TELETRUTH NEWS ANALYSIS -- December 16th, 2004

Bruce Kushnick, Teletruth
bruce@teletruth.org

Humpty Dumpty sat on the wall;
Humpty Dumpty had a great fall.
All the Bell's minions and their F.C.C. friends,
Put Humpty Dumpty back together again.

It is true that Humpty Dumpty can be put back together again. You just have to kill everything else around it.

Yesterday, the FCC made a really bad decision. It will kill competition, it will raise rates, and it will block you from choices. Here's our take of the situation.

(NOTE: Bell companies are Verizon, SBC, BellSouth and Qwest, which own: Ameritech, Bell Atlantic, BellSouth, NYNEX, Southwestern Bell, Pacific Bell, US West, SNET and GTE, Cingular. For more see: http://www.teletruth.org/bellhistory.html)

Background

In 1996, the local Baby Bells, in their own territories, controlled 90-100% of local phone wires into American’s homes and offices. The Telecom Act of 1996 realized that these networks should be open to competition, and so it required the Bell companies to rent these lines at a discount. In exchange for this trade-off, the phone companies could enter the long distance market and the DSL markets.

Remember, customers, not the phone companies, were the investors in the networks as the cost of local phone service, not only allowed the Bell companies to get fully reimbursed for almost all construction, but more to the point, it made the companies healthy profits. And it was a monopoly, a utility, and a necessity for most people.

By 2004, competitors offering local wireline phone service represented about 17 million customers, ---about 12% of customers. But, during this time, the local Bells had been able to use their local monopoly to essentially get over 50% of the long distance market in their region, not to mention 90% of the DSL market in their region, and not to mention becoming the largest wireless providers --- Cingular and Verizon.

And the Bells still own 90-100% of the wires --- the competitors lease them to offer local phone service.

And while they continually tell everyone the sky is falling, one has only to look at the numbers to realize that access line equivalents continue to increase, and the costs for offering local phone service continues to decline.

But that really wasn't enough money. So, the local Baby Bells got the FCC to get rid of the pesky competitors.

The FCC seems to forget that the Telecom Act was based on the assumption that competition would lower prices and bring in choice. -- Killing competition and raising rates is being done because...?

The Get-Screwed FCC: Here's Some of What was Decided.

(This is a simplified discussion. A law and economics degree would be helpful. Also, the final decision has yet to be released.)

Around 12 months from the date this law goes into effect, 17 million customers could find themselves with virtually no phone service. This is because the networks that were available to competitors to use, known in the industry as "UNE-P", will no longer be available, or will be dramatically increased in price.

AT&T this summer, anticipating this act, said it was leaving the residential markets in most states ---- They had about 5 million customers alone.

While analysts predict that some customers will go wireless completely, and some customers will go to a cable company, the majority will most likely go back to their local monopoly.

"Splat" Made Simple -- Raise Rates 15% Immediately For Some Services.

(It’s too complicated to explain which services)

"During the transition periods, competitive carriers will retain access to at a rate equal to ...115% of the rate the requesting carrier paid for the transport element on June 15, 2004."

The Screw-You Tax --- Pay A Buck. -- Insult to Injury

How petty can we get? Well, why not add a dollar to whatever you’re paying because --- we can. This is a new penalty tax placed on every competitive service:

"During the transition period, competitive carriers will retain access to the UNE platform --- the rate at which the requesting carrier leased that combination of elements on June 15, 2004, plus one dollar."

Why is this Occurring? The FCC Doesn’t Care About Actual Data and Has Played Favoritism for Years.

Here are four examples:

1) The Secret "Screw- the-Digital-Future" Humpty Dumpty Scheme.... Broadband.

Of course the FCC will state that their actions will bring broadband to customers faster... If we free the local monopolies from competitors, they will build the networks. Haven't we all seen the current statements by the Bells to roll out fiber-optic broadband?

Well, hasn't anyone in the Commission every examined the true history of broadband that showed that the Bells already got rid of most state regulations controlling their profits because they already promised to roll out fiber-optic broadband since 1990? And why hasn’t the FCC investigated the $120 billion customers already paid for networks they never received?

Please, don't bring facts or law into this discussion --- Why should we hold someone accountable for any past act? More to the point, does anyone really believe that the phone companies will bring fiber-based Universal Broadband Access?

See: http://www.teletruth.org/BadDataMakesBadLaws.html

2) Another Secret Screw-the-Customer Humpty Dumpty Scheme.... Bells Compete With Each Other? heh, heh, heh.

How much does the FCC love the Bell companies? --- Well, take the case of the Bell mergers: Verizon and SBC.

• Verizon --- Bell Atlantic, NYNEX, GTE, Verizon Wireless,
• SBC ---Ameritech, Southwestern Bell, Pacific Bell, SNET and Cingular/AT&T

When the Bells married their own siblings, an act against nature, SBC, in order to merge with Ameritech, promised to compete in 30 cities by 2002 in wireline local phone service:

• "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.
• "SBC/Ameritech is liable for voluntary incentive payments of nearly $1.2 billion dollars if it misses the entry requirements in all 30 markets.

Verizon also touted its new competition. And yet, virtually none of this ever happened. Did the FCC do anything about this? Of course not. --- If the prices were so cheap to competitors, why didn't they compete?

