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A net neutrality history lesson: how US telecom became such a trainwreck

A net neutrality history lesson: how US telecom became such a trainwreck

It cannot be contended that the BP oil spill, the wars in Iraq and Afghanistan or the healthcare debate have left a small speck on the face of American politics. These are the hot-button issues of our time. Behind them, however, lurks another important discussion with the potential for an even greater impact: net neutrality.

Succinctly, the net neutrality debate is one that will shape the future of every American’s relationship with the Internet. It is the simple choice between giving ISPs the ability to run roughshod over the economy and freedom of the ‘net, or forbidding them from having any say about what you do beyond the letter of the law.

Expressed in this fashion, you might wonder how this ever became a debate in the first place. What happened in the course of American politics to give AT&T, Verizon and Comcast the idea that they could control what applications we use online?

For answers to all of these questions and more, let’s take a trip down memory lane to the time of horses and steam ships. Yes, readers, our tale starts all the way back in 1877.

The ghost of telecom past

Disagreement over how best to regulate telecom in the US is a surprisingly recent event. For the entire 20th century, oversight of the burgeoning industry was largely a bipartisan effort. Democrats and Republicans worked in concert during the Nixon, Ford, Carter, Reagan and Clinton administrations to realize two landmark initiatives: the Bell System Divestiture of 1982 and the Telecommunications Act of 1996.

Bell System Divestiture

The corporate monopoly is more reviled than ever amongst the American public, but it ruled telecom with absolute authority for most of the 20th century.

Established in 1877, the eponymous American Bell Telephone Company leveraged Alexander Graham Bell’s telephone patent to establish local calling exchanges in major US cities. These local exchanges were known as Bell Systems, and they were responsible for routing calls between a major city and its suburbs. Growth was quick, and by the mid-1880s, every major city had its own local Bell System.

While American Bell was rapidly gaining control of local communication, the company’s management was working to replace the telegraph for inter-city communication as well. By March of 1885, American Bell’s leadership had established and incorporated a second company in New York called American Telephone and Telegraph (AT&T). By 1892, AT&T was well on its way to realizing a cost-effective, nation-wide calling network when New York and Chicago were connected for the first time.

By 1894, the confluence of restrictive Massachusetts corporate law and the expiration of Bell’s telephone patent plunged American Bell deep into financial hardship. Unable to hold out, the United States’ only long distance company became the sole owner of the country’s largest local calling network when AT&T acquired American Bell in 1899.

By 1907, the US government openly agreed that the “One Policy, One System, Universal Service” model touted by AT&T President Theodore Vail could best provide the telephone to the public without the trouble of competitors developing incompatible systems. And the rest, they say, is history.

Throughout the next 70 years, AT&T would enjoy its status as a government-sanctioned monopoly. Through control of telephone manufacture and connection, 22 Bell Operating Companies, the decisions of local municipalities, government encouragement and insurmountable incumbency, AT&T was unmatched until its empire crumbled on January 8, 1982.

The Department of Justice intervenes

In 1974, the US Department of Justice alleged that profits from the dominant phone manufacturer and wholly-owned subsidiary, Western Electric, were being used to subsidize AT&T’s network in violation of antitrust law.

The ensuing United States vs. AT&T case stretched eight years until the winter of 1982, when Judge Harold H. Greene decreed that AT&T’s 22 Bell Operating Companies would be split and reorganized into seven separate Regional Bell Operating Companies, or RBOCs. The monopoly breakup took effect on January 1, 1984, and several big names in corporate history were born: Ameritech, Pacific Telesis, Southwestern Bell, Bellsouth, Bell Atlantic, Nynex and US West.

After the Bell Divestiture

For AT&T, the divestiture had the primary effect of reducing the company’s size and value by 70%. The divestiture also forced AT&T to rely almost exclusively on the long distance market it had developed since the 1800s for revenue. Finally, the firm’s leaner size put it into direct competition with Sprint and MCI, two companies that previously posed no threat.

Meanwhile, the role of providing local calling fell to the seven RBOCs and two pre-existing carriers, which were never majority owned by AT&T. Each of the nine companies oversaw clusters of geographically distinct regions of the country known as a Local Access and Transport Areas (LATAs). Because each of the nine companies was formed from a piece of a nation-wide monopoly, each company enjoyed so-called “local monopoly” status in their respective LATAs.

