This is the transcript for episode 258 of the Community Broadband Bits Podcast. Researchers from the Roosevelt Institute join our host Christopher Mitchell to discuss antitrust policy and Internet access. Listen to this episode here.
Marshall Steinbaum: This is us choosing a set of policies that is the worst of both worlds, that is both deregulatory and anti-competitive. Instead you can do both.
Lisa Gonzalez: This is episode 258 of the Community Broadband Bits Podcast from the Institute for Local Self-Reliance. I'm Lisa Gonzalez. This week Christopher visits with two other policy folk from the Roosevelt Institute, Marshall Steinbaum and Rakeen Mabud. Earlier this year the Roosevelt Institute released a report that examines how antitrust enforcement has changed and how those changes have impacted the telecommunications industry. Christopher, Marshall and Rakeen consider how that approach has affected people who may or may not subscribe to Internet access services. You can download the report and learn more about the organization at rooseveltinstitute.org. Now here are Christopher with Marshall Steinbaum and Rakeen Mabud.
Christopher Mitchell: Welcome to another edition of the Community Broadband Bits Podcast. I'm Chris Mitchell and today I'm speaking with two folks from the Roosevelt Institute. Marshall Steinbaum, the senior economist and fellow at the Roosevelt Institute. Welcome to the show.
Marshall Steinbaum: Thank you. It's great to be here.
Christopher Mitchell: We also have Rakeen Mabud, the program director at Roosevelt Institute. Welcome to the show.
Rakeen Mabud: Thanks, nice to be here.
Christopher Mitchell: I first was aware of you guys several years ago because of some work that Susan Crawford was doing with you I believe. I saw what really great work you were doing and then I read the Crossed Lines report, why the AT&T/Time Warner merger demands a new approach to antitrust. I thought it was terrific. I'm excited to talk about these kind of issues today but I thought that we'd start maybe by asking and reminding people that it's been 21 years since the Telecommunications Act of 1996 had promised to basically get rid of monopoly and have incredible competition. We'd all see more investment, lower prices and generally higher quality services. What happened? I think maybe Marshall would be the best person to start off.
Marshall Steinbaum: Yeah. I think that that legislation was driven by two major assumptions about the telecommunication sector. Essentially the problems that we've seen in this area are due to the fact that both of those assumptions turned out to be false. When the act when into effect it did not have the effect that was forecast ex-ante. Those two assumptions are that if you allow corporations to compete with one another across modes they will do so lowering prices, increasing variety, increasing innovation and the benefits of doing that will flow to the consumers. Secondly that new technologies would be forthcoming in the field of telecoms, such that the old modes of communication would be made obsolete and thus it was less imperative that they be regulated in the public interest in the way that they had been under 1934 act. There was this idea that technological advance was inevitable. This advance would create new ways of communicating and because we would have those new ways of communicating we didn't need to keep such a vigilant eye on the old ways of communicating.
Christopher Mitchell: It's actually really interesting because in some ways if one or the other had failed you might have had a better environment, but the fact of the first one actually influenced the second one, which is to say that broadband over power lines and satellite, they certainly didn't live up to the hopes of 1996. But some of the wireless technologies probably could have if they were not captured by some of those entities that should have been competing with them.
Marshall Steinbaum: Yes, I completely agree with that. It's not as though we didn't get new technology since 1196. Everyone knows that we did. We had these technologies come in but they didn't actually compete, instead they just merged and the existing dominant players extended their footprint into these new sectors. There was no meaningful sense in which you could get around the monopolized old telecommunications network through the use of some sort of magically competitive new one. I also think that the critical issue here is that we implemented this new regulatory regime in telecoms that said, "Well, we're not going to essentially require the equitability in access that we had under the 1934 regime," but we also at the same time had an antitrust competition policy that was extremely favorable to consolidation. So the whole benefit of deregulation is supposed to be that competition serves the consumer, but what we actually got was not competition but rather just consolidation and deregulated private monopolies, which is sort of the worst of both worlds.
Christopher Mitchell: Because you have economist in your title I want to make one additional point with relation that's a little bit more general and I'm curious how you'd react, which is that this seems like policy makers are Charlie Brown and competition is the football that keeps getting pulled away. I would point to I believe it was Adam Smith who noted that basically if you put a bunch of people who are in the same trade together in a room, the first thing they talk about is how to restrain trade, and yet with policy makers it seems like there's this idea that they really want to be in competition with each other. It seems like a mistake we make over and over again.
