Transcript: Community Broadband Bits Episode 28

Thanks to Jeff Hoel for providing the transcript for Episode 28 of the Community Broadband Bits Podcast. Bruce Kushnick of the New Networks Institute on the history of big telecom. Listen to this episode here.



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.

In our 28th episode, we talk to Bruce Kushnick, Executive Director of the New Networks Institute.  Bruce has been a telecom analyst for over 29 years, and is heavily involved in consumer advocacy through Teletruth.  Bruce is a regular blogger in the Huffington Post, and his articles run in a variety of syndicated publications.  He's been described as the Ralph Nader of the telecom set.  Bruce looks back at the modern history of telecommunications.  He explains how the large telecommunications giants made promises to bring broadband to all of us.  Bruce goes on to describe where things went wrong, how promises were broken, and how many of us will never receive services we've already paid for many times over.  Here are Chris and Bruce.


Christopher Mitchell:  I'm here today with Bruce Kushnick, the Executive Director of New Networks.  Thanks for coming on this show, Bruce.


Bruce Kushnick:  Thanks for having me.


Chris:  I first became of your work, I think, probably about 4.5, 5 years ago, right around the time I was starting.  And I looked at one of your books that you have available.  And my first thought was, this can't be true.  It can't be true that the telephone companies have ripped off America to this extent, and nobody knows about it.  And so that's why I wanted to have you on the show today, to talk about your -- the research that you've done over many years, and what the telephone companies have done to our country.


Bruce:  [laughs]  Well, it's a long tale of woe.  Essentially, the book that I wrote, which is now called, "The $300 Billion Broadband Scandal" -- and was written in 2005 and has been updated.  Basically, the story is as follows.  The phone companies, in 1992, soon-to-be-Vice-President Al Gore had this vision called the Information Superhighway.  And he basically suggested that everyone get a wire in their home that was fiber optic, and that the country would be rewired by the year 2010.  Which was the target year, because it was 20 years away.  It was far enough away that nobody -- you know, nobody could say anything -- that it wasn't going to happen.


Chris:  Right.


Bruce:  And, at the time, I was a Senior Analyst in telecommunications, and I had been working for various research firms, usually through joint ventures.  I wrote a report in 1985 about how the addition of technology to the networks was going to change the networks.  So I was very well aware of the -- of what the implications were of having some -- a fiber optic wire to the home.  And so, the question was, whether the government should pay for this or the phone companies would pay for this.  And the phone companies all stood up and said -- and raised their hand and said, hi, you know, we'll do this.  And they made announcements.  Then-Bell Atlantic, which was on the East Coast, from New Jersey down to DC, basically said that we would -- they would have 8.7 million households wired, and they would be spending $11 billion.  And out in California, Pacific Bell, of California, said that it was going to spend $16 billion and have 5.5 million households wired by the year 2000.  So, it was a very heady moment.

And the phone companies, in order to go out and do this, had a plan.  And the plan was, they would go state by state, and have consultants -- somewhat like myself, but I wasn't working for them on this project.  And they would go and say, hi, we would love to go out and rewire the entire state of, say, New Jersey.  If you do one thing.  We need to get more money, because if we don't get more money, we can't pay for the upgrades.  So, change the laws, that basically -- and don't look at our profits, and allow us to make as much money as we can.  And, at the time, they were still monopolies.  And we will go out and we will rewire the state.  So in the state of New Jersey, for example -- Verizon had -- HAS -- a commitment to have the whole state finished by the year 2010, a hundred percent, with a fiber optic wire capable of 45 megabits in both directions.  Now, Verizon went in every state and did this.  And so did what is now AT&T.  In Illinois, Ohio, Indiana, down in Texas, throughout the entire East Coast, Verizon basically said we would rewire everything.  AT&T said it would wire everything.  And essentially, by the year 1997, it was very clear to me that none of these guys were telling the truth.


Chris:  Before the Telecommunications Act of 1996.  It's ...


Bruce:  Right.


Chris:  It's even really before the Internet has really happened.  But you have these companies that have made a promise.  And, for many years, they're collecting more money, from, you know, everyone who's paying a phone bill.  And they've promised to make these investments.  And what you're saying is, they didn't do it.


Bruce:  [laughs]  Not only didn't they do it, they pocketed the money.  And it turns out that they've collected about $360 billion by the year -- the end of 2012, from the changes in state laws that gave them more money.  And that number is actually conservative.  Because they've been getting rate increases along the way, to give them more money.  So, in state after state, every customer paid about $3,000 to $4,000 -- per cus- -- per household -- for the ability to have a new fiber optic wire.

