This is part one in a series of stories illustrating how telecommunications companies use a combination of public relations firms, professional lobbyists, friendly regulators, and outmaneuvered state officials to sell “improved service” to the public in return for regulatory “reform.”  Too often, that “reform” is loaded with loopholes and language that guarantees providers can break their promises, tie state and local regulators’ hands when bad service results, and ultimately stick you with the bill.

Over the past several months, several communities in New Jersey have been up in arms about Verizon’s reinterpretation of a state law originally written in the 1940s but “updated” just a few years ago, to mean it no longer has to pay telephone pole and infrastructure taxes to municipalities for using the public right of way.  Verizon’s “reinterpretation” of the state’s Business Personal Property Tax law surprised several municipalities who now face significant financial challenges as a result of the lost revenue.  New Jersey residents will likely make up the difference with a higher property tax rate.

On the surface, it might appear Verizon simply happened upon tax savings.  Verizon claims the law only requires it to pay taxes in communities where it has more than 51% of the area’s phone customers.  Despite protestations from local officials, Verizon has signaled its intent to carry on, estimating 150 communities will join the 50-60 already impacted by next year.

Changes in telecommunications public policy do not occur in a vacuum.  They happen when providers lobby for regulatory reform and bring gift baskets filled with promises for dramatically improved service.  Using a network of high priced lawyers and public relations campaign experts, companies can easily outmaneuver local and state regulators at every turn.  Unfortunately, by the time consumers (and sometimes regulators) realize they were left with a Trojan Horse filled with empty promises, it’s too late.

Some deals just bring consumers higher prices while others saddle communities with highly-leveraged, heavily indebted companies that eventually collapse in bankruptcy.

Just how did we get here?  In this series, we’ll look at New Jersey’s history with its largest resident phone company.  From New Jersey Bell to Bell Atlantic to Verizon, more than 20 years of questionable reform has left residents “touched” in their wallets.  The blame doesn’t rest entirely with the phone company, either.  Local and state officials were repeatedly won-over by professionally-run lobbying campaigns.  After repeated bad experiences, one might assume they’d know better by now.  Those communities no longer getting tax payments from Verizon can testify they haven’t.

Let’s turn back the clock to the dramatic changes in telecommunications that came with the 1984 breakup of Ma Bell and the Bell System.

Telecommunications Industry Sets the Stage for a Money Party

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/1977 The Bell System.flv[/flv]

In 1977, the overwhelming majority of Americans were served by “the phone company,” namely AT&T and its family of Bell companies providing local service. (2 minutes)

AT&T's Bell System in 1977 (click to enlarge)

For decades, telephone service was run largely as a monopoly by the enormous Bell System and several dozen smaller, non-Bell independent phone companies.  Telephone service was regulated by state and federal authorities who approved rate increase requests and made sure providers met service quality standards. Consumers did not own the telephone equipment in their homes – it was rented from the phone company.  Although often uninspired, Bell System telephones were often virtually indestructible, ranging from basic utilitarian black rotary dial phones to the flaunting Princess phone, which had a lighted dial and came in several colors.

As America began earnestly developing data transmission systems in the late 1960s and early 1970s, AT&T kept its monopoly intact there as well.  At the time, a cooperative arrangement between IBM and AT&T ensured most American businesses would probably deal with one or both companies for their data communications needs.

The eventual fall of the monopoly glory days of AT&T and its Bell System monopoly can be laid at the feet of corporate arrogance, particularly from one John D. deButts who became AT&T’s new Chairman and CEO on April 1, 1972.  deButts was AT&T born and bred, rising through the ranks over decades of employment with AT&T.  To him, anything smacking of competition was to be considered a duplication of effort and wasted resources.  AT&T, in his view, had already strayed too far from its past when Americans could go from coast to coast and deal with just one telephone system using uniform standards and practices of operations.  Consistency and quality should be the highest priority for AT&T, not squabbling with smaller competitors fighting with each other for customers.

A politically tone-deaf deButts infuriated a post-Watergate Congress hellbent on reform at a time when Americans had grown suspicious of big power players, be they political or corporate.  The confident AT&T executive delivered a speech before regulatory commissioners in the fall of 1973 that included within it, “[we must] take to the public the case for the common carrier principle and thereby implication to oppose competition, espouse monopoly.”

Not only did the speech irritate many members of Congress, it helped convince one of AT&T’s competitors, MCI to file a 22 count lawsuit against AT&T in March 1974, accusing Ma Bell of being engaged in illegal antitrust activities.

