Suspicious and familiar politics were at play last Monday when a Michigan Chamber of Commerce forum bankrolled by two of the United States’ largest telecom companies tapped Glenn Beck for the keynote address. This would hardly be noteworthy but for recent Democratic efforts to bust several of telecom’s outstanding oligopolistic practices. Landing a Republican icon as a keynote speaker is not only a nod to the GOP’s recent fetish with telecom protectionism, but a sign that the industry will not accept the Democrats’ populist pill.
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 could easily be characterized as bipartisan. Indeed, 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. 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 government openly agreed that AT&T then-president Theodore Vail’s “One Policy, One System, Universal Service” model could best provide the telephone to the public without the trouble of competitors developing incompatible systems. And the rest, they say, is history.
Through 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 it all came crashing down on January 8, 1982.
The Department of Justice intervenes
In 1974, the US Department of Justice alleged that profits from dominant phone manufacturer and wholly-owned subsidiary, Western Electric, were being used to subsidize AT&T’s network in violation of antitrust law.
The 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.
Aftermath of 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 firms 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 one geographically distinct region of the country known as a Local Access and Transport Area (LATA). 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.
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 restricted to RBOC 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.
Verdict: Bipartisan
This entire process of breaking the century-old Bell monopoly was started by a Republican Attorney General, overseen by two Democratic Attorney Generals, and seen to conclusion by another Republican. The Bell Divestiture organization would remain in effect until the government invited restructuring in 1996.
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 TCA 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). The feds predicted that the simplicity of CLEC creation would naturally bust the local monopolies of the ILECs through an abundance of consumer choice.
Devastating aftermath
Unfortunately for consumers, the Telecommunications Act of 1996 has 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 “telecommunications service” 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 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.
The RBOCs and their post-merger territories.
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 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, you now know why.
Last, but certainly not least, the ease in which companies were able to establish CLECs led to a tremendous boom of competing local carriers. Users were spread so thin amongst these companies that the market almost entirely collapsed. Major CLECs like Adelphia were acquired or went bankrupt, and few large CLECs remain today.
The RBOC consolidation (Image: Wikimedia Foundation)
In total, the Telecommunications Act of 1996 significantly failed to systematically create the new competitive market intended by Congress. Through short-sightedness, blinding 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.
Verdict: Bipartisan
The eager optimism the 104th US Congress had for the darling of its tenure is palpable. It breezed through the Senate in less than seven months with a vote of 91-3. Both parties truly worked together to create a willfully anti-consumer telecommunications market.
The ghost of telecom present
With both parties complicit in efforts that have ultimately damaged US telecom, it’s important to consider how the parties now react to the lasting ramifications they helped to create.
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 a pro-humanitarian agenda that includes significant telecom reform. Chief amongst these policies is the idea of net neutrality.
Net neutrality
At its most basic level, a net neutrality policy stops ISPs, mobile carriers and landline carriers from dictating 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.
Net neutrality is a relatively new issue in the realm of American politics. It was of little import during either of Bush’s terms… That is until Comcast changed everything.
Incensing the FCC
In late 2007 it was discovered that Comcast was actively employing a technology that caused established links between BitTorrent and Gnutella peers to transparently reset. The clandestine technology caused Comcast customers to unwittingly send forged reset packets to established peers 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 Comcast’s audacity. 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, new life was breathed into net neutrality with the bi-partisan signing of a new 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 ongoing war over net neutrality.
During the hearing, 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–and to a lesser extent, global–web traffic: Hands off.
The aftermath of 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 has alleged in an unfolding 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.”
While Comcast argues that the scope of the FCC’s powers do not empower the body to sanction, the FCC has maintained that they are not expressly forbidden from the actions they took against the ISP last summer. Given this level of legal ambiguity, it is clear that some sort of legislative mechanism is required to support the FCC’s quest to keep the Internet open.
Current efforts in net neutrality
Most recently, FCC Chairman Julius Genachowski has begun to make good on the Obama administration’s promise to pursue a net neutrality agenda.
