Walden

When lawmakers talk about “unleashing” anything for “innovation,” it’s a safe bet we’re about to be treated to an anti-regulatory rant about how government rules are ruining everything for big business.  Rep. Greg Walden (R-Ore.) does not disappoint.

Walden is chairman of the Communications and Technology Subcommittee of the House Energy and Commerce Committee, an important place to be if you want to influence telecommunications policy in the United States.  Walden slammed the Federal Communications Commission this morning in an editorial piece in Politico, accusing the agency of regulating communications companies before they have a chance to engage in bad behavior:

Sometimes the FCC acts before thoroughly examining whether regulation is needed. It’s now time to stop putting the regulatory cart before the horse. That’s why this bill requires the FCC to survey the marketplace, identify a failure and conduct a cost-benefit analysis before imposing rules.

[…] When the FCC reviews a merger, it now often imposes unrelated conditions. These extraneous agreements may not correspond to any harm presented by the transaction, may not be justified industry-wide and, in some cases, are outside the commission’s jurisdiction.

Such bootstrapping is unfair to the singled-out parties. It also results in poor policy. Imposing extraneous conditions on a transaction that is not otherwise harmful is inappropriate. And if a transaction is harmful, imposing extraneous conditions cannot cure it. Merger conditions should be directly related to transaction-specific harms, and within the FCC’s general authority.

Walden’s concerns coincide with the corporate agendas of some of the nation’s largest telecommunications companies he oversees as chairman.  That may not be surprising, considering seven of the top 10 corporate contributors to his campaign fund are all telecommunications companies.

Walden's top campaign contributors (Source: Opensecrets.org)

Walden’s record on “innovation” is open to interpretation.  He is on record opposing Net Neutrality, has sought to “streamline” the FCC by hamstringing its authority, and has favored a variety of mergers and acquisitions that have effectively reduced competition for American consumers.

The FCC’s zeal for increased competition appears occasionally in its rulemakings, although the agency under Chairman Julius Genachowski can hardly be considered aggressive and out of control when it comes to some of the most contentious telecom issues that have arisen during the Obama Administration.  It only followed the Justice Department’s lead opposing the AT&T/T-Mobile USA merger.  It punted on Net Neutrality enforcement, doesn’t oppose Internet Overcharging, and has granted more mergers and acquisitions than it has sought to block.

FCC Chairman Julius Genachowski has not always successfully stared down industry efforts to consolidate and deregulate.

Some examples of “unrelated conditions” the FCC has imposed on mergers include no price hikes for consumers for a limited time (Sirius-XM), a discounted Internet service for poor families (Comcast-NBC Universal), and spinoffs of acquired cellular network assets in barely competitive markets (Verizon Wireless-Alltel).

Sirius-XM mostly kept to their agreement, but promptly raised prices when it expired, Comcast followed the FCC’s agreement to the letter but found ways to limit the number of qualified families, and Verizon Wireless sold some of their acquired Alltel assets to AT&T, which at least provided improved AT&T reception in certain markets they largely ignored earlier.

Consumer advocates would argue the FCC should never have approved these transactions in the first place, and the conditions the FCC imposed were so mild, they faced little opposition from the companies involved. But apparently even that is too much for Walden, who we have a hard time seeing opposing any of these mergers.  Besides, some of the largest companies donating to Walden’s campaign fund are already adept at working around the FCC, suing their way past the regulations they oppose.

Walden advocates the FCC only perform its oversight functions after the industry is proven to have imposed unfair, anti-competitive, and discriminatory policies against consumers, not to act to prevent those abuses in the first place.  In short, he wants the FCC to regulate only after the damage has been done. That would be akin to calling the fire department after your house burned to the ground. Companies would be free to walk away with their ill-gotten gains with little threat the FCC would punish bad behavior and fine the bad actors.

If you are Comcast, that is innovation.  If you are a consumer, it’s something else.

Christmas in January.

AT&T and some of the company’s best friends in Congress have attached wireless America’s legislative wishlist to the must-pass Payroll Tax Bill that will temporarily reduce Social Security taxes for millions of Americans.  Now AT&T and other cell phone companies want their piece of the action.

