How exactly did America get stuck with a broadband monopoly in many areas, a duopoly in most others? It did not happen by accident. In this occasional series, “Historical Truths,” we will take you back to important moments in telecom public and regulatory policy that would later prove to be essential for the creation of today’s anti-competitive, overpriced marketplace for broadband internet service. By understanding the trickery and legislative shell games practiced by lobbyists and their elected partners in Congress, you will learn to recognize when the telecom industry and their friends are preparing to sell you another bill of goods. 

Vice President Al Gore watches President Bill Clinton digitally sign the 1996 Telecom Act into law on February 8, 1996.

By the end of the first term of the Clinton Administration, the president faced a major backlash from Republicans two years into the Gingrich Revolution. A well-funded chorus of voices in the business community, the Democratic Leadership Council — a business-friendly group of moderate Democrats, as well as commentators and pundits had the attention of the Beltway media, complaining in unison that the Democrats shifted too far to the left during the first term of the Clinton Administration, leaving it exposed in the forthcoming presidential election to another voter backlash like the one that installed the Gingrich revolutionaries in the House of Representatives and delivered a Republican takeover of the U.S. Senate in 1994.

With pressure over the growing lack of bipartisanship, and a presidential election ahead in the fall, the Clinton Administration was looking for ideas to prove it could work across the aisle and pass new laws that would deliver for ordinary Americans.

Revamping telecommunications policies would definitely touch every American with a phone line, computer, modem, and a television. Before 1996, America’s telecommunications regulation largely emanated from the Communications Act of 1934, which empowered the Federal Communications Commission to establish good order for the growing number of radio stations, telephone, and wire lines crisscrossing the country.

The 1934 Act’s legacy remains today, at least in part. It created the FCC, firmly established the concept of content regulation on the public airwaves, and established a single body to conduct federal oversight of the nation’s telephone monopoly controlled by AT&T.

Efforts to replace the 1934 Act began well before the Clinton Administration. In the early 1980s, Sen. Bob Packwood (R-Ore.) attempted to push for a legislative breakup of AT&T and a significant reduction in the oversight powers of the FCC. The bill met considerable opposition from AT&T, spending $2 million lobbying against the bill in 1981 and 1982. Alarm companies also heavily opposed the measure, terrified AT&T would enter their market and put them out of business. AT&T preferred a more orderly plan of divestiture being carefully negotiated in a settlement of a 1974 antitrust lawsuit by the Justice Department. A 1982 consent decree broke off AT&T’s control of local telephone lines by establishing seven Regional Bell Operating Companies independent of AT&T (NYNEX, Pacific Telesis, Ameritech, Bell Atlantic, Southwestern Bell Corporation, BellSouth, and US West). AT&T (technically an eighth Baby Bell) kept control of its nationwide long distance network.

Also in the 1980s, the cable television industry gained a much firmer foothold across the country, quickly gaining political power through well-financed lobbyists and close political ties to selected members of Congress (particularly Democrat Tim Wirth, who served in the House and later Senate representing the state of Colorado) that allowed them to push through a major amendment to the 1934 Act in 1984 deregulating the cable industry. The result was an early wave of industry consolidation as family owned cable companies were snapped up by a dozen or so growing operators. These buyouts were largely financed by dramatic rate increases passed on to consumers, resulting in cable bills tripling (or more) in some areas almost immediately. By the end of the 1980s, a major consumer backlash began, creating enormous energy for the eventual passage of the 1992 Cable Act, which re-regulated the industry and allowed the FCC to order immediate rate reductions.

The Progress and Freedom Foundation, with close ties to former House Speaker Newt Gingrich, closed its doors in 2010.

The biggest push for a near-complete revision of the 1934 Act came during the Gingrich Revolution. In 1995, the conservative Progress & Freedom Foundation — a group closely tied to then-Speaker Newt Gingrich (R-Ga.) floated a trial balloon calling for the elimination of an independent Federal Communications Commission, replaced by a stripped-down Office of Communications that would be run out of the White House and be controlled by the president. A small army of telecom industry-backed scholars also began proposing privatizing the public airwaves by selling off spectrum to companies to be owned as private property. The intense interest in the FCC by the group may have been the result of its veritable “who’s who” of telecom industry backers, including AT&T, BellSouth, Verizon, the National Cable & Telecommunications Association, cable companies like Comcast and Time Warner; cell phone companies like T-Mobile and Sprint; and broadcasters like Clear Channel Communications and Viacom.

The proposal outraged Democrats and liberal groups who called it a corporate-friendly sell-off and giveaway of the public airwaves. Then FCC Chairman Reed Hundt took the proposal very seriously, because at the time Gingrich lieutenant Tom DeLay’s (R-Tex.) secretive Project Relief group had 350 industry lobbyists, including some from BellSouth and Southwestern Bell literally drafting deregulation bills and a regulatory moratorium on behalf of the new Republican majority, coordinating campaign contributions for would-be supporters along the way. The proposal ultimately went nowhere, lost in a sea of the House Republicans’ constantly changing agendas, but did draw attention to the fact a wholesale revision of telecommunications policy would attract healthy campaign contributions from all corners of the industry — broadcasters, cable companies, phone companies, and the emerging wireless industry.