In a prepared statement delivered yesterday, the Obama-appointed Chairman announced his intentions to begin legislation efforts.
“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.”
Telecom has not taken kindly to this position. ISPs and mobile carriers allege that forcing competition, interconnection and device agnosticism 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.
Carrier exclusivity periods
The FCC has also taken an interest in busting phone exclusivity periods for mobile carriers.
On June 18, FCC Commissioner Michael J. Copps promised that the FCC would soon be examining the legality and competitive nature of exclusivity periods for new mobile phones.
“The second ‘other telecom issue’ I want to touch upon, and which is much in the news recently, is exclusive arrangements between wireless carriers and handset manufacturers,” he said. “In the fast-changing wireless handset market, too, we must ensure that consumers are able to reap the benefits that a robust and innovative competitive marketplace can bestow.”
“I appreciate the concerns that have been expressed on Capitol Hill and elsewhere, and I agree that we should open a proceeding to closely examine wireless handset exclusivity arrangements that have reportedly become more prevalent in recent years, and I have instructed the Bureau to begin crafting such an item.”
The announcement (PDF) came just days after a Democratic Senate subcommittee took competing arguments considering whether or not deals like AT&T’s long-running iPhone monopoly or Sprint’s Pre exclusivity are harmful to consumers.
Copps instructed the Bureau to begin looking at these arrangements to ensure that consumers are truly receiving a competitive market.
JUSTICE Act
A group of Senators led by Russ Feingold (D-WI) and Dick Durbin (D-IL) have floated the Judicious Use of Surveillance Tools in Counter-terrorism Efforts (JUSTICE) Act, a bill that would significantly reform the FISA Amendment.
The JUSTICE Act seeks to oust the most abusive portions critically maligned FISA Amendment Act which gave telecom companies immunity for participation in the Bush administration’s warrantless wiretapping program.
Senator Feingold says the JUSTICE Act is designed to empower law enforcement while simultaneously guaranteeing that a citizen’s right to privacy and due process are not trampled in the process.
“Every single member of Congress wants to give our law enforcement and intelligence officials the tools they need to keep Americans safe,” said Feingold.
“The JUSTICE Act permits the government to conduct necessary surveillance, but within a framework of accountability and oversight. It ensures both that our government has the tools to keep us safe, and that the privacy and civil liberties of innocent Americans will be protected.”
Abolition of the FISA Amendment Act, which gives telecom companies immunity in warrantless wiretapping cases, is a major push of the JUSTICE Act. Should JUSTICE succeed in Congress, not only will telecom be subject to privacy suits, but the courts will finally be free to uncover the size and scope of the Bush administration’s warrantless wiretapping program.
Verdict: Partisan
The Obama administration’s numerous pro-humanitarian social policies have had the table-turning effect of forcing the GOP onto the “Not Democrats” platform. At the same time, the pro-consumer national IT policies have also put telecom on the “Not Democrats” platform. Now circumstantial bedfellows, the Republican party is all too happy to accept telecom’s prodigious lobby money in battling a common enemy.
Yesterday, Texas senator Kay Bailey Hutchinson attached anti-net neutrality stipulations to a funding package for the Interior Department. Indeed, this is just one of many Republican oppositions to telecom reform:
- Republicans worked to defeat net neutrality language in a House Energy and Commerce bill.
- Republicans oppose net neutrality language in a broadband stimulus package.
- Republicans oppose regulatory division of regional cable operator monopolies.
- Republicans oppose a la carte cable channel purchases.
- Republicans oppose ending phone/carrier exclusivity periods.
It is interesting to watch how just two turns in the political landscape have put them in league with the telecom industry they twice endeavored to break apart.
Is it really coincidence?
In sorting through the last 120 years of telecom politics, it is easy to support the position that partisan politicking over the role of telecom is relatively recent. And recent though it may be, the Republican/telecom side of that politicking is clearly working to derail policies that would support customers with competition, choice, and freedom on their cell phones and on the web.
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