US LATAs, born after the AT&T monopoly was dismantled. (Credit: Wikimedia Foundation)

Lastly, dismantling AT&T dramatically improved the situation for GTE. GTE was the nation’s second largest telecom provider during the Bell System days, and it too maintained a set of seven Bell-like regional operating companies. Because the firm was never an AT&T holding, GTE’s infrastructure was not geographically restricted to a group of LATAs. AT&T’s exit in the local calling market also had the effect of making GTE the largest national network. The confluence of these qualities made it an instrumental component of the company we know today as Verizon.

Telecommunications Act of 1996

The Telecommunications Act of 1996 was the first major rework of US telecom law since 1934. The TCA was at the time considered an act to provide a new competitive telephone market in the United States.

A 1995 House report optimistically wrote that the Act was “to provide for a pro-competitive, de-regulatory national policy framework” designed to rapidly accelerate information services deployment “by opening all telecommunications markets to competition.”

To accomplish the goal, the act would consider SNET, Cincinnati Bell, the RBOCs and GTE as Incumbent Local Exchange Carriers (ILECs) and set them loose to expand and restructure. To offset the inevitable race towards oligopoly, the feds also created policies that allowed for the simple and inexpensive establishment of local competitors known as Competing Local Exchange Carriers (CLECs).

CLECs were permitted to lease and/or resell infrastructure from the ILECs at rates set by federal regulators. The feds predicted that the cost and simplicity of CLEC creation would naturally bust the local monopolies of the ILECs through an abundance of consumer choice.

A devastating aftermath

Unfortunately for consumers, the Telecommunications Act of 1996 had several fatal flaws that continue to have a chilling effect on US telecom policy.

Foremost, the act was primarily concerned with the traditional telephone. Neither broadband nor cellular services were substantial at the time the bill was created. This means that a patchwork of FCC rulings, minor legislation and snap judgments have served in place of real policy for nearly a decade.

The act also draws a distinction between a “common carrier” and an “information service.” Carriers that offer information services, e.g. broadband, are not subject to the interconnection and pro-competition clauses of the act.

The Digital Subscriber Line (DSL) was not classified as an information service until 2005. This means DSL deployment from traditional telcos was mired in the red tape, high carrier interconnection costs, and a dizzying array of complex fees typical of services classified as telecommunications. This not only stunted the growth of the DSL market, but it is one of the major reasons why DSL is historically more expensive than cable.

Cable internet, meanwhile, was considered an information service from its inception. This allowed cable ISPs to build a nation-wide cable network with very little regulation. In this way, cable connections were permitted to become the dominant standard through a lack of competition from DSL.

The act has also had a damaging effect on the deployment of next-generation broadband services. Because the Telecommunications Act allowed the post-monopoly RBOCs to reorganize, the firms raced to merge and acquire. Within a decade, the nation was owned by just three companies: AT&T, Verizon, and Qwest. None of these carriers have the incentive, or perhaps even the ability, to economically deploy their fiber services in competing markets. If you’ve ever wondered why you can’t get Verizon’s FiOS outside of the northeast, the image below demonstrates why.

The RBOCs and their post-merger territories. (Credit: Wikimedia Foundation)

Lastly, the relatively easy road to forming a CLEC triggered the creation of many more than the market could bear. Combined with the inherent risk of relying on a competitor’s infrastructure to run a business, the body of paying customers was too diluted amongst the many CLECs to ensure their survival. CLECs proceeded to fail in droves throughout the 1990s, which culminated in the telecom bubble burst of 2000-2002.

In short, the Telecommunications Act of 1996 dramatically failed to systematically create the new competitive market intended by Congress. Through short-sightedness, blind optimism, corporate oligopolism and new technological developments, the Telecommunications Act of 1996 has given US telecom every tool it needs to divert the nation away from an open, abundant, competitive and non-discriminatory market.

The RBOC consolidation (Credit: Wikimedia Foundation).

The ghost of telecom present

Since the Telecommunications Act, the natural course of America’s politics has had the biggest influence on the current state of the net neutrality debate. Whereas telecom policy was once a bipartisan effort, the divisiveness of recent presidential elections has extended to telecom as well.

