Today’s merger between CenturyTel (soon to be CenturyLink) and Qwest will combine 10 million Qwest customers and 7 million from CenturyTel into a single company serving 37 states in every region of the country except the northeast and much of California and Nevada.  CenturyLink gains access to Qwest’s highly valued portfolio of services sold to business customers and Qwest gets a partner that can help manage its $11.8 billion debt and help grow the last remaining Baby Bell, formerly known as US West, into a national player capable of withstanding ongoing erosion of landline service.

The deal will impact consumers and businesses, and will challenge regulatory authorities to consider the implications of ongoing consolidation in the traditional telephone service marketplace.  It brings implications for broadband service strategies for both companies, which we’ll explore in greater detail.

Breaking Up Was Too Hard to Do, So Let’s Put It Back Together

Ultimately, the genesis of this, and most of the other big telecom deals that we’ve witnessed over the past few years comes from the 1996 Communications Act, which deregulated large parts of the telecommunications industry and triggered a massive wave of consolidation that is still ongoing.  That legislation was the antithesis of the 1984 court ruling which ultimately led to the breakup of AT&T and the Bell System monopoly in 1984.  When President Clinton signed the 1996 bill into law, it allowed much of the Bell System to eventually recombine into two major entities:

• AT&T ultimately pieced itself back together with the acquisitions of:

BellSouth — serving the southeastern United States

Ameritech — serving the upper Midwest

SBC/Southwestern Bell — serving Texas and several southern prairie states

Pacific Telesis — serving California and Nevada

• Verizon became a regional powerhouse by combining:

NYNEX — serving New England and New York

Bell Atlantic — serving mid-Atlantic states

Qwest Tower - Denver

The remaining orphaned Baby Bell was US West, which comprised Mountain Bell serving the Rocky Mountain states, Northwestern Bell which covered the Dakotas, Minnesota, the prairie states not covered by SBC, and Pacific Northwest Bell which managed service for Oregon, Washington, and northern Idaho.  US West was subjected to a hostile takeover in 2000 by an upstart telecommunications company that was laying fiber optic cable in the late 1990s alongside the railways its owner, Philip Anschutz, also happened to own.  Qwest assumed control of US West that summer and rechristened it with its own name.  Owned by a Bell outsider, Qwest has always been the company that didn’t quite fit with the rest.

The company gained respect for its enormous fiber backbone that weaves across many American cities, including several in the northeast.  It is best known for its services to business customers.  On the residential side, the story is less impressive.  The company’s customer service record is spotty and the company has accumulated an enormous amount of legacy debt left over from earlier acquisitions.  Despite the company’s repeated efforts to find a partner, it took until today for it to finally find one.  There are several reasons for this:

1. Qwest’s service area is notoriously rural and expensive to serve.  Outside of its corporate headquarters in Denver, the majority of its service area is either mountainous or rural.  Even today, Qwest serves only 10 million residential customers, almost matched by CenturyTel’s own seven million largely rural customers scattered across the country.
2. Qwest’s history has been littered with financial scandals, starting with a series of deals with disgraced Enron from 1999-2001.  That was followed with charges of fraud and insider trading in 2005.
3. Qwest does not own its own wireless division and its previous efforts to deliver television service to customers were largely unsuccessful.  That made Qwest’s ability to withstand erosion in its core business – landline phone service, more difficult.
4. Qwest’s debt is downright frightening for would-be suitors.

Why Does CenturyTel Want to Buy Qwest?

CenturyTel claims such a transaction allows a combined company to become a larger player on the national scene.  By combining Qwest’s good reputation in the business telecommunications sector with combined efforts to deliver broadband products including high speed Internet, the company thinks the combination can’t be beat.  CenturyTel envisions packages of video entertainment, data hosting and managed services, as well as fiber to cell tower connectivity and other high bandwidth services to deliver replacement revenue lost from disconnected landlines.  It also believes it can realize cost savings from the merger and keep the company relevant on a stage dominated by Verizon, AT&T, and a few large cable companies.

