Wednesday, January 04, 2006

Shareholder Battles: The Alternate Path to Telecom Reform?

The New York Times story about the recent spike in shareholder activism might offer an alternate route to telecommunications reform: through the corporate boardroom.

Here's a paragraph that identifies the opportunity:
Unlike the 1980's, when such challenges might be resisted at all costs, today corporate boards are adjusting to a new reality: the activist investor, armed with a handful of shares and a megaphone, is changing corporate America and the deal-making landscape.
I think the most glaring aspect of corporate behavior that needs changing in the telephone and cable industries is the knee-jerk habit of trying to block municipalities from deploying broadband infrastructure and delivering services over that infrastructure.

There is a business case to be made that telecom/cable companies don't have the means to deploy modern infrastructure everywhere. Seen in this light, the insistence of these companies on legal prohibitions on public-sector network buildouts has significant economic implications for those communities not deemed suitable for corporate network investments.

The fact that the United States continues to lag behind other nations in access to fiber infrastructure, then, can be viewed as the result of short-sighted corporate policy as writ large through a system populated by a bought-off Congress and an FCC that is held hostage to ideological myths about markets and competition.

A not-so-funny thing happened on the way to deregulation after passage of the Telecommunications Act of 1996: the phone and cable companies recommitted themselves to the old, anti-competitive, vertically-integrated business model that existed prior to the dawn of what was supposed to be the brave new world of telecommunications.

There was a brief moment in the late 1990s in Pennsylvania when that almost changed. The Public Utilities Commission there came very close to ordering a breakup of the dominant phone carrier there (I think it was BellAtlantic) into a service company and a network company.

The fact remains that the real money to be made in the broadband world is on the service delivery level of the network. The financial drag on phone and cable companies comes from the huge costs associated with building out these new networks. As a result, they insist on policies that undercut the long-term promise of the very networks they seek to build and impede economic opportunities in communities across the country.

It requires an act of willed ignorance to fail to grasp that it was the open nature of access to the Internet unleashed the information, business and creative explosions that have taken place over the past ten years. Anyone can build a site. Anyone with Internet access can go to it. That ability of providers and customers to freely associate is what has made the Internet the economic and creative powerhouse that it has become. It is what gives it so much more potential.

Blinded by the dollar signs, the phone and cable companies believe they can capture significantly larger shares of those dollars by imposing network tariffs (taxes?!?) which they say they have a right to because they own the networks (or, at least want to own the networks).

The walled-garden approach that they seek to recreate (think AOL as imagined by bureaucrats) is precisely the model that the Internet itself shattered. The phone and cable companies have seen the future and it is (at least in their estimation) the failed past!

Let's face it; for the time being the regulatory and legislative systems are hopelessly rigged! Confronted by the corporate-dominated legislative and regulatory environments, changing the behavior of the corporations might well offer a viable path to opening the door to open, public sector-financed network buildouts that would unleash the power of real broadband across the country. It might also save these companies from their own short-sightedness.

What would it take? "Activist investors, armed with a handful of shares and a megaphone." My guess is that there are a number of such potential investors scattered in bandwidth-hungry communities across the country. They should each buy a share or a few shares in the phone and cable companies that operate in their respective communities. Then, commit themselves to changing the behavior of those corporations.

What should the agenda be?

Priority #1: Getting fellow shareholders to understand that it is in their best interest for there to be open, public-sector financed networks that are open to all providers to deliver their spanking new services to a bandwidth hungry customers. That would mean withdrawing opposition to municipal network buildouts in exchange for those networks being open to all providers.

The megaphone? You're using it now!

A couple of decades ago a similarly unlikely approach captured the imagination of U.S. citizens who were outraged by apartheid in South Africa. They set out to get U.S. and other corporations to change their behavior, to divest their interests in South Africa as a means of putting pressure for social change there.

The challenge of getting bandwidth delivered economic opportunity delivered to every community in this country is not the moral equivalent of that effort, but neither are the obstacles.

Is this approach really a longer shot than trying to reason with members of Congress and regulators?

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