC chairman Thomas Wheeler to oppose or regulate the financial arrangements between ISPs and content producers.

AT&T and Verizon Wireless are thrilled customers are moving away from subsidized smartphones, because both are raking in extra revenue they are not returning to customers with lower plan prices.

In the past, customers have usually chosen discounted new phones that come with a two-year contract. A smartphone that retails for $650 sells in the store for $199 or less, with the $450 subsidy gradually repaid through artificially high service plan prices over the length of the contract. The subsidy system didn’t hurt long-term revenues because the money was eventually recovered and contracts locked most customers into place for at least two years. But Wall Street has never been thrilled by carriers tying up subsidy money on the books for two years.

For a transition away from the subsidy system to be fair, providers need to lower plan prices enough to drop the subsidy payback. But neither AT&T or Verizon Wireless have done that.

AT&T customers choosing an $650 iPhone on contract under the subsidy system will pay $200 up front, a $36 activation fee, and $80 a month for a two-year plan with 2GB of data. Total cost: $2,156.

If you buy your own iPhone and finance it through AT&T, which most customers are likely to do, the cost is $65 a month for the service plan, no activation fee, and a device installment payment plan of $32.50 a month for 20 months. Total cost: $2,210 or $54 more than the subsidized plan costs.

Verizon Wireless is a bigger taker.

Sign a two-year contract with Big Red for that same phone and 2GB plan and you will pay $200 up front, an activation fee of $35, and $75 a month for the service. That adds up to $2,035. Buying a no-contract iPhone without a subsidy costs $27 a month for the installment plan, no activation fee, and $65 a month for the service. That totals $2,210, $175 more than a subsidy customer pays.

Big spending-customers can realize some further savings by upgrading to plans with a bigger data allowance, but those plans won’t make sense if you don’t use up your allowance.

Both companies claim the unsubsidized plans save customers money, but they actually don’t for most because neither lowered plan rates enough and are now pocketing the difference. Verizon and AT&T also argue customers don’t have to pay several hundred dollars up front for a phone, which is true, but they will pay more for it over time. It is also true these unsubsidized plans allow for earlier upgrades, but customers are paying for that privilege.

It’s hard to say whether AT&T and Verizon Wireless will pay fair value for old phones as customers choose to upgrade. If they don’t, customers could effectively hand both companies even more money through undervalued trade-ins.

At least 40 percent of AT&T customers are choosing the unsubsidized route through AT&T Next and the company couldn’t be more pleased.

In a conference call with investors this week, AT&T’s chief financial officer told analysts wireless service margins were up to 45.4%, with AT&T Next having a positive impact on that margin.

John Stephens noted that with the retail price of smartphones being in the $600-650 range, more customers are being convinced to sign up for AT&T’s handset insurance plan, which provides AT&T with two benefits. First, the insurance earns AT&T more than it pays out in claims and second, devices returned under the insurance program are refurbished and then sent to other AT&T customers filing claims in the future.

Tim K. Horan from Oppenheimer & Co., Inc. believes AT&T’s total subsidy expenses/internal costs are around $400 for a subsidized phone but only $100 for a phone sold on the Next unsubsidized installment plan.

With competition from T-Mobile starting to have an impact on both companies, AT&T and Verizon Wireless have plenty of room to further lower their rates and still come out ahead.