$300 Billion Broadband Scandal (2009) [pdf]

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In the previous thread there was a discussion to give the details of how the phone companies were able to charge customers excess profits and get tax perks that were supposed to be used to upgrade the networks. This book -- link attached --- has a description of how we calculated the numbers -- though it was written in 2004 - the 20th anniversary of the break up of AT&T.We have a new book coming out where we update most of the stats, but essentially, the phone companies were able to claim -- en mass --that they were going to replace the copper wires with fiber starting in 1991, and from 1993-to about 2005 they did nothing (with some exceptions) but they were able to get state laws changed to do funding of the upgrades. No state ever went back and examined the commitment and got refunds—so all rate increases are based on the original ‘commitments’—and changes in the law.In 2005, after they closed the networks to direct competition they started to do new upgrades-- "FiOS-Verizon" and AT&T, which simply used the old copper wires, added some remote terminals and called it U-Verse. Yet, Verizon and AT&T were able to charge basic POTS customers -- phone customers in most states for upgrades-- again. -- even if they will never get it.Our new report on Verizon New York shows that the 'affiliate companies, such as Verizon Online or Verizon Wireless, are able to use the networks and get expenses paid for by regular phone companies-- even though Verizon had announced no more upgrades http://newnetworks.com/verizonfiostitle2/

The cringley numbers are also our stats.The one thing to keep in mind is that we've been tracking this since 1991-- and so every year the numbers are going to increase.... thus differing amounts based on the date.

thanks. AT&T was broken up in 1984 and the company became a 'long distance company', while the local phone companies were spun off to create seven baby bells --

there was no internet then, and 'long distance' was a monopoly. In 1984 MCI wanted in, so that's one of the major reasons AT&T was broken up.

The court realized that they companies should be restricted from these other markets, like long distance because they could vertically integrate-- ie, combine local, long distance, broadband, and control the wire.

Long distance -- while that market has been diminishing year by year, in 1996, the incumbents wanted to get into this market, so they created the "Telecom Act of 1996" to trade off-- opening the networks in exchange for entering long distance.

If you look at any triple play they still have a long distance component-- about $12 bucks.. not counting taxes and while many might go voip - the average customer just wants the thing to work.

if you want the full history search for the "Unauthorized Bio of the Baby Bells" -- also a free download, with Foreword by Dr. Robert Metcalfe. (1998) The opening in $300 billion was taken from this first book.

rayiner raised some serious questions about the accuracy of this a month ago [1].

[1] https://news.ycombinator.com/item?id=7709556

What I don't understand is why a group of people so against regulation is so willing to embrace a number calculated on the premise that an entire industry should have 1970's style utility regulations, where the government decides based on political factors how much service should cost. There is of course the natural monopoly concern. But if you want to wonder into antitrust economics, natural monopoly isn't the only market failure that warrants regulation. Antitrust concerns can arise based in network effects, the kind which led to the Microsoft monopoly, and the kind that sustain companies like Facebook and EBay today. Should we set regulated rates for what EBay can charge? (In the 1970's when telecom regulation was in force, the idea of the government setting rates for auction services of EBay's scale wouldn't be unthinkable). Or do we acknowledge that we've been trying to get rid of that sort of ham-fisted regime, and that maybe telecoms should profit from the enormous boom in demand for their product over the last two decades.

There is of course the natural monopoly concern.

Pointing out that it's not bad enough in facebook's case to warrant regulation does not obviate the fact that it's clearly very, very bad with the telecoms, who for some crazy-ass reason aren't classified as providing telecommunication services.

> telecoms should profit from the enormous boom in demand for their product over the last two decades.

They haven't benefited from the boom in demand as much as they have benefited from the contraction in supply[0], combined with the fact that Internet access is essentially a utility.

If it were simply a boom in demand, that could be matched by a boom in supply and customers would be better off today than they were 20 years ago. Except we're worse off - if you had broadband 15 years ago, chances are you have fewer options today in your choice of provider, you're paying more, and you're getting approximately the same amount of service[1].

[0] There was far more choice in ISP in the late 90s than there is today for most consumers.

[1] The number of people with access to broadband has increased, but that's partly due to the insanely low threshold for "broadband" speeds, as well as a function of time.

Two decades ago (1994) I (well my parents) didn't even have internet. Got DSL around 1999, screaming 256 kbps. Now, we've (well, they) got 75 mbps FIOS. We also have 3-4 providers offering 10 mbps+ LTE. People on HN like to ignore wireless providers, but for your average consumer, wireless service is much more important than wired service. The average Comcast customer uses 2-3 GB/month of data. That's easily accommodated by wireless.

> [0] There was far more choice in ISP in the late 90s than there is today for most consumers.

