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NNI White
Paper: Info-Scandal
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New Baby Bell
Expose Refutes FCC Advanced Network Report and
Calls for an Investigation of
"Info-Scandal".
10 Reasons You Should
E-Mail The FCC To Complain.
Summary:
The FCC recently released its
report on Advanced Networks as mandated by Section
706 of the Telecom Act. And the FCC gives the Bells
a clean bill of health, concluding that they are
delivering advanced services to "all Americans in a
reasonable and timely fashion".
(To
read the FCC's report click here)
However, a new book, "The
Unauthorized Biography of the Baby Bells &
Info-Scandal", published by New Networks Institute,
(NNI), clearly demonstrates that the promises by
the Bells to deliver advanced networks has been
anything but timely.
This new expose focuses on
Info-Scandal, (short for Information Superhighway
Scandal) which tells how the Bells promised to
deploy fiber-optic, 500 channel, full-motion video
services to almost half of Americas' households by
the end of this year. In exchange for this new
construction and advanced network services, state
and federal regulators gave the Bells large
financial incentives to build the Infobahn.
Instead, the Bells never delivered and it has cost
customers and competitors an estimated $30
billion... and it's still continuing today
unabated.
As we will demonstrate, the
FCC's Report is a white-washing, attempting to show
that the Telecom Act worked and has delivered on
its promises to give Americans new services.
Unfortunately, the Report is filled with numerous
serious flaws. For example, the report lacks
concrete evidence to support their claims. It has
led Commissioner Tristani to write:
"While I appreciate
the effort in the Report to compensate for the
lack of direct evidence in the record...lack of
such evidence makes drawing any conclusions
about the state of deployment a tentative and
inexact undertaking."
However, there is an
abundance of evidence the FCC has ignored or not
considered ---literally hundreds of documents that
detail the failure of the Bells to deliver. More
importantly, the FCC report gives a distorted
picture of the current status of these new networks
and has even watered-down the definition of
advanced networks to make it easier to demonstrate
that all is well in America. Worse, the report
totally misses the fact that those who are trying
to be the real innovators, the Competitive local
phone companies (CLEC) and the Internet Service
Providers (ISPs), are all being hampered by the
monopolies' control over
telecommunications.
Therefore, we believe the FCC
has a duty to the monopoly telephone subscribers to
protect their interests, and it must:
- investigate
Info-Scandal, and see if refunds and lower
prices should be implemented
- Collect accurate
data
- Deny the Bells any new
financial incentives for advanced networks
incentives
- Enforce the laws
designed to protect competitors, including
Internet providers.
- Make the Bells live up
to their former commitments or return the
money.
Much of this discussion has
been highlighted in other NNI materials. In 1998,
NNI filed five separate filings with the FCC
pertaining to Advanced networks, and Access fees,
among other topics. (They can be found at
http://www.newnetworks.com.) Our data came directly
from Bell annual reports, press releases and state
and federal investigations, orders, and phone
company filings. And we highlight this material
throughout the book.
And if you agree with our
findings, we ask the reader to E-mail the FCC
commissioners (Contact material and how to find the
Report appears at the end of this document.)
1) The NNI Data ---
Hundreds Of Documents Tell A Dark Tale Of
Info-Scandal
Since the mid 1980's, EVERY
BELL promised massive deployment of advanced
interactive networks. This started with the
roll-out of the mythical ISDN, which was never
delivered in a timely manner. But more to the
point, in the early 1990s, the Bells had promised
to spend billions to deploy fiber optics, replacing
the older copper wire (which is still in use
today). In fact, approximately 45million households
were supposed to have wonderous new services over
this new wiring by the end of next year. And the
documentation---Bell Annual Reports and state
filings.
Let's start with the
spending. Bell Atlantic was supposed to spend $11
billion dollars, starting in 1993 (Source: Bell
Atlantic 1993 Annual Report)
"First, we announced
our intention to lead the country in the
deployment of the information highway ... We
will spend $11 billion over the next five years
to rapidly build full-service networks capable
of providing these ("interactive, multi-media
communications, entertainment and information")
.services within the Bell Atlantic
region."
