Like the railroad robber barons of more than a century ago, a handful of phone and cable companies are getting filthy rich from a carefully engineered oligopoly that costs the average American $540 a year more than it should to deliver vital telecommunications services.

That is the conclusion of a new study from the Washington Center for Equitable Growth, authored by two men with decades of experience representing the interests of consumers. They recommend stopping reckless deregulation without strong and clear evidence of robust competition and ending rubber stamped merger approvals by regulators.

The trouble started with the passage of the 1996 Telecommunications Act, a bill heavily influenced by telecom industry lobbyists that, at its core, promoted deregulation without assuring adequate evidence of competition. It was that Act, signed into law by President Clinton, that authors Gene Kimmelman and Mark Cooper claim is partly responsible for today’s “highly concentrated oligopolistic markets that result […] in massive overcharges for consumer and business services.”

“Prices for cable, broadband, wired telecommunications, and wireless services have been inflated, on average, by about 25 percent above what competitive markets should deliver, costing the typical U.S. household more than $45 per month, or $540 per year, for these services,” the report states. “This stranglehold over these essential means of communication by a tight oligopoly on steroids—comprised of AT&T Inc., Verizon Communications Inc., Comcast Corp., and Charter Communications Inc. and built through mergers and acquisitions, not competition—costs consumers in aggregate almost $60 billion per year, or about 25 percent of the total average consumer’s monthly bill.”

The cost of delivering service is plummeting even as your bill keeps rising.

The authors also claim that these four companies earn astronomical profits — between 50 and 90% — on their services, compared with the national average of just under 15% for all industries.

The only check on these profits came from the 2011 rejection of the merger of AT&T and T-Mobile, which started a small price war in the wireless industry, saving customers an average of $5 a month, or $11 billion a year collectively.

But antitrust enforcement alone is inadequate to check the industry’s anti-competitive behavior. Competition was supposed to provide that check, but policymakers too often kowtowed to the interests of telecom industry lobbyists and prematurely removed regulatory oversight and protections that were supposed to remain in place until real competition made those regulations unnecessary.

Attempts to force open closed networks to competitors were allowed in some instances — particularly with local telephone companies, but only for certain legacy services. Newer products, particularly high-speed broadband, were usually not subject to these open network policies. The companies lobbied heavily against such requirements, claiming it would deter investment.

The framers of the ’96 Act also mandated an end to exclusive franchise agreements that barred phone and cable companies from entering each others’ markets. This was intended to allow phone and cable companies to compete head to head, setting up the prospect of consumers having multiple choices for these providers.

Current FCC Chairman Ajit Pai frequently cites the 1996 Communications Act as being “light touch” regulation that promulgated the broadband revolution. But in reality, the Act sparked a massive wave of corporate consolidation in broadcasting, cable, and phone companies at the behest of Wall Street.

“[Cable companies] refused to enter new markets to compete head to head with their sister companies [and] never entered the wireless market,” the authors note. “Telephone companies never overbuilt other telephone companies and were slow to enter the video market. Each chose to extend their geographic reach by buying out their sister companies rather than competing. This means that the potentially strongest competitors—those with expertise and assets that might be used to enter new markets—are few. This reinforces the market power strategy, since the best competitors have followed a noncompete strategy.”

Wall Street sold consolidation on the theory of increased shareholder value from eliminating duplicative costs and workforces, consolidating services, and growing larger to stay competitive with other companies also growing larger through mergers and acquisitions of their own:

• The eight regional Baby Bells created after the breakup of AT&T’s national monopoly in the mid-1980s eventually merged into two huge wireline and wireless companies — AT&T and Verizon. The authors note these companies didn’t just acquire those that were part of the Ma Bell empire. They also bought out independent companies like GTE and long distance companies like MCI. Most of the few remaining independents provide service in rural areas of little interest to AT&T or Verizon.
• The cable industry is still in a consolidation wave combining large players into a handful of giants, including Comcast and Charter Communications, which also have close relationships with content providers. Altice entered the U.S. cable business principally on the prospect of consolidating cable companies under the Altice brand, not overbuilding existing companies with a competing service of its own.

Such consolidation wiped out the very companies the ’96 Act was counting on to disrupt existing markets with new competition. Comcast, Charter, and Verizon even have agreements to cross-market each others’ products or use their infrastructure for emerging “competitive” services like mobile phones and wireless broadband.