An even more important lawsuit was filed by the U.S. Justice Department on November 20, 1974.  The federal government also accused AT&T of antitrust behavior, claiming the company locked-up the telephone equipment business for itself, and was well-suited to crush any potential competitor from getting a serious foothold in the marketplace.  At the time, AT&T officials sniffed that the lawsuit was completely without merit and promised to fight back at all costs.

deButts ordered company lawyers to stall, delay, and roadblock the government’s case as much as possible, and the company enjoyed years of court delays.  The lawsuit dragged through several preliminary hearings and motions, until the then-presiding judge, Joseph Waddy, fell ill and had to reduce his caseload.  The United States v. AT&T was transferred to a newly-appointed District Judge named Harold Greene in September 1978.  The days of delay were over.  Greene quickly ordered the case to trial starting in September 1980.

While the court case saw some changes, AT&T did as well.  In February 1979, deButts was out, replaced with a far more conciliatory Charles Brown.  He changed AT&T’s tune, publicly welcoming competition into the marketplace, announcing “I am a competitor and I look forward with anticipation and confidence to the excitement of the marketplace.”

Having that attitude probably wasn’t helpful to defending AT&T’s case, and the company eventually threw in the towel, reaching a settlement with the government in 1982.  Overseen by Judge Greene, AT&T was promised it could keep its long distance service, Western Electric (which manufactured telephone equipment), and Bell Labs, the company’s research and development arm.  In return, it had to divest all 22 local phone monopolies.

America's newly independent regional telephone companies post-1984

Judge Greene, issuing a final consent decree to be effective January 1, 1984 formally broke up the Bell System.  The 22 local phone companies under AT&T were merged into seven Regional Bell Operating Companies, each to be run independently:

• Ameritech (acquired by SBC in 1999 – now part of AT&T again)
• Bell Atlantic (acquired GTE in 2000 and changed its name to Verizon)
• BellSouth (reabsorbed back into a newly reorganized AT&T in 2006)
• NYNEX (acquired by Bell Atlantic in 1996 – later to become part of Verizon)
• Pacific Telesis (acquired by SBC/AT&T in 1997)
• Southwestern Bell (changed its name to SBC in 1995, then acquired the remnants of AT&T in 2005, rechristening itself as the ‘new’ AT&T)
• US West (acquired by Qwest in 2000.)

The goal was to create several smaller regional companies not too large to face challenging competition from new independent providers entering the marketplace.

The result of all of this upheaval was competition in the long distance calling marketplace, but very little competition for local residential telephone service over phone company-provided telephone lines.

Still, for a time the post-breakup family of former Bell companies enjoyed stability and a less regulated marketplace, and several raised rates for local phone service, even while cutting long distance prices.  Customers could now buy and install their own telephone equipment, including answering machines and computer modems, and several competitors began to spring up to serve business customers.

By the 1990s, a new upstart appeared on the horizon that would potentially threaten the whole ‘arrangement.’  The cable television industry, subjected to a more regulated marketplace after years of monopoly abuse of customers, was looking for new unregulated add-on services they could provide to bring back the days of big profits they enjoyed just a few years earlier.  Two potential services: providing connectivity to the Internet and providing cable customers with telephone service.

When phone companies realized cable was planning to invade their turf, this meant war.

In part two, learn more about how the telephone companies went ‘back to the future’ and rebuilt the empire Judge Greene broke up.

Phillip "No, I won't take your word for it" Dampier

Did you realize if you are pro-Net Neutrality, you’re probably pro-piracy and a broadband hog?  That’s the new low achieved this past week by Net Neutrality opponents who are spending millions trying to protect their broadband fiefdoms from any regulation.  But even if they lose their fight to stop Net Neutrality when they find consumers won’t accept a throttled “network managed” broadband future, providers will be “forced” to control those dirty pirates and broadband hogs with usage limits and overlimit fees to help “pay for network expansion.”

It’s why Net Neutrality and Internet Overcharging schemes like usage caps and “consumption billing” go hand in hand.  What providers can’t profit from on one end they’ll try from another.

Longtime readers of Stop the Cap! already know how this scam works.  Canadian broadband users got stuck with both: speed throttles -and- usage caps and overlimit fees.  Assuming purposely throttled speeds are banned by Net Neutrality policies, simply under-investing in network expansion, despite the rampant profit-earning capacity broadband delivers, gets us to the same place — throttled speeds from overcongested networks and a convenient excuse to impose usage limits and other control measures to more “fairly” provide service to every customer.  Best of all, providers can pocket the overlimit fees charged to customers who exceed their allowance and train them to use less broadband with fears of more stinging penalty fees on their next bill.