More to the point, if it wasn't necessary to let SBC and Verizon buy their other siblings to increase the wireline monopoly, how did this help the Public Interest, which was the reason for allowing them to merge?

3) The FCC dropped the smoking gun of all cooked books. The FCC conducted audits of the Bell companies and found $19 billion in missing equipment. That was only 1/4 of the audits that should have been done today. Remember, the equipment in the network is the basis of ALL prices in the US for phone service, even the newer Alternate Regulations used the prices based on the equipment as the starting point.

And yet, the FCC dropped these audits because of political pressures and their friends, the phone companies. The books are mess; the companies made up entries. See for yourself: http://www.teletruth.org/auditupdate.html

How much did you pay extra for this problem? We estimated over $600 per line and growing.

4) The Long Standing ISP Kill Off. This FCC Has Always Had the Focus to Get Rid Of Small Competitors.

In 2000 there were about 7000 Internet Service Providers, (ISP) and now we estimate less than 2000. In virtually every way, the FCC has decided to eliminate these competitors (as different from those offering phone service). For example,

• While the ISPs were supposed to be allowed to offer DSL through something called Line Sharing, (the ability of a customer to use their phone line for DSL), the FCC voted to block it.
• When the phone companies were supposed to allow the ISPs to resell the phone company product, the predatory pricing of the wholesale rate, which was more than the retail rate, was never challenged
• When the phone companies delivered sub-standard customer services, the FCC did nothing.

So, when ISPs had to stop offering broadband because they would lose money on every sale, or were put out of business because of bad, documented customer services, the FCC was a documented no show. See: http://www.teletruth.org/isps.html

We need to remind the reader that for every slight there is a customer who has also been harmed. When someone waits for an installation that doesn’t happen, it is the customer as well as the ISP who placed order that is harmed. Or when the customer can’t get the service they want because the phone company no longer is required to offer line sharing or resale at reasonable prices, the ISP and the customer’s fate are one.

SUMMARY: "Get Out of Jail Free" Card: In all of these cases, the phone companies were given a "get-out-of-jail-free" card from too friendly regulators, who's first responsibility was supposed to be the Public Interest, not private concerns. And we argue that the Bells were never held accountable for their mergers, their lack of competing with each other, their cooked books, or the harms done to small competitors and their customers.

Some Commissioners Get It

The FCC complains that it is following a recent court case decision, which requires it to take these draconian actions. The truth is that the FCC and the Bush administration simply refused to defend its own work and decided not to take the case to the Supreme Court. Thus, they decided that the winners would be the Bells and the losers would be everyone else -- regulation by selective, read preferential, breeding.

Commissioner Adelstein wrote: "By not defending the Commission’s prior decision before the Supreme Court, the majority placed itself in a box, in effect a coffin for telecom competition. Now, the majority buries telecom competition six feet under. The only choice I was given was where to pound in the nails. I cannot support this decision, because it will force consumers and businesses to pay higher prices and have fewer choices."

Commissioner Copps wrote on the "Splat" Factor: "What we have in front of us effectively dismantles wireline competition. Brick-by-brick, this process has been underway for some time. But today’s Order accomplishes the same feat with all the grace and finality of a wrecking ball. ...During its tenure, the largest long distance carriers have abandoned the residential market. And as a result of today’s decision, other carriers will follow suit. In their wake we will face bankruptcies, job losses and customer outages. Billions of dollars of investment capital will be stranded. And down the road consumers will face less competition, higher rates and fewer service choices."

VOIP, Wifi, Municipalities Offering Service --- "Off with their Heads" Screams Humpty Dumpty

Who’s going to use a competitive VOIP phone service, which requires broadband, if the phone company makes the customer use their phone service as part of getting broadband? The FCC’s closing of the networks will have other far reaching implications for all technology deployment. Killing off competitors also kills off a primary driver of the economy --- innovation and new services. Meanwhile, on other fronts, the Bell companies are also continually fighting to block all municipalities from offering wifi and other Internet and broadband services. The FCC decision simply reinforces the monopoly control.

What Should Happen Next: Break Up Humpty Dumpty.

Public networks given over to private companies for exclusive use is just plan wrong. Imagine giving the highways to General Motors and you can only use the highway if you have a GM car. --- (No offense to GM).

They should not own publicly financed property and control America's Digital Future should be on everyone’s' lips.

Second, hold the phone companies accountable for the previous fiber-optic broadband promises and commitments, as well as accounting problems.

Next, if the Bell companies don't want to open their networks to competition, stop them from being able to sell DSL and Long Distance. Remember, they received entry into these new businesses only after they were supposed to have serious competition. If competition is killed off, then should they be able to own all of the local, long distance, wireless, and broadband?

Finally, Break Up Humpty Dumpty. Do not make it more of a monopoly! Let's see them compete BEFORE the FCC closes the networks to other competitors.

So as you're sitting there next year deciding on which monopoly/duopoly provider to select --- send thanks Michael "Humpty Dumpty" Powell.

Bruce Kushnick, Teletruth

To see our cartoons
" FCC Rebuilds Humpty Dumpty"
 http://www.newnetworks.com/don'tworrythefixisin.htm

Or "FCC Chairman Fiddles While Competition is in Hell",
http://newnetworks.com/powellburns.htm