Phones and Internet Threatened by Big Telecomm Privatization Scheme

By David Rosen and Bruce Kushnick, AlterNet

03 August 12

Consumers stand to lose big-time if the FCC and its corporate friends get their way.

egulatory capture is when private corporate interests take over an agency and instead of serving the "public" good, it serves the interests of private corporations. Such capture is playing out at both the state and federal levels throughout America, eroding the basic ethical standards in government.

Nowhere is this more evident than at the Federal Communications Commission, one of the most influential agencies in which capture is part of the operating culture.

The most scandalous recent example of the FCC’s cozy relationship with the companies it ostensibly regulates took place in January 2011. Just a few weeks after the agency approved Comcast’s acquisition of NBC-Universal, a deal worth $30 billion, Commissioner Meredith Attwell Baker left to take a senior position at Comcast. One unanswered question is whether Baker was negotiating her compensation package while the agency deliberated the acquisition.

But nowhere are the consequences of regulatory capture more troubling than the FCC’s ongoing effort to deregulate and privatize the nation’s telecommunications network, especially what has historically been known as the Public Switched Telephone Network (PSTN), the underlying telecom infrastructure.

The rationale for the closing of the PSTN is to replace traditional voice service with "VoIP" (voice over the Internet), thus transforming an analog "communications service" to a digital "information service." With this sleight-of-hand, a once regulated utility like electricity and water will be deregulated into a private service -- even though the signal goes over the same wire that was originally a phone line.

In addition, the FCC’s efforts are intended to end telecom’s traditional "utility" requirement as the "carrier of last resort." In this way, telcos will no longer have to provide phone service to those they deem "unprofitable," especially in rural areas.

But capture at the FCC also functions on a more everyday, invisible manner. Ever hear of the FCC’s Technical Advisory Council (TAC)? It’s supposedly a nonpartisan group that advises the FCC on technology issues that underpin the agency’s policy decisions. It’s playing a central role in restructuring our nation’s communications system.

One of TAC’s goals involves killing off the PSTN. Today, AT&T and Verizon claim PSTN is a "private" network, even though it was funded directly by ratepayers. In addition, the telecom duopoly controls the mostly unregulated wireless system. Further, AT&T and Verizon have entered into deals with cable companies, including Comcast and Time Warner, that will strengthen their overall influence.

These companies make up what we call the Communications Trust and it wields enormous influence, especially at the FCC. No wonder why the U.S. ranks 17th in broadband. Today, regulatory capture is business as usual.

Breaking Down the Public Network

The FCC has repeatedly used advisory committees to legitimize the restructuring of the telecommunications sector. These special outside groups consist of industry "experts," academics and representatives from trade associates and non-profits. They establish legitimacy and are required by the Federal Advisory Committee Act (FACA). It warns:

Because conflict-of-interest reviews are only required for federal or special government employees, agencies do not conduct conflict-of-interest reviews for members appointed as representatives. As a result, the agencies cannot be assured that the real or perceived conflicts of interest of their committee members who provide advice on behalf of the government are identified and appropriately mitigated.

It adds a cautionary note: "Further, allegations that the members have conflicts of interest could call into question the independence of the committee and jeopardize the credibility of the committee’s work." These words speak directly to TAC’s inherent flaws.

These ostensibly "independent" FCC bodies provide legitimacy to promote an unstated four-fold agenda: (i) to end the long-embraced belief that communications is a public "utility," (ii) to raise consumer rates, (iii) to remove all remaining regulations and (iv) to increase industry consolidation. This strategy is clearly evident in the current TAC.

TAC’s stated goal is to close down the PSTN. At a December 2011 meeting, it announced: "The FCC should take steps to prepare for the inevitable transition from the PSTN … ." In addition, it argues: "As the number of subscribers on the PSTN falls, the cost per remaining customer increases and the overall burden of maintaining the PSTN becomes untenable."

To appreciate how the FCC shell game works, one has to understand how, over the last decade, the concept of communications has been redefined.

During the last century, each state had a phone company that was a "utility." Like roads, water or even electricity, it was understood that in order to supply phone service to everyone, everyone needed to be wired, whether businesses, schools or residential customers. The Communications Act of 1934 established, guaranteed that everyone was to get phone service. The telecom utility was conceived as "public" service.