"We expect Bell Atlantic's
enhanced network will be ready to serve 8.75
million homes by the end of the year 2000. By
the end of 1998, we plan to wire the top 20
markets. These investments will help establish
Bell Atlantic as a world leader in what is
clearly the high growth opportunity for the
1990's and beyond."
Meanwhile, Pacific Telesis
stated they would out do Bell Atlantic with $16
billion. (Pacific Telesis 1994 Annual
Report)
"In November 1993,
Pacific Bell announced a capital investment plan
totaling $16 billion over the next seven years
to upgrade core network infrastructure and to
begin building California's "Communications
superhighway". This will be an integrated
telecommunications, information and
entertainment network providing advanced voice,
data and video services. Using a combination of
fiber optics and coaxial cable, Pacific Bell
expects to provide broadband services to more
than 1.5 million homes by the end of 1996, 5
million homes by the end of the decade."
And other Bells gave their
number of households. Ameritech Investor Fact Book
states: ( March 1994)
"We're building an
interactive video network that will extend to
six million customers within six years".
NYNEX stated: (NYNEX 1993
Annual Report)
"We're prepared to
install between 1.5 and 2 million fiber-optic
lines through 1996 to begin building our portion
of the Information Superhighway."
And let us stress that we are
NOT talking about the Internet or World Wide Web.
The Superhighway, based on fiber-optics, was
"broadband", able to supply hundreds of times more
information for enhanced interactive services,
while the Net is 'narrowband', based on available
phone wiring. As we will discuss later, it's the
difference between a Ferrari and a
skateboard.
And the outcome?
The irony is that in exchange
for delivering on their promises to build these
networks, the Bell received LARGE financial
incentives. The Consumer Advocate from New Jersey
stated:
"...low income and
residential customers paid for fiber-optic lines
but have not yet benefited." (4/18/97).
In New Jersey, the Advocate
found that of the $1.5 billion dollars that was
supposed to be spent on these new advanced
networks, only $79 million had been spent.
Meanwhile, the New Jersey' Bells profits increased
about one billion dollars in the same time period.
The Advocate stated:
"Bell Atlantic-New
Jersey (BA-NJ) has over-earned, underspent and
inequitably deployed advanced telecommunications
technology to business customers, while largely
neglecting schools and libraries, low-income and
residential ratepayers and consumers in Urban
Enterprise Zones as well as urban and rural
areas." (3/21/97)
NNI's estimate is that over
$30 billion has been overcharged through higher
prices on everything from Call Waiting to second
lines --- and there's plenty of documentation to
examine. (For more details about state filings and
investigations see: "Chapter 4: Case Study:
Opportunity New Jersey" or our information about
Ohio, Michigan, Indiana, Oklahoma, Pennsylvania,
among others. We also include chapters on the state
regulatory policies, the Telecom Act of 1996, the
construction expenditures, and an examination of
Bell profits.)
Now, let's get back to the
FCC's report.
2) The FCC Concedes That
It Doesn't Have Substantial
Evidence.
The new FCC report concedes
that it has a lack of direct evidence to base their
claims. . Commissioner Tristani had the courage to
say:
"While I appreciate
the effort in the Report to compensate for the
lack of direct evidence in the record, I write
separately to underscore my belief that the lack
of such evidence makes drawing any conclusions
about the state of deployment a tentative and
inexact undertaking."
"I am especially concerned
about the lack of hard evidence when it comes to
our obligation to determine that advanced
telecommunications services are being deployed,
and are available, to all Americans."
And the Report is full of
caveats that demonstrates its lack of data. Quotes
directly taken from the source demonstrate that the
findings of the FCC's new report --- like the
fiber-optic Information Superhighway --- is a
mirage.
"At this stage in
the deployment of advanced services to rural
communities, our data is anecdotal and we can in
no way conclude that all Americans have, or are
about to have, access to these services.
"
Or:
"We lack information
on the deployment and availability of advanced
telecommunications capability in disadvantaged
urban neighborhoods. Therefore, we are unable to
determine whether broadband is being deployed to
those areas in a reasonable and timely
fashion."
