The Bells Caused The Current Financial Recession:
The Fiber-Optic Fiasco and America’s Copper Dirt Road.
The Bells Caused The Current Financial Recession:
The Fiber-Optic Fiasco and America’s Copper Dirt Road.
The Bell companies have successfully defended their aging copper wire phone networks and destroyed any hope of competition or a fiber-optic future. Unless the problems of telecommunications are fixed, the recession won’t end anytime soon.
NOTE: The local Bell companies were created in 1984, spun-off from their mother AT&T, into seven large local phone holding companies (not including GTE). Today, these companies have merged with their siblings so there are only four very large holding companies left — BellSouth, SBC, Verizon, and Qwest. Verizon also purchased GTE.
As we enter the 21st century, the sparkle of our new fiber-optic future suddenly fades to a dull copper tone — the color of the three-quarters of a century old phone network based on copper wiring that is still in use today.
Our fiber-optic future was supposed to be here by now. Starting in the 1980’s and continuing throughout the 1990’s, the Bells convinced state and federal regulators that if they changed laws to give them more money, they would use these funds to replace the aging copper network — with a fabulous fiber-optic network and wonderous new applications. In fact, by the year 2001, more than half of American homes were supposed to have been upgraded to a glassy future —- a future with very high-speed broadband.
To read our previous report on the Bells’ failed broadband deployments, published by NetAction, see: “How the Bells Stole America’s Digital Future”. http://www.netaction.org/broadband/bells/
To see a timeline of the failed fiber-optic deployment in California see: Appendix One. (The Pacific Bell deregulation mimics the electric utilities’ behavior.)
The irony is that after all this time, the Bell monopolies have instead successfully defended their aging copper networks. First, they charged customers for these new services, with higher prices on local phonebills. We estimate the excess to be over $50 billion dollars and growing annually. But more importantly, the wonderland of fiber-optics has been replaced with a jerky-low-resolution world and it effectively canceled the next generation of technology. America paid for a Ferrari but has been left with driving a horse and buggy on an old dirt road.
In fact, through this fiber-optic fiasco, the Bell companies have become some of the most profitable companies in America — outpacing the Business Week 500’s profit margins by 256%, their utility brethren by 212%, and the top 9 companies by 170%. This includes: EXXON, Citicorp, AT&T, IBM, Enron, Wal-Mart, Ford, GM and GE. These profits are directly from phone customers, not Bell investments. (Source: Business Week, 2/26/01) To read a full report on the Bell’s profits see: Bell Profits, 2000 at: http://www.newnetworks.com/pressbellprofits.htm
More to the point, a recent Brookings Institute study claims that broadband would generate an additional half trillion dollar benefit. The title says it all: “The $500 Billion Opportunity: The Potential Economic Benefit of Widespread Diffusion of Broadband Internet Access”. This $500 billion obviously puts a price tag on the opportunity cost (or should we say, opportunity lost) for customers in the absence of deployment over the last decade. It is the cost of Bell behavior that obstructed competitive deployment. It is the cost of what happens when the Bells block others from deploying broadband.
And what are we left with? The Asynchronous Digital Subscriber Line (ADSL) offered by the Bells is a pale image compared to what was promised. It begrudgingly uses the old copper network, is a mostly one-way product, thus the “A” in Asynchronous, about 1/50th the speed of fiber-optic services, and has had a nightmare history of rollout so far.
Is this the best it will ever be? Are we left with “Almost Broadband” over an inferior wiring plan? Did America just spend $50 billion dollars and lose a half trillion in opportunity costs, to become a second rate, or third rate technology country?
How Did The Failed Deployment Equate To Causing The Recession?… Connect the Dots.
One has only to look at the massive loses in the Tech sector to connect the dots— Fiber-optics, network switches, tech components….