Marshall Steinbaum: Yeah, I think that's by design. Charlie Brown kept getting deceived, whereas these deregulatory policies are implemented knowing that they're not going to end up serving the consumer even though the ideology says that they will. What you just described that Adam Smith says, that when companies or suppliers get together they do nothing but conspire against the public interest, that was the ideology that the people who promoted the 1996 act espoused with respect to the old regime, to the 1934. That is, they conjured up this so-called public choice economics where what happened under the 1934 was that cozy old AT&T or Ma Bell in the olden days would get together with their friends at the FCC and figure out how to screw over America. They had this whole ideology of deregulation that was supposed to do what Adam Smith is saying needs to be done in terms of breaking up anti-competitive cartels in a regulated industry. They took that to the table and said, "All right, let them compete with each other. We'll have not just competition between the Baby Bells and among the Baby Bells, the Baby Bells with AT&T and vice-versa and wire line telephone but we'll also have that competitive model replicated over again when we get to these new technologies and broadband and then wireless. It turns out that there was a good reason for the 1943 legislation. In other words, when they tried this deregulatory approach what actually happened was exactly what you described, what Adam Smith said would happen. Which is to say that the incumbent providers free from oversight from the FCC started getting together and figuring out how they could profit at the public expense.
Christopher Mitchell: I think Rakeen maybe you want to come in to tell us a little bit about how this is really impacting people.
Rakeen Mabud: Yeah. I just wanted to point out that it's important to remember that the massive rise in consolidation after the 96 telecoms act had really major implications for digital equity as well. Because the broadband infrastructure is so often build on top existing infrastructure and there are high fixed cost to building that infrastructure from scratch, low income communities are often left out. Both because they've been left out of previous infrastructure investment, what we call digital red lining, and because market concentration essentially incentivizes ISPs to provide service only to areas where they can make a profit. Low income communities, and I should say here that income is highly correlated with race, which is important, are much less likely to be able to pay these high prices. Plus, extremely concentrated markets like telecoms provide a high barrier to entry for new market entrants. So the competition could drive down prices, increase innovation and provide incentives for broadband provision to low income areas. It's really hard to achieve that in this kind of market environment. This type of market consolidation makes the conditions ripe for discrimination by large telecoms providers, which is actually exactly what happened in the 1990s.
Christopher Mitchell: Rakeen, I think it's an interesting question. If we had the kind of market competition that was envisioned and might be possible, do you think that that would lead to better options for low income folks, or just more rigorous competition for middle income and higher income families?
Rakeen Mabud: I do think that it would improve things from an equity lens. Increased competition would essentially do a lot of the things that consolidation stifles. These mega firms don't have any incentive to innovate for example, because they have such a stranglehold on their respective markets. Innovation is really important from an equity standpoint because it means finding cheaper and more efficient ways to deliver good services, which in terms opens up markets because lower cost means that more people will be able to afford the service. In turn previously unprofitable markets would become more profitable for service providers. At the end of the day monopolized private providers are only going to care about serving the highest margin consumer, and that's historically been the case. If we had all Internet infrastructure in private hands, it would cost a lot of money and not even be available to disadvantaged communities. The whole idea behind deregulation suggests that every community can get the level of service it wants, assuming that companies will offer fast and expensive services to those willing to pay a lot and slower and cheaper services for those willing to pay less. But more often than not it's slow and expensive services provided to the rich and nothing for everyone else. A more competitive system really would expend the types of people who have access to services, but also improve the quality.
Christopher Mitchell: I imagine the cable lobbyists response to this, and I'll direct this to you Marshall, would be, "Look, we've invested trillions of dollars, billions of dollars," whatever they want to say. "Speeds have never been higher than they are now." AT&T will say, "There's more than 100 communities in which if you live at the right address you could get fiber. There are people who have choices." What exactly have we not received because of the consolidation?