The slow shift away from bipartisanship began amidst the George W. Bush reelection effort. Historically speaking, it is frequently cited that the Democrats took a “Not Republican” platform in the run up to the 2004 election. Opposition to the war in Iraq, dependence on foreign oil, and contention over the Kyoto Treaty compelled the Democrats to offer every Republican position in opposite. The “Not Republican” platform was not sufficient to secure victory for Senator Kerry, and it led to a second term for the incumbent President Bush.

Though it will be decades before we know the realities of Bush’s second term, the apparent evidence was enough to trigger a liberal shift in the American public. The Democratic Party, meanwhile, had used the intervening four years to remodel itself, and it emerged to meet the newly liberal public with a Populist platform and a charismatic candidate that matched what the public was seeking.

The public’s identification with the new Democratic platform led to Barack Obama’s inauguration in 2009. Since that time, the Obama administration has pushed an humanitarian agenda that includes significant telecom reform. The reform’s crown jewel is an idea known as net neutrality, but its roots trace back to an earlier administration.

Net neutrality

At a basic level, a net neutrality policy stops ISPs, mobile carriers and landline carriers from regulating the devices, protocols and applications in use on their network. It would also prevent ISPs and major backbone providers from creating tiered bandwidth models, which generate extra revenue by charging sites for faster delivery over their networks.

This framework would be akin to preventing a toll road’s operator from arbitrarily charging more for GM vehicles. The operator is free to charge whatever she likes–$1 per wheel, $0.25 a ton or similar–but she may not charge more for an automobile because she happens to dislike the make or model. She also, to extend the analogy, may not charge more for users who happen to be headed to or coming from specific destinations.

This concept of net neutrality is a relatively new issue in the realm of American politics. It was of little import during GW Bush’s administrations. . . that is until Comcast raised the ire of Bush-appointed FCC Chair Kevin Martin.

Incensing the FCC

In late 2007, it was discovered that Comcast was actively employing a technology that transparently terminated established communication between peers on the BitTorrent and Gnutella networks. The clandestine technology caused Comcast customers to unwittingly send forged “reset packets” to other connected users, which would effectively end the connection as though the link had been naturally interrupted.

Statements released throughout 2008 did little to lower the hackles of consumers, consumer rights activists and lawmakers who were all incensed by the practice. In early January of 2008, the issue began to take legal form as the FCC called a hearing on network neutrality to order. It certainly didn’t help Comcast’s case or image when they filled the room with paid fanboys loyal to their cause.

By July of 2008, FCC ex-Chairman Kevin Martin had had enough of Comcast’s shenanigans and vowed to end the Philadelphia ISP’s use of the forged reset packets. At the conclusion of Martin’s crusade, net neutrality began to take shape as the FCC signed a bi-partisan enforcement order.

The new order legally obliged Comcast to cease and desist in further traffic manipulation and forced them to disclose the methods they used to manipulate internet traffic. While not a law, it was a relieving precedent in the new war over net neutrality.

During one hearing leading up to the signing, Martin likened the manipulation of web traffic to the manipulation of traditional mail.

“Would you be OK with the post office opening your mail, deciding they didn’t want to bother delivering it, and hiding that fact by sending it back to you stamped ‘address unknown – return to sender?’” he asked. “Or if they opened letters mailed to you, decided that because the mail truck is full sometimes, letters to you could wait, and then hid both that they read your letters and delayed them?”

This decision sent a clear warning to other US ISPs considering illegitimate manipulation of American web traffic: hands off.

Following the FCC’s intervention

The FCC’s stance on net neutrality did not go unchallenged, most of all by Comcast, which has been particularly outspoken about its objections. The Philadelphia-based cable operator alleged in a DC court case that the FCC had no legal grounds to sanction the company for its 2008 BitTorrent throttling debacle.

“For the FCC to conclude that an entity has acted in violation of federal law and to take enforcement action for such a violation, there must have been ‘law’ to violate,” Comcast argued in its opening brief in the DC case. “Here, no such law existed.”

This basic premise enabled Comcast to successfully argue that the FCC had no authority to impose the order at the time it was written.

Current efforts in net neutrality

FCC Chairman Julius Genachowski

The Obama-appointed FCC Chairman Julius Genachowski has continued the battle for net neutrality started by Kevin Martin. In addition to continuing the fight against Comcast, one that may go to the Supreme Court, Genachowski declared clear intent to pursue net neutrality during a speech delivered at the debut of openinternet.gov.

