The Case to Break Up Big Telecom (& Big Cable)

Let’s just call it Break Up AT&T et al…. Again.

• Read the Report: The Case to Break Up the Big Telecom (& Big Cable)
• Video: Aunt Ethel Explains the Telco Accounting Scandal that Created the Digital Divide

Big Tech Vs Big Telecom

Over the last few years there has been a call to go after “Big Tech” companies, including Google, Amazon, Facebook and Twitter. The “FTC” (“Federal Trade Commission”, as opposed to the “FCC”, the “Federal Communications Commission”) and Attorney General offices around the US are actively going after Facebook, and there are other cases against Amazon and Google, claiming ‘Big Tech’ is harming America due to monopolistic practices. (And this is on top of cases overseas against Amazon, Google and the other online companies.)

While there appear to be legitimate issues about market power in the ‘search’ and ‘online advertising’ markets, all of these services not only require that the user choose to visit these companies’ web presence, but a user must first have an Internet Service Provider (ISP) that connects them to the broadband infrastructure, hopefully using a high-speed broadband connection. And these services are either using a wired connection or going over airwaves with wireless, which almost always ends up on the wired networks.

Big Bell Telecom

In the end, the overwhelming majority of connections are now controlled by a cartel, just a few companies dubbed: “Big Telecom” — AT&T, Verizon & CenturyLink, and “Big Cable”, Comcast & Charter. They control most of wires, most of the wireless business, and with the cable companies, they control the high-speed broadband access connectivity service, including the Internet to access websites and the new video streaming services, not to mention phone and bundled Cable TV services in America.

We will address ‘Big Cable’ in an upcoming report.

The Big Bell Telecom Monopoly

By the 1970’s, it was clear that the original AT&T had become a very powerful monopoly. It not only controlled the primary state telecommunications public utilities in most states, but it also controlled the long-distance service (calls between states) and it blocked competitors from using these networks. In 1984, 7 “Regional Bell Operating Companies”, “RBOCs”, were formed and each became the caretaker of a collection of these utilities. There were also independents like GTE or SNET (CT), and long-distance companies, including MCI.

The map shows how these Bell companies never left and divided up the country into land-based fiefdoms that do not seriously compete for wired phone and broadband services, even though that was a requirement of most of the mergers that made these three dominant holding companies.

In fact, there were attempts to change this outcome. The Telecom Act of 1996 opened these wires to competition, but with the help of the FCC, the cabal killed off most competition, including 7,000 independent ISPs;

By 2007, Humpty Dumpty had been put back together, as three, very large holding companies with specific geographic coverage. Moreover, they took over the independents; Verizon was the creation of Bell Atlantic adding the independent, GTE; AT&T purchased the independent SNET, claiming they would compete on the East Coast — which did not ever happen. Moreover, they gobbled up the long-distance business. SBC bought AT&T, which had been the largest long-distance company, and took the name AT&T around 2005, and Verizon bought MCI. These mergers effectively killed off the 2 largest competitors. (Ironically, Verizon later sold off a chunk of the GTE holdings to Frontier and its holdings in Maine, New Hampshire and Vermont, while AT&T sold them SNET.)

The Pandemic Woke Up America

Ironically, it took a Pandemic of major proportions, that forced a ‘stay-at-home’ mandate in America, to make the public notice that there were problems with America’s high-speed broadband service geographic coverage, the affordability of this connectivity access and thus their connection to the internet services.

Almost overnight, the terms “Digital Divide”, “Digital Inclusion” and “Digital Inequity” as well as “infrastructure” have filled the media. Congress, the FCC and almost every city, county and state in America is attempting to come to grips with the fact that large areas of rural America, as well as more localized problems in the inner cities, either any connectivity, low connectivity or don’t have high speed broadband available or worse, the services are just not affordable.

Unknown to most, starting in 1991, the “National Infrastructure Initiative”, (also known as the “Information Superhighway”), was announced as part of the Clinton-Gore campaign. The goal was to have America replace the aging copper wires with a fiber optic wire, and the companies went state-to-state to have laws changed, claiming they would build this fabulous fiber optic future if they were granted rate increases and given tax perks.

New Networks Institute, the IRREGULATORS (and before that Teletruth), have been calling for investigations of what is now AT&T, Verizon and CenturyLink (now Lumen) for decades. In fact, we were featured on Bill Moyers on America, Emmy-nominated “The Net at Risk”, on PBS, in 2006, in a segment ironically called “The New Digital Divide” where we warned of this unholy outcome — slow, inferior, high-priced services that are deployed in the wealthier areas, with only 1 or 2 providers (a monopoly or duopoly), if at all.