Headlines tell the tale of the current market and loses:
“Telecom Sector’s Bust Reverberates Loudly Across the Economy”, Wall Street Journal, 2/25/01
“JDS Uniphase Will Write Down $44.8 Billion in Assets, NY Times, 7/27/01
‘Fiber Optics’ Becomes a Four-Letter Word” Upside Today, 6/21/01
“Shining Future of Fiber Optic Loses Glimmer” The New York Times, 6/18/01
“S&P cuts Lucent to “junk” Reuters, 6/12/01
“3Com net loss widens to $518 million” CNET, 6/28/01
And the facts about the Tech market’s leading players shows the pain:
“Nortel expects $19.2 billion dollar quarterly loss” Wall Street Journal, 6/18/01
Corning’s stock price has gone from $113.33 on Sept, 2000 to $13.15 (6/29/01), about a 90% drop. Source: Upside Today, 6/29/01
A recent Gartner Group Dataquest study stated that the market for memory chips is in the middle of its worst decline in history. Source: Upside Today, 6/22/01
Over $90 billion was spent on laying fiber-optics in the last 4 years. Only 2.5% of the networks’ capacity are being used. Source: Wall Street Journal, 6/18/01
We contend that the missing generation of technology over fiber-optic wiring, and the Bell companies’ monopolistic behavior toward competitors, has been the catalyst for the current economic downturn. Had the Bell companies actually rolled out their promised networks — fiber-optic wiring to the home, and the wiring of schools, libraries, hospitals, and government agencies, then there would have been a new generation of very high bandwidth applications that would have been adopted by customers. More to the point, every tech and telecom segment, from the supplier of fiber-optics, such as Corning or the network suppliers, such as Lucent and Nortel, to the content companies that are supplying ‘streaming-media’ and telecom ‘soft-switch’ applications, would have flourished. This new generation of applications would have also spawned the need for higher-performing computers, new software applications, new computer chips to drive these machines and software, and every other conceivable add-on device, from digital cameras to CD-read-writes.
For a partial list of Tech companies that have been harmed by the Bells failed fiber plans and harm to competition, see Appendix Two.
Of course, many will point to the fact that there’s approximately 40 million miles of fiber in the ground. However, only 2.6%-5% is being used today. Known as ‘dark fiber’, America has a fiber-optic information-superhighway with virtually no “on” or “off” ramps. America’s homes and offices are not directly connected. That wiring was never done. The ‘last mile’ is still miles away.
However, the impacts of the Bells’ failed deployments and their harm to competitors also has had a serious ‘trickle-down’ effect to the rest of the economy. Companies start to cut back on all travel and entertainment and all purchases in general. Magazines and other media get less money for advertising, consultants, and ancillary people are let go. Companies lay off workers who purchase fewer things for their family and entertainment. In some areas, real estate and all retail stores start to feel the pinch…And it goes on and on.
The failure of the Dotcom industry also had an effect of all of this. However, many of the Dot.coms were seen for what they were — hollow entrepreneurial companies who had no true plan for profitability. And unlike the Dotcom sector, the telecom sector was based more on profit-models, run by more experienced telecom managers. We believe it was not the major factor for today’s current financial woes.
And let us be clear —there is a very clear line between the Bell companies’ broadband intentions and promises and the technology sector going toward delivering on the promises of broadband. For example, in a press release by Bell Atlantic, July 1996, (Appendix Three) dedicated to their ” six-and-one-half-year period” agreement with Lucent Technology, the Bell laid out their plan to deliver ‘fiber-to-the-curb” — meaning the wiring of homes. This contract for fiber-optic broadband was supposed to extend to January 2003.
“Later this year, Bell Atlantic will begin installing fiber-optic facilities and electronics to replace the predominantly copper cables between its telephone switching offices and customers…. The company plans to add digital video broadcast capabilities to this “fiber-to-the-curb,” switched broadband network by the third quarter of 1997, and broadband Internet access, data communications and interactive multimedia capabilities in late 1997 or early 1998.”
In fact, the Bell Atlantic region would be wired.
“Bell Atlantic plans to begin its network upgrade in Philadelphia and southeastern Pennsylvania later this year. The company plans to expand this Full Service Network deployment to other key markets over the next three years. Ultimately, Bell Atlantic expects to serve most of the 12 million homes and small businesses across the mid-Atlantic region with switched broadband networks.”
