History repeats itself. In 1889, it was railroads, steel, iron, and energy. Today it is telecommunications.

My first introduction to the concept of corporate doublespeak — designed to cushion the blow of bad news behind a wall of barely-comprehensible babble came in October 1987 when I heard one Wall Street analyst refer to the great stock market crash that had just befallen the financial district as a “fourth quarter equity retreat.”

Holy euphemism, Batman!

You weren’t fired — you were “made redundant.”  The bankruptcy of Detroit automakers and the layoffs that followed were not as bad as they looked. It was merely “a career-alternative enhancement program.”

And, no, Verizon and AT&T are not engaged in should-be-illegal marketplace collusion on pricing and services. They are just practicing some harmless “price signaling.”

That’s the awe-struck view of management consultant Rags Srinivasan, who just gushes over the marketing “stroke of genius” that threatens to give customers a stroke when they open their monthly bill.

Srinivasan’s piece, worthy of the Wall Street Journal editorial page, turns up instead on GigaOm, where it gets some pretty harsh treatment from tech-lovers who hate the rising prices of wireless service.

Price signaling has always existed between the number one and number two players in any market. Agreeing to not engage in a price war is truly a win-win for the market leaders. Since outright price fixing is illegal, market leaders resorted to signaling to tell the other company their intentions or send a threat about their cost advantages.

But traditionally, it was more like flirting — ambiguous enough that the underlying intentions could be denied. Why are these two not shy about admitting to flirting now? The simple answer is the iPhone.

Not too long ago we worried about running out of talk minutes and paying overage. Service providers offered us tiered plans that offered more minutes for a higher price and unlimited minutes for an even higher price. With the additional revenue flowing directly to their bottom line, these higher priced plans were real cash cows.

For those who have any doubt about the profits from unlimited plans, I’d point out that the costs of a mobile service provider are sunk with zero marginal cost for additional minutes. And texts don’t even consume traffic channels — they piggyback on control channels.

[…] In another genius pricing move, Verizon Wireless is presenting this $100 mobile service plan to customers in a bundle — talk minutes plus data. In the past, around $70 was allocated to talk because consumers valued it more. Now subscribers pay only $40, but they still pay the same $100 total price. This is nothing short of pricing excellence, protecting customer margin while also using strong price signaling to make sure that the next biggest market share leader follows suit.

What Srinivasan calls “business at its best” and “pricing excellence” we call collusion at its most obvious. The GigaOm author says he does not want the government tinkering with this kind of marketplace “signaling,” and it does not appear likely he has much to worry about. AT&T and Verizon executives have grown increasingly brazen (and obvious) with their near-identical pricing and “me-too” plans which leave little to differentiate the two carriers from a pricing perspective. The likely result will be at least 100 million cell phone customers eventually stuck paying for unlimited voice and texting services they neither want or need.

Wireless Wonder Twins Powers Activate: Shape of anti-competitive marketplace for consumers; form of collusion.

True, AT&T charges Cadillac prices but has the customer service image of a used 1995 Kia… but they did have the original exclusive rights to the Apple iPhone and Apple devotees proved they will endure a lot. Verizon Wireless has a better network and has always charged accordingly.

Unfortunately for consumers, the also-rans Sprint and T-Mobile (and the smaller still) depend on AT&T and Verizon for roaming off the city highway and into the countryside, and they are often stuck with devices that are a step down from what the bigger two can offer.

Srinivasan would have a better argument if the wireless marketplace had not become so consolidated. Had AT&T had its way with T-Mobile, America would have just a single national GSM network — AT&T. Verizon does not consider its CDMA competitor much of a bother either, and Sprint Nextel CEO Dan Hesse has to divide his time between fighting with Wall Street over why the company has not already sold out to the highest bidder (and now wants to spend a fortune upgrading its network) and customers who consider Sprint too much of a trade-off in coverage and its dismal “4G” Clearwire WiMAX network too slow for 2012.

Srinivasan is probably too young to understand AT&T and Verizon never invented “price signaling.” A century ago, the railroad robber barons did much the same, leveraging their anti-competitive networks-of-a-different-kind to maximize prices in places that had few alternatives. Where competitors did arrive, they were typically bought out to “maximize savings and eliminate market inefficiencies.” The same was true in the steel and energy sector of the early 20th century.