Even the exact amount of
construction expenditures is missing.
"...precise dollar
figures and construction plans for broadband are
not generally available..."
And yet multiple billion
dollar decisions hang in the balance of this
report.
Besides the admitted lack of
clear evidence, there are a number of other points
about the FCC report that needs to be
addressed.
3) The FCC Didn't Examine
Or Include The Hundreds Of Documents, Filings,
Investigations Or Orders That Each State Has
Already Filed.
The FCC clearly failed to
investigate the data that is available today about
promises made on a state and federal level, nor has
it examined the amount of monies customers have
paid in state rate cases that were supposed to
provide advanced broadband network
services.
Besides those previously
highlighted, there are many other details about
Info-Scandal that need investigation. For example,
Pac Bell's "Education First" program was to spend
$100 million in connecting all schools to the
superhighway by 1996.
"Pacific Bell Helps
Bring Schools On-line. As part of a continuing
commitment to education in California, Pacific
Bell has launched "Education First", a $100
million program to connect the state's schools
to the communications superhighway. By the end
of 1996, all of the nearly 7,400 public K-12
schools, libraries, and community colleges in
Pacific Bell territory will have access to the
company's Integrated Services Digital Network
(ISDN), which enables simultaneous transmission
of voice, data and video signals over a signals
telephone line." Pacific Telesis, 3/31/94
According to CNN, (8/17/97),
however, in 1997, only 60% of California schools
had computers and less than half that were online.
Where did the money go?
Pennsylvania was supposed to
have 20% of the state wired, including it low
income customers with "Universal Broadband." (Bell
of PA Annual Report, 1995), while Ohio
Bell/Ameritech did roll out some fiber, but instead
now offers "Plain Old Cable" instead of the
interactive services as promised FCC and state
filings..
Or even a decade earlier,
both Pac Bell and SBC Communications promised
extensive rollouts of ISDN! Southwestern Bell's
1986 Annual Report stated:
"At the forefront of
new technology is ISDN. Scheduled for commercial
availability in 1988, ISDN will revolutionize
day-to-day communications by allowing
simultaneous transmission of voice, data and
images over a single telephone line."
4) Bell Expenditures For
Advanced Networks Never Happened -- And The Bells
Expenditures Are Less Than Previous
Years.
An entire chapter of the book
is dedicated to the Bells' supposed spending on
advanced networks. There never was an extra $11
billion dollars spent by Bell Atlantic, or $16
billion dollars by Pac Bell, or even a major
increase in any Bell construction.
However, the Report states
that "Incumbent LECs, mainly the Bell Operating
Companies (BOCs) and GTE, are also investing
billions of dollars in broadband technologies". For
example, the FCC's author exclaims that Ameritech
is spending $3 billion in capital in 1999 for "all
its communications networks (wireline, wireless,
and cable television" and uses this as an example
that these sums are "large even by the standards of
America's communications business".
While that may seem like a
great deal of money to you and me, the truth is
that Ameritech made almost $18 billion dollars
revenues in 1998 so these charges are simply 17% of
the total they bring in. In fact, Ameritech spent
more money 8 to 10 years ago on its network than
they had in the years it had promised major new
advanced networks. And as a percentage of the total
revenues...the Bells construction spending has
declined over the decade.
To put it more into
perspective, in 1998, Ameritech spent $3.7 billion
investing in foreign companies, including $3.1
billion in TeleDenmark, the phone company for
Denmark, a country with a population of about 5
million. In comparison, the Chicago, Illinois
Metropolitan Area, (an Ameritech state) has over 8
million. (Source: 1997 World Almanac)
5) In Fact, The Bells May
Have Deducted The Copper Network Even Though It Was
Never Replaced.
In 1998, NNI filed a
complaint against the Bells with the Criminal
Justice Division of the IRS for $21 billion
dollars. (This is in addition to the $30 billion
previously quoted. The Bells took massive
write-offs of the copper plant from 1993 to 1995,
each claiming that they were going to replace it
with fiber-optics--- and all in the name of
Advanced Networks. However, these networks were
never replaced,. (or are not in use) and so the
issue is whether these write-offs were valid, since
the old copper network is still in use.