But there are other reasons.  For the three super-sized independent phone companies that Americans are growing increasingly familiar with — Frontier Communications, Windstream Communications, and CenturyTel, their business models depend on their ability to constantly engage in deal-making and acquisitions.  All three companies have built their businesses on investors who see their stocks as “investment grade” financial instruments that dependably return a dividend back to shareholders.  As we’ve seen in countless quarterly financial results conference calls, all three companies are preoccupied answering questions from Wall Street about the all-important dividend.  TV personalities like Jim Cramer has specifically recommended these telecom stocks based, in part, on their dividend payout.  If that dividend dramatically shrunk or stopped, the share price for all three stocks would likely plummet.

One of the side effects of companies dependent on dividend payouts is their constant need to be on the lookout for additional merger and acquisition opportunities.  Here’s how it works.  Let’s say CenturyTel’s debt load and reduced revenue, caused by customer defections to cell phones or cable phone service, delivered a bad fiscal quarter for the company.  Cash flow was down, and company officials simply couldn’t keep the dividend payout at the same level as the previous quarter.  Since many people hold CenturyTel stock specifically because of the dividend, a downward turn in that payout could cause some to sell their shares, driving the stock price downwards.

CenturyTel is still digesting a previous merger with EMBARQ, which led it to rechristen the company CenturyLink

One way around this is to seek out a new merger or acquisition target.  By bringing two companies together, preferably one with a healthy cash flow, suddenly the big picture changes.  Your balance sheet now reflects the combined revenue from both companies, which incidentally makes the percentage of debt versus revenue look a lot healthier.  Cash flow immediately improves, especially if you can slash redundant costs.  Come next quarter, that dividend payout is right back up in healthy territory.

Sometimes companies become so preoccupied with their dividend and corresponding stock price, it can lead them to pay out more in dividends than a company earns in revenue.  While that’s great for investors, it is unsustainable in the long run.

Many critics of telecommunications companies employing this strategy claim it’s evidence that a company is biding time and unwilling to invest in innovation for the future.  Some also believe dividend payouts shortchange customers because they can eventually bleed a company’s ability to invest in service improvements, research and development, and capital investments to maintain their network and expand service.

As consolidation continues, the number of new buyout opportunities begins to shrink, and one shudders to think what happens when there is no one else to buy.  How long is this business model sustainable?

Both CenturyTel and Qwest also recognize the impact of ongoing disconnections from landline service, now averaging 10 percent of their customers a year.  Those departing customers are now relying on their cell phones or alternative calling services like cable company “digital phone” service or broadband-based calling from companies like Vonage or Skype.

The one service they hope can stem customer defections is broadband.  Unfortunately, telephone companies are increasingly losing ground against their cable modem competitors, who have an easier time increasing broadband speeds for customers now seeking online video and other high bandwidth applications.

Of course, one of the benefits of being a “rural phone company” is the fact cable competition is often unlikely.  In fact, some of the lowest erosion rates for landline service are in rural communities where the telephone company is the only game in town.  There is plenty of money still to be made offering high priced slow speed DSL service in communities with no cable competitor and spotty wireless broadband that is often slower and usage-limited.

All three of these big independent players are well aware of this, and maintaining a strong position in relatively slow speed DSL service also protects another revenue stream — Universal Service Fund revenue given to rural providers to equalize telephone rates.  CenturyTel recognizes the increasing likelihood much of that money will be diverted to stimulating broadband expansion, something the phone company is more than willing to do if it means preserving their subsidies.

The new combined Qwest-CenturyTel company hopes the merger can help both survive obsolescence.

For Qwest, a debt reduction may make it possible to spend more to deliver fiber-to-the-curb service, similar to AT&T U-verse.  That could increase broadband speeds and prompt them to reconsider their earlier decision to abandon IPTV in the western half of the country.

CenturyTel can continue to offer traditional DSL service with a more incremental upgrade approach in its more rural service areas, but tap into Qwest’s fiber network to reduce backhaul expenses and potentially pick up new business customers by offering Qwest-branded business services.  Company officials strongly hinted that, at least for now, CenturyTel’s existing customers will continue to find the video portion of their “triple play” package delivered by DirecTV satellite service, so no IPTV for them.