Marshall Steinbaum: I think Europe offers the most obvious alternative history for what we could have had in the United States. Not to say that their telecoms regulatory or competition policy regimes is perfect, but they have many more options available to consumers at all income levels. Essentially all of those options are better than all of the options that are available here. The mythology that Rakeen just referred, that deregulation is good because everyone gets what they wants simply hasn't been borne out here. Europe has, first of all, a much more stringent set of guidelines that prevent the full consolidation in each of the modes that we've had in this country. That's from the antitrust and competition policy perspective. Secondly, they have much stronger regulatory mandates on companies to provide free and equal service at a high quality to customer bases in some degree regardless of ability to pay. What they have done is retain the flavor of the 1934 regime that was started to be undone by the antitrust case against Ma Bell here in the early 80s. They are operating at full tilt. A telecommunications network where in effect the rich are subsidizing the poor through a pooling equilibrium to use the economics jargon, and we decided not to do that anymore in this country. I think Europe shows that it can be done with the same if not better innovation, the same if not better service. It's not like they're laboring in the medieval past at the way that those same lobbyists you referred to would say, "We've invested and had we not gotten the profits associated with that investment then the US telecommunications infrastructure would be much, much less dense than it is even with lower service." We know for a fact it isn't true.
Christopher Mitchell: Right. Many areas would love to have the investment that a few cities have at this point. We obviously see a great disparity across communities. One of the things we've seen and there's good arguments that one may want to have net neutrality legislation and requirements, even if you had robust competition, but when you don't have robust competition it seems all the more important.
Marshall Steinbaum: Yeah.
Christopher Mitchell: But I think some of the issues around net neutrality, which I suspect almost everyone who's listening understands. It's the idea that your ISP shouldn't be able to overly influence you or tell you how to use the Internet, more or less. I'm curious, I think there are some deeper issues that don't always get discussed unless you're reading all of the personal writings on Harold Feld's blog or something like that. Marshall, I'm wondering if you can give us a sense of something we should be looking at with regard to some of the things that are happening are net neutrality right now?
Marshall Steinbaum: I imagine that your listeners won't be surprised to hear that Ajit Pai has been up to some nefarious dealings in his current position.
Christopher Mitchell: Yes, FCC chairman Pai has long been a foe of our way of thinking. We're quite concerned with him.
Marshall Steinbaum: I think what's striking about what's happened since he became the chairman is the surgical precision by which he has operated the different levers of the federal bureaucracy in such a way that it benefits his old friends and colleagues at Verizon and their peers. In particular, as we know he's dismantling the set of policies referred to as net neutrality. One of the ways that that is going to be done is by removing the market participant's recourse to complain about unequal treatment and discrimination from the FCC and its various mechanisms for adjudicating common carriage to the FTC. The Federal Trade commission has a consumer protection antitrust and competition mandate, that's what it does. It is not sector specific like the FCC. What is quite true about the FTC is that it only really cares about what it calls consumer welfare or consumer surplus. Its job, if it has any job, is to serve consumers. Hopefully they're at least doing that. But net neutrality and the issues that arise therefrom are inherently not solely a consumer facing issue. If an upstream content providers feels it's being discriminated against by an Internet provider, by a distributor in any one of the telecoms modes, in order to win a case or win some sort of proceeding before the Federal Trade Commission they have to somehow show that consumers are actually being harmed and that is hard to do. It would be like saying, I'm Netflix say and I'm being held up and forced to pay through the nose by an Internet Service Provide, I have to say that the real entity being harmed here is consumers. That's possible, it's certainly the case that consumers can be harmed by upstream discrimination, but the point is that upstream content providers, they have rights under the communications regulations that go beyond whether discrimination and unfair treatment harm consumers. Under the section 2 of the 1934 act and as extended by the prior administration at the FCC, the content providers can go to the FCC and say, "I've been discriminated against. That's not far," and stop there. They don't have to prove any claims about the impact on consumers. This sort of bureaucratic wrangling, where you take this whole function and move it from the agency where the plaintiff so to speak get a hearing, to the agency that is structurally reluctant to grant a hearing to upstream content providers of various kinds, you're automatically weakening the common carriage principles that underlie net neutrality.
Christopher Mitchell: I think one of the things to be concerned about is not necessarily where chairman Pai is going right now, but if we see this administration continuing to basically be so unpopular and we see this issue of net neutrality at the FCC also showing so much resistance of the public and businesses to changing the regime, I think one of the things we fear is that congress may come in, and there again we may see Republicans in congress striking a deal in which they're trying to push this to the FTC as well. Is that something that you'd be afraid of?
Marshall Steinbaum: Yes. There's a couple of different FTC process reform bills. I'm not aware of draft legislation that does that but they may exist, I certainly don't have complete knowledge of what's going on in congress in this area. I think your general concern that, either if the administration doesn't think it can get what it wants through the purely administrative procedures, or I think it's pretty clear that chairman Pai is serving the interest of an outside master so to speak. If they don't feel like they can get what they need solely through administrative functions, then they will bring the matter to legislation. Given what happened in 1996 I would fear what that might bring about in terms of congress because these companies, they have lots of influence on both sides of the aisle in congress. On the other hand I think it is fair to say that this very strong ideology that powered the 1996 has tempered to some degree in congress. You're not going to get the one sided hearing that went down in 1996, on the other hand of course that was strongly by partisan legislation, whereas given that one party controls all of congress right now you could see a much more partisan thing playing out, where the ultimate policy outcome is just as bad if not substantially worse than what happened in 1996.