This is only one of thousands of documents. In fact, in every Bell company annual report, press releases, state and federal filings, advertisements, testimony, you can find hundreds of statements made about their eminent rewiring of America.
Every tech company, every fiber company, every switch manufacturer, and all ancillary companies spent billions to enter tool-up for the marketplace than never came.
Let’s Talk Irony, Deja Vue and Opportunity Lost
Anyone who was in telecom in the early 1990’s remembers the hype surrounding the Information Superhighway and this fiber-optic future. Hundreds of studies were released to explain why the Bell companies needed to get rid of the copper wiring and replace it with fiber. One of the most quoted reports was by the Economic Strategy Institute. Called “The Impact of Broadband Communications on the U.S. Economy and on Competitiveness” (1993), this study stated that $321 billion dollars in new growth could be expected over the next 16 years from broadband.
“Economic growth in the United States would be greatly accelerated by increased private sectors’ investment into broadband communications. Creating a more favorable environment for such investment could enable U.S. industries to create as much as $321 billion new GNP growth and 0.4 percent to annual U.S. productivity growth over the next 16 years-about the time currently needed for two cycles of investment in new telecommunication infrastructure. The gains would come on top of the gain of $191 billion in U.S. output that is already expected if present trends in broadband investment continue.”
Another study, titled “New Jersey Telecommunications Infrastructure Study, 1991”, by Deloitte & Touche dubbed “Opportunity New Jersey” (a Bell Atlantic state) proclaimed that the Info Highway was:
“essential for New Jersey to achieve the level of employment and job creation in that state”
“advance the public agenda for excellence in education”
“improve quality of care and cost reduction in the healthcare industry”.
The irony is as of July 16th, 2001, literally a decade later, the identical arguments of these two reports are being made in a study by the Brookings Institute and funded by the Bells. (Source: “Growing Broadband Market Could Lift Economy”, Internet.com)
“Our study suggests that the benefits to U.S. consumers could eventually be upwards of $300 billion per year and that producers could reap another $100 billion per year if broadband were to be as prevalent as ordinary telephone service today,” Crandall said. “And that could be a conservative estimate. Because we cannot easily foresee all of broadband’s potential uses — in healthcare, for example — we may have underestimated its potential.”
“Clearly, the impact of broadband by any measure — in terms of GDP, jobs, U.S. productivity and efficiency — will be profound,” Jackson said. “We’re looking at a transformative technology: one that doesn’t just create change at the margins of an economic system, but at its core.”
This Bell funded Brookings study titled “The $500 Billion Opportunity: The Potential Economic Benefit of Widespread Diffusion of Broadband Internet Access,” and a related one claiming that the Bells have not harmed the CLEC industry, are being done so that the Bell companies can claim that they should be given new financial incentives to roll out broadband through a proposed congressional bill, commonly known as “Tauzin-Dingell”, HR1542.
As we stated earlier, $500 billion, annually, should be considered the ‘opportunity costs’ of the Bells bad behavior, broken promises and harm to competitors.
Phase One of Competition is Over
It must also be stressed that the Bell companies overall monopoly behavior to the competitors, in order to protect their aging plant, has been deplorable and is responsible for almost destroying many of the competitive companies, from CLECs to the Internet Service Providers (ISPs).
There has been over $130 billion dollars in shareholder/company value lost and much of it has been caused by the Bells’ anti-competitive behavior. It is also why the capital markets are not going to come to the rescue any time soon. Like the technology vendors, horror stories abound.
