Some history you probably don't know:
- In 1996, a Republican-controlled Congress passed the Telecommunication Act of 1996, opening the incumbent state-based utility wires of now-Verizon, AT&T and Centurylink to all forms of competition. I.e., the customer would have a choice of who offered them ISP, broadband, phone or even cable TV service over the wires coming into their home or office.
- The Act was hailed as a model of 'deregulation'.
- Starting in 2001, the Republican FCC under then-Chairman Michael Powell, closed the networks to most direct competition, killing off about 7,000 independent ISPs that had helped America get online since 1990's.
- The FCC called this 'deregulation'. Jeffrey Eisenach was part of the Powell transition team. He is now the head of the new, 2016-2017 FCC transition team.
And today, there is no serious competition or choice for ISP services, or most other wired services. In fact, "Internet Service Providers", (ISPs) (the companies that connect you to the Internet and provide email, among other services), are considered some of the worst companies in America. In June 2016, ACSI's Customer Satisfaction Benchmarks came out and out of 43 industry segments examined, the "ISPs" were rated dead last. However, the rest of the communications services, including phone service and even cable (subscription) TV services, are all bottom feeders as far as the public is concerned.
According to ACSI, these very bad grades are because there is no serious choice of providers.
"ISPs... remain the lowest-performing industry in the ACSI. Though many consumers are cutting the chord to subscription TV, most of them must still rely on the same companies for the high-speed Internet access required for streaming media platforms like Netflix, Hulu or Amazon Prime Video."
"ISPs and subscription TV inched up in 2016, but they remain the lowest scoring industries in the ACSI."
In short, the phone and cable companies were able to kill off competition by getting the government (the FCC) to do their dirty work and they did this using the failed economic models of the phone and cable company consultants, including Jeff Eisenach.
Unfortunately, it is a glimpse of what we can expect from a new Republican FCC in 2017.
The History of ISPs in America that You Probably Don't Know--and the Birth of the Internet and the World Wide Web.
It's 1996 and I'm sitting in an office in mid-town Manhattan, NY, hanging with a bunch of young, tech-happy entrepreneurs, examining rack upon rack of electronic boxes that are attached to copper wires that connect to something called the Internet and the World Wide Web. (The Internet and WWW are not really the same though most people use the terms interchangeably.)
I had used email very early on, back in the 1980's, as well as online bulletin boards, which were a specific cyberspace location that you could reach by having a modem that was attached to a computer, which was attached to a phone line. It would actually dial a number and get to a specific cyber-location. This is known as "dial up".
America Online, Compuserve, Prodigy, among others, had created online services, where you dialed up and entered their specific service. But these were 'walled in' and you couldn't go to other places outside their specific site.
This was going to change during the 1990's. The World Wide Web was spanking new and entrepreneurs were popping up all over the place to help people get online. It wasn't a smooth, sleek thing but was hobbled together. The concept of the 'web page' was new; using a 'browser' was new, and creating a web page was even newer and more treacherous. And it required hand-holding, tech support and other 'customer-service' activities.
To help America get online, thousands of start ups popped up all over America and with the advent of the Telecom Act of 1996, any company could use the utility wires to offer their services. This included 'broadband', which also hadn't existed - i.e., more speed over the same wire. Internet providers were supposed to be able to also use a "CLEC", a local competitor who offered DSL by renting the incumbent, state-based, Title II, utility phone lines, or the ISP could resell the incumbent's DSL.
At the same time, AT&T and MCI, then companies offering long distance service, (a separate phone service that crosses state lines), were also able to also offer local service, which they had been restricted from doing before the 1996 Act. By the end of 2001 they had garnered about 20% of local phone service in America.
And by the end of 2001 there were 9,335, mostly small, entrepreneurial companies - that handled the majority of all US Internet service customers. The incumbent phone companies were not even in the Top 10 of US providers in 2001.
Meanwhile, the Act was not a gift. The local incumbent utility phone companies got to enter long distance and the other markets they had been restricted from due to undue market power-- (I.e., they controlled the actual wires and therefore the services over the wire.)
