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Telecommunications and Deregulation

The U.S. has well-developed utilities providing communications, water, electricity and sewage services.  Historically, they were developed and operated as regulated monopolies, for 2 reasons:  1) they provide essential infrastructure services that need to work well, modernly, equitably and accountably for all; and 2) they’re natural monopolies, and it’s well-known economic behavior to abuse monopoly power.[1]

A natural monopoly exists when one system is developed and operated to serve the needs of all, usually because that’s the most efficient way to do it, physically.  In a city, for example, it makes the most sense to develop, and manage forever, one coherent system to pipe water in for all, rather than to allow a chaotic free-for-all to create many partial systems of pipes that provide water to some and not others, where some go out of business and abandon their pipes and knowledge of where they go, the streets get dug up constantly, one provider blames another when there are problems, some people get good water and others get bad water and get sick, some can’t get water at all, it’s confusing to make decisions about how to choose water services, everyone is buried in advertisements about buying water, etc.[2]

From society’s perspective, it’s most efficient to do it once, do it right, solve it fairly and simply for all, and have one dedicated effort responsible for it.  So, government issues a charter, a right to one utility to do that.  That utility has to be overseen and regulated by government, because it will inevitably abuse monopoly power if it’s allowed to operate freely for profit.  People have no choice in how to get water, so it could charge very high prices for it, or stop serving the poor, or abuse that power in other ways. 

Historically, and rationally, that’s what the U.S. did with its public utilities.  It allowed natural monopoly, regulated utilities to provide for everyone’s needs for water, electricity, sewer and telephone services.  Government regulators set the rules for the utilities, generally:  you will develop one efficient system; provide service to all; operate it safely according to our rules; charge everyone the same (total costs plus a fair regulated return, divided by total users); modernize it as we require; and earn a fair, stable return.  Everybody gets modern, essential services at the same, lowest costs.  It’s fair and efficient.  It’s simple.  Everyone understands it, and there’s one simple bill every month.  Utility investors get a safe investment vehicle with steady returns, because the utility will not be allowed to fail, because it is essential, and reasonable returns are regulated.  That’s a great way for regular people to invest for retirement.

Historically, this has worked well.  Unfortunately, regulation of at least telecommunications services utilities is being dismantled.  We are allowing natural monopolies to become deregulated, so they can do what they want to make money, rather than just equitably and efficiently meet the essential utility needs of all of us.  We are letting the power to shift from government oversight on behalf of the people, making sure the utilities provide modern, efficient services that meet all public needs, make investments needed to stay safe and modern and adequately maintain the infrastructure for the public benefit, and price stuff fairly - to corporate freedom to allow the utilities to do as they please to make money.

As a result, utilities are doing things that are not optimal for society, like:  not adequately maintaining their infrastructure, which allows things like gas pipelines to leak and blow up; not putting utility wires underground, which would allow the U.S. the aesthetic benefit of not looking like a 3rd-world ghetto, with ugly poles and wires everywhere, starting fires; not investing enough in clean alternative energies, now that we know they better meet social and environmental needs now, knowing what we know now; not coordinating work, so streets aren’t dug up weeks after they are newly paved; raising prices unfairly; and not providing services to all, so everyone can get adequate essential services, like Internet access.

Technologically, we know how to provide unlimited speed network connectivity, as fast as anyone needs for any purpose, to almost everyone in the U.S., in almost every location, letting anyone communicate with anyone any time, reliably, via crystal clear voice or video signals, access any digital information, receive any educational content, access any remote entertainment, and do any remote work.[3]

That would allow anyone to live anywhere and do there anything that can be done remotely.  It would allow many to do the work they do in cities from small towns and rural locations with much lower expenses and better lifestyles, preventing those towns from collapsing as they are now, with people moving to cities to find work.  It would empower and enable all kinds of efforts from everywhere. 

It might produce a trillion dollars in annual economic benefit across all of society, and a million jobs,[4] while improving the quality of life for millions of people, and cost a trillion dollars in capital investment.  It could be “future-proof” all optical fiber to where people are, that would meet any transport needs, until at least the year 2100, needing only changes to equipment plugged in between cables to serve any needed communication capability, with stunning fidelity and reliability. 

At the same time, perhaps for the same money, we could also bury electric and communication utility cables that are current eyesores in most people’s fields of vision in most outdoor spaces, and which are also blamed in increasing wildfires costing billions of dollars in disruption, replacement and hardship. 

That is a very compelling business case to society, but not to the network providers.  They don’t do that, not because they can’t, but because those that control the businesses that provide those networks, technologies, information sources, entertainments and connections would rather only make them available in ways that generate the most money for them, at the lowest costs and lowest investments.  They would not harvest all of the economic and other benefits that would be realized across society.  They’d only get money they can charge for their services.  The business case for them doesn’t justify it, so they don’t do it.  So, society misses out on a monumental, no-brainer social investment.

