The Long Road To Telecom Deregulation

The annual Consumer Electronics Show extravaganza started off with a big announcement from AT&T: Customers of their wireless service can get around onerous caps on data usage if the company supplying, say, video, pays extra to AT&T for the privilege.  The telecom world, at least those paying attention, are horrified because it would be a total violation of a neutral Internet -- if such a thing existed for wireless services.  It's a way of creating a new, favored-status fast lane and only those companies with the means to do it can take advantage.  Smaller provider are out of luck, as are their customers, who will still be subject to the data caps and, as a result, higher charges on their wireless bills. 

Taken in isolation, it's bad enough.  But it's important to realize, the AT&T announcement is not an incident.  It is part of one of the  longest, most persistent corporate campaigns ever.

Harken back to 2005, and Ed Whitacre, chairman of then-SBC (today's AT&T) started off a huge debate by declaring that companies like Google should not “use my pipes (i.e., the telephone network) for free.”

It's taken eight years, but AT&T's plan has now come to fruition. On the other hand, eight years is not a lot of time for a company like AT&T which has fought a consistent campaign for thirty years to make sure no government agency can tell it what to do.

Back in history class, we used to learn about wars based on how long they lasted. The Seven Years War, the Eight Years War, the Thirty Years War. How could a war last 30 years? Because one side believed it could win and wouldn't quit.

I mention all of this to commemorate another Thirty Years War, this one fought on the fields of Washington and, increasingly, state capitals, in which one side is on the verge of winning big. This Thirty Years War started on Jan. 1, 1984, when AT&T, the largest company in the world, when the old Bell System settled an antitrust lawsuit brought by the Justice Department and was broken up into seven local phone companies and a long-distance company.

Ever since, those descendents of the million-employee company devoted themselves to putting the pieces of the old Ma Bell back together while ridding themselves of all forms of government regulation. They accomplished the first, for the most part. Instead of one AT&T, we have the “new” AT&T (nee Southwestern Bell) and Verizon (the combination of ex-Bell companies Nynex and Bell Atlantic, plus GTE), companies that are stronger than the old Bell System ever was due to the addition of their very profitable cellular businesses, of which they share 60 percent of the market. Now they are on the path to their biggest win yet.

They have done it by playing the long game, or long con, if you will. They can wait out delays and defeats. Even winning one or two issues isn't enough. They then change the objective and go for more. They fight on their home turf, the arcana of regulation and legislation.

Case in point: In early 2012, AT&T unexpectedly lost its bid to buy T-Mobile when antitrust authorities decided that the No. 2 carrier taking over No. 4 was just too blatant. AT&T had spent millions lobbying for the deal, and then had to pay T-Mobile around $4 billion in breakup-fees and in the value of radio spectrum. In any other company or industry, heads would roll. AT&T just shrugged and moved on with no loss of jobs of any executives who cost their company in one deal more than most make in decades. Little more than a year later, AT&T is now back before the FCC asking for more deregulation, and even now is targeting T-Mobile in a new ad campaign. (This is the same T-Mobile that AT&T once said wasn't a competitor.)

Any given individual issue may seem trivial or may seem larger. The problem is that policymakers rarely see the whole picture. Because of the nature of government, elected officials, their staffs and appointees and staffs in agencies come and go. Those in industry have much longer careers, their philosophies aren't subject to change as are governments when different parties, or even different officials from the same party, take over.

For the record, I was there at the start. I began covering telecommunications in late 1983, just before the breakup took effect. I've come to admire the phone companies as masters of their games, using techniques so subtle that regulators would approve methods of wiping out the competition without a second glance. I've seen how the goals were set in motion even before the official breakup occurred, when the designated heads of the yet-to-be-created Bell companies vowed to lift the restrictions imposed on them.

The first hurdle was the hardest. When the breakup occurred, the seven Bell companies said they wanted to lift the line-of-business restrictions imposed the the court-ordered settlement. They couldn't offer long-distance service, manufacture equipment or provide what were called then “information services,” the precursor to today's Internet. Depending on the day of the week, lifting each one of those was crucial to the future of the country. 

