Break Up AT&T: Gluttony, Overcharging, & “Regulatory Capitalism”.

How did a Former FCC Chairman and Champion of Competition become the New Captured AT&T Independent Chairman?

Is $250 million in compensation for just 4 AT&T executives, for just 3 years, gluttony, especially when you consider that AT&T is socking it to their customers and failed to upgrade the state wired telecommunications utilities under their control?

In fact, CNBC reports that there was a bit of a revolt at the AT&T shareholders’ meeting, April 30th, 2021

“AT&T shareholders on Friday voted against a measure to approve executive compensation, according to preliminary voting results from the company’s annual meeting… AT&T did not give a number for the opposing votes, but said preliminary results showed 49% were cast in favor of approving executive compensation.”

The chart above states that in the 2020 annual report AT&T’s Executive Chairman made $30 million dollars annually, while the new CEO of AT&T WarnerMedia received a massive first year paycheck of $52 million dollars for 2020. This appears to be one of the reasons for the shareholders’ revolt.

But there are other buckets of money, (which are included in the figures above), that need to be mentioned. These are the payments to 4 top executives for use of the corporate jet, estate planning, health insurance and club membership. Is health insurance really $57,000 annually or is $30, 000 for private use of the corporate jet reasonable?

We also checked Verizon’s executives. Though overall lower in the totals, is $79,000 for the personal use of the corporate jet, or the $660,0078 in total for additional benefits in one year for CEO Mr. Vestberg reasonable? Some of the benefits to the executives include:

“These other benefits consist of: (i) financial planning services in the amount of $26,150 for CEO Mr. Vestberg, $13,000 for Mr. Ellis, $17,068 for Mr. Dunne, $11,000 for Ms. Erwin and $4,973 for Mr. Gowrappan; and (ii) home security services of $9,155 for Mr. Vestberg and $17,156 for Mr. Gowrappan. The aggregate incremental cost of the financial planning benefit and home security services is equal to the amount the Company paid to the third-party provider for the services provided.”

There Are Multiple Problems with All of these Executive Rewards.

AT&T has been ‘harvesting’ its local phone customers and their competitors who use the networks, and second, the real question is — is there a double whammy — are these corporate expenses actually dumped into the state utilities’ expenses, creating losses, which, in turn, have been used to get rate increases — a vicious circle?

Therefore, while AT&T’s holding company executives are the fat-cats, these holding companies control the state regulated utilities which, not only are never mentioned but are hidden in plain sight. Worse, it appears that the CEO largess could be paid for by these rate increases and expense dumping; in the end, customers pay higher rates then they should be paying.

Harvesting

“Harvesting” is a business practice where the company has decided to close or change the service and thus uses the customers’ inertia, loyalty, or lack of knowledge about basic details to squeeze profits through continuous rate increases, making the customers drop their service or get gouged.

Since 2006, we estimate the customer harms from AT&T CA’s harvesting:

(Read the Report and story for details.)

• Overcharging of basic service was about $16–22 a month, $195 to $270 a year.
• Counting taxes and add-ons, overcharging can be $30 a month- $360 a year.
• $1,700-$3,200 per line since 2006, depending on the service. We are using $2,500 for the average from 2006–2020.
• Nationwide, we estimate a conservative $10.8- $14.5 billion annually.

Note: This is only a small part of customer overcharging we uncovered.

Corporate Operations Expenses Charged to Local Service Customers.

In August 2015 we wrote:

• Did Rate Increases on Verizon N.Y.’s Basic Phone Service Pay for the Use of the Corporate Jet by Verizon’s CEO?

We found that billions in the holding company’s “corporate operation” expenses are being dumped annually into the state telecom utilities expenses to make “Local Service” look unprofitable.

In 2017, we updated our finding about Corporate Operations expenses. We detail how this expense is being charged to Verizon NY’s wired services, and the majority of this expense is put into ‘Local Service’, which are the aging, copper-based services that still exist.

“In 2017, Verizon NY Local Service paid $1.8 billion in Corporate Operations expense? (NOTE: This is 61% of the total paid by Verizon NY.) Local Service is the revenues from the basic, copper-based utility “landlines”, and they generated $1.1 billion in 2017. The Corporate Operations expense should have only been a few hundred million dollars, at best. Instead, Local Service was overcharged an estimated $1.5 billion or more, making it appear unprofitable. Over the last decade, this caused a series of harms, including financial losses that saved billions on taxes, while the alleged losses were actually used to raise local rates multiple times. It also was used to claim that Local Service and the wired networks were unprofitable to upgrade, especially in the rural areas, creating the Digital Divide.”

“Regulatory Capitalism”: How Did the Champion of Competition become AT&T’s Captured Independent Chairman?

