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America’s Telecoms Market in Dire Straits

In late 2008 it was my good fortune to be asked to write a number of reports on broadband and trans-sector development for the Obama Transition Team. President Obama had just won office and this team was crucial in setting the policies for the future.

I gathered together a team of international experts to assist in writing these reports.

I was able to do this because the revolutionary plans of the Australian government in relation to the NBN very much appealed to the Obama Team.

My contact in the White House was Professor Susan Crawford. She was the personal advisor to President Obama on technology. We made incredible progress and had the backing not only of the President, but also of the FCC and the National Telecommunication and Information Administration (NTIA) which is part of the Department of Commerce.

With such support we were convinced that the plans we produced had a good chance of being implemented by the new Administration. However, by mid-2009 the role of the Transition Team had become more difficult, as the telecoms lobby had been able to infiltrate Congress and created ‘Fear, Uncertainty and Doubt’ in relation to any changes to telecom policy. With hindsight we can now see that the President unfortunately missed the opportunity to put his leadership stamp on these processes in the early days of his Administration (and not just in relation to telecoms).

In June 2009 I visited Susan Crawford in the White House, and by that time she had been labelled a communist by Fox News, and was being accused of wanting to nationalise the Internet. This, of course, was complete nonsense, but it is difficult to take on Fox News, it being heavily supported by the vested interests in that country.

The National Broadband Plan that was produced by the FCC was a watered-down version of what we had been proposing; nevertheless we saw it as a good start. However this plan received a similar hostile reception from Congress.

During this period I also learned that the three major telcos in the United States (Verizon, AT&T and Comcast—which are known as ISPs, not as telcos) are spending some $100 million a year on lobbying activities. This process had been finetuned under the Bush Administration (and, again, this is not unique to telecoms).

The way it typically works is that a large team of lobbyists is deployed to visit every single member of Congress and every Senator in the country. In each of the electorates certain projects are launched. This might involve employing extra people in a local technical telecom unit or the opening of a local support office, or the provision of some extra free telecoms services to a school or hospital, and so on—basically everyone receives something from those with a vested interest.

And, of course, these projects are heavily supported by PR machines and the politicians get great photo opportunities to show what they have been able to achieve for their communities.

But if certain policies are subsequently proposed that could affect the vested interests the lobbyists go back to the politicians, saying that if the policies are ratified offices could be closed, projects terminated, etc.

However, that is not all.

Again during the Bush years, and even before that time, the vested interests have had an enormous influence within the FCC—to such an extent that it has sometimes been suggested that legislation had actually been written by them. Yet again, this is not unique to telecoms; this issue was recently addressed in the movie Inside Job in relation to the banking industry.

The incredible power of the vested interests is practically incomprehensible to people outside the USA (or at least to those in other democratic countries). In the early 2000s they were basically able to prevent the introduction of broadband wholesale and services such as local loop unbundling and line sharing as regulated services.

As a result the status of broadband competition in the USA is among the lowest in the western world.

Furthermore, broadband access and the Internet as a content service has been rolled into one access policy, thus giving the ISPs (read Verizon, AT&T and Comcast) the ability to monopolise the content side. This has been identified as the network neutrality issue. Every other developed country has separated regulated network access from content and so network neutrality is nowhere near as serious an issue elsewhere as it is in the USA.

I have to acknowledge that many of my American colleagues who contributed to the reports had been sceptical as to what the future might hold—ever since Obama, in his first 100 days in office, failed to show leadership. This left the door wide open to the results that are now emerging in the USA.

In a recent presentation Susan Crawford has provided further insights into the incredibly convoluted processes that have led to this plutocracy in the USA.

In discussion with my American colleagues I have often used the example of Telstra. In 1997 the Australian coalition government moved in a similar direction, through its ‘self regulation’ policy; guess who did win this unequal game?

This led to the situation in which, a decade later, Telstra believed that it was so powerful it could defy the government. This generated one of the most dramatic interventions ever to take place in the telecoms industry. It did, however, bring Telstra back into line and saw the company make a 180-degree change in its behaviour.

As a matter of fact, in her presentation Susan refers several times to the Australian situation…

What has already happened in Chattanooga and in other municipalities in America, where the local government and often the local independent electrical utility, has given up on the ability of the private telecommunications sector to provide any useful infrastructure, is now going to happen at the level of the entire Australian continent. What is happening in Australia, given the size of the commitment, is a fundamental paradigm shift that will affect telecom policy around the world.

She comes to a depressing conclusion…

All the people possessing relevant data on the telecoms market are outside the regulator. We don’t have actual pricing data inside the FCC that would tell us what the story really is. Wall Street’s positions on telecommunications policy have become the conventional wisdom in Washington. They are the accepted way of thinking. Consequently, the leadership shown in Australia seems unthinkable here.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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