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Time to Break Up the Telecom Giants

(Photo: Bandido of Oz)

At the dawn of the 20th century, the oil pipes defined America. As the 21st century emerges, the information pipes define America and the world.

A century ago, a courageous muckraker, Ida Tarbell, wrote a series of articles that lead to the breakup of Standard Oil, which had become a trust controlling the energy and associated industries to fix prices, restrict competition and harm the nation.

Today, the “communications trust” — AT&T, Verizon and the major cable companies of Comcast and Time Warner — controls the two wires and the wireless networks that link the nation's homes, businesses, schools and other institutions. The communications trust has failed America. A few examples illustrate this failure:

  • America is now 15th in the world in broadband. While Hong Kong and other countries are rolling out 1 gigabit speed services, America's average is a mere 5 mbps (i.e., 1,000 mbps = 1 gigabit).
  • Americans paid over $340 billion for broadband upgrades that never happened; by 2010, America should have been completely upgraded with fiber optic services to every home.
  • The FCC approved Comcast's acquisition of NBC-Universal, foreshadowing a likely wave of integration of transport or carriage and content.
  • Together, AT&T and Verizon control 80 percent of all wireless services and AT&T is now attempting to close down one of the only remaining competitors, T-Mobile.

AT&T has proposed a major rate increase, known as “broadband caps,” on high-volume video distribution targeting initially heavy movie users. This sets the stage for a two-tier pricing model that could effectively end net neutrality. The full effect of these and many other actions by the trust, working through “captured” FCC and state public utilities commissions (PUCs), will be the erosion of Universal Service, further harming those most vulnerable.

This is the first in a series of articles to be published on AlterNet channeling the approach pioneered by Tarbell and her compatriots. This spirit needs to infuse 21st century journalism with a sense of critical engagement. It targets the telecommunications trust and has three explicit goals:

  • Divest AT&T and Verizon of the wirelines they now control to improve service, thus bringing competition to the market and making sure that the nation's critical infrastructure is properly upgraded.
  • Divest the big telecom companies of their wireless subsidiaries to engender meaningful competition.
  • Divest cable operators of their content companies and open the networks to real competition, thus furthering democracy.

Divestiture will lead to increased competition, lower costs and better service. Two landmark precedents set the stage for the call to “break 'em up” — the 1983 breakup of AT&T and the 1948 Paramount breakup of the Hollywood studios control over theatrical movie distribution. In short, it's time to break 'em up, again.

* * *

A century ago the U.S. was wracked by a profound social crisis initiated by unprecedented industrialization. Unbridled capitalism was triumphant; ordinary citizens had no power, politicians were bought & paid for by the giant corporate trusts. Amidst this climate of oppression, a band of radical muckrakers emerged to challenge — and, ultimate, overturn — some of the tyranny of the trusts. As the 21st century takes shape, it is time for a new generation of muckrakers to challenge the trusts' conglomerate power.

Among the leading original muckrakers were Ida Tarbell and Lincoln Steffens. At the turn of the 20th century, Tarbell and Steffens published groundbreaking investigative reports in McClure's Magazine that led to two seminal books, The Rise of the Standard Oil Company and The Shame of the Cities. These works culminated in, respectively, the breakup of Standard Oil and good-government reform throughout the country. An insurgent presidential candidate, Teddy Roosevelt — who actually named them “muckrakers” — championed their critiques and helped change American politics and business.

Trusts now dominate the major sectors of the American economy, be it finance and banking, pharmaceuticals and health care, extraction and energy, agriculture and food or communications and the media.

Sadly, the breakup of most of the trusts is unlikely to happen given the power the giant conglomerates exercise over national political life. For example, we are still reeling from the nation's gravest financial crisis since the Great Depression. The banks once deemed “too big to fail” have only gotten bigger and more powerful. The well-intentioned legislative effort at financial reform, the Dodd-Frank Act, is turning out to be a fig leaf that conceals crises still to come.

However, a breakup of the telecom trust is feasible. It will return competition to American communications and media, thus lowering charges paid by citizens and businesses for overpriced yet inferior service. In addition, it will enhance the performance of the nation's telecommunications infrastructure. Most importantly, it will strength popular democracy. There is no social downside to such a breakup; the only losers will be the overpaid corporate executives and institutional shareholders.

The telecom trust is systematic ripping off the American consumer. Three examples are illustrative:

  • The telephone companies have pocketed an estimated $340 billion — or about $3,000 per household through hidden rate hikes, depreciation allowances, write-offs and other schemes; Al Gore's promise to build out a truly 21st century fiber-optics infrastructure remains unfulfilled.
  • AT&T, Verizon, T-Mobile and other giant wireless companies saved an estimated $8 billion on wireless spectrum by claiming to be “very small businesses.”
  • Comcast, Time Warner and other cable companies received about $46 billion — $600 per subscriber — by promising to upgrade to fast broadband, through what is known as a “Social Contract,” to subscribers' homes as well as public institutions like schools and libraries; this promise remains unfulfilled.

