This is a story I’ve told before, and I repeat it from time to time since I believe we can’t ignore the history of our industry if we want to avoid the worst of it from happening again.
We let the big telcos walk away from their responsibility to maintain rural networks. That resulted in a shameful situation where rural folks were never offered working broadband, and now the telcos are even walking away from landlines. What I find saddest about this, other than the situation this has caused for rural communities across the country, is that we don’t seem to have learned any lessons from the past. It’s likely that we are again going to hand billions of dollars to giant companies to take care of rural networks.
There are a variety of factors that led to the rural mess that created the need for BEAD and other broadband grant programs. While the primary blame goes to the big companies that allowed rural networks to deteriorate, a lot of the blame also goes to regulators and government. So let me talk about them first.
I think the downward trajectory started with the divestiture of AT&T into AT&T as a long-distance company and large regional telephone companies. Regulators had an opportunity to make sure that the regional RBOC companies remained fully regulated with mandates to maintain universal service. But for some reason, regulators did the exact opposite and told each RBOC to thrive in the open market. Companies like Verizon and Bell South quickly got sucked into the Wall Street game of caring more about stock prices than running a good telephone company. I worked at AT&T pre-divestiture, and this was a huge chance after divestiture. The employees of the giant Ma Bell monopoly took pride in doing the right thing for the public. I sat near the person who took the daily calls to the executive help desk – customers could call the top guy in each state if they had a problem, and that almost always meant the problem got solved.
The newly-formed telco lobbied hard to be able to make profits over and above the low, but steady profits that could be earned by a regulated utility. Unfortunately, lobbying works when it’s done right, and the Baby Bells lobbied everybody from city councils to federal legislators. Within a few years after divestiture, the process of deregulating the big telcos began. By promising to keep residential telephone rates low, regulators across the country deregulated the big telcos from their many obligations.
The big telcos ran with the power that came from deregulation. For example, Bell South grew a cellular business that grew to rival the telco business. All the Baby Bells except US West thrived under the relaxed regulatory regime.
I hesitate to say that the folks running the Baby Bells were bad people, but from the perspective of customers, they were. Telcos that once had always put customers first were suddenly obsessed with stock prices and the bottom line. They became just another set of corporations operated by MBAs that valued the stockholder over the customer.
The changes were mostly, but not always, gradual. Verizon was the abruptest of the Baby Bells and decided early on to divest itself of its rural networks. Unfortunately, they weren’t able to sell all rural copper. In places like West Virginia, when they couldn’t find a buyer, Verizon ceased maintaining the network. I saw this happen firsthand, and it was not pretty.
But the other Baby Bells ended up in the same place, just not as rapidly. Year after year, and budget cycle after budget cycle, the big telcos cut back on maintenance. Open technician jobs weren’t replaced, and there were occasionally big layoffs to help maintain stock prices. Hardware wasn’t upgraded when needed, and copper networks went to hell. We finally got to the point where whole counties have no working DSL – the telcos just quietly got out of the business.
We are now poised to do it all over again. We have a gigantic broadband grant program that clearly favors big companies over small ones, companies that can use equity instead of debt for grant matching, and companies with the resources to pursue giant multi-county grants. Big cable companies are joining the big telcos to pursue rural grants. The big cable companies have a similar history to the telcos. One only has to talk to folks in small communities where the cable companies eliminated business offices and cut back on maintenance staff. Cable companies have neglected small markets by not making needed upgrades while bragging to Wall Street that all of their networks are state of the art.
I doubt there is anything that can be done to stop this, but we are on the verge of doing it all over again. Over the last decade we awarded tens of billions of subsidies to big telcos to improve rural broadband, and the money mostly got pocketed. I find it impossible to believe that the giant companies are going to care and nurture newly built grant networks any better than they have taken care of rural or small community networks in the past. A few big companies might try to do the right thing. But they will be under pressure to maintain earnings, and over time, they will cut staff, maintenance, and repairs – and the cycle will eventually repeat. It’s virtually impossible to believe that the giant ISPs will devote the needed resources for decades to come to properly support rural networks.
The ironic thing is that we know what works in rural areas and it’s not giant ISPs. We’ve seen small telcos and cooperatives take care of rural networks while big companies let networks rot in place. But lobbying is still king, and regulators are not brave enough to do the right thing – which is to not give grants to publicly traded companies. Watching this cycle repeat itself will give me fodder to write about how we screwed it all up again – but I’d much rather be writing about rural success stories.
Doug, it would be great to for you to offer to host a response from NTIA/Commerce on your perspective.
It’s a sad, deeply American story.
(a) neoliberal excesses. Belief in “markets will fix it” or “private is better.” Markets respond to incentives and if the incentive is to make money…labor health and societal benefit are not considerations — that’s why regulations are required to accomplish non-financial goals.
(b) “regulatory capture” defeats the intended watchdog. Eg., former telcom lawyers serving on the FCC.
(c) post-Bork belief that monopolies are OK as long as there’s no visible short term consumer impact.
