FCC Chairman Pai Gets an “F” for Fake History of Broadband: Ever Hear of TeleKansas?

04/20/2017 05:17 am ET

Did you ever hear of TeleKansas I and II, the plan to wire Kansas high schools, colleges, universities and hospitals with fiber optics, starting in 1994? This was on top of the hype by now-AT&T to bring fiber optic wires to homes and businesses, especially in rural areas, replacing the aging copper wires. And did you know customers were charged in multiple ways for these upgrades via state laws that were changed multiple times as part of TeleKansas? And maybe you haven’t heard that FCC Chairman Ajit Pai comes from rural Kansas and never mentioned any of this, as far as we can tell, ever.

On April 20th, 2017, the FCC, led by Chairman Pai, is planning on doing a hatchet job that guts consumer protections, blocks competition, and allows for monopoly rate increases of business data services, among other ill conceived acts.

Point of fact, what follows details how Fake History is being used to create harmful public policies. History is supposedly written by the winners; this means we lost unless we take actions to stop it.

TeleKansas vs Fake History

This is an excerpt from a report written for Southwestern Bell, Kansas (now AT&T) in 1994 to highlight the upcoming deployment of fiber optics. Known as “TeleKansas”, laws were changed to give AT&T more money to pay for this new wondrous future. And the report clearly laid out the new ways this upgrade of the state utility would be used for medicine, education, and consumer services— especially in rural areas.

And, yet, ironically, in an April 16th, 2017 CNBC interview with FCC Chairman Pai titled “New FCC Chairman Ajit Pai has policy views that trace back to Kansas”, Pai details expanding broadband to rural areas – for medical applications.

“The first policy priority he listed on his FCC bio is the expansion of broadband, including to rural areas. That might even help doctors to see more patients digitally when they don't specifically need a house call.”

It is 23 years later and rural America is still in the Digital Stone Age and Chairman Pai is clueless about the history of broadband in Kansas, his home state. And his current plans are based on a fake history of broadband and his failure to understand the basics.

Worse, the FCC Chairman, not to mention previous FCC administrations, have ignored a primary fact about broadband: You paid for a fiber optic service – over and over and over, costing you thousands of dollars and it continues today.

And almost every state had similar fiber optic plans to what was presented in Kansas, two decades ago, and none of them were ever fulfilled.

Note: The Book of Broken Promises supplies full documentation about the factual history of broadband and how America’s fiber optic broadband future never showed up.

America is not a fiber optic nation because no one held them accountable and the companies were able to create a fake history to erase the facts.

If you think fake news is a problem, fake history is way more insidious. It is the collection of fake news stories combined and immortalized until it becomes the ‘news’ as reporters mostly parrot press releases, among other issues.

And unfortunately, the story of Kansas is not unique and the FCC plans to screw America again will be based on this faux-fact accounting of Chairman Pai.

The Fake History of Broadband in America as Told by Chairman Ajit Pai vs the Facts

I’ll be specific and focus on TeleKansas and the current FCC Chairman’s statements on broadband, where ignorance is tied to a focus of helping the phone companies (not to mention his former employer, Verizon) who control the wires of the state utilities.

Pai spoke at a Wireless ISP conference (WISPA) in 2014: "As some of you may know, I grew up just outside a small town called Parsons in Southeast Kansas. It’s located about three hours south of Kansas City—not exactly on the beaten path. When I went off to college and law school in the 1990s, I encountered broadband for the first time. But dial-up was still the only option for Internet access back home. Fortunately, in 2000, some entrepreneurs saw the need for better, faster Internet access."

Elsewhere, in a speech at the Mobile World Congress conference, in February, 2017, he explains that America did not use “1930’s” regulations in the 1990’s but instead “we let market forces guide these decisions”.

“First, during the Clinton Administration in the 1990s, American policymakers forged a historic consensus across party lines that the Internet should be free from heavy-handed regulation. Instead of government telling broadband operators where to invest, how much to invest, or how to run their networks, we let market forces guide these decisions. Regulators made a conscious choice not to apply to the Internet the outdated rules crafted in the 1930s for a telephone monopoly. After all, complex rules designed to regulate a monopoly will inevitably push the market toward a monopoly. Instead, our policy was a modern one that gave the private sector the flexibility it needed to innovate.”

And he continues by completely flipping the facts that ‘network sharing’ obligations—i.e., allowing competitors to use the state utility networks, depressed investment and network construction.

“Second, we encouraged facilities-based competition. In the early 2000s, the U.S. rejected the notion that the broadband market was a natural monopoly. We encouraged broadband providers to build their own networks rather than using their competitors’ infrastructure. We eliminated network-sharing obligations, which depressed investment and deterred network construction.”