·”DSL Providers Implode, As Stock, Bonds Wither Away”, Reuters, 4/3/01
·”Telecom Upstart Teligent Files for Chapter 11 Protection”, Industry Standard 5/21/01
·”PSINet files for bankruptcy protection”, CNET, 06/01/01
·”Contract’ killer: SBC aims at Internet”, San Francisco Bus Times, 6/25/01
“Northpoint Blames Verizon For Chapter 11″, New York Post, 1/18/01
·”DSL Provider Digital Broadband Files For Bankruptcy”, Newsbytes, 12/28/00
“CISPA urges California Public Utilities Commission to consider discriminatory practices of Pacific Bell and SBC’s Advanced Solutions, Inc.” 8/29/00
“BellSouth Discriminates Against Kentucky ISP”, ISPWorld, 12/6/00
“Zyan Communications Files Voluntary Petition for Chapter 11 Bankruptcy Protection, 12/6/00
“Georgia Warns BellSouth It Better Improve CLEC Service”, Communications Daily, 10/13/01
To see the dramatic downturn shift in the CLECs’ value, see the Association of Local Telecommunications Services, (ALTS) chart of “Public CLECs Market Cap & 52 Week Performance”, which reveals an average drop of 80% in value. (Appendix Four)
For a discussion of the Bell’s treatment of the CLEC industry see our companion report “The Bells Harmed The CLEC Industry: Bell Funded Brookings Study on CLECs Is Flawed.” at: http://www.newnetworks.com
Of course the Bell companies also said that they would be fierce competitors, going after their brethren. More of a joke then reality, SBC Communications in its purchase of the five-state Bell, Ameritech, stated that it would compete directly with its siblings. SBC claimed that once the merger was approved, the company would be in 50 major US Metros by mid-2002. Boston, Miami and Seattle were supposed to already be heavy with competition— but once again the Bell companies’ promises are nothing but a mirage. (See Appendix Five)
With the competitive CLEC and ISP markets being on life-support, technology purchases, from routers and services to new installations, both copper as well as fiber optics, have been dramatically slowed. It is clear that without this market being a vibrant part of the mix, then the only avenues for a digital future will be the Bell companies. Because of their enormous profits, directly from the customers, the Bell companies will simply wait out competitors until they have run out of money.
There are other significant issues that are also harming competition and broadband.
Harm to the Entire Broadband Segment: The Installation Nightmares, The Chain-of-Pain. The harm to CLECs was also mixed with the Bell companies harm to the entire broadband segment over the copper wiring. Documentation shows that over 50% of all installs done through a competitive ISP using a CLEC, had serious problems. This has caused a “Chain-of-Pain” because the Customer, the ISP, and the CLEC are all beholden to the Bell for installation and the use of the phone networks.
Holes In Deployment. Large segments of the population were not even offered DSL because the copper networks didn’t have “enough facilities”, meaning that the phone company hadn’t upgraded their copper networks properly. This has happened time and again in virtually every city. One ISP reported that they were told there were “no facilities in the Empire State Building” or other places in mid-town Manhattan, New York City. The other problem is that DSL has distance limitations of a few miles from the “Central Office”, the place where neighborhood phonelines are aggregated.
Cannibalization of the Bells’ Other Phone Products Slowed DSL. The installation problems were compounded by the fact that the Bell companies have had little interest in the product because it cannibalizes other services they offer. A “T1″, used for businesses, can sell for $700-$1,200 monthly. However, it can be replaced by a DSL service costing 1/2 that or less.
Harm to the DSL and Broadband Growth. Many Internet Providers are saying that the demand for DSL is now softening because of all of the tales of installation problems, the poor Bell customer services, as well as a new wrinkle — when an ISP or CLEC goes out of business, such as with Northpoint, the problems of getting service transferred and dealt with have made some customers just switch to anything else, but DSL.
Harm to the Innovators and New Products. The fall of the CLEC and ISPs markets also is the fall of innovation and new services. For example, the DSL offered by competitors is usually ‘full-DSL” meaning a two-way product. It also uses a different protocol than the Bell’s ADSL This is significant because the Bell ADSL blocks voice-over-IP, the ability to use the web for voice calling.
The bottom line is that the phoneline is in the Bell companies’ monopoly control and ultimately anyone who wants to compete has to connect to them or rent some component to offer service.
The real loser in all of this has been the American public — who lost a decade to the benefits of high-bandwidth, and the American investors, who paid good money for stock, only to see it dwindle to a fraction of their value.
The Vendors are Backing the Wrong Horse
After years of being somewhat complacent about the future of the networks, the hardware vendors have decided to jump on the broadband wagon. A recent Wall Street Journal article states: (Tech industry looks to broadband for salvation”, 6/25/01)
“High-tech executives think they’ve found a cure for the industry’s deepest slump in a decade: High-speed Internet access for everyone.”