CenturyTel and Qwest's combined local service areas

What Does This Mean for Employees of Both Companies?

Mergers like this always generate great excitement over “cost savings” made possible by the merger.  Much of these savings typically come from employee expenses.  When you hear “cost savings,” think layoffs and pay cuts for all but top management.  Based on past precedent, Qwest employees can anticipate some serious job losses if this transaction closes, especially in the business office.  The combined company will be henceforth known as CenturyLink, with headquarters remaining in Monroe, Louisiana.  That is potentially bad news for Qwest’s employees in Denver.

The transaction is expected to generate annual operating cost savings (which CenturyTel calls “synergies”) of approximately $575 million, which are expected to be fully realized three to five years following closing.  The transaction also is expected to generate annual capital expenditure “synergies” of approximately $50 million within the first two years after close.  That means spending less on infrastructure improvements.

Billing and customer service are traditionally handled by CenturyTel when a company joins the CenturyTel family.  North Carolina customers can attest to that as EMBARQ, an earlier CenturyTel target, finally moves to CenturyTel’s billing system in the coming weeks.

For the sake of pushing the merger through state regulatory agencies, cutbacks in unionized technicians who handle service installations, repairs, and maintain the lines are not expected.  The Communications Workers of America issued a statement today that mildly acknowledged the merger announcement, saying the union “looked forward to serious negotiations with both companies” regarding employment security and assurances of aggressive high speed broadband rollout throughout both companies’ territories.

How the combined CenturyTel-Qwest company stacks up against other independent phone companies. (Q-Qwest, CTL-CenturyTel, FTR-Frontier, WIN-Windstream)

What Does This Mean for Qwest and CenturyTel Customers?

In the short term, nothing.  This merger will take at least a year to complete, assuming regulatory approval in every state where a review is required by state officials.  In 2011, should the merger be approved, Qwest customers can anticipate transition headaches as the Denver-based company winds down operations in favor of CenturyTel.  Billing and customer service will both be impacted.  Long term plans for major projects are likely to be stalled until the merger settles into place.  CenturyTel business customers will eventually see Qwest’s strong business products line become available in many CenturyTel service areas.  Eventually, some larger CenturyTel-served cities may find Qwest’s more advanced DSL service arriving on the scene delivering faster speeds.

Although CenturyTel has hinted it may review whether it’s now large enough to operate its own wireless mobile division, for the near term, expect the partnership to resell Verizon Wireless service to continue.

What is the View of Stop the Cap! on the CenturyTel-Qwest Merger?

Generally speaking, most of the industry consolidation that has been fueled by a deregulatory framework established by the Clinton Administration has not benefited consumers anywhere near the level promised by deregulation advocates.  The three largest independent phone company consolidators — Frontier, Windstream, and CenturyTel are spending more time and resources looking for new acquisitions and schemes to pay out dividends than they are working to enhance service in their respective service areas.  Smaller independent phone companies are deploying fiber to the home networks and answer to the communities where they work and live.  From companies like Frontier, we get Internet Overcharging schemes combined with slow DSL service, tricks and traps from “price protection agreements” that automatically renew, rate increases, and cost cutting.  Windstream plagues some of their customers with extended service outages, and CenturyTel’s promised broadband speeds often don’t deliver.

Unfortunately, bigger is not always better in telecommunications.  While the biggest players like Verizon seek to discard rural American customers, getting one of these three companies instead doesn’t always represent progress.  Our regulators are too often satisfied with basic answers to questions about broadband and service improvements that come with few details and deadlines.  It is just as important to ask what kind of broadband service a company will bring, at what speeds and price, and what usage limits, if any, will accompany the service.

Companies engaged in these mergers hope regulators don’t pin them down to specific service commitments and standards, which could harm the financial windfall these deals bring to a select few.  But they must be the first thing on the table, guaranteeing that customers also get the enjoy the “synergies” these deals are supposed to bring.