Back in 2008, when Stop the Cap! launched, we challenged providers to provide the raw data to prove their assertions that they needed to impose formal limits and so-called “consumption-based billing” and abandon the lucrative flat rate pricing model that earns them billions in profits every year.  Of course, they have always refused, citing “competitive reasons,” “customer privacy,” or some combination of laws that supposedly prohibits any third party analysis.  Of course, they’re only too happy to characterize usage themselves, and we’re supposed to trust them — the same people that want to use that data to justify Internet Overcharging schemes.  Independent analysis?  When broadband pigs fly!

Now, telecom analyst Benoit Felten from the Yankee Group is asking the same questions on his Fiberevolution blog and issuing a challenge:

So here’s a challenge for them: in the next few days, I will specify on this blog a standard dataset that would enable me to do an in-depth data analysis into network usage by individual users. Any telco willing to actually understand what’s happening there and to answer the question on the existence of hogs once and for all can extract that data and send it over to me, I will analyse it for free, on my spare time. All I ask is that they let me publish the results of said research (even though their names need not be mentioned if they don’t wish it to be). Of course, if I find myself to be wrong and if indeed I manage to identify users that systematically degrade the experience for other users, I will say so publicly. If, as I suspect, there are no such users, I will also say so publicly. The data will back either of these assertions.

Felton’s co-author Herman offers his assessment:

Unfortunately, to the best of our knowledge, the way that telcos identify the Bandwidth Hogs is not by monitoring if they cause unfair traffic congestion for other users. No, they just measure the total data downloaded per user, list the top 5% and call them hogs.

For those service providers with data caps, these are usually set around 50 Gbyte and go up to 150 Gbyte a month. This is therefore a good indication of the level of bandwidth at which you start being considered a “hog”.  But wait: 50 Gbyte a month is… 150 kbps average (0,15 Mbps), 150 Gbyte a month is 450 kbps on average. If you have a 10 Mbps link, that’s only 1,5 % or 4,5 % of its maximum advertised speed!

And that would be “hogging”?

The fact is that what most telcos call hogs are simply people who overall and on average download more than others. Blaming them for network congestion is actually an admission that telcos are uncomfortable with the ‘all you can eat’ broadband schemes that they themselves introduced on the market to get people to subscribe. In other words, the marketing push to get people to subscribe to broadband worked, but now the telcos see a missed opportunity at price discrimination…

TCP/IP is by definition an egalitarian protocol. Implemented well, it should result in an equal distribution of available bandwidth in the operator’s network between end-users; so the concept of a bandwidth hog is by definition an impossibility. An end-user can download all his access line will sustain when the network is comparatively empty, but as soon as it fills up from other users’ traffic, his own download (or upload) rate will diminish until it’s no bigger than what anyone else gets.

Rep. Eric Massa (D-NY) has a better idea to stop Internet Overcharging: the Broadband Internet Fairness Act (HR 2902), which would ban unjustified billing schemes for broadband

The arbitrary nature of what constitutes a “hog” invalidates providers’ arguments at the outset.  Frontier defines a hog as someone who consumes more than 5GB.  Comcast sets their definition of a broadband piggy at 250GB.  The gap between the two is wide enough to allow a small planet to slip through unencumbered.

If a consumer does all of their downloading from midnight to six the following morning, are they as much of a hog on a shared cable modem network as the user watching Hulu during prime broadband usage time?  Probably not.  If a cable provider tries to force too many homes to share the same finite amount of bandwidth available in a designated area, service will slow for everyone during peak usage times.  But nobody will notice or care if customers are maxing out their connection in the middle of the night.  The appropriate answer, especially for an industry that enjoys enormous profits, is to expand their network to maintain basic quality of service at peak times.  DOCSIS 3 upgrades for cable are cost efficient, flexible and often profitable, because providers can market new, premium-priced speed tiers to those who want cutting edge service.

Instead, some providers see delaying upgrades as a better answer, enjoying the cost savings that follow implementation of usage caps, limits and other overcharging schemes which artificially limit demand and further monetize their broadband service offerings.

Unfortunately, even if Felten got responses from providers, he’ll be forced to trust the integrity of data he didn’t collect himself.  Rep. Eric Massa has a better idea.  His proposed Broadband Internet Fairness Act would ban such overcharging schemes unless providers could prove to the satisfaction of a federal agency that such pricing was warranted.  The big difference is that providing “massaged” data to Mr. Felton might be naughty, but would be downright criminal if tried with the federal government.

