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.