The result is that consumers were turned upside down to shake out the last loose change from their pockets. Eventually, government stepped in and called it marketplace collusion and passed antitrust laws that began a new era for true competition.

How soon some forget.

“Somehow in the last 100 years, every time there is a problem of getting more spectrum, there is a technology that comes along that solves that problem. Every two and a half years, every spectrum crisis has gotten solved, and that’s going to keep happening. We already know today what the solutions are for the next 50 years.” — Martin Cooper, inventor of the portable cell phone

Despite the fear-mongering by North America’s wireless phone companies that a spectrum crisis is at hand — one that threatens the viability of wireless communications across the continent, some of the most prominent industry veterans dispute the public policy agenda of phone companies like AT&T, Verizon, Bell, and Rogers.

Martin Cooper ought to know.  He invented the portable cell phone, and remains involved in the wireless industry today.  Cooper shrugs off cries of spectrum shortages as a problem well-managed by technological innovation.  In fact, he’s credited for Cooper’s Law: The ability to transmit different radio communications at one time and in the same place has grown with the same pace since Guglielmo Marconi’s first transmissions in 1895. The number of such communications being theoretically possible has doubled every 30 months, from then, for 104 years.

National Public Radio looks back at the earliest car phones, which weighed 80 pounds and operated with vacuum tubes. Innovation, improved technology, and lower pricing turned an invention for the rich and powerful into a device more than 300,000,000 North Americans own and use today. (April 2012) (3 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

A traditional car phone from the 1960s.

The earliest cell phones have been around since the 1940s.  St. Louis was the first city in the United States to get Mobile Telephone Service (MTS).  It worked on three analog radio channels and required an operator to make calls on the customer’s behalf. By 1964, direct dialing from car phones became possible with Improved Mobile Telephone Service (IMTS), which also increased the number of radio channels available for calls.

In the 1970s, popular television shows frequently showed high-flyers and private detectives with traditional looking phones installed in their cars.  But the service was obscenely expensive.  The equipment set customers back $2-4,000 or was leased for around $120 a month.  Local calls ran $0.70-1.20 per minute.  That was when a nice home was priced at $27,000, a new car was under $4,000, gas was $0.55/gallon, and a first run movie ticket was priced at $1.75.

With many cities maintaining fewer than a dozen radio channels for the service, only a handful of customers could make or receive calls at a time.  The first “spectrum crisis” arrived by the late 1970s, when car phones became the status symbol of the rich and powerful (the middle class had pagers). Customers found they couldn’t make or receive calls because the frequencies were all tied up.  Some cities even rationed service by maintaining waiting lists, not allowing new customers to have the technology until an existing one dropped their account.

Instead of demanding deregulation and warning of wireless doomsday, the wireless industry innovated its way out of the era of MTS altogether, switching instead to a “cellular” approach developed in part by the Bell System.

[flv width=”412″ height=”330″]http://www.phillipdampier.com/video/ATT Testing the First Public Cell Phone Network.flv[/flv]

In the 1970s, when the first cell phone “spectrum crisis” erupted, the Bell System innovated its way out the the dilemma without running to Congress demanding sweeping deregulation.  This documentary, produced by the Bell System, explores AMPS — analog cell phone service, and how it transformed Chicago’s mobile telephone landscape back in 1979.  (9 minutes)

“Arguing that the nation could run out of spectrum is like saying it was going to run out of a color.” David P. Reed, one of the original architects of the Internet

Instead of one caller tying up a single IMTS radio frequency capable of reaching across an entire city, the Bell System deployed lower-powered transmitters in a series of hexagonal “cells.”  Each cell only served callers within a much smaller geographic area.  As a customer traveled between cells, the system would hand the call off to the next cell in turn and so on — all transparently to the caller.  Because of the reduced coverage area, cell towers in a city could operate on the same frequencies without creating interference problems, opening up the system to many more customers and more calls.

Inventor Martin Cooper holds one of the first portable mobile phones

In Chicago, Bell’s IMTS system only supported around a dozen callers at the same time. In 1977, the phone company built a test cellular network it dubbed “AMPS,” for Advanced Mobile Phone System.  AMPS technology was familiar to many early cell phone users.  It was more popularly known as “analog” service, and while it could still only handle one conversation at a time on each frequency, the system supported better call handling and many more users than earlier wireless phone technology.  By 1979, Bell had 1,300 customers using their test system in Chicago.