However, instead of examining the facts, the vendors seem to be focused on giving the Bells more money. Andy Grove of Intel, taking the short-term view, is now interested in the regulatory freedom for the Bells so the Bells can make a lot of money.
“If we want to see broadband, we have to follow the money, as cruel and unfair as it sounds,” said Grove, who lunched with Ivan Seidenberg, chief executive of Baby Bell Verizon Communications Inc., the following day. Grove called for “a new approach” in which the Bells “should be allowed to invest with the fair expectation of making a lot of money.”
Of course if the Bells are the only ones left standing, then they will be the only game in town. The vendors have never taken a position because it is not good to contradict a large customer. However, this strategy is to therefore not fix the competitive problems and therefore, let the country be served with an inferior product offering and limited choices.
As one ISP put it “The hardware companies have the right diagnosis, that broadband is the answer, but they decided to use Dr. Mengele as the cure.”
The vendors’ position will of course cause more problems because the track record of the Bell shows they will not fulfill their obligations, and the vendors will still have not actually fixed the problems long term.
Getting Out of the Recession? Who Will Step in to Fix Telecom?
In order to bring back the capital markets to the competitive industry, in order for there to be any future in broadband, and in order to change the direction away from making the copper-network the network of choice by default, there are a series of steps that need to be taken.
If America is serious about pulling out of the recession, then there needs to be serious recognition that the current regulatory framework of telecom is broken, from the Federal Communications Commission to the state public service commissions ability to enforce the laws, or closing the holes in the Telecom Act of 1996 and state laws that fail to protect the customer’s broadband interests. What’s missing —-Accountability, enforcement, and refunds to customers.
However, there is little will in Washington or the states to take on a group of the most profitable companies in America — the Bell companies. By making use of their 100-year-old relationships on the state and federal level, and having Senators, Congressmen, and state regulators beholden to them on a number of levels, the Bells have been able to control the agenda.
The Bells and many politicians will also argue with political-jingoisms —- we need “deregulation”, “open networks”, “market drivers and competition will fix the problems”—- These words don’t reflect the actual market conditions, just political rhetoric. For example, the Telecom Act of 1996 was a bill to deregulate the telecommunications industry to bring in an era of competition that would lower prices and bring advanced networks to the public. The only true impact for customers has been higher prices, no major broadband rollouts, lack of competitive choice and the remonopolization of the Bell networks, the combining of 8 companies (counting GTE) into four.
After the act, there is still no vibrant competition for local services. The Bells are still in total control of the local copper phone networks and if someone wants to offer service, they must still use this network.
But it is clear that many politicians/ regulators haven’t looked at the facts. They just continue to recite the deregulatory anthem as a cure-all. (Deregulation is the removal of regulations on the monopolies) Why else is there a bill in Congress, presented by Reps. Tauzin and Dingell, to give the Bell new financial incentives to roll out a broadband network, calling for “regulatory freedom” — again? To read more about this anti-customer bill see: http://www.newnetworks.com/TauzinDingellisevil.htm
To be fair, the Regulators who do care are out-classed, out-flanked and out-funded. In state Alternate Regulation plans, the Bells companies out-spent the regulatory agencies about 30 to one, not counting all of the money spent on lobbying the state legislatures and other bodies who would determine the public interest.
Therefore, the most likely scenario for the next three years is more pain, unless the FCC, Congress and the states rise to the occasion. We believe that they will do nothing to fix the current problems, but they will say that they are publicly.
Case in Point? Dave Robertson, the head of the Texas ISP Association, recounted his recent meeting with Chairman Powell and senior staff at the FCC Enforcement Bureau.
“The meeting was Tuesday May 8th. In a nutshell, all the “bad acts” submitted to them to date have resulted in exactly “ZERO” dollars in fines, and little delay in their 271 approvals for the Bells to jump into the long distance market. We asked for something blatant as handwriting on a wall as to the future of the complaint process as we are approaching it. We got it. WE SHOULD EXPECT NOTHING FROM THE INFORMAL COMPLAINT PROCESS. We should expect nothing from any complaints we have submitted to date.
