TCS Daily

The 'Incredible' Bells

By Duane D. Freese - February 19, 2002 12:00 AM

"You can't come to Congress, take the oath to tell the truth, and then not tell the truth," House Commerce Committee Chairman Billy Tauzin said in response to Enron's former CEO Jeffrey Skilling's testimony that he was ignorant of many of the deals that lead to Enron's bankruptcy.

Tauzin found the testimony "incredible," if not a lie, as it would demonstrate a woeful ignorance by Skilling of his company's operations.

So, why are so many members in the House and key members of the Federal Communications Commission ready to buy the incredible tales they are being told by the four regional Bell operating companies? Why are they going to allow the Bells to leverage their old, slow local phone monopoly into control of the high-speed broadband telecommunications future?

The failure by the Bells to keep their promises has been amply documented time and again. Just read the record laid out by Bruce Kushnick in "How the Bells Stole America's Digital Future." It shows how they hoodwinked state public utility commissions and federal rulemakers into $50 billion in rate relief plus permission to merge with one another throughout the 1990s by promising 44 million digital hookups -- by the year 2000. It's now two years past the millennium and they've delivered only a tenth that number.

And lawmakers and regulators need not even go there. They can simply look at the record of $1.8 billion fines and penalties since 1996 that the Bells have been assessed by regulators for failing to meet their legal obligations - obligations they oftentimes initially agreed to and even helped promote. The $1.8 billion is three times the losses that Enron covered up, but it is a mere whisper compared to the Bells' revenues, which is one reason FCC Commission Chairman Michael Powell has proposed hiking fines tenfold so they might start taking rules seriously.

Yet, even before the Bells do so, Powell is proposing to free them from regulation and oversight of their broadband, digital subscriber line services. The FCC recently issued a proposed rule that would let the Bells totally restrict access of Internet Service Providers to any high-speed networks the Bells create.

And in the House, passage of H.R. 1542 (the so-called Tauzin-Dingell Bill for its two sponsors, Tauzin and ranking Commerce minority member John Dingell, D-Mich.) has become a foregone conclusion when it comes up for a vote set now for Feb. 27. That bill would let the Bells get into long distance data services without meeting their obligations under the 1996 Telecom Act to open up their local network to competitors first. It would also remove any state or federal regulatory oversight of any high-speed lines they deploy, even if that opens the door to rampant cramming, spamming and slamming on their part.

At an event opposing the legislation on Capitol Hill, Rep. John Conyers, D-Mich., said members are "reciting the Bells' line and they don't even know they are doing so." He chided the group of 10 CEOs from Bell local competitors, including Covad, eSpire, Focal Communications and McLeodUSA, for not doing enough to tell their side of the story. Noting the "relationship of physics to legislation," he said, "it takes a critical mass to get anything done or anything stopped." And to build that critical mass, he indicated, the competitive telecommunications businesses needed to lobby members of Congress as hard as the giant Bell monopolies.

Rep. Chris Cannon, R-Utah, told the CEOs, "You can't underestimate the amount of knowledge most members of Congress have about this issue." In short, they hear the Bell's promises about extending broadband in exchange for deregulating their monopolies and accept them.

Now, that's "incredible."

The Bells had control of DSL technology for 10 years and did nothing with it because they wanted to charge high prices for the least amount of service. As FCC Chairman Powell noted in his first news conference last spring, it took AT&T doing "something extremely bold" - buying a cable company - to bring "DSL out of the closet," and for the right reason, "out of fear - fear of losing customers."

But it even took more than that, really. It took the so-called competitive local exchange carriers - CLECs - upgrading services upon the Bells' old copper system, a system paid for by decades of subsidies from long distance customers, to spur them to give small business speedier lines. Until companies such as Covad, just now emerging from bankruptcy, started offering small businesses high speed lines for less than $500 a month, their only alternative was the $1,000-plus a month service from the Bells.

Indeed, as studies by La Jolla, Calif.,-based ARS have found that competition is the key to keeping prices for high-speed services affordable or making them more so.

The decline in the number of CLECs since the fall of 2000 until recent months led to a stark increase in residential rates for broadband services - from $39.40 in January of 2001 to $51.67 by year's end. That price increase has cut demand for consumer broadband. Meanwhile, the maintenance of competition in the business broadband market, has led to a cut in average rates there by 5 percent, ARS reports.

"Clearly, when compared to the consumer market, strong competition in the business Internet access market has been advantageous for buyers of those services," ARS analyst Mark Kersey told CNET.

Letting the Bells eliminate that competition, while removing regulatory oversight at the same time, would open the door to rapid price hikes. If they went back to old rates, it would be no different than assessing small businesses with high speed services a $6,000 a year tax increase. Why would members of Congress, and especially Republican members who claim they are the friends of entrepreneurs and small business, want to do that?

And it won't come as any advantage to rural America, as the Bells are telling members of Congress it will. The Bells, primarily Verizon and Qwest, have gotten rid of 20 to 30 million rural access lines. They have no intention to go back there without some additional heavy subsidies.

The real hope for broadband in rural America is in the growth of alternative technologies that the Bells have no interest in furthering because they would compete with technologies they own and can control. The hope withers if Congress and the FCC change the rules to favor the existing Bell monopolies.

Members need to think - and remember whom they represent. The point is that it isn't just a few CLECs that stand to lose if the Bells can leverage their monopoly in local service into unregulated control of broadband services. It is millions of small businesses, consumers, farmers and taxpayers that will pick up the tab for billions of dollars.

Those who buy the Bells' arguments that deregulating monopolies is the route to affordable broadband are much like Mr. Skilling, or Olympic skating judges. Either they are acting in collusion for no good purpose or are simply blind to the realities in front of their own eyes. For history demonstrates that the Bells aren't out to expand broadband; they are out to kill competition.

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