Martin

The former chairman of the Federal Communications Commission under President George W. Bush says the FCC doesn’t have as much authority over broadband as it might think, and cannot tell service providers not to implement policies designed to limit broadband consumption.

Kevin Martin, speaking last week in Seattle at the Mobile Broadband Breakfast told attendees he doubts the Commission has the authority under current law to implement the full scope of the National Broadband Plan, and probably cannot control what providers do with the marketing and pricing of their broadband services.

“The further it is pushed out the more difficult it is for the commission to address it,” Martin said. “The FCC’s core regulatory authority is on wireless and carriers, so its direct authority is less and less the further out you go.”

Martin is especially skeptical about controlling classic Internet Overcharging schemes like usage caps and usage-based billing.

Broadcast Engineering notes Martin doesn’t believe the Commission has any authority to stop the recent efforts of carriers and ISPs to introduce metered wired broadband, except in instances where price discrimination occurs.

Of course, Congress can grant additional authority to the Commission at any time, and with decisions looming in several broadband-related legal challenges in federal court, what authority the FCC believes it has today may not actually exist should court rulings find otherwise.  That could result in explicit increased authority granted by Congress.

Martin believes broadband improvement will ultimately come from increased deployment of fiber optics, which can also improve wireless network backhaul connections used in mobile broadband.

South Africa is the latest country on the way to finally discarding Internet Overcharging schemes like usage caps and usage-based billing.

MWEB, one of South Africa’s largest residential broadband service providers, last week “threw down the gauntlet” and unveiled an unlimited broadband option among its various rate plans.

“We realized there’s a major gap in the market. South Africa doesn’t experience the Internet like the rest of the world does. It’s a fantastic opportunity to change the Internet in South Africa,” MWEB CEO Rudi Jansen told News24.

For a country that has never known anything but expensive, slow, usage-capped Internet, MWEB’s announcement is nothing short of a broadband revolution for 49 million South Africans.

“This is not the end. There are still probably three or four big things that have to change in this market and for us, this is the first step. The other things that have to change are we have to get the mobile operators to offer wholesale data. The more competition there is, the better it is for the market,” said Jansen.

For $73.50US per month, MWEB offers 4Mbps DSL service that is truly unlimited, which is a radical notion in a country used to usage caps averaging 3GB per month.  Customers willing to tolerate slower speeds can reduce their unlimited broadband bill considerably — 384kbps starts at $30 a month; 512kbps is priced at $41 a month.  The company does admit to throttling torrent services, but customers have managed to bypass the throttle by encrypting their torrent traffic.

Although these speeds and prices are terrible in comparison to North American broadband plans, for South Africans, MWEB’s announcement was big news.  That’s because the competition charges far higher prices, often for limited service:

• Telkom, South Africa’s state phone company, wants $35US monthly, five dollars more than MWEB’s lowest speed unlimited alternative, for its DSL service with a 3GB usage allowance;
• Paying $39.50US per month buys you 10GB of usage from Afrihost;
• Using 3G wireless mobile alternatives are for the deep-pocketed only.  Paying $65.50US per month nets you less than a 2GB usage allowance;
• South Africa’s ‘Screamer’ offers a pricey unlimited plan at $54US per month for 384kbps service;
• Neotel offers an unlimited service package, but it’s so confusing few customers can be certain what they’re getting.  (Read this South African blogger’s experience with Neotel.)

MWEB hired marketing firm Quirk to generate buzz about the company’s unlimited service option.  Earlier this month, a Facebook group called Free the Web popped up asking consumers what improvements were needed in South Africa’s broadband service.  It attracted more than 15,000 followers in just two weeks.