“By the standard definitions of antitrust and traditional economic analysis, a tight oligopoly has developed in the digital communications sector,” the report states. “While some markets are slightly more competitive than others, the dominant firms are deeply entrenched and engage in anti-competitive and anti-consumer practices that defend and extend their market power, while allowing them to overcharge consumers and earn excess profits.”

“The impact of this abuse of market power on consumers is clear. According to the most recent Consumer Expenditure Survey by the U.S. Bureau of Labor Statistics, the ‘typical’ middle-income household spends about $2,700 per year on a landline telephone service, two cell phone subscriptions, a broadband connection, and a subscription to a multichannel video service,” the report indicates. “Adjusting for the ‘average’ take rate of services in this middle-income group, consumers spend almost twice as much on these services as they spend on electricity. They spend more on these services than they spend on gasoline. Consumer expenditures on communications services equal about four-fifths of their total spending on groceries.”

The authors point out the Obama Administration, unlike the Bush Administration that preceded it, was the first since the 1996 Act’s passage to begin implementing policies to enhance and protect competition, and also check unfettered market power among the largest incumbent providers:

• It blocked the AT&T/T-Mobile merger, which would have removed an important competitor and affect wireless rates in just about every U.S. city. The Obama Administration’s opposition not only preserved T-Mobile as a competitor, it also made that company review its business plan and rebrand itself as a market disruptor, forcing wireless prices down substantially for the first time and collectively saving all wireless customers in the U.S. billions from rate increases AT&T and Verizon could not carry out.
• It blocked the Comcast/Time Warner Cable merger, which would have given Comcast unprecedented and unequaled control over internet access and content providers in the U.S. It would have immediately made other cable and phone companies potentially untenable because of their lack of market power and ability to achieve similar volume discounts and economy of scale, and would have blocked emerging competitors that could not create credible business plans competing with Comcast.
• It blocked informal Sprint/T-Mobile merger talks that would have combined the third and fourth largest wireless carriers. Antitrust regulators were concerned this would dramatically reduce the disruptive marketing that we still see today from both of these companies.
• It placed restrictions on Comcast’s merger with NBC Universal and Charter’s acquisition of Time Warner Cable. Comcast was required to effectively become a silent partner in Hulu, a vital emerging video competitor. Charter cannot impose data caps on its customers for up to seven years, helping to create a clear record that data caps are both unnecessary and unwarranted and have no impact on the cost of delivering internet services or the profits earned from it.
• Strong support for Net Neutrality, backed with Title II enforcement, has given the content marketplace a sense of certainty and stability, allowing online cable TV competitors to emerge and succeed, giving consumers a chance to save money by cutting the cord on bloated TV packages. If providers were given the authority to discriminate against internet traffic, it would place an unfair burden on competitors and discourage new entrants.

The authors worry the Trump Administration and a FCC led by Chairman Ajit Pai may not be willing to preserve the first gains in broadband and communications competitiveness since mergermania removed a lot of those competitors.

“The key lesson in the communications sector is that vigorous regulation and antitrust enforcement can create the conditions for market success. But balance is the key,” the reports warns. “Technological innovation and convergence are no guarantee against the abuse of market power, but the effort to control the abuse of market power should not stifle innovation. If the Trump administration jettisons the enforcement practices of the past eight years, then the telecommunications sector is likely to see a wave of new consolidation and a dampening of the price cutting and innovative wireless and broadband services that have been slowly emerging.”

A second fiber cut in two weeks left 30,000 Queens residents with no cable service for hours. (Image: CBS New York)

A second major cable outage in two weeks left 30,000 Queens customers of Charter Communications without phone, TV and internet service Tuesday, after vandals severed the company’s fiber optic cables.

A Long Island man was arrested Wednesday night at his Long Island home for allegedly causing the first outage, which wiped out service in the same area for almost 16 hours on June 26.

The NYPD issued a press release stating Michael Tolve (48) of Wantagh, N.Y. was charged with criminal mischief and is alleged to have cut fiber cables and removed a digital memory card from a nearby surveillance camera to avoid being detected. He was later identified from other surveillance camera footage.

Charter Communications claims Tolve is a member of the International Brotherhood of Electrical Workers Local Union 3, one of the unions that has been involved in a strike against Charter for several months. He worked as a fiber technician for both Charter Communications and its predecessor Time Warner Cable for 14 years. The cable company puts the damage estimate for the first cable cut in June at $67,000. Charter claims it has experienced 106 malicious cable cuts in its New York-area network since unionized cable technicians went on strike on March 28. The company has filed police reports on all of them.