Some of you may also be in a fake history haze, so let me explain.

Let’s Return to Kansas, Circa 1994.

This excerpt is from an article in the Kansas Hutchinson News from 1994. It discusses “TeleKansas II”, a five year plan that went until the year 2000. According to the pitch, all Kansas high schools, colleges, universities and hospitals were supposed to be upgraded to fiber.

But there was a catch; the commitment to upgrade to fiber went along with “profit deregulation”, meaning that while the company may freeze ‘basic service’, every other service could go to market prices and have obscene profits. An example: In 1999, Call Waiting cost $4-6 dollars per month; it cost less than a penny to offer, while “touchtone” (yes, they charged for touchtone as a ‘competitive’, optional service) could be $.50-3.00 a month, though it cost literally nothing by the 1990’s.

Around the same time, Southwestern Bell (which changed its name to SBC and eventually to AT&T) was part of a group called Americast. Formed in 1995, Americast also included SNET (formerly AT&T-Connecticut), GTE (now part of Verizon), BellSouth (now part of AT&T), Ameritech (now part of AT&T) and Disney.

And the group claimed it would reach 68 million homes in 32 states – providing, yes, a fabulous fiber optic future.

Americast, in 1996, described their organization as developing the “next generation of in home entertainment”.

“Developing the Next Generation in Home Entertainment.
“Americast is the consortium of Ameritech Corporation, BellSouth Corporation, SBC, GTE Corporation, Southern New England Telecommunications and The Walt Disney Company created to develop and market the next generation in home entertainment. The Americast service is currently being introduced in selected markets across the United States. In addition to providing traditional entertainment services, Americast will offer innovative programming and develop such features as a proprietary program navigator, video-on-demand, and a variety of interactive services.”

(See The Book of Broken Promises for details.)

Thus, as the laws were being constructed in Kansas (and all of the other states represented in Americast, America was told in the 1990’s that the U.S. would be a fiber-first country, and each state hyped the crap out of this.

And the research presented for TeleKansas now-AT&T-Kansas detailed how rural areas would benefit with Distance Learning, Telemedicine – essentially tele-them-anything to raise rates. This is part of the Table of Contents:

This report was one of thousands of reports that were created for/by the phone companies over a decade+, 1990-2000, that explained that America really, really, really, needed fiber optic broadband for economic growth, etc.

Tracking these faux-deployments, such as Kansas, the end result was always the same; customers paid thousands of dollars extra to the phone companies for the advertised services they never got.

Comparing Pai Statements and Facts

Let’s start with Pai’s speech at the WISPA conference vs reality: How many mistakes are there in this one paragraph? Here’s just a few:

1) Pai claims that the markets decided broadband deployments: False

The markets did not decide broadband deployments. TeleKansas was not ‘let the markets decide’, this was--let the incumbent phone companies dictate a plan to raise rates using broadband as the carrot – and it worked the same way in almost every state.

There was no ‘market’. TeleKansas was based on the state utility that had and still has a monopoly on the wires and the rights of way. It charged ALL customers for network upgrades, whether they ever got them or not.

And we need to mention that the plan to have America upgraded to fiber optics was called the “Information Superhighway” and it was a cornerstone of the Clinton-Gore presidential campaign in 1991 as Al Gore coined the term and was proselytizing about a fiber optic America.

2) Pai claims that the rules of the ‘1930’s didn’t apply: False

Broadband and virtually all of the fiber optic plans were based on Title II, common carriage and based on the 1934 Communications Act and are based on Title II today.

3) Pai confuses the “Internet’ with ‘broadband’ at every turn.

The Telecom Act of 1996 opened the local phone copper-based utility networks, which were supposed to be upgraded to fiber optics, to all forms of competition.

“Regulators made a conscious choice not to apply to the Internet the outdated rules crafted in the 1930s for a telephone monopoly.”

This has a fraction of truth. In 1996, the Internet (ISP service) was classified as an ‘information service’ and not regulated like the broadband networks, which are Title II. But the ISP service and broadband were separate services.

4) Pai’s statement about the early 2000’s is wrong on multiple levels.

“Early 2000s, the U.S. rejected the notion that the broadband market was a natural monopoly. We encouraged broadband providers to build their own networks rather than using their competitors’ infrastructure. We eliminated network-sharing obligations, which depressed investment and deterred network construction.”

Pai is referring to how the FCC, the government, killed off competition in the US under Chairman Michael Powell, who is now the head of the NCTA cable association.

a) First, the largest growth of access lines and investment in American history was due to opening the networks to direct competition by the Telecom Act in 1996 under Clinton.

By the end of 2001 there were 9,335 independent wireline ISPs, which handled over 50% of all Internet/web subscribers. Moreover, at least 20% of the US were using a competitor for voice services; the two largest were MCI (then independent) and the former AT&T.