In 2015, we estimated that over $400 billion dollars had been collected for fiber optic networks that were never deployed. We now know this failure to bring high speed broadband to America was one of the major culprits that caused the Digital Divide.

And in 2021, the issues we laid out have gotten worse. We are at the tipping point of the end game. Politicians and advocates call for throwing hundreds of billions of dollars in government subsidies at the problem. This is a bad idea.

There is no institutional memory and the companies have been able to even rewrite history. Today, almost everyone thinks there are no state telecommunications public utilities in place, that the wires are all unprofitable and that 5G wireless will fix it all. And there is no understanding that America has been giving these companies hundreds of billions of dollars in deregulatory favors, such as increased profits or major tax perks, not to mention the ability for the companies to continuously raise rates for decades with no investigation.

But there is a subplot: Dismantle the state utilities for wireless because it makes more money. The companies have been able to manipulate the FCC’s financial accounting rules that have been used to allocate expenses to the different lines of business so that local service and the utility pay the majority of costs. This has had multiple harms. First, it made the entire US wired infrastructure appear unprofitable. Worse, it is being done to ‘shut off the copper’ and dismantle the state utilities, diverting the construction budgets to fund the wireless deployments and leaving parts of cities and many rural areas as digital deserts, and it allowed for ‘harvesting’ of the local phone customers — raising rates continuously for 15 years. And depending on the state, this could be billions of dollars that should have been used to maintain and upgrade the state utilities to fiber optics.

The true irony is that while many of the advocates and politicians are calling to make the internet and broadband a utility — it already is and they just didn’t notice.

It Is Time to Separate the AT&T Et Al. from Control of the Wires.

There is the only way to stop their ability to use the state utility as a cash machine for their other lines of business, including wireless, and that is to divest the holding company and its subsidiaries from the wired, state-based telecom public utility. At the same time, we must make the hundreds of subsidiaries pay market rates to use the utility infrastructure.

By doing this we stop much of the overcharging of America on all services created by these new controls and the removal of the subsidies. And with the new revenues coming from the companies that previously got a free ride, which is billions per state, these funds will be available to not only lower rates but to extend fiber optic broadband infrastructure throughout the states. But, these networks must be open to all competing service providers, and municipalities and counties need to play an active role in upgrading and building out of their cities, towns and jurisdictions.

This is not just about the copper wires, but about all of the wires, including fiber optics. These communications companies have been able to manipulate, reclassify and play other games to make it appear that the fiber optic wires, and even different categories of the copper wires, were not part of a state telecommunications utility. This shell game must be halted.

To Summarize:

What are the Overarching Reasons to Break up AT&T et al?

• AT&T et al. are the caretakers of America’s telecommunications state public utilities.
• In 1991, the Clinton-Gore campaign announced the “National Infrastructure Initiative” (sometimes called the “Information Superhighway”); a plan to replace the aging copper wires with a fiber optic wire for high-speed broadband by 2010.
• Over the next three decades, the companies made claims, over and over, that they would upgrade the states’ infrastructure with fiber,
• America’s consumers were charged billions of dollars per state for these upgrades through rate increases and tax benefits — which never happened as advertised.
• Instead, Verizon et al. diverted construction budgets of the utilities to build out fiber optics for the wireless subsidiaries and the other services, like backhaul for wireless services, and neglecting to do cities, and especially rural America and low income inner city areas.
• The Big Telecom plan has been to let the entire US infrastructure appear to be unprofitable and let the networks deteriorate, while they ‘harvest’ the phone customers with massive continuous rate increase for the last 15 years.

At the same time,

• Mergers were a Disaster: AT&T et al. were created via a series of mergers which required the companies to compete with each other as well as deploy broadband infrastructure throughout their territories. Instead, the mergers did more harm than good.
• Open then Close the Networks: The Telecom Act of 1996 opened the networks to competition, and there were 9,500 independent ISPs by 2001 that brought America to the Internet; MCI and the previous AT&T offered competition. With the help of the FCC, Big Bell was able to shut down competition, creating Net Neutrality issues.

