Here's More About $200 Billion Broadband Scandal

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"a 'sordid story' of business fraud... Enron? WorldCom? No. It's much, much larger than either of those" The New York Times

The New York Times

A Rant. All 406 Pages of It, February 11, 2006

A NEW e-book tells a "sordid story" of business fraud, according to one reviewer. The book's author says it is "the largest fraud case in American history."

Enron? WorldCom? No. It's much, much larger than either of those, though the use of the word "fraud" in this case is more a literary device than a legal definition. The book is "The $200 Billion Broadband Scandal" (newnetworks.com). The author is Bruce Kushnick, a longtime irritant to the telecommunications industry. His targets are the Baby Bells, which he contends owe every American household about $2,000 because they reneged on their collective promise to deploy ultra-high-speed broadband Internet access via optical fiber to millions of homes.

By now, according to Mr. Kushnick, 86 million homes should be wired at 45 Mbps - at least 15 times as fast as the best commonly available D.S.L. service. The count of homes wired at that speed so far is zero.

The phone companies made this promise as Congress was getting ready to pass the 1996 Telecommunications Reform Act, he points out. In return, they received benefits - including tax breaks and changes in state laws lifting limits on their profits - amounting to more than $200 billion, Mr. Kushnick writes. But instead of building the infrastructure, they spent money on more immediately profitable services like plain old copper-wire D.S.L. and hoary long-distance networks, according to the 406-page e-book.

"It's like ordering a Ferrari and getting a bicycle," Mr. Kushnickwrites in his introduction.Meanwhile, countries like South Korea and Japan were building out their infrastructure and making 100 Mbps service their nationalstandard.

And here at home, "this 'bait and switch' caused a ripple effect,"writes Steve Stroh, a research analyst, in a blog at bwianews.com."While one can argue about the dimensions of that ripple effect," he writes, "some effects are obvious - the cable companies only had tooffer a modest speed increase above D.S.L. to be competitive. It seems reasonable to think that cable-modem speeds would be much higher in trying to compete with fiber, or the prices much lower."

Muniwireless

“The $200 Billion Broadband Scandal” --- AKA Where’s the 45MB/s I Already Paid for!

"I was lucky enough to be able to look over an advance copy of Bruce Kushnick’s new book, “The $200 Billion Broadband Scandal” — it’s a powerful critique documenting the trail of broken promises and misinformation perpetrated by many broadband service providers in order to get favorable treatment, special dispensation, and competition-free access to residents across the United States. One of the most damning indictments, that United States residents have already paid for upgrades to our existing broadband infrastructure — being charged for services never delivered — and not a small amount either, but actually to the tune of $200,000,000,000. When you break it down, that’s roughly a $2,000 refund for every household that’s due for contractual obligations never fulfilled.....

Harold Feld, Media Access

Did the Bells Rip Off America? and is there an Alternative?

Bruce Kushnick's book, meticulously documents how the incumbent telcos have used the promise of broadband to win subsidies and regulatory goodies. The pattern Bruce describes is a fairly straightforward one. Bell companies go to [name state] legislature and promise to provide fiber networks (which will bring high-speed internet access, video services, jobs, education etc. to [name state]. All the telco asks in exchange is deregulation of prices, deregulation of competitive obligations (such as opening the network to rivals), and subsidies or tax incentives to reach the areas where it is not profitable to deploy. Then take the goodies, make some high profile efforts to deploy, then quietly forget about it while enjoying deregulated monopoly and tax subsidies. Don't worry, state legislators and the public will forget about it as well, and will accept the current state of the universe as the best possible world that can be achieved.

While apparently lifted from today's headlines, Kushnick traces this kind of behavior back to the early 1990s. His book asserts that this behavior has cost the U.S. tax payers over $200 Billion, at a minimum over the last ten years. Lest one ask “how could the Bells ever get away with such a thing?!?!” I will observe that what Kushnick documents are no secrets. Rather, like the purlioned letter, each broken promise, terminated project, absorbed tax incentive, and regulatory bonus happened in plain sight.

....The importance of Kushnick's book to me lies not in the likelihood that Americans will ever get the $200 B back again, or even whether the Bell companies genuinely tried to defraud rate payers (after all, markets and technologies do change, and promises to bring fiber to every home in the early and mid-1990s may have stemmed from optomistic projections and miscalculations). Rather Kushnick's book should serve as a warning for the promises made by the Bells today. As the Bells make the rounds in every state, on Capital Hill, and at the FCC, making the same arguments for deregulation, they should have to explain why this time will prove different than the times before. How will state franchising make a difference? How can legislators and regulators hold the Bells accountable if things don't work out this time? What happens if rate deregulation doesn't lead to the promised competitive Nirvana of cheap broadband and cheaper telephone service? What if the merged companies do not produce the “efficiencies” and price savings they promised? continued.....

