Transcript: Community Broadband Bits Episode 23

Thanks to Jeff Hoel for providing the transcript for Episode 23 of the Community Broadband Bits Podcast. Harold Feld of Public Knowledge talks about telecommunication policy and the reality of antitrust enforcement. Listen to this episode here.

00:15:

Lisa Gonzalez:  Hello, and welcome to the Community Broadband Bits Podcast, brought to you by the Institute for Local Self-Reliance.  This is Lisa Gonzalez.

For our 23rd episode, we visit with Harold Feld.  Harold is the Senior Vice President of Public Knowledge.  Public Knowledge is one of the leading organizations dedicated to the ** of an open Internet, copyright protections, and telecommunications law.  Harold is also the author of his blog, "Tales of the Sausage Factory."  Harold and Chris discuss the economic realities of antitrust enforcement, and how it has inspired AT&T to invest in its network.  The two also discuss current communications policy and regulation from a historical perspective.  They talk about the hurdles that will need to be scaled for effective policy moving forward.  Here are Chris and Harold.

01:00:

Chris Mitchell:  Harold Feld, you are the Senior Vice President of Public Knowledge.  Thank you so much for coming on Community Broadband Bits.

01:08:

Harold Feld:  Thanks for having me.

01:09:

Chris:  I was actually on a Public Knowledge podcast with Michael Weinberg -- a year ago, I believe -- and it was a good discussion.  Can you tell us what Public Knowledge does?

01:18:

Harold:  Public Knowledge is a digital rights advocacy group.  We're based in Washington, DC.  What we try to do is make sure the public has a seat at the table for the very important policy discussions that shape our digital future.  So, that means trying to fight for sensible copyright policies, that don't allow the content holders to overreach and shut down people's rights online.  And don't interfere with the development of new technologies.  But we also care very much about making sure that everybody has access to broadband, and in a way that the companies providing it can't censor, and ensuring that it's affordable.  So we're very active on broadband issues as well.

01:59:

Chris:  And you've been around for a very long time in these fights.  I know you've been active in community broadband way back before I was.  So, we really appreciate your expertise on these matters.  I'm hoping to start the conversation by an interesting post that you had put up, which suggested that, in fact, it was a pro-regulatory decision that has led to AT&T's recent investment decisions.  And their requests for changes in regulations.  So, can you tell us why it matters what the FCC did with the merger?

02:32:

Harold:  Yes.  Well, this is -- this cannot be emphasized enough.  Because the conventional wisdom is that, oh, regulation is bad, and it kills investment.  And even people who were opposing the AT&T/T-Mobile merger usually did it on, well, you know, they'll be able to overcharge, and that will be bad for consumers -- all of which was true.  But even the people who opposed it seemed to be saying, well, you know, we just have to accept that AT&T won't build out if they don't get what they want.  We argued, at Public Knowledge, that, no, companies make their investment decisions based on the market realities, not on getting regulatory treats from, you know, federal and state government.  So, when AT&T came along and said, well, we want to buy T-Mobile so that we'll have lots of spectrum and therefore be able to do all this good stuff, we argued, no.  AT&T as spectrum.  They have a network.  The problem is, they don't want to invest in upgrading that network.  They'd rather buy a company, take out a competitor, and simply gobble up, you know, that company and those resources, rather improving the -- and investing in the resources they have.  And the reason for that is very simple.  Not only do you get rid of a potential competitor but, also, Wall Street rewards you when you buy a company, by sending your stock up, and it punishes you when you do investment, by selling your stock off.  So, if you're AT&T, you know, you say, OK, would I rather spend billions of dollars upgrading my network, or would I rather spend billions of dollars buying somebody?  Given the choice, they'd rather buy people.

What was important here is that regulators didn't give them the choice.  They said, no, we're not going to let you take out one of the four major competitors.  We need that competition.  And, in fact, that competition is what's going to force you to invest in your network and upgrade your network.  And, the moral is, that was the right decision.  AT&T had promised to invest $8 billion in its wireless network if it was allowed to buy T-Mobile, while sending $25 billion overseas to Deutsche Telecom.  Now, AT&T has said they will invest $14 billion in their network.  Instead of the $8 billion that they'd promised.  So, we're seeing $6 billion more, coming from the fact that the merger was denied.  Add onto that that Deutsche Telecom has invested $5 billion in T-Mobile.  So, altogether, the decision to rely on antitrust and some of the additional pro-competitive policies that the FCC has adopted over the last year with regard to spectrum concentration, have meant that instead of seeing MAYBE an investment of $8 billion, and losing a major competitor, we're actually seeing an investment of $19 billion in the network, and we HAVE competition.