“I understand the Internet is a dynamic network and that technology continues to grow and evolve. I recognize that if we were to create unduly detailed rules that attempted to address every possible assault on openness, such rules would become outdated quickly,” he said.

“But the fact that the Internet is evolving rapidly does not mean we can, or should, abandon the underlying values fostered by an open network, or the important goal of setting rules of the road to protect the free and open Internet.”

The mission of the current FCC has dovetailed with a four-point policy statement devised by the Martin FCC, which Genachowski has come to adopt as a series of guiding principles:

  • Consumers are entitled to access the lawful Internet content of their choice.
  • Consumers are entitled to run applications and use services of their choice, subject to the needs of law enforcement.
  • Consumers are entitled to connect their choice of legal devices that do not harm the network.
  • Consumers are entitled to competition among network providers, application and service providers, and content providers.

Telecom has not taken kindly to any of these positions. ISPs and mobile carriers allege that forcing competition, interconnection and agnosticism clauses would outrageously raise the cost of doing business–a cost ultimately passed to consumers. ISPs and carriers also take issue with the so-called “dumb pipe” treatment, which uses Internet bandwidth like a utility, rather than a controlled commodity.

Proponents, meanwhile, say that the dumb pipe philosophy is exactly what the Internet needs, and they point to Comcast’s willful impairment of a legitimate network service as the reason why.

Where we are right now

Realizing that the court is unlikely to recognize the FCC’s present authority in matters of the Internet, Genachowski has undertaken an effort to reverse large portions of the Telecommunications Act of 1996.

Chief amongst the desired changes, the FCC hopes to reclassify the Internet service divisions of our ISPs as a “common carrier” under Title II of the Communications Act of 1934, which the Telecom Act of ’96 superseded. This would once again make ISPs subject to the pro-competition and pro-consumer regulatory framework described by the telecom act. It would also grant the FCC the authority they lacked in the Comcast case to move ahead with their plan for net neutrality.

As with previous efforts by Kevin Martin, Genachowski’s plan has prompted many public statements of “disappointment” from telecom’s largest players.

The National Cable & Telecommunications Association:

We firmly believe that the case for new regulation of the Internet has not been made. Today’s competitive and dynamic broadband marketplace already operates according to openness principles that have broad industry consensus and serve consumers well. We support the goals and many recommendations of the National Broadband Plan. And, as we have repeatedly made clear, we are prepared to work constructively with the FCC, Congress and all policymakers to create an appropriate framework that preserves an open Internet and achieves the goals of the Broadband Plan.

Time Warner Cable:

We are encouraged that the Chairman’s proposal does not go beyond previously articulated principles regarding regulation of the internet. However, we remain concerned about the view that there is something unique about last-mile broadband access providers that requires different regulation from other internet participants.

Additionally, we are concerned with reclassifying broadband service as a Title II service, which could create regulatory uncertainty that could dampen investment and innovation and ultimately, damage the consumer experience.

AT&T:

We are deeply disappointed that, in order to deal with an adverse court decision, the FCC chairman has decided to subject all broadband facilities, including Internet backbones, to common carriage regulation under Title II. We believe this is without legal basis. Make no mistake—when it regulates the networks that comprise the Internet, the FCC is in fact, and for the first time, regulating the Internet itself. There is no statutory basis for doing so—indeed it is directly contrary to Congress’s stated intentions—and is being done without any compelling evidence that would justify a reversal of the FCC’s prior decisions on this issue. If the FCC follows through with the chairman’s stated intent, it will have a direct impact on jobs and investment in one of the areas of the US economy that many hoped could help lead the recovery.

Where net neutrality goes from here

A long and difficult road remains ahead of the Genachowski-lead FCC, as lobbying from the telecom industry has significantly compromised the hope of congressional aid.

This fact was most recently demonstrated with an open letter signed by 111 Congressmen (37 Republican, 74 Democrat), which urged the FCC to abandon net neutrality in favor of increasing the availability of broadband in the United States. Of the 111 signers, 107 are known to have accepted up to $128,000 on behalf of telecom companies or their hired lobbyists.

