11/13/2012 06:49 pm ET | Updated Jan 09, 2013

AT&T's $14 Billion Dollar 'Bribe' to Get Rid of Telecom Regulations Is a Multi-Layered Hoax

Kushnick's Law states: "A regulated company will always renege on promises to provide public benefits tomorrow in exchange for regulatory and financial benefits today."

On November 7th, 2012, AT&T's press release announced that it would "invest $14 billion to significantly expand wireless and wireline broadband networks, support future IP data growth and new services."

It is a collection of great sound-bytes designed to be picked up by pundits, media companies and used by politicians who believe in blue skies, sunny days and the tooth fairy. Or worse, they are gullible or part of the AT&T cabal, either through campaign financing, advertising sales or direct deposits.

On the same day, November 7th, 2012, AT&T filed a petition with the FCC as part of their plan to close down the entire telecommunications networks -- the Public Switched Telephone Networks (PSTN) -- the utilities. This is essentially the federal version of the state-based war AT&T, Verizon and Centurylink have waged with the help of ALEC (American Legislative Exchange Council) and others to close down the PSTN -- the word "Public" being ignored.

As we wrote previously, AT&T also filed a letter with the FCC outlining their plans on August 30th, 2012. Basically, the phone networks are classified as "telecommunications" services and have obligations like "carrier of last resort" -- meaning that the incumbent utility phone company must provide service to all of their customers. AT&T wants to have those laws erased and replaced with Internet regulation, making everything an "information service," which does not have the same obligations. The state-based bills have gone through in 23 states because AT&T-ALEC et al. can outspend everyone, and they have designed a verbal jujitsu, fooling customers by using terms like "Internet freedom," when it's really about freedom for AT&T and the other companies.

Whether you call it extortion or a bribe or a bait-and-switch -- this sudden interest in wired services is being used to force the regulator's hands, on both the state and federal level: Give us what we want or we won't bother to do anything. AT&T is holding 22 states' economic future hostage.

However, this is just another telco flim-flam. Based on history, AT&T is lying about the amount of money they will spend or the deployments they will accomplish. These are not actual 'commitments,' though it wouldn't matter, as it is clear that AT&T can wiggle out of anything. Moreover, the last two FCC administrations have bent over backwards to help the phone and cable companies in multiple ways.

This is not about technology; it is about keeping the monopoly over the wire so that other competitors can't use it to, for example, offer competitive Internet service using the customer-funded wires.

In fact, AT&T (and the other phone companies') modus operandi has always been to promise regulators wondrous deployments of broadband to change the laws in their favor, giving AT&T multiple rate increases and other deregulatory perks. These bribes were also used to allow them to merge and to create what is now AT&T, the sum of multiple incumbent phone companies covering 22 states. Unfortunately, once the ink is dry, while AT&T got the benefits they never fulfilled their obligations. Verizon and Centurylink, the other two incumbent telcos, of course, do the same thing.

Let's be very specific and focus on some of AT&T's previous "commitments" and how they used these statements about potential "broadband" deployment as a bribe to change regulations. Click here for a detailed report.

1) Promise Them Anything.

In every merger that made AT&T larger and in every state-based deregulation of the 1990s that was supposed to replace the state-based utilities' old copper wiring with fiber optics, the company (and its previous incarnations) just made stuff up.

My personal favorite was when Pacific Bell, California in 1993 announced that they would spend $16 billion to upgrade the state to fiber optics by 2000.

Pacific Telesis 1993 Annual Report:

In November 1993, Pacific Bell announced a capital investment plan totaling $16 billion over the next seven years to upgrade core network infrastructure and to begin building California's "Communications superhighway". This will be an integrated telecommunications, information and entertainment network providing advanced voice, data and video services. Using a combination of fiber optics and coaxial cable, Pacific Bell expects to provide broadband services to more than 1.5 million homes by the end of 1996, 5 million homes by the end of the decade.

They even had a deployment schedule, where Silicon Valley, Los Angeles and San Francisco and most other large cities were to have a fiber optic future -- by the year 2000.

When SBC (originally Southwestern Bell, which controlled Texas, and Arkansas, among other states) merged with Pacific Telesis (California and Nevada) in 1997, they simply closed down anything that was going to be built out in California. They spent, counting tax benefits, a few hundred million dollars -- not $16 billion. The state was never upgraded to fiber and today, U-Verse, AT&T's TV service, goes partly over the old, pre-existing copper wiring.

Meanwhile, California's state laws were changed to give the company billions of dollars for these upgrades. More recently, an ALEC-based bill was also allowed to go through, using the wonders of "Internet freedom." Yet, the state never asked the basic question -- why is the state still based on copper wiring when it was supposed to be fiberized almost two decades ago?

This pattern repeats itself like a bad virus, over and over again.

For example, SNET (Connecticut) in their 1993 Annual Report stated:

On January 13, 1994, the Telephone Company announced its intention to invest $4.5 billion over the next 15 years to build a statewide information superhighway ("I-SNET"). I-SNET will be an interactive multimedia network capable of delivering voice, video and a full range of information and interactive services.

State laws were changed, customers paid billions. SBC purchased SNET in 1998 and it closed down whatever was being built with fiber optics.

SBC next merged with Ameritech (which controlled five Midwestern states including Ohio and Illinois). Ameritech had gone state to state, claiming that they would spend about $7 billion for fiber optic broadband upgrades and got the laws changed in each state. During the merger, SBC announced that it would spend an additional $6 billion on fiber optics as well as compete in 30 cities outside their region -- never happened.

