William Randolph Hearst

The Progressive Movement of the 1900s-1920s

After the reform-driven progressive movement of the early 20th century was finished taking on the railroads, they turned their attention to so-called “utility services.”  These were telephone, energy, and water providers.

The progressive movement of the early 1900s split into at least two camps:

• Individualist Progressives — Most people in this camp belonged to Theodore Roosevelt’s Progressive Party, also known as the Bull Moose Party.  The Progressive party was made up mostly of disaffected centrists who left the Republican Party after Roosevelt failed to secure the 1912 Republican nomination for president.  A rift had developed between Roosevelt and then-president Taft over how much energy should be devoted to breaking up corrupt big business and corrupt politicians.  The Progressive Party believed the Republicans had developed an unholy alliance with big business, monopoly trusts, and corrupt politicians on the state and federal level.  These individualist progressives believed in a well-regulated capitalist system, and with respect to energy companies, they demanded honoring the services and pricing promised consumers.  Once those conditions were met, government should stay out of it.  These progressives opposed abusive trusts and monopolies and supported competition.  The Progressive Party had support in states like New York, Illinois, California, Michigan, and Pennsylvania — all states with a heavy manufacturing business base that suffered from monopoly abuses.
• Reformist Progressives — Reformist progressives believed essential services should be in the hands of public trusts or municipalities, operated as non-profit “utilities” answering to the communities they served.  They were major advocates for municipal utility projects, and believed it was immoral for important services to be left in the hands of for-profit businesses, much less trusts and monopolies.  Many reformist progressives rallied behind the newspaper magnate William Randolph Hearst, who loudly advocated radical reform in his newspapers.  Hearst even formed the Municipal Ownership League, a local party in New York City, whose primary goal was to force for-profit utilities out of the marketplace — turning services over to municipalities to run for “the public good.”  Reformist progressives often applied moral values to private enterprise, suggesting an improved capitalist model required companies to also consider the social good of operating in the public interest.

Where individualist progressives had control, rate regulation and oversight was the usual model when dealing with electric companies.  California and Wisconsin, fed up with the railroad abuses, saw many similarities in  electric monopolies.  In the end, they applied the same rate regulation philosophy used with the railways for all utility services.  Both states regulated rates charged based on their perception of fair pricing.  Beyond that, they tended to leave private providers alone.  New York’s governor Charles Evans Hughes was an individualist progressive who advocated regulatory crackdowns on monopolies who abused the terms and conditions under which they offered service.  Once they met that obligation, Hughes believed the free market would manage to sort out the rest.

That was all fine and well for communities already served by electric companies, but what about vast numbers of smaller communities bypassed for electric service?

Defenders of the free market, and the companies themselves argued that only through deregulation would providers get sufficient investment to expand their service areas into previously unserved communities.  Apply rate regulation and other government interference and investors will look elsewhere.

Reformist progressives disputed this assertion, believing hunger for quick profit was responsible for the disinterest in serving rural communities, where construction costs were higher and rapid return on investment was unlikely.  Besides, they argued, since most of these companies provided monopoly service, it wasn’t as if they faced imminent price-cutting competition.

Reformers advocated bypassed communities should form their own municipally-run electric companies or cooperatives, managed by local government and answerable to local ratepayers.  This solution was attractive to many communities, especially the growing number of planned new communities that came during the boom years of the 1920s.

As municipal power attracted attention, some in the private power sector balked.  Not only were these companies delivering good service to customers, they were often doing it at far lower prices.  Many large utility companies and their allies made municipal power a political issue, attacking the concept as anti-American.  Their argument: Public money should never be spent to construct services traditionally provided by private companies, even when those companies had yet to wire those communities for service.

Charles Evans Hughes

As political lobbying for bans on municipal power projects grew more intense, newspaper magnate William Randolph Hearst declared all-out war on the electric monopolies.  Hearst advocated that electricity be a delivered only through not-for-profit municipally-run utility companies.