“It’s disappointing that one of our employees would unlawfully sabotage the infrastructure we all work so hard to maintain and inconvenience our customers in this way,” Charter spokesman John Bonomo said in an email. “We intend to support the prosecution of these crimes to the fullest extent of the law, as they put our customers’ well-being in jeopardy, cause local businesses to suffer, and are a general inconvenience for all.”

Both fiber cuts strategically affected the largest possible number of customers with the least amount of effort. Charter officials said they detected the fiber cuts and dispatched repair crews immediately, but restoring service was “a gradual process” that took several hours.

Update (7/17): The Queens district attorney’s office has declined to press charges against Tolve, and all charges against him have been dropped pending an additional investigation.

Finally, a cable company that can bring everyone together, regardless of gender, age, color, or socio-economic status. Rich or poor, urban or suburban, everybody in Lexington, Ky. agrees on one thing: they hate Charter Spectrum.

Tom Eblen from the Lexington Herald Leader savaged the cable company that has alienated so many locals, the city council is looking for a bigger venue to hold their first ever performance evaluation of a telecommunications company. There are doubts the meeting, scheduled for Aug. 24 at the new senior center in Idle Hour Park (seating for 800+), is big enough to accommodate a crowd bearing pitchforks and lit torches.

Lexington chief administrative officer Sally Hamilton tried to keep things sober at the Lexington-Fayette Urban County Council work session held last week.

“We have been receiving numerous complaints,” Hamilton said.

Locals have accused Spectrum of being the “spawn of Satan” and are shocked and surprised by how much they miss Time Warner Cable, something few thought could be possible.

Since the “shameful ones” took over, customers are furious about channels that disappear without notice, failing equipment, and enormous lines at the remaining cable stores still open to accept equipment exchanges. Since Charter Communications took control of Time Warner Cable, internet speeds are reportedly dropping while bills are skyrocketing.

As Eblen notes, “It’s like the old days of Ma Bell, which comedian Lily Tomlin, as Ernestine the telephone operator, famously satirized in the 1970s: ‘We don’t care. We don’t have to. We’re the phone company.'”

The best word to describe local customers’ feelings for their new cable company: contempt.

Some city officials are getting close to agreeing after learning Spectrum is abruptly and unilaterally moving the community’s local public access channels to TV Siberia, where almost no customer is likely to find them:

• GTV3, used to broadcast city government meetings, is leaving Channel 3 and moving to Channel 185.
• Fayette County Public Schools will lose Channel 13 and find themselves on Channel 197.
• The University of Kentucky’s Channel 16 is relocating to Channel 184.

City officials spent money branding and promoting GTV3, which apparently will soon be GTV185, where only the most dedicated channel surfer will likely find it. The city claims Spectrum is thumbing its nose at its franchise agreement. Charter executives know well cities are practically powerless to intervene or have any significant say about how cable companies operate within their borders. Deregulation gives the city very few options to keep Spectrum in line. Officials also admit there is no chance another cable operator will agree to provide service in the area, effectively trapping the community with Charter indefinitely.

All the city can do about the channel repositioning is ask for money from Charter to help pay for rebranding the channel. Lexington officials are requesting $20,000, as per the terms of the franchise agreement. Charter hasn’t sent the check.

“That performance evaluation will allow the public to air their differences,” Hamilton said. “We do not have a lot of rights under the franchise agreement, but we can demand respect.”

It doesn’t seem likely Charter will be a hurry to provide it.

Spectrum cable subscribers still watching cable television without a set-top box will soon need one, or a functional equivalent, for every television connected in their home or business as Charter Communications continues its effort to encrypt all cable channels.

The campaign has now reached Kentucky, where Spectrum is preparing to encrypt every television channel on the lineup and is sending notices to its residential and commercial customers.

The University of Kentucky is working to get the word out to facilities operated by UK they may lose all television service as early as July 11 if they don’t take action.

Encryption forces customers to use set-top boxes or other equipment, often at an additional expense, to continue watching cable television service. Cable companies use encryption to reduce signal theft and eliminate the need to send trucks to disconnect customers at the pole. Instead, Charter will simply deauthorize a customer’s set-top box or other equipment so they can no longer watch when the customer cancels or does not pay their bill.