Not all is lost on a congressional level, though. H.R. 3458, better known as the Internet Freedom Preservation Act of 2009, hopes to enshrine the four guiding principles of Kevin Martin and Julius Genachowski as a matter of federal law. Under threat of dying in subcommittee, however, the public must contact their House representatives to urge motion on the bill; it currently does not appear as though H.R. 3458 will ever receive this support.

In the FCC’s arena, the bureau has moved ahead with a so-called National Broadband Plan that’s infused with the spirit of net neutrality. Through reformation of policy, competition, laws, incentives and standards, it is hoped that neutrality can be brought about by creating a program that demands it as collateral for participation in an irresistible set of programs.

Finally, the FCC will continue to debate and refine their plan to reclassify wireline and wireless data services as common carrier services under Title II of the United States’ 1934 telecom regulations. There is no timeline for this effort.

Ultimately, it is too early to tell how far we as a country might travel to bring about a fair and open Internet, an Internet that is priced and open not according to the will of a company’s greed, but priced and open according to the will of the American people. Only by reaching out and supporting the FCC with the assistance of organizations like the Free Press and Public Knowledge can we help to secure a brighter future that’s been 133 years in the making.

Image credits:

Featured image adapted from the work of Kurt Griffith ©2006 KG/FRS.

Comments

  1. AlexDeGruven
    AlexDeGruven I LOVE that they all, with one accord object to common carrier status, yet they want all of the protections afforded under that status (just without the responsibilities).
  2. Cliff_Forster
    Cliff_Forster The is a bookmark piece here. I worked sales in telecom for a short time after the initial dereg. Rob you have really done your research.
  3. BlackHawk
    BlackHawk People should email this article to their congressmen.
  4. Cliff_Forster
    Cliff_Forster Black Hawk, I think thats a great idea.
  5. ZenMode
    ZenMode Excellent piece.
  6. joe Mc
    joe Mc train wreck is two words. FYI
  7. NullenVoyd
    NullenVoyd This makes me wonder what our experience with the internet would be if it had been built much like the major US highway system, and was treated more as a public service than a thing to buy and sell.

    Also on a side-note, remember the days of startup free dial-up services, that would let you connect for free but would require you use a program that displayed adds?
  8. BlackHawk
    BlackHawk
    NullenVoyd said:
    This makes me wonder what our experience with the internet would be if it had been built much like the major US highway system, and was treated more as a public service than a thing to buy and sell.?
    Well, the US did know what the Interstate Highway System would be back when it was created and what it would be now. The same thing can't be said for the internet or whatever it was called in its inception.

    That and that the US wasn't the sole country that invented it. Even if US does implement some sort of net neutrality doesn't mean every country will follow suit.
  9. spin498
    spin498 black hawk
    "That and that the US wasn't the sole country that invented it. Even if US does implement some sort of net neutrality doesn't mean every country will follow suit."

    What relevance is that to what's discussed in the article? That's akin to arguing the US. has freedom of speach but other countries don't. That's somehow a bad thing?
  10. BlackHawk
    BlackHawk
    spin498 said:
    black hawk
    What relevance is that to what's discussed in the article? That's akin to arguing the US. has freedom of speach but other countries don't. That's somehow a bad thing?
    It's relevant to what I quoted in my post.
  11. NullenVoyd
    NullenVoyd
    Black Hawk said:
    It's relevant to what I quoted in my post.
    And while the (excellent BTW) article focuses on US telecom and communications policy, I think how it relates to the rest of the world is very relevant given this medium is one of the major, if not THE primary way a country's people connect with other nations. Probably enough on that subject to write another long article, if not a book, on.
  12. deepsea
    deepsea Net neutrality should also prevent selected applications/uses from receiving priority treatment, i.e., VOIP and on-demand video. Is the lag in my gaming less important than my neighbor's viewing of sex and the city reruns?
  13. Snarkasm
    Snarkasm If internet providers would just provide you with the bandwidth and speed that you're paying for at all times, you could set up your own, house-level quality of service and figure out your own net priority. But God forbid they don't oversell their infrastructure. Gotta maximize those profits and mislead your customers!
  14. UPSLynx
    UPSLynx Phenomenal article. This is a subject that we all need to be concerned with.
  15. M46h1n3
  16. Wolvenmoon
    Wolvenmoon If we can get net neutrality in place, all the other invasions of citizen privacy will fall as everyone hops onto darknets.
  17. Preacher
    Preacher Thrax,
    thanks for an informative and interesting article. It seems we constantly have to learn and relearn the old lesson that the free market and corporations (whether banks, mining companies, oil companies, or telecoms) often do NOT act in the best interest of the public or their customers. They act in the best interest of their shareholders to maximize profits. On the other hand, even though it is inefficiently bureaucratic, governments do need to step in to regulate certain critical services. Net Neutrality is one where the corporations need to have a governmental regulator's boot on the back of their neck. In my mind and many others, the internet is the modern equivalent of electricity, water, highways, and railroads. I'll take some inefficiency any day over trusting AIG, Massey, BP, or Comcast...
  18. SpencerForHire
    SpencerForHire I'm currently outlining an email to Gary Peters complaining that he is an easily bribed man and criticizing his values if 20,000 dollars is all it takes to get him to sell the values of the people he represents.
  19. SpencerForHire
    SpencerForHire *sell out on the people he represents.*

