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Beast of the Month - July 2006
Ed Whitacre, AT&T CEO
"I yam an anti-Christ..."
John Lydon (aka Johnny Rotten) of The Sex Pistols, "Anarchy in the UK"
Ed Whitacre, revealing his agenda in Business Week
In 1984, a new age of phone service was begun when the American Telephone & Telegraph (AT&T, or as it was more affectionately known, Ma Bell) had its local phone operations broken up into seven regional "Baby Bells" and spun off. The end result? Incredible new competition in the long distance phone market (with AT&T, Sprint & MCI duking it out, along with smaller players such as Working Assets) and an explosion of services such as fax machines, modems, cell phones and high-speed Internet. In other words, for whatever the faults the breakup agreement may have had, exactly what the breakup of AT&T was meant to do.
The same can't be said for the 1996 Telecommunications Act, at least if we take the lawmakers behind it at their word. Supposedly, the purpose of the law was the "deregulation" of the telecom industry to promote competition. In reality, thanks to the mergers of telecoms, it has created an increasingly oligopolized market with fewer (and bigger) players involved. Of course, since many (including The Konformist) alleged at the time this was precisely the purpose of the law, it may have been a smashing success after all.
The most merge-happy of the telecoms lately has been what was once known as Southwestern Bell Corporation, or SBC for short. Based in San Antonio (making it yet another thing to hate about the state of Texas) their Chairman of the Board and CEO since 1990 has been Ed Whitacre, The Konformist Beast of the Month. Ironically originally the smallest of the seven Baby Bells, SBC bought up fellow babies PacTel and Ameritech (along with the non-Bell SNET) in 1998, as well as Comcast Cellular the following year. Then, in January 2005, it announced the purchase of AT&T itself, with the takeover of the korporate name in the deal. The consumption of its parent company was approved by the FCC last Halloween. Not satisfied with this Oedipal slaying, the new and improved AT&T under Whitacre announced in March the $67 billion purchase of BellSouth, another Baby Bell. If the merger is approved (and it certainly is expected to be rubber stamped) Ma Bell Version 2.0 will have captured in her web four of the seven Baby Bells created to spur competition and innovation. Of the others, Bell Atlantic and NYNEX merged with the non-Bell GTE and long distance MCI to form Verizon, leaving only US West (now Qwest) as the third remaining Baby Bell - and the only one not to join a combine with the others. (Qwest may not last independent for long, as it's on the auction block, dwarfed in size by the $120 billion AT&T-BellSouth and $90 billion Verizon megaopolies in annual revenues.)
Leslie Cauley of USA Today (who in May first reported on the NSA phone database) perhaps responded to the proposed merger best with an article titled "Is 'Ma Bell' being reborn?" Of the AT&T-BellSouth deal, Gene Kimmelman, public policy director of Consumers Union, told her, "This is devastating for consumers." Kimmelman noted that with each Bell merger, the public was promised vigorous competition would follow, promises that have been proven empty. Now the promise of Baby Bells ever competing against one another, a supposed goal of the telecom deregulation that allowed the Bell mergers in the first place, is proving to be a lie. In conclusion, Kimmelman summarized: "Clearly, the government had it all wrong. It's an enormous mistake to allow this fraud on the American people to continue." Meanwhile, telecom analyst Susan Kalla concedes the merger will decrease price wars: "AT&T just took out a competitor. This is going to stabilize prices."
Cheerleaders of the so-called telecom deregulation would point out that despite the consolidation, prices for phone services have not risen, mainly due to the increased competition thanks to cell phones, cable telephone and new broadband services (most notably Vonage, which allows unlimited US phone services, including long distance, for under $25 a month.) This may be true for now, but such arguments forget one thing: that market consolidation will soon likely include increased crossover buyouts between local phone lines, cellular services and cable operations. (Indeed, as part of the BellSouth deal, AT&T would take full control of Cingular, the top US wireless carrier. Number two is, unsurprisingly, Verizon Wireless.) At the very least, the decreased number of players involved leads to increased opportunities for collusion and price-fixing. All in all, what's happening looks similar to the late-nineties in the oil market, when mergers led to a sudden decrease of players and the recombination of the crown jewels of the Standard Oil Trust (the last great monopoly broken up before Ma Bell) in the Exxon-Mobil deal. Those paying more than $3 a gallon at the gas pump can tell you how that one ended up.
Just what does AT&T mean about disclosures "to protect its legitimate business interests" in the new policy? Qwest was the solitary member of the big four local phone companies to balk at the NSA request. The NSA responded with threats that refusal to cooperate would jeopardize future government contracts. Coincidentally, within a year, Nacchio was out as CEO under charges of insider trading, and Qwest stock fell below $2 per share. Looking at these events, one could argue that complying with an Orwellian demand from Bush's Secret Police meets this legal definition.
Of course, joining up with Big Brother isn't just about avoiding sticks, it's about getting carrots. Beyond the fattened government contracts that Team USA has to offer, there are regularly issues before lawmakers and courts where millions (if not billions) of dollars are at stake. That being the case, it's always good to have those involved with national security and intelligence in your pocket.