Shouldn’t the central lesson here be to “trust but verify?”

Mark A. Jamison

Stop the Cap! reader Joe sends along news of another one of those guest opinion hit pieces on Net Neutrality that pop up regularly in the media.  This one, The Internet is Never Neutral, printed in today’s Sun-Sentinel in south Florida, comes from Mark A. Jamison and Janice Hauge, a dynamic duo who have co-written several papers that always manage to turn up favorable conclusions for big telecommunications companies, including these page-turners:

• “Bureaucrats as Entrepreneurs: Do Municipal Telecom Providers Hinder Private Entrepreneurs?”
• “Subsidies and Distorted Markets: Do Telecom Subsidies Affect Competition?”
• “Dumbing Down the Net: A Further Look at the Net Neutrality Debate.”

The two are also working on other papers purporting to study regulatory policy and competition issues.  Let me illustrate my psychic powers by guessing they’ll find regulatory authorities to be obstacles to the well-oiled telecommunications machine and competition will be most hearty if there are no pesky regulations to hamper it.  We’ve seen how well that has worked so far for consumers in North America.

Remember Al Gore calling the Internet the information superhighway? The metaphor wasn’t and isn’t perfect, but it is instructive. Suppose we applied net neutrality to our transportation system — there would be no high-occupancy vehicle lanes during rush hour, no car-only lanes on interstates, and no toll road as an alternative to I-95 in South Florida. Transportation would be more costly and provide less value.

Forcing net neutrality would have similar results. Time-sensitive information, such as stock market transactions, would wait in line behind football game highlights.

Jamison, who is a former manager at Sprint Communications, and Hauge miss the entire point of the Internet’s biggest strength: its equal treatment of traffic from the smallest blog to Amazon.com.  Assuming providers, earning billions in profits even as their costs decline, invested appropriately in those networks, there would be no need for high-occupancy vehicle lanes and toll roads.  These kinds of “traffic management” techniques are proposed because provider dollars don’t keep up with consumer demand.  Social engineering tries to throttle traffic downwards by discouraging it with toll fees or manage it with special high cost lanes reserved only for those willing to pay or follow arbitrary rules governing their use.  More often than not, those premium lanes go underutilized while the rest of us remain stuck in the slow lane.

Net Neutrality would not impede network management that enhances the efficiency of traffic, except when it comes at the expense of someone else’s traffic. Net Neutrality also throws up a roadblock against providers who would plan to cash in with enhanced connectivity services that cannot exist unless  a market is created to sell them.  It’s similar to providers in Canada limiting your access to broadband, then throwing a penalty fee on your bill… unless you sign up and pay for their “insurance” plan to protect you from those charges.

Want to run a video streaming application on the Internet?  Pay for a broadband provider’s deluxe delivery insurance, and customers will be able to watch that video without buffering.  The alternative is to be stuck waiting because your video is being delivered on an artificial “slow lane.”

If you are thinking that it sounds like net neutrality restricts innovation and hurts customers, you’re right. Our research has shown that net neutrality limits innovation, contrary to the claims of the net neutrality proponents. How can this be? Imagine a one dimensional network — one that does nothing but carry information from point to point, which is how the old Internet has worked. What kinds of content providers flourish in that context? Those big enough to distribute their software across the net and those whose software takes advantage of the great bandwidth that they don’t have to pay for.

Their research makes numerous assumptions that might prove accurate in a laboratory environment, but simply discounts provider mischief in their efforts to maximize profits and minimize costs.  Providers have earned countless billions providing this “one dimensional network” to consumers.  It’s the one bright spot in a lackluster telecommunications sector.  Those who innovate new broadband applications have flourished.  Some providers who have not want to innovate in a different way – by inventing new Internet Overcharging schemes to profit from the service without actually improving it.  When their interests are at stake in owning and managing their own content services, bandwidth suddenly becomes plentiful.  The TV Everywhere project will potentially provide a value-added service to cable and telco TV providers, all made possible in marked contrast to their argument that other producers’ video content is clogging their networks.

Another naked fallacy in the authors’ argument is that content providers don’t pay for the bandwidth to host and distribute their content.  They do — to the companies that host their content and provide connectivity to the Internet.  That’s the job of web hosting companies.  Internet service providers simply want to be paid extra for doing their job – providing connectivity to consumers who pay $4o or more a month Free Press found costs about $8 to provide, and then also charging content creators a second time to facilitate delivery of that content.  That’s akin to charging a phone customer for placing a long distance call and also demanding to bill the person who answers.