First Successes

It took 12 years for the Bell companies to get their lobbying act together and for the memories of the antitrust violations to fade, but they got what they wanted, and more, in the Telecommunications Act of 1996. The Bell companies, with lobbyists everywhere in the country, out-muscled the long-distance industry led by AT&T and MCI. Then the Clinton Justice Department allowed the mergers, and at one swoop not only were the Bell companies mostly put back together, but by buying the long-distance companies they eliminated the biggest political threats against their policies. They haven't faced much opposition since. While Silicon Valley companies speak up now and then, they aren't sufficiently forceful to change policy. In fact, the Valley helped to pass a drastic anti-consumer, pro-industry bill in California under the misperception that the bill would “regulate the Internet.”

It's not only because they have more lawyers, guns and money (well, at least two out of Warren Zevon's holy trinity) than anybody, although they do. The companies support all means of economists and think tanks and support otherwise worthy organizations based on ethnic or racial membership. It's more a case of multi-generational relentlessness, of dangling the promise of the newest bright and shiny technology, with accompanying job growth and economic prosperity, that would be dimmed without appropriate government action. No one in government wants to be the one who puts the kibosh on the newest thing, so they go along because a) they believe in it or b) financial support is involved or c) they know fighting is futile or d) some combination of the above.

The thing is, technology is always changing, and in the Thirty-Year War, every change is an opportunity to gain a bit more ground. Consider two quotes, which push the need for deregulation in the face of changing technology:

"It's time for the FCC to stand up to the plate and act. Two years ago, my mantra was 'old wires, old rules; new wires, new rules.' Some progress has been made, but clearly not enough.”

“The FCC’s historic mission must be modernized to reflect the fundamental evolution in communications that IP [Internet protocol] technology and the Internet have wrought. If it doesn’t, the agency will become irrelevant.”

Sound the same, don't they? The first one came from Tom Tauke, former member of Congress and former Verizon senior vice president for public policy and external affairs. He made that quote in a Dec. 2, 2003 news release, referring back to a statement he made in 2001.

Tauke referred to the early days of Internet access and the emergence of what we call “broadband.” He said that after the FCC had done the telephone companies a huge favor by shifting emerging services connecting people to the Internet from the regulated category of telephone service into a deregulatory Twilight Zone that took away the legal requirements that allowed competition and protected consumers, eliminating any possibility of creating new competition or protecting consumers. The U.S. Supreme Court ruled in 2005 the FCC had the authority to make the shift, while not commenting on whether it was the right thing to do.

These days, most lines into people's houses and businesses feature some sort of “broadband.” Regular telephone service runs on it, as does video, for most people over the same wires that their old telephone service used.

The second came from a Sept. 10, 2013 speech from James Cicconi, AT&T's Senior Executive Vice President, External and Legislative Affairs giving some advice to new FCC Chairman Tom Wheeler in the cause of the newest bright and shiny technology, “the IP transition.” Wheeler got off easy. AT&T used the political equivalent of carpet bombing early in the term of the previous FCC chairman, hapless Julius Genachowski, who never recovered after speaking about fundamental principles of non-discrimination (Net Neutrality). The newest push for deregulation comes because the switching and transportation of data in the network will be done differently than it has in the past, the argument goes.

In this case, though, it's more than simple relief from whatever consumer protections still exist. The real end game is to ditch landlines altogether and move as many people as they can to wireless which has no regulation at all, no consumer protections.

Here is how the little bits of things add up. The industry's uber-story is that the use of telephone lines is declining, and we can't keep two networks, so we have to ditch the old copper wire, go to the Internet Protocol universe and have new rules to keep up with the changes. Maybe you have even read or heard a news story with some of those elements. Taken together without much close examination, that story might make sense. Each element represents a singular action or assumption. Break them up and it all falls apart.