Hearst even went as far to seek the governor of New York’s office several times in the early 1900s, to implement his progressive reforms.  Hearst’s platform included advocacy of public power delivered for the social good. That meant companies would extend service to outlying areas as soon as practical instead of when it was grossly profitable.  Power companies would charge a fair price for good service.  Companies would also advocate for customer safety and work with government to define safety regulations instead of reflexively opposing them at every turn.

In one of several runs for office, his opponent was the aforementioned then-current governor Charles Evans Hughes, who promptly went on the attack.

Hughes had one word for Hearst’s reform views: Socialism

Governor Hughes told the Republican Club of New York in 1908, “Our government is based upon the principles of individualism and not upon those of socialism…. It was founded to attain the aims of liberty, of liberty under law, but wherein each individual for the development and the exercise of his individual powers might have the freest [sic ] opportunity consistent with the equal rights of others.”

Hearst lost the governor’s race each time he ran, and was outmaneuvered by the private industries he sought to reform.  In fact, the industry managed to outwit regulatory advocates at every turn.

For example, since states were permitted only to regulate commerce within its borders, giant national electricity holding companies, also known as “trusts,” typically escaped such regulation by opening headquarters out of state, which allowed them to ignore local and state regulations.  In Riverside, California, Southern Sierras Power Company was able to ignore California state regulations because its head offices were in Denver, Colorado.  That kept pesky state officials out of Sierras’ books to verify whether the rates it charged were fair.

When regulators sought to construct a formula for fair regulated pricing, creative bookkeeping and debt structuring made even confiscatory rates permissible.  Companies learned to use business regulations against the regulators.  For instance, when a regulator believed rates could be lowered, power companies increased their debt obligations, at least on paper.  They paid outrageous administrative fees to the holding companies they themselves often quietly controlled.  Or they used creative accounting tricks to make it appear free cash was obligated to satisfy investors who held company debt and had to be repaid under government rules within a limited time frame.  Companies were able to “prove” to regulators their current rates were fair, and there was no leeway to reduce them.

Only after municipal power companies began providing service at dramatically lower, and sustainable prices did suspicion reach a fever pitch that regulators were being played.

Tomorrow: A “New Deal” for Americans

Richardson County, Nebraska

Richardson County, Nebraska is classic rural Americana.  Fixed at the very southeastern tip of Nebraska, the county’s gently rolling countryside offers a break from the relentless flat prairies in nearby Kansas. Agriculture, cattle and hog farming are important to the local economy.  Large farms grow corn, alfalfa, and wheat, but the area’s 170 growing days also support a significant apple crop as well. Towns within the county range from the tiny Barada, population 28 up to the county seat — Falls City, population 4,671.

With a climate than can deliver temperatures well under zero in the winter and into the triple digits in the summer, tourism isn’t this part of Nebraska’s strength.  But its location, culture, and cost of living are for those who live there.

Originally founded in 1857, Falls City served as a major transit point for escaping slaves caught up in the Kansas-Nebraska Act controversy, one of the many disputes that eventually led to the Civil War.  Like most small towns of the time, growth came with the arrival of the railroads.  First, the Atchison & Nebraska Railroad in 1871 and then the Missouri Pacific in 1882.

The population peaked in 1950 at 6,200, but the town has held its own thanks to the self-sufficiency of its residents and local government.

Falls City is a unique community among thousands of small communities across the heartland and beyond.

The local economic development team promote Falls City’s possibilities as a strategic transit and shipping center.  Regionally, Richardson County is just an hour or two away from Kansas City, Missouri, Topeka, Kansas, and Omaha and Lincoln, Nebraska.  Centrally located, the area offers two day shipping possibilities to most points of the country.

The municipal government owns and operates the local water, gas, electric and waste treatment facilities, which charge rates lower than other communities in Nebraska.  Time Warner Cable’s Nebraska division offers service in most parts of town, and the local, family-owned Southeast Nebraska Communications (SNC) started providing phone service in Falls City, Rulo, Stella, Shubert, Verdon and Salem, as early as 1906.