Now, suppose that the network can offer enhancements that improve customers’ experiences. Content providers whose sites would not benefit from such enhancements could ignore the offering. But there will be some content providers who could improve their services by buying the enhancements, such as priority packet delivery. These sites become better without net neutrality and offer customers more service. In other words, there is more innovation and greater customer welfare without net neutrality than with it.

Promises, promises.  Just getting these providers to upgrade broadband speeds to consumers has been a never-ending quest.  Many consumers are willing to pay for “improved service” in the form of faster connections to the Internet.  Consumers are not willing to pay more for artificially limited service, be it through throttled speeds or usage caps.

At the conclusion of their study, which assumes providers will not leverage their duopoly in most American markets to increase pricing/revenue and reduce costs by limiting demand on their networks, they readily admit they did not take into account several possible scenarios:

One issue is how the offering of premium transmission might affect the network provider’s incentive to change the standard transmission speed. At least AT&T has committed to not degrade service for any network user, but it is unclear how such a commitment would be enforced.

Secondly, we do not analyze the effects of peer-to-peer communication, which is growing in importance on the Internet.

Thirdly, we do not consider the effects of vertical integration by the network provider and whether this would provide an incentive for foreclosure.

The PURC is part of the University of Florida, but also receives private corporate funding

Because the broadband industry fights any attempt to regulate their service, it is unlikely any such promise from AT&T would be enforced.  What AT&T defines as “degraded” service is open to interpretation as well.  As broadband demand is dynamic and growing, should AT&T leave standard transmission speeds exactly as they are today, that non-premium service would be degraded through inattention to broadband growth.  Peer to peer communication is largely a story from the first round of the Net Neutrality debate in 2006-7.  A more significant amount of traffic is now attributed to online video.  Finally, not considering vertical integration in the cable and telephone industry is a fatal flaw.  The history of telecommunications regulation has largely been written during periods when the cable and telephone industry abused their market position to overcharge consumers for service, lock up content distribution channels, and forestall competition wherever and whenever possible.

Frankly, Jamison and Hauge’s world view only innovates new, even fatter profits for providers like AT&T.  Perhaps some of those profits can go towards even greater funding for the Public Utility Research Center, where Jamison serves as director and Hauge as a Senior Research Associate.  The PURC, part of the University of Florida, just happens to have, among others, AT&T and Embarq Florida as sponsors, and both companies have seats on the PURC Executive Committee.

Sun-Sentinel readers don’t have that information because it’s not included in the disclosure at the bottom of the piece.  Following the money would shed a lot more sun on this important debate.

Steven Shepard, president of Shepard Communications Group

Burlington Telecom, the municipally owned fiber to the home cable and broadband provider still reeling from a late fall financial scandal, must think outside of the box if it is to survive and grow its business in Vermont’s largest city.  That’s the assessment of Steven Shepard, president of Shepard Communications Group, a consulting firm based in Williston.

It comes as both city and state officials continue an investigation into a $17 million loan from city coffers to cushion the provider from substantial losses incurred over the past three years of operations.

Burlington Telecom has been criticized for underestimating the costs of wiring Burlington with fiber optics, something Shepard doesn’t think is unusual.

“I haven’t found one yet that has come it at budget, or even under budget,” Shepard told WCAX-TV news.

Burlington Telecom director, Chris Burns, says the company needed the additional money to cover capital expenses as it works to build its all-fiber network in every part of the city. He says the initial investment of $33 million dollars was not enough. “Some of the early estimates weren’t based on firm engineering quotes,” says Burns. “They were rough order magnitude estimates.”

Chris Burns, Burlington Telecom

Burns feels Burlington Telecom needs to expand its service area to bring in additional customers to help keep the provider up and running.  Some customers recognize Burlington Telecom is a unique, municipally-owned asset that can potentially provide services that Comcast, the dominant cable provider in the area, cannot.  Comcast operates a traditional hybrid fiber-coaxial cable network with more limited bandwidth than Burlington Telecom’s direct fiber optic connection to the home can provide.

But Shepard believes most consumers don’t know or care how service reaches them, and believes fiber optic networks alone do not bring instant success to providers.

Unless Burlington Telecom creates services that would be difficult for Comcast to deliver, they are just another telecommunications company, Shepard believes.

