By Bruce Kushnick; New Networks Institute | June 10, 2018 | Original Medium article here.
The Mergers that Created Verizon, AT&T and CenturyLink Were Failures
- AT&T= SBC, Southwestern Bell, Pacific Telesis, SNET, Ameritech, BellSouth and the original AT&T.
- Verizon = Bell Atlantic, NYNEX, GTE, Alltel, and MCI
- CenturyLink = US West turned into Qwest
For the full story, read: The Book of Broken Promises; $400 Billion Broadband Scandal, now a free download.
In 1980, the original AT&T (“Ma Bell”) was the country’s major Telecom Utility and it held monopoly power over America’s telecommunications services and critical infrastructure: it controlled nearly 80% of US Wireline services as well as “long distance”, calls that cross state lines. Following a lengthy trial, in 1984, Ma Bell was broken up into seven Regional Bell Operating Companies (RBOCs), also called "Baby Bells" with the goal of providing increased competition, innovative services and lower prices — especially for long distance service.
GTE, SNET and Alltel were then independent, incumbent State Telecom Utilities that covered only about 20% of the United States.
After years of legal wranglings and cases, (one of which involved a long distance upstart, MCI) each RBOC controlled a group of states. Meanwhile, AT&T was spun off and it kept the long distance business and would later also offer internet and local phone service, as would MCI.
When the RBOCs were created it was feared that they would ‘vertically integrate’ and give advantages to all of their other services, to the detriment of competition because the Wireline infrastructure was still monopoly-controlled. Congress, therefore, passed the Telecom Act of 1996, which was supposed open the incumbent, State Telecom Utility networks to direct competition. The Bell companies opened the State Telecom Utility networks to competition in exchange for being allowed to enter other lines of business, including long distance, cable TV and internet service.
Starting in the 1990’s, in exchange for additional deregulation, the RBOCS promised to upgrade the existing State Telecom Utility Copper Wireline Networks with fiber optics, state-by state. By 2010, America should have had a fully-fiber nationwide network covering rural, urban and suburban areas with robust competition. The RBOCs collected from landline customer’s monthly phone bills an estimated $½ trillion dollars to complete these upgrades by 2017 (and that’s the low number).
Unfortunately, following the passage of the heavily-lobbied 1996 Telecommunications Act, the Bell companies, instead of competing, decided to marry their siblings. They collected the upgrade money from customers, but did not spend those funds to upgrade most of the networks.
By 2005, additional Telecom lobbying influenced the FCC to once again close the Wireline networks to most competition and by 2007 only three consolidated companies — AT&T, Verizon and Centurylink — were left standing, each with their own Wireline fiefdom and a long trail of broken promises and direct harms to consumers. Every merger proposal claimed the merged company would be attacking new territories, increasing wired phone and broadband/internet competition, but that never happened. Instead, we received only partial and much cheaper upgrades:
AT&T rolled out U-Verse and told the public it was a fiber-optic service, only to find that it was actually only the much cheaper DSL — a copper-to-the-home service, using the existing state utility wires, with a fiber optic ‘node’ within ½ mile from the premises.
Verizon partially rolled out out FiOS, a fiber optic service as a “Title II” state utility upgrade so the costs could be charged to phone customers. Verizon finished less than ½ the territories, leaving massive holes, and cities not upgraded, as laid bare by a current lawsuit New York City vs Verizon-NY, which claims 1/3 of the deployment that was supposedly complete was not, leaving over 1 million homes not upgraded.
Over the last few years, AT&T purchased DirecTV, among other companies, and in 2018, it now hopes to buy Time Warner. Verizon purchased AOL and Yahoo. In 2018, both claim they are now ‘Wireless-first’ entertainment companies. Few understand that Verizon and AT&T still control the State Telecom Utilities, but these companies were left to deteriorate. Instead of upgrading most of the State Telecom Utilities’ Wireline networks to fiber optics, Verizon and AT&T are offering under-served areas only cheaper, slower and hazardous Wireless broadband.
What about Verizon Wireless and AT&T Mobility?
There have been a whole series of other mergers that created these wireless companies. At the core of this trail of mergers are three facts:
- Verizon Wireless and AT&T Mobility were unfairly assisted by cross-subsidies: overcharging the State Telecom Utilities’ Wireline* customers for upgrades that never happened and fraudulently transferring this collected money from public, Title-II regulated, State Telecom Utility Wireline companies to separate private, unregulated Wireless companies.
- Verizon Wireless and AT&T Mobility have also been able to use the Wireline utility construction budgets and staff to build out the Wireless networks and not pay market prices to use the networks.
- Most importantly, almost all Wireless service, including 5G, requires a fiber optic wire that is attached to the cell site — every block or two.
This has made the Wired networks appear to be unprofitable, while goosing the profits of AT&T and Verizon’s wireless companies. While technologies may change, the fundamentals haven’t. Verizon, AT&T and CenturyLink still control most of the State Telecom Utility Wireline companies, these Wires are still mostly monopolies, and the companies have been received the benefits from being utility monopolies, but have have not fulfilled the stated utility obligations.