05:38:

Chris:  Is it also accurate to say that the value to AT&T of T-Mobile wasn't just getting new spectrum but blocking anyone else from having that spectrum?  Like a toddler might view having a toy?

05:51:

Harold:  Yeah.  And, you know -- I mean, look, I'm not one of these who believes that you get anywhere by, you know, just saying, well, these companies are evil.  They're not evil.  But they are -- they can certainly come off sometimes as spoiled children.  And, you know, AT&T was typical of this.  They want to have -- to buy out T-Mobile, which not only would have given them a new network and new spectrum, but also would have taken out a competitor.  Everybody would like to take out a competitor if you're in business.  No business likes having, you know, competition.  So, it was rational on their part.  And then, afterwards, they threw a six-months tantrum, where, you know, Randall Stephenson said at all these press conferences and everything, well, we don't have a real strategy now, because the FCC wouldn't let us buy T-Mobile.  So there.

But, you know what, companies that want to survive get over it.  And, looking at their current network set-up, and their current -- you know, how it all works out, AT&T very rationally said, look, you know, we're not going to be able to buy anybody else out.  We're just going to have to bite the bullet and do the network investment, just like Verizon did, back -- five years ago.  And, you know, take our lumps on Wall Street.  Because that's the only way we're going to be able to survive.

07:06:

Chris:  So, I think the take-away, then, is that -- something that -- I would -- I heartily agree with you, these companies are not evil.  But they also make their decisions based on what's best for the growth of their company in their eyes, not based on whether or not they're able to convince people in DC to do what they say.

07:22:

Harold:  Exactly.  And this is the thing.  Everybody -- you know, I sometimes get a lot of flak from people who think that deregulation's the answer to everything, by saying, we'll, you don't trust the market.  No, I trust the market completely.  I love dealing with for-profit firms, because I know what they want to do: maximize their revenue.  So, for policy purposes, I say, OK, I want to channel that -- I want to channel all those positive, productive things that capital markets do well, and that these companies do well.  But I also gotta recognize that, given a choice between the pro-public goals of getting them to invest in their networks, getting them to offer affordable service, you need to have policies in place that are going to force them to do that.  And that means having policies in place that make competition possible and that address things like rural service and universal service, where just, economically, there is not enough business to support multiple private providers.

08:24:

Chris:  OK.  So I think that starts to get us into what we're seeing from AT&T more recently, which is their request to the FCC that we revisit how, essentially, all telecommunications is regulated.  And I'm -- I've been confused about it.  I know a lot of other people have been.  And so the real reason I wanted to get you on here was so you could explain to us what AT&T wants to change.  And, I think, a bit of a focus on how it works at present.

08:54:

Harold:  Yup.  Well, it's important to keep the history in mind here.  You know.  It's interesting, because we're now at the 100th anniversary of something called the "Kingsbury Commitment," which was the deal that was struck by what was then AT&T's general counsel, a guy named Kingsbury, and Teddy Roosevelt and his trust busters.  Where the deal was, you, AT&T, will get a monopoly -- telephone service in the United States -- and in exchange, you're going to make a commitment to having a reliable, affordable, nationwide network.  And that deal, you know, worked out pretty well for a bunch of things.  But it came with -- there were regulations and expectations that were imposed on AT&T as the monopoly provider, in order to make sure that rural residents got service that was of decent quality, that this was a -- that basic phone would remain affordable.  Over the years, we've introduced new technologies.  We have some level of competition, particularly in urban areas.

And the newer networks, when they were coming in -- particularly, the cable networks, that were making investment in Internet Protocol, or IP-based systems -- said, well, we shouldn't be regulated because we're new, and we're providing competition.  We're doing all these good things.  For about the last ten years.  Yeah.  It was in 2002 that the FCC said that cable modem service was an "information service," and therefore not regulated, rather than a "telecommunications service," and therefore subject to the same regulations as AT&T and Verizon and other telephone carriers traditionally have been.

