AT&T's $14 Billion 'Bribe' or How the Media Got It Wrong

On Nov. 7, 2012, AT&T announced that it would be spending $14 billion to upgrade their wireless and wireline networks. And yet, in fact, AT&T is only spending about $5 billion extra over the next three years, about 8 percent above their 2010-2011 expenditures, if that much. Moreover, on the same day, AT&T filed a petition with the FCC to remove most remaining telecom regulations, using these upgrades as a carrot.

More to the point, history shows that AT&T's broadband deployments are rarely, if ever fulfilled once the company receives the regulatory benefits.

Curious to see what others had written about this, I simply typed "AT&T $14 billion" into a search engine and found these stories:

  • "AT&T to invest $14 billion in wireless, wireline networks", Washington Post

  • "AT&T to Invest $14 Billion in Networks, Lifts Dividend", Bloomberg
  • "AT&T to Increase Spending on a Big Network Expansion", New York Times
  • "AT&T Unveils $14 Billion Infrastructure Plan; Raises Dividend", Wall Street Journal
  • "AT&T to spend $14 billion to expand wireline, wireless networks", Reuters, Fox News
  • "AT&T to spend $14 billion to boost wireless and broadband network", Los Angeles Times
  • "AT&T Eyes Data Growth With $14 Billion Network Overhaul", Forbes
  • AT&T's release: "AT&T to Invest $14 Billion to Significantly Expand Wireless and Wireline Broadband Networks, Support Future IP Data Growth and New Services"

    America's esteemed print and broadcast/cable media -- The New York Times, The Wall Street Journal, The Washington Post, Reuters-repurposed by Fox News, Los Angeles Times, Forbes, Bloomberg, and others mostly parroted AT&T's press advisory and then got one or two other quotes from enthusiastic pundits.

    They all repeated the hype presented by AT&T as if it was real. Will the reporters redeem themselves and actually investigate AT&T's proposed spending, the company's failure to properly upgrade 22 states' or the plan to remove regulations -- (or more correctly get the government to protect their monopoly of the wires), or will they simply reinforce the party line?

    Let's go through some basic facts and questions that should be asked, some of which were highlighted in our last article.

    1) AT&T Pulled a Massive Bait and Switch: U-Verse Is Still Using Copper; Customers Paid for Fiber.

    In all of AT&T's 22 states, laws were changed because AT&T's previous incarnations claimed they would be upgrading the old, utility copper wiring with fiber optics. Pacific Bell, California alone claimed they would spend $16 billion and have 5.5 million fiber optic homes done by the year 2000. Illinois, Indiana, and Ohio were all due upgrades to fiber; even Connecticut was supposed to spend $4.5 billion to have the entire state completed by 2007. Laws were changed, the companies collected billions per state for these upgrades, yet AT&T is still copper-based.

    AT&T isn't the only one who got paid billions per state for a fiber optic future. Verizon was supposed to replace the utility wires with fiber optics and cover all of the state of New Jersey, 100 percent with services capable of 45 Mbps in both directions by 2010. They collected an estimated $13 billion in just that one state to do it.

    And yet, no reporter actually investigated what had happened in the AT&T or Verizon territories or why AT&T's entire broadband networks are still based on the aging, copper wire. Where's any story about Verizon New Jersey's fiber optic failure?

    (We note that Verizon's FiOS TV is based on fiber optics, but it has about 4.5 million locations -- a fraction of Verizon's current wired customers.)

    2) AT&T Is Not Spending $14 Billion in 'Addition' to What They Have Been Spending.

    Based on AT&T's 2010-2011 SEC reports, AT&T is adding about $5 billion for 3 years, an 8% increase from their 2010 and 2011 expenditures (as told by their SEC-filed annual reports). There's not going to be any audits, these are not 'commitments' and AT&T has always made statements to get regulatory relief, then once obtained, did not fulfill their obligations.

    A recent Huffington Post article highlighted the promises to do broadband upgrades which were used to help push through the AT&T and BellSouth -- the rural customers are still waiting.

    3) AT&T Only Has 4.3 Million U-Verse TV Customers Out of their Claimed 76 Million Locations in 2012 --- About 6 Percent.

    AT&T claims they will be passing about 33 million 'locations' with U-Verse TV at the end of three years -- which brings the total to only 43 percent of their entire territory, currently with 76 million locations. This means that over 50 percent of AT&T's 22 states' customers will not have upgrades or any cable competition. But AT&T only had 4.3 million current U-Verse TV customers, 3rd quarter 2012 -- meaning that only 6 percent of their customers are using a U-Verse TV cable service.

    4) At lease 25 Percent of AT&T's Wireline Customer Locations Will be "Dead Zones."

    AT&T is now creating 'dead zones' and they plan to abandon 1/4 of their entire territories in 22 states. Verizon has announced similar plans to not upgrade rural areas. But irony of ironies, AT&T's network is mainly STILL COPPER so they are simply abandoning areas not because of technology but because of policy.

    5) At Least 90 Percent of AT&T Customers Are Still Using the Old Utility, Wiring -- Which Is Just Being Reclassified.

    It's now clear that if U-Verse is using copper and with only 4.3 million U-Verse TV customers, then overwhelming majority of customers in the AT&T territories are still using the old copper utility wiring, commonly known as the PSTN -- Public Switched Telephone Networks -- the networks AT&T and Verizon want to the FCC to absolve them of any regulations or obligations.

    6) AT&T's Announced It Will Have 75 Mbps Speeds (in 1 Direction). It Is Most Likely a Fairy Tale.