Kinda. They all ran over the same copper phone lines. Consumers have a lot more choice these days between cable/wireless than they did back then. Also, as capital costs go up, the number of providers in a market go down. There were a lot of companies that owned fabs in the late 1990's. Today, we're down to a handful.

> [1] The number of people with access to broadband has increased, but that's partly due to the insanely low threshold for "broadband" speeds, as well as a function of time.

No, it's because over the last 20 years telcos have invested a ton of money in their networks. Over the last 20 years, cable companies upgraded their networks from simple analog networks usable only for TV to hybrid fiber-coax networks capable of two-way data service: http://en.wikipedia.org/wiki/Hybrid_fibre-coaxial. Those upgrades didn't build themselves nor were they free.

> Now, we've (well, they) got 75 mbps FIOS. We also have 3-4 providers offering 10 mbps+ LTE.

You are by far in the minority by having access to FIOS as well as another cable provider. Most consumers only have a single broadband provider (and if they have only one, it's almost certainly not FiOS).

> for your average consumer, wireless service is much more important than wired service. The average Comcast customer uses 2-3 GB/month of data. That's easily accommodated by wireless.

First I question that statistic (it sounds unbelievably low for someone who uses Netflix even moderately). But even if I accept that, it's not meaningful to talk about a hypothetical world in which a user can rely on their mobile phone plan to provide this kind of service - essentially all users are on data plans that would be throttled heavily if they tried to rely on wireless service as their primary means of Internet connectivity.

Secondly, that's not a great statistic to use. The question isn't what people use today, given the resources they have available to them - it's what they would choose to pay for if they had access to a faster, more reliable network.

I know I would be happy to pay for proper, faster Internet access, but as it is, I'm paying through the nose for speeds that are consistently 60% of what was advertised. (This is illegal, sure, but clearly TWC doesn't care).

> Consumers have a lot more choice these days between cable/wireless than they did back then.

We have a choice between four wireless providers[0], whereas we had far more back in the early 2000s. And that only covers mobile access as far as I'm concerned (virtually no "average" user can use wireless networks as their primary access point[1]).

There is no way that you can convince me that consumers have more choice nowadays for cable than they did 15 years ago, or for mobile phone plans than they did 15 years ago. Competition has dramatically decreased in both markets.

> Those upgrades didn't build themselves nor were they free.

I'm not arguing that zero upgrades happened; I'm arguing that, for what we're paying, most consumers are not getting the level of service that they should be, and that is due to a decrease in the number of market players to a virtual monopoly, without a corresponding increase in regulation[2].

[0] Potentially three soon, if T-Mobile and Sprint merge

[1] In the US, of course. Third-world countries are a different story (look at many parts of Africa)

[2] I can't imagine Con Edison operating in NYC without the heavy regulation that is is subject to; I see no reason that ISPs should be any different.

> You are by far in the minority by having access to FIOS as well as another cable provider. Most consumers only have a single broadband provider (and if they have only one, it's almost certainly not FiOS).

The point of the anecdote is to look at how far we've come in 20 years. We're in a very connected area, but we've still come a long way in 20 years. There's lot's of places that don't have FIOS now, but those folks also didn't have DSL in the late 1990's. The average U.S. connection, according to Akamai, is 10 mbps. That's a huge increase over what it was even 10 years ago.

> The question isn't what people use today, given the resources they have available to them - it's what they would choose to pay for if they had access to a faster, more reliable network.

The prevailing trend is a massive growth in demand for wireless broadband, with limited growth on the wired side. Unsurprisingly, that's where companies are investing their capital.

> There is no way that you can convince me that consumers have more choice nowadays for cable than they did 15 years ago, or for mobile phone plans than they did 15 years ago. Competition has dramatically decreased in both markets.

Consumers don't have more choices for cable or more choices for wireless, but I think they definitely have more choices for internet accounting for all the different ways of accessing the internet. In 2000, in the northern VA area, we had 256 kbps DSL run over Bell Atlantic's wires. There were multiple ISP's, but it was the same wires and same basic service. Today, we've got FIOS, four different LTE providers, DSL, and Cox cable, not to mention satellite. Not everyone has so many choices, but I think the folks that don't have many choices today had even fewer choices back in the day.

> [2] I can't imagine Con Edison operating in NYC without the heavy regulation that is is subject to; I see no reason that ISPs should be any different.

Con Edison is in a totally different sort of business. In the last 20 years, telecom and cable companies have gone from dial-up and analog cable to DSL, digital HFC cable networks, and in some cases fiber. What's happened to Con Edison's infrastructure? Nothing besides basic maintenance. People say that telecoms should be regulated like power or water companies, but totally ignore the fact that power and water companies are using the same infrastructure they were using 50 and sometimes 100 years ago. Growth in electricity demand has been stable if not decreasing for decades. Growth in internet bandwidth demand has been exponential. Heavy regulation of the sort that's appropriate for a power company is not appropriate for an industry where we expect private companies to invest billions a year in keeping up with new technologies.