Michael Weinberg at Public Knowledge has sounded the alarm attacks on Net Neutrality, spectrum auctions, and White Space Wi-Fi have turned up in amendments to a bill that Big Telecom is convinced must pass.  Weinberg explains:

No Net Neutrality Protections.  Forget your feelings about the FCC’s formal Open Internet Rules.  An amendment by Rep. Marsha Blackburn would prevent any restrictions on network management, block any requirements to make connectivity available on a wholesale basis (which would increase competition), and stop the FCC from passing a rule allowing users to attach any non-harmful device to the network.  As a result, the winner of the spectrum auction would be able to throttle, block, and discriminate however it sees fit – something that runs counter to any definition of network neutrality.

No Safeguards Against Further Consolidation.  It is no secret that one of the reasons that there are only four nationwide wireless carriers (and two dominant ones) is that only a few companies control most of the available spectrum in the United States.  This amendment would prevent the FCC from making sure that new spectrum goes towards new or under-provisioned competitors instead of being further consolidated by AT&T and Verizon.   That’s probably why AT&T is pushing so hard for this amendment.

No Super-Wifi.  One of the greatest boons of the transition from analog to digital TV broadcasting was supposed to be the creation of unlicensed “whitespaces” or “super-wifi.”  This new spectrum – which is much better at communicating long distances and through walls than current wifi spectrum – would be used cooperatively by everyone and usher in a new era of wireless devices.  However, a third amendment would destroy the FCC’s power to allocate some of this great spectrum for unlicensed uses.  That means that opportunity would simply pass us by.

Weinberg notes consumer advocates like Public Knowledge are now fighting all three amendments.  There are opportunities to strip them from the bill as it works its way through the legislative process.  Those backing the amendments hope the public doesn’t find out.

They just did.

FairPoint Communications is under fire for counting customers “broadband ready” when, in fact, they can’t buy DSL service from the northern New England phone company at any price.

One of the commitments FairPoint made to regulators who approved their buyout of Verizon landlines in Maine, New Hampshire, and Vermont in 2007 was that the company would expand broadband availability to at least 87 percent of residents in states like Maine.  In October, FairPoint claimed it had met that target, but now the Office of the Public Advocate has found instances where the phone company counted customers who live too far away from the phone company’s facilities to buy the service as “served.”

FairPoint is apparently counting most customers within a DSL-equipped exchange as reachable by broadband, even if only some of them actually are.  The rest either live too far away to get proper broadband speeds, or are connected to inferior lines that will not sustain a serviceable connection.

Maine’s Public Utility Commission (PUC) is upset FairPoint seems to be padding the numbers in its favor.  Maine’s Public Broadcasting Network talked with commissioners:

“I just find it hard to reconcile that it’s in the public interest to include in the definition of addressable lines, a line on which no customer can be connected and to which Fairpoint has made no planning or economic commitment to serve in the future,” said Vendean Vafiades. She, along with fellow commissioner David Littell, voted in favor of a decision which is likely to require Fairpoint to re-calculate the 87 percent figure using a stricter methodology.

“And I do believe that Fairpoint has a commitment to be economically viable in this state and to provide good quality service. And at a minimum I think Fairpoint should be required to provide actual access to meet its merger condition and obligations,” said Vafiades.

The holdout vote was that of PUC Chairman Tom Welch, who sympathized with Fairpoint on this issue.

The vote in Maine is likely to force FairPoint, which had hoped it was “all done” fulfilling broadband obligations, to spend more to upgrade its network to sufficiently service customers it promised it would.

FairPoint defends their interpretation of the numbers, noting the company has spent more than $169 million across their northern New England territories on broadband, making good on their commitment.  The state’s consumer advocate and PUC disagree, so now all parties will be re-evaluating their numbers, and FairPoint customers still waiting for DSL might still have a chance to get it after all.

Maine’s Public Broadcasting Network reports on the controversy over FairPoint’s promise to serve at least 87% of Maine with broadband service. Maine’s public utility commissioners voted to ramp up the pressure on Fairpoint Communications with regard to their broadband rollout. The expansion of high-speed internet to most areas of Maine was one of the conditions of Fairpoint’s purchase of Verizon’s former landline operation in 2007. (3 minutes)
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The primary backers of the ABC Plan

Today, Federal Communications Commission Chairman Julius Genachowski is scheduled to deliver a major announcement on reforming the Universal Service Fund (USF) — a federal program designed to subsidize the costs of delivering telecommunications services to rural America.