    The AT&T press release states that it will be offering 75 Mbps services. Where is any current deployment of this by AT&T to make us believe them? We couldn't find any.

    But it gets worse. PC Magazine's 2012 ISP speed tests showed AT&T's failure to upgrade to fiber has had an ugly consequence. AT&T didn't even make the Top 15 ISPs in America.

    PC Magazine states:

    "Speaking of fiber, what about AT&T? The company did not make the top 15. In fact, the fiber-based AT&T U-verse service got an index of 7.9, putting it at number 22. The hypothetical reason for this: U-verse is not FTTH, but more of a fiber-to-the-neighborhood (or node), so the fiber cable terminates at a junction box before going out via copper DSL lines to actual residences. That slows things on the connection, and is reflected in the tests."

    Moreover, this speed tests shows that former FCC Chairman Michael Powell, and current head of the NCTA, the cable association, is also blowing smoke at America as he claims that "advanced broadband networks offering speeds of 100 Mbps are now available to 80 percent of U.S. homes."

    Really? PC Magazine found that America's top speeds were clocked at less than 30 Mbps and that was in one direction and that was only to a few million customers. This hype has been also quoted by FCC commissioners, who, like the media appear to not bother with accurate data or investigating basic claims made.

    In fact, GigaOm's recent state of broadband infographic, compiled from multiple sources, found that America's average speed is only 6.6 Mbps and we rank 15th in the world in wired broadband adoption per capita.

    Where's any of the established media fact checking and investigating this hype?

    7) Who Is Paying this $14 Billion? -- Well, Most Likely Customers.

    In New York, Verizon's 'utility' customers had price increases of 84 percent over the last five years and the NY State Department of Public Service admitted that it gave Verizon these increases in part to pay for fiber optic upgrades -- FiOS. Since Verizon announced that it is not expanding FiOS deployment, this means that customers who will never get these upgrades still got rate increases.

    AT&T has gotten rate increases of over 100 percent in California over the last six years and massive increases in other states. (The FCC doesn't bother to track this).

    Moreover, AT&T has been goosing the wireless profits. AT&T's 2010 Annual Report had a disturbing "Management's Discussion" which stated that the wireless division's profit margins increased based on what looks like dumping expenses into the wireline division. This has been used to plead 'poverty' on the wireline side for political reasons.

    Meanwhile, our previous analysis of FiOS, found that Verizon has been shifting the monies to be used for utility upgrades to fund FiOS and even their wireless deployments. Is it legal to charge utility customers for services they may never receive?

    8) Let Them Go to Wireless. Let Them Eat Cake.

    AT&T and Verizon have both announced that when they 'abandon' at least 25% of their respective wireline customers, the plan is to force them onto wireless - or have them go to cable. Verizon's Cantenna is an expensive wireless option that if a customer watched the equivalent cable TV programming it would cost over $750.00. Bandwidth caps and very expensive service are not real options, especially in areas where there is poor reception.

    9) The Subplot -- AT&T, Verizon and CenturyLink Are Using the ALEC Plan at the FCC to Remove Regulations.

    No media story focused on what was really going on: AT&T, Verizon and CenturyLink have been going around the U.S. with their storm troopers to remove state-based regulations on ALL telecommunications services. Using 'model legislation' designed by the companies and working with the American Legislative Exchange Council (ALEC), a total of 23 states have removed some, if not most regulations including "carrier of last resort", where the incumbent utility, having gotten deregulation, no longer has to service customers, among other odious things.

    This con has moved to the FCC and the AT&T filing uses the $14 billion hype to claim that the FCC should close down the entire U.S. telecommunications networks, even though in AT&T's case, these are the very wires that U-Verse is using.

    Where are the investigations by the reporters to examine the ties between their state-based campaigns and this FCC play? Is the media, then, actually backing ALEC? It is actually helping the removal of regulations on telecommunications.

    10) Multiple Economic Harms Go Unchallenged.

    Here are just five outcomes and issues of this debacle.

    a) Cloud Computing, (which is putting your stuff online instead of on your computer) is dead as is high-definition video conferencing or even innovative gaming because AT&T's networks don't have fast upload speeds.

    b) VOIP, commonly called Digital Voice, which uses the Internet for phone calls has turned into a massive scam as it requires broadband and Verizon and AT&T are creating dead zones without broadband -- which, then, can't even use VOIP.

    And no one, it appears, bothered to ask Magic Jack, the VOIP service that's been heavily advertised about their basic speed requirement: "A minimum UPLOAD speed of 128 kb/s is required for Magic Jack and will not work over dial-up or satellite Internet. Cable, DSL or other high speed connections are recommended."

    c) Customers have more choices for toothpaste or dental floss than they have for competitive Internet or broadband providers over the wires coming into their homes and offices. This not only limits customers' choices and raises customers' rates but also blocks new, innovative services.

    d) America is 15th in the world in broadband. AT&T's plan keeps us as a sub-standard world broadband power.

    e) Silicon Valley, one of America's premier areas of technology, is based on copper wiring and doesn't have very high-speed services. Unbelievable.

    Trust AT&T to do the right thing? Kushnick's Law states: "A regulated company will always renege on promises to provide public benefits tomorrow in exchange for regulatory and financial benefits today."

    America needs to remove this veil of misinformation and the established media need to step up to the plate and investigate, not just cut and paste press releases.

    We'll be watching.

    Personal Note: On Aug. 12, 2012, Nieman Watchdog, a project of the Foundation for Journalism at Harvard University closed. Its mission was to tell stories that were under-reported. Editor Barry Sussman commented on the state of investigative journalism in the U.S. I wrote for Nieman Watchdog starting in March 2006.