What were South Africans complaining about?  Usage caps. Broadband users despise them, especially in a country where 5-10GB allowances are considered ‘generous.’  But the lack of competition for monopoly state-owned phone company Telkom also featured prominently.  Most South Africans rely on DSL service that first starts with renting a line from Telkom.  Telkom prices those in accordance with its monopoly status, and requires consumers to pay line rental fees combining both data and voice services, even if a customer only intends to use the line for data.  Because ADSL broadband speed is totally dependent on the phone company, and Telkom has no incentive to upgrade, few in South Africa can expect to see broadband service exceeding 4-8Mbps.  Most obtain considerably less, often well below 1Mbps.

“Telkom has to allow users of ADSL to split the line rental for the telephone line and the line rental for ADSL. That absolutely has to happen; then this market will grow,” Jansen said.

Jansen

MWEB hopes the unveiling of unlimited broadband will transform South Africans use of the Internet and bring prices down.

“Ubiquitous broadband is what this country needs to grow. We want to do our part in getting South Africa there,” said Jansen. “I hope [our competitors] follow us because I think as a country we desperately need it.”

Jansen may have his wish.  Hours after MWEB announced unlimited broadband, its competitors began to follow suit, meaning South Africans can finally follow Australians and New Zealanders discarding hated Internet Overcharging schemes.

Mybroadband.co.za took note of several broadband package changes coming as a direct result of MWEB’s new service (One South African Rand = 13.6 US cents):

Vox Telecom responded quickly and announced that @lantic will be launching bundled ADSL offerings – which include both ADSL access and an uncapped ISP account.  Pricing starts at R339 for a DSL384 bundle while a 512 Kbps service will cost R589 and a 4 Mbps solution R889.  This undercuts MWEB’s bundled pricing by R10 per month.

Openweb also joined the price war by announcing that they will resell MWEB accounts at the same rates as MWEB.

This is however not where it ends.  Afrihost said that consumers can look forward to their uncapped ADSL services next week, and G-Connect also indicated that they will respond to MWEB’s recent announcement with a competing service.

Even the state monopoly phone company Telkom has started talking about offering unlimited service.

“Uncapped speed-locked ADSL service consumer offerings are in development. However, no time-frames, offering specifications or price points can be disclosed at this stage. In the development process, Telkom is striving for optimal quality, reliability and affordability,” said Ajith Bridgraj, Telkom Senior Specialist for Media Relations.

MWEB expects a surge of new customers, which leads some to worry if the company can sustain its network under the burden of throngs of new customers.  Jansen says they can, noting their connectivity ultimately comes from Seacom, which is an important provider of international connectivity between Africa, Europe, and beyond.

Early tests by Mybroadband appear positive:

MyBroadband got its hands on an uncapped 4 Mbps test account to take the service through its paces – and early test results are very promising.

For basic email and surfing the MWEB uncapped account performed well, and results from Speedtest.net were on par with SAIX and IS based offerings.

Local Speedtest.net downlink speeds ranged between 3.28 Mbps and 4.13 Mbps while local uplink speeds ranged between 0.26 Mbps and 0.42 Mbps.

International Speedtest.net results – tested with servers in London, New York and Brussels – ranged between 2.96 Mbps and 3.61 Mbps while international uplink speeds were fairly steady at between 0.3 Mbps and 0.32 Mbps.

Local latency was fairly consistent and ranged between 17 ms and 41 ms in tests to Johannesburg and Cape Town based servers.  International latency was however less consistent, and ranged between 285 ms and 528 ms to the UK and US.

The MWEB uncapped account performed well with all bandwidth intensive applications.

YouTube videos streamed without any buffering, but some buffering was needed when moving to high definition video streaming (480p and more specifically 720p).

Standard file download speeds were quite consistent at between  2 Mbps and 3.4 Mbps while multi-threaded FTP and HTTP downloads sat at around 3.2 Mbps.

Good news for those keen on torrent services is that the MWEB uncapped account seems torrent friendly.  We selected 10 of the most popular torrents, and total download speeds ranged between 2.8 Mbps and 3.2 Mbps.

American broadband providers contemplating Internet Overcharging schemes of their own often point to usage limits and usage-based billing schemes that exist in other countries, implying they are well-tolerated by consumers abroad and should be likewise domestically.  The truth is, such pricing schemes are as despised abroad as they are domestically, and most countries seeking to improve broadband consider eliminating them a top priority.

