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Summary:

As regulators dive deep into broadband politics, Ma Bell has turned not only to lobbyists, but also to threats. AT&T today issued a ho-hum press release — except for the last line, when it tied its billions in capital investment to favorable laws and regulations.

As regulators dive deep into broadband politics, AT&T has turned not only to lobbyists, but to threats. Ma Bell today issued a ho-hum press release saying it’s chosen Ciena as its optical equipment provider for upgrades to “maintain and expand” its metropolitan and long-haul network infrastructure. It’s a pretty standard release, noting, for example, that AT&T has delivered 18.7 petabytes of information over said backbone and that this investment will be part of a planned capital upgrade to its IP network for businesses. But the last line has me thinking the folks at AT&T have seen too many episodes of “The Sopranos:”

AT&T in January announced total 2010 capital expenditures are expected to be between $18 billion and $19 billion, a level framed by the expectation that regulatory and legislative decisions relating to the telecom sector will continue to be sensitive to investment.

It doesn’t take much reading between the lines to see that AT&T is suggesting it could hold its billions of dollars in capital spending as some kind of hostage as it negotiates with Congress and the FCC on issues such as network neutrality and reclassifying broadband (GigaOM Pro sub req’d) as a transport service rather than an information service. It’s done this before through lobbying efforts and in FCC filings, but in a random press release, it’s just too much.

When asked about that section of the release, an AT&T spokesman said, “We always have a cautionary language statement in materials such as this.” And this particular language is in its fourth-quarter earnings, although it’s nowhere to found it in AT&T’s most recent capex-themed releases. But while yes, cautionary language statements are standard practice in the press releases of publicly traded companies, this language doesn’t read as cautionary so much as it reads like AT&T is saying, We’ve built a nice telecommunications network infrastructure here — sure would be a shame if anything were to happen to it.

Really, Ma Bell? You’re going to stop maintaining and expanding your network if the FCC doesn’t allow you to discriminate against certain types of network traffic by implementing network neutrality regulations — something you’re keen to say you’d never do anyhow? Or maybe it’s the idea that DSL might end up more directly under FCC authority through a reclassification process, something that already affects those copper lines since they’re already delivering voice traffic? Can you even afford to stop investing in your network, especially the wireless one?

AT&T’s not-so-veiled threats leave me boiling with rage, especially given how its late-to-the-party attitude toward network upgrades has made the iPhone experience so crappy for so long. To basically threaten that its 85 million cell-phone subscribers, 2.1 million U-verse TV subscribers, 24.6 million voice subscribers and 17.2 million high-speed Internet subscribers would get degraded service because it won’t maintain or expand its network if the government enacts regulations “that aren’t sensitive to network investment” is reprehensible — and an open admission that AT&T thinks it can stop investing in its network and still make money off of it (possibly because there’s not a lot of competition). Even worse, many of those regulations would help protect consumers from anticompetitive practices and pricing.

Plus, AT&T’s reaction to the FCC’s relatively benign policy efforts (the network neutrality clause leaves room for reasonable network management, which could be interpreted in pro-ISP ways) is so out of proportion as to be ridiculous. I could understand such posturing if the FCC, like some telecom agencies around the world, was considering a way to open up AT&T’s network for competitive services to travel over it, but the FCC in its National Broadband Plan steers very clear of that issue, instead deciding that data and possibly wireless access would have to be the stick to keep network providers such as AT&T in line. Threatening to halt several billion dollars of necessary capital investment over reclassification or network neutrality is like threatening to burn down your own house because you don’t like your home owner association’s rules.

Image courtesy of Flickr user Eddie~S

  1. “I could understand such posturing if the FCC, like some telecom agencies around the world, was considering a way to open up AT&T’s network for competitive services to travel over it…”

    That could very well happen under a Title II reclassification.

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  2. If Apple can control what apps are put onto its products, why can’t telco’s control the priority of traffic on its products? Both are mediums for content delivery, but one gets a pass where the other doesn’t?

    The market always fixes the problems, and the government should not be involved in forcing private companies to use their products in ways they don’t desire.

