The
problem with the dream of a free market in telecommunications networks is that
barriers to entry are too high. So
high in fact that that the largest cable TV operators who not so long ago were
given exclusive franchises to build local networks that might compete in a
digital world with legacy monopoly telephone companies, have decided not to
bother with the wireless part. And
Verizon with its lock on lucrative access lines for business customers and its
dominance of mobile wireless has decided not to bother with any more fiber
optic lines to challenge cable’s dominance of residential Internet access and
video entertainment.
Meanwhile,
a reliable affordable Internet connection is increasingly important to our children’s education, our economic prosperity, our civic participation
and even our health care.
How
can the FCC conclude that the public interest would be served by approving
agreements between the only two players in a local wireline duopoly in which
they become business partners for the joint marketing of a single “quad play”
service?
While
they have the technical ability and financial incentive to make critical
interconnections rocky and more expensive for any surviving wireless competitor?
This
non-merger tectonic shift sure feels to us like a slippery slope toward cable
monopoly (for residential landline), telco monopoly (for business landlines)
and wireless duopoly of AT&T and VZ -- the largest AND the only vertically
integrated mobile wireless companies.
If
so, consumer rates will rise, and landline service will become an unaffordable
luxury for most. At that point
either Americans will demand rate regulation of Internet access as a public
utility OR the majority of Americans will be limited to small device wireless
content consumption, text and voice and maybe basic cable at home. Kids can’t use digital textbooks
and nobody can access online higher education or start a business if they don’t
have a home broadband connection.
A
senior Washington DC Verizon executive, then a member of Congress, in 1985
sponsored legislation to remove the antitrust line of business restrictions
just imposed by the Court effective the year before, that kept the local
telephone monopolies out of competitive information services and put the FCC in
charge instead. The telcos
wanted to leverage their control of last mile network facilities into adjacent
markets.
That
same telecom exec and others continued to press this case unsuccessfully in and
out of Congress for 10 yrs until the 1996 Telecom Act was passed, and included
a new interconnection plan to break the Bell telco local bottleneck monopoly
over last mile networks. So-called
CLECs arrived coincident with the .com bubble, but were choked off by
anticompetitive tactics and deregulation in the following decade. Verizon now argues that carrying IP
traffic over its networks as opposed to straight voice and data is not telecommunications at all, so it can
no longer be regulated. Nevermind
that many people want to buy plain old Internet access like they wanted to buy basic
voice dialtone. Verizon just doesn’t want to sell it to you, because bundling
in “information services” is both more lucrative and preserves the fiction that
they no longer provide telecommunications subject to the 96 Act and FCC
regulation.
With
this Verizon/Cable cartel, only cable survives as a real competitor to telcos
for residential wireline Internet access.
VZ in all of its many non-FIOS markets is now ceding that business to
cable in favor of retaining for itself dominance in both business wireline
(special access and backhaul) and mobile wireless services. If head-on competition is that
difficult for those with huge legacy network advantages, imagine the barriers
to entry for anyone else.
Section
271 of the Telecom Act allowed the Bell telcos to enter info services and other
competitive markets ONLY upon proving the presence of a facilities based local
competitor (and a showing of fair interconnection with them) Until then they were prohibited from joint marketing local landline access
telephone service with more competitive long distance or info services.
Section
272 of the Act required that
competitive services were to be provided through a separate corporate affiliate
so that the FCC could monitor for anticompetitive discrimination against rivals
in interconnection or pricing.
In
the pending Verizon deal, cable instead becomes the dominant local access
provider for residential customers and VZ wireless becomes its affiliate in a
joint marketing scheme. But cable operators need not prove the presence of a
single competitor for bottleneck local access services, because the Act does
not apply to them. And where that
competitor could be the telephone company, VZ will be much more financially
invested in the success of its new quad play bundles of VZ Wireless and Cable
TV/Internet access with superior wifi offloading options, than in taking
customers back to unprofitable dialtone or plain old DSL Internet access.
Cable
for its part will have new incentives to support proprietary home wifi
offloading and public wifi exclusively for its quad play customers because it
can use these features as positive competitive differentiators that other
vendors can never match.
This
negative competitive fallout is not lost on Rep. Henry Waxman, Ranking Member
of the House Energy & Commerce Committee, who raised the issue at an FCC
Oversight hearing yesterday.
The Commissioners also got an earful from several different Members of
Congress about the continuing problem of the AT&T and Verizon special
access wireline monopoly over wholesale inputs their competitors must buy at
inflated rates. That’s not to
mention the parallel overcharging for telecom lines to all American businesses
in their vast and dense geographic footprint from Fortune 500 companies to
small businesses.
As
FCC Commissioner Jessica Rosenworcel noted at the hearing, “competition is essential.” But policies and theories and
dreams of unregulated free market competition won’t cut it. If actual competition has failed
to materialize or disappears through mergers and joint ventures leaving
customers facing monopoly and duopoly, regulation will be the only solution
left, regardless of whether you come from the right or the left.
With
residential telephone last mile infrastructure headed for extinction, fiber
optic lines serving only the high end of the residential market, but mobile
devices of some description for everyone, we’ll start to look more and more like
a third world nation. The
FCC has an opportunity here to support competition and stave off rate
regulation by either blocking this cozy corporate deal or strictly conditioning
it on nondiscriminatory interconnection.