AMPS considerably eased the “spectrum crunch” earlier systems found challenging, and subsequent upgrades to digital technology dramatically increased the number of calls each tower could handle and allowed providers to slash pricing, which fueled the spectacular growth of the wireless marketplace.

Yesterday it was voice call congestion, today it is a “tidal wave” of wireless data.  But inventors like Cooper believe the solution is the same: engineering innovation.

“Somehow in the last 100 years, every time there is a problem of getting more spectrum, there is a technology that comes along that solves that problem,” Cooper told the New York Times. “Every two and a half years, every spectrum crisis has gotten solved, and that’s going to keep happening. We already know today what the solutions are for the next 50 years.”

Cooper believes in the cellular approach to wireless communications.  Dividing up today’s geographic cells into even smaller cells could vastly expand network capacity just like AMPS did for Windy City residents in the late 1970s. Using especially directional antennas focused on different service areas, placing new cell towers, innovating further with tiny neighborhood antennas mounted on telephone poles, or building out Wi-Fi networks can all manage the data capacity “crisis” says Cooper.

New technology also allows cell signals to co-exist, even on the same or adjacent frequencies, without creating interference problems. All it takes is a willingness to invest in the technology and deploy it across signal-congested urban areas.

Unfortunately, network engineers are not often responsible for the business decisions or public policy agendas of the nation’s largest wireless companies who are using the “spectrum crisis” to argue for increased deregulation and demanding additional radio spectrum which, in some cases, could be locked up by companies to make sure nobody else can use them.

[flv width=”600″ height=”358″]http://www.phillipdampier.com/video/NY Times Mobile Carriers Warn of Spectrum Crisis.flv[/flv]

The New York Times offers this easy-to-follow primer on wireless spectrum and why it matters (or not) in the current climate of explosive growth in mobile data traffic.  (3 minutes)

“Their primary interest is not necessarily in making spectrum available, or in making wireless performance better. They want to make money.” — David S. Isenberg, veteran researcher, AT&T Labs

Innovation, not wholesale deregulation, allowed the Bell System to solve the spectrum crisis of the 1970s by creating today's "cell system" that can re-use radio frequencies in adjacent areas to handle more wireless traffic.

Spectrum auctions bring billions to federal coffers, but actually deliver a hidden tax to cell phone customers who ultimately pay for the winning bids priced into their monthly bills.  It also makes it prohibitively expensive for a new player to enter the market.  Already facing enormous network construction costs, any new entrant would then face the crushing prospect of outbidding AT&T, Verizon Wireless, Bell or Rogers for the frequencies essential for operation.

As the New York Times writes:

When a company gets the license for a band of radio waves, it has the exclusive rights to use it. Once a company owns it, competitors can’t have it.

Mr. Reed said the carriers haven’t advocated for the newer technologies because they want to retain their monopolies.

Cooper advocates a new regulatory approach at the Federal Communications Commission — one that mandates wireless phone companies start using today’s technology to amplify their networks.

Cooper points to one example: the smart antenna.

Smart antennas direct cell towers to focus their transmission energy towards the specific devices connected to it.  If a customer was using their phone from the southern end of the cell tower’s coverage area, why direct signal energy to the north, where it gets wasted?  New LTE networks support smart antenna technology, but carriers have generally avoided investing in upgrading towers to support the new technology, expected to be commonplace inside new wireless devices within two years.

T-Mobile calls these technology solutions “Band-Aids” that won’t address the company’s demand for more frequencies to manage its network.  But that kind of thinking applied to the mobile phone world of the 1970s would have maintained the exorbitantly expensive IMTS technology discarded decades ago, since replaced by innovation that made more efficient use of the spectrum already on hand.  That innovation also transformed wireless phones from a tool (or toy) for the very wealthy to an affordable success story that now threatens the traditional wired phone network in ways the Bell System could have never envisioned.

[flv width=”412″ height=”330″]http://www.phillipdampier.com/video/Its a Whole New System.flv[/flv]

It’s A Whole New System: AT&T and other wireless phone companies might want to learn the lesson the Bell System was trying to teach their employees back in 1979: Meet Change With Change.  This company-produced video implores the phone company to do more than the same old thing.  No, this video is not “PM Magazine.”  It is about innovation and actually listening to what customers want. With apologies to Mama Cass Elliot, there was indeed a New World Coming — the breakup of the Bell System just five years later.  Don’t miss the diabetic-coma-inducing, sugary-sweet jingle at the end.  Then reach for a can of Tab.  (10 minutes)

As AT&T joins Verizon selling off its Yellow Pages publishing unit and payphones keep disappearing from street corners, the media is writing the landline obituary once again.