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    1. @Rodney,

      I understand your points in principle, but your examples are comparing apples to oranges. Apple competes with the likes of HP, Dell, Lenovo, Asus, Acer, Gateway, and scores of niche device manufacturers. Apple also competes with OS and web services versus Google, Research in Motion, Microsoft, Nokia, Yahoo, Amazon, and scores of niche service providers. With regards to Apple, their marketplace is getting more competitive.

      By contrast, the telecommunications market is getting less competitive. Simply take a look at the last 5 years and you’ll see that not only have AT&T and Verizon swallowed numerous competitors, the remaining wireless telecoms have fallen onto questionable financial stability. This includes Sprint, T-Mobile, US Cellular, Leap Wireless, and MetroPCS. With regards to AT&T, their market is getting less competitive and more consolidated.

      Bottom line, the market doesn’t always fix problems, it only does under certain market conditions. A consolidating market with less competition isn’t one of the conditions that markets fix, this fact is addressed directly in antitrust laws. Customers (businesses or consumers) are almost always harmed in consolidated markets when antitrust laws are broken, which by definition means the free market system is thereby broken.

      I think Stacey is alluding to this fact in her commentary, though she doesn’t state so directly. That said, check out the wikipedia entry under “competition law”, particularly under United States Antitrust:

      http://en.wikipedia.org/wiki/Anti-trust

      It may also be helpful to study antitrust law to get more insights on how consolidating markets diminish the effectiveness of free markets, assuming of course you haven’t already done so.

      My $.02,

      Best.

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      1. The market does fix the problem. If people are not satisfied with their product or service they will choose another product or service. Unfortunately, this model is difficult to maintain when you introduce rules and regulations.

        The FCCs rules in Auction 73 were disgusting and now you are seeing ATT and Verizon run away with the market share.

        I find it difficult to blame the market when we have not allowed the market to work in the first place. Whether its ATT, Verizon, Sprint, or Google and Apple, someone is always looking for federal protection.

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  3. Hey Stacy. Investors have invested billions into AT&T which has become a very successful company that provides services to millions.

    Wouldn’t you be concerned if your investment was threatened by legislation that removes your right to choose who and who you do not want to business with for the good of your network?

    Unfortunately we have no respect for property rights anymore.

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    1. Shawn, the point is that the FCC has proven to be pretty clear about not trying to do something drastic like force AT&T to open its network (see Blair Levin’s comments in the linked article), so to threaten to halt capital investment seems out of proportion to what the FCC is actually trying to do with network neutrality and reclassification.

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      1. The FCC can publicly say it has no plans to use drastic force, and sheep can take their word for it. ATT is trying to protect its business.

        We can only speculate on the action ATT would actually take if the FCC reclassified broadband or net neutrality goes into effect.

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      2. As one of the “sheep”, if I have to choose between trusting the FCC to be reasonable in it’s application of Title II regulation or the ISPs promise to voluntarily adhere to Net Neutrality principles (which they’re already breaking), then I choose Title II reclassification. While I’m a little skeptical about either party’s concern for consumers rights, ultimately the FCC answers to my elected official and operates within the laws defined by our Congress. The ISP’s fiduciary responsibility means they ultimately answer to their shareholders, and with little to no competition in the market, consumer pressure can only come from threat of regulation rather than “voting with our wallets”.

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  4. stacey, think before you write something like this!

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  5. Really Stacey? Boiling with rage?
    AT&T (Verizon, Qwest et al) has every right to manage their investment based on the regulatory landscape. Actually, I’m wrong – they don’t have the right, they have the obligation. Obligation to their shareholders. Fiduciary responsibility.
    Further, a close read of the proposed codification of NN principals reads more like a government takeover of the existing network infrastructure than a “light touch.” That’s the Title II stuff. Its scary if you operate a network. Having to ask the FCC for permission to roll out new business models is a bad idea.
    I echo the concerns around property rights here – you plow billions into your network (and yes, its not enough for most iPhone users) you should not have the ability to earn a return on that subject to the whims of overzealous, activist regulatory body. Let’s remember, the FCC didn’t build the current network, private companies like AT&T, Verizon, Qwest, Frontier, CenturyLink, Comcast, TimeWarner, Cox and Charter did.
    You are generally much better than this with your thought process. What’s up?