The "public" communications network, the PSTN, was built on a copper wire infrastructure and the principle services it supported were called "POTS," plain old telephone service, voice communications. However, starting in the 1980s, "data services" like fax to online services were added.

Starting in the 1990s, this copper wire infrastructure was supposed to be replaced with fiber optic running digital 1s and 0s. Nevertheless, much of the existing telecom infrastructure, especially what is known as the "last mile" (the segment that includes a person’s in-home wiring and landline hookup to the network), remains copper. This is primarily because the telecom duopoly, Verizon and AT&T, hasn’t upgraded the network. By 1996, when the latest Communications Act was passed, it was clear that the telecom infrastructure, especially the last mile, had become the duopoly’s toll road.

During Michael Powell’s tenure as FCC chairman (2001-2005, the George W. Bush administration), the agency institutionalized a dubious, if critical, distinction that has become seminal to the on-going privatization of 21st-century telecom. Under Powell, traditional telecom was broken into two distinct service sectors, "information" and "communications." The distinction was originally intended to distinguish between "the wire" or transport and "the content" or voice service.

Under Powell, the FCC collapsed the two categories with the result that the distinction became one without a real difference, a form of hypocrisy. The agency’s goal was to further promote the privatization of telecom, defining an increasing number of Internet and broadband operations as "information" services.

In its 2001 "New Jersey Infrastructure Report," Verizon of New Jersey exposed the fiction at the root of the distinction. It made clear that it operates one network, not separate networks for "communications" and "information":

By integrating a number of services on a single network, Verizon NJ will continue to make optimum use of our service delivery capabilities. The evolution to the full service ATM [Asynchronous Transfer Mode] based switched broadband network will increase significantly the efficiency of serving New Jersey through automated provisioning and activation processes, increase capacity availability, and result in an even more flexible delivery platform. Verizon NJ’s integrated network of switches, transmission facilities and operating systems provides New Jersey’s residential and business communities with a technologically advanced telecommunications infrastructure that is ready, willing and able to act as the on-ramp to the Information Highway.

In 2001, the telecom trust was still speaking about delivering Al Gore’s Info Superhighway. Now, two decades after Gore proclaimed it, the telecom trust that received billions of dollars through rate increases and tax subsidies and has have failed to delivery the 21st-century Info-Highway.

Nevertheless, the distinction between communications and information lives on, enabling the FCC to further deregulate, increase rates and eliminate competition. And the chief beneficiaries of such deregulation are none other than the dominant telecom duopoly of AT&T and Verizon and the giant MSOs (multiple system operators) led by Comcast. Which brings us back to the current Technical Advisory Committee.

Conflict of Interest

The term "conflict of interest" seems to have no meaning in Washington, DC. More so, TAC appears to have been set up by AT&T and Verizon to close down the PSTN.

TAC consists of some 50 members who represent a diverse assortment of players, including telco and cable companies, Internet Service Providers (ISPs) and web services, infrastructure suppliers and equipment manufacturers, trade associates and investment bankers, academics and a handful of startups.

The 2011 revenues from 16 of the bigger companies participating on the TAC was close to $800 billion; they have a vested interest in the outcome of the FCC deliberations. More revealing, in addition to their individual corporate interests, the majority of TAC members have financial ties to the telecom duopoly of AT&T and Verizon. (AT&T controls 22 states’ utilities and Verizon has at least 10 states as well as GTE properties garnered through mergers.)

A cursory review of TAC representatives reveals that over half have direct financial ties to the telecom trust.

Cable sector:

• Comcast has a joint marketing deal with Verizon and is selling wireless spectrum to it;
• Time Warner has a joint marketing deal with Verizon and is selling wireless spectrum to it;
• Bright House is also selling its spectrum to Verizon.

Telco & switch sector:

• Harris partners with AT&T serving public safety agencies;
• Juniper Networks " partners with Verizon.

High-tech sector:

• Apple, Google and Microsoft have joint sales programs with both AT&T and Verizon for their respective smartphones and tablets.