Good Morning Silicon Valley

We thought you said spend the $200 billion on "dark fiber"

The United States is the 19th ranked nation in household broadband connectivity rate, just ahead of Slovenia. Want to know why? Because, contends telecom analyst Bruce Kushnick, the Bell Companies never delivered symmetrical fiber-optic connectivity to millions of Americans though they were paid more than $200 billion to do it. According to Kushnick's book, "$200 Billion Broadband Scandal", during the buildup to the 1996 Telecommunications Reform Act, the major U.S. telcos promised to deliver fiber to 86 million households by 2006 (we're talking about fiber to the home, here). They asked for, and were given, some $200 billion in tax cuts and other incentives to pay for it. But the Bells didn't spend that money on fiber upgrades -- they spent it on long distance, wireless and inferior DSL services. Some headlines from Kushnick's work:....

A damning list of indictments, and one that puts the telcos' demands for a two-tiered Internet in harsh perspective (see " 'Course what we'd really like to do is 'prioritize' some of these services right out of business ..." and "Interesting approach, Bill; why don't you try it on your phone network first?"). We paid an estimated $2000 per household for fiber to the home and instead got DSL over the old copper wiring. As Kushnick notes, that's like ordering a Ferrari and getting a bicycle. The Bells should be ashamed. And held accountable."

SATN, Bob Frankston

"You should also read Bruce Kushnick's "$200 Billion Broadband Scandal". Connectivity threatens the carriers' ability to charge for the value of their services. There problems are structural so we shouldn't be surprised that they are doing "whatever necessary" to try to forestall the inevitable but it doesn't mean we can condone it.

David Isenberg

Book: The $200 Billion Broadband Scandal, by Bruce Kushnick, January 31, 2006

My friend Bruce Kushnick is a man on a mission. In The $200 Billion Broadband Scandal, he writes

. . . in the early 1990's . . . every Bell company . . . made commitments to rewire America, state by state. Fiber optic wires would replace the 100-year old copper wiring. The push caused techno-frenzy of major proportions. By 2006, 86 million households should have had a service capable of 45 Mbps in both directions . . . In order to pay for these upgrades, in state after state, the public service commissions and state legislatures acquiesced to the Bells' promises by removing the constraints on the Bells' profits as well as gave other financial perks . . . The phone companies collected over $200 billion in higher phone rates and tax perks, about $2000 per household.

The manipulations, deceptions and broken promises are documented in detail in New Jersey, Texas, Pennsylvania, California and Massachusetts. Book synopsis here.

Guerilla News Network

"The United States is the 19th ranked nation in household broadband connectivity rate, just ahead of Slovenia. Want to know why? Because, contends telecom analyst Bruce Kushnick, the Bell Companies never delivered symmetrical fiber-optic connectivity to millions of Americans though they were paid more than $200 billion to do it. According to Kushnick’s book, ”$200 Billion Broadband Scandal”, during the buildup to the 1996 Telecommunications Reform Act, the major U.S. telcos promised to deliver fiber to 86 million households by 2006 (we’re talking about fiber to the home, here). They asked for, and were given, some $200 billion in tax cuts and other incentives to pay for it. But the Bells didn’t spend that money on fiber upgrades—they spent it on long distance, wireless and inferior DSL services. Some headlines from Kushnick’s work:

ZD Net, Open Source

Should we mandate open source Internet access?

While most U.S. technology markets are gaining the benefits of open source, one market has become closed to competition.Internet access is becoming an unregulated, government-mandated duopoly. Increasingly, if you want "real" service (over 64 Kbps) you have only two choices, your local Bell company or your local cable operator.

It's a false choice. Worse, according to Bruce Kushnick's new ebook, $200 Billion Broadband Scandal, it's a rip-off which you paid for, with your money, that you earned...."

Techdirt

You've Already Paid $2,000 For A Fiber Connection You'll Never Get

Contributed by Mike, January 31st, 2006

As the Baby Bells falsely complain about how people aren't paying them for the internet, or whine about how it's unfair to expect them to compete against muni-broadband, there's something important to remember. For the last decade, those same telcos have made promise after promise to local governments concerning the delivery of truly open fiber optic connections to the home. In exchange, they've been granted all sorts of privileges and rate increases by the government, costing all of us money. And where did the money go? Not towards what was promised. Bruce Kushnick, who we've written about before is now coming out with a book that details how the telcos scammed approximately $200 billion from all of us (about $2,000 per household), promising fiber to every home with symmetric 45 Mbps speeds and an open access model that would allow anyone to offer competitive internet services over that connection. This is a promise that they have not kept... though, they have kept our money. That fiber was supposed to be delivered this year (earlier in other cases), but it's not coming. The fiber that telcos are finally starting to offer is much more expensive, much slower, and locked down. In fact, after all of these promises, remember that the telcos said they wouldn't offer fiber at all, unless the FCC promised not to require them to let others offer services on it. Yet, for all of this, there's been very little outcry, or very little discussion -- and the latest moves concerning network neutrality show that the telcos are looking to take more of our money and deliver less yet again. For more details, check out Kushnick's book, $200 Billion Broadband Scandal, and think about it next time the telcos whine about government interference.