When it became known Congress was once again going to tackle telecommunications regulation, lobbyists immediately descended from their K Street perches in relentless waves, with checks in hand. There were two very important agendas in mind – deregulation, which would remove FCC rate regulation, service oversight, cross-competition prohibitions, and ownership caps, and ironically, protectionism. The cable and satellite companies had become increasingly fearful of the regional Baby Bells, which arrived in Congress in the early 1990s promoting the idea of entering the cable TV business. The cable industry feared phone companies would cross-subsidize the development of Telco TV by charging telephone ratepayers new fees to finance that entry. The cable industry had carefully developed a de facto monopoly over the prior decade of consolidation. Companies learned quickly direct head-to-head competition between two cable operators in the same market was bad for business.

The original premise of the 1996 Telecom Act was that it would eliminate regulations that discouraged competition. Promoters of the legislation asked why there should only be one phone or cable company in each city and why maintain regulations that kept cable and phone companies out of each others’ markets. Fears about market power and allowing domineering cable and phone companies to grow even larger were dismissed on the premise that a wide open marketplace, with regulations in place to protect consumers and competition would avoid creating telecom robber barons.

The checks handed out by industry lobbyists were bi-partisan. Democrats could crow the new rules would finally give consumers a new choice for cable TV or phone service, and help bring the “information superhighway” of the internet to schools, libraries, and other public institutions. Republicans proclaimed it a model example of free market deregulation, promoting competition, consumer choice, and lower prices.

At a high-brow bill signing ceremony held at the Library of Congress, both President Bill Clinton and Vice President Al Gore were on hand to “electronically sign” the bill into law. Both the president and vice-president emphasized the historical significance of the emerging internet, and its ability to connect information-have’s and have-not’s in an emerging digital divide. Missing from the discussion was an exploration of what industry lobbyists and their congressional allies were doing inserting specific language into the 1996 Telecom Act that would later haunt the bill’s legacy.

On hand to celebrate the bi-partisan bill’s signing were Speaker Gingrich, Sen. Larry Pressler (R-S.D.); Sen. Ernest F. Hollings (D-S.C.); Rep. Thomas J. Bliley Jr. (R-Va.); Rep. John Dingell (D-Mich.); and Ron Brown, the Secretary of Commerce. Pressler was among the soon-to-be-endangered moderate Republicans, Hollings was a holdout against the gradual wave of Republican takeovers in southern “red states,” and Dingell was a veteran lawmaker with close ties to the broadcasting industry.

Some of the bill’s industry backers were also there, some who would ironically see its signing as directly responsible for the eventual demise of their independent companies. John Hendricks of the Discovery Channel, Glenn Jones of Jones Intercable (acquired by Comcast in 1999), Jean Monty of Northern Telecom (later Nortel), Donald Newhouse of Advance Publications (eventual part owner of Bright House Networks and later Charter Communications), William O’Shea of Reuters Ltd. and Ray Smith of Bell Atlantic (today part of Verizon) were on hand. Also in the audience was Jack Valenti of the Motion Picture Association of America, representing Hollywood Studios.

Among the fatal flaws in the Telecom Act of 1996 were its various ‘competition tests,’ which were open to considerable interpretation and latitude at the FCC. The Republican supporters of the bill argued that the presence of an open and free marketplace would, by itself, induce competition among various entrants. They were generally unconcerned with the question of whether new competition would actually arrive. Their priority was lifting the protective levers of legacy regulation as soon as possible. Many Democrats assumed what appeared to be carefully drafted regulatory language would protect consumers by preventing the FCC from lifting protections too early in the competitive process. But lobbyists consistently outmaneuvered lawmakers, finding ways to insert loopholes and compromise language that introduced inconsistencies that could be dealt with and eliminated either by the FCC or the courts later.

For example, lawmakers insisted on unbundling telecommunications network elements, an arcane way of saying new competitors must be granted access to existing networks to be shared at wholesale rates. In practice, this meant if a phone company entered the internet service provider business, it must also make its network available for other ISPs as well. In some areas, competing local telephone companies also offered landline service over existing telephone lines, paying wholesale connection fees to the incumbent local phone company. As competition emerged, the incumbent company usually petitioned for a lifting of the regulations governing their business, claiming competition had arrived.

The first warning the 1996 Act was going awry came a year after the bill was signed into law. Phone companies started raising rates from $1.50-6 a month on average. AT&T was petitioning to hike rates $7 a month. Someone would have to pay to replace the scrapped subsidy system in a competitive market — subsidies that had been in place at the nation’s phone companies for decades. By charging higher rates for phone service in cities and for pricier long distance calls before the arrival of companies like MCI and Sprint, the phone companies used this revenue to subsidize their Universal Service obligations, keeping rural phone bills low and often below the real cost of providing service. To establish a truly competitive phone business, the subsidies had to be reformed or go, and that meant someone had to cover the difference.

“This game is called ‘shift and shaft,'” Sharon L. Nelson, the chairwoman of the Washington Utilities and Transportation Commission, said in 1997. “You shift the costs to the states and shaft the consumer.”

