Explore Harvard's Nieman network Nieman Fellowships Nieman Lab Nieman Reports Nieman Storyboard
Laying fiber-optic cable in Illinois in 2004.(AP)

What now for broadband and the telecoms?

ASK THIS | November 17, 2008

Will Obama and Congress be satisfied to leave the U.S. as 15th among developed nations in broadband use? Will the FCC under Democratic control be less of a tool for large corporations? Questions and proposals from Bruce Kushnick.

By Bruce Kushnick

Questions for Obama and Congress:

Q. Will you set the goal of broadband access at 1 gigabit in every American home?

Q. Why aren’t telecom subsidies being directed to cover much-needed infrastructure improvements?

Q. What steps should be taken to democratize the FCC’s decision-making process?

Q. Will you re-introduce and implement the parts of the 1996 Telecommunications Act that promote competition?

Q. Is it time to break up AT&T again? And Verizon, as well?

Telecommunications reform needs to be on President-elect Obama’s agenda and that of the 111th Congress. It is a key aspect of overall infrastructure renewal and will impact the future of the nation’s economic prosperity, educational system and its role in an increasingly globalized world.

January 1, 2008, marks the 25th anniversary of the breakup of the old AT&T after a successful Department of Justice antitrust suit during the Reagan administration. AT&T was broken up because a then-upstart, MCI, wanted to compete to offer long distance service and AT&T did everything in its power to block competition. The case, initiated by the Ford Administration and pursued under Jimmy Carter, showed how the government could help foster fair competition in the telecommunications industry. But thanks to deregulation in the 1990s, we now live in an age of mega-telecoms, including a reconstituted AT&T.

The results have been damaging to Americans—and widely ignored by the traditional news media. The U.S. share of worldwide Internet traffic has shrunk over the last decade from 70 percent to 25 percent. The Organization for Economic Cooperation and Development (OECD) ranks the U.S. 15th out of 30 leading industrial nations in per capita broadband use. And Americans are getting poorer broadband telecommunications services—lower bandwidth—and paying more than citizens in most other advanced industrial countries. 

Corporate control over the broadband agenda in Washington, D.C., and the state capitals has let mergers go unchecked. A few mega-telecoms now control local service, long distance, Internet connectivity (ISP services), broadband (DSL) and the wireless spectrum. Competition no longer exists for wireline phone service and will likely soon shrink for wireless service. Charges to consumers continue to rise even as costs to providers continue to drop.

Just as there is a need for the re-regulation of America’s financial system in light of the current mortgage and banking crisis, a meaningful strategy is also needed for telecommunications. Here are five proposals:

1. Broadband access at 1 gigabit for households

A goal for households and businesses in America is to have broadband access at 1 gigabit (1000 mbps), the rate that most Asian and European countries have targeted as a baseline. KDDI, a leading telecom provider in Japan, plans to offer 1gbps Internet bi-directional (upstream and downstream)services for only $51 a month.

Currently in Japan and South Korea, connections at 100 mbps are routine. In the United States, however, a tiny fraction of that rate—one five-hundredth of it, in fact—is defined as broadband by the FCC. The smaller the band, the greater the constraints. The FCC’s definition is a joke for technologists, a fig leaf for the FCC’s failure to regulate in the public interest.

For broadband, most Americans rely on DSL, which transmits data over local telephone lines. DSL runs on old copper wiring, not the more modern fiber optic cables. Only 4 percent of U.S. broadband subscribers have fiber connections, according to the OECD study. In Japan, the figure is 45 percent, in South Korea, 30 percent. The average among all nations is 9 percent.

America’s giant telecoms, Verizon and AT&T, have fiber lines in a combined total of only 1.8 million out of the 100 million homes they service, even though they have received generous subsidies to rewire. New Yorkers for years have seen ads for Verizon’s FiOS (for fiber optic service), but it still isn’t available for most of them. And where it is available FiOS is lower in speed and higher in price than what is offered in other advanced industrialized countries.

The new president and Congress should force the telecoms to deliver on the promises they made in the 1990’s to rewire America, something I wrote about on Nieman Watchdog in 2006. Had they kept their word, by 2009 98 million households—the overwhelming majority—would have world-class communications available.  In some states, the promises are in the form of contracts. But state governments and the FCC have done nothing to hold the telecoms accountable. 