Rob Hyndman.com

Whither the Fiber-Optic Future?, January 31, 2006

"Steve Stroh posts on a new book by Bruce Kushnick that he describes as a history of a massive bait and switch campaign in the 1990s by the US telcos using the pretext of a national fiber optic buildout as a basis for increasing their rates. Gist:

"Bruce Kushnick has written a new book, $200 Billion Broadband Scandal, that details a truly massive bait and switch campaign by the major US telephone companies. What the major US telephone companies promised in the buildup to the 1996 Telecommunications Reform Act was fiber to every home with symmetric 45 Mbps speeds, and a continuation of their historical open access model. They asked for, and got, rate increases to pay for the fiber upgrades. The work should have been completed by 2006… do you have your 45 Mbps symmetric fiber optic service with your choice of ISPs?

"None of us do. Those few that do have fiber have 30 Mbps asymmetric for $200 or so per month, with no competitive choice of ISP services on that fiber. What broadband service most of us have from the phone company (those that haven’t defected to cable modem service) is at best 3 Mbps asymmetric, with a rapidly shrinking pool of choices of ISP services.

"Troubling suggestions, if true.

"Update (2006-02-01): Mathew has uncovered more coverage (Gordon Cook here, Richard Stastny here, and David Isenberg here) of Kushnick’s new book, and notes the tie-in to telecom claims in the current net neutrality debate: “And it definitely sheds a different kind of light on their repeated claims that Internet content companies should be paying more for access to their pipes … It sounds to me like U.S. consumers have already paid for it several times over.”

Broadband Wireless Internet Access

New Book Lays Bare The Fiber Optic Broadband Future the US Should Have Had

Bruce Kushnick has written a new book, $200 Billion Broadband Scandal, that details a truly massive bait and switch campaign by the major US telephone companies. What the major US telephone companies promised in the buildup to the 1996 Telecommunications Reform Act was fiber to every home with symmetric 45 Mbps speeds, and a continuation of their historical open access model. They asked for, and got, rate increases to pay for the fiber upgrades. The work should have been completed by 2006... do you have your 45 Mbps symmetric fiber optic service with your choice of ISPs?

"None of us do. Those few that do have fiber have 30 Mbps asymmetric for $200 or so per month, with no competitive choice of ISP services on that fiber. What broadband service most of us have from the phone company (those that haven't defected to cable modem service) is at best 3 Mbps asymmetric, with a rapidly shrinking pool of choices of ISP services.

"This "bait and switch" caused a ripple effect. While one can argue about the dimensions of that ripple effect, some effects are obvious - the cable companies only had to offer a modest increase speed increase above DSL to be competitive. It seems reasonable to think that cable modem speeds would be much higher in trying to compete with fiber... or the prices much lower. Companies installing fiber optic backhaul across the country went bankrupt because the promised demand, driven by Fiber To the Home, never materialized. Under the guise that "we need to have exclusive use of our fiber" the major US telephone companies fought a war of attrition that resulted in the overturning of competitive access to their copper infrastructure, and the likely death of most independent Broadband ISPs (that haven't converted to wireless.) The US is now 16th in the world in Broadband Penetration, and will likely fall further down the list.

But what's really galling is that we paid for the fiber - Kushnick names a figure of $2000 per household. Kushnick is damning in the detail; he has thoroughly done his research, digging into regulatory filings and testimony now almost a decade old.

I applaud Kushnick for his dedication to laying open this sordid story. If there is to be reform, we first need to understand what happened, and Kushnick provides that for us.

Jim Carlini

Was the Telecom Act of 1996 a boon or bomb for U.S.?, 02/08/06

"Some people have recently argued in front of Congress that we are living in a very competitive time in a global market and we are behind some of our trading partners who have emphasized the need for broadband connectivity. Others are arguing for the old telecom companies by saying they need a piece of the action in order to build more infrastructure.

"Who really got the benefits from the Telecom Act of 1996? Did the Bell companies invest in the infrastructure or do you believe the claims of the book that Bruce Kushnick just wrote on the “$200 billion broadband scandal”? He claims:

1. The public subsidies for infrastructure were pocketed. The phone companies collected more than $200 billion in higher phone rates and tax perks (or about $2,000 per household).

2. The world is laughing at the U.S. Korea and Japan have 100 Mbps services as a standard. America could have been No. 1 had the phone companies actually delivered. Instead, we are 16th in broadband and falling in technology dominance.

3. Harm to the economy: $5 trillion was lost because new technologies and services that America would have developed happened in Korea.

4. Fake … consumer groups and biased non-profit think tanks are now the major force in broadband regulation and policy.

I believe them. I have been writing about it for 10 years.

CNN Money

Paying for broadband you never got

Wondering why your Internet connection is so slow? Techdirt writer Bruce Kushnick blames the phone companies for promising fiber-optic connections 30 times the speed of DSL and not delivering them. What's worse, Kushnick estimates that Verizon (Research), AT&T (Research), Qwest (Research), and BellSouth (Research) have received $200 billion in tax cuts and subsidies in exchange for fiber-optic connections that have not yet been built, putting the U.S. far behind countries like Japan and Korea in broadband adoption.