“A couple of weeks ago we met with a senior person in the ENFORCEMENT BUREAU. After a one-hour meeting and receiving some heartfelt empathy for the plight of ISP’s and the consumers who are being victimized by the illegal, anti-competitive behavior, I suggested that our best move might be to just jump out a window. He suggested we might want to consider throwing a chair out of the window first, so we wouldn’t get cut on the glass as we jumped.”
The Most Likely Scenario: Not a Pretty Picture.
America ends up having paid thousands of extra dollars per customer for a copper-wire based inferior ADSL product. All very high-bandwidth applications are dead in the water and America lost a generation of innovation.
NO enforcement equals competitive death, no innovation, and higher prices.
And here’s what to expect:
a) The Bell companies will slowly roll out their inferior ADSL product.
b) The cable companies will continue on their product.
c) Most competitors will put out of business by death of a thousand cuts.
It will take three -five years before the cable networks will be fully opened to ISPs, if ever, and there will be both technical and pricing issues that won’t get resolved easily. The telecom ADSL model is still a nightmare.
Regulation of the Bell is a joke and will continue to be. Any sign that the FCC or states will step in and fix the problems with any speed is just a waste of time.
The financial markets will be skiddish about putting any money into any company that requires the FCC or the state regulators to do anything.
The CLECs that are out there are already on life support and the Bells will simply do what they have been doing — give poor services with just a slap on the wrist when someone complains. Some will survive, but it will be hard going.
Because of their enormous profits directly from the customers, the Bell companies will simply wait out competitors until they have run out of money.
The Internet providers are totally hosed. They will be squeezed by the Bell DSL product and the cable product and so their current dial-up clients will slowly migrate over to Broadband — and therefore their service offerings will dwindle.
Wireless broadband is still in its infancy and needs to grow up in two-five years.
Because of the slow rollouts and lack of new serious applications, the entire tech sector takes years to fully recover. This will effect all hardware sales, including home PCs, all routers, servers, fiber-optic and related companies,
The demand for broadband will soften because of all the problems with the service, from installations and service quality, to stranded customers from closed out ISPs and CLECs having to migrate.
The capital markets will not support the tech sector or CLEC sector because they realize that the regulators are siding with the monopolies and therefore not enforcing the laws to protect the companies and their customers.
Fiber-optics is dead in the US until someone gets serious about mandating the Bell’s to fulfill their obligations.
Copper bandwidth is a band aid, dreamt up by the Bells to not fulfill their previous obligations. It will not get America into the future, it will simply bring us to faster web pages.
What Should Happen Next?
We have ended phase one of competition. It didn’t work for most customers, especially the residential customer. The primary reason it didn’t work is because there was no enforcement of the laws and prices to competitors are predatory. Therefore,
Enforcement: The FCC and the states need to administer a serious, penalty oriented, data-based, fast process for customers and competitors to be reimbursed for the time lost and money spent. How bad is it today? The “Rocket Docket” takes two+ years, and take $50,000-$100,000 in legal fees, and still not work.
We have developed the “Broadband Bill of Rights” to address these customer issues,
The Pricing Shell Game Needs End. Prices To Competitors Need to be Fixed. The other part of the equation has to be an examination and reregulation of the current discount pricing structure of Bell services offered to competitors, from CLECs to ISPs. Filings in numerous states and testimony by virtually every large competitor to enter local services, from AT&T and MCI, to Covad and Rhythms have shown that the prices for voice service or resale of DSL are so high that competitors lose money on every order.
The FCC also has to address how it is possible that the Bell companies are now some of the most profitable companies in America, yet they can also rig their books to show that local service is “not profitable”.
If there is a clear sign that competitors and customers are being handled properly and the laws are enforced, then the capital markets will reexamine these competitive companies and invest. This would then spur competitors to purchase more equipment, services, and the market sector would become more vibrant.