Let me address the other things you mentioned about the --  The Telecommunications Act of 1996 shows up.  And, basically, they've taken three to four years to actually be implemented.  And people would argue even longer.  And essentially what it was was, they said, the wire into customers' homes is going to get upgraded sooner or later.  Anyway, but it should be open to all competitors.  I should be able to choose my own Internet provider, my own broadband provider, my own phone service.  And that --  And the phone companies all agreed to do this, in exchange for letting them go into the very lucrative long-distance market.  And long-distance is a separate service from local phone service.  And there are separate networks that handle the stuff.

Now, in the VoIP world, this stuff is all changed.  However, probably at least a third of America or more has a separate long-distance plan that they're paying extra for.  So, it turns out, also, at the same time -- in 1995-1996 -- the Internet hit.  And the Internet basically was --  People were already online prior to 1996.  There was at least 15 million people that were online, who had gone onto things like AOL and Prodigy and CompuServe, which were the old online services.


Chris:  Right.  I actually -- I have fond memories of those times.  I used WebCrawler.  And I remember, you know, searching around for different local ISPs.  It was a fascinating time.


Bruce:  Well -- and the ISPs actually were the -- So, the end of the year 2000, there was 9,500 Internet providers.  Of which 50 -- the majority of the small providers were handling the majority of traffic in the United States for Internet.  It was the small providers that went state to state.  Went to -- you know, in the -- that lived in the communities, or moved -- or were, you know, very -- were localized.  And essentially what they would do -- they would knock on doors and say, hi, do you want to go on the Internet?  We'll help you.  And they -- a lot of them were basically people who would go out and actually talk to you and show you how to hook up your modem and all that other stuff.  And they were the ones who actually brought America to the Internet.


Chris:  Um hum.


Bruce:  It was NOT the large corporations.


Chris:  Right.  Right.  The large corporations took forever for them to even understand what it was about.


Bruce:  Right.  So, on -- in the timeframe -- So, what happened was, in 1998, AT&T and -- what is now AT&T and Verizon basically decided to go out and pull a bait-and-switch.  They decided to go out and use the old copper wires, that were already in place, and basically offer DSL, which is -- ADSL, which is a -- one -- basically a fast-in-only-one-direction, and can't -- it doesn't have a lot of speed, because it -- basically it's on the old copper wire.  Now, this irony has never bothered regulators.  Even though customers paid for a fiber optic wire, they got -- you know, they paid for a Ferrari on the Information Superhighway, and they got a skateboard on a dirt road.


Chris:  So, when you say regulators -- let's pile into that for a second -- who is making those decisions?


Bruce:  Well, originally, broadband was on the -- broadband service -- was basically a loc- -- was basically a state-based decision.  So that was the public utility commissions, that made the changes to state laws, that basically gave the companies more money.  It wasn't the FCC.


Chris:  Right.  So, you have the public utility commissions.  And, you know, I'm just trying to think back, you know, before I was working in this field, I didn't really know what a public utility commission was.  And so, it strikes me that what you're talking about is some -- a group of people at the state that only really ever interacts with the big providers -- and the small providers, too, but, you know, they're really insulated from the public.  And the public really has no idea what they do.


Bruce:  In 2012, it -- the plan was to erase, you know, public utility commissions from history.  Prior to that, it was actually the states that were taking a gamble on attempting to bring broadband to the state.  You have to understand, it was very messy, because there are fifty states.  But some states were very active.  They had good commissioners.  They cared for the public.  And, basically, they were trying to bring broadband to the public.


Chris:  That brings us to Kushnick's Law, right?  I mean, you've coined this phrase.  And I'd really like you to explain what that is.


Bruce:  Kushnick's Law, as written -- which I did not write, but somebody else did -- is: "A regulated company will always renege on promises to provide public benefits tomorrow in exchange for regulatory and financial benefits today."  And this applies to the federal government as well.  Essentially, what happens is, the companies walked into the public service commissions, and said, hi, we're going to basically rewire the state.  Change the laws.  And then the state didn't track anything.  And if they did track anything, the companies never got their -- basically, got their hands slapped, at best.  And there was no state that ever changed the regulation back, to give the customers back their money.  And -- which, when you think about it, you know, in the state of New Jersey, they've collected $13 billion to do the rewiring of the state.  [laughs]  That's a lot of money, per customer!


Chris:  So, you've said that you think it was reason- -- or, I get the impression that you say it was reasonable for a public utility commission to give these regulatory concessions in the hopes of getting the networks built.  What --  Why didn't the public utility commissions step in with repercussions when they did not get the benefits that were promised?