It is in profit-seeking, rapidly de-regulating utilities’ self-interests to serve the most profitable locations, and to abandon rural, small town and disadvantaged areas that are more expensive to serve, but most in need of economic stimulus such an empowering network infrastructure would provide.  It’s in their self-interests to charge other businesses excessively to deliver competitive content via their networks, raising competitor prices and creating advantages for their own lower priced content services.  

Because they’re not adequately regulated, they’re allowed to provide content services in competition with others over network infrastructure they control.  It’s standard economic abuse to leverage their network infrastructure monopoly to provide their content provider businesses a competitive advantage.  It’s in their business self-interests to charge all as much as they can for any use of that infrastructure.

It is government, on behalf of society, that should be making the infinitely provable business case that a trillion dollar annual economic benefit to society is well worth a trillion dollar investment by society.  That’s a 100% annual return on investment, and a no-brainer.  Rationally, government should force public utilities to do that, or do it itself.  It doesn’t.  It increasingly lets the former utilities do whatever.

As a society, we lose out on a hypothetical trillion dollars in annual economic benefit across society, and all kinds of other social and lifestyle benefits, because we allow private, for-profit corporations to determine how to deploy and exploit our essential communications infrastructure, because our government is dismantling its regulation, a change brought about through corruption of government. That corruption happens, because politicians get wealthy people and telecom company donors to fund their campaigns and are then beholden to them, and because advocacy happens in deeply invested, professional ways on behalf of corporate interests and barely at all on behalf of the public.

It is in telecommunications that the dismantling of government regulation of public utilities really took hold in the U.S.  Telecommunications was a regulated natural monopoly utility, run mostly by AT&T, and the public switched telephone network was the largest and most complex creation of humanity. 

Businesses argued successfully in court that long-distance network connections between local telephone systems were not natural monopolies.  New long-distance companies could provide those defined inter-city pieces, as long as local phone networks were forced to cooperate with them to hand off phone calls, compete with each other and lower prices, without reducing quality of service.  Competing long distance phone companies emerged, and long-distance services prices went down.  That’s a win for society, yay!

Local telephone monopolies then argued falsely that because deregulated competition worked for long-distance phone services, local telephone monopolies should be deregulated, and they largely have been.  It didn’t work.  The long-distance network connections pieces are not natural monopolies, as long as fair interconnection with local phone networks is provided to all long-distance carriers.  It doesn’t take that much just to run those long-distance interconnection wires.  That can become a competitive market.  But local telephone networks are still natural monopolies.  It still does not make sense to have a bunch of competitors each invest huge sums in running wires to all the homes and businesses in a local market.  That has never made sense.  It creates a mess that costs society much more.

It makes no more sense to allow competing local telecom companies to run different wires into residences and businesses than it would to allow competing local sewer or water companies to bring different pipes into them.  Soon, it becomes chaos.  All want to bring pipes into rich people’s homes, because they pay a lot, and nobody wants to bring them to poor people’s homes, because they don’t.  Streets get dug up constantly.  Building owners charge competitors to bring pipes into their buildings, but not the incumbent.  Existing utilities don’t share their infrastructure.  There’s water and poo all over.

It was inherently unfair, a fixed game, because the initial regulated utility already had its conduit and wiring deployed; it had already paid for that infrastructure without risk; it wasn’t denied or charged for building access it already had; and it already had massive revenues and capital as a regulated utility.  Competitors could not hope to compete with that to provide service to all.  The only way they could make money was to cherry-pick the good customers where they are dense.  So, they did that.

The decreasingly regulated utilities then experienced loss of revenues to competitors from their best customers, those who subsidized customers who were less able to pay or more expensive to serve.  Managed for profitability, rather than being regulated to serve all well and fairly, management decided rationally to stop serving those that are expensive and/or pay less and to focus on the easy and rich, too.  In the end, nobody seeking to maximize profits wants to serve the expensive or poor, so they don’t; and everybody wants to serve the easy and rich, so those have a lot of choices for lots of various services.  That is socially unfair, and opposed to equity values the U.S. was founded on.

It’s an even bigger problem, because the same companies that were providing essential phone and cable TV utility services are also Internet service providers.  Now, people in the U.S. can’t rely on being able to get fairly priced or adequate phone, TV or Internet access services unless they live in certain places.  Phone and Internet access are so critical in modern networked information and knowledge economies, many people are now forced to live where they can get ample services, like expensive cities, instead of regulated phone and Internet utilities being forced to provide services where people do or want to live.  At least 24 million people in the U.S. can’t get decent Internet access services, because these companies won’t bring it to them.[5]  In the regulated monopoly phone company days, they would have had to.