The implications are two fold
- 1) If these deductions were made improperly then
the Bells owe about $7 billion in Federal taxes,
not counting interest and penalties. 2) If these
deductions were not made improperly, then the
prices of all services should have dropped because
the copper wire's value was slashed and everything
over it should have had major price reductions,
including all business and residential
services.
6) The FCC Definition Of
Advanced Networks Is Dummying Down The Definition
Of Broadband.
The FCC states that advanced
network broadband is a two way service with speeds
of over 200Kps, which is about 4 times as fast as
current 56K modems. (NOTE: A "Kilobyte" is a unit
of the speed as in "kilobytes-per second", KPS-In
English: The more Ks, the faster the Internet runs
and the more you can do with it.)
"For purposes of
this Report, we define "broadband" as having the
capability of supporting, in both the
provider-to-consumer (downstream) and the
consumer-to-provider (upstream) directions, a
speed (in technical terms, "bandwidth") in
excess of 200 kilobits per second (kbps) in the
last mile. This rate is approximately four times
faster than the Internet access received through
a standard phone line at 56 kbps. We have
initially chosen 200 kbps because it is enough
to provide the most popular forms of broadband
-- to change web pages as fast as one can flip
through the pages of a book and to transmit
full-motion video."
And with this definition, the
FCC is dramatically watering-down the standard of
what was promised and in many cases already paid
for.
Broadband, by its very name,
(and as the previous Bell annual reports, state and
federal filings describe), was not supposed to have
speeds in the Kilobyte range but in the MEGA BYTE
RANGE (That's 1000K equals 1 Megabyte). --- and
capable of handling interactive "Full Motion video"
(Full-motion video is the ability to have a picture
that looks like it's a TV show or a rented movie.)
According to most experts, full motion video
requires 45 megabytes without compression and over
1.5 megabits with current compression. Anything
less and quality is lost and the picture will be
jerky or the color or image not as
clear.
Pac Bell's 1994 Fact Book
clearly states that it was rolling out speeds the
equivalent of 50-750 MPS, (Megabytes-per-second) to
the customer and 5 to 40 MPS from the customer's
premises. These speeds are hundreds of times faster
than the promised consumer ADSL.
Did customers spend billions
simply so that instead of fiber-optic services they
would end up with just faster Web speed over the
same copper wire?
7) The FCC Is Still
Gullible To The Bells' Promises.
The FCC quotes the Bell's
deployment plans to demonstrate that all is well
with the Advanced networks deployments. For
example:
"In Bell Atlantic's
service area, ADSL is available now to some
customers in the Washington, D.C., area and in
Pittsburgh, with plans to add Philadelphia and
the Hudson waterfront of New Jersey next year.
Bell Atlantic has formed a marketing alliance
with America Online, Inc., in which Bell
Atlantic hopes, by the end of 1999, to make ADSL
available to seven million subscribers. Its goal
is to offer ADSL to fourteen million customers
by the end of 2000." (FCC Report)
And this quote is also
problematic in a number of ways, not just from the
hype it relays. For example, promises of rollouts
to customers are not actual deployments to a
customer--- it is hype, or at best optimistic
thinking. Offering a product and being able to
deliver it is not the same thing. If Bell Atlantic
always stayed with their deployment plans, over 11
million households would have 500 channels, among
other interactive services (includes
NYNEX).
More to the point, Bell
Atlantic's lower cost ADSL Infospeed products that
offer 640K and 1.6 MK, are both essentially ONE WAY
services. (source: Bell Atlantic) The return from
the customer's household to the network is only 90K
and that's 110K lower than the FCC's own definition
of Broadband --- making the above quote
meaningless.
And there are numerous other
caveats to their roll-outs. For example, the Bell
Atlantic product literature states the ccompany is
only offering "best efforts". As they put it
(Source: Bell Atlantic) "There is no guarantee of
Data throughput". It's like selling a car and
saying "The car gets 50 miles to the gallon, but
sometimes it could only be two miles". And worse,
the higher speed services only work if you live
"8000 feet from the loop", almost eliminating all
rural and suburban deployments.