Sam Brownback (R-Kansas)

Gradually, consumers suddenly discovered their phone bill littered with a host of new charges, including the Subscriber Line Charge and various regulatory recovery fees and universal service cost recovery schemes. Phone companies also boosted rates on their unregulated Class phone features, like call waiting, caller ID, and three-way calling. The proceeds helped make up for the tens of billions in lost subsidies, but the end effect was that phone bills were still rising, despite promises of competitive, cheap phone service.

At a hearing of the Senate Commerce Committee later that year, several angry senators said they would never have voted in favor of the Telecommunications Act of 1996 if they had thought it would lead to higher rates. Sam Brownback, a Kansas Republican, was in the line of fire because of his rural constituents. Rates for those customers are subsidized more heavily than elsewhere because of the cost of extending service to them. Rates were threatening to skyrocket.

“We would be foolish to build up all these expectations about competition without saying to the American people, ‘We’re going to have to raise your phone bill,'” Brownback said.

But the rate hikes were just beginning. By the beginning of the George W. Bush administration, telecom lobbyists brought a thick agenda of action items to Michael Powell’s FCC. Despite promises of competition breaking out everywhere, that simply was not the case. Republicans quickly blamed the remaining regulatory protections still in place in noncompetitive markets for ‘deterring competition.’ But the companies knew the only thing better than deregulation was deregulation without competition.

Consolidation wave

The Republican-dominated FCC quickly began removing many of those protective regulations, claiming they were outdated and unnecessary. The very definition of competition was broadened, allowing the presence of virtually any company offering almost any service good enough to trip the deregulation levers. Later, even open access to networks by competitors was often limited to pre-existing networks, not the future next generation networks. Republicans argued those networks should be managed by their owners and not subject to “unbundling” requirements.

The weakened rules also sparked one of the country’s largest consolidation waves in history. Cable companies bought other cable companies and the Baby Bells gradually started putting themselves back together into what would eventually be AT&T, Verizon, and Qwest/CenturyLink. For good measure, phone companies even snapped up a handful of independent phone companies, most notably General Telephone and Electronics, better known as GTE by Verizon and Southern New England Telephone (SNET) by AT&T.

Prices rising as costs dropping.

The cable industry, under the premise it needed territories of scale to maximize potential ad insertion revenue from selling commercials on cable networks, gradually shrunk from at least a dozen well-known companies to two very large ones – Comcast and Charter, along with a few middle-sized powerhouses like Cox and Altice. Merger and acquisition deals faced little scrutiny during the Bush years of 2002-2009, usually approved with few conditions.

The result has been a rate-raising oligopoly for telecom services. In broadcasting, the consolidation wave started in radio, with entities like Clear Channel buying up hundreds of radio stations (and eventually putting the resulting giant iHeartMedia into bankruptcy) and Sinclair and similar companies acquiring masses of local television outlets. On many, local news and original programming was sacrificed, along with a significant number of employees at each station, in favor of inexpensive music, network or syndicated programming. Some stations that aired local news for 50 years ended that tradition or turned newsgathering over to a co-owned station in the same city.

Although telephone service eventually dropped in price with the advent of Voice over IP service, consumers’ cable TV and internet bills are skyrocketing at levels well in excess of inflation. Last year, the Washington Center for Equitable Growth demonstrated that the current consolidated, anti-competitive telecom marketplace results in rising prices for buyers and falling costs for providers.

Your oligopoly tax.

“In truly competitive markets, a significant part of cost reductions would be passed through to consumers,” the group wrote. “Based on a detailed analysis of profits—primarily EBITDA—we estimate that the resulting overcharges amount to more than $45 per month, or $540 per year, an aggregate of almost $60 billion, or about 25 percent of the total average consumer’s monthly bill.”

That is one expensive bill, paid by subscribers year after year with no relief in sight. Several Republicans are proposing to double down on deregulation even more after eliminating net neutrality, which could cause your internet bill to rise further. Several Republicans want to rewrite the 1996 Telecom Act once again, and lobbyists are already sharing their ideas to further curtail consumer protections, lift ownership caps, and promote additional consolidation.

The stunning victory by Donald Trump in Tuesday’s election ended two years of campaigning, negativity, and divisiveness.

Wednesday probably marked the beginning of Election 2020, which will involve four years of campaigning, negativity, and divisiveness.

Before looking at the implications of the forthcoming Trump Administration, some personal words about the results from the perspective of a lifelong resident of western New York, on the periphery of the Rust Belt region that evidently made all the difference for Mr. Trump on Tuesday night.

Casting my vote here in western New York while suffering a severe cold that has now evolved into walking pneumonia, I reflected on the fact this nasty election probably gave it to me. Despite that, I have the good fortune of living in a diverse community. Our next door neighbor, and by far the closest to us personally, is an ardent Republican who supported Sen. McCain, Gov. Romney, and Mr. Trump. Across the street, a reliable panoply of Democratic candidate lawn signs sprout every other fall. I spend my Friday afternoons in a community south of Rochester where Hillary Clinton has been largely reviled since she was a senator of New York. She didn’t win in Ontario County this year either. But Sen. Chuck Schumer routinely wins his elections with little effort or opposition.