The Original ISPs Under Attack
However, throughout this time the small ISPs were under attack by the incumbent phone companies that are now Verizon or then-SBC (who would become AT&T). And note--the cable companies' networks were closed to competition so the ISPs had to rely on the phone networks.
Even though the Telecom Act had 'deregulated' the local phone networks so that they were open to direct competition, the incumbent phone companies wanted to just steal--I mean, take over the business that the entrepreneurs had invented and grown.
Enter Eisenach' Progress and Freedom Foundation (PFF). I don't know who started it, but PFF and others began pitching a bogus economic plan to remove these companies.
In 1998 Eisenach filed with the FCC about something called "intermodal competition", which was - get rid of all competition and let those who own the wires compete. According to the theory, it would bring choice for all services and broadband, etc.
This concept was not what the Act had said. However, it made the phone companies, now Verizon et al. happy; but it was garbage. And it is now the laughing stock of economics. Large companies don't compete - they collude.
But you, the reader, know this because you are reading the history of the companies, ISPs, that most people in America now consider some of the worst companies in America.
Bad Outcomes: Thanks to the FCC and Bad Economic Models
Examining the last two decades, here's the punchline: Now-Verizon and now-AT&T never built out the majority of their territories for wired broadband or cable TV, and because they killed off the competition, you have a 'duopoly' at best - i.e., the cable company and in some places, the phone company, offering service.
Next, based on every merger that made them larger, Verizon and AT&T were also supposed to compete out-of-region for wireline phone, broadband and internet service--and never did. So, by the end of 2007, with CenturyLink (the third large incumbent phone company), there were only three non-competing massive phone companies that controlled the wires.
By 2007, they had been able to kill off most of the small companies that were offering ISP and broadband services and 'vertically integrate' their services over the wire--i.e.; the broadband service, the ISP service, and phone service, and even the cable TV, were now controlled by one company.
Worse, Verizon and AT&T (and CenturyLink) own the wires that are used for most wireless service, (Centurylink sells Verizon's wireless) so they control the price of wireless as well as phone service in their areas; they even control the price to competitors who rent the lines. Moreover, Verizon cut a deal to offer its wireless service with the cable bundle in areas it didn't upgrade--and wireless service can't compete with a wired cable service today. And just to keep competition at abeyance, AT&T bought DirecTV, so it couldn't compete with AT&T - and Verizon resells DirecTV.
And this outcome sucks. My Time Warner Cable (now Spectrum) basic triple play, advertised at $89.95, is now over $200 dollars. Verizon's FiOS is available but if I changed it would be the same price because there is a cartel and they decided to use the same deceptive practices, the same promotional-bait and switch, and the same made up fees.
And most of America has only one high speed wired company--the cable company; the rest have a duopoly. With exceptions like where Google showed up or some municipality got sick of waiting and decided to do a work-around of the incumbents, there isn't any serious competition for wired very high speed services. Thus, most people are not happy with their ISPs and lack of choice.
Let's supply some of the details how this happened.
The Fall of ISP Competition: The 2001 Republican Transition FCC and Eisenach
Eisenach and PFF were on the FCC Powell transition team in 2001 and by 2002, the entire ISP and competitor market was now under serious attack. But, as I mentioned, this had been underway since the Act was passed.
How do we know this? We were there. We worked with the small ISPs and filed complaints against now-Verizon starting in 1998-1999 because the incumbents were making sure that their phone lines weren't installed in a timely manner or the lines would stop working or the discount pricing to the ISPs and CLECs to use these networks were higher than the retail pricing by then Bell Atlantic, now Verizon.
"The Department of Justice (DOJ) has recently found that Bell Atlantic (Verizon), New York has not been able to deliver an "acceptable level of performance" for the provision of competitor DSL (Digital Subscriber Line) services. In fact, the DOJ report found that 30 to 40% of all order confirmations to the CLECs were inaccurate while over 80% of all orders required some form of manual processing."
What this says is - imagine having a business where at least 30-40% of the time the order didn't go through or had some problem, mostly fabricated. (This was the reason I had been sitting the room with the small ISP in 1996; their orders for lines were not going through and they wanted to know why.)