[flv width=”448″ height=”356″]http://www.phillipdampier.com/video/Carte Blanche Consumer – No Broader Than a Band.flv[/flv]

South African news program ‘Carte Blanche’ provides this general overview of the current state of broadband in South Africa, and the challenges that must be faced to improve it. (10 minutes)

[flv width=”384″ height=”308″]http://www.phillipdampier.com/video/News24 MWEB Unveils Unlimited Broadband 3-19-10.mp4[/flv]

South Africa’s News24 network reported on MWEB’s unlimited broadband package including an interview with MWEB CEO Rudi Jansen. (3 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/South African Broadband.flv[/flv]

As part of MWEB’s social marketing campaign, ordinary South Africans talk about their broadband experiences, what the Internet has done for them, and the things they hate the most about South African Internet Service Providers. (9 minutes)

Stop the Cap! reader Michael writes to alert us he found AT&T’s U-verse online Account Overview now includes a section called “Usage & Recent Activity” that includes a placeholder for a future usage meter.

“I canceled my U-verse TV and bumped my Internet speed up to 12Mbps last weekend, and I remember checking to see if my account updated sometime around the middle of last week.  The old website was still in use then.  Today was the first time I got redirected to the new site, which includes this new placeholder for a usage meter,” writes Michael.

Stop the Cap! reader Michael sent us a screen shot of his AT&T U-verse account, showing this placeholder for a future usage meter. (Click to view the full screen shot)

While customers like Michael are currently being told their “internet plan provides you with unlimited usage — there are no usage details to display,” the potential for usage meters can set the stage for future Internet Overcharging schemes down the road.

AT&T alienated many of its customers in Beaumont, Texas and Reno, Nevada when an extended usage cap trial was underway.  Complaints were filed against AT&T with the Better Business Bureau over dubious marketing practices that sold customers on unlimited broadband, only to dispatch letters to newly signed customers telling them it wasn’t unlimited… after signing up for service.

Stop the Cap! learned the Beaumont/Reno experiment was coming to a close this April.

Internet Overcharging schemes are vastly unpopular with consumers.  A 2008 study found an overwhelming majority of customers (81 percent) opposed to usage limits or usage-based billing, with 51 percent willing to take their business to another provider if implemented.

In Beaumont and Reno, customers threatened to cancel service when they learned of the experimental overcharging scheme being tested.  Some managed to get exempted from the trial.

Customers routinely reject the notion that a company already earning billions in broadband profits today needs to set the stage for even higher pricing and profits tomorrow.

AT&T has spent millions lobbying for the introduction of their U-verse system on favorable franchise terms with the promise it would deliver more competition and lower prices for millions of Americans.

For customers like Michael, usage meters are the first step towards breaking that promise.  When followed with formal usage limits or usage-based billing, higher broadband bills are a sure thing.

AT&T customers should contact AT&T and put them on notice — any effort to impose usage limits or usage-based billing will result in immediate cancellation of your AT&T account.

Stop the Cap! will continue to closely monitor AT&T and we’ll recommend further action should conditions warrant.

Update 3:00pm EDT 3/23 — AT&T tells Broadband Reports that whatever users are seeing, it’s some kind of website glitch, and that the company has no plans to implement a usage meter. “We did do some upgrades to our account management portal this weekend, but we haven’t been able to recreate this screen,” according to AT&T spokesman Seth Bloom.

While that’s good news for AT&T customers, we are unsure exactly how such a glitch could occur with such depth, including wording that specific Internet plans providing unlimited usage.  Further, specifying “U-verse Internet Usage” on the tab above it seems surprisingly specific for a “glitch.”

Barring any new evidence, we’ll take AT&T’s word for it, but readers should continue to report any further “glitches” they might encounter.  If possible, include the URL with any screen shots, which we’ll happily provide to the company in any effort to recreate the page.