Politics in the western half of New York State (known as “somewhere around Canada” to those in New York City and Long Island) is far more comparable to the battleground state of Ohio than reliably Democratic Manhattan. Our urban centers in Buffalo, Rochester, and Syracuse are solidly Democratic, while the suburbs and rural areas are just as likely to elect Republicans to office. Among those disappointed Democrats pondering a surprising election of Donald Trump, many cannot understand how such a result is possible. But having been a lifelong resident in a region that has seen profound changes from the decimation of blue-collar, high-paying manufacturing jobs in states that still cling to tax rates that assume everyone still has one, the Trump rebellion predicted by Michael Moore was hardly outlandish. Across the Rust Belt, more than a few voters have given up believing politicians, and are still waiting for relief from the relentless pressure on the declining middle class. Some of the worst job declines came in this region during the first Bush Administration and then again under President Bill Clinton. Memories are still fresh.

The changes to local economies in this region are profound and extremely difficult to navigate for those who lack advanced degrees or special technical skills. A state like North Carolina understands these changes well. An economy quickly transformed away from tobacco and textiles towards high technology created enormous challenges for many families. Those problems still exist in many parts of the state where infrastructure and good jobs are still lacking more than two decades later.

In Rochester, the formerly solid and reliable employers like Eastman Kodak and Xerox are a fraction of the size they were in the 1980s. My father met my mother at Eastman Kodak, a company that also employed more than half my extended family. But not for long. I vividly recall watching the inauguration parade of President Bill Clinton on television in 1993 on a day that Eastman Kodak carried out another wave of draconian job cuts. My father’s job survived, but my uncle’s did not. My grandfather had retired by then.

Michael Moore correctly predicted the reality of a Trump victory with the support of a disaffected middle class in economically distressed states.

Twenty-three years later, the largest employer by far in this area is the University of Rochester/UR Medicine, which includes the university and an enormous medical treatment infrastructure. Together, this accounts for 22,500 workers. The second largest employer in Rochester is a grocery store. A great grocery store — Wegmans, founded and based here, but a grocery store nonetheless. It accounts for 13,500 jobs. Another 13,000+ workers are employed in medical treatment and hospital services that compete with the U of R. Rounding out top employers are the Rochester City School District with 5,500 teachers, administrators and staff, which is almost as big as Monroe County’s government, which accounts for 4,500 employees. The biggest remaining manufacturer is Xerox, which employs 6,300 workers. But consider this contrast: in 1982 Kodak employed 60,400 in the Rochester area. Today, that number is just 2,300.

Rochester had it easy compared to heavy manufacturing cities to our west. Buffalo, western Pennsylvania, Ohio, and Michigan have been walloped twice — first by the offshoring of heavy industry and then a second round of manufacturing job losses many voters blame on various free trade agreements. Many tens of thousands of these displaced workers have relocated to other states. Exiting residents of Rochester overwhelmingly prefer North Carolina and Arizona for various reasons, while blue-collar workers further west often end up in Kentucky, Tennessee, Alabama, and other southern states. Many of those that remained behind and remember their old jobs are angry, very angry. Some of them supported Bernie Sanders, especially in Michigan. But once the choice came down to Hillary Clinton or Donald Trump, more than a few voted for Mr. Trump, not out of a great allegiance to the Republican party, but because Trump vilified free trade and business as usual in D.C. To these voters, fair or not, Hillary seemed to embody the establishment that has done little or nothing except make speeches.

The election is now over and we have the results. My candidate did not win because she did not run. (Elizabeth Warren in 2020!) On the broadband issues Stop the Cap! is concerned with, a Trump Administration is likely to be bad news for consumer protection, fair pricing, and community broadband, primarily because the people Mr. Trump has chosen thus far to advise him on tech issues are the usual sort with close ties to the largest telecommunications companies in the country, and many have penned papers that have closely aligned with those companies’ public policy positions.

Phillip Dampier: This election gave me walking pneumonia.

Trump transition team adviser Jeffrey Eisenach, for example — who we wrote about back in August, could hold considerable power over the direction President-elect Trump will take tech policy in this country. Eisenach has written papers opposing Net Neutrality, is unconcerned about data caps and zero rating policies, and called fears about consolidation blowouts like the now-dead Comcast-Time Warner Cable mega-merger overblown.

Trump did state opposition to the recent merger announcement from AT&T and Time Warner, Inc., which has Wall Street concerned the deal will be DOA by the time the merger papers are filed sometime early next year in Washington. If President Trump keeps his word on that, there are many more mergers and acquisition deals that will emerge in 2017 that will likely never be on his radar, but will be reviewed by a Federal Communications Commission stacked with commissioners closer in ideology to Ajit Pai and Michael O’Rielly than Thomas Wheeler. In our view, Commissioners Pai and O’Rielly have yet to support any significant pro-consumer policy change on broadband before the FCC. Instead, they have largely parroted Big Telecom’s talking points.

It is our suspicion that most of the merger and acquisition deals dreamed about on Wall Street that would never have gotten through the Obama Administration’s Justice Department and FCC will receive quick approval under a Trump Administration.

While Mr. Trump alludes he will prove to be a complete game-changer to business as usual in Washington, his transition team is being swarmed by the usual faces — corporate lobbyists, big donors, and political hacks angling for cabinet or agency positions. Most of them are Beltway insiders, and many have been through D.C.’s revolving door before — lobbyist -> public servant -> lobbyist.