One suggestion from Shepard: an automatic file backup service.  Fiber optics can provide upstream speeds equivalent to downstream speeds, something Comcast cannot easily deliver.  Such a service would automatically send a copy of every file to a secured, encrypted off-site backup system.  If a customer needed the file restored, or an entire hard drive, Burlington Telecom could transmit the files on request.  Assuming privacy is protected, such a service would give consumers a potential reason to switch providers.

For broadband customers, providing upstream and downstream speeds faster and cheaper than Comcast will go a long way towards motivating consumers to switch.

[flv width=”368″ height=”228″]http://www.phillipdampier.com/video/WCAX Burlington Can Burlington Telecom Survive 11-05-2009.flv[/flv]

WCAX-TV Burlington interviews Steven Shepard about the ongoing viability of Burlington Telecom. (November 5, 2009 – 4 minutes)

For some Burlington Telecom customers, improving customer service is an important first step, as WCAX found:

“A few weeks ago, the whole BT was down for half hour, phone and cable. And probably internet but I don’t have that,” says Beth Cane, who lives in the city’s south end. Cane says getting through to customer service is “like trying to get into Fort Knox.”

She is not the only one complaining. Rob Lyman says he is “not happy” with Burlington Telecom’s service. “I watched a trailer for an on-Demand movie and the whole system froze up and required a reboot of BT’s box. When I called the help desk they said they’ve known about this problem for six months and didn’t know when it would be fixed,” he says.

In mid-November, a possible solution to the funding issues came from Piper Jaffray, a Minneapolis-based investment firm.  The company offered Burlington Telecom a $61.6 million dollar refinancing package that would help keep the company viable and return taxpayer funds caught up in the controversy to the city.

The proposal was met with political wrangling from the Burlington city council, which spent the last month and a half doing damage control.

“Once TelecomGate went radioactive in October, it was everyone for themselves on the city council as the finger pointing started,” Stop the Cap! reader Dwayne writes from Burlington. “The progressives are blaming the former Bush Administration’s economic catastrophe for wrecking the credit and financing markets BT needed to access, the Democrats are trying to play the role of moderates, and the Republicans are questioning why the city should compete with Comcast in the first place.  Demagoguery is universal,” he shares.

The rhetoric has grown so heated, it has stalled the city council’s approval of the loan package, to the disappointment of Mayor Bob Kiss.

[flv width=”368″ height=”228″]http://www.phillipdampier.com/video/WCAX Burlington Burlington Telecom Gets New Backing 11-13-2009.flv[/flv]

WCAX reports Burlington Telecom has the potential to secure new funding to refinance operations.  (November 13, 2009 – 3 minutes)

The Burlington Free Press has documented some of the language now a part of the debate:

“I do not believe that keeping Burlington Telecom alive during the absolute failure of our capitalist system was the wrong thing for any of us to do. We can’t afford to sit around. We have an interest payment (for BT’s current $33.5 million outside debt) that is due in February.” — Marrisa Caldwell, P-Ward 3, a Progressive Party member characterized as a fierce supporter of Burlington Telecom, is upset the city council delayed the approval of the loan package.

“The same forces that want to preserve the private insurance monopoly in health care by opposing the “public option” are now out to preserve the private corporate monopoly in Vermont telecommunications. The [Governor Jim Douglas (R)] administration is hell-bent on putting Burlington Telecom — which provides public sector competition to for-profit corporations such as Comcast and FairPoint — out of business, no matter what the consequences.” — John Franco, Vermont Progressive Party

“[Vermont Public Service Commissioner David O’Brien] is a political hack appointed by Douglas. They only want private-sector telecom in the state. He is out to get rid of the competition for the private companies. That’s very clear.” — Marrisa Caldwell

“I’m not going to engage in this kind of dialogue. It serves no purpose. We’re going to proceed with the investigation and work to resolve this situation.” — Deputy Public Service Commissioner Steve Wark, asked to comment on Caldwell’s remarks.

Caldwell also charged that the Free Press coverage of the BT issues has been influenced by advertising revenue from cable provider Comcast. She called the council’s vote to delay action on the new BT loan “disingenuous at best. It’s completely dysfunctional government,” she said. “They just tied the administration’s hands and hamstrung BT.”

“[On the city council’s lack of resolve and action] it’s erroneous and not well-founded. I never heard anyone say why they wouldn’t move forward (on the BT loan). It wasn’t leadership and (was) a lack of ability to collectively try to solve the problem.” Sharon Bushor, I-Ward 1, who generally supports Burlington Telecom.

