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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

While up to three-quarters of the staff at Tribune Media’s local TV outlets are expected to lose their jobs after Sinclair Broadcast Group acquires the stations, top executives will exit their management positions both comfortable and rich.

In a filing last week with the U.S. Securities and Exchange Commission, blogger Robert Feder uncovered the golden parachutes awaiting Tribune’s three most senior executives:

• Edward Lazarus, executive vice president and general counsel: $9,681,435
• Chandler Bigelow, executive vice president and chief financial officer: $9,248,157
• Larry Wert, president broadcast media: $7,760,566

The FCC under Chairman Ajit Pai has already signaled its willingness to allow the largest television station owner in the country to grow even larger after relaxing station ownership rules put in place to maintain diversity in the media. Sinclair is among the most closely politically connected media companies in the country, on friendly terms with the Trump Administration. There appears to be little objection among Republican regulators to approve the transaction, accepting Sinclair’s argument that the deal will be good news for shareholders and allow its stations to benefit from “increased operational efficiencies” such as sharing newsrooms, producing “local” news stories at its corporate headquarters in Maryland, and reducing staff.

“For a company as notoriously cheap as Sinclair, ‘increasing its operational efficiencies’ is simply another way of saying mass firings,” wrote Feder. “According to the SEC filing this week, Sinclair expects to realize $266 million of synergies — presumably through layoffs and other cutbacks.”

Employees are nervous.

“Sinclair’s business model is going into a market, buying multiple stations, moving them all to one facility, and firing three-quarters of the staff to get as much work with the fewest employees,” one union official told Media Matters.

“Our employees are very nervous about the situation,” said another. “It is a combination of political influence and that Sinclair is extremely anti-union in dealing with its employees. What is it going to mean?”

Feder says the responsibility for Tribune’s failure to succeed lands squarely in the top suites of the executive offices, ironically the same management team about to be handsomely rewarded for destroying a Chicago media institution:

“Regardless of when it began, there’s no doubt the wreckage culminated with the company’s current board and leadership. With singleminded determination they cashed out everything they could — from the company’s Gothic masterpiece Tribune Tower headquarters, to its forward-looking digital and data business Gracenote, to the very land under its television stations. The biggest shareholders on the board reaped millions in short-term profits while company execs enriched themselves with extravagant payouts.

“All of which led up to the ultimate sell-out to some outfit from Baltimore you never heard of. Keep that in mind when Sinclair starts handing out pink slips to the working men and women who made WGN and Tribune Media the company it was.”

With Sprint and T-Mobile reportedly far apart in prospective merger talks, Sprint has given a two-month exclusive window to Charter Communications and Comcast Corp. to see if a wireless deal can be made between the wireless carrier and America’s largest cable operators. But any deal could initially burden Sprint’s fourth place network with more traffic, potentially worsening performance for Sprint customers until additional upgrades can be undertaken.

The two cable companies are reportedly seeking a favorable reseller arrangement for their forthcoming wireless offerings, which would include control over handsets, SIM cards, and the products and services that emerge after the deal. Both Charter and Comcast also have agreements with Verizon Wireless to resell that network, but only within the service areas of the two cable operators. Verizon’s deal is far more restrictive and costly than any deal Charter and Comcast would sign with Sprint.

Such a deal could begin adding tens of thousands of new wireless customers to Sprint’s 4G LTE network, already criticized for being overburdened and slow. In fact, Sprint’s network has been in last place for speed and performance compared with AT&T, T-Mobile, and Verizon for several years. A multi-year upgrade effort by Sprint has not delivered the experience many wireless customers expect and demand, and Sprint has seen many of its long-term customers churn away to other companies — especially T-Mobile, after they lost patience with Sprint’s repeated promises to improve service.

At least initially, cable customers switching to their company’s “quad-play” wireless plan powered by Sprint may find the experience cheaper, but underwhelming.

Sprint chairman Masayoshi Son was initially aggressive about upgrading Sprint’s network with funds advanced by parent company Softbank. But it seems no matter how much money was invested, Sprint has always lagged behind other wireless carriers. In recent years, those upgrades seem to have diminished. Instead, Son has been aggressively trying to find a way to overcome regulator and Justice Department objections to his plan to merge Sprint with third place carrier T-Mobile USA. Likely part of any deal with Charter and Comcast would be a substantial equity stake in Sprint, or some other investment commitment that would likely run into the billions. That money would likely be spent bolstering Sprint’s network.

A deal with the two cable companies could also give Sprint access to the cable operators’ large fiber networks, which could accelerate Sprint’s ability to buildout its 5G wireless network, which will rely on small cells connected to a fiber backhaul network.

