[Infowarrior] - Telecom’s Big Players Hold Back the Future

[Richard Forno]

Telecom’s Big Players Hold Back the Future

By DAVID CARR

http://www.nytimes.com/2013/05/20/business/media/telecoms-big-players-hold-back-the-future.html

If you were going to look for ground zero in the fight against a rapidly consolidating telecom and cable industry, you might end up on the fifth floor of the Benjamin N. Cardozo School of Law in New York.

Susan Crawford, a professor at the school, has written a book, “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age,” that offers a calm but chilling state-of-play on the information age in the United States. She is on a permanent campaign, speaking at schools, conferences and companies — she was at Google last week — and in front of Congress, asserting that the status quo has been great for providers but an expensive mess for everyone else.

Ms. Crawford argues that the airwaves, the cable systems and even access to the Internet itself have been overtaken by monopolists who resist innovation and chronically overcharge consumers.

The 1996 Telecommunications Act, which was meant to lay down track to foster competition in a new age, allowed cable companies and telecoms to simply divide markets and merge their way to monopoly. If you are looking for the answer to why much of the developed world has cheap, reliable connections to the Internet while America seems just one step ahead of the dial-up era, her office — or her book — would be a good place to find out.

In a recent conversation, she explained that wired and wireless connections, building blocks of modern life, are now essentially controlled by four companies. Comcast and Time Warner have a complete lock on broadband in the markets they control, covering some 50 million American homes, while Verizon and AT&T own 64 percent of cellphone service. Don’t get her started on the Comcast-NBCUniversal merger unless you have some time on your hands.

But don’t look for a jeremiad, either. A violist who plays in string quartets when she is not hammering telecom companies, Ms. Crawford is precise in her arguments and far from frantic in making them. The captains of industry who kidnapped telecoms and cable are not monsters, she says, merely shrewd capitalists who used leverage to maximize returns, no different or worse than the railroad or electricity barons of times past.

“They have acted in parallel to exclude competitors and used every lever they had to gain control over their markets. My whole book is essentially an argument to buy stock in cable companies,” she said with a laugh.

Her arguments don’t end there. High-capacity fiber connections to homes and businesses are not just a social good, but a business imperative, she says, and the lack of them will cripple American efforts to compete in a global economy.

Ms. Crawford said she believed that cities and states should take back control of their information infrastructure before it is too late. Already, 19 states have bent to the lobbying influence of established players and raised barriers to the public-private partnerships that would compete with legacy companies.

Verizon had been building out fiber optic cable networks — expensive to create but a dream to use — that were part of the competition envisioned by the telecommunications act. But in 2010, the company decided that it was a capital-intensive effort that offered less return than high-margin wireless, so it stopped expanding when just 14 percent of American homes have access to their fiber optic network.

Too bad, that. I have Verizon’s service, and even though it is expensive, it is fundamentally superior to Internet via cable because fiber can carry unlimited data, which means smooth downloading and streaming.

In 2012, Verizon entered into a joint marketing agreement with the cable companies, blessed by the Federal Communications Commission, so the former competitors are now firm allies.

“There has been a division of, ‘You take the wires, we’ll take wireless,’ which means that there is very little competition and investment, and very little access to high-speed connections,” Ms. Crawford said. It is worth pointing out that the billionaire Carlos Slim Helú controls 80 percent of the landlines in Mexico and 70 percent of the wireless market there. His recent appearance at the New York Public  Library was accompanied by protests that his outsize presence was hurting consumers in Mexico. (Mr. Slim holds a minority stake in The New York Times Company.)

While consumers love to complain about their cable companies and Internet service, it’s sort of like the weather — no one does anything about it because no one can. And then there is Ms. Crawford. The New Republic recently called her “the next Elizabeth Warren,” suggesting that, just as Ms. Warren had been to the banking sector, Ms. Crawford “has become a dreaded figure to the industry she wants to reform.”

There are signs her argument is gaining traction. In March, the Georgia House of Representatives voted down a proposal that would have prevented cities from investing in their own Internet-access networks.

And she is hardly a lone gadfly shouting against the wind. When the F.C.C. chairmanship came open recently, petitions sprang up all over the Web, suggesting that President Obama select Ms. Crawford in an effort to return consumer fairness and balance to regulatory matters.

Instead, the president has nominated a venture capitalist and former chief lobbyist for the telecommunications industry, Tom Wheeler. As Politico reported, Mr. Wheeler will have to divest himself of a large portfolio of industry holdings in order to take the job. Perhaps that shedding of assets will help him in his transition to an advocate for American consumers stung by hefty Internet, cable and wireless costs.

Ms. Crawford says that Mr. Wheeler is smart and may well do a good job. But Mr. Wheeler may have more than disgruntled consumers to deal with. American business is increasingly stuck with the same creaky, expensive connections while competitors from South Korea, France and other countries are getting much faster speeds at much lower costs.

On Friday, Ms. Crawford was fresh off a visit to Santa Monica, Calif., which is building out its own high-speed infrastructure.

“People there told me that incoming businesses care more about access to fiber than any other attribute in a building,” she said in a phone call.  “It’s very much like electricity. They want reliable service at a reliable cost.”

She suggests that because broadband providers are often working inside protected monopolies, there is no incentive for expensive upgrades that would lead to a modern, wired version of America.

Postmerger, Comcast has a large content business in the form of NBC, so any potential competitor realizes that it is going up against a company with control over precious cable and sports programming assets. And because telecoms and cable companies have done a great job of developing relationships in Washington — as a business, it is more generous in terms of donations than the banking industry — there is little pressure from politicians or regulators.

Ms. Crawford, with a smile on her face, says the outlook is grim.

“We are in this position as a country because we assumed that the magic of the marketplace would provide competition and provide world-class communications,” she said. “But history has demonstrated that left to their own devices, companies will gouge the rich, leave out the poor, cherry-pick markets and focus solely on their profits. It isn’t evil, it’s just the way things work.”

E-mail: carr at nytimes.com;

twitter.com/carr2n


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Just because i'm near the punchbowl doesn't mean I'm also drinking from it.