“It seems only rational to do our homework on this (loan). I don’t think one of us is saying it isn’t feasible. All we’re saying is slow down and learn more.”  Councilman Paul Decelles, a Republican, called Caldwell’s remarks “destructive. I would challenge her to find one councilor who has thrown out the word ‘partisan,'” he said. “That word is coming from the administration and from the three Progressive councilors. We’re trying to do what is best for Burlington. This is the residents’ telecom. If acting in a slow, methodical way is unacceptable to some, so be it. It’s irresponsible of them to expect us to rubber-stamp this.” — Paul Decelles, R-Ward 7

“I am shocked and shocked again every time someone raises the partisan flag. This could have been a Republican or a Democratic blunder. The Progressives have been in office a long time. That’s just a fact. When we disagree, apparently, we’re being partisan, (but) it’s not personal, and it’s just not partisan.” — Nancy Kaplan, D-Ward 4

“No one is interested in destroying BT and the administration. Jonathan Leopold said Monday that (the council’s position on BT) was an attempt to destroy the administration. From my own perspective, that’s not the case at all. The first order is to take care of BT, but there have been missteps by the administration.” Mary Kehoe (D-Ward 6) said she has concerns about the loan proposal from Piper Jaffray, particularly the language that indicates the loan repayment will come from Burlington Telecom revenues in the form of city budget appropriations.  “If (BT is) short, what then?  How do we know BT is going to have the capacity?”  She said she voted to delay a decision on the loan, “because we want information. We’ve not been getting the information, and they want us to sign off. That’s not going to happen anymore.” — Mary Kehoe, D-Ward 6

“This is ridiculous. Burlington is starting to look more and more like Washington, with the level of partisan wrangling reaching an intensity that I’ve never seen before in my 15 years of living in Vermont.” — One resident commenting on the coverage and the back and forth.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/WPTZ Plattsburgh Burlington Telecom Editorial Oct 28 2009.flv[/flv]

WPTZ in Plattsburgh, which is part of the Burlington television market, ran a station editorial on the Burlington Telecom matter on October 28th.  (1 minute)

Edward Wasserman

The Comcast-NBC deal that would bring one of the nation’s largest television networks under the control of the nation’s largest cable operator has not enjoyed the smoothest sailing since the deal was first rumored more than a month ago.

Consumer advocates oppose the deal because it would give Comcast too much control over the video content it would now own, and some industry leaders suggest the era of integration is over, warning bigger is not always better.

“The only beneficiaries of this deal are the industry titans who already enjoy too much market power,” said Josh Silver, executive director of Free Press.  Free Press is mounting a national campaign for consumers to become involved and help block the deal.

“If this deal goes through, Comcast would have control of marquee content and three major distribution platforms: Internet, broadcast and cable,” Silver said. “We’ve never seen this kind of consolidated control across so many platforms.”

Edward Wasserman, Knight professor of journalism ethics at Washington and Lee University, penned a scathing review of the proposed deal.  “Stop Comcast’s Power Grab” quotes a bitter Ted Turner, who saw his media empire fall from his control several years ago under the super-structured AOL-Time Warner deal:

“Big media today wants to own the faucet, pipeline, water and the reservoir. The rain clouds come next,” Turner wrote in a Washington Monthly article five years ago indicting big corporate media control.

The concept of vertical integration in media involves companies owning as much of the content and distribution as possible.  In a best case scenario, one company would control every element, from the production to the sales and distribution of that content.  The more you control in-house, the less you have to pay or answer to someone else.  Wasserman picks up the story:

And vertical integration is why Comcast, the country’s biggest owner of cable systems, the company that decides which networks reach one of every four U.S. homes, is drooling over NBC Universal. The deal, if it happens, would be a staggering one.

NBCU, in short, is a mammoth content machine. And, Comcast, though chiefly an immensely rich operator of cable pipes, isn’t just the $34 billion-a-year utility whose bill you bellyache about every month. It, too, covets content. It tried to buy Disney in 2004, and it owns all or part of 20 cable networks, including E! Entertainment Television, Style, G-4, the Golf Channel and a bunch of national and regional sports channels.

And now it wants NBCU. One analyst estimated that combining the content arms of the two companies would bring roughly one-quarter of the country’s TV programming under a single owner. Another said the merged entity would control one of every five hours of programming.