CNN Money asks today whether we’re witnessing the death of the landline.

In as little as 20 years, the concept of a wired phone line may become the novelty a rotary-dial phone represents today.  Yes, traditional phone lines will still be found in businesses and in the homes of those uncomfortable dealing with a mobile phone, but America’s largest phone companies are well aware the traditional telephone line is in decline.

[flv width=”412″ height=”330″]http://www.phillipdampier.com/video/ATT Archives What is the Bell System.flv[/flv]

The Bell System, as it was known until the 1980s, used to comprise AT&T, Bell Labs, Western Electric, Long Lines, and two dozen local “operating companies” like New York Telephone, Mountain Bell, etc.  This AT&T documentary, from 1976, explores how “the phone company” used to function.  New innovations like “lightwave” are showcased, promising to deliver voice phone calls over glass fibers one day.  

Much of the technology seen in the documentary may be unfamiliar if you are under 30 (and check out how customer records were maintained back then), but those who remember renting telephones in garish colors from your local phone company will recognize the phones that occupied space in your home not that long ago.  The only part of the landline network that hasn’t changed much in the last 40 years is the wiring infrastructure itself, which has been allowed to deteriorate as customers continue to depart.

Why was the company so darn big back then?  Because it had to be, the documentary says, to serve a big America.  Hilariously, the company defends its then-status as a “regulated monopoly” telling viewers “[a] regulated monopoly works well in communications because you don’t duplicate facilities and you produce real economies over the long haul.”  (14 minutes)

CNN reports nearly one-third of all American homes no longer have landline service, double the rate from 2008, triple that of 2007.  Verizon is feeling the heat the most, with revenue down 19% over the last five years.  AT&T has seen their revenue drop 16.5% over the same period.

But things are not all bad for phone companies willing to spend money upgrading their networks.  Verizon’s top-rated FiOS fiber to the home service is a compelling competitor to Comcast and Time Warner Cable.  AT&T’s U-verse has gotten a respectable market share larger midwestern cities and draws customers who like its DVR box and the chance to stick it to the local cable company they’ve hated for years.

But where both companies have decided against investing in upgrades — notably in their rural service areas — the traditional phone line is trapped in time.  Only the network it depends on is changing, and not for the better.

[flv]http://www.phillipdampier.com/video/ATT 1993-1994 You Will Ad Campaign Compilation.flv[/flv]

Back in 1993, AT&T produced seven advertisements dubbed the “You Will” series, showcasing future technologies AT&T would “deliver to you.”  Eerily, the vast majority of these predictions came true, but mostly from companies other than AT&T.  While the phone company predicted what would eventually become E-ZPass, Apple’s iPad, Apple’s Siri, the smartphone, Skype, Amazon’s Kindle, the cable industry’s home security apps, video on demand, and GPS navigation, most of those innovations were developed and sold by others.  

AT&T spun away Bell Labs and became preoccupied selling Internet access, cell phones and reassembling itself into its former ‘hugeness’ through mergers and buyouts. With limited investment in innovation, AT&T risks being left as a “dumb pipe” provider, selling the connectivity (among many others) to allow other companies’ devices to communicate. (Alert: Loud Volume at around 2 minutes) (4 minutes)

Verizon decided to ditch its rural service areas to FairPoint Communications in northern New England and Frontier Communications in 14 other states.  The results have not been good for the buyers (and often customers).  FairPoint went bankrupt in 2009, overwhelmed by the debt it incurred buying phone lines in Vermont, New Hampshire, and Maine.  Frontier has watched its sales fall ever since its own landline acquisition, and the company has gotten scores of complaints from ex-Verizon customers about broken promises for improved broadband, billing errors, and poor service.

Analysts predict AT&T will start dumping its rural landline customers in the near future as well, letting the company focus on its U-verse service areas.  But who will buy these cast-offs?  CNN reports nobody knows.  CenturyLink and Windstream, two major independent phone companies, don’t appear to be in the mood to acquire neglected landline facilities they will need to spend millions to repair and upgrade.