Which leads to the latest million (or perhaps billion) dollar issue involving the telecoms: network neutrality. Network neutrality is the idea that Internet providers should transport all information equally and without discrimination. This isn't a new concept: what is new is the concept of network neutrality being in question. In short, if network neutrality didn't exist, invaluable Websites such as Yahoo and Google and services such as Amazon and eBay would likely never have become successes, as providers could have discriminated against them in favor of their own search pages and shopping services. No surprise then that Yahoo, Google, Amazon and eBay (along with Microsoft and Earthlink, among others) have been the leading proponents of continuing the policy of network neutrality in Internet traffic. On the other side of this argument, unsurprisingly, are the major broadband providers of the country, most notably Verizon, Comcast, Time Warner and, of course, AT&T.
(This helps explain why only now network neutrality has been called into question. Until recently, most people connected to the Net via dial-up connection, which due to a competitive market let consumers have a plethora of choices. In such a market, any provider who didn't obey neutrality would quickly become unpopular and its business would quickly vanish. Now, the public is increasingly connecting via broadband internet, which in most areas people have no more than two choices, DSL or Cable. In fact, 47 percent of all Americans have only one or no broadband choices. With two choices tops, options which the consumers are limited to thanks to "regulators" granting the telecoms sweetheart licenses, the possibility to discriminate in Net transportation becomes not only plausible but undeniably attractive to the oligopolists.)
If the broadband providers get their way, they will soon get to charge whatever they want for traffic to travel through their networks - if they even allow the traffic. They could willfully block emerging sites and services (such as the Vonage broadband phone system mentioned earlier, or emerging services such as YouTube.com) that could compete with their own planned services that are proposed sources of income. Such schemes would stifle independent decentralized innovation - which has been the chief historical result of the Internet until now. Indeed, taken to its logical conclusion, broadband korporations - such as AT&T - could block traffic of information that is critical of their own operations - such as, say, The Konformist Beast of the Month award for July 2006. (Hell, why not just block that whole damn Konformist.com site while we're at it?) Taken in this context, it is clear those opposed to network neutrality are in fact in favor of network discrimination.
There is nothing new in the strategy of network discrimination by Ed Whitacre: as early as 1999, he was on the cover of BusinessWeek with the headline "The Last Monopolist." His business plan over his entire career has been to get into uncompetitive fields, buy off key politicians, and gouge customers as much as it was economically viable. This is not free-market capitalism at its best, but crony corporatism at its worst. Indeed, Timothy Wu, a Columbia University Internet policy expert, refers to network discrimination as "the Tony Soprano business model." Poor suffering Tony should have it so easy: lobbyists push their cause in DC, and well-financed Astroturf "grass-roots" organizations such as "Hands Off the Internet" (whose spokesman, Mike McCurry, previously was Bill Clinton's mouthpiece during the embarrassing Peckergate scandal) make their deceptive case to public.
Thanks to some bizarre court decisions and FCC rulings, it is possible, if not likely, that the philosophy of network neutrality may soon not be in place. In August 2005, the FCC put the Baby Bells under a year moratorium prohibiting them from violating net neutrality. Provided Congress does not act, network discrimination will soon be the norm come September. It doesn't look too promising: on June 8, the House of Representatives passed a Telecommunications Act overhaul without meaningful neutrality protections, and on June 28, the Senate Commerce Committee failed to pass a net neutrality amendment to its telecom bill. To his credit, Democratic Senator Ron Wyden of Oregon has threatened to filibuster any telecom bill without network neutrality included, and he has the votes to back his threat. (For the most part, it is the GOP that has blocked the proposed neutrality laws, though unsurprisingly some Democrats have sided with big business monopolists in their battle against the public interest.) Besides Wyden, if there is hope to save network neutrality, there is the political push of (among other dot-coms) Yahoo, Amazon and (perhaps most important) the Goliath from Grungeopolis aka Microsoft, as well as the free-speech coalition created in response to network discrimination that crosses the political spectrum. Among the First Amendment defenders of network neutrality: the AARP, American Library Association, Christian Coalition, Consumer Federation of America, FreePress.net, Gun Owners of America, Media Access Project, Moveon.org and TechNet. They've even formed a Website on the issue, SavetheInternet.com, which your broadband provider will allow you to access at least until August 31.
Still, while it may not mean as much politically, the most important supporter of network neutrality is none other than Sir Tim Berners-Lee, the inventor of the World Wide Web. Looking at the plan to change the Net into a place where tiered pricing and provider discrimination is the rule of thumb, he summed it up simply: Thats not what we call Internet at all. Thats what we call cable TV.
In any case, we salute Ed Whitacre as Beast of the Month. Congratulations, and keep up the great work, Eddie!!!
Special thanks to Scott Rose of ScottWorld.com for first alerting Konformist.com about the story of Net Neutrality. Thanks as well to SaveTheInternet.com, FreePress.net and Guerrilla News Network ( http://www.guerrillanews.com ) for their work reporting on the issue. Honorable mention to Leslie Cauley for her continuing coverage of the telecom industry in USA Today.
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