    Guess I had a brain fart.
  20. Brett Glass
    Brett Glass This article does an excellent job of regurgitating the corporate party line of corporate monopolist Google, which -- like the Bell System of old -- has multiple monopolies on the Internet. (It has monopolies on Internet search, Internet search advertising, Internet banner advertising, and Internet video, and is working on monopolizing mobile advertising via a forthcoming acquisition). Free Press and Public Knowledge, groups which are benefactors of Google, lobby for it in DC. The actual text of the so-called "network neutrality" regulations is not "neutral" at all. Written by Google lobbyists to regulate ISPs and Google's competitors but not Google itself, the regulations would strip ISPs of all control of the future development of the Net, leaving Google in the driver's seat. What's more, they would raise the price of Internet service, deter broadband deployment, harm quality of service, and reduce competition (leaving consumers with fewer choices of ISPs). The many members of Congress who oppose Google's agenda (virtually every member of Congress receives some money from telephone companies regardless of his or her position, so in fact there are no "sellouts" here) are looking out for their constituents by opposing regulation that would shore up Google's monopolies -- which are much more insidious than that of the old Bell System because they are worldwide (not just nationwide). "Network neutrality" regulation is bad for everyone but Google, and we all should oppose it.
  21. Kwitko
    Kwitko [citation needed]
  22. Ryder
    Ryder That just sounds like a position from the opposite side, which we welcome :)
  23. Thrax
    Thrax Sounds like a list of slippery slope talking points.
  24. TheLostSwede
    TheLostSwede Even a half dumb swede such as myself can fully understand whats going on thanks to Mr. Hallock's excellent presentation.

    Salute!, Robert!

    https://www.goldandbrownstore.co.uk/images/P/old%20speckled%20hen.jpg
  25. Snarkasm
    Snarkasm I fail to see how allowing ISPs to determine what I can see and at what speeds is in any way preferable to allowing Google alone to advertise to me.

    They may both be ill-advised, but nobody should restrict or inhibit what I can access.
  26. papaj
    papaj I think some here is taking they just want to see. I see that DSL was under FCC rules for a long time and because of the taxes and reg's it could not compete. The speeds of the net picked up because those other companies did not fall under the reg's of the FCC. Place all under the reg's will be the starting of taxes on all and hinder the growth of the net.
  27. Thrax
    Thrax That's one way to look at it, but I think the current state of the industry disagrees. In the US and Canada, a deregulated market has been patently anti-consumer fraught with reducing bandwidth caps, throttling and other deleterious mechanisms.
  28. Tushon
    Tushon Your ideal does not equal reality, papaj. Sorry coach!
  29. ardichoke
    ardichoke 3 year necro. Looks like a US appeals court feel that the US broadband market is so teeming with diversity that net neutrality is not needed.

    What examples did they cite to back their decision up? Google Fiber. Which is in 3 markets. Wow.

    http://bgr.com/2014/01/14/net-neutrality-court-ruling/
  30. NiGHTS
    NiGHTS A few noteworthy points from the Reddit thread on this:

    Isolated to DC area for time being
    Will probably be appealed to another district
    Will probably be appealed again to Supreme Court
    If upheld at Supreme level, it will affect country
    Findings reversed themselves within 30 pages of one another, stating that there is not enough competition for a fair market to saying that if consumers wanted another option they could use competing services

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