Worse, the Trump FCC is captured/controlled by Verizon, AT&T and CenturyLink. The FCC is dutifully removing all remaining regulations, obligations and any oversight — based on a plan laid out by AT&T in 2012 and handed to now-FCC Chairman Ajit Pai. This is the American Legislative Exchange Council’s (ALEC’s) “model” state legislation.
The Solution: Divestiture . . . Again
We need to break up Verizon, AT&T and CenturyLink now — before it is too late. Net Neutrality, privacy issues, the price of service, the Digital Divide and the lack of competition are all tied to a few companies taking control over publicly-funded infrastructure and manipulating the public policies. We also need to deal with opening up the cable networks to competition.
With the the manipulation of the accounting required by the FCC and the State Utility Commissions that make the State Telecom Utility Wireline networks look unprofitable, while feeding the Wireless companies’ profits and with the FCC’s attacks to ‘shut off the copper’, and remove all regulation of the wired networks . . . we must separate
- The State Telecom Utility Wireline networks, including the fiber optic Wireline networks for which customers already paid (but never received)
. . . from . . .
- The entertainment, ad-tech, customer tracking, wireless data cap revenue steam
We must also make the Verizon Wireless and AT&T Mobility pay market prices for using the Wireline networks. We need to reopen the very Wireline networks — for which we all paid — to full competition and help State Telecom Utilities and municipalities upgrade everyone, everywhere.
The Bell mergers should act as a guide to future mergers pointing to one important fact: the statements, commitments, enforcement of those commitments and the outcomes never matched what was expected to occur. Without serious commitments and enforcement of those commitments, the benefits of the mergers accrued to the merged parties and not the public interest.
In all cases, the pre-merged companies had made commitments to upgrade the Public Switched Telephone Networks, (PSTN) with fiber optics for broadband. In every case, post-merger, SBC (now AT&T) or Bell Atlantic (now Verizon) closed down whatever was being previously deployed, even though there were state regulation plans to fund these networks via increases to local rates and tax benefits to do so. There have been no audits, refunds, or serious penalties in any state, much less by the FCC.
All of this started 25 years ago:
SBC (Southwestern Bell)-Pacific Telesis Merger: In 1993, Pacific Bell had committed to spend $16 billion and rewire 5.5 million homes in California by 2000. By 1997, after the SBC merger, SBC closed all previous broadband commitments prematurely, with only a fraction of the money spent and no finished fiber-based homes deployed.
SBC-SNET Merger: SNET, the state-based utility for Connecticut, had stated it would spend $4.5 billion and deploy “I-SNET” to the entire state to be completed by 2007. SNET rolled out cable services, which were closed post-SBC merger of 1998; the networks were abandoned and competitors were blocked from using them.
NYNEX-Bell Atlantic Merger: Bell Atlantic had stated it would spend $11 billion on 8.75 million fiber optic-based upgraded homes by 2000. NYNEX claimed it would have 1.5–2 million fiber optic based homes completed by 2000. Post merger, all projects were canceled.
Competition and Broadband: SBC-Ameritech and Bell-Atlantic-GTE (creating Verizon) mergers were both predicated on the commitments of companies to compete outside their own territories with all of the other Bell companies.
SBC-Ameritech Merger: (Illinois, Indiana, Ohio, Wisconsin, and Michigan) The company committed to compete in 30 cities outside their region by 2002. The company also committed to Project Pronto, to spend $6 billion so that “80 percent of SBC’s United States Wireline customers in three years, moving many customers from the existing copper network to a new fiber network.”
Outcome: There was no serious competition outside the companies’ territories; The FCC’s commitments only required “at least 3 unaffiliated customers” in a market. Project Pronto was never completed.
Bell Atlantic-GTE-(Verizon) Merger of 2000 claimed they would “spend a minimum of $500 million to provide competitive local service, including traditional local telecom services and advanced services, outside of its service areas, in 24 cities, and will provide competitive local service to at least 250,000 out-of region customer lines.”
Outcome: The company never seriously competed outside its region either in local service or ‘advanced’ services, and there are questions if they actually spent the money.
Buying the Long Distance Competitors: Regarding the AT&T-SBC and Verizon-MCI, 2005 mergers, the FCC wrote: “The mergers should result in substantial cost savings, which should benefit consumers throughout the country.”
Outcome: AT&T and MCI were the two largest long-distance competitors and both were sold; their previous long-distance clients received large rate increases, as did the incumbent local and other services in the majority of states. The two, almost simultaneous, mergers reduced competition, as well as the political-balance as AT&T and MCI long-distance acted as a competitive voice, balancing the incumbents.
AT&T-BellSouth Merger: Committed to providing “Internet access service at speeds in excess of 200 kbps in at least one direction) to 100 percent of the residential living units in the AT&T/BellSouth territory by the end of 2007”. The company also committed to sell DSL service for $10.00 to new customers. (Note: 200 kbps was the FCC’s standard for broadband at the time.)
Outcome: Most customers were not offered $10.00 DSL and the company never fulfilled providing 100% of their territories (in 22 states) with broadband capable of 200 kbps in one direction. AT&T currently controls the state utilities of 21 states.
Note: Click for the original summary with reference quotes, first published August 2, 2010, then by Public Knowledge.
For full references and footnotes see The Book of Broken Promises now a free download.