The reform, long overdue, would transition a significant percentage of USF fees every telephone customer pays towards broadband deployment — a noble endeavor.  For years, Americans have paid more than $5 billion annually to phone companies large and small to maintain rural landline service.  Small co-op phone companies depend on the income to deliver affordable service in places like rural Iowa, Kansas, and Alaska.  But large companies like AT&T and Verizon also collect a significant share (around $800 million annually) to reduce their costs of service in the rural communities they serve.

That’s particularly ironic for AT&T, which time and time again has sought the right to abandon universal rural landline service altogether.

Genachowski’s idea would divert USF funding towards broadband construction projects.  The argument goes that even low speed DSL requires a well-maintained landline network, so phone companies that want to deploy rural broadband will have to spend the money on necessary upgrades to provide just enough service to earn their USF subsidies.  The lower the speed, the lower the cost to upgrade networks and provide the service.  Some may choose wireless technology instead.  Since the telephone companies have fought long and hard to define “broadband” as anything approaching 3-4Mbps, that will likely be the kind of speed rural Americans will receive.

At first glance, USF reform seems like a good idea, but as with everything at the FCC these days, the devil is always in the details.

Dampier: Another day, another self-serving plan from the phone companies that will cost you more.

While headline skimmers are likely to walk away with the idea that the FCC is doing something good for rural broadband, in fact, the Commission may simply end up rubber stamping an industry-written and supported plan that will substantially raise phone bills and divert your money into projects and services the industry was planning to sell you anyway.

Stop the Cap! wrote about the ABC Plan a few weeks ago when we discovered almost all of the support for the phone-company-written proposal comes from the phone companies who back it, as well as various third party organizations that receive substantial financial support from those companies.  It’s a dollar-a-holler astroturf movement in the making, and if the ABC Plan is enacted, you will pay for it.

[Read Universal Service Reform Proposal from Big Telcos Would Rocket Phone Bills Higher and Astroturf and Industry-Backed, Dollar-a-Holler Friends Support Telco’s USF Reform Plan.]

Here is what you probably won’t hear at today’s event.

At the core of the ABC Plan is a proposal to slash the per-minute rates rural phone companies can charge big city phone companies like AT&T and Verizon to connect calls to rural areas.  You win a gold star if you correctly guessed this proposal originated with AT&T and Verizon, who together will save literally billions in call connection costs under their plan.

With a proposal like this, you would assume most rural phone companies are howling in protest.  It turns out some are, especially some of the smallest, family-run and co-op based providers.  But a bunch of phone companies that consider rural America their target area — Frontier, CenturyLink, FairPoint and Windstream, are all on board with AT&T and Verizon.  Why?

Because these phone companies have a way to cover that lost revenue — by jacking up your phone bill’s USF surcharge to as much as $11 a month per line to make up the difference.  In the first year of implementation, your rates could increase up to $4.50 per line (and that fee also extends to cell phones).  Critics have been widely publicizing the increased phone bills guaranteed under the ABC Plan.  In response, advocates for the industry are rushing out the results of a new study released yesterday from the Phoenix Center Chief Economist Dr. George S. Ford that claims the exact opposite.  Dr. Ford claims each customer could pay approximately $14 less per year in access charges if the industry’s ABC Plan is fully implemented.

Genachowski

Who is right?  State regulators suggest rate increases, not decreases, will result.  The “Phoenix Center,” unsurprisingly, has not disclosed who paid for the study, but there is a long record of a close working relationship between that research group and both AT&T and Verizon.

But it gets even worse.

This shell game allows your local phone company to raise rates and blame it on the government, despite the fact those companies will directly benefit from that revenue in many cases.  It’s a real win-win for AT&T and Verizon, who watch their costs plummet while also sticking you with a higher phone bill.