Equipment sector:

• Motorola has deals for AT&T phones and Verizon wireless;
• Alcatel-Lucent partners with Verizon wireless;
• Intel partners with Verizon.

Investor sector:

• Hummer Winblad partnered with Verizon Ventures in KIIP;
• General Atlantic funded AKQA, a major Verizon wireless client;
• New Venture Partners partnered with Verizon.

Service sector:

• Accenture (formerly Arthur Anderson Consulting) partners with AT&T and Verizon Business Services.

Non-profits:

• VON Coalition ("Keep IP communications free from government regulations") is backed by AT&T;
• Silicon Flatiron (at the University of Colorado Law School) is backed by AT&T, Verizon and Comcast;
• National Association of Broadcasters (NAB) and the Consumer Electronics Association (CEA) do not list their membership, so one can only guess if AT&T, Verizon or Comcast are members.

Government sector:

• DARPA (Denfese Advanced Research Projects Agency) works with Verizon on federal systems.

A review of TAC representatives identifies a handful of ostensible competitors, three to five companies that have a vested interest in the old PSTN and in preserving some form of "public" network, if not meaningful competition; these companies include XO, EarthLink and Level 3, they account for about $6 billion in revenue. This is less than 1 percent compared to the nearly $800 billion in revenues aligned with the interests of the AT&T and Verizon.

A further insight into how regulatory capture works at the FCC is revealed in the role played by TAC's chairman, Tom Wheeler. He is an old hand in the inside-the-Beltway game. He served as president of the National Cable Television Association from 1979 to 1984 and was CEO of the Cellular Telecommunications and Internet Association from 1992 to 2004. After several years at a number of technology start ups, Wheeler is now a principal with Core Capital Partners. He knows how to corral cats. He recently opined: "PSTN is a casualty of the digital world."

Reviewing the list of TAC representatives, two sectors are remarkably absent. One consists of PSTN users, which is everyone with a phone service from AT&T or Verizon, and it ranges from large-volume corporate entities to the small mom-and-pop businesses, not to mention inner-city to rural users. It’s their pockets being picked every month that keeps the system going. The other sector consists of public policy and advocacy groups that question the dominant corporatist mindset that defines the FCC and, in turn, TAC. They offer a different interpretation of telecommunications and, in a democracy, should be heard. The absence of these two groups speaks to the unquestioned power of regulatory capture.

TAC should be seen as a "technology" council positioned to change public policies.

Who Protects the Public Interest?

The end of the PSTN is a victory for those championing corporate privatization. Unlike the models being adopted by the military as well as by hospitals, social service agencies and even municipal custodial functions, customers are overcharged for the privilege of having corporations privatize publicly funded networks. It signals an end to the notion of communications as a utility.

The FCC is promoting a program to benefit the short-term interests of AT&T, Verizon, Comcast and the other telecom trust players. The obvious question is: Who is protecting the public interest? It’s surely not the FCC!

With rare exception, FCC commissioners and staff gladly pass through the telecom industry’s revolving door and end up serving corporate interests. Baker’s jumping to Comcast was pretty obvious, but let’s not forget that Powell is now head of the cable trade group, NCTA; Kevin Martin became co-chair at Patton Boggs, Washington's highest-grossing lobbying firm; William Kennard took a senior position at the Carlyle Group; and Reed Hundt has worked at McKinsey and the Blackstone Group. Not bad career moves.

The Communications Trust is rolling the dice on America’s future. They are gambling, with the FCC’s complicity, that the nation’s future will be wireless. It is a fool’s game.

Except for being able to be "mobile" with your phone, wireless is an inferior technology, especially for broadband or to compete with cable. And more to the point, every wireless phone call hits a cell tower that is connected to a wire owned by the phone companies.

Today, the U.S. ranks 17th in broadband services. In all likelihood, the unspoken "conspiracy" by the FCC and its technology advisers will lead to ending the PSTN. Most troubling, killing off the PSTN signals de-investment in network infrastructure, especially the build-out of fiber to the home.

Failure to achieve fiber-to-the-home will further stall the U.S.’s development of a truly 21st-century broadband (e.g., 1 Gig), bi-directional network. Sadly, the FCC, working closely with TAC, will guarantee that U.S. telecom remains oh-so 20th century.