SBC, to make sure that the AT&T merger went through (then took the AT&T name), announced "Lightspeed" and U-Verse, and even claimed that it was based on fiber optic technologies"

[SBC] detailed plans for Project Lightspeed, a $4 billion capital initiative to deploy fiber-to-the-neighborhood and fiber-to-the-premises technologies to 18 million households across 13 states within three years. Through Project Lightspeed, SBC companies plan to deliver IP-based video, voice, and high-speed Internet access services, providing a communications and entertainment experience not previously realized in the mass market. The company plans to offer the first set of products under the U-verse brand in late 2005 or early 2006.

And even the SBC press release focused on a "light touch regulatory approach."

Thus, every state, and the FCC bought the hype that the companies would be spending billions to upgrade the utility plant. Instead, in 2012, U-Verse is still based on the copper wiring -- and 22 states lost hundreds of billions in economic growth from a lack of fast broadband, customers paid extra for a lack of cable competition, and were charged thousands of dollars each for the privilege.

And let us be clear -- this was a massive scam by AT&T as well as Verizon. About $360 billion dollars has been overcharged in the U.S. for fiber optic service upgrades of the Public Telephone Networks. And by 2010 almost every state was to be upgraded. As we wrote, there's even an active show cause order in the state of New Jersey asking Verizon why that state was never completed by 2010 with 100 percent of the state getting fiber optic services capable of 45 Mbps in both directions.

Why was AT&T allowed to pull a massive bait-and-switch and use the old copper wiring? SNET- Connecticut was to supposed to be completed by in 2007, and the entire Ameritech region was to be done by 2010 -- Ohio, Indiana, Michigan, Illinois and Wisconsin. Never happened.

Hundreds of billion of dollars overcharged -- but where are the audits?

2) $14 Billion Dollars Being Spent? Liar, Liar, Pants on Fire.

In every case of these "massive expenditures," the monies to be spent was simply a restatement of already allocated monies that were going to be used for construction -- with a slight bump.

This practice is standard operating procedure it would seem. In our previous article about Verizon's FiOS TV service, we showed that while Verizon claimed it was spending $23 billion dollars, in fact, the monies were simply coming out of the regular construction budgets -- just shifted.

AT&T's new release states: "Investment expected to be approximately $14 billion over three years -- $8 billion for wireless initiatives, $6 billion for wireline initiatives; Total capital spending expected to be approximately $22 billion for each of next three years."

To parse this: The company claims it will be spending a total of $22 billion a year on construction, and while it sounds like they are going to be spending $14 billion dollars extra -- like Verizon, AT&T is just playing with the numbers.

3) Deceptive Mathematics: By the Numbers.

In 2010 and 2011, AT&T averaged $20.3 billion on construction on total revenues averaging $126 billion dollars. If they actually spent $14 billion, the expenditures would jump an additional $4.67 billion annually -- i.e., $14 billion divided by three years.

If AT&T spent $20.3 billion annually and is now telling us they are going to spend a total of $22 billion, then they are only spending -- at best, an increase of about $1.7 billion a year.

The total, then, should be $25 billion annually or $75 billion total for three years; it's short $9 billion dollars.

In other words, the $14 billion is really only $5 billion extra over three years -- only an 8 percent increase over what they were spending.

4) Where are the Fiber Optic Networks? U-Verse is Copper-based.

AT&T Release: "AT&T plans to expand and enhance its wireline IP network to 57 million customer locations (consumer and small business) or 75 percent of all customer locations in its wireline service area by year-end 2015."

What? AT&T only has 4.3 million total U-Verse-TV locations according to AT&T's own 3rd quarter report for 2012. With currently 76 million locations then only 6 percent of their 'locations' (locations include small businesses) have U-Verse TV. This means that over 90 percent are still using the old copper without the TV service.

And yet, AT&T claims that it is expanding to 75 percent of their customers -- 57 million -- more than 10 times the number of actual customers.

This sleight of hand is created because if the company puts a large box in the middle of a neighborhood, then they claim everything is now a "wired Internet (IP) broadband" network... regardless of the fact that customers are still using regular phone service.

Screw the Rural Customers.
The quote also mentions that the company is only doing 75 percent at best. The rest of these customers -- rural customers -- will be abandoned, and like Verizon, will give them a choice of expensive wireless or go to the cable company.

Speed: The release continues, "The Project VIP plan includes an upgrade for U-verse to speeds of up to 75Mbps..."

Today, the top speed for U-Verse is only 24 Mbps, and so promising to deploy speeds that are triple what they currently offer is well, a leap of faith at best.

And even though U-Verse is based on the old copper wiring, AT&T's web site states that U-Verse is fiber optic technology (though written by lawyers so that it can confuse but still be legal): "AT&T U-verse® includes fiber optic technology and computer."

5) Accountability? Zero!

As this current hype is being done to help close down all regulations, history dictates that the company will do the same thing -- say whatever it wants without any accountability.

Before any regulation is changed, the government should:

  • a) Start investigations into customer overcharging for broadband and the harms to 22 states' economies.
  • b) Start investigations into AT&T's failure to properly upgrade the Public Switched Telephone Networks to fiber optic services.
  • c) Start a proceeding to separate AT&T from the wires, and return to a utility. AT&T, the caretaker of 22 states' networks, failed to upgrade the networks. Why are we considering giving them more perks and benefits? The utility guarantees everyone gets served. AT&T believes that they should control it and they have done a lot more harm than good. New solutions are necessary, not rewarding those that harmed customers and communities.
AT&T should be required to:
  • d) Spend $14 billion dollars ABOVE what is already projected to be spent.
  • e) Guarantee that customers will get 75 Mbps speeds -- in both directions.
On the new proposal:
  • f) Make AT&T prove that they are going to actually deploy and have them prove it over at least two years before the laws are changed. AT&T can do increases to U-Verse speeds right now, as well as start deployments, without new regulations.
  • g) Get it in writing...
  • h) Put in enormous penalties and they pay billions of dollar they could really pay for broadband.