AGAINST BELL ATLANTIC, MASSACHUSETTS
In 1994, Bell Atlantic (then "NYNEX") proposed a plan to rewire the Commonwealth of Massachusetts with new fiber optic technology, replacing the older copper wiring. Bell Atlantic represented that, if implemented, residential subscribers would soon have access to up to eight hundred channels of new services, including video-conferencing, movies on-demand and other enhanced cable television and online services. Bell Atlantic proposed that this new fiber optic technology would replace the copper wiring already in place. According to Bell Atlantic, 330,000 residential consumers would have access to the new fiber optic network by 1995, at a cost of $500 million, and the rest of the Commonwealth would be connected subsequently.
Bell Atlantic proposed that they could only afford to make this considerable investment if the rate-of-return restrictions were relaxed at the federal and state level, in Massachusetts and elsewhere. Traditionally, rate-of-return restrictions capped Bell company profits at 10-12 % annually. Instead, they proposed "alternate regulations" that would allow them to become vastly more profitable, and promised those profits would be used to fund the development of the new services. Bell Atlantic sought regulatory relief from the Massachusetts Department of Public Utilities (now the Department of Telecommunications an Energy). They sought similar relief in every other state in which they were the incumbent local exchange carrier and from the Federal Communications Commission, on the basis of, substantially, the same promises to build a new network and offer new services.
The alternate regulations in Massachusetts went into effect in September 1995 and expire in 2001. In February 1995 the FCC granted Bell Atlantic's petition to offer "video-dialtone" services. In 1996, Congress passed the Telecommunications Act, based on a record that included various Bell company promises of advanced network deployment, including those made by Bell Atlantic.
As a result of the alternate regulations, we estimate that Bell Atlantic garnered over one billion dollars in increased profit above the rate-of-return in Massachusetts alone. But they never built the new network, or deployed the new services that were the rationale for the regulatory relief. In fact, just months after being granted relief as an incentive to invest in the Massachusetts infrastructure, Bell Atlantic abandoned plans to build and deploy the new network. NYNEX's 1996 Annual report states: "In February 1996, New England Telephone advised the FCC that it relinquished authorization to construct advanced video dialtone network facilities in portions of Massachusetts and Rhode Island.
The complainants believe that Bell Atlantic misled Massachusetts consumers and regulators for the purpose of removing important pro-consumer regulation. Once regulatory relief was granted they abruptly discontinued plans to deploy important new technologies.
The complainants believe that Bell Atlantic may have taken as much as $800 million in improper tax deductions in Massachusetts in addition to similar write-offs in other Bell Atlantic states, based on annual reports from New Jersey Bell and Pennsylvania Bell
The complainants believe that in the time since rate-of-return regulation was replaced by alternate regulation, proposed by Bell Atlantic and adopted by the Department, Bell Atlantic profits have been excessive and generated at considerable and unreasonable cost to the telephone subscribers and consumers of the Commonwealth.
The complainants believe that Bell Atlantic's entry into the long distance market would be an obvious violation of the intent of the Telecommunications Act of 1996 that specifically emphasized advanced network deployment and local competition prior to the incumbent being allowed to compete in the long distance marketplace.
The complainants believe that Bell Atlantic has demonstrated an ongoing pattern of deception and outright misrepresentation in every state in which they are the incumbent local exchange carrier.
It is difficult to over-estimate the negative impact of the Bell Atlantic's behavior we have outlined. By failing to keep their commitments to build and make available the new network, and by abusing their position as the uniquely-qualified entity to provide such an infrastructure, Bell Atlantic has held the Commonwealth's digital future hostage in the following ways:
1) Massachusetts role in the global economy has been stifled. Had Bell Atlantic provided services as promised, Massachusetts could have been in the forefront of the global digital revolution. The benefits to the Massachusetts economy would have been substantial, the lost opportunity, immeasurable.
2) Massachusetts consumers paid for a network that was never delivered. The public trust and confidence in the telecommunications industry and those responsible for its regulation risks severe damage unless the Department steps in now to make Massachusetts consumers whole.
3) Massachusetts consumers have been denied the benefits of competition in the cable television market, as they were promised. The cable lower rates have never happened and enhanced services have never been offered.
4) Competitive local exchange carriers and Internet Service Providers complain of unfair treatment by Bell Atlantic. Unless the Department can effectively monitor and assure a level playing field for all local carriers, some will go out of business and Massachusetts consumers will be denied the widest array of choices
5) Though all Massachusetts subscribers have paid for, but not received, fiber optic wiring the burden has been unevenly born by seniors and low-income subscribers-those with the least ability to pay.
6) Widening the Digital Divide: there are some broadband alternatives being offered by a limited number of providers to select areas of the Commonwealth. Bell Atlantic made it clear that they would be wiring all communities, including public schools and libraries, without regard to demographics. Their failure to do has widened the gap between the digital have and have nots.
About the Authors:
New Networks Institute ("NNI") was founded in 1992. Its mission is to explore, on a totally independent basis, the impact of the break-up of AT&T and the creation of the Regional Bells Operating Companies ("RBOCs") on telephone subscribers in general and on the deployment of new and advanced telecommunications networks. Since that time, the NNI has conducted extensive research on these topics. Titled "The Future of the Information Age," this seven-year analysis consists of over 1,900 pages in 14 volumes, with over 910 exhibits, two computer databases, and data from more than 2,000 consumer interviews, (conducted independently through Fairfield Research). We have recently updated this research in the form of a new book, The Unauthorized Biography of the Baby Bells & Info-Scandal, published March 1999. NNI's research is independently funded from the sales of the reports, books, and databases. No company, lobbying organization, trade association or political party had any input, either editorial or financial.
Peter J. Brennan is the former co-chair of the White House Roundtable for Telephone Information Services, a joint project of the US Office of Consumer Affairs and the Interactive Services Association (now known as the Internet Alliance), a past chair and current director of the Internet Alliance. Brennan is a residential telephone subscriber, property-owner and taxpaying citizen of the Commonwealth.