The USF program was designed to provide for the neediest rural phone companies, but under the new industry-written rules being considered by the FCC, just about everyone can get a piece, as long as “everyone” is defined as “the phone company.”  There is a reason this plan does not win the hearts and minds of the cable industry, independent Wireless ISPs, municipalities, or other competing upstarts.  As written, the USF reform plan guarantees virtually all of the financial support stays in the Bell family.  Under the arcane rules of participation, only telephone companies are a natural fit to receive USF money.

Genachowski will likely suggest this plan will provide for rural broadband in areas where it is unavailable today.  He just won’t say what kind of broadband rural America will get.  He can’t, because the industry wrote their own rules in their plan to keep accountability and oversight as far away as possible.

For example, let’s assume you are a frustrated customer of Frontier Communications in West Virginia who lives three blocks away from the nearest neighbor who pays $50 a month for 3Mbps DSL broadband.  You can’t buy the service at any price because Frontier doesn’t offer it.  You have called them a dozen times and they keep promising it’s on the way, but they cannot say when.  You may have even seen them running new cable in the neighborhood.

Frontier has made it clear they intend to wire a significantly greater percentage of the Mountain State than Verizon ever did when it ran things.  Let’s take them at their word for this example.

The telephone companies have helpfully written their own rules for the FCC to adopt.

Frontier’s decision to provide broadband service in West Virginia does not come out of the goodness of their heart.  At a time when landline customers are increasingly disconnecting service, Frontier’s long-term business plan is to keep customers connected by selling packages of phone, broadband, and satellite TV in rural markets.  Investment in DSL broadband deployment has been underway with or without the assistance of the Universal Service Fund because it makes financial sense.  Our customer in West Virginia might disconnect his landline and use a cell phone instead, costing Frontier any potential broadband, TV and telephone service revenue.

Under the ABC Plan, Frontier can be subsidized by ratepayers nationwide to deliver the service they were planning to provide anyway.  And what kind of service?  The same 3Mbps DSL the neighbors have.

If your county government, a cable operator, or wireless competitor decided they could deliver 10-20Mbps broadband for the same $50 a month, could they receive the USF subsidy to build a better network instead?  Under the phone company plan, the answer would be almost certainly no.

Simon Fitch, the consumer advocate of the Federal-State Joint Board on Universal Service, which advises the FCC on universal service matters, says the ABC Plan is a consumer disaster.

“Although a stated goal of the FCC’s reform effort is to refocus universal-service funding to support broadband, the industry’s ABC plan requires no real commitment to make broadband available to unserved and underserved communities,” Fitch writes. “Companies would receive funds to provide broadband with upload and download speeds that are already obsolete. States would be given no real enforcement power.”

Fitch is certain companies like AT&T and Verizon will receive enormous ratepayer-financed subsidies they don’t actually need to provide service.

Back to AT&T.

In several states, AT&T is seeking the right to terminate its universal service obligation altogether, which would allow the same company fiercely backing the ABC Plan to entirely walk away from its landline network.  Why?  Because AT&T sees its future profits in wireless.  Under the ABC Plan, AT&T could build rural cell towers with your money to provide “replacement service” over a wireless network with or without great coverage, and with a 2GB usage cap.

At the press conference, Genachowski could still declare victory because rural America would, in fact, get broadband.  Somehow, the parts about who is actually paying for it, the fact it comes with no speed, coverage, or quality guarantees, and starts with a 2GB usage cap on the wireless side will all be left out.

Fortunately, not everyone is as enamored with the ABC Plan as the groups cashing checks written by AT&T.

In addition to state regulators, Consumers Union, the AARP, Free Press, and the National Association of Consumer Advocates are all opposed to the plan, which delivers all of the benefits to giant phone companies while sticking you with the bill.

There is a better way.  State regulators and consumer groups have their own plans which accomplish the same noble goal of delivering subsidies to broadband providers of all kinds without increasing your telephone bill.  It’s up to the FCC to demonstrate it’s not simply a rubber stamp for the schemes being pushed by AT&T and Verizon.

Phillip "Not Paid by AT&T" Dampier

When asked if the merger of AT&T and T-Mobile will limit customer choice, NAACP’s local executive director Stanley Miller told a Cleveland, Ohio television station, “I don’t think that’s an issue in today’s environment; I think the companies are smarter today and they will make people understand and give them the beneficial services that they’ll need.”