SNC, which was founded by Edwin H. Towle, began with an attitude of innovation — providing the best, most modern service possible for southeastern Nebraska.  Simply providing “good enough for rural residents” service typical among larger providers was never a part of the company’s philosophy.  The company grew through its innovation, and today leverages all it can out of its copper cable network.  The spirit of innovation that began with Edwin continues today at SNC through family member Dorothy J. Towle, who serves as president of the company.

Towle and other company officials recognize the days of copper wire phone networks remaining relevant in today’s telecommunications marketplace are seriously numbered.

SNC made a decision remarkable for a phone company of its size — it was going to rewire Falls City for fiber optics, straight to the home, at no additional charge to residents and area businesses.

Last July, it stunned the community with the news southeastern Nebraska would have access at speeds cities ten times larger could only dream about.

SNC is investing between $8-10 million in the project, which will reach most city residents by its completion in 2011.  The company is constructing the network with capital improvement funds they’ve conservatively saved year after year, and believes it’s a great investment because of future revenue possibilities fiber optics can bring.  This isn’t a company that worries about pumping up stock prices, boosting dividend payouts, or lavishing executives with enormous pay and benefit packages.  SNC employees live and work in the community and want to enjoy the fruits of their labor.

Operations Manager Ray Joy told the Journal Star the new system will be capable of offering 1,000Mbps to a house.  Right now, SNC offers DSL service at 3-7Mbps.

The company is still working out precisely what speeds it will offer residential and business customers, but they will be far better than what is possible from aging copper wiring.  Best of all, it’s future proof, which SNC believes will save them plenty in the long run.  Upgrading fiber networks just takes a different type of laser — no rewiring required.

SNC first considered wireless technology to serve the community, but rejected it because of insufficient bandwidth capacity.  Fiber’s expandability the choice much easier for the company.

Of the 460 cities and villages in Nebraska, only 11 currently have fiber to the home, and Falls City will be the largest in the state.

Falls City Economic Development and Growth Enterprise, the local economic development team, hopes to promote Falls City’s fiber as perfect for new digital economy businesses, creating new high-paying jobs for area residents.

Current entrepreneurs who live in Falls City are already convinced.

SNC's Management and Employees

Karissa Watson, owner of Kissa’s Kreations, a Web and graphic design service, told the newspaper she is looking forward to the conversion.

“From what I understand, it will be 20 times faster, but I also think the quality will be better because it’s a dedicated versus a shared service,” she said.

Watson wants faster service in order to increase her efficiency.  Slower broadband speeds can cause long waits for businesses moving data back and forth.

Watson and other Falls City residents are being kept informed about the progress of the project in quarterly newsletters sent by the company.  A contracting firm, RVW, Inc. of Columbus, Nebraska is doing the work.  Their technicians are personally visiting every home and business owner before digging begins in a neighborhood, and remain available to address any concerns residents have after work is complete.

SNC markets themselves as locally owned and operated, which is why personal contact with customers is critically important to the company’s success.  Newsletters allude to their nearest competitor, Time Warner Cable, as not exactly being local.  SNC touts their local customer care office, staffed by area residents, local call centers that are answered by “real people,” and a service staff that can often respond to service outages on the same day.

“Unlike some companies, we don’t play games with low teaser rates that go up later,” sums up the company’s marketing attitude.

SNC’s fiber upgrade also could eventually protect them from Time Warner Cable’s relentless drive towards product bundling, which can cost the telephone company landline business.  The cable company can also beat SNC’s broadband speeds on the copper wire network.  With an upgrade, SNC could eventually offer customers a cable-TV alternative, taking the competition back to the nation’s second largest cable operator.

Although 75 percent of the six million Americans served by fiber-to-the-home projects are Verizon FiOS customers, there is considerable growth in fiber deployment among small mom and pop and municipally-owned phone companies.  That’s remarkable because they lack the economy of scale and financial resources larger telephone companies enjoy.  But those small phone companies aren’t caught up in debt, endless mergers and acquisitions, stock price games, and ludicrous compensation for a handful of executives.  For customers of Qwest, Frontier, Windstream, and CenturyLink, fiber remains an elusive dream.

