THE BLOG
07/23/2010 05:53 pm ET | Updated May 25, 2011

Congressional Shark Jumpers Help Big Telecom Empires

No matter how many times Julius Genachowski, the chairman of the Federal Communications Commission (FCC), says he has no intention of "regulating the Internet," there will always be politicians using the talking points of the big telecommunications empires to attack him for wanting to "regulate the Internet."

Even though the FCC reported that millions of people are left without broadband, the politicians keep mouthing the same old scare lines.

No matter how many thousands of jobs the telecom industry cuts, industry front organizations are ready to spend millions of dollars to further the mistaken notion that jobs will be lost if the FCC institutes some modest rules of the road to protect the open Internet and further innovation.

The latest congressional group to jump the telecom shark is a batch of Senate Republicans led by James DeMint (SC), who introduced a bill (S. 3624) that would basically gut the Communications Act. He and his cosponsors, Orrin Hatch (UT), John Ensign (NV), John Thune (SD), Tom Coburn (OK), John Cornyn (TX), and Jeff Sessions (AL), all gave variations on the theme of an FCC "rush to take over the Internet" (DeMint), or to complain about the government wanting to "extend its burdensome reach over the Internet" (Ensign).

The objections are, to a degree, bipartisan. Sen. Bob Casey (D-PA) also told the FCC he thought the modest rules would hurt investment. Casey, who also backs home-state Comcast's purchase of NBC, interestingly said he would prefer an inside deal with "stakeholders."

The DeMint bill is actually a lot more than the way it sponsors describe it, and is quite a bit more than a simple bill to ban Net Neutrality. It also evades the difficult question of exactly how would constituents in rural areas, such as those represented by DeMint and his colleagues and by Casey, could be ensured of a place in the modern economy if the FCC can't make certain everyone is connected to the Internet. The Communications Act, which governs telecommunications, gives the FCC the authority to act in the public interest, this bill is actively anti-consumer and anti-competitive. It posits that "unnecessary regulation regarding protection of consumers and enhancement of consumer welfare deters" investment in new facilities and development of new services."

The bill doesn't even allows big telephone and cable companies to refuse to connect with networks they don't like (say, like municipal networks), if requiring that interconnection "would adversely affect investment in facilities and innovation in services." So all an AT&T or Comcast would have to do to prevent itself from doing something it doesn't want to do is tell the FCC that it won't invest or put in a new service if it has to hook up to another network. It's difficult to explain how that will improve services. Chances are, the bill's authors didn't have in mind innovation and services from other providers that would be prevented. The system doesn't work that way.

In putting the FCC's decisions solely within the frame of "market power," the bill ignores the reality that there is very little competition in telecom now and forgets about obligations to bring new services to others. Unusual for Republicans, who usually rail about duplication of effort in government, it requires duplication of work being done already by the Justice Department and the Federal Trade Commission.

The main thrust of this bill, as of other criticisms of the FCC proposals from front groups as well as from legislators against some light consumer protection and related rules of the road is that any Commission action would hamper job growth and investment, two allegations that again ignore pesky reality. Let's talk jobs. Between March 31, 2009 and June 30 this year, Verizon cut 26,455 jobs. During the same period of time, AT&T cut 22,350 jobs. That's 48,805 jobs cut by two companies during a period in which the regulatory regime did not change.

Let's talk investment. In 2008, AT&T spent $19.6 billion for capital expenditures in networks and other spending (capex in the parlance). In 2009, it was $16.6 billion - a 15.7% decline during a period in which the regulatory regime did not change. Verizon spent $17.2 billion for capex in 2008. In 2009, it was $17 billion - another decline during a period in which the regulatory regime did not change.

Add Comcast to the mix. In 2008, it spent $5.7 billion on capex. In 2009, it was $5.1 billion - a 11% decline during a period in which the regulatory regime did not change. At the same time, just to cite one statistic, Comcast's average revenue per customer jumped from $111 per month to a little over $118 per month. AT&T just boasted of its first billion-dollar quarter in revenue for its cable-TV service, U-verse. According to the company, "The average revenue per user (ARPU) for U-verse triple-play customers was nearly $160 a month, up 13.8 percent year over year and 6.8 percent from the first quarter of 2010." Verizon also reported that it is doing well.

Meanwhile, we have yet another indicator of how far the U.S. is slipping down the broadband ladder contrasted with the rest of the world. The latest measurement, a "Broadband Composite Index", made up of five categories, including household penetration, speed, affordability, value for money, and urbanicity, rank the U.S. 23d out of 57 ranked countries. One of the keys to our decline, according to Ben Piper, Director of the Strategy Analytics Multiplay Market Dynamics service: "With essentially zero intra-platform competition, US service providers have little incentive to innovate offerings or differentiate beyond par."

The FCC has promised a look at international broadband statistics will be published soon, although it will find in its records a wonderful analysis from Harvard's Berkman Center that the Commission ignored during the formation of the National Broadband Plan.

For an indication of what competition might look like, here's one example from the U.K. This site lists all sorts of Internet Service Providers, their prices and features. Their competition thrives on the type of regulatory structure we abandoned, to be replaced with one that could allow the big Internet Service Providers like AT&T, Verizon and Comcast, to make even more money from consumers by siphoning off bandwidth from the Internet for their own "managed" services and charging extra fees to applications companies for "quality of service." Meanwhile, they keep competition out because the companies don't have to allow others to buy access to their networks, as they do in the U.K. and other nations.

The big Internet companies have the best of all the worlds. They don't need any more help from their friendly legislators. It's the constituents of those legislators who need help to make sure the FCC has the authority to help bring broadband to rural areas, to act as a cop on the beat in case of corporate abuse and to make sure the Internet stays open for all of us to use. Let the FCC do its job and enact the modest changes they proposed to fix the Bush-era mistakes that did away with any consumer protection and oversight. It's the least the shark jumpers could do.