Should We Trust the Companies that Created the Digital Divide?

For those of you who don’t know Bruce Kushnick, he’s been tracking the promises made and broken by Verizon since the 1990s and written extensively on the issue. His latest article is “NTIA: Require Every State Broadband Agency to Investigate Those Responsible for Creating the State’s Digital Divide.”

Bruce has been arguing eloquently for years that the big telcos like Verizon, AT&T, and CenturyLink caused the rural digital divide by extracting profits from the regulated telephone and broadband businesses in rural and low-income areas while neglecting maintenance and not using any of the profits to modernize the technology. According to Bruce, the only reason we need massive federal grant programs today is to make the investments that the big telcos refused to make for the last several decades.

He argues that the NTIA should require states to investigate how the digital divide was created in rural areas and center cities. He uses the two examples of New Jersey and Los Angeles to make his point. He’s been tracking the promises made by Verizon to the State of New Jersey for the last thirty years. Verizon repeatedly sought regulatory relief through deregulation along with rate increases that were supposed to fund modernizing the network in the State – upgrades that were never done. When Verizon finally upgraded to fiber, it did so only in neighborhoods with the lowest costs, avoiding rural areas and most low-income neighborhoods.

I’ve been tracking this issue during my career as well. Consider West Virginia. I remember when Verizon was looking for a buyer of the telco network there as far back as the early 1990s. When big companies are trying to sell a property, they do what valuation folks call ‘dressing up the pig”. This means cutting expenses to make the property look more profitable. The cuts are usually deep, and drop maintenance below the level needed to keep up with routine repairs and maintenance.

Verizon didn’t end up selling the West Virginia network until the sale to Frontier in 2010. By then, the networks had been neglected for more than fifteen years. Frontier made only minimal upgrades to the properties they purchased – but it’s hard for an outsider to know if this was due to an intention to continue to milk cash flow out of the acquired network like Verizon had done or due to a lack of the capital and impact of the heavy debt used to buy the property. In any case, the West Virginia network continued to degrade under Frontier’s ownership.

For years, Bruce has made the point that there has not been any financial or regulatory cost to the big telcos for their bad behavior. They’ve repeatedly broken promises made to states. They’ve routinely milked profits out of networks while ignoring customers as the properties deteriorate.

In fact, we’ve seen the opposite of penalties. For example, the big telcos were rewarded with over $10 billion of CAF-II subsidies to support dying and neglected rural DSL networks. That money was supposed to be used to increase rural data speeds to 10/1 Mbps at a time when that speed was already obsolete. We’ve seen far too many places where even that basic upgrade was not made.

Bruce’s conclusion is that it would be ludicrous to give grant funding now to the companies that caused the digital divide in the first place. That would be using public money to upgrade the networks for these companies when profits should have been used over the decades to do so. He makes a solid argument that giving money to these same companies will not solve the digital divide since there is no reason to think the big telcos won’t turn around and do it all over again.

3 thoughts on “Should We Trust the Companies that Created the Digital Divide?

  1. At yet federal regulators can barely be bothered to even acknowledge that regional monopolies exist and are profoundly harmful to market health, expanding access, and consumer welfare.

  2. Good article Doug. As you and I are originally both veterans cut from the same ILEC cloth and with my experience continuing into the AT&T merger, I find it ludicrous to even consider that a major telco would ever be held to account for the squandering of billions of dollars wasted on DSL technology. Back when those grants were meant to improve not only the network but economic opportunities for all, those funds were put into upgrading infrastructure in major economic zones and hardly ever where the questionable credit efficacy of a region was taken into account. No one person was ever disenfranchised but communities and neighborhoods as a whole were, and that is what should be investigated and where proven heavily fined and held to account.

    I agree with Bruce on much of his article. Giving more grant money to the major telcos is like throwing good money after bad. We have no guarantees that these funds will be applied realistically to the “customer connection” facility in the most prudent manner to facilitate growth and longevity of near best in class service which the telco providers should be fully capable of and delivering today.

    Change needs to take place and the best motivator for change is money. It is time for the major telcos to step-up and prove their value of the almighty dollar to the consumer and not to government lobbyists and grants.

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