So while Mr. Trump tells America AT&T and Time Warner is “too much concentration of power in the hands of too few,” we remain uncertain he will speak as loudly about other likely deals, particularly involving Altice, Cox, Mediacom, CenturyLink, Windstream, Frontier, Sprint, and T-Mobile — just some of the hunters and the hunted that may get consolidated in 2017.

On other issues:

• Net Neutrality: Republicans vilified Net Neutrality and a Republican-dominated FCC will likely kill or dramatically downplay any efforts to enforce it. Trump himself has never been a fan. Any new powers won by Chairman Wheeler to regulate internet providers under Title II will also likely be jettisoned by a Chairman Pai or O’Rielly;
• Data Caps/Zero Rating: This issue is important to us, but isn’t likely to see any regulatory action under a GOP-dominated FCC. Internet providers are likely to see a Trump Administration as a green light for data caps and consumption billing;
• Internet Privacy: Efforts to regulate internet privacy will also likely face a reversal from skeptical Republicans who will combine excuses for national security with a “hands off” attitude on telecommunications regulation.
• Community Broadband: The issue of turning back bans on public/municipal broadband will have to be won on the state level. We do not expect to see many friends for municipal broadband in Republican-dominated Washington. The influence of the Koch Brothers, notoriously opposed to public internet projects, has only gotten stronger after this election.

With a GOP-sweep across the Executive and Legislative branches, we expect more deregulation, which is likely to further entrench the broadband duopoly in the United States, if not further expand it with additional consolidation-related mergers and acquisitions, at least among the small and mid-sized players.

On a more personal level, I have been involved in public policy battles surrounding telecommunications issues since 1988. In the late 1980s, I fought for increased competition and regulatory relief for home satellite (TVRO) dishowners and we joined forces to help pass the 1992 Cable Act, which laid the foundation for the emergence of competitors DirecTV and Dish Networks — the first serious competition to the cable industry. That law was vetoed by President George H.W. Bush, but that veto was overridden by the U.S. Congress — the only bill to successfully become law during the first Bush Administration over his objection. Republicans pay cable bills too.

(Image courtesy: Steve Rhodes)

Administrations come and administrations go, but we are still here.

The need for robust consumer protection, true competition, and a level playing field never changes. Your involvement remains essential regardless of what party is in power in Washington. Some battles will be more challenging, but not all. Direct consumer action can make an impact on companies concerned about their brand and public image. Just as consumers are passionate about rising cable bills, broadband is always a hot button issue, especially where service is unavailable or comes only at a price that resembles extortion.

The president-elect says that America doesn’t win anymore. We sure haven’t been winning on broadband, either on speed, pricing, or availability, in comparison to Europe and Asia. The solution is not to turn the problem over to the same companies that created the conditions for broadband malaise we are dealing with now. As seen in fiercely competitive markets like France, true competition is often the only regulation you need. A duopoly answers to itself. Having the choice of four, five, six, or more competing providers answers to customers. Consolidated and entrenched markets resist innovation and the need to compete stagnates. Corporate welfare and ghost-written telecom laws that forbid community broadband restricts economic growth and kills jobs, stranding countless rural residents from the digital economy. That -is- business as usual in too many states where groups like the American Legislative Exchange Council (ALEC) facilitate legislative fixes and legal protectionism that restricts or disadvantages competition.

If Mr. Trump truly believes the words he has spoken, he must be vigilant. He must not surround himself with the same politicians and their minders that created the very problems he promises to fix. The voters that elected him to office expect nothing less than blowing up business as usual. But the nation’s capital has a better track record of changing the politician while resisting change to the status quo.

We wish President Trump success for our country, but we’ll be watching to make certain his rhetoric meets the reality.

Tom Wheeler circa 1983, when he represented the cable industry. (Image: The Cable Center)

Skepticism persists over whether new FCC chairman Tom Wheeler, a former cable and telco lobbyist and venture capitalist, will have the interests of an industry he was a part of for decades ahead of the people he is supposed to represent.

The doubts are so significant, The Wall Street Journal’s ‘All Things D’ devoted an entire piece on the subject, interviewing Wheeler about his plans for the federal agency.

“My client today is the American people, and I am going to be the most effective advocate they could hope for,” Wheeler told AllThingsD in a phone interview on Wednesday. “I was (involved in) the early days of cable television when everybody was trying to squash it; I was a was champion for a diversity of voices and the competition that represented. I’m very proud of that period, but it was 30 years ago that I was in in cable, and 10 years ago that I was in wireless.”

Both periods were extremely important for both industries. When Wheeler was president of the National Cable TV Association (now the NCTA), his leadership helped enact the 1984 nationwide deregulation of the cable television industry. Wheeler promised the single national “hands-off” policy for cable television would put control “back in the hands of customers” instead of the local, state, and federal government. The cable lobby pushed hard for extra provisions in the law that would prohibit local or state governments or franchising authorities from reimposing controls the federal government eliminated.

The 1984 Cable Act contained three major provisions to strip away regulatory/rate oversight:

1. “Basic Cable” rate regulation was removed in any community where a cable company faced “effective competition” from at least three unduplicated over the air television stations. If your community received two fuzzy network affiliates and one local religious station, that was considered effective competition.
2. Local franchise authorities and cable TV commissions, often citizen-run, had most of their oversight and enforcement powers stripped away, including the most important power to deny a franchise renewal to a bad-acting local cable company, except in the most extreme cases. Cable operators effectively used this provision to launch costly lawsuits burying local communities in litigation expenses when they tried to find a different provider.
3. Granted local franchise authorities to right to demand cable systems set aside a few channels for Public, Educational, and Government (PEG) use.