Bruce:  Well, there's a caveat to Kushnick's Law.  Is: "After 18 months, people forget."  Which is the law.


Chris:  [laughs]  OK.


Bruce:  Now, you have to understand, this happened on the federal level, too.  I mean, for example, AT&T has just filed to remove all regulations in the United States at the FCC.  And -- all telecommunications regulations that are left.  In many states, they've been able to get, working with a group called the American Legislative Exchange Council, ALEC, they've gone into 23 states and removed regulations.  In some states, the public service commissions no longer have oversight over the phone companies.  Period.  Done.


Chris:  Yeah.  We were looking at that in Minnesota.  There was an ALEC/AT&T bill that would have not only gutted the Public Utility Commission but also the Department of Commerce.


Bruce:  I like to think [laughs] **  Their goal now is to get a -- is to get the FCC to agree to basically close down the public switched telephone networks.  And, at the same time -- their next step after that, basically is to go to Congress.  Which -- a bill in Congress will show up, at the beginning of next year, to basically gut the Telecommunications Act of 1996.  And gut all state laws.  And this is one of the scariest things that's ever happened, in my, you know, 30 years of being a consultant.  Because essentially what it's doing is, it is removing basic obligations to the company.  If your line breaks in the middle of nowhere, too bad.  If your service goes out.  Now, one of the important things --  So, I'd like to -- let me see -- let me go back to the story.

So, in 2004, AT&T and Verizon came up with a strategy to close down all competition on the phone networks, basically by claiming that they would upgrade the networks then, if the networks were closed, and create new services, such as U-Verse and FiOS.


Chris:  To whom did they make this argument?  Is this a federal argument?


Bruce:  This was an argument made to the FCC, to the public, and in the states.  Because the states -- in some states, they still had to sign off on things like a franchise, for the cable part of it.  And so the companies applied for statewide franchises.  So, in AT&T's case, AT&T said, we'll roll out U-Verse.  And AT&T then --  By the end of 2007, AT&T had -- controlled 22 states.

Now, you have to understand something about U-Verse.  It should be called RE-Verse.


Chris:  [laughs]


Bruce:  Mainly because it's still using the old copper wires.  It is still using the wires that customers had, you know, basically -- was supposed to be upgraded to fiber 20 years ago.  They're still bas- --  AND, they're claiming that they can close down whole areas of these networks, even though -- and this is the funny part -- even though, basically, the customers paid for upgrades multiple times.


Chris:  For people who didn't notice, also, Netflix just released a ranking of the national ISPs.  And for all of U-Verse's supposed advanced technology, it came in behind ALL of the cable networks, in terms of sustained speeds.


Bruce:  [laughs]  Right.  Now, you have to understand, the word -- AT&T -- AT&T has a MASSIVE deceptive campaign out there.  Their goal is to basically remove regulations across the United States.  And so, they've basically got the public to think that the words "public switched telephone networks" utilities really only means the one service, local phone service, formally known as POTS, "plain old telephone service."

But I'd like to read you the definition of the public switched telephone network, as told by a footnote in the FCC's 2012 Connect America order.  Quote -- "The public switched telephone network is not a single-use network.  Modern network architecture can provide access not only to voice services but also to data, graphics, video, and other services."  And the definition of the public switched telephone network was changed, in every state law, in 1992, basically claiming that it was now a broadband network, and it was a cable network, and it was a video network, and it was a data network, and it was an Internet network.  And it had nothing whatso- -- sorry, the word "Internet" wasn't around in 1992.  But all of those services were supposed to -- WERE -- and are -- part of the PSTN.


Chris:  Um hum.


Bruce:  This whole myth, that, basically -- that AT&T has been putting forward is that one service, the voice service, is going to be closed down.  But the truth of the matter is, you close the wires down, you close down any possibility of any service, or any competitor using those services.


Chris:  So, can I -- is it correct then to say that essentially what happened was, you had these massive companies that went to public utilities commissions, they got rate increases in order to upgrade people's networks, they gave a lot of that money to shareholders, and some of the money they put into building newer networks over the years.  And they're now claiming that those newer networks are not the publicly switched telephone network.  Is that correct?


Bruce:  And, just as a caveat, they're privatizing publicly-funded assets.  Because the monies that are being used today are still the old construction budget that was supposed to upgrade the PSTN.  It's just now in the pockets of -- the money goes into a different bucket.  When the revenues come in, it goes into a different subsidiary.  It does not go back to the local phone company, to actually upgrade the networks.  Which it was supposed to do, all along.  Now, this kind of a shell game that they're playing has been going on -- is going on in every state, with all the phone companies.  It isn't just AT&T.  It's all the companies.  And essentially they've been doing this now -- and  so what they're doing is, they're cross-subsidizing their other businesses, via the customers getting rate increases.

