Making Book on the Bells’ Promises

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In a bid to influence the Telecom Act rewrites underway in Congress, author Bruce Kushnick made his latest “e-book” available to be downloaded for free the week of June 20.

The electronic tome in question, called The $200 Billion Scandal, is a 406-page polemic about how the biggest U.S. regional telephone providers have extracted billions of dollars in rate increases while failing to build out the advanced broadband networks promised to Congress and to state regulators who passed the Telecom Act of 1996 and approved higher local rates.

The result? About 45,000 downloads. Kushnick, a Brooklyn, N.Y.-based telecom analyst, was expecting more like 10,000.

And in Congress? The hot topic in the telecom debate was network neutrality. Not whether the former Baby Bells should be told to go ahead and build out ubiquitous broadband networks they’ve already promised using money they’ve already pocketed and not be given any additional incentives.

The impasse over net neutrality — or whether to legally ensure Internet “toll lanes” won’t be built by the big telephone and cable firms — does have the potential to sideline telecom law changes in the current Congress, though.

Kushnick is OK with that outcome. “I think the rewrite of the Telecom Act is an incredibly bad idea, especially the things that are being discussed,” he said after the e-book freebie expired on newnetworks.com.

He’s pro-net neutrality, but thinks statements like those of AT&T Inc. chief Ed Whitacre, who says that services like Google or Vonage should have to pay to get through his pipes to reach their customers, are more a symbol of the bigger problem.

“We, the people, paid for these networks, not the phone companies, and we, not the phone companies, should decide on the policies of these utilities. The pendulum has swung too far, and now it needs to swing back,” he writes in his book’s intro.

I first encountered Kushnick in 1992, when he held a press conference in Washington, D.C., calling for the Baby Bells to be broken up. His analysis: local phone charges had risen sharply since 1980 and profit margins were higher than generally allowed by state regulators. If each local phone company operated independently, they could be more closely scrutinized by state regulators, he argued.

Since then, he’s tracked all the Bells’ previous false starts into the multichannel video business — including the millions spent on the Tele-TV and Americast debacles in the mid-1990s — and all the state laws that were passed giving the Bells authority to charge more for phone service as an incentive to build out high-capacity phone networks throughout their territories.

He sees news stories about SBC Communications (now AT&T) promising to build out more fiber networks and deliver Internet Protocol services “substantially beyond” what phone, cable and satellite providers can do today and has déjà vu. He remembers Tele-Communications Inc.’s John Malone and then-Bell Atlantic chief Ray Smith promising to reshape the TV world in 1993. He remembers the phone companies in 1986 touting the Integrated Services Digital Network platform — and hearing from a Bell executive that two-channel ISDN would never be rolled out because, with it, consumers wouldn’t need to order (and pay for) a second phone line.

Kushnick wants to see U.S. consumers get the fiber-optic based broadband services he figures the Bell companies collectively promised to deliver to 86 million homes by now, at 45 Megabits per second of two-way traffic, in exchange for states approving or sustaining high service charges.

The local-phone competition that was supposed to bloom after the 1996 act was undercut when the incumbents got the Federal Communications Commission to change the wholesale pricing rules, making it harder for phone-line resellers (like then AT&T) to make a profit.

“The Telecom Act should have worked if it had enforcement,” Kushnick said. “But there was competition showing up and the Bell companies would never stand for that.”

“Will Lightspeed ever show up?” he asked rhetorically, referring to AT&T/SBC’s promised IP-based video network? “I think it’s pretty doubtful because Lightspeed has already done its job.”

Promising to offer video services in competition with cable companies helped let the Bells into the long-distance business. The Bells still have jobs to get done, though, such as changes in federal and state law to let them compete in video on their own terms, without enforceable buildout requirements. Other analysts figure Verizon is dead serious this time about fiber-based broadband and video services to the home, given cable’s competition for phone service. Kushnick said: “Yes, it may be rolled out in rich neighborhoods. Do the rich really need competition?”

If some folks in Congress were among the 45,000 who downloaded Kushnick’s book, they’ll probably have a better sense of how to respond to the latest promises from the Bells.

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