One thing is certain — both AT&T and Verizon are tailoring business plans to favor Wall Street approval.  The companies’ decisions to temporarily boost revenue selling pieces of its operations has helped stock prices, but has also made the companies shadows of their former selves.  Nearly 30 years ago, customers still paid the phone company to rent their home telephones, relied extensively on the companies’ lucrative White and Yellow Pages for directory information, and discovered new technology innovations like digital switching thanks to Bell Labs, the research arm of AT&T — today independent and known as Alcatel-Lucent.  Today, people in some cities cannot even find a telephone company-owned payphone.

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/WJBK Detroit Quest to Find a Working Pay Phone 4-10-12.mp4[/flv]

WJBK in Detroit this week ventured out across Detroit to see if they could find a pay phone that actually works.  That old phone booth on the corner is long gone, and some admit they haven’t touched a pay phone in 20 years.  (2 minutes)

This influential documentary explores the rural cooperative movement for electricity in the 1930s.

In 1935, just 5-10 percent of America’s family farms were wired for electricity.  The cities: lighted.  The rest of the country: in the dark.  It was the same old story then as it is today for rural broadband:

• There are two few customers for us to make a profit by bringing you service;
• The return on investment will take too long;
• You won’t use enough service to justify the expense of providing it;
• Okay, we’ll install service, if you pay thousands of dollars to cover the cost to bring it you.

Private providers delivered electricity to big cities, but found the countryside not worthy of their time or investment.  Then, as now, rural America’s economy suffered for it.  Back in 1935, family farms coped with wood-fired stoves, school homework by kerosene lamp, discarding fresh farm products that could not be kept cool, no running water, no radio, and no appliances to make an already difficult life a bit easier to manage.  In 2012, an increasing amount of the rural economy is moving online, where raw materials and goods are bought and sold, where knowledge-based jobs require a dedicated broadband connection, and education means completing homework assignments and doing research on the Internet.

Same old problems cast in a different light to be sure, but borrowing from America’s past may put a down payment on our broadband future.

President Franklin D. Roosevelt had heard all of the excuses and seen private electric companies try to showcase their minor efforts to improve power in rural America. A series of small scale projects that looked good in the newspaper could not hide the more general attitude it was unprofitable to provide the service to family farms.  In 1935, Roosevelt signed an executive order establishing the Rural Electrification Administration (REA).  Although FDR’s contemporary critics like to consider him a socialist that interfered in the private economy, in fact Roosevelt’s REA spent the majority of its effort in areas commercial providers wouldn’t touch with a 25-foot power pole.

The idea was simple.  Rural American communities with limited or no electric service could reach out to the REA to obtain low interest loans to finance the infrastructure to construct rural electric service.  When loans were approved, a cooperative electric company was established, with each “customer” being a member and part-owner of the co-op.  Income earned from ratepayers would pay for the service and pay back the government loans.  When the federal government was paid in full, the cooperative owned the new utility company outright.

In practice, this was the only way rural Americans, especially farmers, could obtain electric service.  These cooperatives often found they could deliver the same service a private company could, and for much less money. Co-ops work for the benefit of their members, not for outside investors.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Power and the Land.flv[/flv]

In 1940, the federal government commissioned ‘Power and the Land’ through the United States Film Service.  This one film, showing life for a farm family in southeastern Ohio before and after electrification, helped drive the rural electrification movement forward in areas yet to be wired for service.  The first 17 minutes chronicles life on the powerless farm, while the second half explores the REA electrification program and the changes electricity brought to farming life. (38 minutes)

Belmont County, Ohio shows the legacy of the REA. Diagonal line-shaded sections illustrate the service areas of the original power co-op noted in the film 'Power and the Land.' The yellow shaded areas are served by Ohio Power, a subsidiary of American Electric Power, Inc., a commercial company.

The film’s impact was profound (the Village Voice called it “a little masterpiece”), and more than four million farmers were estimated to have seen it.  Eventually, more than 500 miles of electric lines were being strung by America’s co-ops every single day.  Additional documentaries about the film were made decades later, narrated by Walter Cronkite, to chronicle the cooperative electricity movement, the original film, and what happened to the family.

Private providers were, of course, horrified by the REA and other Roosevelt Administration public works projects.  Private companies railed they were being undermined by low interest government loans, government involvement, and fear new regulations would threaten their profitable business models.  Some of Roosevelt’s fiercest critics called the administration’s zeal for public-good spending anti-capitalist and anti-American.  For Roosevelt, it was often simply a matter of finding the fastest solution to a pervasive problem private companies seemed uninterested and unwilling to solve.