The Journal Star covered several other phone companies with fiber projects in Nebraska:

Cambridge, in southwest Nebraska, also has FTTH technology to serve a population of just more than 1,000.

“We’re very excited,” said Cambridge Economic Development Director Adela Taylor, who called it the “infrastructure of the future.”

She said the fiber optic system was the initiative of the local telephone company, which has been very pro-active over the years in bringing the newest technology to the town. She noted that Cambridge was one of the first towns to have Internet service back in 1993, as a pilot project.

Three River Telco in Lynch is in the midst of a three-year project to install FTTH technology. The company serves about 1, 250 customers in Lynch, Verdel, Springview, Johnstown and Naper in north-central Nebraska.

General Manager Neil Classen said Three River received a $19 million federal loan from the Rural Utilities Service to replace its copper wire system with fiber optics. The company wanted to provide the latest services to customers, including transmitting television signals via Internet protocols.

Classen said the fiber optic system will provide customers with a more reliable communications system and a lot more bandwidth than the existing copper wire network. He said the price tag could be less because fiber optic technology has improved and become more cost-effective.

Fiber dreams are Gone With the Windstream

Windstream serves several Nebraska communities, and for those customers, the news is less exciting.  Windstream has limited itself to installing small amounts of fiber in new subdivisions.

Brad Hedrick, Windstream vice president of operations for Nebraska and Missouri, said installing fiber optics is an extremely expensive proposition and Windstream has no plans to connect every home and business as Falls City is doing.

But he told the newspaper if the federal government wants to kick in federal funds to help small communities convert, Windstream will consider it.

Windstream cannot deliver fiber to the home to their customers, despite $2.997 billion in revenues for 2009.  But a family-owned phone company in Falls City, a telephone company in Cambridge serving 1,000 residents, and Three River Telco in Lynch all can.

New York City streets in 1890. Besides telegraph lines, multiple electric lines were required for each class of device requiring different voltages.

Broadband as a vehicle for social transformation.

What a concept.  At the heart of the public policy debate for broadband improvement are the implications of universal broadband service in every American home.  What such transformation brings to ordinary consumers, entrepreneurs, employers and employees — even the digital economy as a whole, is open for debate.  At the heart of it is an argument over who is best suited to deliver that transformation – private industry or government, or perhaps both.  It’s an argument at the heart of various public policy debates these days, be they on health care, the environment, energy, housing, or telecommunications.

It’s also a discussion Americans have had for well over 100 years.

Back in the 1880s, the topic was electrification and the debate was over who should provide it, who pays and how much, and how or if it should be regulated.

On one side were the electric companies which demanded free, unfettered access to customers with a minimum of government red tape.  On the other were social engineers who saw electricity’s potential to create a dramatic social transformation in America, redefining how Americans live, work, and play — if they could access dependable electricity at a reasonable price like the one serviced by companies such as industrial electrician Eugene.  In the middle were consumers, who wanted the service but didn’t want to get stuck with a gouging bill at the end of the month.

The parallels between electricity and broadband deployment and improvement are obvious as the story unfolds.  The implications go much further than you might realize, especially when one considers much of what we take for granted in our lives today came from yesterday’s debate over electricity.  It’s why today’s National Broadband Plan may bring about social and cultural changes far more profound than worrying about who is next in line to get 100Mbps service.

The 1880s — Electricity Arrives in Big Cities

As American business moved full speed into the modern industrial era, electricity supply moved along with it.  In earlier decades, most businesses located adjacent to natural resources that would power machinery — water being one common choice, coal another.  Water powered mills could grind wheat into flour, and many American cities grew up next to major waterways and the businesses that relied on them. Coal could be used to generate steam-power and fire furnaces capable of making wrought iron and steel, and today’s “rust belt” cities were yesterday’s economic powerhouses.  Gas powered lighting provided streets and homes with light long before electricity arrived, with all of the inherent dangers from open-flame-based lighting.