Less likely, according to observers, would be a joint agreement between Charter and Comcast to buy Sprint, which is currently worth $32 billion but also has $32.6 billion in net debt. Sprint’s talks with Charter and Comcast do not preclude an eventual merger with T-Mobile USA. But any merger announcement would likely not come until late this summer or fall, if it happens at all.

Wall Street is downplaying a Sprint/T-Mobile combination as a result of the press reports indicating talks between the two companies appear to have gone nowhere.

“We didn’t give a Sprint/cable deal high odds,” wrote Jonathan Chaplin of New Street Research.  “While a single cable company entering into any transaction with Sprint has a strong likelihood of regulatory approval, a joint bid raises questions that add some uncertainty. However, the deal corroborates our view that Sprint isn’t as desperate as many thought and T-Mobile didn’t have the leverage that most seemed to assume.”

“An equity stake or outright acquisition is less likely in our view, but not out of the realm of possibility,” said Mike McCormack of Jefferies. “In our view, this likely suggests major hurdles in any Sprint/T-Mobile discussions and could renew speculation of T-Mobile and Dish should Sprint talks falter.”

Marci Ryvicker of Wells Fargo believes Comcast will be “the ultimate decision maker” as to which path will be taken. Amy Yong of Macquarie Research seems to agree. “We note Comcast has a strong history of successfully turning around assets and could contribute meaningfully to Sprint; NBCUniversal is the clearest example. But she notes Charter is likely to be distracted for the next year or two trying to integrate Time Warner Cable into its operations.

Behind the cable industry’s push into wireless is Dr. John Malone, Charter’s largest shareholder and longtime cable industry consigliere. Malone has spent better than a year pestering Comcast CEO Brian Roberts to join Charter Communications in a joint effort to acquire a wireless carrier instead of attempting to build their own wireless networks. But both Roberts and Charter CEO Thomas Rutledge have been reluctant to make a large financial commitment in the wireless industry at a time when the days of easy wireless profits are over and increasing competition has forced prices down.

For Malone, wireless is about empowering the cable industry “quad play” – bundling cable TV, internet, phone, and wireless into a single package on a single bill. The more services a consumer buys from a single provider, the more difficult and inconvenient it is to change providers.

Malone also believes in a united front by the cable industry to meet any competitive threat. Malone favored TV Everywhere and other online video collaborations with cable operators to combat Netflix and Hulu. He also advocates for additional cable industry consolidation, in particular the idea of a single giant company combining Charter, Cox, and Comcast. Under the Trump Administration, Malone thinks such a colossal deal is a real possibility.

Former interim FCC chairman and commissioner Michael Copps has become so disillusioned with the agenda of the Trump Administration’s FCC, he’s ready to conclude its current leadership under Chairman Ajit Pai represents the worst FCC ever.

In an effort to erase the Obama Administration, President Trump has made it a priority to actively reverse the former administration’s policies. The FCC is no exception, and according to an article published by Moyers & Co., the Republican majority running the FCC these days are actively on board White House strategist Steve Bannon’s campaign to “deconstruct the administrative state.”

Author Michael Winship calls Pai an enthusiastic supporter of Donald Trump’s “doctrine of regulatory devastation,” and it appears Copps agrees as he comments on the current FCC agenda to dismantle set-top box competition, Net Neutrality, Lifeline internet service for the poor, restricting media consolidation, consumer’s privacy rights, and general oversight of the telecom industry.

Pai’s Garbage

“I think the April 26 speech that Ajit Pai gave at the Newseum, which was partially funded, I think, by conservative activist causes, was probably the worst speech I’ve ever heard a commissioner or a chairman of the FCC give,” Copps said. “It was replete with distorted history and a twisted interpretation of judicial decisions. And then, about two-thirds of the way through, it became intensely political and ideological, and he was spouting all this Ronald Reagan nonsense — if the government is big enough to do what you want, it’s big enough to take away everything you have, and all that garbage. It was awful. It’s maybe the worst FCC I’ve ever seen or read about.”

Today, Copps is special adviser for the Media and Democracy Reform Initiative at the nonpartisan grassroots organization Common Cause. He “just may be,” Bill Moyers once said, “the most knowledgeable fellow in Washington on how communications policy affects you and me.”

Under the Trump Administration, Copps believes we are watching a wholesale transfer of the most important tools in a democracy — real news, diversity of ideas, and access to an open internet into the hands of a handful of mega-corporations and special interests that have bankrolled the Republican party and the election of Donald Trump.