Forgotten today, the breakup of AT&T took nearly a decade to wind its way through the courts. It began in 1974 with MCI's anti-trust lawsuit. The suit was picked up by the Carter administration; it charged AT&T with violation of the Sherman Antitrust Act. The suit charged AT&T with monopolizing long-distance service and equipment manufacture largely through the exclusionary practices of its local operating companies. At that time, AT&T was America's largest corporate and, in 1956, during the Eisenhower administration, it had successfully suppressed a similar antitrust suit.

The Reagan administration was fiercely divided over the breakup of AT&T, yet pursued divesture until it was accomplished. As with most matters of state, Reagan couldn't care less; however, his public identity was ideologically committed to “competition,” thus putting him publicly on the side of the trustbusters. Nevertheless, many within his inner circle had close ties to AT&T and sought repeatedly to kill the court challenge. As Steve Coll shows in his informative book, The Deal of the Century, strong public and media pressure, a resolute anti-trust prosecutor and a committed federal judge sealed AT&T's fate.

Ironically, Reagan's antitrust push for “deregulation” was designed to “open the networks” to competition. Today, the telecom trust has turned “deregulation” on its head, embracing it to protect incumbents from competition and to keep the networks closed.

In every ad, Americans are told the nation's communication's system is the best in the world. The truth is quite different: we are getting inferior services at higher rates with less competition. Most disappointing, the U.S. Congress, the FCC and PUCs have been complicit in maintaining this fiction, thus facilitating the fleecing of the American public.

According to Open Secrets, the “telephone utilities” spent $43.2 million on lobbying in 2009. Corporate representatives and hired hacks have effectively taken over many “captured” federal and state regulatory agencies. With appropriate mea culpas to the public good, they blindly approve rate increases, massive tax breaks, accelerated depreciation allowances and mergers that further consolidate the telecommunications monolith. The FCC is effectively ending net neutrality.

Making matters worse, America is falling behind as a post-industrial nation, the result of the telecom trust's self-serving profiteering. In a June 2010 report, Europe's Organization for Economic Co-operation and Development (OECD) ranked the U.S. 15th in “broadband” subscribers. Adding injury to insult, according to Akamai, a leading technology services company, the U.S. ranked 22nd globally in average connection data rate speed, averaging only 3.8 megabytes per second in Q-4 2009. In comparison, Korea's average data rate was nearly three times faster (11.7-mbp/s), Hong Kong's more then twice as fast (8.6-mbp/s) and even Romania had an average rate of 7.2-mbp/s. U.S. service is pathetic.

* * *

The consolidating “telecommunications trust” consists of the dominant duopoly of telephone and cable companies as well as the wireline and wireless content distribution conglomerates. It is ripe for disaggregation.

America's regulatory policy, which has promoted mergers and acquisitions rather than meaningful competition, has encouraged the trust to take over communications with harmful results. Two disturbing facts illustrate the power of the trust:

  • There is no serious wireline phone competition — the cable companies only have 20 percent of the residential phone markets and much less of the business markets.
  • There is no meaningful cable competition — AT&T's U-Verse and Verizon's FiOS are only in 7 million homes out of 120 million homes; thus, over 90 percent of Americans don't have meaningful cable competition.

Making matters worse, 18 states outlaw municipal competition. The trust has had state legislatures adopt regulations prohibiting localities from upgrading their networks even though these corporations failed to do so after being paid billions.

Unfortunately waiting for the Congress, courts or regulatory agencies (e.g., FCC, FTC) to intervene on behalf of ordinary citizens being overcharged, let alone America's global competitiveness or popular democracy, is like waiting for Samuel Beckett's Godot. We'll wait till hell freezes over.

Like the good-old-days of the trusts, the Gilded Age, politicians are bought and paid for. Unless one puts a fire under their proverbial backsides, one knows that politicians — along with PR shills, newspaper publishers, think-tank hacks and media blowviators — cannot be counted on to stand up for what's right. Its time for a new generation of muckrakers to take up the challenge, incite popular rage and, hopefully, fuel political action.

In a series of upcoming articles published on AlterNet, we will critically analyze the hold that the telecom trust exercises over the nation's communications infrastructure, the economy and, thus, American democracy. It's time to recall Reagan's monumental antitrust effort at “deregulation” and, once again, “open the networks” to competition.

Like vampires of legend, today's trusts not only provide over-priced and inferior service, but are sucking dry hapless American consumer by systematically overcharging them. Worst still, their inferior service is turning the U.S. into a second-tier industrial nation. Only a stake in the heart of a vampire will kill it. The call to “break 'em up” is such a steak.

To join the fight to break up the telecom giants, check out the Web site Break Up the Communications Trusts! and 'like' them on Facebook.