For most today, there’s a mostly unregulated, quasi-competitive duopoly for communications services:  the local cable TV company and the local phone company.  They abuse duopoly power, monopoly abuse of power shared by two companies instead of one, that requires only a little explicit or implicit collusion.  Both provide voice, TV and Internet access services.  They sort of pretend to compete, by offering very similar services at roughly the same prices, but with lots of confusing words, packaging and pricing, and lots of marketing and advertising noise.  They may or may not provide any services at all where you live.  Their service can be bad, as long as it isn’t too much worse than the only competitor’s.  Each gets half.

They try to force purchasing of services people don’t want, bundled with services we do, like making Internet customers get TV services, so they can charge their TV advertisers more, for broader reach. 

As carriers, they differentiate network traffic and play other network games, so they can unfairly make content competitor services worse than those of their own content provider businesses.  For example, they slow access across the network for competitor’s services, so competitor’s customers don’t like competitor services as much, because they’re slow, and will therefore choose carrier content services.  That would be like Apple slowing down or making it difficult when people with an iPhone and its iOS try to access Google services or software, so Apple customers would use only Apple services or software.  Companies control content and info we can access, to maximize profits, and shut out alternatives.[6]

Communication companies have recently succeeded in dismantling “Network Neutrality” regulations to prevent them from doing these things.[7]  Going with the methods of these times, one of the ways that was accomplished was with what’s called “AstroTurf Lobbying,” or using services of for-profit companies that cheat in various ways to appear to be “grass roots” efforts representing the public.  In the public comment period for the Federal Communications Commission (FCC) decision killing Network Neutrality, at least 9.5 million names were used to submit comments that were falsified, not sent by those people, or even sent using the names of people who are dead - out 25 million total comments received.[8]

It used to be everyone was in the same, simple phone directory, so we all knew how to contact anyone.  Now, there is a vast proliferation of directory services that people and businesses may or may not be in, so getting contact information is often more inefficient than before.  There is loud marketing and sales noise everywhere.  “We’re faster.  No, we’re faster.”  Noise, chaos, cheating and haphazard services.

Natural monopoly utility communications services in the U.S. are broken and being broken, we are losing obvious economic and social benefits, and service is inequitable and/or unavailable to many, because natural monopoly regulation is being dismantled, through political corruption. 

Big changes affecting everyone in the U.S. are needed in this arena.  That’s common sense, right?  Change!  Share this information!  Advocate for change in our public systems and governments!  Encourage public utility commissions to do their jobs and engage with them to support regulation!  Come together as communities and create and manage your solutions, so you control them and aren’t stuck with what you get sold!  Support Net Neutrality!  Fight deregulation!  Buy from the little guys!

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Endnotes

 

[1] “Monopoly power”, Economics Online, Accessed May 14, 2019, https://www.economicsonline.co.uk/Market_failures/Monopoly_power.html

[2] “Natural Monopoly”, Tejvan Pettinger, Economics Help, November 28, 2016, https://www.economicshelp.org/blog/glossary/natural-monopoly/

[3] “The Fiber Optic Association User's Guide To Fiber Optic System Design and Installation”, The Fiber Optic Association, Accessed May 14, 2019, http://www.thefoa.org/user/

[4] “Broadband Deployment in California: Chapter 5, Benefits“, May 5, 2005, California Public Utilities Commission, http://www.cpuc.ca.gov/uploadedFiles/CPUC_Public_Website/Content/Utilities_and_Industries/Communications_-_Telecommunications_and_Broadband/Reports_and_Presentations/46428_D0505013_BBReport_5of9.pdf

[5] “24 Million Americans Don't Have Access to Broadband—Why Isn't It an Election Issue?”, Kaleigh Rogers, Jun 1 2018, Motherboard, https://motherboard.vice.com/en_us/article/d3kdmx/is-access-to-broadband-an-election-issue

[6] “Network Neutrality: A History of Common Carrier Laws 1884–2018”, Tyler Elliot Bettilyon, Medium, December 12, 2017, https://medium.com/@TebbaVonMathenstien/network-neutrality-a-history-of-common-carrier-laws-1884-2018-2b592f22ed2e

[7] “What the Net Neutrality Repeal Means for Us”, Andrew Leonard, December 14, 2017, Rolling Stone, https://www.rollingstone.com/culture/features/what-the-net-neutrality-repeal-means-for-us-w514104 

[8] “Net Neutrality Comment Fraud: Up to 9.5 million net neutrality comments were made with stolen identities”, Jon Brodkin, October 17, 2018, Ars Technica, https://arstechnica.com/tech-policy/2018/10/up-to-9-5-million-net-neutrality-comments-were-made-with-stolen-identities/

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