And so, since that time, you know, we've had sort of two parallel systems.  We've had the old phone network, which was the copper network.  And it was based on a technology called TDM -- don't worry about it, just, it's the old network -- that had a lot of rules around it.  They -- some of these were historic rules that were put in place to protect consumers.  There was something called "carrier of last resort," or COLR, which means that wherever you are in the service territory, you're entitled to get phone service.  And on the IP side, which was mostly cable, and, you know, some guys like Vonage and other IP provides, there was no regulation.  So, no basic consumer protections around pricing or privacy.  No requirement to serve everybody.  You know, I think it would come as a surprise to many people that when you buy, you know, telephone service from Comcast or Time Warner Cable or one of the other cable companies, even though it looks like a phone and acts like a phone, it's nor really a "phone" for purposes of regulation.  A lot of the consumer protections you have on the traditional phone system you don't actually have on the IP side.

Wireless service has been sort of in between.  You know, the -- as a regulatory service, what we said was, if you're going to be a wireless carrier, you're kind of like a phone system, but the FCC will have an ability to deregulate you in a bunch of ways that they traditionally had not deregulated the phone service.  And now -- so, wireless service has always had less regulation, for consumer protection or for universal service, than -- and, "universal service," I mean, you know, everybody who's entitled to service -- than the traditional phone service.  And now that's becoming even more significant as we roll out LTE, which is the 4G new wireless technology.  Because the voice component of the LTE is not going to be a separate voice service the way it is now on these phones, but it's going to be IP-based.

So, we're moving to a world where everything's going to be IP.  But we don't have a lot of the social policies that we've had for the last hundred years on our phone network in the IP world.  In fact, we have very little regulation in the IP world.  So this is a big, big switch.

13:07:

Chris:  So, I can sum it up by basically saying AT&T, you know, has been around forever.  And in recent years, the technology has changed, allowing many of its competitors to take advantage of not having to make the same payments and follow the same regulations that AT&T has.  And now, AT&T wants to take advantage of that as well.  And the question is, you know, who's going to uphold -- make sure that everyone has high quality of service?  Make sure that when a tornado rips through Missouri, that people have phones that will work?  And make sure that cell towers are sort of well provisioned?  It's sort of, everything seems up for discussion, then, is what you're saying.

13:47:

Harold:  Yeah.  I think that's right.  And this is where, you know, people need to be very conscious about all of the stuff we've taken for granted about the phone system.  It's kind of like the postal system, you know.  Everybody would say, oh, the post office!  It's obsolete.  It just sends junk mail.  Nobody writes letters anymore.  But then when we actually said, hey, let's shut down rural postal service, because it's too expensive and we don't need it anymore, suddenly we discovered, hey, a lot of people are depending on this.  This is really important in rural communities.  Even also in urban communities, particularly in neighborhoods where practically the only people who are willing to go in and deliver stuff are the post office.  There's -- you know, there's a lot at stake here that people don't notice because we just take it all for granted.

We -- the same thing is going on here.  On the one hand, what AT&T wants makes total economic sense -- for AT&T.  They're saying, look, we can't compete with cable guys who don't have to bring service to more expensive areas.  We can't bring copper out to these places, because copper is very expensive to maintain.  So we're going to switch things all over to these, you know, better and more powerful Internet networks.  At the same time, we're also going to charge more for them.  And we want to be deregulated in the same way that our competitors are.

I want competition.  But I don't want competition that leaves people behind.  I don't want us to be the first industrialized country to actually step back from nearly 100 percent penetration on voice service, and go to, well, 95 percent is good enough.  Because, you know, sacrificing 5 percent of people in rural areas means that all of the other people who get the network get a better network.  You know.

15:34:

Chris:  Um hum.

15:34:

Harold:  That's social policy we should pursue.

15:37:

Chris:  I think it's safe to say, I don't agree with AT&T that they can't afford to do these things, and that these things are impossible.  But, at the same time, we have to recognize the reality that our regulations are somewhat old.  And it's not fair to many of the people involved, many of the businesses, that they're fighting under different rules.  What I'm curious about is, It seems that we've had this discussion for a number of years.  Oh, we need Congress to rewrite the Telecommunications Act.  Is that going to happen under this President?  Is that going to be pushed off for the future?  Who's going to do it?  It seems like what AT&T is doing is trying to get the FCC to do that.  Can you help me clear up, a little bit, my understanding there?

16:16:

Harold:  Yeah.  I mean -- and that's basically right.  I mean, the fact is that the FCC has more authority than it's generally given credit for in these areas.  The reason why our IP-based networks are unregulated, and regulation has been sort of trapped and attached to the old telephone network, has been a deliberate policy choice under the statue.  What AT&T is saying is that, yeah, you know, we want to move this along in a direction that we feel the FCC can move this.  Of course, AT&T's choice is, we'd like to be unregulated like everybody else.  We understand that that's probably not in the cards, says AT&T.  But at the same time, we'd like to be as unregulated as possible.