Dampier

Yesterday, the Federal Communications Commission formally introduced its omnibus National Broadband Plan to America, Congress, and the telecommunications industry.  The FCC seeks nothing less that a transformation of broadband to better meet the needs of Americans for years to come.

The 376-page plan recognizes broadband is no longer a novelty.  It’s now becoming one of the essential utilities of life — joining power, telephone and water service as something virtually every American will eventually have in their home.  But while the Commission lays the general groundwork for future regulatory policy to help achieve that goal, it ignores the historical reality that made universal service for utilities possible.

I am a strong believer in reviewing past mistakes to avoid repeating them in the future.  That is why Stop the Cap! occasionally turns back the clock and reviews history.  Railroad robber barons, telephone company monopolies, and electric service providers all abused their positions and consumers paid through the nose for service until the government finally broke up the anti-competitive trusts that limited competition.

Just like today’s broadband players, in the early 20th century, electric companies asked for and received favorable treatment by Congress.  The industry argued such treatment was required to make investors comfortable with the enormous amount of investment required to construct power generation facilities, run wiring to homes, and obtaining easy access to American streets and backyards.  Regulations must be kept to a bare minimum, providers demanded.  Anything else, they claimed, would discourage critical private investment, would create job losses, and slow deployment of service to millions of Americans.  Sound familiar?

By the time the American public realized electric companies were abusing their monopoly positions to charge outrageously high prices, the half-measures legislators proposed to control rates and improve service were often ineffective.

Just as with electric service, any broadband plan that seeks to tinker around the edges of the problem will not solve the problem.  Providers will find loopholes, lobbyists to help water down the provisions they dislike, and lawyers to mount endless legal challenges to stall reform.

The warning signs are already apparent in the FCC plan.  The agency seeks to cooperate with some of the biggest players in the industry that are responsible for what the FCC calls “the critical problems that slow the progress of availability, adoption and utilization of broadband.”

That ultimately means working with existing providers instead of creating the right conditions to welcome new players into the market.

America's broadband duopoly - just four percent of Americans have more than two providers to choose from

The anti-competitive, de facto duopoly pricing power available to cable and telephone companies has created an enormous digital divide for rural Americans who cannot pass “Return on Investment” means tests, prices broadband service out of reach for many, and seeks even higher pricing while proposing to limit service with Internet Overcharging schemes like “usage-based billing” and “usage limits.”

Where one lives is often the most important factor when considering broadband speed and service quality.  It’s the luck of the draw.  A customer on one side of the street may have the option of Verizon FiOS, a true fiber-to-the-home service providing equal upstream and downstream speeds far higher than the national average.  Across the street, a customer may only be served by another telephone company offering 1Mbps DSL with no alternatives.

Other Americans live within viewing distance of a utility pole where cable or telephone broadband service stops, giving them the choice of paying $10,000 to extend service, or living with dial-up or satellite fraudband.

Few phone or cable companies will ever consider invading another’s turf, even if customers begged.

But it gets worse.

The service customers can obtain from a provider varies even within its service area.  Verizon FiOS and AT&T U-verse is available in some neighborhoods, but not others.  What stops or slows service expansion?  Anything from a management decision on a whim to concerns by private investors, market conditions, cost controls, or changing revenue expectations that inhibit uniform service across the community.  Local governments used to manage this problem with franchise agreements that made approval conditional on supplying service across an entire community, but companies like AT&T lobbied their way to statewide franchising reforms that can eliminate local oversight.

The cable television industry has a better track record of providing uniform broadband service to customers in their respective service areas, but at what cost?  Time Warner Cable COO Landel Hobbs recently told a group of investors pricing for its Road Runner service can be increased at the company’s whim.  Comcast has already increased prices on its broadband service. Both companies have either tested or implemented usage limits and restrictions on their customers.

What makes these things possible?  Limited competition and insufficient oversight.

The FCC’s solution to limited competition includes vastly expanding wireless frequencies available to mobile broadband providers.  But here’s the problem.  The government will auction those frequencies off to the highest bidders, which are most assuredly the dominant industry players AT&T and Verizon.  For millions of Americans, that means no extra competition at all because their phone, broadband, video, and wireless service all come from these two companies.  The only way smaller players can compete in a bidding war is through consolidating mergers, which reduce the number of competitive choices in many cities.  If the government wants competition, it should provide incentives to spur its development.