In the state of New York, they specifically said that they were going to use the -- do a rate increase in 2009, to pay for, quote-unquote "fiber optics."  The only "fiber optics" being installed is FiOS.  Now, this rate increase hit every residential customer and business customer, in all areas, including the rural areas, that are never getting upgraded.  So, customers in rural areas got hit with rate increases for services that they will never get.  [laughs]  And one would think -- One would think somebody would notice.  You know?  That's the thing.  Somebody --


Chris:  And they've effectively won that bet.  Right?  I mean, the people that have noticed have not been able to stop them.  I mean, namely, you.  Right?


Bruce:  Ah, ready?  Quote -- "They will not close down the PSTN on my watch" --


Chris:  [laughs]


Bruce:  Unquo- -- closed quote.  I am not --  This is not going to happen.


Chris:  OK.


Bruce:  If I have any say in this.  And I will --  You know.  And I will use every last breath.  Because this is the end of telecommunications as we know it.


Chris:  I don't know if we have any illustrators out there, but I think this is the beginning of a new comic book hero.


Bruce:  [laughs]  One would hope.  I've been doing --  Hey, this is my 21st year of doing this.  So, my feeling is that --  I'm very battered and bruised before.  I'm very zen about it though.  Because, you have to understand, when you -- you know, when you're sitting there --  So, I'll give you my favorite example.  When we were on the FCC Consumer Advisory Committee in 2000-I-think-and-3.  And I'm sitting there.  And we have just done a study on -- we examined phone bills -- and we did a study on Verizon phone bills.  And we found 74 different truth-in-billing violations, among other things.  We even had a class-action suit that we took -- and settled -- based on some of the information that we were actually presenting, that we found on bills.  And, on the -- as being a member of the truth in billing thing, we actually suggested that they do a meeting, and have a truth-in-billing day.  This is -- a decade ago, literally.  And we were -- not only -- they did the meeting, but we were denied to speak.  And the reason that we were denied to speak was because Verizon was not only on the committee but the meetings were in Verizon's offices sometimes.  And the people in the room, that I was sitting with -- at least a third of the people in the room were the industry.  And the other third in the room was paid for by AT&T or Verizon or Comcast.  And they had direct financial relationships with these people.

The group that's closing down the public switched telephone networks today is known as the Technical Advisory Council at the FCC.  And the majority of the people on that committee have a direct financial relationship with Verizon and AT&T, who are also on the committee.  The head of the committee is the former head of the National -- of the cable association, the NCTA.  AND he was the former head of the wireless association, the CTIA.  And one would think that this is a conflict of interest.  But, NO, not at the FCC.  So, the FCC has created -- has had a meeting where they're basically going to close the public switched telephone networks.  They've created a task force, which was suggested by the new commissioner, Ajit Pai, who basically was a former Verizon counsel, and worked for law firms that Verizon and the rest of the phone companies use, as clients.  And he was congratulated by a guy named Greg Walden, who's on the Telecommunications Subcommittee in the House, who basically -- his campaign contributions come from the cable and phone companies.

And then -- so, we wonder -- you know, and, when I mean that the Technical Advisory Council is a fund group for AT&T, it was started basically when AT&T filed in 2009, claiming that there were two networks, a broadband network and the PSTN.  And that one was the new, shiny network, and the other was the old, copper wires.


Chris:  Um hum.


Bruce:  And, essentially, that filing turned into the -- into a committee that basically was looking to --quote -- "transition or sunset the public switched telephone networks."  Now, all of this is being done with the background of something called VoIP, voice over the Internet.  They claim that the networks have to be changed because the VoIP services, you know, can't be done on the regular phone services.  And we need to go out and upgrade all of the networks.  Those have always been upgraded.  They've been upgraded for decades, with different standards.  Now, the VoIP problem happens to be that VoIP is only one service.  It's a voice service.  And the other problem, it's not the Internet.  And the third problem is, they don't want to have -- you know, let's keep it free.  But the truth of the matter is, if you look at a bill, from the VoIP providers or people who are using -- U-Verse, for example, is considered a VoIP service.


Chris:  Right.  Or the cable networks, right?


