Friday, December 31, 2004

"Bells dig in to dominate high-speed Internet realm Consumers could pay if giants squash rivals like tiny Lafayette, La."

Forbes.com: Bells dig in to dominate high-speed Internet realm Consumers could pay if giants squash rivals like tiny Lafayette, La.: I've celebrated the Lafayette aspects of this story in earlier posts but I 'd be enthusiastic about it even if Lafayette weren't mentioned. It is simply the clearest account of the "big picture" story on the changing telecom scene that I've seen recently. Here's the story's hook:
"It's the dark side of the fiber story.

The regional Bell companies have made much of their billion-dollar plans to deploy broadband networks across the USA. But they're also quietly trying to erect hurdles that would make it hard for anyone to compete with them -- at least not very cheaply or easily.

Besides municipalities like Lafayette, the Bells are going after their phone rivals, Internet access carriers and major metro areas -- anyone with an interest in building services that might compete with the Bells.

Critics say the Bells' efforts are a direct attack on competition and that consumers could be the big losers. "
The author and the critics are right of course, the incumbents drive to eliminate competition is what unifies recent news about municipals, the FCC, and state laws. And, in truth, even "their billion-dollar plans to deploy broadband networks" is in equal parts about stifling competitors and resisting their competitors' attempts to stifle them. The Bells and the the Cabelcos both realize that once fiber has replaced their different delivery models and the digital/IP revolution has resulted in undifferentiated services that their current uneasy, limited duopoly competition will collapse into a cutthroat regime with eventual regional monopolies the likely outcome. They are all determined to be the last monopoly standing.

The article does a fascinating job of walking through the recent history of how the Bell systems have done their best to eliminate competition. This is the sort of recounting that responsible journalist everywhere should be doing. The so-called "even-hand" reporting that reports "evenly" on what each side says about each separate little conflict amounts to lying to readers. It is this sort of story, one which traces out the history behind the little conflicts, that gives the readers the big picture they need to begin to understand what is being done.

The story told is not pretty. According to this article the Bells' stewardship of our premier communications network has left the US lagging badly in broadband availability and in the cost of it. (The US is about 15th in the world in usage and the Japanese telecos offer fast DSL at 50 megs for about 15 dollars a month.) The Bells turn around and use this abysmal situation to implicitly threaten federal regulators that if they don't get their way they won't be able to overcome the gap they've allowed to grow. They do the same to state legislators, with the recent Pennsylvania mess being a good example—there the state legislature handed over municipalities rights to build telecom utilities to Verizon for its approval. If Verizon says no, the cities can't go forward. Verizon will never willingly give permission to compete with it and has effectively eliminated a whole segment of market competition. (At telecom urging many states have already forbidden municipal entry, (e.g. Texas) and others have forbidden municipalities to deliver profitable retail services, (e.g. Utah)) The Bells, which gave up rights to use their networks as exclusive monopolies when they wanted entry into the lucrative long distance market, have been trying, and succeeding, in regaining that control without giving up their long-distance service. Regulated resellers like AT&T and EATel have been pushed out of the market by FCC permission to raise rates well above the standards implied in the initial agreements. The FCC had earlier said that the Bells would only get back control if they built a whole new system untainted by their generations of monopoly control. That is, a fiber optic network. Even so, as the story documents, BellSouth has managed to get around that limit and reimpose monopoly control well short of actually building what it had promised. The cellular competition that the Bells tout is often owned by them--Cingular, for instance, is partially owned by BellSouth (the rest by SBC) making that competition an in-house thing. The top three cell companies are owned by the Bells. As the Feds allow the number of competitors in the wireless market to fall you can rest assured that the healthy, price slashing competition that existed there will give way to the same sort of tepid managed competition we see in other markets dominated by 2 or 3 fat, comfortable players. If cell phone companies were ever competition for the Bells they won't be soon. Though not covered by this article, the Bells' attempt to use the FCC to evade local pole fees and franchise fees that cable companies have to pay when they offer cable TV is another transparent attempt to put their competitors in an untenable position. (See my earlier "phone sharks" posting for details.)

So the Bells have been engaged in obvious attempts to thwart competition. This sort of story which uses an example like Lafayette as the emotional touchstone to a to a well-documented history that shows how the strategy is pursued does a good job of informing the public about the real telecom story and avoids the all too common exchange of press releases that passes for journalism.

An valuable point seldom raised in public is that even in situations where we do not see outright monopolies but only one or two bloated corporate "competitors" usually results in much of the same problems we associate with pure monopolies. This lesson is also told using an historical example:
Experts say they worry about diminished competition in broadband services. Unless others are allowed to step into the fray and aggressively compete, broadband could fall under the control of just two players, just as the cellphone business did for many years. With just two cellphone carriers per market, operators tended to keep their prices high.

If regulators aren't careful, the same could happen to broadband, warns Mark Cooper, research chief at the Consumer Federation of America. ''Two is not enough for real competition,'' he says.

Cooper notes that the U.S. cellphone business, which was a legal duopoly for years, turned competitive only when the Federal Communications Commission decided to issue up to eight licenses per market. The entry of six hungry players upset the status quo. And it caused cellphone prices to plummet -- a boon for consumers.

Since 2000, though, the wireless business has consolidated. Once Sprint and Nextel complete their merger, there will be just three major wireless carriers.

''It's just too easy for two or three players to figure out how to avoid lowering prices,'' Cooper says.
What goes unsaid in this article focused on the Bell's behavior, is that the current duopoly situation with regard to broadband in most parts of the country of cableco and Bell company is not in any real economist's estimation the sort of competition that you need to produce the benefits of free enterprise. These guys are gaming the system--to our disadvantage.

The article wraps around back to Louisiana at the end, revealing an issue I haven't seen reported elsewhere:
BellSouth, meantime, is working all the angles.

The carrier recently told local regulators in Lafayette that it thought they should use the FCC's ''Part 64'' accounting requirements, which have long been imposed on local phone companies, as a benchmark for establishing rules for the city. Lafayette countered that those rules would create a costly and unnecessary burden.

Within days of making that argument last fall, BellSouth turned around and asked the FCC to relieve it of the Part 64 requirements for its broadband services. The carrier complained that the rules were onerous and outdated, noting that they force phone companies to maintain 'extensive and tedious'' records.

BellSouth insists that it's just trying to look out for the interests of local taxpayers in Louisiana. It points out that the city-owned electric utility is a monopoly, and, as such, should be treated like one.

''We're just saying that the local utility ratepayers should not be cross-subsidizing this new business that they want to get into,'' says McCloskey, the BellSouth spokesman. ''They are a monopoly, and they should be regulated like one.''

And BellSouth?

According to McCloskey, the communications giant ''is no longer a monopoly,'' which is why it's asked the FCC for relief from Part 64 rules. ''We're a different kind of animal,'' McCloskey says.
The mindlessly cheerful hypocrisy of the incumbents is just stunning. If the Bells aren't monopolies any more because of competition like that which LUS offers then LUS certainly can't be a monopoly. It really angers me when these folks treat me and my community like fools by handing us junk like this and expecting us to treat it seriously. This sort of reasoning is the sort you see from a young jerk determined to do as he pleases and arrogantly unwilling to even come up with a believable excuse. It's good to see Lafayette standing up to their bully-boy ways. They are in for a surprise if they think Lafayette is going to roll over for them.

Durel has it right: "they have to get out of our way, because we are not going to stand down on this."

YES. Rally round the flag boys. The right is on our side.

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