Date: Thu, 25 Mar 2004 09:32:24 -0500 From: Andy Oram <[EMAIL PROTECTED]> Subject: Strangled telecom: how a "natural monopoly" stays that way To: [EMAIL PROTECTED]
http://www.oreillynet.com/pub/wlg/4616
Strangled telecom: how a "natural monopoly" stays that way
Andy Oram
URL: http://news.com.com/2100-1037_3-5178640.html
Few will make the connection. But yesterday's news about a Supreme Court ruling on municipal phone networks represents another knot in the noose tightening around the neck of new and innovative communications technologies. Twenty years from now, as we're all complaining about the lack of viable and affordable high-speed communications--just as people were complaining twenty years ago, and as we are complaining now--we'll hardly remember the quiet gurgling noise made by the promise of innovation as it got slowly strangled to death. And unless we learn the tricks of the dominant monopolies, we will pass through death after death.
The first finger on the throat: Section 251 undermined
What constitutes competition? The landmark Telecom Act of 1996 was the communications update to Nikolai Bukharin's call on Russian peasants: "Enrich yourselves." Here, the long-distance, local, and cable companies were supposed to invade each other's turf and vastly expand communications offerings for the public. But the 1996 act left scant opportunity for new, small providers. It did open a chink in the armor of monopoly through the well-known Section 251, which required incumbent phone companies to open their networks to competition in a variety of ways. But the Bell companies made sure that part of the law would subsequently be rendered toothless.
The major extraction was performed by Michael Powell's FCC on August 21, 2003, when it heeded Bell company claims that the requirement to support competition was holding back their own deployment of high-speed connections. The FCC cleverly worked around the spirit (in my opinion) of Section 251 by separating phone networks into the old and the new. On the old ones--which support ADSL at best--competition would be required as specified in the Telecom Act. On new ones--especially those built on fiber--the Bells would not have to allow competition.
Well, maybe the gutting of Section 251 was inevitable; a lot of observers figured it would be. The Bells were so effective at making life impossible for competitors that it would have taken years of sympathetic courts (which, as we will see, are not anxious to play that role) to force a competitive environment. The hundred little ways Bells undermine the law have been documented in lawsuits and FCC documents, as summarized in my article [80]Bell Telephone Companies' Applications to Enter Long-Distance Market.
Furthermore, the Bells made sure over and over, year after year, to get their well-funded congressional backers to introduce bills that would weaken Section 251. The FCC knew it was under tremendous political pressure to give the Bells some relief, and since Powell's sincere ideological bent lay in that direction anyway, Section 251 had to give.
The pressure increases: competitive charges overturned
But the FCC has been consistent about promoting competition in one manner: by setting low rates for the lease or sale of incumbent telephone companies' lines and equipment. The FCC figured that most of this stuff had been laid down ages ago and had paid for itself many times over; it was about time to share the wealth with competitors who might make better use of it. (I will look at the implications of sunk investments later in the article.) So the FCC tried to set prices based not on what it cost to install the equipment, but on how much it could earn in the future--in other words, to treat the incumbents on the same level as the competitors.
The Bells found that a pretty hard vampire to kill, but it looks like they've finally sunk the silver stake in place. The matter has gone back and forth in the courts for years, but the tide has turned against the FCC. Whatever the merits of the courts' rulings, the effect is to cut off innovation and sacrifice the public interest in favor of the Bells' monopoly status.
Sliding up the other side of the neck: municipal networks constrained
If it is effectively impossible to offer service over existing phone equipment, new equipment must be laid down. And that requires a major economic player; Mom-and-Pop ISPs are not the ones to drive this revolution. Enter, then, the municipal governments.
Cities around the country, alarmed by the loss of jobs and population and understanding that only a modern telecommunications infrastructure offers the hope of survival, have become so frustrated by the refusal of existing phone companies to build advanced networks that they've taken the law (so to speak) into their own hands. Just as cities built electrical grids and other utilities in the past, they are building their own phone and cable networks today.