Bruce:  Right.  Or the cable networks.  They -- if you look at their bills, you will see that they have all the taxes, fees, surcharges as everybody else does.  And all the made-up fees that should not be on the bill in the first place.  So this nuanced jujitsu that they've been doing about "Free the Internet" has confused people.  They -- but, you know, they bought off that AT&T said, oh, it's the old only-phone network.  And that's not true.  And they bought off, you know, that the Internet needs freedom.  And that -- basically the only freedom is freedom for the phone companies.

Today, there are -- there's a thing -- the "public switched telephone network" has a word called "switched."  It turns out that the largest number of lines which are not being counted, which are never mentioned, are the non-switched lines.  Which are the data lines.  And they -- which basically could use VoIP today without any problems.  They don't tell you that part, because basically when they do, "we're losing all these lines," they don't count VoIP lines as lines.  So AT&T, when it says, "we're losing all these lines," doesn't include the U-Verse -- phone, digital phone, services.  At all.


Chris:  Do you -- previously, you've made a really good case that the states aren't collecting enough data, the FCC isn't collecting enough data, that all of these things are being done, and we really don't know what's happening because there's no good data being collected.  So, is that the next good step a state could do, is to start collecting better data?


Bruce:  Ah, we have filed -- we have filed 62 times at the FCC, 19 times about the quality of the data.  So, the FCC's useless.  They will not do anything unless we sue them.  So, if there's a lawyer out there that wants to not charge us $75,000, we'd be glad to work with you.

On the state level, the first question that everybody should be saying is, how many lines does AT&T or Verizon have in the state.  That number is important.  And counting all lines, including all special-access lines, and all digital lines, and all lines that are not being counted.  TWO: the second thing they should start is an immediate investigation into all of this cross-subsidization, and monies being put into these different buckets.  And the privatizing of public assets.  Because if we -- because what it looks like is, you can actually wire everybody, and you can actually bring the wire to the rural areas, and do all this stuff.  And the money's available.  The companies have just been hiding it in all these different buckets.

You know, when you said, where did the money all go.  The money went to the executive compensation.  The money went overs- -- to spend -- I think they lost $30 billion overseas.  In two dec- --  In the 1990s and the beginning of 2000.  Because of bad investments.  As a group.  And that's where the money went.


Chris:  We drug a wire to every last home, more or less, in this country, during a span of time that included the Great Depression and the worst world war we ever fought.


Bruce:  Right.


Chris:  And it -- you know, it's sort of amazing to me that people can somehow suggest that we don't have the capacity to do it now.  And it doesn't surprise me to find out that a lot of the money that would be helpful in doing that has been squandered away.  By these companies, that are very good at hiding such earnings.


Bruce:  Our position is, everybody should get wired, and you should have a choice of who you -- who supplies you the service.  And that that wired -- if you have wire now, you should just have it upgraded.  Period.


Chris:  Right.


Bruce:  It's that simple.  And most --  And if you're in a community that's been fighting this stuff, get the money back.  Go after the money.  You know, as they say, follow the money and you'll -- money trail and you'll find the smoking guns.  At the beginning of next year, we will be doing a new campaign, to basically stop the out-of-base bills -- and AT&T and Verizon from closing down the public switched telephone networks.  This is the most important fight there is.  Because getting rid of all telecommunications regulation means most people listening to this will have higher phone bills.  Higher cost of expenses.  And not get service.  [laughs]  This is a battleground.


Chris:  And when you say phone bills, I mean, I'm worried about younger people listening and thinking, well, I don't have a phone bill now; how's It going to affect me?


Bruce:  Well, the -- and I should mention -- everybody who has a wireless phone.  That wireless phone, when you make that call, goes back to a wire, because the cell sites are connected to a wire.  If you're using Wi-Fi, there's a wire connected to the Wi-Fi site.  So, all the stuff we've been talking about today affects you, because they put bandwidth caps on the wireless services, is created by the wireline control.  Very important.  And if you're not paying a phone bill today, [laughs] you know, keep It that way as long as you can.  You know?  [laughs]


Chris:  [laughs]  Thank you so much for coming on this show.  And, you know, I look forward to having you back to talk about this ALEC campaign, because it sounds really important.


Bruce:  Yes, I'd love to be back.  Thanks, man.


Lisa:  That was Bruce Kushnick of the New Networks Institute, talking with Christopher.  Be sure to visit where you can get some specifics on Bruce's work and the work of the organization.  You can also download his report, "The $300 Billion Broadband Scandal."  If you have any questions or comments, please send us a note.  E-mail us at .  Our handle on Twitter is @communitynets .  This show was released on January 8th, 2013.  Thanks to the mojo monkeys for the music, licensed using Creative Commons.  The song is called, "Bodacious."