Christopher Mitchell: Rakeen, one of the things that we come back to at the Institute for Local Self-Reliance is watching the horror show at the federal level and then trying to figure out what we can do about it at the local level. I think you've been looking at a project that we recently discussed with Joshua Breitbart in New York City about Queensbridge and a large low income housing development. What's going on there?
Rakeen Mabud: As many of your listeners probably already know, there are lots of municipalities getting around the federal policy landscape, experimenting with different models of municipal broadband. One model that I want to throw out there is the model in Chattanooga, Tennessee, where the city has established a municipal utility that provides a high speed low cost broadband for all the city's residents. It subsidizes it for lower income people. Another is the Queensbridge project which you just mentioned. This is a demonstration project in New York City and my team at Roosevelt is currently writing a case study on it with Maya Wiley, who is the former counsel to the mayor and actually currently a faculty member at The New School.
Christopher Mitchell: And a wonderful person.
Rakeen Mabud: She's great. She's super sharp. The Queensbridge project, just to give a quick overview, provides a free and extremely fast Internet to the residents of the Queensbridge's houses, which is actually the largest public housing development in all of North America. In the case of the Queensbridge project the city contracts with an outside ISP but owns and maintains all the physical infrastructure. I think there are two interesting things here. First, Queensbridge provides a vision for what municipal broadband could look like in the future. This is a service that's treated like a utility, provided by the government and it's free. Second, I brought up Chattanooga because I think both and Queensbridge provide different models of municipalities experimenting with elements of a public option. I think both models have their merits. In many ways the Queensbridge model prioritizes equity because the folks working in city hall at the time, such as Maya and Josh, realized that even a cheap plan, say $9.99 a month, is $10 that could be better spent on food, clothes or other necessities. The Queensbridge plan really does prioritize providing Internet to the people who are most marginalized from the broader telecom industry. Chattanooga in a lot of ways is more of a traditional public option. It doesn't provide free services to anyone, even though there are subsidies for lower income consumers.
Christopher Mitchell: I think it's worth noting, and I don't know that the utility would provide a free option if they were able to, but Tennessee law does appear to prohibit them from offering a service at below the cost of providing it. That's actually one of the reasons why even though Chattanooga has done everything it can to provide a low income service, paradoxically the state is actually prohibiting them from doing a better job of serving low income folks.
Rakeen Mabud: Right. This is a worrisome trend because we see states across the country imposing these state preemption laws which restricts what municipalities can provide in terms of services. It seems to be on the rise, the states more and more are keeping municipalities from offering these services in a really robust way to their citizens.
Christopher Mitchell: I think we're certainly worried about it more. We're more worried about it now than we have been in the future, but it is worth noting that local groups have been able to stop most of the efforts to establish these. Though we're having more fights now we've mostly seen local groups stopping these efforts. That's been terrific.
Rakeen Mabud: Yes, absolutely. I'm excited to see that there's this increase in municipal experimentation. I really am looking forward to seeing where this goes both with Queensbridge and New York city, but also all of these other municipalities around the country.
Christopher Mitchell: One of the things that I think separates Queensbridge from Chattanooga, aside from a bunch of obvious things, is that Chattanooga built the network using an economic model that pre-supposed the network would for itself out of revenues for the network. Now, the Queensbridge model is fundamentally different. I'm curious if you have a sense of as you think about this, one of the things that worries me is that the Queensbridge in theory could disappear with a different mayor, I suppose. What can we do to make sure that we're making investments that are going to be there for the long haul?
Rakeen Mabud: Yeah, this is something that has been really interesting in digging into this project. This question of, how do you institutionalize these priorities is a big one that's come up over and over again. Certainly in the case of Queensbridge Maya Wiley ended up securing a 10 year capital budget line, so there is a 10 year secured funding source for Queensbridge and all of the projects that come out of the Queensbridge demonstration project. That being said I share your concerns. You have to look out for political ways and whether or not projects like this will be able to withstand them.