> There's lot's of places that don't have FIOS now, but those folks also didn't have DSL in the late 1990's.

That's not true at all! Most people who had cable and/or DSL in the late 1990s/early 2000s don't have FIOS today!

> The average U.S. connection, according to Akamai, is 10 mbps. That's a huge increase over what it was even 10 years ago.

Yes, Comcast has spent lots of money in expanding access to new regions, since that's the only way they can acquire new customers. They don't care about customer retention (their customers have no other choices), so they don't need to do much (if anything) to improve service to existing customers. The stagnation you're talking about has already happened.

> Not everyone has so many choices, but I think the folks that don't have many choices today had even fewer choices back in the day.

In almost all of the towns near where I grew up, the choices available today are a strict subset of the choices available in the 2000s, except at massively increased prices[0].

> Heavy regulation of the sort that's appropriate for a power company is not appropriate for an industry where we expect private companies to invest billions a year in keeping up with new technologies.

All that says is that the exact mandates of the regulation would need to differ, which I would agree is true. That doesn't mean that they shouldn't be regulated as a utility at all.

As I said before, the stagnation you're talking about has already happened.

[0] Again, I'm not counting LTE as an option, because that's not viable as a primary means to access the Internet in 2014, and is unlikely to be so anytime soon.

The number is way too high from what I've heard, but I'm more interested in the proposition that:

The RBOCs (now "AT&T", Verizon and Century) promised to wire up the nation with good broadband (this doesn't, to my memory, have anything to do with the Federal Telecommunications Act of 1996).

Got 10s of billions of dollars to do this.

If the two above are true, they obviously failed to do it, and weren't held to account.

What does "allow the Bells to enter long distance more than upgrade America's networks" mean? I can't parse that jargon.

Edit: "Bell telephone companies, largely to serve the growing market for data transmission and Internet access, are trying to enter the long-distance telephone market denied to them in the order that broke up AT&T in the 1980’s." http://praxagora.com/andyo/wr/bell_application.html

Edit: I still don't get it. Why was it denied?

It was part of the anti-trust case that broke up AT&T in the 80s and broke up local phone service into the baby-Bells. They were restricted from entering the market for long distance phone service as part of the deal.

The author is arguing that the primary purpose of the Telecom Act of 1996 wasn't to upgrade data networks, but rather deregulate them so that they could enter the long distance market. Given that AT&T and MCI ended up getting bought by two of the old baby-bells, this argument might have some merit.

> restricted from entering the market for long distance phone service

Sure but what does that mean? And why?

It used to be that phone calls were tiered, in that you got free "local" access, but it cost more to call out of your immediate area. The baby bells handled local access, but you used a different company to get your per minute long distance calls to work. There were ads on tv all the time trying to get you to switch your long distance provider.

One of the reasons that Bell was broken up in the first place was because they wouldn't allow competitors with cheaper long-haul rates for long distance calls to patch into their interconnects and thus offer their services to Bell customers. It sounds like as a result of the settlement that broke up the monopoly the baby bells had some sort of restriction on providing cross-country or inter-regional service. The author is contending that the 1996 legislation, lobbied for by the telecom industry, was more about removing that restriction than actually motivating them to provide better service.

It's history that goes /way/ back to the circuit-switched phone call days, and monopoly behavior. Here's my take on it:

To stop the high-priced no-progress monopoly behavior of the old AT&T in the long-distance telephone market AT&T essentially owned, the US sued AT&T, resulting in a consent decree settlement in 1984 where AT&T divested itself of 70% of its assets in order to retain its then-highly-profitable long distance business and its Western Electric switchgear business [1].

Competition was opened in long distance; prices and eventually profits went to commodity levels. Switchgear too; Western Electric gear was very expensive; competitors such as Nortel [2] and Digital Switch Corp (later DSC) [3] flourished for a while then crashed in 2001 as fiber and competition made long distance so cheap.

Meanwhile, the local telcos remained monopolies and thrived, merged, and eventually one of them (SBC) bought out several others and the old AT&T while others became Verizon.

But before all that consolidation (and the telecom crash [4]), the local "Bells" (telcos) argued for a return to enter the coveted Long Distance market. They don't have that for regulated landline service, which itself is now dying.

Long story short: Beware a monopoly if you're a customer, consolidate to become a monopoly and complain of regulations if you want to control a market.

EDIT: Moved to proper position as a reply

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[1] https://en.wikipedia.org/wiki/Breakup_of_the_Bell_System

[2] https://en.wikipedia.org/wiki/Nortel

[3] http://www.fundinguniverse.com/company-histories/dsc-communi....

[4] http://www.economist.com/node/1234711