Make the Bells Accountable for Their Past Deeds. There has been virtually no accountability for the Bell companies’ failed deployment plans — virtually no penalties, fees, lower prices, even though there is clear documentation that the Bells have made over $50 billion in extra phonebill charges. (We have also found a series of very serious violations that effect not only the price of service but also the costs to competitors. The Bell companies actually took massive deductions, $21 billion dollars, stating that they were replacing the copper wiring to fiber-optics. See: http://www.newnetworks.com/irsrelease.html
And please don’t be fooled by the likes of such Bell funded congressional bills as “Tauzin-Dingell”. The claim that the Bell companies will bring America broadband if they are ‘freed from regulation has been dissproven by hard cold facts. That bill and others like it are nothing more than another way to give the monopoly more money. Before the Bells receive ‘regulatory” freedom, it’s time for the customer to be represented, the problems fixed and accountability in place.
If nothing else, a broadband ‘true-up” needs to occur — one that accounts for:
All monies collected to date in the name of broadband by state,
All other monies collected in the name of the wiring of schools, libraries, government agencies, etc. — this should include all state plans as well as the E-Rate, Universal Services, or additional state ‘school-wiring’ taxes and surcharges.
The amount of money actually spent in that state for regulated and non-regulated construction. — I.e; the amount customers paid vs the amount the phone company shareholders paid.
All monies collected and paid for by the state for the DSL rollouts (some states are allowing the basic service rates to include the costs of rolling out DSL, which is illegal in that it allows the monopoly to fund the ‘non-regulated’ services through every phone customer.)
The difference between the amount of money collected from ratepayers and what customers received for that money
The changes to state and federal laws that gave the Bells extra monies for broadband should be redone in light of these findings.
Accountability needs to go even further than what was promised over the last decade. Is America going to be a third-rate technology country because the Bell companies have defended their copper wiring and are not bringing to America a fiber-based network that they paid for?
There are clear signs that the older-dial-up services are bursting at the seams with high-bandwidth needs. One has only to look at the “Napster” application, the use of web-cams, the downloadable movies, or having your own TV-like channel, to know that there’s more out there than a slow-jerky-low-res. picture to our future. Joe Plotkin, director of DSL marketing for Bwaynet, talks frequently about ‘the “Imagination Bottleneck”. He says we won’t know what the next major broadband application is until we have the technology in hand to dream.
Will ADSL be America’s “finest hour” and we no longer get to dream of a fiber-optic future? Has it all been one big lie? Congress should step in and find out exactly what happened… and where do we go from here to make America a first rate concern, allowing our entrepreneurial companies to dream and not be tied down by a monopoly, defending their 20th century, seventy-five-year old wiring.
Year by Year: A Plan that Failed
(A timeline of Pacific Bell’s California First plan.)
November 1993: Pacific Bell unveils plans to spend $16 billion over seven years to upgrade its California network to handle interactive services like home shopping and compete against cable companies with video channels and movies-on-demand. May 1994: (NNI NOTE: by 2000, 6 million households.) PacBell begins network construction in Pacific Beach and Mira Mesa in San Diego. Construction also begins in San Jose and in Orange and Los Angeles counties.
October 1994: City of San Diego considers proposal to require that Pacific Bell pay franchise fees and abide by other requirements imposed on cable companies if it gets into the video business.
October 1994: Pacific Telesis, Bell Atlantic Corp. and Nynex Corp. form Tele-TV, a joint venture to provide the companies with video programming, entertainment and information to sell to residents.
January 1995: PacBell and city of San Diego sign “landmark” agreement, with PacBell pledging to give the city 5 percent of gross revenues from voice, video and data services sold over new network. City agrees not to regulate PacBell as a cable company.
April 1995: PacBell buys Cross Country Wireless Inc. and announces plans to offer “wireless cable” service to 5 million-customer service area covering San Diego, Riverside, Los Angeles and Orange counties.
NNI UPDATE: September 1995: Alternate Regulation is granted to Pacific Bell.
September 1995: PacBell slows network construction to save $1 billion in capital costs over five years for statewide project, but accelerates network construction in the San Francisco Bay Area.
January 1996: PacBell halts fiber/coaxial network construction in Los Angeles County. Network projects continue in San Diego, San Jose and Orange County (briefly).
April 1996: SBC Communications of Texas signs deal to buy Pacific Telesis.