Electricity service was offered primarily for commercial use in the early days.  That’s because the costs of power generation and wiring were very expensive.  Only commercial customers could pay the rates demanded by power companies for service.  Electricity companies argued that given unfettered access in the market, with limited regulation and increased private investment, they could set about expanding service to residential homes.  From the 1890s forward, service did expand into urban neighborhoods.  Remember, this was long before the concept of “suburbs.”  Most Americans lived and worked within city boundaries.

Line capacity to homes during this era was much more limited than what homeowners find today. When the first well-to-do homeowners signed up for electrical service, they were looking primarily for home illumination.  There were few electric-powered appliances around at the time, so demand for high capacity lines simply didn’t exist for residential customers, and they were rarely offered anyway.

For reasons of price, demand and availability, the majority of revenue from electricity would come from its commercial use.

The 1910s — Great Industry Consolidation

By the advent of World War I, the days of hundreds of independently operated electricity companies were over.  Industry consolidation was rampant in the decade before the Great Depression, as locally-owned companies became part of ever-growing consolidated holding companies, or trusts.  Much like the consolidation of railroad lines, the results were not good news for consumers, unless they happened to own a lot of stock in those companies.  Rates skyrocketed, especially for residential customers.  Only businesses, threatened with higher rates, convinced electric companies they would switch to in-house power generation.  That threat kept their rates stable and relatively low in comparison.

When electric customers began complaining about ever-increasing rates and limited service areas, government began to take an interest.  Government authorities found great similarities between electric companies and the railroad monopolies.  Industry consolidation and too little competition brought ever increasing prices for consumers.  It also reduced expansion of service into new areas, because no other providers were competing to get there first.

The 1920s — Profit Motive & Public Response

During the boom years of the 1920s, electricity service was widely available in most urban areas, but few provided much more than low capacity lines suitable for lighting and small electric appliances.

Those who believed electricity would deliver social transformation to average Americans were stymied by power companies that wouldn’t deliver enough capacity to make the latest big appliances work.  Blenders, mixers, toasters and other small electrical appliances could work, assuming you didn’t have too many lights turned on at the same time, but washers, refrigerators and electric ovens were out of the question.

When consumers inquired about upgrading their service, they were refused by most electric companies.  After all, most power company executives believed “illumination-grade” service was more than sufficient for virtually every American.  In all, they consistently refused to upgrade facilities to at least four-fifths of their customers, telling them they could make do with what they had.

The electrical industry defended this position for years, and even paid for studies to defend it.  A willing trade press printed numerous articles claiming the vast majority of Americans would never require higher voltage service, and it was too expensive to provide anyway.  A select minority of customers, typically the super-wealthy, were the exception.  In fact, marketing campaigns specifically targeted the richest neighborhoods, offering “complete service,” because the industry believed it would quickly recoup that investment.  That, in their minds, wasn’t true for middle class and low income households.  In fact, low income neighborhoods of families making between $2,000 and $3,000 were often bypassed by electric companies completely.

When asked why it was fair for companies to bypass some neighborhoods, while offering enhanced service to others, the industry said it was just a matter of good business sense.

A review of 1928 revenues for 57 electric companies led Electrical World to conclude that only 10 to 20 percent of utility customers were “prospects for complete electric service at indicated competitive rates.”

But the magazine also found when full service was offered at reasonable prices, demand for appliances increased, along with the electrical usage to power them.  Despite the potential for increased revenue, the overwhelming majority of power companies kept the same high priced, low capacity service.

After regulators finished dealing with the railroad robber barons, many turned to the electricity monopolies. Towards the end of the 1920s, power companies were primarily expanding service only to those customers that guaranteed major profits.  That largely meant commercial customers.  Between 1923 and 1929, the percentage of total electricity distributed in the United States taken by manufacturers rose from 48.2 to 52.9 percent.

