Net Loss: Internet Profits, Private Profits and the Costs to Community
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by Nathan Newman
June 15, 2001
They're battling over telecom legislation on Capitol Hill again. Long distance companies and Internet service providers are fighting with local Bell companies. Words like LATA and RBOC are being thrown around. Your eyes glaze over and you just hope it doesn't hurt too much once the corporate lobbyists finish their intramural battle, even as consumers and workers seem to barely have a seat at the table.
But wait a second. For once, there seems to be a progressive alternative vision for including everyone in the high speed Internet world we keep being promised.
The immediate political debate is over a bill, H.R. 1542, introduced late in April by House Energy and Commerce Committee Chair Billy Tauzin to encourage the local phone companies to build the wiring to deliver high-speed access over customer phone lines.
Only about 5 million Americans have so-called "broadband" access to the Internet, some through local phone companies, others through their cable television companies. So far, most of that access is available only to selected urban business districts and some suburban communities.
Since the 1996 Telecommunication Act, the local Bell companies have had to give competitors access to their local phone networks, so-called "interconnection" rules, as a requirement for themselves entering the long distance phone market. While hardly a perfect bill, since there have been endless disputes in the courts about what price should be charged to competitors for access, the basic idea was to prevent the Bells from using their existing investments in local phone loops to leverage control of long distance.
The problem is that broadband wiring does not exist in many areas yet, so the Bells have complained that the rules make any new investments unprofitable. Without changing the rules on voice service competition, the Tauzin bill would allow the local Bell companies to make those data line investments without letting competitors access those new services.
Some consumer groups like Consumers Union and the Consumer Federation of America, repeating the mantra of "competition," have condemned the Tauzin bill, but the Baby Bells do have a good case. If every time they pay to build new infrastructure, competitors can automatically lease use of them at some regulated "average cost" price, the result is predictable. The competitors will cherry-pick the most profitable customers with special deals and the local phone companies will get stuck with the rest. Looking at that reality, the Bells won't deploy high-speed data lines, especially in poorer or rural areas, where they need to keep the profitable customers to balance out poorer, less profitable ones.
The Tauzin bill was introduced to create the economic incentives to deploy high-speed Internet access in poorer and rural areas. The hitch was that while it encouraged this, it didn't mandate that the Bells make broadband access a reality for everyone.
Enter Congressman Bobby Rush of Chicago and Tom Sawyer of Ohio.
Pulling together a coalition of inner-city and rural constituencies, they pushed through in committee an amendment to the bill that mandates that the Bells achieve 100% rollout of broadband connections, called digital subscriber lines (DSL), to all of their central offices within five years.
If that sounds familiar in a nostalgic way, it's what we once called a universal service rule. When this country decided to make basic phone service available in every community across this country, we didn't create a maze of regulatory rules. We just told the old Bell System to wire a phone to every home in the country. Period. The politicians made sure Ma Bell made a profit, but they also made sure that not only did every home get a phone but that the rates were affordable for rural and poor citizens.
The Rush-Sawyer amendment doesn't address the cost issue, but it is a step forward from the failed policy of passing endless regulations to create fake competition that never delivers the promised goods. A decade ago we were told about an impending "Information Superhighway" that would be built to every home. So far, most of us still at best have only the dirt road of slow modem access.
With the Rush-Sawyer universal access mandate, the Tauzin Bill is the best bet we have for delivering the benefits of the cyberage to all our citizens, not just to those who the telecom companies think will be corporate profit centers.
The Tauzin bill needs to be followed by consumer rate regulation to assure reasonable prices for consumers, but for those who might complain about more government regulation, don't kid yourself. Wade through the endless regulatory and court room decisions on how to charge interconnection fees and it's obvious we are already hip-deep in regulations -- just none that directly benefit consumers.
Now, this is all admittedly a confusing debate, since the corporate players get to define most of the political choices. Some good progressive congresspersons and activists are advocating the opposite position from the one in this column, including (full disclosure) my old boss at NetAction, who has been a big campaigner against the Tauzin bill. Given some bad political options in the past, a lot of consumer groups gave up on universal service mandates years ago and put what I think are false hopes in the rhetoric of competition. But the passage of the Rush-Sawyer amendment in committee should encourage more progressives to return to demanding universal access as a right, not a faint hope.
And if you need a tie-breaker in deciding on which side progressives should be mobilizing, it's worth considering that where the local Bell companies are all heavily union companies paying good wages, the companies fighting the Tauzin bill are mostly non-union with poorer wages and benefits. Actually, the comparison is even starker. In comparison to the Tauzin bill opponents who include some of the worst corporate union-busters, some of the Bell companies -- most notably SBC -- have signed unusually progressive agreements to allow their currently non-union divisions, including any Internet divisions, to automatically unionize upon a majority request of workers without any of the harassment that most union drives face in the corporate world.
When you get down to it, so-called "interconnection" rules boil down to a government regulation that high-wage union jobs be handed over to non-union competitors -- who can then make their money not by being more efficient or delivering better services to consumers but just by paying their workers less. It's just not a policy progressives should be supporting.
Now, the Bells don't necessarily like the Rush-Sawyer approach of mandating access for everyone, calling the measure "very onerous", but it's a far better approach to disciplining the Bells than the false promise of mandated interconnections by competitors that has helped neither consumers nor workers in the industry.
Passage of the Tauzin bill and the Rush-Sawyer universal service mandate is unlikely soon, with competing bills being pushed in the House and in the Senate. But progressives should begin building a new coalition of workers, consumers and technology activists to support the amended Tauzin bill as the best hope for delivering real broadband access to all our citizens.
Nathan Newman of New Haven, Conn., is a former project director at NetAction and author of the forthcoming book Net Loss on Internet policy, regional development and economic inequality. Email firstname.lastname@example.org.