The argument that the use of telephone lines is declining is nonsense. It's how you count them that drives the assumption. One day a copper phone line could be used for plain telephone service, and it shows up in one column. The next day, the subscriber converts to a digital service and voila, one less telephone line in service. Except the line is still there. It's only counted differently by the phone companies, yet the meme of the fading network is distributed by their various spokesmodels until it's taken for truth.

Deregulation Chutzpah

There's also the question of the network of copper lines deteriorating. This one is a classic example of the old Yiddish definition of “chutzpah,” or “nerve,” which is the story of the child who killed his parents and asked for mercy because he was an orphan. If you assume it is deteriorating, and that's not certain, whose fault is it that the network is falling apart? How about the companies which own it? Perish the thought. Assume for a minute that the network is falling apart. What do you replace it with? Verizon once upon a time started an ambitious program to string fiber optic wire to homes, the FiOS service. Wall Street rebelled at the expense, so Verizon ditched the program after making it available to only half of their customers, leaving out some major markets like Boston where former Mayor Thomas Menino spent years trying to persuade the company to light up his town. Coverage is also spotty in New York City. Cable could be a possibility, and in many cases is the only choice for high-speed wired services. But it's pricey also. The only other option is wireless, which is much more expensive for customers, particularly if they need to use it for Internet access and heavy data features like video. And did we mention no agency has authority over wireless pricing?

It really doesn't matter whether a service is offered over copper, fiber or wireless, TDM or IP.  Or smoke signals.  None of those should be taken as another excuse for deregulation.   Consumers and competitors need protections.

A few months ago,Verizon sent up a test balloon on Fire Island, a small beach community south of Long Island that was heavily damaged by Hurricane Sandy. Verizon said it wasn't economical to replace the damaged copper wire, so the company put in something called VoiceLink, a wireless service. The residents soon protested that the service was worse than the old copper network, not supporting fax, alarms or even decent Internet access. Verizon temporarily retreated and installed the fiber for the few customers there.

There is another option – telephone companies could phase down the wired business entirely. Shortly after AT&T started its ill-fated purchase of T-Mobile, Verizon made its own filing, to cross-market services with Comcast. The cable company had made noises about going into the wireless business and thus could be a competitor to Verizon.

The two behemoths cut a deal. Verizon would stop marketing its landline data service and would direct people to Comcast. Comcast would forget going into the wireless business and would direct customers to Verizon. The Justice Department, having done its duty on one big telecom deal, had no stomach for the political heat to stop another one, and let it through. And thus was the world divided.

Let's add the last piece to the puzzle. Once upon a time, there was a backup for Federal regulations in the states, which could provide protections for consumers while requiring telephone companies to be the “carrier of last resort” for people in hard-to-reach areas. Then a funny thing happened.

A few years ago, big telecom companies discovered how cheap it was to buy state legislatures. Teaming up with the American Legislative Exchange Council (ALEC), they introduced, and got passed, legislation in X states that not only took away many consumer protections, but prohibited cities and town from building their own telecom networks to provide service in areas where people were dissatisfied with what they were getting from the telephone and/or cable companies. So while a city like San Antonio might have the city-owned infrastructure to offer better service than AT&T, a state law prohibits the city from doing so. Laws have passed in about 30 states that take away power to regulate what the telephone companies are doing and often include prohibitions on competition that would help consumers.

Look around the country and see the rate hikes, frequently on voice service, which affects the people who can't afford the “broadband” data services. From Ohio to California, rates are going up. On the “broadband” side, the U.S. ranking among other countries is sinking. As any number of studies have found time and time again, Americans pay more for less service than do consumers around the world. In the latest study from the International Telecommunications Union, the U.S. is 24th in terms of household broadband penetration. Other studies place the U.S. lower.

With Wheeler already hailing the IP Transition as “the fourth network revolution,” the chances are pretty good the FCC will take some action. That's certain. What is also certain is that whatever the Commission does, it won't be enough for the big telecom companies. The Thirty-Year War will go on. We know this because the House Commerce Committee said it would spend this year and next working on a rewrite of the telecommunications laws. Stay tuned for the Forty-Year War.