Tag Archives: Baby Bells

Repeating Telecom History

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.

Why We Have Crappy Rural Broadband

I believe that there are two simple reasons why we such poor landline infrastructure in rural America – the big telcos decided to walk away from rural America and the regulators let them do it.

It’s easy to contrast the rural areas served by the big telcos and the smaller telephone companies. A large percentage of the smaller telcos have built fiber in rural America and are offering broadband today as good as anything found in any city.

By contrast, the big telcos all stopped supporting copper many decades ago. The existing copper networks were largely built or rebuilt in the 1960s and 1970s by AT&T. However, soon after AT&T was split into the Baby Bells they decided to stop spending money to support rural America.

For example, I clearly remember in the 1980s when Bell Atlantic, which became Verizon, wanted to sell off the entire telco property in West Virginia. I worked with several groups trying to buy the network there. It became quickly clear that the telco had slashed maintenance for the West Virginia copper network. Bell Atlantic had shut down local customer service centers and steadily reduced the number of repair technicians. Bell Atlantic still happily collected the monopoly revenues in the state but didn’t roll any profits back into the network.

The big telcos didn’t only walk away front rural America. To rub salt in the would they worked hard to keep others from serving in the areas they abandoned. The big telcos undertook an aggressive policy of stopping anybody else from competing against them. They lobbied in every state legislature to pass laws to stop municipalities and electric cooperatives from competing against them. They worked tirelessly to weaken the 1996 Telecommunications Act and dragged their feet and took every opportunity to make it harder for CLECs to compete.

Their fight against competition hasn’t stopped. Just last year the big telco lobbyists were able to insert language in the new federal $600 million ReConnect grant / loan program that makes it hard to use the grant money to compete against the big telcos.

I was recently on a panel at the Broadband Properties convention and another panelist made a comment along the lines of, “it’s natural for the big ISPs in the industry to try to squash competition – that’s what big companies are expected to do”. That sentiment only works if the big telcos have been engaging in normal competition – but instead their actions have been monopoly abuse.

I don’t think you can find another industry where the monopoly abuses have been so blatant. I can’t think of another industry where the biggest companies not only kill off small competitors, but also aggressively lobby to keep competition out of the market. There is a gigantic difference between competition and monopoly abuse, and the lack of rural broadband can be chalked up almost entirely to monopoly abuse.

Susan Crawford recently suggested that the only long-term solution for rural broadband is to treat rural broadband networks as a regulated utility. What’s sad is that before 1980 that’s exactly what we had, but the regulators blew it and allowed the big telcos to walk away from their regulatory responsibilities.

I firmly believe that both state and federal regulators were completely complicit in allowing the big telcos to walk away from their networks. Some states tried to make the telcos do the right thing, but over time the big telcos wore down regulators by constant lobbying and by non-stop foot-dragging on anything required by regulators.

Not only did regulators not enforce existing regulations, but in most states they unbelievably deregulated the big telcos and lowered or removed any obligation of the big telcos to do a good job. It was easy to justify deregulation in urban competitive markets where cable companies competed with the telcos, but deregulation should never have been allowed in rural America where the telcos own the only landline network.

Regulators turned a blind eye as the big telcos ignored rural America for decades and then rewarded them by deregulating and shielding them from the consequences of the mess they had made of rural copper networks. I defy any regulator to tell me that they were looking out for their rural constituents when they deregulated the telcos. They should honestly all be ashamed, because protecting the public against monopoly abuse is one of the primary purposes of regulation. Regulators are the second culprit in why we have crappy rural broadband.

I’ve always wondered why some smart lawyers haven’t latched onto this story as the basis for a huge class action suit. The damage to rural America from not having broadband are almost incalculable. How do you even begin to quantify the damage to households with no broadband connection today – when it was clearly the responsibility of the big telcos to serve their monopoly customers and the responsibility of the regulators to make them do it?