2:  Recoup subsidies to pay for infrastructure upgrades   

The telecoms have collected an estimated $280 billion based on promises to provide broadband. The money came from customers who have been overcharged for local phone services, from numerous tax perks and from financial incentives granted by individual states. But the promises haven’t been kept.

Wireline prices continue to rise in virtually every state. For example, in New Jersey residential and small business subscribers to Verizon have had barrages of cost increases, including a recent 80 percent increase. In California, since 2006, AT&T has increased prices for directory assistance (226 percent), residential inside wire protection plan (101 percent) non-published listing service (346 percent) and a local three-minute call (233 percent).

The $7 billion-plus Universal Service Fund is another source of telecommunications industry’s hidden subsidies. Every phone customer pays Universal Service Fund taxes, either state or federal or both. Part of the 1996 Telecommunications Act, this federal program had lofty goals of wiring America’s schools and libraries and supplying phone service to the poorest rural communities. In reality, the largest part of this fund does not go to these worthy goals but to so-called “high-cost support,” which are corporate subsidies to the phone companies.

The FCC and the states should determine whether these charges are excess profits being given to wealthy companies If that is the determination, the money should be returned.

3:  Democratize the FCC decision-making process

Under Republican control, the FCC has become a tool for large corporations. Its research data have been compromised by political concerns. Every year since 1998, the FCC has maintained that broadband is being deployed in a timely and reasonable manner, but the U.S. keeps falling behind other countries.

Part of the problem, as I described on this site in October 2007, is the inordinate influence that corporate-funded think tanks and lobbyists have had in the FCC’s deliberative processes. Here are three steps to help address this concern

  • Members of Congress should recuse themselves from voting on legislation involving a corporation’s interests if they received any financial or other support from that corporation.
  • The IRS and state attorney generals should tighten non-profit requirements to ensure that such groups are not fronts for corporate benefactors.
  • Congress, state legislatures, the FCC, and other state and federal agencies should require all who publicly testify at federal hearings and meetings to make full disclosure as to their corporate affiliations.

4: Return competition to the telecom industry 

As the 25th anniversary of the breakup of AT&T approaches, we seem to have come full circle. The dominant telecom behemoths, AT&T and Verizon, have reached their status through mergers, not competition.

The Telecommunications Act of 1996 was supposed to lead to many phone companies competing to provide phone services as well as Internet services. It envisioned Internet start-ups offering phone services. But the telephone companies proceeded to consolidate, not compete, while thousands of Internet providers were driven out of business. Thanks to the chipping away of the Act by the FCC and sheer lack of implementation, customers have been stuck with a duopoly that offers inferior and expensive products. The FCC must re-introduce the best part of the Act, reopening the telecommunications industry and lowering prices for all customers.  

There are also those who believe that opening up the wireless networks and/or providing more spectrum will act as work-around to the broadband infrastructure problems. In a previous article, I outlined how AT&T and other huge companies had been able to game the regulatory system and save billions on the spectrum auctions by qualifying as “very small businesses.” We don’t believe that wireless is a substitution for essential, open, ubiquitious, infrastructure 

The current wave of telecom bills in Congress are small steps in attempting to fix major problems. They’re inadequate in that no one bill actually calls for an accounting of the money collected for broadband or reopening of the networks that were closed by the FCC’s bad decisions.

5: Consider breaking up AT&T and Verizon 

Congress should now consider divestiture to create open, competitive and fast new utilities instead of being dependent on companies that have failed to properly upgrade the local utility. Final divestiture would make most of the current concerns such as Net Neutrality moot by removing their root cause -- vertical integration of products and monopoly controls.

At the time of its 1984 break-up, AT&T was the premier telecom firm in the world. It had the largest portfolio of patents and drove the nation’s post-World War II technology boom. Today, America’s telecommunications system resembles that of a developing nation. President Obama and Congress should lead America’s effort to regain its predominance in the world, encourage innovation and bring 21st century services to all Americans.

David Rosen (drosen@ix.netcom.com) contributed to this article. Rosen is a writer and consultant to new media, technology and entertainment firms.

The NiemanWatchdog.org website is no longer being updated. Watchdog stories have a new home in Nieman Reports.