Wall Street certainly won’t help much.  They loathe heavily competitive markets now, because inevitable price wars limit their returns.  Getting initial investment to construct new networks is problematic because investors don’t want excessive competition.  Providers howl it’s unfair for government to help their competitors, but their incumbency provides them with built-in benefits unavailable to new entrants.

The FCC recognizes the importance of broadband service as America’s next utility, but is afraid to regulate them as such.  They may have good reason not to try.  Comcast is presently suing the Commission in federal court, claiming they don’t have jurisdiction over broadband policy.  Should Comcast prove its case, the National Broadband Plan could be just another thesis for improved broadband, with no backing authority to implement its recommendations and regulatory changes.

That brings us to Congress.  While the FCC may bring its best intentions to the table with the National Broadband Plan, it’s very likely lobbying will force changes to what finally gets implemented, if anything.

The telecommunications industry never has a problem finding financial resources to hire lobbyists and spread lavish campaign contributions all over Washington.

They’ve already bought and paid for an enormous astroturf group called Broadband for America with 200 member organizations, virtually every single one backed by AT&T or Verizon money or personnel, or equipment providers who stand to earn substantially from broadband improvement.  They are running TV ads telling viewers private providers should be left alone to get the job done, something they’ve had a decade to accomplish with insufficient progress in key areas.

Many in Congress, especially on the Republican side of the aisle, will agree with BfA’s “hands-off” advocacy.  Early reaction from Republicans regarding the Broadband Plan is not favorable.  Rep. Cliff Stearns (R-Florida), the ranking Republican on the House Energy and Commerce communications, technology and the Internet subcommittee, told the Washington Post he wants the agency to stay focused on bringing access to people who don’t have it.

“I am concerned, however, that the plan may contain stalking horses for investment-killing ideas, such as so-called net neutrality mandates or a return to outdated, monopoly-era regulation,” he said.

Many Democrats with large telecommunications companies headquartered in or near their districts are likely also to advocate caution.

Regardless of what the FCC recommends, Congress will ultimately control the outcome.

Here are our recommendations you should consider sharing with your elected officials:

Congress and the FCC must be willing to stand up to the telecommunications industry which is not delivering world-class broadband service.  The United States is falling behind in access, pricing, and speed.  Simply accepting the provider argument that they should be left alone in an unregulated, duopoly marketplace is not an option;

Congress must deliver to the FCC clear authority to regulate broadband service and enforce Net Neutrality.  Recent court cases argue the Commission presently lacks that authority.  Congress should take every possible step to ensure the courts this isn’t the case.

Increased oversight of the broadband industry is essential.  Why does an industry making billions in profits need to consider usage limits and usage-based billing designed to deter residential use of broadband service?  Such limits are designed to protect cable-TV revenue that could disappear if Americans dump their television channel packages in favor of watching everything online on their existing broadband account.

Congress should not stand for an unregulated duopoly controlling a service that is becoming as essential as water, energy, and the telephone.  As broadband becomes an essential utility, why is the government not stepping in when the COO of the nation’s second largest cable company — Time Warner Cable, tells investors he can raise broadband prices on a whim?  Is this the 21st century version of the Robber Baron Era?  Robust competition guarantees no executive can make such a statement.  Congress must act to bolster competition, including financial and tax savings incentives for new providers willing to enter markets of all sizes;

Wireless mobile broadband spectrum auctions do not promote competition because the biggest incumbent players are sure to win the bulk of the frequencies, guaranteeing more of the same anemic competition.  Some of the newly available blocks of frequencies should be reserved for bidders who do not currently serve the market where those frequencies are available.  Only that guarantees new competition in wireless;

Free or deeply discounted access to basic Internet service at broadband speeds should be a part of any National Broadband Plan, to ensure access to every American who wants it.