The cable industry carefully lobbied for an effective definition of “competition” that made it into the final version of the bill. Estimates from congressional researchers predicted that 97 percent of the country’s cable systems would be deregulated when the law took effect Dec. 29, 1986.

In a 1984 C-SPAN call-in program, Wheeler noted that before deregulation, “the cities were in the driver’s seat” controlling the franchising process. Wheeler claimed cable operators competing for franchise agreements were forced to promise services and technology that ultimately proved too burdensome or expensive to actually deliver. Deregulation, Wheeler promised, would “keep cable rates low because you are not going to be paying for services that [the government says] have to be provided that nobody watches.”

In reality, after the passage of the 1984 Cable Act, cable systems were bought and sold in a frenzy that left control ultimately in the hands of a handful of operators. Soon after, cable rates skyrocketed and cable-industry-owned networks and channels were shoveled on to cable lineups. With every sale and every new channel addition, rates were raised even higher, whether customers wanted the extra programming or not.

Without oversight, cable service itself deteriorated in quality. In some cities, cable operators ignored rights-of-way and often refused to hang or bury cable lines left scattered on lawns. Customer complaints often went unresolved for days or weeks. Cable operators also rolled out new charges for monthly programming magazines and equipment, even as they continued to boost rates for basic cable itself. Prior to deregulation, customers usually paid less than $10 a month for basic cable. After, rates rapidly pushed towards the $20 a month mark. Today’s cable TV prices are much higher.

In the summer of 1984, Wheeler left the NCTA to pursue a new business – The NABU Network, a precursor to cable broadband that turned out to be a commercial failure. The NABU Network coupled a home computer system with a cable-based data service. The only significant North American trial of NABU was in Ottawa, Canada and required significant subsidies from the Canadian government. Wheeler said the NABU system would offer subscribers a mountain of software at a monthly subscription price. Canadians had to buy the NABU PC for around $950 and pay around $10 a month for software access.

The venture fell apart because cable systems in that era lacked two-way capability, making it cumbersome for users to interact with the NABU platform or manage applications. Ottawa Cablevision and Skyline Cablevision introduced NABU in 1983 and discontinued it in 1985.

In 1992, Wheeler went on to become president of CTIA – The Wireless Association, the nation’s biggest cell phone industry trade group. Wheeler beefed up the association’s lobbying forces after joining, turning CTIA into “one of the most influential lobbying forces on Capitol Hill,” according to Connected Planet.

Once there, Wheeler presided over efforts to get government spectrum policies relaxed and keep cancer questions about RF energy leaking from cellphones under wraps:

In a 1994 memo, Wheeler raised objections to a draft of a mobile-phone manual that, among other things, advised consumers how to limit radio-frequency radiation from mobile phones. The book says Wheeler succeeded in getting the industry consumer safety document watered down.

In a September 1994 memo, Wheeler mapped out “a pre-emptive strike” on Rep. Edward Markey (D-Mass.) by highlighting to Markey the involvement of Harvard University. Wheeler, according to the book, even had a backup plan to curry favor with Markey that, if necessary, would “send all cash through Harvard.”

By 2000, Wheeler was being questioned about conflict of interest charges about his lucrative investments in businesses represented under the CTIA’s public policy umbrella, according to RTR Wireless:

But conflict-of-interest issues-real, perceived and otherwise-that flow from Wheeler’s lucrative ties to Aether, OmniSky and now, Metrocall, could have long-term consequences that CTIA and the wireless industry would rather not consider in these halcyon days of soaring stocks, consolidation and deregulation.

The unorthodox arrangement Wheeler has with outside wireless firms begs closer scrutiny by CTIA’s board. Do Wheeler’s money and management ties to firms he advocates set a bad precedent? Could it diminish CTIA’s credibility as an organization?

Wheeler claims to be committed to three principles that will govern how he looks at issues before the FCC:

1. Is it good for competition? “You can’t have economic growth if you don’t have competition. You can put me down as rabidly pro-competition,” Wheeler said.
2. Trust between those who run networks and those who use them must be maintained.
3. Opening up high-speed networks must include guarantees that content will be open and accessible to all. “I am pro-the ability of individuals to access an open network,” he said.

Wheeler asked for a review of all proposals before the FCC and expects that in two months.

Tom Wheeler, then retiring president of the National Cable TV Association (NCTA), appeared on this fascinating 1984 C-SPAN call-in program at the NCTA Convention with future president Tom Mooney. The NCTA promised deregulation would deliver many benefits to cable subscribers. They got higher bills and declining service instead. (June 5, 1984 – 39:00)

The next name of Time Warner Cable?

Charter Communications is laying the foundation for a leveraged buyout of Time Warner Cable before the end of the year in a deal that could leave Time Warner Cable’s broadband customers with Charter’s usage caps.

Reuters reported discussions between the two companies grew more serious after last week’s revelation a poor third quarter left TWC with 308,000 fewer subscribers.