The civil rights group had nothing to say about how much AT&T will charge for these “beneficial services.”

At least WEWS-TV in Cleveland is bothering to ask the question.  Most of America’s television news has either ignored the enormous merger on offer from AT&T and T-Mobile, or didn’t wade much further beyond AT&T’s press release about the “benefits” the merger will bring.  Unfortunately, the television station never bothered to alert viewers to the fact the civil rights group receives substantial financial support from AT&T.

Miller’s performance trying to tout his parent organization’s unqualified support for the merger sent a very clear message to anyone watching NewsChannel 5 — he doesn’t really understand what he is talking about.

On the issue of expanding wireless service into rural Ohio, Miller was left tongue-twisting his way into advocating a monopoly because they’ll be best equipped to get service to those who need it.  That’s a fascinating prospect — a monopoly spending money expanding service where it is unprofitable to provide.  That’s the reason companies like AT&T have ignored rural America, and will continue to do so — merger or not.

Miller (WEWS-TV)

In fact, AT&T’s claim that it needs the network of T-Mobile to stop the persistent problems of dropped calls and slow data service doesn’t make much sense either.  Verizon, AT&T’s closest competitor, doesn’t seem to be suffering those problems, perhaps because it has made investments in upgrades AT&T has avoided.

In California, consumer advocate Jon Fox was taking an equally skeptical look at AT&T’s claims on behalf of CalPIRG, the California Public Interest Research Group.  Fox noted AT&T’s promotion of the merger in his state came at invitation-only cheerleading sessions run by company officials:

Earlier this month, AT&T California President Ken McNeely explained to an invitation-only audience that the proposed merger with T-Mobile will create new jobs, help communities and improve wireless phone service. AT&T preferred not to take questions from the general public on how that vision fits with AT&T’s history of consolidation, layoffs and aggressive market behavior.

Nearly 30 years after regulators broke up AT&T’s unprecedented control over the U.S. wired phone market, consumers are asked to believe that this time things will be different. This notion defies both experience and common sense. Unless significant market regulation is put into place that encourages a competitive wireless arena to flourish, this proposed merger will be bad for consumers, innovation and economic growth.

Fox notes the wireless marketplace in the United States is hardly a paragon of competitiveness today.  If the merger were approved, 76 percent of Americans would receive wireless service from two providers — AT&T and Verizon.  Fox observed America’s next-most-hated conglomerate — the oil and gas industry — wishes it could have that sort of market power.  The top two oil companies in the U.S. have a combined market share of only 24 percent.  America, he notes, wouldn’t tolerate that kind of consolidation in the gasoline market, so why should we tolerate it in the mobile market?

The California Public Interest Research Group

Fox advocates more competition, not less.  He suggests the government force AT&T and Verizon to open their cellular networks to independent third party competitors at fair prices, and let everyone compete.  That could germinate competition that would end the chorus of rate increases from the largest players and allow for innovative pricing plans that don’t force customers into the nearly identical service plans AT&T and Verizon want to force you to accept.  T-Mobile already provides the most innovative pricing in the wireless marketplace, and AT&T is about to swallow that innovation whole.

What ultimately happens to a well-dwarfed Sprint remains an open question, but one many on Wall Street have already answered, suspecting America’s third largest carrier simply won’t be in a position to compete.  Fox thinks the situation is dire when two companies will have a virtual lock on wireless data services Americans increasingly depend on.

That’s not the view of the NAACP, of course.  But then the NAACP is hardly an independent observer, being the recipient of a considerable amount of money and executive talent from AT&T.  That counts for a whole lot more than the rank and file members of the organization, who will be paying the increased prices AT&T has in store for everyone.

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/WEWS Cleveland ATT T-Mobile Merger 7-14-11.mp4[/flv]

WEWS-TV in Cleveland investigates the ramifications of a merger between AT&T and T-Mobile.  More than 94% of all Ohioans filing comments with FCC oppose the merger, but groups like the NAACP support it.  NewsCenter 5 wanted to find out why.  (3 minutes)