To complicate matters the
report quotes Ameritech who states that it couldn't
deliver XDSL to 45% of its customers over the
current phone networks.
8) Then, There's The Issue
of The Actual, Current Reality and Future Of
Advanced Networks---And The Imagination
Bottleneck
ADSL and cable modem rollout
are now considered the "advanced network"
rollouts---with the main purpose to make the
Internet faster. And at the proposed current
speeds, the FCC in one fell swoop, along with the
phone companies, have stolen our Digital age. We
are now relegated to a low bandwidth, not quite two
way world, and that's of course if the service is
available at all. And it is a place where the video
images will be blurry and they all go over the same
old POTS networks ---- even though we paid for the
gold-plated one.
And this because the FCC and
others have an Imagination Bottleneck, a termed
coined by Joe Plotkin, Executive Director of
BroadbandNow.
The FCC with this Report, and the Bells, with their
deployment failures, now make it all right NOT to
dream of the real next generation. --- The Two Way
Interactive world.
By allowing the Bells off the
hook to deploy the wiring as promised, who knows
what wonderous services would now be available to
the public.
9) The FCC Should Have
Examined The Impact On Competitors And Internet
Service Providers By The Monopolies.
The Internet Service
Providers (ISP) and the smaller local competitive
companies are the real innovators of America'
techno-future. The Internet was not brought to us
by the local Bells, but through the thousands of
entrepreneurs who dedicated both time and expertise
to making this next generation of the Info
Age.
However, since all of these
companies must deal with the Bells for service,
these companies are at a major disadvantage, and
based on interviews and the preliminary results of
an NNI ISP Survey, the consensus is that the Bells
are delivering "substandard customer services" ---
which include everything from missing appointments
and lines that go dead to simply not answering
basic questions in a timely fashion.
And the FCC report not only
ignores these issues but it has ignored pleas by
these companies to enforce the laws or work with
the states for better enforcement
capabilities.
10) It's The Money
Stupid.
And finally, the FCC should
always be concentrating on the bottom line --- are
customers being overcharged? And when considering
the status of advanced networks, there is also the
larger issue --- at what cost and to who? And in
this case, how much money did customers pay for
services they never received? The FCC should not
let the monopoly to use advanced network as another
form of customer scam.
Of course there is the larger
related problem---The Telecom Act was written based
on the promises made by the phone companies and
cable companies to compete and to deploy new
services in a timely and reasonable fashion. How
much of the stories told by the Bells were simply a
fabrication to change and enact laws that made
these companies some of the richest in America?
(For details of the Bells' profits and NNI's claims
of customer overcharging please see Chapters
14,15,16,27,29,30-42) And to what extent does the
Telecom Act need to be amended to protect monopoly
customers?
Therefore, the FCC and the
states should:
- investigate
Info-Scandal, and see if refunds and lower
prices should be implemented.
- Investigate the Bell
copper plant write-offs be required to
collect accurate data,
- Make the Report state
by state specific to find out exactly what is
the status of advanced networks--- not the
hype.
- Collect the
definitions already in use by the
states.
- Deny the Bells any new
incentives for advanced networks until the
investigation has concluded. --- This
includes the upcoming results from other FCC
Reports (NRPM 147), which might give the
Bells new financial incentives.
- Make the Bells live up
to their former commitments or return the
money.
- Enforce the laws
designed to protect competitors.
Want to Help? If you agree
with our analysis, Please also check out the
following links for our research at our web site at
HTTP://www.newnetworks.com.
Or feel free to order the Unauthorized Biography of
the Baby Bells & Info-Scandal for more
details.
Read the original
"Report
on the Deployment of Advanced Telecommunications
Capability to All Americans"
(CC Docket No. 98-146), press release and
statements. Then write the FCC Commissioners, and
Congress requesting them to investigate
Info-Scandal:
Chairman
William E. Kennard
Commissioner
Susan Ness
Commissioner
Gloria Tristani
Commissioner
Michael K. Powell
Commissioner
Harold Furchtgott-Roth
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