Christopher Mitchell: My admiration for Maya grows because the 10 year funding is certainly, it's very smart. Marshall let me throw it back to you for any concluding comments on these issues.
Marshall Steinbaum: I think we know how to do telecoms policy right because we used to do it right. The problem that has arisen, depending on how far back you want to go, whether to 96 or to 82 or potentially even to the 70s, is that we had an ideological revolution that said everything that we thought we knew about how to conduct sound telecommunications policy was wrong and we needed to have a huge shakeup that jettisoned all the principles that we had from the 1934 act. I think now, after 30 or 40, we know that that was one big failure, a tour of disastrous policy making. There's no reason to think that the same principles that led us to the 1934 would fail again. We have lost the capacity certainly for ambitious antitrust and competition policy, and also for public serving regulation in the public interest. Part of that will always include a public option that provides for a competitive alternative and a low cost alternative that reaches all households and connects them to economic networks that are necessary for being an economic person in the modern era. All of those principles were true in 1934 and they're still true now. We don't need to continue to allow the fact that we had bad policy making for 30 years set the parameters for the future. We can do a lot better.
Christopher Mitchell: Just a quick clarification, I think some people might have simplified their thinking about this and think, "Well, the previous policy was one of basically allowing a monopoly, whereas you are promoting an antitrust." Square that circle for me please.
Marshall Steinbaum: I say both. To characterize the debate here, this is a simplification but I think it's basically right. We had one big regulated monopoly doing telephone communications, in the other it was different in broadcast but more or less the idea was you had these large monopolies that served the entire country and they had a mandate to provide equal quality services to everyone. Where they were allowed to charge more to the people that had a high ability to pay in order to subsidize services to people with a lower ability to pay. When Ma Bell was broken up in the early 80s the ideology of that was, "Let's bust up this highly inefficient monopoly using antitrust." Whereas altogether the policy revolution that took place in the 1980s wanted antitrust to be very inactive, to not get in the way of corporations that wanted to merge, they did use it to go after Ma Bell and supposedly introduced competition into this previously highly regulated sector. What that did was kill off again what an economist would call a pooling equilibrium by a strategy of cream skimming. You had upstarts come in, poach the most profitable customers away from the smaller AT&T that came out of the 1982 restructuring. I guess 84 was when it was finally implemented. It made it impossible for the new AT&T to really function and serve in its regulated capacity. They were losing all of their most profitable customers to these upstarts. That led us to the 1996 act where as I said the whole idea was, lift these regulatory mandates off of AT&T and other incumbent providers, let them all compete with each other. We had these regulatory mandates, we also had walls around the Baby Bells that protected their geographic coverage from competition. The idea was, we have these issues in the sector stemming from the break up of Ma Bell, let's solve those issues by injecting yet more competition. Regulation came off and we got all of the catalog of troubles that we've previously discussed. The question is, where do we go from here? I have said that the reason why the 1996 act failed was because of lax antitrust policy. We thought these companies where going to compete with each other once they were deregulated and instead they merged with each other. The whole promise of competition didn't work because of that lax antitrust policy. Europe is the model here. The reasons that incumbent providers have put forward for why they can't do that here are laughable to my mind. This is us choosing a set of policies that is the worst of both worlds, that is both deregulatory and anti-competitive. Should either an administration or congress want to serve the public interest in this area it is eminently technologically feasible and it could be constructed as a policy. We just have chosen not to do it.
Christopher Mitchell: I think it's a really good summary. Thank you both. I'm excited to see what comes next from the Roosevelt Institute as you continue trying to make sure that we're not being abused by both a lack of competition and a lack of regulation.
Lisa Gonzalez: That was Christopher with Marshall Steinbaum and Rakeen Mabud from the Roosevelt Institute discussing antitrust enforcement and how it has affected telecommunications policy. We have transcripts for this and other Community Broadband Bits Podcasts available at MuniNetworks.com/broadbandbits. Email us at podcast@MuniNetworks.org with your ideas for the show. Follow Chris on Twitter. His handle is @CommunityNets. Follow MuniNetworks.org's stories on Twitter. The handle is @MuniNetworks. Subscribe to this podcast and all of the podcasts in the ILSR podcast family on iTunes, Stitcher, or wherever else you get your podcasts. Never miss out on our original research. Subscribe to our monthly newsletter at ILSR.org. We want to thank Arnie Huseby for the song Warm Duck Shuffle, licensed through Creative Commons, and we want to thank you for listening to episode 258 of the Community Broadband Bits Podcast.