Follow the Money:

• At the core, the companies were able to manipulate the FCC accounting formulas to make them act as a cash machine, moving billions to the other subsidiaries.
• AT&T et al. can now control the prices for wireline, wireless, and even broadband services and Cable TV/streaming services because they control the core wired infrastructure and have vertically integrated the other content subsidiaries to get advantages and privileges, and inflate prices.
• Inflated Prices: America’s prices are 5–20 times more expensive than most of Europe.
• America’s ‘triple play’ averages $215.00; overseas it is $23-$50 a month.
• Many countries have wireless services for $35 with 1000 GB or more- “truly unlimited”. The US price is about $90 with a fake ‘unlimited’ plan of 50GB.
• Harvested and Stranded. Since 2006, America’s utility customers are being ‘harvested’, with continuous rate increases for 15 years. In AT&T CA and Verizon NY’s local phone customers:
• Counting taxes and add-ons, overcharging can be $16-$30 a month- $195-$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,
• Big Cable also got a free ride. Because there is no competition, the cable companies are now the dominant wired broadband/Internet service, and they gave the telecoms the wireless business and both act as a cartel to keep it this way.
• 5G Wireless for the home becomes a non-starter in this new stay-at-home era. The average household uses 480 GB according to OpenVault. 5G requires a fiber optic wire and is unprofitable once the subsidies are removed for Verizon et al.
• The End Game Is Here. Big Telecom’s market power is so complete that no one knows that there are still state telecommunications utilities, hidden in plain sight.
• The Digital Divide: It took a pandemic to wake up the public that America’s broadband services were not deployed. Microsoft’s research concluded that 163 million people do not use the internet at broadband speeds,
• Digital Inequality, Redlining, No Broadband on Purpose: The inner cities in low income areas can have 20–40% of neighborhoods without the ability to get affordable broadband, like NYC.

What are the Remedies: What Does it Mean to Break Up AT&T et al?

§ The IRREGULATORS are calling for the United States Department of Justice and state Attorney General offices to start antitrust cases against AT&T, Verizon, CenturyLink (now Lumen), and their subsidiaries, formerly known as the “Bell” companies. The outcome must be to separate the wired state public telecom utilities from their control.

§ Separate the subsidiaries from the use of the public communications utilities. All wireless companies and services, the ISP/broadband access, business data services and enterprise subsidiaries, along with all of the other content media, advertising and entertainment businesses, shall be completely separated so that any business dealings with the utilities are no longer privileged and shall be conducted at arm’s length.

Follow the Money:

§ Subsidiaries shall pay market prices like any other unaffiliated company wishing to use the state communications utilities and the public rights of way, as well as pay for all access fees, or billing and collection services provided by the utility.

§ Stop the dismantling of America’s telecom utilities. All network infrastructure that was paid for via the state telecommunications construction budgets is property of the state utility and subsidiaries must reimburse the utility for all associated costs and for the continuing use of utility services.

§ Return all “Business Data Service”, “Special Access” and “Backhaul” networks that were funded by the utility are the property of the utility, including the wires to the cell sites, the fiber to home, and any other backhaul service and the subsidiaries must pay the utility for their ongoing use.

§ Halt all ‘corporate operations’ expense dumping that are being put into the state utilities, including all lobbying, political donations and corporate jets, which are not directly tied to the state utility infrastructure operations.

§ All monies charged to the phone, broadband and internet customers through these subsidiaries shall be treated as ‘de facto’ investors and shall be made whole.

§ Investigate the manipulation and use of the FCC’s accounting formulas that have made the entire US infrastructure appear unprofitable.

§ Investigate the manipulation of the accounting of access lines in service, including all copper and fiber optic wires, and well as the use of deceptive reclassifications to influence public policies.

§ Investigate the telco-cable ties that harm customers and economic growth. We request that the DOJ investigate — -All dealings with the phone and cable companies and whether the cable companies are part of this ‘Trust’.

§ Investigate the harms caused by unchecked mergers.

§ Investigate and halt the harvesting of utility phone customers and whether the increases were due to manipulated financial accounting or access line accounting.

Goals: Solve the Digital Divide, Net Neutrality and Affordable High-Speed Broadband Infrastructure.

§ Create a new Open Access, fiber-optic based state-based telecommunications utility that has symmetrical, universal coverage at 100%, affordable rates for all subscribers and is open to all competitors at the same price as the original subsidiaries and affiliates pay.

§ Reopen the networks to direct competition. The wired copper and fiber networks that are part of the utilities must be reopened to all broadband access competitors, as was the intent of the Telecommunications Act of 1996.

§ Municipalities should also be entitled to a negotiated portion of the revenues from affiliate, subsidiary and competitor payments to use the networks, and at the reduced costs once the cross-subsidies are removed.