The legacy of the REA remains plainly visible today.  In Ohio, what started as the Belmont Power Cooperative is today part of the South Central Power Company, itself a co-op within the Touchstone Energy Cooperative.  Belmont County, Ohio’s power grid still reflects the work of the REA in the 1930s, with the county divided into regions served by the original REA co-op and Ohio Power.

While South Central Power hasn’t gotten into the broadband business, several other rural co-ops have, expanding their focus towards fiber to deliver cable TV, Internet, and phone service.

If the concept of the REA was adopted for broadband, the formula for success can remain the same.  Low interest loans to finance fiber telecommunications networks provide limitless expansion possibilities and a clear path to solving rural America’s broadband inferiority problem.  Interest rates have never been lower, and by gradually repaying the loans from income earned from subscribers, taxpayer dollars are not at risk.  The federal government’s only real involvement in guaranteeing loans and providing oversight that the money is spent appropriately.  The co-ops that result will govern themselves by and for their members.

Some will say electricity is more important than broadband, and for some families that may be as true as similar arguments were for and against REA electricity in the 1920s and 30s.  But take a week off from your broadband service.  Disconnect it, don’t read e-mail or visit websites, and then re-evaluate that statement.

More and more, broadband has become a firmly established part of our lives at work, school, and home. If private companies won’t step up, let others organize to provide it.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/North Carolina Farmers Utilizing the Internet America’s Heartland.flv[/flv]

Fast forward to December 2011, and watch how rural Rutherford County, N.C. farmers are adapting to the new digital economy with the use of broadband.  They are selling their crops online to eager restaurants, markets, and other buyers up to 70 miles away.  No broadband?  No deal.  (5 minutes)

Phillip "Break Free from 'What's In It For Me'-AT&T" Dampier

[We are reprinting this because it succinctly and persuasively proves a point we’ve been making at Stop the Cap! since 2008.  Broadband is not just a “nice thing to have.” It is as important as a phone line, electricity, and safe drinking water.  News, education, commerce, and culture increasingly utilize the Internet to share information and entertain us. Essential utility services can either be provided by a private company operating as a monopoly with oversight and regulation, or operate strictly in the public interest in the form of a customer-owned cooperative, a direct service of local government, or a quasi-public independent non-profit.

In North America, broadband was originally considered a non-essential service, and private providers in the United States lobbied heavily to maintain absolute control of their broadband networks, free to open them to share with other providers, or not.  They also won sweeping deregulation and are still fighting today for decreased oversight.  The results have been uneven service.  Large, compact cities enjoy modern and fast broadband while smaller communities are forced to live with a fraction of the speeds offered elsewhere, if they have access to the service at all.

With broadband now deemed “essential,” local governments have increasingly sought to end the same old excuses with the “don’t care”-cable company or “what’s in it for me”-AT&T and provide 21st century service themselves, especially where local commercial providers simply won’t step up to the plate at all.  Suddenly, big cable and phone companies are more possessive than your last boy/girlfriend. The companies that for years couldn’t care less about your broadband needs suddenly obsess when someone else moves in on “their territory.” They want special laws (that apply only to the competition) to make sure your broadband future lies exclusively in their hands.

Susan P. Crawford understand how this dysfunctional, controlling relationship comes at the expense of rural America.  She’s a visiting professor at the Harvard Kennedy School of Government and Harvard Law School. In 2009, she was a special assistant to President Barack Obama for science, technology and innovation policy. Her opinions were originally shared with readers of Bloomberg News.]

In cities and towns across the U.S., a familiar story is replaying itself: Powerful companies are preventing local governments from providing an essential service to their citizens. More than 100 years ago, it was electricity. Today, it is the public provision of communications services.

Susan Crawford

The Georgia legislature is currently considering a bill that would effectively make it impossible for any city in the state to provide for high-speed Internet access networks — even in areas in which the private sector cannot or will not. Nebraska, North Carolina, Louisiana, Arkansas and Tennessee already have similar laws in place. South Carolina is considering one, as is Florida.

Mayors across the U.S. are desperate to attract good jobs and provide residents with educational opportunities, access to affordable health care, and other benefits that depend on affordable, fast connectivity — something that people in other industrialized countries take for granted. But powerful incumbent providers such as AT&T Inc. and Time Warner Cable Inc. are hamstringing municipalities.