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    1. If the government wanted carte blanche access to AT&T’s network, I would understand AT&T’s efforts and even agree (even though open networks may be the only solution to the duopoly we have), but the current FCC nor Congress doesn’t want that. Our best hope is that Google’s open network somehow makes enough money to inspire others or that municipalities take control and build their owns (and I hope they can hire someone smart to manage it). I think the provisions in the NN rules for reasonable network managment allow for T et al to continue to run their businesses. Above all, my passion on the topic likely comes from living in an area where the lack of competition has me stuck on an archaic connection, so this isn’t an academic debate.

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  6. @Curtis,

    I appreciate the thoughtful reply, and I do agree with parts of what you are saying, specifically around consumers being harmed by a consolidated market.

    However, these consolidated markets indicate one of two things: 1) the goverment believes that the market is not overly consolidated (i.e. there is still sufficient competition) and thus allows further consolidation to occur, or 2) that the government has failed to protect the consumers by allowing the consolidation to occur in the first place.

    In either case, government has been involved, and all too often the government is motivated by agendas just like corporations. It is not always a dispassionate referee. When companies have their hand forced, they have every right to stop investing in that over which they no longer have control.

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  7. The sock-puppet brigade has descended upon Stacey…

    Binary market competition doesn’t do jack. Remember the days of two 800Mhz cellphone carriers. Prices were comparable and service was comparably crappy.

    In most markets there is very little competition to provide high speed internet service to the home. Usually one copper technology versus another (both aging infrastructures being milked as hard as possible by their owner).

    There is a wonderful picture in the Washington Post of a lady standing in front of her house with a Comcast drop-cable hanging near neck-level across her yard. http://www.washingtonpost.com/wp-dyn/content/article/2005/08/11/AR2005081102101.html
    Back then, Comcast focused on trying to buy Disney. Today, its NBC. They just want to assemble a media empire: the customer is simply a cash-cow to fund their expansion plans.

    The competitive space is narrowing: companies are re-aggregating, reducing consumer choices. We may soon be back to the days of two cell phone providers. As stated, in many markets, there ARE only two residential internet offerings (both aging). As we have seen first-hand, when there are only two providers, there really isn’t much competition: price parity and crappy-service-parity become the rule. Some government anti-trust intervention would be VERY welcome.

    But, the regulation pendulum has swung so far in the direction of Pro-Business that no corporate activity is prohibited (look no further than the Financial Sector for examples of unregulated excess). Companies could propose to whore-out campfire girls and no agency would step up to object. The unrepentant Laissez Faire attitude of our government regulators is beyond belief.

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    1. It is not exactly Laissez Faire when FCC rules prevent designated entities from participating…

      Regulation pro or against business is still regulation and is generally anti-competitive.

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  8. Alas, for those of you too young to remember . . . In the 1980′s Federal Judge Green required that AT&T be split up – in keeping with anti-trust policies. The subsequent turmoil resulted in a lack of development for many years as inferior carriers tried to compete. Eventually a few dominant carriers re-emerged and consolidated. It is cyclical and there are advantages and disadvantages at all stages of the cycle. Additional regulation by the FCC does not help. The Federal Govt is unable to regulate and control itself so the best approach is to permit market forces to control industry with only nominal and sporadic “interference” from regulators. The interference in the mortgage industry precipitated the mortgage crisis and there is every reason to believe that further interference in anything other than national defense will be equally myopic and disasterous.

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  9. [...] AT&T Tries to Strong-arm the Feds [...]

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  10. Bob (the first Bob to post) Tuesday, April 20, 2010

    If it wasn’t for judge Green, we’d still be using Dial-up (or worse ISDN or ATM).

    Companies like UUnet built the modern Internet, not the luddite telcos and cable companies.

    FiOS is kicking ass now in-part because Verizon bought MCI/UUnet. They have a world class IP infrastructure to provide transit capacity to their FiOS subscribers.

    Sidenberg is at least giving it a shot with his investment in Fiber. ATT, Comcast and the rest are just milking their deployed legacy infrastructure to maximize profit.

    How will things get better when Comcast owns NBC? Or when VZ or AT&T buy’s up Sprint, T-mobile and ClearWire?

    About the only good thing I can say is that we no longer pay inter-state roaming, like those poor bastards in the EU still do.

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