“This is not populism; this is a plutocracy,” Copps warned. “Trump has surrounded himself with millionaires and billionaires, plus some ideologues who believe in, basically, no government. And the Trump FCC already has been very successful in dismantling lots of things — not just the Net Neutrality that they’re after now, but privacy, and Lifeline, which is subsidized broadband for those who can’t afford it. And just all sorts of things up and down the line. The whole panoply of regulation and public interest oversight — if they could get rid of it all, they would; if they can, they will.”

In fact, Copps noted, there were several conservative advisers on Trump’s transition team that advocated abolishing the FCC outright, believing consolidated telecom companies and media empires can successfully regulate themselves.

“I don’t know if Donald Trump is good for the country. but he’s damn good for CBS.”

“[CBS CEO Les] Moonves said it best: ‘I don’t know if Donald Trump is good for the country. but he’s damn good for CBS,'” Copps said. “The election was just a glorified reality show and I do not think it was an aberration. Until we get that big picture straightened out and we get a civic dialogue that’s worthy of the American people and that actually advances citizens’ ability to practice the art of self-government — that informs citizens so they can cast intelligent votes and we stop making such damn-fool decisions — we’re in serious trouble.”

Copps complained the mainstream media isn’t even covering stories about digital democracy, instead preoccupied with 24/7 coverage of the circus in Washington, D.C.

“I don’t think right now that commercial media is going to fix itself or even that we can save it with any policy that’s likely in the near-term, so we have to start looking at other alternatives,” Copps advised. “We have to talk about public media — public media probably has to get its act together somewhat, too. It’s not everything that Lyndon Johnson had in mind back in 1967 [when the Public Broadcasting Act was signed], but it’s still the jewel of our media ecosystem. So I’m more worried than ever about the state of our media — not just fake news but the lack of real news.”

Exposing what is really going on in Washington these days requires reporting beyond the latest misstep or tweet from the president, says Copps. For him, it’s the pervasive influence of corporate cash that really matters.

“I think there is that right-wing, pro-business, invisible hand ideology, and then there’s just the unabashed and unprecedented and disgusting level of money in politics,” Copps said. “I don’t blame just the Republicans; the Democrats are just about as beholden to it, too.”

Pai is a True Believer

Copps believes Pai is a true believer of an ideology that regulations do more harm than good.

“He has this Weltanschauung [world view] or whatever you want to call it that is so out of step with modern politics and where we should be in the history of this country that it’s potentially extremely destructive,” Copps said. “And Michael O’Rielly, the other Republican commissioner, is about the same. He’s an ideologue, too.”

“The problem is that Republicans inside the Beltway are joined in lockstep opposition on almost all these issues, and the level of partisanship, lobbying, big money, and ideology have thus far been insurmountable obstacles,” said Copps. “But I believe if members of Congress spent more time at home, holding more town hall meetings, they would quickly learn that many, many of their constituents are on the pro-consumer, pro-citizen side of these issues.”

Copps is worried that prior mergers set precedents for even larger ones, and the ongoing consolidation of the media and telecom industry is only going to get worse under the Trump Administration.

“I don’t know how long you can let this go on. How long can you open the bazaar to all this consolidation, how much can you encourage all this commercialization, how much can you ignore public media until you get to the point of no return where you can’t really fix it anymore,” Copps asked. “And I also think that the national discourse on the future of the internet has really suffered while we play ping pong with Net Neutrality; one group comes in, does this, the other group, comes in and reverses it, boom, boom, boom. And Net Neutrality is not the salvation or the solution to all of the problems of the internet. As you know, it’s kind of the opening thing you have to have, it lays a foundation where we can build a truly open internet.”

“It’s all about the ideology, the world of big money, the access that the big guys have and continue to have,” Copps concluded. “It’s not that the FCC outright refuses to let public interest groups through the door or anything like that; it’s just the lack of resources citizens and public interest groups have compared to what the big guys have. The public interest groups don’t have much of a chance, but I think they’ve done a pretty good job given the lack of resources.”

What Should the Public Do?

“Figure out how you really make this a grass-roots effort — and not just people writing, in but people doing more than that,” Copps advised. “In July, we will have a day devoted to internet action, so stay tuned on that. In addition, as Bill Moyers says, ‘If you can sing, sing. If you can write a poem, write a poem.’ Different initiatives attract different audiences, so whatever you can do, do. John Oliver made a huge difference in getting us to Net Neutrality and now he’s helping again. If you went up to the Hill right after that first John Oliver show on Net Neutrality [in 2014], you saw immediately that it made a difference with the members and the staff. There’s no one silver bullet, no “do this” and it suddenly happens. You just have to do whatever you can do to get people excited and organized. It’s as simple as that.”