But, there were a myriad of problems, including predatory pricing by the incumbent.
"Bell Atlantic is Using Predatory Pricing for DSL that is Designed to Eliminate Internet Service Providers.
"NNI was asked to comment on Bell Atlantic's ADSL discount wholesale pricing to ISPs. It is a clear case of a monopoly using predatory pricing to eliminate competitors.
"Based on Bell Atlantic's 'The ISP Term & Volume Program: Rates', dated October 1999 (which is a rewrite of a previous pricing sheet), Bell Atlantic's pricing will clearly result in competitors never being able to compete against Bell Atlantic retail. In fact, these companies will lose massive amounts of money for every customer they sign up."
And it would get worse. Under Powell, the FCC released six inter-related proceedings that were designed to kill off competition.
Patty Fusco, Managing Editor, ISP Planet, March 1, 2002
"We've been begging the FCC to establish a National Broadband Policy. On Feb. 14th the FCC took action-only it might turn out to be as bloody for ISPs as the St. Valentine's Day Massacre was for George 'Bugs' Moran's North Side Gang in Chicago, circa 1929."
And this was an attack, led by Powell et al., against small businesses, using the Eisenach-Powell-et al. mantra of 'intermodal competition'. Who needs actual competition?
In fact, the independent ISPs had consistently presented data to the FCC to defend their small businesses and it had fallen on deaf ears. The head of the Texas ISP Association, (TISPA) recounted his meeting with Chairman Powell and senior staffers at the FCC Enforcement Bureau.
"The meeting was Tuesday May 8th, 2001. In a nutshell, all the "bad acts" submitted to them to date have resulted in exactly "ZERO" dollars in fines. We asked for something blatant as handwriting on a wall as to the future of the complaint process as we are approaching it. We got it. WE SHOULD EXPECT NOTHING FROM THE INFORMAL COMPLAINT PROCESS. We should expect nothing from any complaints we have submitted to date.
"A couple of weeks ago we met with a senior person in the ENFORCEMENT BUREAU. After a one-hour meeting and receiving some heartfelt empathy for the plight of ISPs and the consumers who are being victimized by the illegal, anti-competitive behavior, I suggested that our best move might be to just jump out a window. He suggested we might want to consider throwing a chair out of the window first, so we wouldn't get cut on the glass as we jumped."
By the end of 2005-2006, 7,000 small ISPs had been put out of business. And while there are a host of caveats, the main attacks came, not from market forces, but from the FCC's failure to enforce the existing laws, or they erased the laws on the books. In fact, the FCC had 're-regulated' the CLECs and ISPs out of business. And surprise, surprise, guess who was able to simply walk in and take over their business? The phone and cable companies had a feast by taking over the market. Ironically, this was the FCC's idea of 'light touch' regulation.
Let us be clear and this is worth repeating: The Telecom Act of 1996 was the deregulation of the state utility wires to allow competition. The FCC's play post 2001 removed this deregulation, regardless of what the corporate-funded think tankers tell us.
And the sad outcome? Now, when someone mentions the term "ISP", they think of the incumbent phone and cable companies. To date, the FCC has never properly defended small business rights, especially the ISP and CLEC markets.
The Start of Net Neutrality: No Competition, so Play Nice.
"Net neutrality is crony capitalism pure and simple - an effort by one group of private interests to enrich itself at the expense of another group by using the power of the state."
Net Neutrality concerns started at this time, in earnest, because competition had been killed off and there were only monopoly/duopoly providers who controlled the essential wired utility infrastructure and who could screw around with the customer and any remaining competitors. The consensus was - something was needed so that they would 'play nice', and it was Net Neutrality. However, it was NOT designed to re-open the networks to direct competition.
Unfortunately, in this case, the "cronies" are Eisenach and his clients, including Verizon, who used the FCC to shut down the entrepreneurs--the initial group of ISPs--to take over their business with the help of the government, the FCC.
What to expect in 2017? This new FCC will be worse. It will be the Powell FCC on steroids, if we let it.
NOTE: If all this is news to you, see "The Book of Broken Promises".