Controversial activist takes on the telecom industry

Why are cable and wireless bills so high?

One theory: The smartphone-toting nation is returning to a phone monopoly, and that’s not just frustrating — it may set us back as a global economic power.

That’s the argument put forth by Susan Crawford, a former telecom and tech policy adviser to President Obama who is among the cable and phone industry’s biggest agitators.

Her new and controversial book, “Captive Audience: The Telecom Industry and Monopoly Power in the Gilded Age,” is a harsh critique of regulatory decisions at the Federal Communications Commission that have led to sweeping consolidation. Most U.S. consumers have the pick of only one or two broadband Internet service providers, while other countries are offering their citizens faster speeds at lower prices.

How did we get here? Crawford chronicles key victories by deep-pocketed cable and phone companies that have vigorously and successfully persuaded federal regulators to approve mergers and shed rules for their industries.

She focuses on Comcast’s takeover of NBC Universal, a deal that created a media and telecom juggernaut. Comcast has argued that it consistently offers faster speeds for its 22 million cable subscribers. It has also launched a $10 service to help expand broadband access in poor areas.

Crawford is a controversial figure in tech policy circles. She’s called for comprehensive regulation of the industry, saying Internet service providers should be treated like utilities such as power and water.

She has many supporters among public interest groups, Silicon Valley firms and academics who have called for the FCC to work harder to resist mergers and put stronger rules on companies to usher in new competitors.

Crawford took time recently to discuss her book. Here’s an edited version of our conversation:

As you see it, the country that invented the Internet suffers from too many bottlenecks in the pipelines that provide access. How did this happen?

Years of enormous consolidation have left Americans paying more for second-class service, and a lot of Americans are being left out altogether because service is too expensive.

At the beginning of the 2000s, we assumed the cable modem for Internet access, DSL, telephone, high-speed Internet access and wireless would all be competing with one another and that competition would protect Americans. So we, the FCC, said there was no need for regulation. Those assumptions turned out to be wrong.

What happened?

On the wired side, it turned out to be much cheaper to update the electronics for the cable system to bond together a few TV channels for very fast download speeds. That was much cheaper than to dig up copper wire — which can’t compete with cable — and replace it with fiber. So telephone companies backed off and ceded the field to cable companies.

You focus your book on the Comcast merger with NBC Universal. Why was this such an important deal and its approval such a crucial mistake by regulators?

Anyone trying to build fiber in competition with Comcast has to enter two markets at once: programming and infrastructure.

On programming, Comcast as the biggest distributor, pays one-fourth per subscriber of what some upstarts pay. Particularly with sports, that makes it very difficult for new fiber entrants to show up. Comcast owns 10 regional sports networks. Mergers matter because they raise the barrier for new entrants and competition.

Why isn’t there more competition among cable providers?

Cable companies long ago divided the markets between themselves and never entered each other’s territories. Verizon FiOs fiber is a better high-speed Internet system because it is symmetric, which means better download and upload speeds. But because FiOs only overlaps with 15 percent of cable territory, companies like Comcast effectively had no competition.

Will wireless ever be a realistic competitor to cable?

Although 4G LTE wireless says download speeds are equivalent to slow cable connections, the two leading wireless companies, AT&T and Verizon Wireless, impose data caps, which are commonly about 1 to 2 gigabits a month. So if you watch one video, you will blow your monthly capacity allowance. It takes 3.5 gigs of data to stream one high-definition video.

And the real difference is capacity. The wireless networks deal with real capacity issues. That’s why 83 percent of smartphone users have a wired connection at home.

How do you view the deal by cable companies to sell spectrum to AT&T and Verizon Wireless and cross-market each other's services?

You can understand the Verizon Wireless-SpectrumCo deal as a federally blessed non-compete. It was a joint-marketing agreement and fierce competitors don’t agree to things like this. Verizon announced back in 2010 that they wouldn’t expand FiOs and two-thirds of their revenues come from the wireless side of the business. Wall Street would beat up Verizon if it didn’t focus on wireless only.

So a wrong decision by the FCC and Justice Department?

You can read it that way. The FCC has a problem. When the commission is aggressive about any of this, the incumbents can march on the Hill and ask it to gut the budget for the agency. Without additional public support and without people on the Hill to stick their necks out on these competition issues and back up the FCC, it’s very difficult to see a path forward that will actually force competition.

Any other missteps by the FCC, besides Comcast/NBCU and the Verizon-cable deal?

One thing the FCC got right was blocking AT&T and T-Mobile’s merger. T-Mobile now has its policy voice back. It’s a scrappy maverick that wants to pressure the wireless duopolists on pricing. What T-Mobile needs now is to access low-band spectrum. It’s four times as expensive for T-Mobile to build its network than for Verizon and AT&T because the two leaders have four-fifths of the available low-band spectrum. T-Mobile’s high-band spectrum means it carries a lot of information and degrades sharply over distance. It’s the same problem with WiFi, which drops off today when you leave the Starbucks because the spectrum doesn’t go through walls and needs lots of base stations and towers. It’s a big barrier to entry for T-Mobile not to have low-band spectrum.

What should the FCC do with its spectrum auction next year to promote competition?

It’s very important that the FCC get the rules right so that AT&T and Verizon don’t take away the proceeds. No carrier should have more than one-third of available low-band spectrum in any given metro market. That would be real bravery.

How is the FCC dealing with the nation’s transition to broadband services?

The decision two years ago to carry out legal gymnastics to avoid being viewed as a regulator in connection to high-speed Internet access has twisted the FCC into knots.

Basic telecom services are expensive to install but cheap to add additional customers once it’s built out. If private actors are allowed to have their way, they will divide the market and charge the same number of people for second-rate services. They are leaving out poorer and rural markets and squeezing out the middle class.

But why should the FCC strap rules to these private businesses, which are spending their own money and beholden to shareholders?

We’ve always treated basic communications services in America as a utility and the addition of Internet protocol didn’t change the basic economics as a system.

It’s not just a matter of social equality or fairness, which is hugely important. But it’s about making sure the communications landscape provides for competition where possible, and universal service for all Americans is essential to economic growth and leadership in country. For everything we care about — climate change, getting our children the best possible education, stitching together Americans as one nation, all of these depend on universally available high-speed Internet.

Your name has emerged as a candidate for FCC chair. What do you think of the job and how do you grade the current chairman, Julius Genachowski?

In any FCC chair, we should look for someone who will vigorously fight for bold communications policy. We need a bolder vision for high-speed Internet in this country. I think history will say Julius Genachowski has done a good job by blocking the AT&T and T-Mobile merger.

But if we want to be a nation that leads the world, we need a chairman who is willing to tackle the hardest of challenges and harness innovation and breakthrough policy.

That sounds like a backhanded compliment.

I’m doing my best. We are driving people to scramble in an undignified way to ensure people have Internet access. When I went to Seoul in January, people said that coming to the United States was like taking a rural vacation when it came to broadband service. That shouldn’t be acceptable.

Cecilia Kang is a staff writer covering the business of media and entertainment.
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