Charter is relying on guidance from Goldman Sachs to structure a financing deal likely to leave Charter in considerable debt. Charter Communications emerged from bankruptcy in 2009 and is the country’s tenth largest cable operator, estimated to be worth about $13 billion. Time Warner Cable is the second largest cable operator and is worth more than $34 billion.

The disparity between the two companies has kept Time Warner Cable resistant to a deal with Charter, stating it would not be beneficial to shareholders. Charter executives hope to eventually win shareholder support for a buyout stressing the significant cost savings possible from a combined operation, particularly for cable programming.

The deal would likely end Time Warner Cable as a brand and leave Charter Communications CEO Thomas Rutledge in charge of a much larger cable company. Pricing and packaging decisions are usually made by the buyer, which could bring faster broadband speeds to Time Warner customers, but also usage caps already in place at Charter.

John Malone’s War on Customers

Malone

Cable billionaire John Malone, former CEO of Tele-Communications, Inc. (TCI) — America’s largest cable operator in the 1980s — believes consolidation is critical to the future of a cable business facing competition from phone companies and cord cutting. Malone’s Liberty Media, which now holds a 25% stake in Charter, is currently buying and consolidating cable operators in Europe. Malone’s post-consolidation vision calls for only two or three cable operators in the United States.

Malone’s quest for consolidation is nothing new.

Under his leadership, TCI eventually became the country’s biggest cable operator, but one often accused of poor service and high prices. More than a decade of complaints from customers eventually attracted the attention of the U.S. Congress, which sought to rein in the industry with the 1992 Cable Act — legislation that lightly regulated rental fees for equipment and the price of the company’s most-basic television tier.

Despite the fact consumer advocates didn’t win stronger consumer protection regulations, TCI was still incensed it faced a new regulatory environment that left its hands tied. One executive at a TCI subsidiary advocated retaliation with broad rate increases for unregulated services to make up any losses from mandated rate cuts.

A 1993 internal TCI memo obtained by the Washington Post instructed TCI system managers and division vice presidents to increase prices charged for customer service calls and add new fees for common installation services the company used to offer for free. TCI’s Barry Marshall recommended charging for as many “transaction” services as possible — like hooking up VCR’s, running cable wire, and programming remote controls for confused customers.

“We have to have discipline,” Marshall wrote. “We cannot be dissuaded from the [new] charges simply because customers object. It will take awhile, but they’ll get used to it. The best news of all is we can blame it on re-regulation and the government now. Let’s take advantage of it!”

Tele-Communications, Inc. (TCI) was the nation’s largest cable operator. Later known as AT&T Cable, the company was eventually sold to Comcast.

The FCC’s interim chairman at the time — James Quello, charged with monitoring the cable industry, was not amused.

“It typifies the attitude of cable companies engaging in creative pricing and rate increases to evade the intent of Congress and the FCC,” Quello said. “There is little doubt that the cable industry has an economic stake in discrediting the congressional act they vehemently and unsuccessfully opposed.”

Marshall defended his internal memo, although admitted it was inartfully written and was not intended for the public. Revelation of a damaging memo like this would normally lead to a quiet resignation by the offending author, but not at John Malone’s TCI, a company with a reputation for being difficult.

Mark Robichaux’s 2005 book, Cable Cowboy: John Malone and the Rise of the Modern Cable Business, was even less charitable.

Robichaux describes Malone as a “complicated hero,” at least for investors for whom he was willing to ignore banking rules and creatively interpret tax law. Robichaux wrote Malone’s idea of customer service was to ‘charge as much as you can, but spend as little as you can get away with.’

TCI’s top priority was to keep up the cable business as an “insular cartel.” The predictable result included accusations of “shoddy service” customers were forced to take or leave. In the handful of markets where TCI faced another cable competitor, TCI ruthlessly slashed prices to levels some would describe as “predatory,” only to rescind them the moment the competitor was gone. TCI’s intolerance for competition usually meant mounting pressure on competitors to sell their system to TCI (sometimes at an astronomical price) or face a certain slow death from unsustainable price cuts.

Among Malone’s most-trusted friends: junk bond financier Michael Milken and Leo Hindery, former CEO of Global Crossing.

Congressman Albert Gore, Jr., later vice-president during the Clinton Administration, was probably Malone’s fiercest critic in Washington. Gore’s office was swamped with complaints from his Tennessee constituents upset over TCI’s constant rate increases and anti-competitive behavior.

The cable industry’s biggest competitor in the 1980s-1990s was a TVRO 6-12 foot diameter home satellite system.

Gore was especially unhappy that TCI’s grip extended even to its biggest competitor — satellite television.

In the 1980s and early 1990s, cable operators made life increasingly difficult for home satellite dish owners, many in rural areas unserved by cable television. But things were worse for home dish owners that walked away from TCI and began watching satellite television instead. To protect against cord-cutting, the cable industry demanded encryption of all basic and premium cable channels delivered via satellite. It was not hard to convince programmers to scramble — most cable networks in the 1980s were part-owned by the cable industry itself.

To make matters worse, unlike cable systems that only leased set-top boxes to customers, home dish owners had to buy combination receiver-descrambler equipment outright, starting at $500. Just a few years later, the industry pressured programmers to switch to a slightly different encryption system — one that required home dish owners replace their expensive set-top box with a different decoder module available only for sale.

