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The FCC’s exercise in ‘net futility’

COMMENTARY | January 10, 2011

By avoiding any mention of reopening networks to competition, the FCC assures there will be nothing neutral about the future of American broadband.

By Bruce Kushnick

The FCC’s new 194-page order “Preserving the Free and Open Internet” has sparked an active debate over whether it helps or hurts the cause of “net neutrality”. But missing from that debate is any recognition that this entire process is a distraction created to take America’s eye off what should be our primary goals for broadband: competition, low cost, innovation and economic growth.

Today, there is no serious competition for broadband and Internet. Period.  In fact, in most cases it is sold as a “vertically integrated” product, tied to other services in order to get the cheaper price, such as with buying a “triple-play” of cable, phone and internet/broadband. The idea that the FCC refused to even address this lack of competition – or the lack of actual investment in critical infrastructure by the major incumbents, despite a decade’s-worth of rate increases -- should serve as a red flag to anyone that is nothing more than  a political spectacle, not a pragmatic plan.

ldquo;Net neutrality” wouldn’t be as big an issue if there was competition, because then if customers’ service was harmed or degraded, they could simply choose someone else. But because the FCC in 2005 closed the networks to competition, it is only the wire cable and phone companies who control broadband.

In 2005, the FCC rewrote entire sections of the Telecom Act of 1996. That act opened the “last mile” -- the connection from the customer’s home or office to the network. Doing so brought the largest gains in telecom history. Spurred on by the Internet and the World Wide Web, by 2000 there were over 9500 small Internet providers who had brought America to the Internet and who helped sell the incumbents’ services and drive innovation. By 2005, AT&T and MCI were the two largest competitors, with over 10 million local phone customers nationwide, and an estimated 35% of US households for long distance service.

And yet, in 2005, the FCC closed the networks, essentially putting 7000 ISPs out of business as they were blocked from offering higher-speed services (i.e. DSL) and AT&T and MCI were no longer allowed to offer local service using the phone networks. Those two companies were put up for sale and purchased by SBC (which took the AT&T name) and Verizon.  The cable networks were already closed, even though during mergers such as AOL-Time Warner, they were required to allow competitors on the networks.

The idea was to create competition between the telcom companies and the cable companies. But the record shows that as of 2010, Verizon and AT&T combined only have about 6 million upgraded cable-TV capable homes, and the cable companies only have 20% of residential voice customers.

They did, however, split the broadband market, which they gobbled up once they got rid of those pesky competitors. And when it comes to wireless, AT&T and Verizon have 180 million customers and dominate the market.

Way back in  2005, Ed Whitacre, then CEO of  AT&T  was asked: “How concerned are you about Internet upstarts like Google, MSN, Vonage, and others?” He replied:

How do you think they're going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes?”

Fast forward to 2010, and a company called Level 3, which handles Netflix traffic, has been in conflict with Comcast, with Comcast wanting to charge Level 3 extra for handling the traffic. Level 3  writes:  “Comcast wants to use its local access network dominance as leverage to force Level 3 to pay for traffic requested by Comcast customers that already pay Comcast for access to that same content….Having sold broadband access services to its customers, Comcast wants to sell the same service again to Level 3 and other networks connected to Comcast.”

The irony of people like Whitacre talking about all the capital they have spent is that is is customers, and not the phone companies, who are the primary investors of the current networks – and the companies have not built out the networks that they have been and continue to be paid for. America moves slowly down the international ladder in terms of broadband quality, now ranking 15th. And that despite the fact that America has paid out about $320 billion dollars – over $3,000 per household -- to these companies to build their networks, and continues to send them even more as state public service commissions and legislatures continue to raise rates.

Indeed, the real kicker is that phone companies have slowed down their broadband deployments in anticipation of stimulus spending and the proposed National Broadband Plans, which are poised to raise customers’ rates five different ways.

Also, the 2010 quarterly reports of Verizon and AT&T shows that they are transferring monies out of the local phone companies to pay for their wireless upgrades. Verizon’s  capital expenditures for laying wire is down 30% since 2009; AT&T’s wireless capital expenditures are up 62% on their wireless services.

But federal regulators aren’t bothering to examine the state commitments to upgrade their infrastructure or the transferring of funds out of the utilities to pay for the wireless deployments. And as a result, America’s critical broadband infrastructure poses a serious obstacle to in being competitive worldwide, harming the economy and customer’s pocketbooks.

The bottom line is the FCC plan maintains the status quo; it doesn’t fix the basic problems.

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