Despite the incumbent phone companies whining and hand-wringing over declining profits, they turn out to have plenty of money to stop this threat too. The cities and towns are truly their most formidable competitor, and they've left no stone unturned in the fight against municipal networks. In dozens of states they've gotten laws passed that specifically target municipalities. These laws ban the creation of municipal networks outright, or place on them onerous burdens in terms of financing and regulation.
The cynicism as well as destructiveness of these laws is staggering. Towns are closing up and blowing away in some parts of the country. Young people abandon them for places with a more advanced economic infrastructure. These towns need modern networks the way they need a police force or water lines. And their [81]stories reveal that they have repeatedly tried to get help from commercial phone companies, to no avail.
So if you and your neighbors want to put together a lawn-mowing or snow-shoveling collective, or organize to volunteer in your local schools, you are free to do so. But in many states you can't string a network. The Telecom Act actually includes a clause prohibiting the states from stopping competition. But the Supreme Court, in yesterday's ruling, assumed this clause applies only to private, commercial firms. You and your neighbors--you have no right to compete.
Natural monopolies and unnatural acts
Most of the political attention in the computer industry is focused right now on the Microsoft monopoly and the punitive European Union fine. There may be little that governments can do in this regard, because it seems inevitable for functions to be aggregated and subsumed into a common base as they become widespread--as people take them for granted. There was a time when Windows had no TCP/IP network stack. Who could ask for that to be unbundled now? The question becomes whether a single company can use its strangle-hold to suppress innovation and extract an unfair amount of payment for a common technological base.
In the same way, telecom seems to settle into a "natural monopoly," to cite the notorious term introduced by AT&T president Theodore Vail in [82]1907. But as it becomes more and more widespread and taken for granted, it deserves less and less to be a cash cow for private companies. Even back in 1907, Vail recognized that regulation was necessary. At this point, municipal ownership can often be justified.
Backers of the phone company position have sneered recently that phone companies are being unfairly constrained from using their own facilities the way they wish. After all, they own the lines, the poles, and the switching equipment. Who has the right to tell them how to use it?
Well, the answer is that the companies don't own a right to these things free and clear. They've had ninety years of regulated monopoly status during which to build them up. The public granted them the right to lay lines and build networks. It was a partnership between a company and the public.
Because capitalist laws are too crude to reflect this subtle partnership, the equipment is formally the property of the phone companies. But for phone companies to abandon their responsibility to support competition would be the communications equivalent of the land enclosures and expulsions that impoverished millions of people from the seventeenth century to the current day.
References
80. http://praxagora.com/andyo/wr/bell_application.html 81. http://praxagora.com/andyo/ar/municipal_net.html 82. http://www.att.com/history/history3.html
----------------------------------------------------------------------
Andy Oram O'Reilly & Associates email: [EMAIL PROTECTED]
Editor 90 Sherman Street voice: 617-499-7479
Cambridge, MA 02140-3233 fax: 617-661-1116
USA http://www.praxagora.com/andyo/
Stories at Web site:
The Bug in the Seven Modules Code the Obscure The Disconnected
------------------------------------------------------------------------
======================= Joe Plotkin DSL/Marketing Bway.net - NYC's Best Internet ======================= Bway.net 459 Broadway, 2nd floor New York, NY 10013
vox: 212.982.9800 Boston: 617.848.0416 fax: 212.982.5499 efax: 772.365.5877 email: [EMAIL PROTECTED] DSL info: [EMAIL PROTECTED] web: http://www.bway.net ======================= Fight the Monopoly! http://www.TeleTruth.org ======================= -- NYCwireless - http://www.nycwireless.net/ Un/Subscribe: http://lists.nycwireless.net/mailman/listinfo/nycwireless/ Archives: http://lists.nycwireless.net/pipermail/nycwireless/