(d) given lack of regulation, these essential non-growth industries require a constant stream of taxpayer funded government bribes to provide societal good that was supposed to have already been paid for by acceptance of “natural monopoly” status.
(e) the general trend towards financialization, and use of PE, large debt financing, etc., that reduces the long term incentives for and quality of management.
It was completely predictable that telcos would abandon dsl, local service, and rural service as soon as they could get a friendly enough regulatory environment. Those business segments aren’t growth markets, they have maintenance costs associated with them.
Best column you’ve ever written and the best survey of the history of this industry. I also worked for AT&T pre-divestiture and speak frequently about the former “commitment to quality service” that is long gone from public companies. Sadly, even the small startups are PE funded and just perpetuating the obsession with ROI. Thanks for your insights
Agreed, shameful.
Easy answer in my choice of words to use…
A. Greed!!
Great post, Doug. It shows how U.S. telecom policy failed to properly plan transition from legacy POTS copper to fiber and optimize respective roles and incentives for the public and private sectors. Also, inapt reliance on market-based progress that isn’t suitable in a terminating natural monopoly environment where competitive market forces don’t function to ensure end user access and value.
Great article Doug. As a Broadband Engineer living in a holding company service area, I watched the decline you listed. Being in the industry and having contacts, I was unable to get our provider to maintain our network and had to make my own repairs to keep service. I feel for the customers without the knowledge of contacts.
Doug – you nailed it again… unfortunately. Was hoping we, the US, might get it right this time with BEAD.
“except U S WEST” LOL. I worked at US WEST 1986-90. It was a good company. But, yes, it had the hardest territory to serve.
Okay, so now what?!
We know that the ILEC’s need the help, they need the attention of the politicians, they need a collective voice to speak their truth. We also know that they are the “only ones” that will do it correctly and continue the Five 9’s that we’ve all come to expect from rural telecos. The problem, as you pointed out, “there’s money in them thar hills” and that attracts big box ISP’s with nefarious long term intentions. Is there a way to put succession plans on government funded plant, if you fail to provide, you must relinquish? Are there fees and fines that would make the mere thought of abandonment cost prohibitive?
I’m invested in this think, as my core customer base, ones whom I’ve spent my career establishing friendships with are in jeopardy of being overbuilt and then recklessly abandoned when the take rate and ROI don’t meet corporate goals.
It is true that AT&T provided union jobs and had great residential customer service. But monopoly abuses were real!!
“Regulators had an opportunity to make sure that the regional RBOC companies remained fully regulated with mandates to maintain universal service.”
This is simply not true. It’s based on a fundamental misunderstanding of the economics of state and federal telephone rate regulation, and gives regulators a level of power and omniscience that they simply didn’t have.
It is true that rural telephone rates were low and the monopoly phone company maintained the lines in rural areas prior to deregulation. But this was explicit regulatory policy, and it relied on 3 embedded subsidies that aren’t mentioned here:
1) Geographic rate averaging–rural and urban areas all paid the same rates, even though it was cheaper to serve urban areas where densities were higher. State regulators would not allow geographic rate deaveraging.
2) Very high business rates. There were huge disparities between the phone rates for business customers and for residential customers. As long as residential rates were low, voters and politicians were happy and regulators kept their jobs.
3) Very high federally regulated long distance rates. State regulators didn’t have visibility to these rates, which were regulated by the FCC, so the phone companies could play one regulator off the other, and run circles around both.
If you allow any competition at all, you start to cannibalize the monopoly rents in 2 or 3, which are used to subsidize #1.
So in order to maintain regulation we also needs to basically stop any technical innovation in 1981, which is basically what AT&T and the RBOCs had to do to maintain their monopoly. A short list of technologies which break the monopoly: cable broadband, long distance microwave transmission, competitive long haul fiber optic data transmission, CELL PHONES, IP telephone services . . .
And we haven’t even started to talk about end user devices! You literally used to have to buy or rent your phone from AT&T. It took an FCC order for dialup modems to be legal.
This story is literally “things were better when we had no competition for telephone service.” If we’re going to figure out the solution to these really challenging problems we should start with a clear understanding of what caused them.
Actually, the one lesson learned in the US is the same lesson that continues to be learned… in telecom and pretty much every other aspect of life in our country — money speaks, and big money speaks louder.
Big telecom has always spoke about how “ubiquitous” their national coverage is, but they have never cared about the “smaller fry”, the smaller markets, those clients that are not easily reached.
They ran the rural properties down to tooth-and-nail, sold them off for a ‘pretty penny’ and stood by while the new owners… saddled with debt… tried to make a go of it.
Sad. Very sad.
It’s amazing these spin offs even found buyers when they occurred and at such late dates when it was clear telecom tech was going IP and these old copper POTS systems were not the future and wouldn’t support it.
Like this one: https://www.verizon.com/about/news/verizon-completes-sale-landline-assets-california-florida-and-texas-frontier-communications
Now Frontier regrets it is saddled with so much old copper. Hard to muster much sympathy for it.