[…]

The usual objections to such deals have to do with the outsized economic clout the resulting colossus would wield. Scale emasculates market discipline. When you control access to 24 million homes, you aren’t ruled by prevailing prices, you set them. Recession? Comcast is squeezing $6 more per household now than it was a year ago, and its profits were up 22.5 percent last quarter.

Very nice, but when you own the programs, too, you can make sure your networks get delivered even when that means elbowing other producers aside. You can strong-arm your competitors — satellite companies, for instance — by threatening to withhold popular networks or forcing them to carry the dogs as well. You can cut deals with other distributors who want the shows they control flowing through your pipes. You get your way.

Naturally, you’ll resist innovation unless you control it. Comcast would get a 30-percent stake in Hulu, the upstart distributor of first-run Hollywood programming via the Internet — a huge potential threat to cable operators. Subscription cable is Comcast’s bread and butter, and a business that makes $944 million on quarterly revenue of $8.8 billion is some business. Comcast will make sure that online’s future doesn’t endanger its own.

[…]

The whole point of vertical integration is to secure unfair advantage, to unlevel the playing field. And besides, since when is avoiding the worst the best we can hope for? It has been longstanding public policy to encourage localism, diversity and competition in the media business. It’s time to dust off that policy and give it some teeth by blocking this ridiculous and dangerous deal.

CNBC’s John Faber got some industry insider perspective from Dr. John Malone, a power player in the cable television industry during his reign at Tele-Communications, Inc., which used to own cable systems now largely a part of the Comcast empire.

Dr. John Malone

As far as Malone is concerned, this deal could herald a radical transformation away from traditional broadcasting models and “free TV.”

Malone believes America could be on the verge of dumping traditional broadcast network-local affiliate distribution of programming and switching to a “cable-centric” model where television programming is no longer distributed for free over broadcast television, or perhaps a hybrid approach where half of today’s television networks become cable/broadband-only.

He believes the government could be persuaded to support such a model if it meant returning broadcast spectrum back to the government for resale to the highest bidder, presumably for wireless broadband applications.

Malone’s vision leaves big vertically-integrated players like the broadcast networks and cable operators as big winners, owning and controlling programming, distribution, and all of the advertising slots, and cutting local television stations out of the deal.

Losers?  Independent local television stations and viewers that eschew pay television services like cable and satellite and rely on free over-the-air broadcasting.  “Free” may be an unsupportable business model, at least in Malone’s world view.  As many television stations are independently owned and operated, their concern for future viability is also sure to be an issue in the deal, Malone tells Faber.

Malone’s remarks are nothing unusual for the controversial cable mogul.  Al Gore once referred to Malone as the “Darth Vadar” of cable, leading a cable Cosa-Nostra with an agenda of a monopolist bent on dominating the television marketplace.

[flv]http://www.phillipdampier.com/video/CNBC Faber Report John Malone 11-23-09.flv[/flv]

Dr. John Malone talks about the Comcast-NBC Universal deal in this CNBC Exclusive with John Faber, aired earlier today. (4 minutes)

For any deal to consummate, Comcast and NBC Universal need the consent of Vivendi, the French conglomerate which now finds itself in the catbird seat.  The Paris-based media concern is asking for several hundred million dollars more than NBC-owner General Electric is prepared to part with, sources tell today’s Wall Street Journal:

GE has offered Vivendi something in the neighborhood of $5 billion for its stake, according to people familiar with the matter. That is lower than the value implied by the deal GE has tentatively negotiated with Comcast. The GE-Comcast deal would value NBC Universal at about $30 billion. Allowing for debt that NBC Universal now carries, that value would imply Vivendi’s equity stake is worth somewhat less than $6 billion.

GE is offering Vivendi less than the value implied by its Comcast deal because it believes Vivendi wouldn’t be able to fetch as much through a public sale that it also has the right to pursue, according to people familiar with the talks.

Vivendi, meanwhile, has asked for a price somewhere from the “mid-five” billion dollars to closer to $6 billion, according to people familiar with the matter. Two people familiar with the matter said GE and Vivendi were within about $500 million in price.

Vivendi has also asked for deal guarantees, according to people familiar with the matter. Those guarantees could include GE paying for at least part of its stake before any Comcast agreement closes. Vivendi doesn’t want to assume the risk that GE’s deal with Comcast could be blocked by regulators in Washington, or could otherwise fall apart, according to a person familiar with the matter.

Most deal-watchers predict Vivendi will eventually part with its stake after it gets what it wants.

One of the Journal‘s sources said it was unlikely those working out the deal would let “a few hundred million” stand in the way.