Every once in a while, some powerful special interest will lift the curtain on how things work in Washington. It's not necessarily the press releases or the big stories. More often, it's on some technical issue, and the coverage centers on the issue, rather than on the larger concept of what's really going on.
For our lesson today, we turn to one of the world's largest communications companies, Verizon. The company is very good about what it does in Washington. It has a large and capable lobbying staff. It's always hiring new people from the staffs of politicians from both parties who work on their issues to bolster its lobbying corps. Most recent hires have been Democratic staffers. Go figure.
For the record, lots of companies do this, in the telecom biz and elsewhere. It just so happens Verizon did it twice in a week, and so makes a good case study.
It tries to appear reasonable to politicians and policymakers in the hope of staving off some new law or regulation, even though the basic problem about which the policymakers are concerned won't go away. Even if they don't win, the company can always say, "Hey, look, we tried to be responsive." And that way they try to earn Brownie points when it comes to the really hard issues in which they will give no ground and fight to the death.
In the last week, we've seen Verizon try to pull off this little trick twice, and it's worth dissecting exactly how they did it. Were they successful? There's no way to tell. They certainly didn't lose anything by trying. If they can work the referees sufficiently, then they win.
Sometimes, the reporters get wise to what's going on, as in this story about Verizon's activities. This Dow Jones story is one of the few that takes the broader view, rather than simply report the action.
With that background, let's raise the curtain on Verizon's last couple of weeks.
When Verizon Wireless decided it would be amenable to changing the ground rules by which it lets other cellphone companies serve their customers who travel through Verizon (called "roaming"), notice how it made the announcement.
And when Verizon decided to loosen its grip ever so slightly on the exclusive deals it has with cellular phone manufacturers, notice how that announcement was made.
Both were done in letters to Capitol Hill, to influential members of Congress. The first was done on Friday, July 17. It purported to set out a new policy for "allowing" really small cellular carriers to have access to some fancy mobile phones to sell to their customers six months after those phones are introduced by Verizon. In this case, the letter went to Rep. Rick Boucher (D-VA), chairman of the House Communications Subcommittee, House Commerce Committee Chairman Henry Waxman (D-CA), as well as senior subcommittee Republican Cliff Stearns (FL) and senior committee Republican Joe Barton (TX).
The second came late in the day on July 22. That one was yet another offer, responding to concerns from Congress that maybe the big players in the cellular industry should ease up. This letter went to Waxman.
When a major company makes such an announcement in letters to Congress, be aware. Be very aware. Those letters are intended as much for show as they are for anything substantive. They are part of a little game of "Let's Make A Deal," in which Congress and [insert special interest here] are the contestants and judges. The public's involvement, or even welfare, can be minimal.
In the first example, Verizon is to allow small cell phone companies to have access to "exclusive" Verizon handsets after six months. It wasn't the equipment makers telling customers of those cell phone companies that they only will have a six-month wait for newer phones with the same technology Verizon uses. At the time the letter was sent, Verizon hasn't even communicated directly with small, rural cellular companies which would supposedly be the beneficiaries.
In fact, the smaller companies involved were not at all impressed. By some estimates, only between one million and five million customers would be affected. That's out of a total customer base of 270 million cellphone customers in the U.S. Verizon has about 86.6 million. Sprint, which uses the same CDMA technology as Verizon, have another 49 million.
What was most worrisome about the announcement was Boucher's reaction. Boucher, who met with Verizon Wireless President Lowell McAdam before the handset announcement, said Verizon's offer was "an important and forward-looking step." Perhaps Boucher was being polite. If so, he was being far too polite.
Unfortunately, the strategy of offering deals through Capitol Hill continues. Just days after trying to get in Congress' good graces on the handset issue which had been bothering Congress, Verizon was back again, on July 22, to address the roaming issue. Roaming is the way that cellphone customers can have service in areas that their own carriers don't serve. The carriers have agreements with the companies that do serve a particular area.
Complicated rules govern roaming within a region covered by carriers, particularly the larger ones with huge regions, and roaming out of region. Small carriers like Cricket have complained vociferously that current rules allow the larger companies to refuse roaming "in-market" roaming agreements with smaller ones if the smaller company has its own spectrum but hasn't built out its network.So Verizon came to the rescue again, sort of. In its July 22 letter to Waxman, Verizon offered voluntarily to life its ban on in-region roaming for two years, but attached some complicated pricing conditions to it. Cricket was not impressed, saying:
"Reciprocal roaming has been the bedrock of the wireless industry since its inception, yet Verizon has decided that it is somehow in the public interest to dictate where consumers can and cannot roam and for how long they can do so. Verizon itself has relied on roaming agreements for over two decades as it built out its network and acquired competitors, but now has unilaterally decided that its remaining competitors are only entitled to roaming for two or three years."
In addition to the time limit Verizon proposed, the pricing rules would allow it to charge other cell companies more for in-market roaming than for other roaming connections.
These proposals from Verizon take place in an ever-increasing concentrated cellular market, including some terrific self-dealing between Verizon and AT&T. When Verizon was required to sell off some of its service area after paying $28 billion for Alltel, guess which company stepped up to buy them? AT&T. And when AT&T had to sell off some properties from its purchase of Centennial Wireless, guess which company stepped up to buy them? Verizon. How convenient.
Did Verizon score with these proposals? They appeared to with Boucher, who controls the critical House subcommittee which would handle Net Neutrality legislation (if it ever came up) and other items on Verizon's agenda to kill.
The offers, though, shouldn't win any points for Verizon. In fact, the whole process should be called a foul, should have a flag thrown on it or a strike called. (Not to mix sports metaphors more than necessary, of course.)
When one company comes to Congress with a plan that can be changed at a whim, that asserts control over others and that purports to correct a problem about which regulators and legislators are rightly concerned, public officials shouldn't praise it. Instead, they should look askance at such audacity of such proposals that usurp the authority that Congress and, in this case, the Federal Communications Commission, should exercise to write rules or laws governing a national service for the benefit of everyone, not the few chosen by one large company acting to fob off its regulators.
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