Gore was further incensed to learn TCI often insisted home dish owners living within a TCI service area buy their satellite-delivered programming direct from the cable company. Customers hoping to leave cable for good found themselves still being billed by TCI.

Sometimes the rhetoric against TCI and Malone got personal.

”He called me Darth Vader and the leader of the cable Cosa Nostra,” Malone said of Gore. “You can’t win a pissing contest with a skunk, so there’s no point in getting involved in that kind of rhetoric.”

“There’s a joke going around Washington,” John Tinker, a New York-based Morgan Stanley & Company investment banker who specializes in cable television said of Malone back in 1990. “If you have a gun with two bullets, and you have Abu Nidal, Saddam Hussein and John Malone in a room, who would you shoot? The answer is John Malone — twice, to make sure he’s dead.”

TCI itself was a four letter word in the many small communities that endured the cable company’s insufferable service, outdated equipment, and constant rate “adjustments.”

The New York Times reported John Malone’s TCI had a reputation for treating customers with “utter disdain,” and provided examples:

• In 1973, rate negotiations stalled with local regulators in Vail, Colo., the local TCI system shut off all programming for a weekend and ran nothing but the names and home phone numbers of the mayor and city manager. The harried local government gave in.
• In 1981, TCI withheld fees and vowed to go completely dark in Jefferson City, Mo., if the city failed to renew its franchise, while a TCI employee — “who turned out to have a psychological problem,” said Malone — threatened harm to the city’s media consultant. Again, a beleaguered local government renewed the franchise — although in a subsequent lawsuit, TCI was fined $10.8 million in actual damages and $25 million in punitive damages.
• In 1983, the small city of Kearney, Neb., also dissatisfied with poor service and rising rates, tried to give Malone some competition in the form of a rival system built by the regional telephone company. TCI slashed fees and added channels until the enemy was driven from the field.

“That’s the dark side, if you will, of TCI,” said Richard J. MacDonald, a media analyst with New York-based MacDonald Grippo Riely.

By mid-1989, Malone’s frenzied effort to consolidate the cable industry resulted in him presiding over 482 merger/buyout deals, on average one every two weeks. Among the legacy cable companies that no longer existed after TCI’s takeover crew arrived: Heritage Communications, United Artists Communications and Storer Communications.

To cover the debt-laden deals, Malone simply raised cable rates and shopped for easy credit. Bidding with others’ money, the per-subscriber price of cable systems shot up from $998 in 1983 to an astronomical $2,328 in 1989.

The General Accounting Office, the investigative arm of Congress, found deregulating the cable industry cost customers through rate hikes averaging 43 percent. In Denver, TCI raised rates more than 70% between 1986 and 1989.

Malone’s attempt to finance a leveraged, debt-heavy buyout of Time Warner Cable seems to show his business philosophy has not changed much.

Time Warner Cable has added two new lobbying firms, despite running up nearly $4 million in lobbying expenses during the first half of 2013, to advocate a hands-off policy on broadband and changes in how television stations get compensated from cable providers after a month-long dispute with CBS helped fuel subscriber losses.

The Legal Times blog reports Time Warner Cable has hired Dentons and Edwards Wildman Palmer to advocate the company’s positions on broadband deployment, copyright reform, privacy matters, retransmission consent, and the reauthorization of the Satellite TV Extension and Localism Act. Provisions of that legislation have given television stations and broadcast networks leverage to persuade pay television providers to meet their terms on higher compensation in return for permission to carry those signals on the cable or satellite lineup.

Nelson

In reviewing disclosures released by the clerk of the House of Representatives obtained by Stop the Cap!, Time Warner Cable will benefit from Washington’s revolving door, using lobbyists that either used to work inside offices of members of Congress or have been directly involved in writing or influencing legislation for paying clients:

Valerie Nelson, a senior managing director at Dentons, served as director of Member Services for Majority Leader Eric Cantor (R-Va.) in the U.S. House of Representatives.

Todd Bertoson, also a senior managing director at Dentons, spent nearly six years on the U.S. Senate Committee on Commerce, Science, and Transportation, working on all aspects of the committee’s agenda, including issues involving the Federal Communications Commission (FCC).

Bertoson

Seth A. Davidson, a lobbyist from Edwards Wildman Palmer, has played an active role, including drafting legislation and witness testimony, in most legislative matters affecting the communications industry over the past three decades, including the 1984 and 1992 Cable Acts, the Digital Performance Right in Sound Recordings Act of 1995, the 1996 Telecommunications Act, the Digital Millennium Copyright Act, and the Satellite Home Viewer Act of 1989 and each of its subsequent renewals. His involvement in legislative matters of interest to his clients is so pervasive, he was singled out by the chairman of the Senate Judiciary Committee in 2004 for his contributions (on behalf of his clients) in the drafting of the Satellite Home Viewer Extension and Reauthorization Act.

The Legal Times notes Time Warner Cable has spent $3.8 million on federal lobbying during the first half of this year, according to congressional records. For its advocacy efforts, the company used its own staffers, as well as lobbyists from firms that included Capitol Tax Partners; Fierce, Isakowitz & Blalock; and The Raben Group.