And it was these small, wired, entrepreneur ISPs that brought America the internet not the incumbent phone companies. These companies hand-held customers through a rickety process of using the internet and getting on the World Wide Web, which was being developed in the late 1990’s.

b) This growth occurred because the state utility networks, commonly known as the “PSTN” were open to competition under Title II by the Telecom Act. It allowed all competitors to use the networks, including the Internet Service Providers, the entrepreneurs that gave us online services.

c) The Republican FCC under Michael Powell in the 2000’s, eliminated the right of a customer to use a competitor over the state utility wires, coming into their homes or offices (the same wires that were supposed to have been upgraded to fiber and weren’t).

Powell decided to combine the infrastructure with a service that rides on the broadband networks, calling it “broadband-internet” and redefining everything as an “Information Service”—a really stupid move.

This change blocked competitors from using the networks.

e) In the end, the FCC action’s had the government protect the large incumbent wired companies and it helped to kill off over 7,000 independent wired ISPs, and put AT&T and MCI up for sale. AT&T was bought by SBC and then changed their name, and MCI went to Verizon.

This is the reason there is little or no competition from wired ISP services in most of America today; the cable and phone companies took over the business that the entrepreneurs built.

Just to show you how sick all this is: When the Telecom Act became law in 1996, it was touted by Republicans and Democrats as a ‘deregulatory bill’. But when Powell helped to kill off 7000 small ISPs, he claimed that what was needed was inter-modal competition, meaning that the cable and incumbent phone companies were all we needed—and he proclaimed this ‘deregulation’. Fake definitions are required if you create a fake history.

d) And the “dip in investment” happened because:

  • The incumbent phone companies, now AT&T, Verizon and CenturyLink, decided to not fulfill any of the previous obligations and put their money into entering the lucrative long distance market (which was then a separate service).
  • The “Bell” incumbent companies took the profits and didn’t put it back in the networks but and used it for overseas investments. Combined, the companies lost over $30+ billion dollars during the period of 2000-2002 as their investments tanked.
  • There was also the ‘internet bubble crash’; the internet companies had been overvalued, and stop buying services.
  • And finally, there was a code red to kill off competitors and the incumbents held the states hostage to get more deregulation to get rid of these ‘open networks’.

Pai also neglects to mention that the networks were opened, not as a favor, but as a trade-off to allow the incumbents to get into long distance and the other markets. And when that was accomplished, they reneged on every consideration.

In fact, the mergers of SBC-Ameritech (part of AT&T) and Verizon-GTE were predicated on competing out of region with each other, and each would be using the competitors’ networks. None of this competition materialized because the FCC’s merger conditions were written on toilet paper.

Pai’s Real Failure: Creating Fake History to Defend AT&T and Verizon.

Which brings us back to TeleKansas, circa 1990-2000 (though the last act on TeleKansas we could find was from 2014).

Pai has ignored fundamentals:

  • In the WISPA speech, he claims there was only ‘dial up’ in rural Kansas in 2000, yet he has no clue about the actual history of why there was only dial-up offered by the incumbent, even in 2000.
  • His family, friends and businesses didn’t get upgraded by TeleKansas, thus all of these people and businesses paid extra for upgrades that, as far as we can tell, never showed up in Kansas or in most other states.
  • And if Pai was so concerned about rural areas, where’s any investigation into the state commitments made by AT&T et al., the monies already collected, and the real reason the rural areas aren’t properly upgraded—the failure of the regulators, including the FCC, to hold the companies accountable in any meaningful way.

The Consequence of an “F”, Failing Grade: Seriously Flawed Public Policies.

On April 20th, the FCC will be putting forward new laws based on this Fake History.

In one proposal, the plan is to allow the companies to ‘shut off the copper’ and in another to not have obligations about the data services.

These plans, of course, do not mention that the wires are part of a state utility, that they should have already been upgraded, that customers paid for these upgrades, over and over, and that shutting off the copper wires will not ensure that these customers will be better served in the future. This, then, is just Fake History being updated by either ignorance or design. The incumbents can’t be trusted to do anything like suddenly change course and give fiber to rural areas. And Pai’s ‘priority to help rural areas’ is embarrassing. If he wanted to actually fix this mess, he’d start by auditing the books and getting the overcharging back as no state we examined ever went back and lowered rates or gave refunds for failed fiber deployments – so this overcharging is built into the current rates.

Or the FCC could audit the books for the massive cross-subsidies we uncovered that charges the local customers to build out other lines of business, like the wireless networks.

And what to expect? This FCC will not lift a finger to make customers or rural towns whole.

On April 20th, 2017, fake history will win… and the American public will lose.

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