NetAction Notes

Published by NetAction Issue No. 58 July 5, 2000
Repost where appropriate. See copyright information at end of message.


How the Bells Stole America's Digital Future
About NetAction Notes

How the Bells Stole America's Digital Future

NetAction has just released a new white paper that could prove to be especially timely in light of the Federal Communications Commission's (FCC) decision to unleash SBC Communications, Inc. on the Texas long distance telephone market.

"How the Bells Stole America's Digital Future" examines the history of the Bells' failure to deploy high-speed fiber optic networks over the past decade. It is a story about broken promises that uses the companies' own words from annual reports, press releases and regulatory applications that document the specific plans and time lines that the Bells announced in the early 1990s for building fiber optic networks.

If the Bells had delivered on their promises, nearly half of America's households and the vast majority of the nation's schools would already be wired with high-speed fiber optic networks capable of delivering super-fast two-way Internet connections, interactive video, and more. Instead, as of January 2000, only about half a million households have access to the Internet over fiber.

The white paper was written by Bruce Kushnick of New Networks Institute, a longtime telecommunications research analyst who has been tracking telephone company finances since the Baby Bells were created by the breakup of AT&T. The full report is on NetAction's web site at:

Kushnick argues that the Bells contributed to the digital divide by failing to deliver on promises to wire some 44 million households as well as low-income urban neighborhoods, rural communities, schools, libraries, health care facilities, and even prisons.

As described in the white paper, the phone companies made broad and ambitious promises to regulators and consumers, frequently in exchange for relief from important pro-consumer regulations. The new regulatory arrangements -- typically referred to as incentive, alternate, or price cap regulation -- made the Bells some of the most profitable companies in America. Financial reports show the Bells have profit margins more than double that of other regulated utilities and the major long distance phone companies, and 167% above the profit margins of well-known companies like McDonalds, Dow Jones and Disney.

Kushnick estimates that consumers have already paid over $45 billion in extra telephone charges and continue to overpay by more than $8 billion annually, as a result of the changes in regulatory policy.

The Bells' history of broken promises is especially significant now that regulators are beginning to let the Bells into the long distance market. Bell Atlantic's entry into long distance in New York resulted in so many complaints from competitors that an FCC investigation was initiated within weeks of the company's entry into the market. And when the U.S. Department of Justice recommended approval of SBC's application, the agency acknowledged that it still had concerns about SBC's willingness to comply with all the requirements.

NetAction believes that the Bells' long record of failed promises -- as documented in the white paper -- should be a warning to policy makers to wait for much stronger evidence that robust competition has emerged in both telecommunications and information technology before lifting the conditions imposed upon the Bells by the Telecommunications Act of 1996.

And in light of the findings regarding excess profits, we are asking Congress to hold hearings to determine how much excess profits the Bells earned as a result of their broken promises, and then to either return the money to ratepayers or use it to help bridge the digital divide by supporting community technology centers and other programs that expand access to information technology.

Several organizations have endorsed the report, including Computer Professionals for Social Responsibility (CPSR), the Civil Rights Forum on Communications Policy, Consumers' Voice, Texas Citizen Action, Arizona Citizen Action, Gray Panthers, and Americans for Competitive Telecommunications. We welcome support from other organizations in working to convince Congress to look into how much excess profits the Bells earned as a result of their broken promises.

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NetAction Notes is a free electronic newsletter, published by NetAction. NetAction is a California-based non-profit organization dedicated to promoting use of the Internet for grassroots citizen action, and to educating the public, policy makers, and the media about technology policy issues.

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