Former FCC Chairman Kennard is now the Independent Chairman of AT&T.

The New York Post ran a story that the recently removed FCC Chairman, Ajit Pai, has gone to work at a private equity firm,

“Ajit Pai becomes latest ex-FCC chairman to join a private equity firm.”

And the story points out that other former FCC Chairmen also got fat-cat jobs.

“Since 2001, former FCC Chairman William Kennard joined the Carlyle Group; Michael Powell went to Providence Equity Partners; Julius Genachowski to Carlyle and now Pai to Searchlight.”

(But, the story doesn’t mention that Tom Wheeler had been the CEO of the wireless association, CTIA, before he became Chairman, and Ajit Pai had been a Verizon attorney, while Commissioner Brendan Carr had worked for Verizon and CTIA as an attorney. Meanwhile Powell is now the head of the “Big Cable” cable association, NCTA.)

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As FCC Chairman, Kennard claimed his mandate was competition and that he was against “Regulatory Capitalism” — which AT&T is the primary example of in America.

“Regulatory capitalism is when companies invest in lawyers, lobbyists and politicians, instead of plant, people and customer service…. Regulatory capitalists would rather litigate than innovate.”

“It’s always easier to prowl the halls of Congress than compete in the rough and tumble of the marketplace.”

“And who can afford to tell the other side of this story? Who has the resources to outshout the phone companies?”

As Bill Kennard stated, it ain’t us. In talking about the original ‘Voice Over the Internet’ (now called ‘VoIP’ or ‘Digital Voice’) and competition that had sprung up, he pointed out that these companies were small competitors and newcomers that didn’t have resources or could afford the limos and lunches.

“Regulatory capitalism always works best for companies that have the resources and know-how to play the regulatory game. And, trust me, it’s never the newcomers. Most new industries — yours included — don’t have the time or resources to spend money on oak paneled law firms and limousine lunches.”

(“Internet Telephony: America Is Waiting,” Remarks by former FCC Chairman William E. Kennard, Before the Voice Over Net Conference, September 12, 2000)

In fact, Kennard laid out in speeches that the Telecom Act opened the networks that controlled the 100-year-old monopoly over the last mile — i.e., the state utility wires that go directly to the homes, business offices and public and private institutions.

“In the mid-1990s, the whole process culminated with the passage of the Telecommunications Act of 1996. That act radically departed from the past by taking two big steps:

“First, it ended the 100-year-old monopoly franchise over the last mile; and,

“Second, it embraced competition as the organizing principle for the future.

“My tenure at the FCC has been devoted to implementing the 1996 Act. We have moved aggressively to open-up the last mile to competition from anyone willing to invest in bringing the American public competitive choice in phone service.

“That’s why we have so much competitive local access to the Internet today. And cheap, competitive Internet access was only the first of our goals.

“And now my top priority at the FCC is to get high-speed broadband access into every home and hamlet in this country.

“An FCC staffer told me that instead of unbundling monopoly networks for competitors, we should unbundle some lawyers for them. You know, there may be something to that. But what your industry needs most is not more lawyers and lobbyists. What it needs is some space to do what you’re best at.”

“At this crucial juncture in the deployment of advanced communications services to the home, the promise and thrill of the Information Age should not be the exclusive domain of big businesses or of the affluent or of those who happen to live in urban areas. I want to create conditions so that all competitors are free to make the very best that technology has to offer available to every community across the country, to every home, to every business, to every school, to every library, to all Americans.”

Captured FCC Killed Competition.

With the help of former FCC Chairman Michael Powell, the networks were closed to competition by 2005. AT&T and MCI, which were independent, were sold off; SBC bought AT&T and renamed itself, AT&T, while Verizon devoured MCI. But the underbelly would be to kill off even small competitors. About 7,000 small ISPs that had been created by the Telecom Act were put out of business by 2006 and their business taken over by Big Telecom and Cable, who were renamed, ironically, “ISPs”.

Voice Over the Internet was co-opted by regulatory capitalism — the phone service, VOIP, is the technology based on the IP, Internet Protocol, and because it is ‘not-regulated’, it has been used to get rid of regulations and competitors by what is now Verizon and AT&T, as well as the cable companies; Digital Voice is VOIP.

Halting AT&T and Verizon’s cross-subsidies and the dumping of expenses that are now in place to overcharge America, should become a priority. Giving them government subsidies is just more of the same.

If Kennard was serious about competition, he’d join in calling for reopening the AT&T networks… as would these other former FCC Chairmen.

Finally, should those who hold a government position, especially the Chairperson of an agency, be held to a higher standard? Should they be restricted from the revolving door opening to a lucrative and influential position in a company, where their previous job had been to provide oversight for the public good of this company, this industry?