If you lived in an urban neighborhood, you probably had electricity, but you grumbled about the bill and the frequent brownouts from inadequate voltage.  If you lived outside of the immediate area, you didn’t have electricity and the prospects for obtaining it from a private company were bleak.  The costs to deliver it at a rate of return that would satisfy investors was simply too high.

• Part 2: Broadband: The 21st Century Equivalent of Electricity — The Progressive Movement
• Part 3: Broadband: The 21st Century Equivalent of Electricity — FDR & The New Deal

Flag of New Zealand

Despite broadband provider propaganda designed to convince Americans restrictions on broadband usage were “commonplace” and well tolerated overseas, a group of New Zealand and Australian broadband entrepreneurs propose to spend just under $900NZ million to build new fiber capacity to help eliminate them once and for all.

A team of businessmen from the South Pacific today announced they are part of “an early stage” venture to construct a brand new underseas fiber optic cable to connect Australia and New Zealand with the United States, providing five times the capacity of existing service provided by the Southern Cross system.

The new group, Pacific Fibre, went public today and is talking with potential partners about the plan to construct a 13,000 kilometer cable by 2013.

Mark Rushworth, former Vodafone chief marketing officer, told TV New Zealand a full 90 percent of New Zealand Internet traffic is bound for the United States.

“It is using the most direct route. It is one hop from New Zealand to the US, which from a technical perspective is very important because it means it is a lower latency cable, that is, it is faster than other cables,” he said.

Flag of Australia

The primary impetus for the project was the common practice in New Zealand and Australia to limit customers’ usage of broadband service with Internet Overcharging schemes like usage-based billing or restrictive data caps which can throttle speeds just above dial-up for customers for weeks, if they exceed their usage allowance.

Rushworth

Private providers have lived happily on the revenue earned from such schemes and have done little to relax usage limits on their customers, so Pacific Fibre decided to undertake a game-changing new fiber cable themselves to drive prices down and eliminate the caps.

“We desperately need a cable that is not purely based on profit maximization, but on delivering unconstrained international bandwidth to everybody, and so we’ve decided to see whether we can do it ourselves,” said partner Sam Morgan.

“We hope to bring in extra capacity at a low price, which our carriers and ISP customers can end up passing on to their customers,” Rushworth said.

“We all know that in any market as soon as you introduce competition prices tend to drop and volume goes up,” he told TVNZ.

The current proposed cable configuration would have two fiber pairs with 64 wavelengths (lambdas) each at 40 gigabits per second per lambda. The maximum lit capacity initially would be 5.12 terabits per second, but would be upgradeable to over 12 terabits per second as emerging technology became a reality.

Although residents of Rochester will have to wait, other cities in upstate and downstate New York are now getting Time Warner Cable’s Wideband broadband service, which provides faster upstream and downstream speeds thanks to DOCSIS 3 service upgrades.

Time Warner in Buffalo yesterday signed its first Wideband customer, according to Broadband Reports.

The Hudson Valley will be the next:

• Walden Available March 30, 2010
• Wurstsboro Available March 30, 2010
• Rhinebeck/Saugerties Available March 30, 2010
• Poughkeepsie Available March 30, 2010
• Port Ewen/Kingston Available March 30, 2010
• Liberty/Monticello Available March 30, 2010

Time Warner Cable is deploying Wideband first in communities where they face competition from Verizon FiOS or AT&T U-verse.  Communities like Rochester, which face only token competition from slower-speed DSL service, are pushed way back on the upgrade list.

Customers in Albany, Buffalo and Syracuse who live near, but not in a FiOS-upgraded community, will also benefit from the DOCSIS 3 upgraded-Wideband service.

Two types of Wideband service are commonly available according to BR:

• 30 Mbps downstream 5 Mbps upstream tier that costs $25 over Time Warner Cable’s standard Road Runner plan (which can vary in price and speed by market depending on competition).
• 50 Mbps downstream 5 Mbps upstream tier for $99 a month.