The FCC, really, here, has two choices.  One is, do you try to come up with something that works for all of the IP-based networks?  You know, you say, look, cable guys, you had ten years of total dereg to get your systems in place.  You know, all of you guys who are build and using IP, we now need to recognize that you're no longer an "extra" service.  And while we don't want the same rules that we had for copper networks, because technologies are very different, economic circumstances are very different, we need to have some basic rules of the road.  You know, we need to all sit down and figure out, you know, now you're not a cable network, you're a communications company.  How is that going to work?  AT&T, Verizon, CenturyLink, all of the rest of you guys, you know, what are the rules we're going to have that mean that everybody is making sure their networks are reliable; that they stand up to these natural disasters; and where they need repair they get repaired quickly; that people still have affordable service.  And we still have policies that protect competition.  So that all of the good stuff that comes out of these IP networks -- the -- you know, the innovation, more powerful and faster broadband networks -- where -- how are we going to make sure that we have enough competition coming so that those companies will want to keep upgrading and passing on those benefits to consumers?

So, that's one approach.  The other problem is that the FCC could say, well, it's too politically hard to bring the cable people into this conversation.  So we have to come up with a solution that uses the regulatory hooks we have into AT&T and the other telephone networks.  And maybe that's less "fair" -- although I'm not terribly worried about fairness.  I mean, you know, AT&T had a good run of 60-70 years as a monopoly provider.  And wireline guys that are under telephone regulations got a lot of privileges to go along with those regulations.  So, you know --  But the real question is, we need to look out for everybody.  This isn't some sports game, where we care about, you know, well, are you fair?  And are you playing your best?  And is everybody having a good time?  You know, this is social pol- -- this is, you know, people's lives.  You know -- they connect to 9-1-1 or not.  And people's economic livelihoods.  As well as what's "fair" to AT&T and the other wireline companies.  So, you know, even if the FCC takes an approach that is focused on --  Well, I got the telephone guys in front of me, and Congress is the one who's going to have to do something kind of more broadly for the cable guys and everybody else.  We can't just say, well, all right, cable guys have no regs, so you, telephone guys, you have no regs too.  We need to have some kind of safety net in place that is going to address these very real and continuing social policies that we had in the old phone network.

20:11:

Chris:  I think the idea of talking about it as though it's a sport is entertaining, the way you put it.  It's -- you know, this is fundamental to almost every aspect of our economy, our education system, our healthcare, everything.  It's not, everybody gets a trophy.

20:24:

Harold:  It's certainly appropriate to recognize that, well, because of the way franchising worked, cable operators didn't have to deploy in rural areas the way that telephone companies did.  So telephone companies now have some additional calls associated with it.  You know, I can recognize that, without saying, well, and, therefore, that let's you off the hook, and we throw rural guys under the bus.

20:45:

Chris:  Well, this is only the tip of the iceberg, as they say.  And I think we're going to -- we'll try and get you back on, if you are able to set some time aside.  Because this is going to be really important.  There's a lot of other things to discuss.  And I think we'll probably solicit some questions that people have.  And we'll be able to follow up soon, I hope.

21:03:

Harold:  Yeah.  I hope so.  This is a conversation that we're going to be having in -- not just in Washington, DC, but in every statehouse, as well, over the next couple of years.  And this is really the time for people to make themselves heard.  By the time the decisions are made, and you're finding out about it because your phone service is being cut off, and your only choice is to buy a wireless package that costs three times as much, that's going to be too late to raise a ruckus.

21:35:

Chris:  I visit my wife's parents regularly, up in central Minnesota, where -- it's some of the hardest territory to serve.  And we have wireless phone in the yard, but not in the house.  And you don't want to get back into a situation where you have to go outside to make phone calls all the time.

Thank you so much for your time.

21:50:

Harold:  Thanks.  You, too.

21:51:

Lisa:  That was Christopher and Harold Feld from Public Knowledge.  You can learn more about the organization's work at publicknowledge.org .  You can also access Harold's blog, "Tales of the Sausage Factory," at wetmachine.com .  Harold has an extensive collection of work on Internet freedom, copyright, and telecommunications law and policy.  If you have any questions or comments, please send us a note.  E-mail us at podcast@muninetworks.org .  Our handle on Twitter is @communitynets .  This show was released on November 27th, 2012.  Thanks to the mojo monkeys for the music, licensed using Creative Commons.  The song is called, "Bodacious."