At the beginning of the 20th century, private power companies electrified only the most lucrative population centers and ignored most of America, particularly rural America. By the mid-1920s, 15 holding companies controlled 85 percent of the nation’s electricity distribution, and the Federal Trade Commission found that the power trusts routinely gouged consumers.

Costly and Dangerous

In response, and recognizing that cheap, plentiful electricity was essential to economic development and quality of life, thousands of communities formed electric utilities of their own. Predictably, the private utilities claimed that public ownership of electrical utilities was “costly and dangerous” and “always a failure,” according to the November 1906 issue of Moody’s Magazine. Now more than 2,000 communities in the U.S., including Seattle, San Antonio and Los Angeles, provide their own electricity.

Today, the Institute for Local Self-Reliance, which advocates for community broadband initiatives, is tracking more than 60 municipal governments that have built or are building successful fiber networks, just as they created electric systems during the 20th century. In Chattanooga, Tennessee, for example, the city’s publicly owned electric company provides fast, affordable and reliable fiber Internet access. Some businesses based in Knoxville — 100 miles to the northeast — are adding jobs in Chattanooga, where connectivity can cost an eighth as much.

Meanwhile, less than 8 percent of Americans currently receive fiber service to their homes, compared with more than 50 percent of households in South Korea, and almost 40 percent in Japan. Where it’s available, Americans pay five or six times as much for their fiber access as people in other countries do. Fully a third of Americans don’t subscribe to high-speed Internet access at all, and AT&T Chief Executive Officer Randall Stephenson said last month that the company was “trying to find a broadband solution that was economically viable to get out to rural America, and we’re not finding one, to be quite candid.” America is rapidly losing the global race for high-speed connectivity.

Tamping Down Enthusiasm

We've done something like this once before.

Like the power trusts of the 20th century, the enormous consolidated providers of wired Internet access want to tamp down any enthusiasm for municipal networks. Last year, telecom lobbyists spent more than $300,000 in a failed effort to block a referendum in Longmont, Colorado, to allow that city to provide Internet access. Time Warner Cable managed to get a North Carolina law enacted last year that makes launching municipal networks there extraordinarily difficult. The pending measures in Georgia and South Carolina are modeled on the North Carolina bill.

The Georgia bill is chock-full of sand traps and areas of deep statutory fog from which no local public network is likely ever to emerge. In addition to the ordinary public hearings that any municipality would hold on the subject, a town looking to build a public network would have to hold a referendum. It wouldn’t be allowed to spend any money in support of its position (there would be no such prohibition on the deep-pocketed incumbents). The community wouldn’t be allowed to support its network with local taxes or surplus revenues from any other services (although incumbents routinely and massively subsidize their networks with revenue from other businesses).

Most pernicious of all, the public operator would have to include in the costs of its service the phantom, imputed “capital costs” and “taxes” of a private provider. This is a fertile area for disputes, litigation and delay, as no one knows what precise costs and taxes are at issue, much less how to calculate these amounts. The public provider would also have to comply with all laws and “requirements” applicable to “the communications service,” if it were made available by “a private provider,” although again the law doesn’t specify which service is involved or which provider is relevant.

The end result of all this vague language will be to make it all but impossible for a city to obtain financing to build its network. Although the proponents of Georgia’s bill claim that they are merely trying to create a level playing field, these are terms and conditions that no new entrant, public or private, can meet — and that the incumbents themselves do not live by. You can almost hear the drafters laughing about how impossible the entire enterprise will be.

Globally Competitive Networks

Right now, state legislatures — where the incumbents wield great power — are keeping towns and cities in the U.S. from making their own choices about their communications networks. Meanwhile, municipalities, cooperatives and small independent companies are practically the only entities building globally competitive networks these days. Both AT&T and Verizon have ceased the expansion of next-generation fiber installations across the U.S., and the cable companies’ services greatly favor downloads over uploads.

Congress needs to intervene. One way it could help is by preempting state laws that erect barriers to the ability of local jurisdictions to provide communications services to their citizens.

Running for president in 1932, Franklin D. Roosevelt emphasized the right of communities to provide their own electricity. “I might call the right of the people to own and operate their own utility a birch rod in the cupboard,” he said, “to be taken out and used only when the child gets beyond the point where more scolding does any good.” It’s time to take out that birch rod.