May 1996: Network construction halted in Orange County.
June 1996: San Jose City Council awards PacBell a cable franchise, giving the company official standing as cable operator.
September 1996: PacBell begins selling video service in San Jose over its new network.
April 1997: SBC’s purchase of Pacific Telesis becomes final.
April 1997: Tele-TV, jointly owned by Bell Atlantic Corp., Nynex Corp. and Pacific Telesis Group, cuts staff in half and abandons all joint video projects in favor of individual company efforts.
May 1997: PacBell launches ‘wireless cable’ service in Los Angeles and Orange counties.
June 1997: SBC abandons almost all attempts to compete with cable, announcing immediate ends to Pac Bell’s video network project as well as a smaller test in Texas. The decision halts construction in San Diego and pulls the plug on 8,000 PacBell cable customers in San Jose. SBC writes off $500 million investment in both ventures.
November 1997: PacBell sends out requests for bids on various components of the partially built video network.
NNI UPDATE: July 2001: The California ISP Association files formal complaint about discriminatory behavior.
Liar, Liar, SBC’s Pants on Fire —-Where’s the Competition?
There are two reasons that there is no local competition today. The first is the documented harm to competitors and the second is the fact that SBC, the Bell company that owns three original Bells —- Southwestern Bell, Ameritech and Pacific Telesis, as well as SNET, (Southern New England Telephone) never fulfilled their stated obligations to compete in 50 major cities by next year, including other parts of the country, and therefore other Bell companies. (See page 3 for a complete list.) In fact, by now, SBC was supposed to be competing in the Miami, Seattle and Washington. (St. Louis Post-Dispatch [2/5/99])
“SBC aims to expand to Boston, Miami, Seattle” “SBC Communications Inc., the No. 2 U.S. local phone company, said Thursday that Boston, Miami and Seattle will be the first three markets where it provides services as part of its plan to buy Ameritech Corp.
“SBC said in May that it will buy Ameritech, an acquisition currently valued at $81.7 billion, and named 30 U.S. local markets the companies would enter outside of their home regions under their “national-local” strategy.”
These plans were based on SBC’s claim that they needed to merge with Ameritech, one of the original Bell companies, to give them more cash for the undertaking. The Fort Worth Star-Telegram [12/01/98]
“Stephen Carter, president of strategic markets, said the plan is contingent on regulatory approval for SBC’s proposed $77.4 billion purchase of Ameritech Corp., expected to be completed in the middle of next year.”
The merger went through in October 1999 and the first three cities were supposed to be competitive “within a year” of the deal going through. (St. Louis Post-Dispatch [2/5/99])
“The three cities named will be the first targets, with service available within a year of the purchase, SBC said.”
The deal of course went through, yet SBC has yet to compete in any of the cities mentioned. Had SBC done this plan, the price for local service should have decreased because competition would have lowered prices…
However, as we stated back in 1998, and we repeat today, we believe that SBC decided to pull a bait and switch — they told the American public and regulators that they would give America competition in exchange for these mergers. Once the deal went through, they would claim that they could not go forward. They also knew that no regulator, including the FCC or any other group, would be able to or want to do anything about this. Any penalties would simply be the cost of doing business.
Will the FCC take action? According to the FCC merger condition SBC is to have 30 markets competitive within 30 months of signing — October 1999. According to the FCC:
“21.Out-of-Territory Competitive Entry (National-Local Strategy) Within 30 months from the merger closing, SBC/Ameritech will enter at least 30 major markets outside of its region as a facilities-based competitive provider of local services to business and residential customers. ”
However, the FCC did not take their own conditions seriously. Notice that there are penalties of $1.2 billion dollars if the company misses to enter the markets, but it is “voluntary”.
“SBC/Ameritech is liable for voluntary incentive payments of nearly $1.2 billion dollars if it misses the entry requirements in all 30 markets. This condition will ensure that residential consumers and business customers outside of SBC/Ameritech’s region benefit from increased facilities-based local competition.”
And we all know that the Bell company will never pay anything, yet they will have been able to increase their own market dominance through the Ameritech merger. SBC once again played the American public for chumps.